SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                  -------------
                                   FORM 10-KSB


[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.

[_]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934.

For the fiscal year ended December 31, 2002      Commission file number 0-011228

                           NATURAL HEALTH TRENDS CORP.
                 (Name of Small Business Issuer in Its Charter)

     Florida                                                59-2705336
     (State or Other Jurisdiction of                        (I.R.S. Employer
     Incorporation or Organization)                         Identification No.)

5605 N. MacArthur Boulevard, 11th Floor, Irving, Texas                75038
(Address of principal executive office)                               (Zip Code)

Issuer's Telephone Number, Including Area Code:                   (972) 819-2035
Securities registered pursuant to Section 12(g) of the Exchange Act:

                          Common Stock, par value $.001
                                (Title of Class)

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

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this Form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]

         Issuer's revenues for its most recent fiscal year: $39,662,347.

         The aggregate market value of the voting stock held by non-affiliates
of the Issuer as of March 27, 2003 was approximately $5,063,000 (based upon a
closing price of $1.10 per share).

         The number of shares of the Common Stock of the issuer outstanding as
of March 27, 2003 was 4,628,731.

                      DOCUMENTS INCORPORATED BY REFERENCE:

         Part III incorporates certain information by reference from the
Registrant's Definitive Proxy Statement for the Registrant's Annual Meeting to
be held during the second quarter of 2003.


<PAGE>

                           Natural Health Trends Corp.
                         2002 Form 10-KSB Annual Report

                                TABLE OF CONTENTS


                                     PART I

ITEM 1.  BUSINESS........................................................     1

ITEM 2.  PROPERTIES......................................................    25

ITEM 3.  LEGAL PROCEEDINGS...............................................    26

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............    26

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS.........................................................    26

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS.............................    29

ITEM 7.  FINANCIAL STATEMENTS............................................    34

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE.............................    34

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS................................    35

ITEM 10. EXECUTIVE COMPENSATION..........................................    35

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT......................................................    35

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................    35

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................................    35

ITEM 14. CONTROLS AND PROCEDURES.........................................    37

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES..........................    37

SIGNATURES

CERTIFICATES

<PAGE>

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Certain statements contained in this Annual Report on Form 10-KSB
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
All statements included in this Annual Report, other than statements of
historical facts, regarding our strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives are
forward-looking statements. When used in this Annual Report, the words "will,"
"believe," "anticipate," "intend," "estimate," "expect," "project" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We cannot
guarantee future results, levels of activity, performance or achievements, and
you should not place undue reliance on our forward-looking statements. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
described in Part I - Risk Factors, and elsewhere in this Annual Report. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or strategic investments. In
addition, any forward-looking statements represent our expectation only as of
the day this Annual Report was first filed with the SEC and should not be relied
on as representing our expectations as of any subsequent date. While we may
elect to update forward-looking statements at some point in the future, we
specifically disclaim any obligation to do so, even if our expectations change.

         Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and to inherent risks and
uncertainties, such as those disclosed in this prospectus. Important factors
that could cause our actual results, performance and achievements, or industry
results to differ materially from estimates or projections contained in
forward-looking statements include, among others, the following:

         o    our relationships with our distributors;

         o    regulatory matters governing our products and network marketing
              system;

         o    adverse publicity associated with our products or network
              marketing organizations;

         o    product liability claims;

         o    our reliance on outside manufacturers;

         o    risks associated with operating internationally, including foreign
              exchange risks;

         o    product concentration;

         o    dependence on increased penetration of existing markets;

         o    the competitive nature of our business; and

         o    our ability to generate sufficient cash to operate and expand our
              business.

         Market data and other statistical information used throughout this
report is based on independent industry publications, government publications,
reports by market research firms or other published independent sources and on
our good faith estimates, which are derived from our review of internal surveys
and independent sources. Although we believe that these sources are reliable, we
have not independently verified the information and cannot guarantee its
accuracy or completeness.


<PAGE>

                                     PART I


ITEM 1.  BUSINESS.

         We are Natural Health Trends Corp. ("NHTC"), an international network
marketing organization. We control subsidiaries that distribute products through
two separate multi-level marketing ("MLM") networks that promote health,
wellness and vitality. Lexxus International, Inc., our majority-owned subsidiary
and other Lexxus subsidiaries (collectively, "Lexxus") sell certain cosmetic
products as well as "quality of life" products which constitute approximately
ninety percent (90%) of our consolidated revenues in 2002. eKaire.com, Inc., our
wholly-owned subsidiary ("eKaire"), distributes nutritional supplements aimed at
general health and wellness. Lexxus was commenced in January 2001 and has
experienced tremendous growth, as we are currently conducting business in 29
countries through approximately 37,000 active distributors. While eKaire's
business is significantly smaller, it has been in business since 2000 and is
doing business in four countries through approximately 3,000 active
distributors. Total revenues for fiscal 2002 increased from $24,794,036 to
$39,662,347, or approximately 60% over fiscal 2001 and net income for fiscal
2002 increased from $2,022,621 to $4,102,020, or approximately 103% over fiscal
2001.

Recent Developments

         In March 2003, in order to enhance the price of our Common Stock and to
enable us to better use our capital stock to compensate management and motivate
employees, as well as consideration for future acquisition transactions, our
stockholders approved and we effected a 1-for-100 reverse stock split with
respect to our outstanding shares of Common Stock. As a result, on March 19,
2003, the number of outstanding shares of Common Stock declined from 462,873,100
to 4,628,731 and the closing price per share increased from $0.01 on March 18,
2003 to $1.50 on March 19, 2003, as reported on the OTC Bulletin Board. In
addition, the trading symbol for the shares of our Common Stock changed from
"NHTC" to "NHLC". All share references in this annual report will give effect to
the reverse stock split.

         As of January 31, 2003, we entered into a Database Purchase Agreement
with NuEworld.com Commerce, Inc., ("NuEworld") and Lighthouse Marketing
Corporation, our wholly-owned subsidiary ("Lighthouse"), pursuant to which
Lighthouse purchased a database of distributors from NuEworld in exchange for
the issuance of 360,000 shares of our Common Stock. NuEworld was in the business
of marketing and selling a variety of products and services through its
multi-level marketing distribution network. We believe that the NuEworld
database will allow us to recruit new distributors for our Lexxus business. In
addition, the former Chairman of NuEworld has been appointed as the President of
Lexxus International, Inc.

Our Industry

         We are engaged in the network marketing business, which is also
referred to as multi-level marketing. This type of organizational structure and
approach to marketing and sales has proven to be extremely successful for
several other multi-level marketing companies such as Amway Corp., Mary Kay,
Inc., Nu Skin Enterprises and Herbalife. Generally, network marketing is


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based upon an organizational structure where independent distributors of a
company's products are compensated for sales made to consumers. But, even more
significantly, distributors are compensated for sales generated by distributors
recruited by such distributor and all subsequent distributors recruited by their
"down line" network of distributors. This can be very lucrative for individual
distributors who develop extensive networks of distributors that sell company
products and recruit additional distributors.

         According to the Direct Selling Association, network marketing is one
of the fastest growing segments for the distribution of products. The Direct
Selling Association reports that over 44 million individuals are now involved in
direct selling worldwide (of which network marketing is a major segment), and
that those involved in direct selling generate $79 billion in annual sales
around the world. In the United States, the direct selling channel has generated
sales of approximately $26.7 billion of goods and services in 2001, making the
United States the largest direct selling market in the world. The United States
was also one of our largest markets representing approximately 25% of our total
sales in fiscal 2002.

         We are presently marketing and selling lifestyle enhancement products
through our Lexxus subsidiaries, and nutraceutical products through our
wholly-owned eKaire subsidiary. It is important to note that once a sizeable
network of distributors is established, alternative products and services can be
offered to such distributors for sale to consumers and additional distributors.
The successful introduction of new products can dramatically increase sales and
profits for both distributors and the multi-level marketing organization.

Our Products

Lexxus

         Lexxus International offers several lifestyle enhancement products:

         o Skindulgence(TM) is a skin care system marketed as a "Non-Surgical
30-Minute FaceLift" designed to create a more youthful appearance by helping to
tone and to firm facial muscles, by helping to diminish fine lines and wrinkles
and by helping to improve skin tone and color. The facelift masque is coupled
with a cleanser and moisturizer. It is currently Lexxus' fastest growing product
accounting for approximately 50% of Lexxus' revenues in 2002.

         o Alura(TM) is an intimacy creme designed to increase the sexual
satisfaction of women and accounted for approximately 40% of Lexxus' revenues in
2002.

         o LexLips(TM), introduced in the fall of 2001, is a lip enhancing gloss
for women, designed to create the effect of fuller lips and to help reduce fine
lines and wrinkles around the mouth.

         o La Vie(TM) is a dietary supplement described as a non-alcoholic red
wine. It is marketed as an energizing supplement containing aloe.


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<PAGE>

eKaire

         eKaire offers products organized into 5 broad categories: reviving
products; energizing products; enhancing products; optimizing products and
renewing products.

Reviving Products

         The reviving product line consists primarily of nutritional supplements
based on antioxidants including Maritime Prime with Pycnogenol(R) and EnzoKaire
Complete.

o        Maritime Prime with Pycnogenol(R) is a dietary supplement that contains
         Pycnogenol(R) which helps maintain healthy circulation by strengthening
         capillary walls by protecting against free radical damage caused by
         stress, pollution and chemical additives, and by improving skin and
         collagen texture, elasticity and smoothness. Pycnogenol(R) is a
         patented extract from the bark of the Maritime Prime trees grown in
         southwestern France.

o        EnzoKaire Complete is a dietary supplement containing Enzogenol(TM),
         which is a natural antioxidant intended to provide protection for cells
         against the effects of free radicals. It also increases energy and
         endurance, and slows the aging process. Enzogenol(TM) is derived from
         the bark of the New Zealand pine tree, Pinus radiata.

         Most of the products in this product line are based on proprietary
formulations in several combinations containing natural products including
Pycnogenol (R) and Enzogenol(TM). Products containing Pycnogenol (R) have not
yet been approved for direct importation into Australia.

Energizing Products

         The energizing product line consists primarily of natural stimulants
designed to enhance and increase vitality and endurance both mentally and
physically. Products in this category include Ginkgo Shield and Momentum.

         o        Ginkgo Shield is intended to assist in mental alertness and to
                  enhance the functioning of the circulatory system.

         o        Momentum is intended to help increase and balance energy
                  levels.

Enhancing Products

         The enhancing product line is designed to support an individual's
overall health and includes such products as Immunol, Colloidal SilverKaire,
Synerzyme, Arthrokaire, Osteo Formula, Royal Hawaiian Noni and Pro GSH 90 Plus.

         o        Immunol is a shark liver oil based capsule which we believe
                  aids the human immune system.


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<PAGE>

         o        Colloidal Silverkaire is a solution of silver particles
                  electro-magnetically suspended in deionized water that is
                  intended to provide dietary support for the immune system.

         o        Synerzyme is a combination of naturally occurring enzymes and
                  trace minerals that is intended to enhance the efficacy of
                  enzymes that assist the body with the breakdown and
                  assimilation of various foods and fats.

         o        ArthroKaire is a dietary supplement containing glucosamine,
                  which is intended to help to maintain the structural integrity
                  of cartilage, tendons and blood vessels.

         o        Osteo Formula is a dietary supplement that contains calcium,
                  which is intended to aid in bone strength and overall skeletal
                  system health.

         o        Noni is derived from a fruit grown only in the Central and
                  South Pacific and contains high levels of naturally occurring
                  vitamins, minerals, trace elements, enzymes, and
                  phytochemicals, which is intended to act as a natural pain
                  killer.

         o        Pro GSH 90 Plus, a Whey Protein product, is a
                  pharmaceutical-grade milk serum protein isolate designed to
                  enhance the immune system.

Optimizing Products

         The optimizing product line provides many of the basic vitamins and
nutrients, which are missing in the typical adult diet, through products such as
MSM Complex, Bio10 and Celltonic Plus(TM).

         o        MSM Complex is intended to support an increased production of
                  collagen and elastin fibers and increases cell permeability.

         o        Bio10 is a live source of all 12 lactobacillus bacteria which
                  is supposed to help improve digestion, and the process and
                  absorption of nutrients.

         o        Celltonic Plus(TM) is an organic mineral solution containing
                  over 72 minerals and trace elements within an electrolyte
                  drink designed to strengthen cells and aid in the natural
                  healing process.

Renewing Products

         The renewing product line consists of moisturizing products designed to
soothe and refresh. These products include Aloe Gel and DermaKaire with
Pycnogenol(R).

         o        Aloe Gel is a topical creme that soothes and refreshes the
                  skin.

         o        DermaKaire with Pycnogenol(R) is a moisturizing, whole-leaf
                  Aloe product combined with a powerful antioxidant intended to
                  maintain healthy-looking skin.


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<PAGE>

         Alura(TM) and Skindulgence(TM) are trademarks of Lexxus. Pycnogenol(R)
and Enzogenol(TM) are trademarks of suppliers to eKaire.

Sourcing of Products

         All of our products are produced or provided by third-party suppliers
that we consider to be among the best suppliers of these products and
ingredients. We currently rely on two unaffiliated suppliers, one of which
supplies our Alura(TM) product and the other of which supplies our
Skindulgence(TM) product. We believe that, in the event we were unable to source
products from these suppliers or our other current suppliers of our other
products, we could produce or replace these products or substitute ingredients
without great difficulty or significant increases in our cost of goods sold.

         For other products, we place orders for finished goods and
manufacturing services to meet the demand of the market. These orders are based
on price quotations and other terms obtained from selected manufacturers.

Research and Development

         We believe that our ability to introduce new products increases our
distributor's visibility and competitiveness in the marketplace. NHTC maintains
its own product review and evaluation staff and relies upon independent research
consultants and vendor research departments for product research, development
and formulation. We have incurred minimal research and development costs in the
years ended December 31, 2002 and December 31, 2001. We purchase finished goods
from manufacturers and sell directly to our distributors for their resale or
personal consumption.

         All products are subject to sample testing, weight testing and purity
testing by independent laboratories.

Marketing and Distribution

         Through our subsidiaries, Lexxus and eKaire, we seek to be a leader in
the personal health and wellness marketplace by driving products into as many
venues and into as many markets as possible through our multi-level marketing
operations. Our objectives are to enrich the lives of the users of our products
while enabling distributors to benefit financially from the sale of our
products.

         Both Lexxus and eKaire are set up as MLM companies using a network of
distributors to sell products. Distributors are independent contractors who
purchase products directly from the respective subsidiary for resale to retail
consumers or for personal consumption. Distributors may elect to work on a
full-time or a part-time basis. The growth of a distributor's business depends
largely upon the ability to recruit a down-line and the strength of our products
in the marketplace.


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<PAGE>

         Currently, we have distributors located in all fifty states, as well as
the District of Columbia, Puerto Rico, Canada, Australia, New Zealand, Taiwan,
Hong Kong, Singapore, Philippines, Brazil, India and sixteen countries in
eastern Europe, including Russia, in order to maximize direct selling efforts.
We intend to pursue additional foreign markets in 2003.

         To become a Lexxus distributor, a person must accept an agreement
(posted on our website) to comply with our policies and procedures and to pay a
nominal $100 fee. Each potential distributor joins Lexxus by visiting our
website and paying the initial fee. To be considered "active", the distributor
must order a minimum of $100 of products each year. Out of approximately 75,000
accounts, Lexxus currently has approximately 37,000 active distributors.

         To become an eKaire distributor, a person must sign an agreement to
comply with our policies and procedures. To remain "active", the distributor
must order a minimum of $50 of products each year. Out of approximately 12,000
accounts, eKaire currently has approximately 3,000 active distributors.

         We pay commissions to qualified distributors based on sales volumes for
each commission period. We offer one of the highest payouts in the MLM industry.
We believe that the uniqueness and efficacy of our products, combined with a
very high commission rate, creates a highly desirable business opportunity and
work environment for our distributors.

         Distributors generally pay for products by credit card in connection
with orders placed through their Internet page at www.mylexxus.com or
www.mykaire.com prior to shipment. Accordingly, we carry minimal accounts
receivable.

         We sponsor promotional meetings and participate in motivational
training events in key cities around the world. These events are designed to
inform prospective and existing distributors about both existing and new product
lines and selling techniques. Distributors share their MLM experiences, their
individual selling styles and their recruiting methods. Prospective distributors
are educated about the structure, dynamics and benefits of the network marketing
industry. We are continually developing marketing strategies and programs to
motivate distributors. These programs are designed to increase distributors'
monthly product sales and the recruiting of new distributors.

Sponsorship

         We rely on our distributors to recruit and sponsor new distributors of
our products. While we provide product samples, brochures and other sales
materials, distributors are primarily responsible for recruiting and educating
new distributors with respect to products, the compensation plan and how to
build a successful distributorship.

         The sponsoring of new distributors creates multiple levels in a network
marketing structure. Persons that a distributor sponsors are referred to as
"downline" or "sponsored" distributors. If downline distributors also sponsor
new distributors, they create additional levels in the structure, but their
downline distributors remain in the same downline network as their original
sponsoring distributor.


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<PAGE>

         Sponsoring activities are not required of distributors and we do not
pay any commissions for sponsoring new distributors. However, because of the
financial incentives provided to those who succeed in building a distributor
network that consumes and resells products, we believe that many of our
distributors attempt, with varying degrees of effort and success, to sponsor
additional distributors. People are often attracted to become distributors after
using our products and becoming regular customers or after attending
introductory seminars because they are seeking new business opportunities. Once
a person becomes a distributor, he or she is able to purchase products directly
from us at wholesale prices. The distributor is also entitled to sponsor other
distributors in order to build a network of distributors and product users. A
potential distributor must agree to our standard terms and conditions, which
obligates the distributor to abide by our policies and procedures.

Compensation Plan

         We believe that one of our key competitive advantages is our
Compensation Plan. Under our Compensation Plan, distributors are paid
consolidated weekly commissions in the distributor's home country, in local
currency, for their own product sales and for product sales in that
distributor's downline distributor network across all geographic markets. This
"seamless" compensation plan enables a distributor located in one country to
sponsor another distributor located in another country in which we do business.

         Based upon management's knowledge of our competitors' distributor
compensation plans, we believe that our Compensation Plan is among the most
financially rewarding plans offered to distributors by network marketing
companies. Currently, there are two fundamental ways in which our distributors
can earn money:

         o        through retail markups on sales of products purchased by
                  distributors at wholesale; and

         o        through a series of commissions on product sales.

         Each of our products carries a specified number of sales volume points.
Commissions are based on total personal and group sales volume points per sales
period. Sales volume points are essentially based upon a percentage of a
product's wholesale cost. As a distributor's business expands from successfully
sponsoring other distributors into the business who in turn expand their own
businesses, a distributor receives higher commissions. In determining
commissions, the number of levels of downline distributors included in
distributor's commissionable group increases as the number of distributorships
directly below the distributor increases.


Distributor Support

         We are committed to providing high-level support services tailored to
the needs of our distributors in each market. We attempt to meet the needs and
build the loyalty of distributors by providing personalized distributor services
and by maintaining a generous product return policy. Because the majority of our


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distributors are part-time and have only a limited number of hours each week to
concentrate on their business, we believe that maximizing a distributor's
efforts by providing effective distributor support has been, and will continue
to be, important to our success.

         Through training meetings, annual conventions, web-based messages,
distributor focus groups, regular telephone conference calls and other personal
contacts with distributors, we seek to understand and satisfy the needs of our
distributors. We provide computerized product fulfillment and tracking services
that result in user-friendly, timely product distribution. Several of our
offices maintain meeting rooms, which our distributors may utilize for training
and sponsoring activities. Because of our efficient distribution system, we do
not believe that most of our distributors maintain a significant inventory of
our products.

         To help maintain communication with our distributors, we offer the
following support programs:

Touchtalk and Fax on Demand

         Touchtalk is an automated telephone system that distributors can call
24 hours a day, 7 days a week, to receive reports on the sales activity of their
organization and listen to selected messages on special offers, marketing
program updates and product information. Certain information is also available
via facsimile transmission to the distributor.

Weekly Teleconference

         Both Lexxus and eKaire hold a weekly teleconference with company
management and associate field leadership on various subjects such as technical
product discussions, distributor organization building and management
techniques.

Internet

         We maintain websites at www.nhtc.ws, www.ekaire.com, www.kaire.com,
www.lexxusinternational.com, www.mylexxus.com and www.mykaire.com. On each
website, the user can read company news, learn more about various products,
place orders, and sign up to be a distributor.

Product Literature

         We offer a variety of literature to distributors, including product
catalogs, informational brochures, pamphlets and posters for individual
products.

Toll Free Access

         eKaire offers a toll free number, to place orders and to sponsor new
distributors, but Lexxus offers these services only through its websites. Both


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eKaire and Lexxus offer "live" consumer support where general questions or
concerns can be addressed by a customer service representative.

Broadcast Fax/Broadcast E-mail

         Announcements about Lexxus and eKaire are sent via facsimile and/or
e-mail to distributors.

Technology and Internet Initiatives

         We believe that the Internet has become increasingly important to our
business as more consumers communicate online and purchase products over the
Internet as opposed to traditional retail and direct sales channels. As a
result, we have committed significant resources to our e-commerce capabilities
and the abilities of our distributors to take advantage of the Internet.
Virtually all of our sales during 2002 occurred over the Internet. eKaire has a
personalized website for its distributors to purchase products via the internet
at www.mykaire.com. In addition, Lexxus offers a global web page that allows a
distributor to have a personalized website at www.mylexxus.com through which he
or she can sell products in 29 global markets.

Rules Affecting Distributors

         We monitor regulations in each market as well as the activity of
distributors to ensure that our distributor activities comply with local laws.
Our distributor policies and procedures establish the rules that distributors
must follow in each market. We also monitor distributor activity in an attempt
to provide our distributors with a level playing field and so that one
distributor may not be disadvantaged by the activities of another. We require
our distributors to present products and business opportunities ethically and
professionally. Distributors further agree that their presentations to customers
must be consistent with, and limited to, the product claims and representations
made in our literature. Even though sponsoring activities can be conducted in
many countries, our distributors may not conduct marketing activities outside of
those countries in which we currently conduct business.

         We must produce or pre-approve all sales aids used by distributors such
as videotapes, audiotapes, brochures and promotional clothing. Distributors may
not use any form of media advertising to promote products unless pre-approved by
the Company. Products may be promoted only by personal contact or by literature
produced or approved by us. Distributors may not use our trademarks or other
intellectual property without our consent.

         Our compliance department systematically reviews reports of alleged
distributor misbehavior. If we determine that one of our distributors has
violated any of our distributor policies or procedures, we may terminate the
distributor's rights completely. Alternatively, we may impose sanctions such as
warnings, probation, withdrawal or denial of an award, suspension of privileges
of a distributorship, fines, withholding commissions until specified conditions
are satisfied or other appropriate injunctive relief. Our distributors are
independent contractors who may resign/terminate their distributorship at any
time.


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<PAGE>

Competition

         We compete with a significant number of other retailers that are
engaged in similar lines of business, including both sellers of health-related
products and other MLMs. Many of the competitors have greater name recognition
and financial resources as well as many more distributors. The two most
well-known and established of the MLMs are Mary Kay, Inc. and Amway Corp., each
with over three million associates worldwide. Other non-MLM retailers with which
we compete include retail pharmacies and health stores, such as General
Nutrition Centers, and Internet companies, such as VitaminShoppe.com and
drugstore.com. The market for nutritional supplements is rapidly growing and is
highly competitive. The MLM channel tends to sell products at a higher price
compared to retailers, which poses a degree of competitive risk with respect to
price points. No assurance can be given that we will continue to compete
effectively against retail stores, internet based retailers or other MLMs.

Seasonality

         We believe that the recruitment of distributors and the general sales
volume fluctuates on a pattern opposite of typical retail sales. Since most of
our distributors operate as a home-based businesses, distributors tend to take
"typical" vacations such as during summer and winter holidays, thus, decreasing
our sales volume during such vacation periods.

Intellectual Property

         In November 2001, the inventor of our Alura(TM) product, from whom we
have a license to distribute Alura(TM), was awarded a patent for the formulation
of the product.

         Most of the eKaire and Lexxus products are packaged under a "private
label" specifically for us. We have applied for trademark registration for
names, logos and various product names in several countries into which eKaire
and Lexxus are considering expanding. We currently have approximately 15
trademark registrations in the United States and approximately two trademark
applications pending with the United States Patent and Trademark Office. Our
registered trademarks expire or become renewable from March 2005 to October 2008
and we rely on common law trademark rights to protect our unregistered
trademarks. These common law trademark rights do not provide us with the same
level of protection as afforded by a United States federal registration
trademark. Common law trademark rights are limited to the geographic area in
which the trademark is actually utilized, while a United States federal
registration of a trademark enables the registrant to discontinue the
unauthorized use of the trademark by a third party anywhere in the United States
even if the registrant has never used the trademark in the geographic area where
the trademark is being used, provided however, that the unauthorized third party
user has not, prior to the registration date, perfected its common law rights in
the trademark in that geographic area.


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Government Regulation

Direct Selling Activities

         Direct selling activities are regulated by various federal, state and
local governmental agencies in the United States and foreign countries. These
laws and regulations are generally intended to prevent fraudulent or deceptive
schemes often referred to as "pyramid" schemes, that compensate participants for
recruiting additional participants irrespective of product sales, use high
pressure recruiting methods and/or do not involve legitimate products. The laws
and regulations in our current markets often:

         o        impose cancellation/product return, inventory buy backs and
                  cooling off rights for consumers and distributors;

         o        require us or our distributors to register with governmental
                  agencies;

         o        impose reporting requirements; and

         o        impose upon us requirements, such as requiring distributors to
                  maintain levels of retail sales to qualify to receive
                  commissions, to ensure that distributors are being compensated
                  for sales of products and not for recruiting new distributors.

         The laws and regulations governing direct selling are modified from
time to time to address concern of regulators. For example, in South Korea new
regulations were recently adopted that, among other things, restrict multi-level
marketing companies from imposing certain personal sales quota to obtain or
maintain distributorship or favorable compensation rates, modify product return
requirements so that product must be returned within a shorter period of time,
and require the companies to show sufficient insurance or guarantee to reimburse
customers and/or distributors for cancelled or unfilled orders. We have had to
make some modifications to our compensation plan and policies to address some of
these new rules.

         Based on research conducted in opening our existing markets, the nature
and scope of inquiries from government regulatory authorities, and our history
of operations in such markets to date, we believe that our methods of
distribution are in compliance in all material respects with the laws and
regulations relating to direct selling activities of the countries in which we
currently operate. Even though we believe that laws governing direct selling are
generally becoming more permissive, many countries currently have laws in place
that would prohibit us from conducting business in such markets. There can be no
assurance that we will be allowed to continue to conduct business in each of our
existing markets that we currently service or any new market we may enter in the
future.

Regulation of Our Products

         Our products and related promotional and marketing activities are
subject to extensive governmental regulation by numerous domestic and foreign
governmental agencies and authorities, including the FDA, the FTC, the Consumer
Product Safety Commission, the United States Department of Agriculture, State


                                       11
<PAGE>

Attorneys General and other state regulatory agencies, and similar government
agencies in each market in which we operate. For example, in Taiwan, all
"medicated" cosmetic and pharmaceutical products require registration. These
regulations can limit our ability to import products into our markets and can
delay introductions of new products into markets as we go through the
registration and approval process for our products.

         Some of our products are strictly regulated in some of the markets in
which we operate. These markets have varied regulations that apply to and
distinguish nutritional health supplements from "drugs" or "pharmaceutical
products." For example, our products are regulated by the FDA of the United
States under the Federal Food, Drug and Cosmetic Act. The Federal Food, Drug and
Cosmetic Act has been amended several times with respect to nutritional
supplements, most recently by the Nutrition Labeling and Education Act and the
Dietary Supplement Health and Education Act. The Dietary Supplement Health and
Education Act establishes rules for determining whether a product is a dietary
supplement. Under this statute, dietary supplements are regulated more like
foods than drugs, are not subject to the food additive provisions of the law,
and are generally not required to obtain regulatory approval prior to being
introduced to the market. None of this limits, however, the FDA's power to
remove an unsafe substance from the market. In the event a product, or an
ingredient in a product, is classified as a drug or pharmaceutical product in
any market, we will generally not be able to distribute that product in that
market through our distribution channel because of strict restrictions
applicable to drug and pharmaceutical products.

         Most of our existing major markets also regulate product claims and
advertising regarding the types of claims and representations that can be made
regarding the efficacy of products, particularly dietary supplements.
Accordingly, these regulations can limit our ability and that of our
distributors to inform consumers of the full benefits of our products. For
example, in the United States, we are unable to make any claim that any of our
nutritional supplements will diagnose, cure, mitigate, treat or prevent disease.
The Dietary Supplement Health and Education Act, however, permits substantiated,
truthful and non-misleading statements of nutritional support to be made in
labeling, such as statements describing general well-being resulting from
consumption of a dietary ingredient or the role of a nutrient or dietary
ingredient in affecting or maintaining a structure or a function of the body. In
addition, all product claims must be substantiated.


Other Regulatory Issues

         As a United States entity operating through subsidiaries in foreign
jurisdictions, we are subject to foreign exchange control and transfer pricing
laws that regulate the flow of funds between our subsidiaries and us for product
purchases, management services and contractual obligations such as the payment
of distributor commissions.


                                       12
<PAGE>

Product Warranties and Returns

Lexxus

         The Lexxus refund policies and procedures closely follow industry and
country standards. Distributors may return unopened product that is in resalable
condition for a partial refund. All products must be returned within twelve
months of the original purchase date for refund eligibility. Lexxus must be
notified of the return in writing and such written requests will be considered a
termination notice of the distributorship.

         The Lexxus refund policies and procedures in other various countries
are similar to those of United States and Canada, but vary from fourteen days to
twelve months for the return of products for refund eligibility.

eKaire

         eKaire product warranties and refund policies are similar to those of
other companies in the industry. If a distributor is not satisfied with the
product then he/she can return the product to eKaire within 90 days of the first
time the product was purchased for a full refund. A distributor may return or
exchange products that are unopened and in resalable condition 30 days after the
date of purchase.

Management Information Systems

         We utilize a third party to process distributor orders and to calculate
the distributor commission payments. Lexxus maintains a web-based system to
communicate volume and commissions to its distributors. The eKaire commission
system provides each associate with a detailed monthly accounting of all sales
and recruiting activity. These statements eliminate the need for substantial
record keeping on behalf of the distributor.

Insurance

         NHTC currently carries general liability insurance in the amount of
$1,000,000 per occurrence and $1,000,000 in the aggregate. However, we do not
carry product liability insurance, but believe that we are covered by insurance
maintained by our principal suppliers. There can be no assurance, however, that
this insurance will be available, and if available, sufficient to cover
potential claims or that an adequate level of coverage will be available in the
future at a reasonable cost, if at all. A successful claim could have a material
adverse effect our business, financial condition and results of operations.


                                       13
<PAGE>

Employees

         The combined total of employees for our company, including the
employees of our subsidiaries is 153 at December 31, 2002, including 35
senior management, 5 administrative assistants, 32 warehouse employees, and 81
"general operations" employees, which includes employees in customer service and
administrative roles. 146 employees are full-time and 7 are part-time. None of
the employees is represented by a union, and we believe that employee relations
are good.

Corporate History

         NHTC was incorporated on December 1, 1988 in the state of Florida as
the "Florida Institute of Massage Therapy, Inc.", and changed its name to
"Natural Health Trends Corp." on June 24, 1993. The Florida Institute of Massage
Therapy, Inc. was initially formed to primarily operate vocational schools in
Florida.

         In August 1998, we sold the 3 vocational schools that we operated.

         In July 1997, we acquired all of the outstanding capital stock of
Global Health Alternatives, Inc. ("GHA") which operated our natural health care
product division.

         NHTC's Common Stock, par value $0.001 per share (the "Common Stock") is
listed on the Over-the-Counter Bulletin Board (the "OTCBB"). In March 2003, NHTC
effected a 1-for-100 reverse stock split with respect to our outstanding shares
of Common Stock. In addition, the trading symbol for the shares of our Common
Stock changed from "NHTC" to "NHLC".

         NHTC is a holding company that operates two businesses, which
distribute products that promote health, wellness and vitality through a
multi-level marketing ("MLM") channel. The following paragraphs will outline the
progression of NHTC as it is organized today.

         In January 2001, NHTC entered into a joint venture with Lexxus
International and formed a new majority-owned USA subsidiary, Lexxus
International, Inc., a Delaware corporation. The original founders of Lexxus
International received an aggregate of 100,000 shares of our Common Stock and
own 49% of the total number of shares of capital stock of Lexxus International,
Inc., a Delaware corporation.

         In the second quarter of 2001, we incorporated Lexxus International (SW
Pacific) Pty. Ltd., an Australian corporation and our majority-owned subsidiary,
which does business in Australia ("Lexxus Australia"). In addition, we
incorporated Lexxus International (New Zealand) Limited, a New Zealand
corporation and majority-owned subsidiary of NHTC, which does business in New
Zealand ("Lexxus New Zealand").

         In June 2001, we incorporated Lighthouse Marketing Corporation
("Lighthouse"), a Delaware Corporation and our wholly-owned subsidiary. As of
January 31, 2003, Lighthouse acquired certain assets from NuEworld. See
"Business - Recent Developments."

         In June 2001, we sold all of the outstanding Common Stock in Kaire
Nutraceuticals, Inc., a Delaware corporation, to a South African firm.

         On November 16, 2001, we incorporated Lexxus International Co., Ltd., a
corporation organized under the laws of the Republic of China and our
majority-owned subsidiary ("Lexxus Taiwan") which does business in Taiwan.


                                       14
<PAGE>

         On January 28, 2002, we incorporated MyLexxus Europe AG, a corporation
organized under the laws of Switzerland and our majority-owned subsidiary
("MyLexxus Europe"). This company manages the sales of product into sixteen
eastern European countries, including Russia.

         In March 2002, we incorporated Lexxus International Co., Ltd., a
corporation organized under the laws of Hong Kong and our wholly-owned
subsidiary ("Lexxus Hong Kong") which does business in Hong Kong.

         In April 2002, we incorporated Personal Care International India Pvt.
Ltd., a corporation organized under the laws of India and our wholly-owned
subsidiary ("MyLexxus India") which does business in India.

         In June 2002, we incorporated Lexxus International Marketing Ltd., a
corporation organized under the laws of Singapore and our majority-owned
subsidiary ("Lexxus Singapore") which does business in Singapore.

         In November 2002, we incorporated Lexxus International (Philippines)
Inc., a corporation organized under the laws of the Philippines and our
majority-owned subsidiary ("Lexxus Philippines") which does business in the
Philippines.

         In February 1999, NHTC Holdings Inc. acquired certain assets (the
"Kaire Assets") of Kaire International, Inc., a Delaware corporation ("KII").
The assets included, but not limited to, the corporate name, all variations and
any other product name, registered and unregistered trademarks, tradenames,
servicemarks, patents, logos and copyrights of KII, and independent distributor
lists. In exchange for the Kaire Assets, we issued the following:

               o    to 11 secured creditors of KII, $2,800,000 or 2,800
                    aggregate stated value of our Series F preferred stock, par
                    value $1,000 per share (the "Series F Preferred Stock");

               o    to two secured creditors of KII, $350,000 or 350 aggregate
                    stated value of Series G preferred stock, par value $1,000
                    per share (the "Series G Preferred Stock")

         In March 2001, Global Health Alternatives, Inc., a Delaware corporation
and wholly-owned subsidiary of NHTC ("GHA"), and Ellon, Inc., a Delaware
corporation and wholly-owned subsidiary of GHA ("Ellon"), filed for Chapter 7
bankruptcy liquidation in the United States Bankruptcy Court of the Northern
District of Texas. Neither GHA nor Ellon had operations during 2001. Both GHA
and Ellon were dissolved in June 2001.

Risk Factors

In addition to other information in this Annual Report, the following important
factors should be carefully considered in evaluating the Company and its
business because such factors currently have a significant impact on the
Company's business, prospects, financial condition and results of operations.


                                       15
<PAGE>

Risks Related to Our Business

Our Failure To Maintain and Expand Our Distributor Relationships Could Adversely
Affect Our Business.

We distribute our products through independent distributors, and we depend upon
them directly for substantially all of our sales. Accordingly, our success
depends in significant part upon our ability to attract, retain and motivate a
large base of distributors. Our multi-level marketing organization is headed by
a relatively small number of key distributors responsible for a significant
percentage of total sales, including, in some cases, sales in several different
countries. The loss of a significant number of distributors, including any key
distributors, could materially and adversely affect sales of our products and
could impair our ability to attract new distributors. Moreover, the replacement
of distributors could be difficult because, in our efforts to attract and retain
distributors, we compete with other network marketing organizations, including
those in the personal care and cosmetic product industries. Our distributors may
terminate their services with us at any time and, in fact, like many network
marketing organizations, we have a high rate of attrition.

Our Lexxus Subsidiaries Have a Limited Operating History Which May Not be
Indicative of Future Performance.

Although our Lexxus subsidiaries accounted for approximately 90% of our total
revenues during fiscal 2002, it is has only been operating since January 2001,
and therefore, is in the early stage of its development. Our business and
prospects must be considered in light of the risk, expense and difficulties
frequently encountered by companies in an early stage of development,
particularly companies in new and rapidly evolving international markets. If we
are unable to effectively allocate our resources and help grow our Lexxus
International subsidiary, our stock price may be adversely affected and we may
be unable to execute our strategy of expanding our network of distributors. Our
business depends upon the performance of our Lexxus subsidiaries and, due to its
relatively short operating history, past performance may not be indicative of
future results.

Regulatory Matters Governing Our Industry Could Have A Significant Negative
Effect On Our Business.

In both our United States and foreign markets, we are affected by extensive
laws, governmental regulations, administrative determinations, court decisions
and similar constraints. Such laws, regulations and other constraints may exist
at the federal, state or local levels in the United States and at all levels of
government in foreign jurisdictions.

Product Regulations.

The formulation, manufacturing, packaging, labeling, distribution, importation,
sale and storage of certain of our products are subject to extensive regulation
by various federal agencies, including the Food and Drug Administration ("FDA"),
the Federal Trade Commission (the "FTC"), the Consumer Product Safety Commission
and the United States Department of Agriculture and by various agencies of the
states, localities and foreign countries in which our products are manufactured,
distributed and sold. Failure by us or our distributors to comply with those
regulations could lead to the imposition of significant penalties or claims and
could materially and adversely affect our business. In addition, the adoption of
new regulations, or changes in the interpretations of existing regulations may
result in significant compliance costs or discontinuation of product sales and
may adversely affect the marketing of our products, resulting in significant
loss of sales revenues.


                                       16
<PAGE>

Product Claims, Advertising And Distributor Activities.

Our failure to comply with FTC or state regulations, or with regulations in
foreign markets that cover our product claims and advertising, including direct
claims and advertising by us, as well as claims and advertising by distributors
for which we may be held responsible, may result in enforcement actions and
imposition of penalties or otherwise materially and adversely affect the
distribution and sale of our products. Distributor activities in our existing
markets that violate applicable governmental laws or regulations could result in
governmental or private actions against us in markets where we operate. Given
the size of our distributor force, we cannot assure that our distributors will
comply with applicable legal requirements.

Network Marketing System.

Our network marketing system is subject to a number of federal and state
regulations administered by the FTC and various state agencies as well as
regulations in foreign markets administered by foreign agencies. Regulations
applicable to network marketing organizations generally are directed at ensuring
that product sales ultimately are made to consumers and that advancement within
the organizations is based on sales of the organizations' products rather than
investments in the organizations or other non-retail sales related criteria. We
are subject to the risk that, in one or more markets, our marketing system could
be found not to be in compliance with applicable regulations. The failure of our
network marketing system to comply with such regulations could have a material
adverse effect on our business in a particular market or in general.

We are also subject to the risk of private party challenges to the legality of
our network marketing system. The regulatory requirements concerning network
marketing systems do not include "bright line" rules and are inherently
fact-based. An adverse judicial determination with respect to our network
marketing system, or in proceedings not involving us directly but which
challenge the legality of other multi-level marketing systems, could have a
material adverse effect on our business.

Transfer Pricing And Similar Regulations.

In many countries, including the United States, we are subject to transfer
pricing and other tax regulations designed to ensure that appropriate levels of
income are reported as earned by our United States or local entities and are
taxed accordingly. In addition, our operations are subject to regulations
designed to ensure that appropriate levels of customs duties are assessed on the
importation of our products.

Taxation Relating To Distributors.

Our distributors are subject to taxation, and in some instances legislation or
governmental agencies impose an obligation on us to collect the taxes, such as
value added taxes, and maintain appropriate records. In addition, we are subject
to the risk in some jurisdictions of being responsible for social security and
similar taxes with respect to our distributors.

Other Regulations.

We are also subject to a variety of other regulations in various foreign
markets, including regulations pertaining to employment and severance pay
requirements, import/export regulations and antitrust issues. Our failure to
comply, or assertions that we fail to comply, with these regulations could have
a material adverse effect on our business in a particular market or in general.


                                       17
<PAGE>

To the extent we decide to commence or expand operations in additional
countries, government regulations in those countries may prevent or delay entry
into or expansion of operations in those markets. In addition, our ability to
sustain satisfactory levels of sales in our markets is dependent in significant
part on our ability to introduce additional products into the markets. However,
government regulations in both our domestic and international markets can delay
or prevent the introduction, or require the reformulation or withdrawal, of some
of our products.

Currency Exchange Rate Fluctuations Could Lower Our Revenue And Net Income.

In 2002, we recognized approximately 75% of our revenue in non-United States
markets of which approximately 25% was in foreign currencies. We purchase
inventory primarily in the United States in United States dollars. In preparing
our financial statements, we translate revenue and expenses in foreign countries
from their local currencies into United States dollars using weighted average
exchange rates. If the United States dollar strengthens relative to local
currencies, our reported revenue, gross profit and net income will likely be
reduced. Given our inability to predict the degree of exchange rate
fluctuations, we cannot estimate the effect these fluctuations may have upon
future reported results, product pricing or our overall financial condition.
Further, to date we have not attempted to reduce our exposure to short-term
exchange rate fluctuations by using foreign currency exchange contracts.

If We Are Unable To Expand Operations In Any Of The New Markets We Have
Currently Targeted, We May Have Difficulty Achieving Our Long-Term Objectives.

A significant percentage of our revenue growth over the past two years has been
attributable to our expansion into new markets. For example, the revenue growth
we experienced in 2002 was due in part to our successful expansion of operations
into Hong Kong, Russia and Taiwan. Moreover, our growth over the next several
years depends on our ability to successfully introduce our products and our
distribution system into new markets, including the Philippines and South Korea.
We could face regulatory difficulties in accessing these new markets. If we are
unable to successfully expand our operations into these new markets, our
opportunities to grow our business may be limited, and as a result, we may not
be able to achieve our long-term objectives.

Adverse Publicity Concerning Our Business, Marketing Plan Or Products Could Harm
Our Business And Reputation.

The size of our distribution force and the results of our operations can be
particularly impacted by adverse publicity regarding us, the legality of our
distributor network, our products or the actions of our distributors.
Specifically, we are susceptible to adverse publicity concerning:

          o    the legality of network marketing;

          o    the safety of the ingredients found in our products or our
               competitor's products;

          o    regulatory investigations of us, our competitors and our
               respective products;

          o    the actions of our current or former distributors; and

          o    public perceptions of direct selling businesses in general.


                                       18
<PAGE>

In addition, in the past certain network marketing companies have experienced
negative publicity in connection with regulatory investigations and inquiries
that has harmed the network marketing industry in general. We, or one or more of
our network marketing competitors, may receive negative publicity in the future
and it may harm our business and reputation.

Although Our Distributors Are Independent Contractors, Improper Distributor
Actions That Violate Laws Or Regulations Could Harm Our Business.

Distributor activities that violate governmental laws or regulations could
result in governmental actions against us in markets where we operate. Our
distributors are not employees and act independently of us. We implement strict
policies and procedures to ensure our distributors will comply with legal
requirements. However, given the size of our distributor force, we experience
problems with distributors from time to time. Distributors often desire to enter
a market before we have received approval to do business in order to gain an
advantage in the market. Improper distributor activity in new geographic markets
can be particularly harmful to our ability to ultimately enter these markets.

Failure Of New Products To Gain Distributor And Market Acceptance Could Harm Our
Business.

An important component of our business is our ability to develop new products
that create enthusiasm among our distributor force. If we fail to introduce new
products, our distributor productivity could be harmed. In addition, if any new
products fail to gain market acceptance, are restricted by regulatory
requirements, or have quality problems, this would harm our results of
operations. Factors that could affect our ability to continue to introduce new
products include, among others, limited capital resources, government
regulations, proprietary protections of competitors that may limit our ability
to offer comparable products and any failure to anticipate changes in consumer
tastes and buying preferences.

The Loss Of Key High-Level Distributors Could Negatively Impact Our Distributor
Growth And Our Revenue.

We have approximately 40,000 active distributors and 10,000 senior level
distributors. These senior level distributors, together with their extensive
networks of downline distributors, account for substantially all of our revenue.
As a result, the loss of a senior level distributor or a group of leading
distributors in the distributor's network of downline distributors whether by
their own choice or through disciplinary actions by us for violations of our
policies and procedures could negatively impact our distributor growth and our
revenue.

Increases In Duties On Our Imported Products In Our Non-United States Markets
Could Reduce Our Revenue And Harm Our Competitive Position.

Historically, we have imported most of our products into the countries in which
they are ultimately sold. These countries impose various legal restrictions on
imports and typically impose duties on our products. In any given country,
regulators may increase duties on imports and, as a result, reduce our
profitability and harm our competitive position relative to locally produced
goods. In some countries government regulations may prevent importation of our
products altogether or require us to locally manufacture or source a significant
portion of our products.

System Failures Could Harm Our Business.

Because of our diverse geographic operations and our seamless distributor
compensation plan, our business is highly dependent on efficiently functioning
information technology systems. These systems and operations are vulnerable to
damage or interruption from


                                       19
<PAGE>

fires, earthquakes, telecommunications failures, computer viruses and worms,
software defects and other events. They are also subject to break-ins, sabotage,
acts of vandalism and similar misconduct. Despite precautions, problems could
result in interruptions in services and materially and adversely affect our
business, financial condition and results of operations.

Because Of Our Dependence Upon Consumer Perceptions, Adverse Publicity
Associated With Harmful Effects Resulting From The Consumption Of Our Products,
Or Any Similar Products Distributed By Other Companies, Could Have A Material
Adverse Effect On Us.

Because we are highly dependent upon consumers' perception of the safety and
quality of our products as well as similar products distributed by other
companies, we could be adversely affected if any of our products or any similar
products distributed by other companies prove to be, or are asserted to be,
harmful to consumers. Also, because of our dependence upon consumer perceptions,
any adverse publicity associated with illness or other adverse effects resulting
from consumers' use or misuse of our products or any similar products
distributed by other companies could have a material adverse impact on us.
Adverse publicity could also negatively affect our ability to attract, motivate
and retain distributors.

We Do Not Have Product Liability Insurance And Product Liability Claims Could
Hurt Our Business.

Currently, we do not have product liability insurance, although the insurance
carried by our suppliers may cover product liability claims against us.
Nevertheless, we do not conduct or sponsor clinical studies of our products. As
a marketer of nutraceuticals, cosmetic lotions and other products that are
ingested by consumers or applied to their bodies, we may become subjected to
various product liability claims, including that: (i) our products contain
contaminants; (ii) our products include inadequate instructions as to their
uses; or (iii) our products include inadequate warnings concerning side effects
and interactions with other substances. Especially since we do not have direct
product liability insurance, it is possible that product liability claims and
the resulting adverse publicity could negatively affect our business. If our
suppliers' product liability insurance fails to cover product liability claims,
or such claims exceed the amount of coverage provided by such policies, we could
be required to pay substantial monetary damages which could materially harm our
business, financial condition and results of operations. As a result, we may
become required to pay higher premiums and accept higher deductibles in order to
secure adequate insurance coverage in the future.


We Do Not Manufacture Our Own Products So We Must Rely On Independent Third
Parties For The Manufacture And Supply Of Our Products.

All of our products are manufactured by outside companies. There is no assurance
that these outside manufacturers will continue to reliably supply products to us
at the level of quality we require. In the event any of our third-party
manufacturers were to become unable or unwilling to continue to provide the
products in required volumes and quality levels, we would be required to
identify and obtain acceptable replacement manufacturing sources. There is no
assurance that we will be able to obtain alternative manufacturing sources on a
timely basis. An extended interruption in the supply of our products could
result in a substantial loss of sales. In addition, any actual or perceived
degradation of product quality as a result of our reliance on third party
manufacturers may have an adverse effect on sales or result in increased product
returns and buybacks.


                                       20
<PAGE>

Our Foreign Operations Are Exposed To Risks Associated With Trade Restrictions
And Political, Economic And Social Instability.

A foreign government may impose trade or foreign exchange restrictions or
increased tariffs, which could adversely affect our operations. Our operations
in some markets also may be adversely affected by political, economic and social
instability in foreign countries. As we continue to focus on expanding our
existing international operations, these and other risks associated with
international operations may increase.

A Large Portion Of Our Sales Is Concentrated In A Small Number Of Countries.

Our earnings in future periods may be susceptible to various risks because of
the concentration of our sales in a small number of countries. Of the 29
countries in which we operated as of December 31, 2002, the United States, Hong
Kong, Russia and Taiwan, accounted for approximately 90% of our total sales. As
a result, our performance is dependent upon government regulation, economic
conditions and consumer demand for our products in these four countries.

Two Of Our Products Constitute A Significant Portion Of Our Sales.

Our Alura(TM) and Skindulgence(TM) products constitute a significant portion of
our retail sales, accounting for approximately 40% and 50%, respectively of our
total sales in fiscal 2002. If consumer demand for either of these products
decreases significantly, government regulation restricts the sale of these
products, we are unable to adequately source or deliver these products, or we
cease offering either of these products for any reason without a suitable
replacement, our business, financial condition and results of operations could
be materially and adversely effected.

Our Ability To Grow In The Future Will Be More Dependent On Increased
Penetration Of Existing Markets Than New Market Openings, Relative To Past
Years; As A Result, Our Business Will Be Adversely Affected If We Are Unable To
Successfully Increase Existing Market Penetration.

During the past two years Lexxus has expanded principally by entering into new
markets and introducing new products. Because we have already succeeded in
entering into many of the most attractive markets for our products and
distribution system, an increasingly important part of our strategy for
continued growth is to increase the number and range of our products available
in our existing markets. In addition, our growth will depend upon improved
training and other activities that enhance distributor retention in our markets.
We cannot assure that our efforts to increase our market penetration in our
existing markets will be successful.

We May Not Properly Manage Our Growth.

Our success has been, and will continue to be, significantly dependent on our
ability to manage rapid growth through expansions and enhancements of our
worldwide personnel and management, order processing and fulfillment, inventory
and shipping systems and other aspects of operations. As we continue to expand
our operations, the ability to manage this growth will represent an increasing
challenge and our failure to properly manage this growth may materially and
adversely affect our results of operation.

The High Level Of Competition In Our Industry Could Adversely Affect Our
Business.

The business of marketing nutracuetical and lifestyle enhancement products is
highly competitive. This market segment includes numerous manufacturers,
distributors, marketers, and retailers that actively compete for


                                       21
<PAGE>

the business of consumers both in the United States and abroad. The market is
highly sensitive to the introduction of new products which may rapidly capture a
significant share of the market. Although we are the exclusive distributor of
the Alura(TM) product in the network marketing segment, we cannot be sure that
another company will not replicate, or market similar products. Sales of similar
products by competitors may materially and adversely effect our business,
financial condition and results of operations.

We are subject to significant competition for the recruitment of distributors
from other network marketing organizations, including those that market similar
products as well as other types of products.

Most of our competitors are substantially larger than we are, offer a wider
array of products, have far greater financial resources and many more active
distributors than we have. Our ability to remain competitive depends, in
significant part, on our success in recruiting and retaining distributors
through an attractive compensation plan and other incentives. We believe that
our compensation and incentive programs provide our distributors with
significant earning potential. However, we cannot be sure that our programs for
recruitment and retention of distributors will be successful.

Terrorist Attacks Or Acts Of War May Seriously Harm Our Business.

Terrorist attacks or acts of war may cause damage or disruption to our company,
our employees, our facilities and our customers, which could impact our
revenues, expenses and financial condition. The terrorist attacks that took
place in the United States on September 11, 2001 were unprecedented events that
have created many economic and political uncertainties, some of which may
materially and adversely affect our business, results of operations, and
financial condition. The potential for future terrorist attacks, the national
and international responses to terrorist attacks, and other acts of war or
hostility have created many economic and political uncertainties, which could
materially and adversely affect our business, results of operations, and
financial condition in ways that we currently cannot predict.

A General Economic Downturn May Reduce Our Revenues.

Worldwide economic conditions may affect demand for our products. Consumer
purchases of our products may decline during recessionary periods and also may
decline at other times when disposable income is lower.

Loss Of Key Personnel Could Adversely Affect Our Business.

Our future success depends to a significant degree on the skills, experience and
efforts of Mark D. Woodburn, our President and Chief Financial Officer, and
Terry LaCore, the Chief Executive Officer of Lexxus. The loss of the services of
either Mr. Woodburn or Mr. LaCore could have a material adverse effect on our
business, results of operations and financial condition. We also depend on the
ability of our executive officers and other members of senior management to work
effectively as a team. The loss of one or more of our executive officers and
other members of senior management could have a material adverse effect on our
business, results of operations and financial condition.

We May Be Unable To Protect Our Proprietary Technology Rights.

Our success depends to a significant degree upon the protection of our licensed
software and other proprietary technology rights. We rely on trade secret,
copyright and trademark laws and confidentiality agreements with employees and
third-parties, all of which offer only limited protection. Moreover, the laws of
other


                                       22
<PAGE>

countries in which we market our products may afford little or no effective
protection of our proprietary technology. The reverse engineering, unauthorized
copying or other misappropriation of our proprietary technology could enable
third parties to benefit from our technology without paying us for it. This
could have a material adverse effect on our business, operating results and
financial condition. If we resort to legal proceedings to enforce our
intellectual property rights, the proceedings could be burdensome and expensive
and could involve a high degree of risk.

Our Use Of The "Alura" Trademark May Infringe The Trademark Rights Of Other
Companies.

Our use of "Alura" as well as the use of other names, may result in costly
litigation, divert management's attention and resources, cause product shipment
delays or require us to pay damages and/or to enter into royalty or license
agreements to continue to use a product name. We may be required to stop using
the name "Alura". Any of these events could have a material adverse effect on
our business, operating results and financial condition.

Risks Related To Our Common Stock

Disappointing Quarterly Revenue Or Operating Results Could Cause The Price Of
Our Common Stock To Fall.

Our quarterly revenue and operating results are difficult to predict and may
fluctuate significantly from quarter to quarter. If our quarterly revenue or
operating results fall below the expectations of investors or securities
analysts, the price of our Common Stock could fall substantially.

Our Common Stock Is Particularly Subject To Volatility Because Of The Industry
That We Are In.

The stock market in general has recently experienced extreme price and volume
fluctuations. In addition, the market prices of securities of network marketing
companies, have been extremely volatile, and have experienced fluctuations that
have often been unrelated or disproportionate to the operating performance of
such companies. These broad market fluctuations could adversely affect the
market price of our Common Stock.

Future Sales By Existing Security Holders Could Depress The Market Price Of Our
Common Stock.

If our existing stockholders sell a large number of shares of our Common Stock,
the market price of the Common Stock could decline significantly. Further, even
the perception in the public market that our existing stockholders might sell
shares of Common Stock could depress the market price of the Common Stock.

There Are Risks Associated With Our Stock Trading On The NASD OTC Bulletin Board
Rather Than A National Exchange.

There are significant consequences associated with our stock trading on the NASD
OTC Bulletin Board rather than a national exchange. The effects of not being
able to list our securities on a national exchange include:

o    Limited release of the market prices of our securities;

o    Limited news coverage of us;

o    Limited interest by investors in our securities;

o    Volatility of our stock price due to low trading volume;


                                       23
<PAGE>

o    Increased difficulty in selling our securities in certain states due to
     "blue sky" restrictions; and

o    Limited ability to issue additional securities or to secure additional
     financing.

There is No Assurance That An Active Public Trading Market Will Develop.

There has been an extremely limited public trading market for the Company's
Common Stock. There can be no assurances that a public trading market for the
Common Stock will develop or that a public trading market, if developed, will be
sustained. If for any reason a public trading market does not develop,
purchasers of the shares of Common Stock may have difficulty in selling their
securities should they desire to do so.

"Penny Stock" Regulations May Impose Certain Restrictions On The Marketability
of Our Securities.

The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share, subject to certain
exceptions. NHTC's Common Stock is presently subject to these regulations which
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a "penny stock", unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the Commission relating to the "penny stock" market. The broker-dealer must also
disclose the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the "penny stock" held in
the account and information on the limited market in "penny stocks".
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell the NHTC's securities and may negatively affect the ability of
purchasers of the NHTC's shares of Common Stock to sell such securities.

We May Not Be Able To Comply In A Timely Manner With All Of The Recently Enacted
Or Proposed Corporate Governance Provisions.

Beginning with the enactment of the Sarbanes-Oxley Act of 2002 in July 2002, a
significant number of new corporate governance requirements have been adopted or
proposed. We believe that we currently comply with all of the requirements that
have become effective thus far, and with many of the requirements that will
become effective in the future. Although we currently expect to comply with all
current and future requirements, we may not be successful in complying with
these requirements at all times in the future. In addition, we will be required
to make changes to our corporate governance practices. For example, one Nasdaq
proposal (which may become applicable to companies listed on the OTC Bulletin
Board, or its successor, the BBX Exchange) under review by the Securities and
Exchange Commission will require that a majority of our Board of Directors be
composed of independent directors by our 2004 Annual Meeting of Stockholders.
Currently, none of the members of our Board of Directors are considered to be
independent. We may not be able to attract a sufficient number of directors in
the future to satisfy


                                       24
<PAGE>

this requirement, if enacted and if it becomes applicable to our Company.
Additionally, the Commission recently passed a final rule that requires
companies to disclose whether a member of their Audit Committee satisfies
certain criteria as a "financial expert." We currently do not have an Audit
Committee member that satisfies this requirement and, we may not be able to
satisfy this, or other, corporate governance requirements at all times in the
future, and our failure to do so could cause the Commission or Nasdaq to take
disciplinary actions against us, including an action to delist our stock from
the OTC Bulletin Board or any other exchange or electronic trading system where
our shares of Common Stock trade.

ITEM 2.  PROPERTIES.

         NHTC utilizes approximately 1,000 square feet of office space in
Irving, Texas on an as needed basis, through an arrangement with Regus Business
Centre which provides business solutions for companies. NHTC pays a minimum
annual rental fee of $2,100. Lexxus leases an aggregate of approximately 16,000
square feet of office and warehouse space in Dallas, Texas. The lease term is 38
months, expiring on September 30, 2004, and the current rent is approximately
$151,500 per year. Additional warehousing for Lexxus is located in Hollister,
Missouri where Lexxus utilizes approximately 35,000 square feet of warehouse
space. The lease term is on a month-to-month basis at a rent of $18,000 per
year. The Canadian office and warehouse of Lexxus and eKaire leases office space
in Langley, British Columbia, totaling approximately 3,600 square feet. The
lease term is 36 months, expiring on December 1, 2004 and the current rent is
approximately $25,000 per year.

         Kaire Australia, Kaire New Zealand, Lexxus Australia and Lexxus New
Zealand lease office space and warehouse facilities of approximately 2,475
square feet in Queensland, Australia. The lease term is 60 months, expiring on
January 1, 2007, and the current rent is approximately $20,000 per year.

         In March 2002, Lexxus Taiwan entered into a 24 month agreement for
6,314 square feet of office space at a current rate of approximately $74,796 per
year.

         In April 2002, Lexxus India entered into a 60 month agreement for 2,665
square feet of office space at a current rate of approximately $12,086 per year.

         In July 2002, Lexxus Singapore entered into a 36 month agreement for
4,155 square feet of office space at a current rate of approximately $115,891
per year.


         In August 2002, Lexxus Hong Kong entered into a 36 month agreement for
approximately 5,400 square feet of office space at a current rate of
approximately $140,260 per year.

         In November 2002, MyLexxus Europe entered into a 12 month agreement for
1,841 square feet of office space in Russia at a current rate of approximately
$21,600 per year. In October 2002, MyLexxus Europe also entered into a 12 month
agreement for 1,582 square feet of office space in France at a current rate of
$21,841 per year.


                                       25
<PAGE>

         In January 2003, Lexxus Philippines entered into a 24 month agreement
for 6,641 square feet of office space at a current rate of approximately $50,112
per year.


         We believe that such properties are suitable and adequate for our
current operating needs.

ITEM 3.  LEGAL PROCEEDINGS.

         From time to time, NHTC is involved in legal proceedings incidental to
the course of business. NHTC believes that pending actions, both individually
and in the aggregate, will not have a material adverse effect on the financial
condition, results of operations, cash flows or prospects. Management believes
that adequate provision has been made for the resolution of such actions and
proceedings.


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

         During the last quarter of 2002, NHTC did not submit any matter to the
vote of the shareholders.


                                     PART II

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

         NHTC's Common Stock is currently quoted on the OTCBB under the symbol
"NHLC". The following table sets forth the range of high and low closing sale
prices on a quarterly basis as reported by the OTC Bulletin Board for the fiscal
years 2001 and 2002.




                                       26
<PAGE>

                                         2001

       -----------------------      ---------------      ---------------
              Quarter                 High Bid($)           Low Bid($)
       -----------------------      ---------------      ---------------
       First Quarter                           4.69                 1.56
       -----------------------      ---------------      ---------------
       Second Quarter                         11.00                 1.56
       -----------------------      ---------------      ---------------
       Third Quarter                           7.00                 4.00
       -----------------------      ---------------      ---------------
       Fourth Quarter                          5.00                 3.00
       -----------------------      ---------------      ---------------


                                        2002

       -----------------------      ---------------      ---------------
              Quarter                 High Bid($)           Low Bid($)
       -----------------------      ---------------      ---------------
       First Quarter                           4.00                 2.00
       -----------------------      ---------------      ---------------
       Second Quarter                          2.00                 1.00
       -----------------------      ---------------      ---------------
       Third Quarter                           3.00                 1.00
       -----------------------      ---------------      ---------------
       Fourth Quarter                          3.00                 1.00
       -----------------------      ---------------      ---------------

         The OTCBB quotations reflect inter-dealer prices, without retail
         mark-ups, mark-downs or commissions, and may not represent actual
         transactions.

         In March 2003, we effected a 1-for-100 reverse stock split with respect
to the outstanding shares of our Common Stock.

Holders

         As of February 3, 2003, NHTC had approximately 302 holders of record of
our Common Stock and approximately 4,231 beneficial owners of Common Stock.

Dividends

         We have not paid any cash dividends on our Common Stock to date and do
not anticipate declaring or paying any cash dividends in the foreseeable future.
In addition, future-financing arrangements, if any, may preclude or otherwise
restrict the payment of dividends.


                                       27
<PAGE>

Recent Sales of Unregistered Securities

         In April 2001, we issued 50 shares of Series H Preferred Stock with a
face value of $1,000 per share to an accredited investor, pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Act") and/or Rule 506 of
Regulation D, as promulgated by the Act.

         In April 2001, we issued 5,000 shares of Common Stock to certain
management employees, pursuant to Section 4(2) of the Act.

         In May 2001, we issued 50 shares of Series H Preferred Stock with a
face value of $1,000 per share, to an accredited investor, pursuant to Section
4(2) of the Act and/or Rule 506 of Regulation D, as promulgated by the Act.

         During 2001, we issued 355,230 shares of Common Stock to accredited
investors upon conversion of $946,768 face amount of Series E Preferred Stock
pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D, as
promulgated by the Act.

         During 2001, we issued 515,592 shares of Common Stock to accredited
investors upon conversion of $1,416,408 face amount of Series F Preferred Stock
pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D, as
promulgated by the Act.

         During 2001, we issued 157,322 shares of Common Stock to accredited
investors upon conversion of $344,200 face amount of Series G Preferred Stock
pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D, as
promulgated by the Act.

         During 2001, we issued 276,994 shares of Common Stock to an accredited
investor upon conversion of $614,542 face amount of Series H Preferred Stock
pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D, as
promulgated by the Act.

         During 2001, we issued 122,604 shares of Common Stock to an accredited
investor upon conversion of $206,194 face amount of Series J Preferred Stock
pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D, as
promulgated by the Act.

         During 2002, we issued 610,995 shares of Common Stock to accredited
investors upon conversion of $1,200,960 face amount of Series F Preferred Stock
pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D, as
promulgated by the Act.

         During 2002, we issued 137,497 shares of Common Stock to accredited
investors upon conversion of $150,000 face amount of Series H Preferred Stock
pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D, as
promulgated by the Act.

         During 2002, we issued 1,025,397 shares of Common Stock to an
accredited investor upon conversion of $777,476 face amount of Series J
Preferred Stock pursuant to Section 4(2) of the Act and/or Rule 506 of
Regulation D, as promulgated by the Act.


                                       28
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

BACKGROUND

NHTC was incorporated on December 1, 1988 in the state of Florida as "Florida
Institute of Massage Therapy, Inc.", and changed its name to "Natural Health
Trends Corp." on June 24, 1993. The Florida Institute of Massage Therapy, Inc.
was initially formed to primarily operate vocational schools in Florida.

In August 1998, we sold the 3 vocational schools that we operated.

In July 1997, we acquired all of the outstanding capital stock of Global Health
Alternatives, Inc. ("GHA") which operated our natural health care product
division.

NHTC's Common Stock, par value $0.001 per share (the "Common Stock") is listed
on the Over-the-Counter Bulletin Board (the "OTCBB"). In March 2003, NHTC
effected a 1-for-100 reverse stock split with respect to our outstanding shares
of Common Stock. In addition, the trading symbol for the shares of our Common
Stock changed from "NHTC" to "NHLC". All share references will give effect to
the reverse stock split.

NHTC is a holding company that operates two businesses, which distribute
products that promote health, wellness and vitality through a multi-level
marketing ("MLM") channel. The following paragraphs will outline the progression
of NHTC as it is organized today.

NHTC's largest operation is its Lexxus subsidiaries ("Lexxus"). The U.S. company
is called Lexxus International, Inc. a Delaware corporation and a majority-owned
subsidiary of NHTC. Lexxus sells products that can be described as "quality of
life" products, heightening sexual arousal, health and beauty.

In January 2001, NHTC entered into a joint venture with Lexxus International and
formed a new majority-owned subsidiary, Lexxus International, Inc. ("Lexxus"), a
Delaware corporation. The original founders of Lexxus International received an
aggregate of 100,000 shares of Common Stock.

In the second quarter of 2001, NHTC incorporated Lexxus International (SW
Pacific) Pty. Ltd., an Australian corporation and majority-owned subsidiary of
NHTC, which does business in Australia ("Lexxus Australia"). In addition, NHTC
incorporated Lexxus International (New Zealand) Limited, a New Zealand
corporation and majority-owned subsidiary of NHTC, which does business in New
Zealand ("Lexxus New Zealand").

In June 2001, NHTC incorporated Lighthouse Marketing Corporation ("Lighthouse"),
a Delaware Corporation and a wholly-owned subsidiary of NHTC. On January 31,
2003, NHTC entered into a Database Purchase Agreement with NuEworld.com
Commerce, Inc. and Lighthouse, pursuant to which Lighthouse purchased a database
of distributors from NuEworld in exchange for the issuance of 360,000 shares of
our Common Stock.

In June 2001, NHTC sold 100% of the Common Stock in Kaire Nutraceuticals, Inc.,
Delaware Corporation, to a South African firm.

On November 16, 2001, NHTC incorporated Lexxus International Co., Ltd., a
corporation organized under the laws of the Republic of China and a
majority-owned subsidiary of NHTC ("Lexxus Taiwan").

On January 28, 2002, NHTC incorporated MyLexxus Europe AG, a corporation
organized under the laws of Switzerland and a majority-owned subsidiary of NHTC
("MyLexxus Europe"). This company manages the sales of product into sixteen
eastern European countries, including Russia.

In March 2002, NHTC incorporated Lexxus International Co., Ltd., a corporation
organized under the laws of Hong Kong and a wholly-owned subsidiary of NHTC
("Lexxus Hong Kong").

In April 2002, NHTC incorporated Personal Care International India Pvt. Ltd., a
corporation organized under the laws of India and a wholly-owned subsidiary of
NHTC ("MyLexxus India").

In June 2002, NHTC incorporated Lexxus International Marketing Ltd., a
corporation organized under the laws of Singapore and a majority-owned
subsidiary of NHTC ("Lexxus Singapore").

                                       29
<PAGE>

In November 2002, NHTC incorporated Lexxus International (Philippines) Inc., a
corporation organized under the laws of the Philippines and a majority-owned
subsidiary of NHTC ("Lexxus Philippines").

NHTC's other business, eKaire.com, Inc. ("eKaire"), distributes nutritional
supplements aimed at general health and wellness through the Internet and other
channels. eKaire consists of companies operating in the U.S., in Canada as Kaire
International Canada Ltd. ("Kaire Canada"), in Australia as Kaire Nutraceuticals
Australia Pty. Ltd. ("Kaire Australia"), and in New Zealand as Kaire
Nutraceuticals New Zealand Limited ("Kaire New Zealand").

In February 1999, NHTC Holdings Inc. acquired certain assets (the "Kaire
Assets") of Kaire International, Inc., a Delaware corporation ("KII"). The
assets included, but not limited to, the corporate name, all variations and any
other product name, registered and unregistered trademarks, tradenames,
servicemarks, patents, logos and copyrights of KII, and independent associate
lists. In exchange for the Kaire Assets, NHTC made the following issuances:

         o        to 11 secured creditors of KII, $2,800,000 aggregate stated
                  value of Series F preferred stock, par value $1,000 per share,
                  of NHTC (the "Series F Preferred Stock");

         o        to two secured creditors of KII, $350,000 aggregate stated
                  value of Series G preferred stock, par value $1,000 per share,
                  of NHTC (the "Series G Preferred Stock")

In March 2001, Global Health Alternatives, Inc. ("GHA"), a Delaware corporation
and wholly-owned subsidiary of NHTC, and Ellon, Inc. ("Ellon"), a Delaware
corporation and wholly-owned subsidiary of GHA, filed for Chapter 7 bankruptcy
liquidation in the United States Bankruptcy Court of the Northern District of
Texas. Neither GHA nor Ellon had operations during 2001. Both GHA and Ellon were
dissolved in June 2001.


RESULTS OF OPERATIONS

Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001

Revenues

Revenues for the year ended December 31, 2002 were approximately $39,662,000 as
compared to revenues for the year ended December 31, 2001 of approximately
$24,794,000, an increase of approximately $14,868,000 or approximately 60%. The
increased sales for the year ended December 31, 2002 were primarily from the
sale of Lexxus products with an expansion into many other countries and with
eKaire showing a slight rise in sales from the year ended December 31, 2001.

Cost of Sales

Cost of sales for the year ended December 31, 2002 was approximately $7,391,000
or 19% of revenues. Cost of sales for the year ended December 31, 2001 was
$5,876,000 or 24% of revenues. The total cost of sales increased by
approximately $1,515,000 or 26%, most of which was attributable to Lexxus
product mix and sales volume compared to 2001 sales of eKaire products and a
smaller Lexxus product mix in fewer countries. The decrease in the cost of sales
as a percentage of revenues is attributable to lower manufactured cost of Lexxus
products in conjunction with the higher sales volume of Lexxus products than
eKaire products.

Gross Profit

Gross profit increased from approximately $18,918,000 in the year ended December
31, 2001 to approximately $32,271,000 in the year ended December 31, 2002. The
increase was approximately $13,353,000 or 71%. The increase was attributable to
the increase in gross sales by both Lexxus and eKaire and the reduction of cost
of sales as a percentage of sales due to the growth of Lexxus into more
international markets.


                                       30
<PAGE>

Commissions

Associate commissions were approximately $17,293,000 or 44% of revenues in the
year ended December 31, 2002 compared with approximately $12,449,000 or 50% of
revenues for the year ended December 31, 2001. The increase of commission
expense is directly related to the increase in gross sales and the terms of the
compensation plans. The decrease in the commission as a percentage of revenue is
due to the normal fluctuations that occur in the compensation plan and also due
to the amount of revenue allocated to the compensation plan.

Selling, General and Administrative Expenses

Selling, general and administrative costs increased from approximately
$5,187,000 or 21% of revenues in the year ended December 31, 2001 to
approximately $11,477,000 or 29% of revenues in the year ended December 31,
2002, an increase of approximately $6,290,000 or 121% which is attributable to
the significant international expansion of Lexxus in 2002 with increased
administrative expenses related to the opening of new offices.

Income Taxes

Income tax benefits were not reflected in either period. The anticipated
benefits of utilizing net operating losses against future profits was not
recognized in the years ended December 31, 2002 or 2001 under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", utilizing its loss carry forwards as a component of income tax expense.
A valuation allowance equal to the net deferred tax asset has been recorded as
management has not been able to determine that it is more likely than not that
the deferred tax assets will be realized.

Other Income

During the year ended December 31, 2002, NHTC realized a gain of approximately
$800,000 in other income due to the reduction of the reserve for contingent
liabilities related to the sale of Kaire Nutraceuticals, Inc. During the year
ended December 31, 2001, NHTC realized a gain of approximately $820,000 in other
income due to the reduction of the reserve for contingent liabilities related to
the sale of Kaire Nutraceuticals, Inc.

Income from Operations

Net income from operations was approximately $2,023,000 in the year ended
December 31, 2001 or approximately 8% of revenues as compared to net income from
operations of approximately $4,102,000 or approximately 10% of revenues in the
year ended December 31, 2002.


Liquidity and Capital Resources

NHTC has funded the working capital and capital expenditure requirements
primarily from cash provided through sales of products and through borrowings
from institutions and individuals.

In March 2000, NHTC sold 1,000 shares of Series J Preferred Stock, par value
$1,000 per share, (the "Series J Preferred Stock") realizing net proceeds of
$1,000,000. Series J Preferred Stock pays a dividend at the rate of 10% per
annum. Series J Preferred Stock and the accrued dividends thereon are
convertible into shares of Common Stock at a conversion price equal to the lower
of the closing bid price on the conversion date or 70% of the average closing
bid price of the Common Stock for the lowest three trading days during the
twenty day period immediately preceding the date on which NHTC receives notice
of conversion from a holder thereof. During 2001, $206,194 face amount of Series
J Preferred Stock was converted into 122,604 shares of Common Stock. During


                                       31
<PAGE>

2002, $777,476 face amount of Series J Preferred Stock was converted into
1,025,397 shares of Common Stock. At the end of 2002, $16,330 face amount of
Series J Preferred Stock was still outstanding.

In May 2000, NHTC borrowed $20,700 from Tyler Pipeline, Inc. This indebtedness
was evidenced by NHTC's issuance of a convertible promissory note. The note bore
interest at 10% per annum and was payable on demand. The note was convertible
into shares of Common Stock at a discount equal to 60% of the average closing
bid price of the Common Stock on the three days preceding notice of conversion
of the note. In April 2001, this note was fully satisfied through conversion
into an aggregate of 21,637 shares of Common Stock.

In October 2000, NHTC issued 50 shares of Series H Preferred Stock for $50,000
realizing net proceeds of $43,500. The Series H Preferred Stock pays dividends
of 10% per annum and is convertible into shares of Common Stock at the lower of
the closing bid price on the conversion date or 75% of the market value of the
Common Stock on the conversion date. In April 2002, these 50 shares of Series H
Preferred Stock and $5,666 of accrued dividends were converted into 37,739
shares of Common Stock.

In October 2000, NHTC borrowed $10,000 from Meridian Investments, Inc. This
indebtedness was evidenced by NHTC's issuance of a convertible promissory note.
The note bore interest at 10% per annum and was payable on demand. The note was
convertible into shares of Common Stock at a discount equal to 60% of the
average closing bid price of the Common Stock on the three days preceding notice
of conversion. The note was repaid in November 2001.

In November 2000, NHTC borrowed $25,000 from Filin Corp. This indebtedness was
evidenced by NHTC's issuance of a convertible promissory note. The note bore
interest at 10% per annum and was payable on demand. The note was convertible
into shares of Common Stock at a discount equal to 60% of the average closing
bid price of the Common Stock on the three days preceding notice of conversion.
The note was converted into an aggregate of 14,528 shares of Common Stock in
August 2001.

In January 2001, NHTC entered into a joint venture with Lexxus International and
formed a new majority-owned subsidiary, Lexxus. The original founders of Lexxus
International received an aggregate of 100,000 shares of Common Stock.

In April 2001, NHTC borrowed $100,000 from Augusta Street LLC. This indebtedness
was evidenced by NHTC's issuance of a convertible promissory note. The note bore
interest at 10% per annum and was payable on demand. The note was convertible
into shares of Common Stock at a discount equal to 75% of the average closing
bid price of the Common Stock on the five days preceding notice of conversion.
The note was converted into an aggregate of 78,343 shares of Common Stock in
September 2002.

In April 2001, NHTC issued an aggregate of 2,000 shares of Common Stock to an
individual in exchange for a loan of $50,000.

In April 2001, NHTC issued 50 shares of Series H Preferred Stock for $50,000
realizing net proceeds of $43,500. The Series H Preferred Stock pays dividends
of 10% per annum and was convertible into shares of Common Stock at the lower of
the closing bid price on the conversion date or 75% of the market value of the
Common Stock on the conversion date. In November 2002, these 50 shares of Series
H Preferred Stock and $6,389 of accrued dividends were converted into 40,422
shares of Common Stock.

In May 2001, NHTC issued 50 shares of Series H Preferred Stock for $50,000
realizing net proceeds of $43,500. The Series H Preferred Stock pays dividends
of 10% per annum and is convertible into shares of Common Stock at the lower of
the closing bid price on the conversion date or 75% of the market value of the
Common Stock on the conversion date. In September 2002, 25 shares of Series H
Preferred Stock were converted into 23,087 shares of Common Stock. In November
2002, 25 shares of Series H Preferred Stock and $5,440 of accrued dividends were
converted into 36,248 shares of Common Stock.


                                       32
<PAGE>

In December 2001, NHTC borrowed $138,000 from Augusta Street LLC. This
indebtedness was evidenced by NHTC's issuance of a convertible promissory note.
The note bore interest at 4.75% per annum and was payable on demand. The note
was convertible into shares of Common Stock at a discount equal to 75% of the
average closing bid price of the Common Stock on the five days preceding notice
of conversion. The note was converted into an aggregate of 106,562 shares of
Common Stock in September 2002.

During 2002, $1,200,960 face amount of Series F Preferred Stock was converted
into 610,995 shares of Common Stock.

In November 2002, NHTC paid $100,000 and issued a promissory note of $120,000 to
redeem 180 shares of Series F Preferred Stock. The note is due on December 31,
2003.

At December 31, 2002, the ratio of current assets to current liabilities was 1.1
to 1.0 and NHTC had working capital of approximately $751,000.

Cash provided by operations for the period ended December 31, 2002 was
approximately $4,703,000. Cash used by investing activities during the period
was approximately $933,000, which primarily relates to the capital expenditures
relating to the expansion of several international offices and to the increase
of restricted cash related to the credit card reserve. Cash used by financing
activities during the period was approximately $223,000, primarily utilized for
the repayment of notes payable and long-term debt. Total cash increased by
approximately $3,540,000 during the period.





                                       33
<PAGE>

                         NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
                                 INDEX TO FINANCIAL STATEMENTS


The following consolidated financial statements of Natural Health Trends Corp.
are included in response to Item 7:


                                                                          PAGE


Independent Auditors' Report........................................      F-2

Consolidated Balance Sheet..........................................      F-3

Consolidated Statements of Operations...............................      F-4

Consolidated Statements of Stockholders' Equity.....................      F-5

Consolidated Statements of Comprehensive Income.....................      F-6

Consolidated Statements of Cash Flows...............................      F-7

Notes to Consolidated Financial Statements..........................      F-8








                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT



Board of Directors
Natural Health Trends Corp. and Subsidiaries
New York, New York

We have audited the accompanying consolidated balance sheet of Natural Health
Trends Corp. and Subsidiaries ("NHTC") as of December 31, 2002, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 2002 and 2001. These financial statements are the
responsibility of NHTC's management. Our responsibility is to express an opinion
on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above fairly present the
financial position of Natural Health Trends Corp. and Subsidiaries as of
December 31, 2002, and the results of its operations and its cash flows for the
years ended December 31, 2002 and 2001, in conformity with accounting principles
generally accepted in the United States of America.




                                                /s/ Sherb & Co., P.C.
                                                    Sherb & Co., P.C.
                                                    Certified Public Accountants

New York, New York
March 7, 2003


                                      F-2
<PAGE>
                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                                               December 31,
                                                                   2002
                                                              ------------
ASSETS
Current Assets
       Cash                                                   $  3,863,946
       Account receivables                                         519,752
       Inventories                                               2,921,124
       Prepaid expenses and other current assets                   407,806
                                                              ------------
Total Current Assets                                             7,712,628

       Restricted cash                                             327,885
       Property and equipment, net                                 698,918
       Goodwill                                                    207,765
       Website                                                      55,417
       Deposits and other assets                                   331,606
                                                              ------------

Total Assets                                                  $  9,334,219
                                                              ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
       Accounts payable                                       $  4,849,417
       Accrued expenses                                            475,639
       Accrued bonus payable                                       677,409
       Notes payable                                               401,523
       Current portion of long term debt                           204,337
       Other current liabilities                                   353,043
                                                              ------------
Total Current Liabilities                                        6,961,368

       Long term debt                                               77,750
                                                              ------------
Total Liabilities                                                7,039,118

       Minority interest                                           726,747

Stockholders' Equity
       Preferred stock ($1,000 par value; authorized
       1,500,000 shares; issued and outstanding 16 shares)          16,330
       Common stock ($0.001 par value; authorized
       500,000,000 shares; issued and outstanding
       4,239,439 shares)                                             4,239
       Additional paid in capital                               31,950,515
       Accumulated deficit                                     (30,246,914)
       Deferred compensation                                      (146,250)
       Cumulative currency translation adjustment                   (9,566)
                                                              ------------
Total Stockholders' Equity                                       1,568,354
                                                              ------------

Total Liabilities and Stockholders' Equity                    $  9,334,219
                                                              ============



                 See Notes to Consolidated Financial Statements


                                      F-3
<PAGE>

                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                    Year Ended December 31,
                                                     2002             2001
                                                ------------     ------------
                                    Revenues    $ 39,662,347     $ 24,794,036
                               Cost of Sales       7,391,447        5,875,970
                                                ------------     ------------
                                Gross Profit      32,270,900       18,918,066
                       Associate commissions      17,292,704       12,449,357
Selling, general and administrative expenses      11,477,024        5,186,633
                                                ------------     ------------
                            Operating income       3,501,172        1,282,076
             Minority Interest in Subsidiary        (231,991)         105,686
             Gain (loss) on foreign exchange          20,557           (5,861)
                                Other income         873,132          797,269
                      Interest expense (net)         (60,850)        (156,549)
                                                ------------     ------------

                                  Net income       4,102,020        2,022,621

                   Preferred stock dividends          70,111        1,089,231
                                                ------------     ------------

           Net income to common shareholders    $  4,031,909     $    933,390
                                                ============     ============


              Basic income per common share:    $       1.29     $       0.70
                                                ============     ============

           Basic weighted common shares used       3,118,196        1,342,068


            Diluted income per common share:    $       1.24     $       0.39
                                                ============     ============

         Diluted weighted common shares used       3,246,625        2,393,175



                 See Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>
<TABLE>

                          NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>

                                                                  Common Stock              Preferred Stock
                                                               Shares      Amount      Shares            Amount              APIC
------------------------------------------------------------------------------------------------------------------------------------
BALANCE -December 31, 2000                                     157,619      $  157       5,752       $ 5,752,410       $ 23,759,408
------------------------------------------------------------------------------------------------------------------------------------

Conversion of Convertible Series E Preferred Stock             355,230         355        (947)         (946,768)           946,413
Conversion of Convertible Series F Preferred Stock             515,592         516      (1,416)       (1,416,408)         1,415,892
Conversion of Convertible Series G Preferred Stock             157,322         157        (344)         (344,200)           344,043
Conversion of Convertible Series H Preferred Stock             276,994         277        (615)         (614,542)           614,265
Issuance of Convertible Series H Preferred Stock                    --          --         100           100,000                 --
Conversion of Convertible Series J Preferred Stock             122,604         123        (206)         (206,194)           206,071
Conversion of Notes Payable to Common Stock                    228,870         229                                          422,784
Shares issued for services                                     212,246         212                                          521,338
Penalties                                                       82,900          83                                            8,207
Preferred Stock dividends                                                                                                 1,089,231
Foreign currency translation
Acquisition                                                    100,000         100                                          109,900
Deferred Compensation
Net Income

------------------------------------------------------------------------------------------------------------------------------------
BALANCE -December 31, 2001                                   2,209,377      $2,209       2,324       $ 2,324,298       $ 29,437,552
------------------------------------------------------------------------------------------------------------------------------------

Conversion of Convertible Series F Preferred Stock             610,995         611      (1,201)       (1,200,960)         1,200,349
Conversion of Convertible Series H Preferred Stock             137,497         137        (150)         (150,000)           149,863
Conversion of Convertible Series J Preferred Stock           1,025,397       1,025        (777)         (777,476)           776,451
Conversion of Notes Payable to Common Stock                    236,663         237                                          279,885
Conversion of Series F Preferred Stock to note payable                                    (180)         (179,532)
Shares issued for services                                      19,510          20          --                               36,304
Preferred Stock dividends                                                                                                    70,111
Foreign currency translation
Deferred Compensation
Net Income

------------------------------------------------------------------------------------------------------------------------------------
BALANCE -December 31, 2002                                   4,239,439      $4,239          16       $    16,330       $ 31,950,515
------------------------------------------------------------------------------------------------------------------------------------





                                                                  Accum         Foreign
                                                                 Deficit        Currency           Comp             Total
------------------------------------------------------------------------------------------------------------------------------------
BALANCE - December 31, 2000                                  $(35,212,213)      $(37,202)             --       $ (5,737,440)
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                                                      <C>
Conversion of Convertible Series E Preferred Stock                                                                       (0)
Conversion of Convertible Series F Preferred Stock                                                                       (0)
Conversion of Convertible Series G Preferred Stock                                                                        0
Conversion of Convertible Series H Preferred Stock                                                                        0
Issuance of Convertible Series H Preferred Stock                                                                    100,000
Conversion of Convertible Series J Preferred Stock
Conversion of Notes Payable to Common Stock                                                                         423,013
Shares issued for services                                                                                          521,550
Penalties                                                                                                             8,290
Preferred Stock dividends                                      (1,089,231)                                               --
Foreign currency translation                                                      34,962                             34,962
Acquisition                                                                                                         110,000
Deferred Compensation                                                                           (416,250)          (416,250)
Net Income                                                      2,022,621                                         2,022,621

------------------------------------------------------------------------------------------------------------------------------------
 BALANCE -December 31, 2001                                  $(34,278,823)      $ (2,240)      $(416,250)      $ (2,933,255)
------------------------------------------------------------------------------------------------------------------------------------

Conversion of Convertible Series F Preferred Stock                                                                        0
Conversion of Convertible Series H Preferred Stock                                                                        0
Conversion of Convertible Series J Preferred Stock
Conversion of Notes Payable to Common Stock                                                                         280,122
Conversion of Series F Preferred Stock to note payable                                                             (179,532)
Shares issued for services                                                                                           36,324
Preferred Stock dividends                                         (70,111)                                                0
Foreign currency translation                                                      (7,326)                            (7,326)
Deferred Compensation                                                                            270,000            270,000
Net Income                                                      4,102,020                                         4,102,020

------------------------------------------------------------------------------------------------------------------------------------
 BALANCE -December 31, 2002                                  $(30,246,914)      $ (9,566)      $(146,250)      $  1,568,354
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      F-5a
<PAGE>

                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



                                                        Year Ended December 31,
                                                          2002           2001
                                                      -----------     ----------
Net Income                                            $ 4,102,020     $2,022,621
Foreign currency translation adjustments                   (7,326)        34,962
                                                      -----------     ----------
Comprehensive Income                                  $ 4,094,694     $2,057,583
                                                      ===========     ==========






                 See Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>

                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                              Year Ended
                                                             December 31,
                                                          2002          2001
                                                      -----------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                            $ 4,102,020   $ 2,022,621
     Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization                             469,698        90,578
Gain on forgiveness of debt                              (800,000)     (820,498)
Minority interest in subsidiary                           231,991      (105,686)
Common Stock issued for services and penalties            316,446       529,840
     Changes in assets and liabilities
 Accounts receivable                                     (399,935)      (68,049)
 Inventories                                           (1,996,363)     (727,692)
 Prepaid expenses                                        (160,615)     (229,599)
 Deposits and other assets                                 (6,922)     (237,646)
 Accounts payable                                       1,713,742     1,209,237
 Accrued expenses                                         987,147    (1,332,182)
 Deferred revenue                                              --      (119,413)
 Other current liabilities                                245,821      (177,432)
                                                      -----------   -----------
    Total adjustments                                     601,010    (1,988,542)
                                                      -----------   -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES               4,703,030        34,079
                                                      -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                                    (706,360)     (141,199)
 Purchase of websites                                          --      (133,000)

 Increase in restricted cash                             (227,076)      (27,975)
                                                      -----------   -----------
NET CASH USED IN INVESTING ACTIVITIES                    (933,436)     (302,174)
                                                      -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from preferred stock                                 --       100,000
 Proceeds from notes payable and long-term debt           335,225       382,216
 Payments of notes payable and long-term debt            (557,862)      (33,187)
                                                      -----------   -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES                                     (222,637)      449,029
                                                      -----------   -----------

EFFECT OF EXCHANGE RATE                                    (7,326)       34,962

NET INCREASE IN CASH                                    3,539,631       215,896

CASH, BEGINNING OF PERIOD                                 324,315       108,419
                                                      -----------   -----------
CASH, END OF PERIOD                                   $ 3,863,946   $   324,315
                                                      ===========   ===========
DISCLOSURE OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
   (1) Conversion of Preferred Stock to Common Stock    2,128,436     3,528,112
   (2) Conversion of debentures, notes payable and
       related accrued interest to Common Stock           280,122       521,550
   (3) Preferred Stock dividends                           70,111     1,089,231
   (4) Common Stock issued for acquisition                              110,000
   (5) Preferred Stock redeemed for notes payable         179,532            --

                 See Notes to Consolidated Financial Statements.


                                      F-7
<PAGE>

                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2002 and 2001.

1. ORGANIZATION

NHTC was incorporated on December 1, 1988 in the state of Florida as "Florida
Institute of Massage Therapy, Inc.", and changed its name to "Natural Health
Trends Corp." on June 24, 1993. The Florida Institute of Massage Therapy, Inc.
was initially formed to primarily operate vocational schools in Florida.

In August 1998, we sold the 3 vocational schools that we operated.

In July 1997, we acquired all of the outstanding capital stock of Global Health
Alternatives, Inc. ("GHA") which operated our natural health care product
division.

NHTC's Common Stock, par value $0.001 per share (the "Common Stock") is listed
on the Over-the-Counter Bulletin Board (the "OTCBB"). In March 2003, NHTC
effected a 1-for-100 reverse stock split with respect to our outstanding shares
of Common Stock. In addition, the trading symbol for the shares of our Common
Stock changed from "NHTC" to "NHLC". All share references will give effect to
the reverse stock split.

NHTC is a holding company that operates two businesses, which distribute
products that promote health, wellness and vitality through a multi-level
marketing ("MLM") channel. The following paragraphs will outline the progression
of NHTC as it is organized today.

NHTC's largest operation is its Lexxus subsidiaries ("Lexxus"). The U.S. company
is called Lexxus International, Inc. a Delaware corporation and a majority-owned
subsidiary of NHTC. Lexxus sells products that can be described as "quality of
life" products, heightening sexual arousal, health and beauty.

In January 2001, NHTC entered into a joint venture with Lexxus International and
formed a new majority-owned subsidiary, Lexxus International, Inc. ("Lexxus"), a
Delaware corporation. The original founders of Lexxus International received an
aggregate of 100,000 shares of Common Stock.

In the second quarter of 2001, NHTC incorporated Lexxus International (SW
Pacific) Pty. Ltd., an Australian corporation and majority-owned subsidiary of
NHTC, which does business in Australia ("Lexxus Australia"). In addition, NHTC
incorporated Lexxus International (New Zealand) Limited, a New Zealand
corporation and majority-owned subsidiary of NHTC, which does business in New
Zealand ("Lexxus New Zealand").

In June 2001, NHTC incorporated Lighthouse Marketing Corporation ("Lighthouse"),
a Delaware Corporation and a wholly-owned subsidiary of NHTC. On January 31,
2003, NHTC entered into a Database Purchase Agreement with NuEworld.com
Commerce, Inc. and Lighthouse, pursuant to which Lighthouse purchased a database
of distributors from NuEworld in exchange for the issuance of 360,000 shares of
our Common Stock.

In June 2001, NHTC sold 100% of the Common Stock in Kaire Nutraceuticals, Inc.,
Delaware Corporation, to a South African firm.

On November 16, 2001, NHTC incorporated Lexxus International Co., Ltd., a
corporation organized under the laws of the Republic of China and a
majority-owned subsidiary of NHTC ("Lexxus Taiwan").

On January 28, 2002, NHTC incorporated MyLexxus Europe AG, a corporation
organized under the laws of Switzerland and a majority-owned subsidiary of NHTC
("MyLexxus Europe"). This company manages the sales of product into sixteen
eastern European countries, including Russia.

In March 2002, NHTC incorporated Lexxus International Co., Ltd., a corporation
organized under the laws of Hong Kong and a wholly-owned subsidiary of NHTC
("Lexxus Hong Kong").

In April 2002, NHTC incorporated Personal Care International India Pvt. Ltd., a
corporation organized under the laws of India and a wholly-owned subsidiary of
NHTC ("MyLexxus India").

                                      F-8
<PAGE>

In June 2002, NHTC incorporated Lexxus International Marketing Ltd., a
corporation organized under the laws of Singapore and a majority-owned
subsidiary of NHTC ("Lexxus Singapore").

In November 2002, NHTC incorporated Lexxus International (Philippines) Inc., a
corporation organized under the laws of the Philippines and a majority-owned
subsidiary of NHTC ("Lexxus Philippines").

NHTC's other business, eKaire.com, Inc. ("eKaire"), distributes nutritional
supplements aimed at general health and wellness through the Internet and other
channels. eKaire consists of companies operating in the U.S., in Canada as Kaire
International Canada Ltd. ("Kaire Canada"), in Australia as Kaire Nutraceuticals
Australia Pty. Ltd. ("Kaire Australia"), and in New Zealand as Kaire
Nutraceuticals New Zealand Limited ("Kaire New Zealand").

In February 1999, NHTC Holdings Inc. acquired certain assets (the "Kaire
Assets") of Kaire International, Inc., a Delaware corporation ("KII"). The
assets included, but not limited to, the corporate name, all variations and any
other product name, registered and unregistered trademarks, tradenames,
servicemarks, patents, logos and copyrights of KII, and independent associate
lists. In exchange for the Kaire Assets, NHTC made the following issuances:

         o        to 11 secured creditors of KII, $2,800,000 aggregate stated
                  value of Series F preferred stock, par value $1,000 per share,
                  of NHTC (the "Series F Preferred Stock");

         o        to two secured creditors of KII, $350,000 aggregate stated
                  value of Series G preferred stock, par value $1,000 per share,
                  of NHTC (the "Series G Preferred Stock")

In March 2001, Global Health Alternatives, Inc. ("GHA"), a Delaware corporation
and wholly-owned subsidiary of NHTC, and Ellon, Inc. ("Ellon"), a Delaware
corporation and wholly-owned subsidiary of GHA, filed for Chapter 7 bankruptcy
liquidation in the United States Bankruptcy Court of the Northern District of
Texas. Neither GHA nor Ellon had operations during 2001. Both GHA and Ellon were
dissolved in June 2001.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation

         The accompanying consolidated financial statements include the accounts
         of Natural Health Trends Corp. and all of its wholly and majority-owned
         subsidiaries, after the elimination of intercompany balances and
         transactions.

         Estimates

         The preparation of financial statements in accordance with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and the disclosure of contingent assets and liabilities at
         the date of the consolidated financial statements and the reported
         amounts of revenues and expenses during the reported period. Actual
         results may differ from these estimates.

         Foreign Currency Translation

         The assets and liabilities of NHTC and its subsidiaries are translated
         at the exchange rate prevailing at the balance sheet date. The income
         and expenses of NHTC and its subsidiaries are translated at the
         exchange rate prevailing during the year or period then ended. The
         related translation adjustments are reflected as a cumulative
         translation adjustment in consolidated stockholders' equity. Foreign
         currency gains and losses resulting from transactions are included in
         results of operations in the period in which the transaction occurred.


                                      F-9
<PAGE>

         Reclassifications

         NHTC has reclassified certain expenses in its consolidated statements
         of operations for the years ended December 31, 2002 and 2001. These
         changes had no significant impact on previously reported results of
         operations or stockholders' equity.

         Cash and Cash Equivalents

         Cash and cash equivalents consist of money market accounts and
         commercial paper with an initial term of fewer than three months. For
         purposes of the statement of cash flows, NHTC considers highly liquid
         debt instruments with original maturities of three months or less to be
         cash equivalents.

         Concentration of Credit Risk

         Financial instruments that potentially subject the Company to
         concentrations of credit risk are primarily cash equivalents,
         short-term investments and receivables.

         NHTC maintains its cash in several bank accounts. Accounts in the
         United States are insured by the Federal Deposit Insurance Corporation
         ("FDIC") up to $100,000. Some of NHTC's cash balances exceed the
         insured limits.

         Virtually all of Lexxus and eKaire product sales are generated through
         the Internet and utilize credit cards for payment. Credit is extended
         until credit card purchases have cleared the bank, which is on average
         5 to 7 days. Credit losses, if any, have been provided for in the
         financial statements and are based on management's estimates. NHTC's
         accounts receivable are subject to potential concentrations of credit
         risk. NHTC does not believe that it is subject to any unusual or
         significant risk in the normal course of business.

         Accounts Receivable

         Accounts receivable represent the lag time between credit card
         purchases and the settlement of the credit card funds into the bank.
         Therefore, the allowance for doubtful accounts is zero.

         Inventories

         Inventories consisting primarily of nutritional supplements and
         "quality of life" products and are stated at the lower of cost or
         market. Cost is determined using the first-in, first-out ("FIFO")
         method.

         Restricted Cash

         NHTC is required to maintain two restricted cash accounts: a reserve
         with the credit card processing company and a reserve with a Canadian
         bank as security for a bank drafting process utilized by eKaire in the
         ordinary course of business. The primary purpose of the reserve with
         the credit card company is to provide for potential uncollectible
         amounts and chargebacks by Lexxus and eKaire credit card customers. The
         credit card processing company may periodically increase the restricted
         cash requirement. The amount on deposit is calculated at an average 2%
         of net sales over a rolling six month time period.

         Property and Equipment

         Property and equipment are carried at cost. Depreciation of property
         and equipment is computed for financial reporting purposes using the
         straight-line method over the estimated useful lives of the various
         assets.

                                      F-10
<PAGE>

         Impairment of Long-Lived Assets

         The Company reviews long-lived assets, certain identifiable assets and
         goodwill related to those assets on a quarterly basis for impairment
         whenever circumstances and situations change such that there is an
         indication that the carrying amounts may not be recovered. NHTC
         believes that no impairment exists at December 31, 2002.

         Fair Value of Financial Instruments

         The carrying amounts reported in the balance sheet for cash,
         receivables, accounts payable, accrued expenses and notes payable
         approximate fair value based on the short-term maturity of these
         instruments.

         Revenue Recognition

         Revenue from the sale of products is recorded when the products are
         shipped. Amounts in the sales transaction relating to shipping and
         handling are included in "net sales," and costs incurred for shipping
         and handling are classified as "cost of goods sold" in the Consolidated
         Statements of Operations.

         Income Taxes

         Pursuant to Statement of Financial Accounting Standards No. 109 ("SFAS
         109") "Accounting for Income Taxes", NHTC accounts for income taxes
         under the asset and liability method. Under the asset and liability
         method, deferred tax assets and liabilities are recognized for the
         estimated future tax consequences attributable to differences between
         the financial statement carrying amounts of existing assets and
         liabilities and their respective tax basis. This method also requires
         the recognition of future tax benefits such as net operating loss
         carryforwards, to the extent that realization of such benefits is more
         likely than not.

         Earnings Per Share

         Statement of Financial Accounting Standards No. 128, ("SFAS 128")
         "Earnings Per Share", requires a presentation of "Basic" and (where
         applicable) "Diluted" earnings per share. Generally, basic earnings per
         share is computed on only the weighted average number of common shares
         actually outstanding during the period, and the diluted computation
         considers potential shares issuable upon exercise or conversion of
         other outstanding instruments where dilution would result.

         Accounting for Stock-Based Compensation

         NHTC accounts for employee stock options using the method of accounting
         prescribed by Accounting Principles Board ("APB") Opinion No. 25,
         "Accounting for Stock Issued to Employees," and the associated
         interpretations. Generally, no expense is recognized to NHTC stock
         options because the options' exercise price is set at the stocks' fair
         market value on the date the option is granted.

         In accordance with Statement of Financial Accounting Standards No. 123
         ("SFAS 123"), "Accounting for Stock-Based Compensation," NHTC discloses
         the compensation cost based on the estimated fair value of the options
         at the grant dates.

         Recently Issued Accounting Standards

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
         "Business Combinations". SFAS 141 requires that any business
         combination initiated after June 30, 2001 be accounted for using the
         purchase method of accounting instead of the pooling of interests
         method of accounting. Additionally, SFAS 141 specifies that intangible


                                      F-11
<PAGE>

         assets acquired in a purchase method business combination must need to
         be recognized and reported apart from goodwill. The implementation of
         SFAS 141 did not have an impact on NHTC's consolidated financial
         statements as it had no business combinations during the year.

         In June 2001, the FASB issued Statement of Financial Accounting
         Standards No. 142 ("SFAS 142"), "Accounting for Goodwill and Intangible
         Assets". SFAS 142 requires that goodwill and intangible assets with
         indefinite useful lives no longer be amortized, but instead tested for
         impairment annually. Any impairment loss will be measured as of the
         date of adoption and recognized as the cumulative effect of a change in
         accounting principle. Statement 142 also requires that intangible
         assets with definite useful lives be amortized over their estimated
         useful lives to the estimated residual values, and reviewed for
         impairment in accordance with the FASB's Statement of Financial
         Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
         Impairment of Long-Lived Assets and for Long-Lived Assets to be
         Disposed of" or SFAS 144 upon adoption. SFAS 142 is effective for the
         fiscal years beginning after December 15, 2001.

         In August 2001, the FASB issued Statement of Financial Accounting
         Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or
         Disposal of Long-Lived Assets". SFAS 144 addresses financial accounting
         and reporting for the impairment or disposal of long-lived assets. This
         statement requires that long-lived assets be reviewed for impairment
         whenever events or changes in circumstances indicate that the carrying
         amount of an asset may not be recoverable. Recoverability of assets to
         be held and used is measured by a comparison of the carrying amount of
         an asset to future net cash flows expected to be generated by the
         asset. If the carrying amount of an asset exceeds its estimated future
         cash flows, an impairment charge is recognized by the amount by which
         the carrying amount of the asset exceeds the fair value of the asset.
         SFAS 144 requires companies to separately report discontinued
         operations and extends that reporting to a component of an entity that
         either has been disposed of (by sale, abandonment, or in a distribution
         to owners) or is classified as held for sale. Assets to be disposed of
         are reported at the lower of the carrying value less cost to sell. The
         Company adopted SFAS 144 on January 1, 2002 and it did not have any
         impact on the Company's consolidated financial statements.

         In December 2002, the FASB issued Statement of Financial Accounting
         Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based
         Compensation - Transition and Disclosure." This statement amends SFAS
         123, "Accounting for Stock-Based Compensation", to provide alternative
         methods of transition for a voluntary change to the fair value based
         method of accounting for stock-based employee compensation. In
         addition, SFAS 148 amends the disclosure requirements of SFAS 123 to
         require prominent disclosures in both annual and interim financial
         statements about the method of accounting for stock-based employee
         compensation and the effect of the method used on reported results.
         Certain disclosure modifications are required for fiscal years ending
         after December 15, 2002 and are included in the notes to these
         consolidated financial statements. The adoption of SFAS 148 as of
         December 31, 2002 had no effect on the Company's consolidated financial
         position or results of operations.


                                      F-12
<PAGE>

3. PROPERTY AND EQUIPMENT

         Property and equipment consisted of the following:


                                        Estimated Useful
   Type of Property or Equipment              Lives             Amount
                                                             ----------
Equipment, furniture and fixtures            5 to 7          $  403,265
Computers and peripherals                       3               207,655
Software                                     3 to 5              99,227
Leasehold improvements                       3 to 5             223,222
                                                             ----------
       Property and equipment                                $  933,369

Less: Accumulated depreciation                                 (234,451)
                                                             ----------
       Property and equipment, net                           $  698,918
                                                             ==========


4. NOTES PAYABLE

         Notes Payable consisted of the following at December 31, 2002:

-----  --------------------------------------------------------------  ---------
                                   Note Payable                          Amount
-----  --------------------------------------------------------------  ---------
  (i)  Naline Thompson $50,000 note payable, 12% interest               $ 50,000
-----  --------------------------------------------------------------  ---------
       Merrill Corp. $145,496 note payable, 8% interest,
       due upon demand                                                  $145,496
-----  --------------------------------------------------------------  ---------
       Aloe Commodities International, Inc.,
       non-interest bearing, due upon demand                            $ 46,000
-----  --------------------------------------------------------------  ---------
 (ii)  Lightfoot                                                        $ 15,027
-----  --------------------------------------------------------------  ---------
       Life Dynamics, Inc. note payable, interest-free                  $ 20,000
-----  --------------------------------------------------------------  ---------
(iii)  Dr. Michael Jessen                                               $100,000
-----  --------------------------------------------------------------  ---------
       General Note Payable non-interest bearing, due upon demand       $ 25,000
-----  --------------------------------------------------------------  ---------
                                  Notes Payable                         $401,523
-----  --------------------------------------------------------------  ---------


(i) The investor received 2,000 shares of NHTC Common Stock as well as a warrant
to purchase 2,000 shares of the Common Stock of NHTC at an exercise price of
$5.00 per share for three years. The 2,000 shares were issued in December 2002.

(ii) Note due to Michael and Linda Lightfoot, bears interest at prime plus
1.75%, monthly payments are being made.

(iii) The Company redeemed 180 shares of Series F Preferred Stock in exchange
for a $100,000 cash issuance and $120,000 promissory note. The Company is making
monthly payments of $10,000 until repaid in full.


                                      F-13
<PAGE>

5. LONG-TERM DEBT

         Long-term debt consisted of the following at December 31, 2002:


------  -------------------------------------------------------------  ---------
                                   Debt Instrument                      Amount
------  -------------------------------------------------------------  ---------
(i)     Samantha Haimes, $325,000, 10% interest                         $161,942
------  -------------------------------------------------------------  ---------
(ii)    State of Texas, $114,278, 7% interest                           $ 78,642
------  -------------------------------------------------------------  ---------
(iii)   Robert L. Richards, interest-free                               $ 41,503
------  -------------------------------------------------------------  ---------
             Total Debt                                                 $282,087
------  -------------------------------------------------------------  ---------
             Less: current portion of Long-term Debt                    $204,337
------  -------------------------------------------------------------  ---------
             Long-term Debt                                             $ 77,750
------  -------------------------------------------------------------  ---------

(i)      NHTC is making monthly payments of $15,000 until repaid in full with
         interest.

(ii)     NHTC is making monthly payments of $2,200 until repaid in full with
         interest.

(iii)    NHTC is making monthly payments of $1,333 until repaid in full with
         interest.


The schedule of annual principal payments on debt for each of the five years in
the period ended December 31, 2007 is as follows:

-----------    --------
   Date         Amount
-----------    --------
2003           $204,337
-----------    --------
2004           $ 42,396
-----------    --------
2005           $ 35,354
-----------    --------
2006           $      0
-----------    --------
2007 and
thereafter     $      0
-----------    --------


6. STOCKHOLDERS' EQUITY

Common Stock

NHTC is authorized to issue 500,000,000 shares of Common Stock, $.001 par value.

Preferred Stock

NHTC is authorized to issue a maximum of 1,500,000 shares of $1,000 par value
preferred stock, in one or more series and containing such rights, privileges
and limitations, including voting rights, dividend rates, conversion privileges,
redemption rights and terms, redemption prices and liquidation preferences, as
NHTC's board of directors may, from time to time, determine.


                                      F-14
<PAGE>

Series E Preferred Stock.

In August 1998, NHTC issued 1,650 shares of Series E Preferred Stock with a
stated value of $1,000 per share realizing net proceeds of $1,439,500. The
preferred stock and the accrued dividends thereon are convertible into shares of
NHTC's Common Stock at a conversion price equal to the lower of 75% of the
average closing bid price of the Common Stock for the five trading days
immediately preceding the conversion date or 100% of the closing bid price on
the day of funding. This series of stock is convertible commencing 60 days after
issuance.

Pursuant to the terms of the Series E Preferred Stock, if NHTC does not have an
effective registration statement 120 days subsequent to the issuance of Series E
Preferred Stock, a 2% penalty on the face amount of $1,650,000 accrues for every
30 days without an effective registration statement.

During the year ended December 31, 2001, NHTC had converted 947 shares of the
Series E Preferred Stock into 355,230 shares of Common Stock.

As of December 31, 2002 there were no shares of Series E Preferred Stock
outstanding.

Series F Preferred Stock.

In February 1999, NHTC issued 2,800 shares of Series F Preferred Stock with a
stated value of $1,000 per share realizing a net value of $2,800,000. This
issuance is in accordance with the asset purchase agreement of KII. The
preferred stock pays a dividend at 6% per annum and is payable upon conversion
into either cash or Common Stock. The preferred stock and the accrued dividends
thereon are convertible into shares of the Company's Common Stock at a
conversion price equal to 95% of the average closing bid price of the Common
Stock for the three trading days immediately preceding the date on which NHTC
receives notice of conversion from a holder. NHTC is permitted at any time, on
five days prior to written notice, to redeem the outstanding preferred stock at
a redemption price equal to the stated value and the accrued dividends thereon.

During the year ended December 31, 2001, NHTC had converted 1,416 shares of the
Series F Preferred Stock into 515,592 shares of Common Stock.

During the year ended December 31, 2002, NHTC had converted 1,201 shares of the
Series F Preferred Stock into 610,995 shares of Common Stock.

As of December 31, 2002, there were no shares of Series F Preferred Stock
outstanding.

Series G Preferred Stock.

In February 1999, NHTC issued 350 shares of Series G Preferred Stock with a
stated value of $1,000 per share realizing a net value of $350,000. The
preferred stock pays a dividend at the rate of 6% per annum. The preferred stock
and the accrued dividends thereon are convertible into shares of NHTC's Common
Stock at a conversion price equal to 95% of the average closing bid price of the
Common Stock for the three trading days immediately preceding the date on which
the Company receives notice of conversion. NHTC is permitted at any time, on
five days prior written notice, to redeem the outstanding preferred stock at a
redemption price equal to the stated value and the accrued dividends thereon.

During the year ended December 31, 2000, NHTC had converted 6 shares of the
Series G Preferred Stock into 2,799 shares of Common Stock.

During the year ended December 31, 2001, NHTC had converted 344 shares of the
Series G Preferred Stock into 157,322 shares of Common Stock.

As of December 31, 2002, there were no shares of Series G Preferred Stock
outstanding.


                                      F-15
<PAGE>

Series H Preferred Stock.

In October 2000, NHTC sold 50 shares of Series H Preferred Stock with a stated
value of $1,000 per share realizing net proceeds of $43,500. The preferred stock
pays a dividend at the rate of 8% per annum. The preferred stock and the accrued
dividends thereon are convertible into shares of NHTC's Common Stock at a
conversion price equal to the lower of the closing bid price on the date of
issuance or 75% of the average closing bid price of the Common Stock for the
three trading days immediately preceding the date on which NHTC receives notice
of conversion from a holder. In April 2002, these 50 shares of Series H
Preferred Stock and $5,666 of accrued dividends were converted into 37,739
shares of Common Stock.

In April 2001, NHTC issued 50 shares of Series H Preferred Stock for $50,000
realizing net proceeds of $43,500. The Series H Preferred Stock pays dividends
of 10% per annum and is convertible into shares of Common Stock at the lower of
the closing bid price on the conversion date or 75% of the market value of the
Common Stock on the conversion date. In November 2002, these 50 shares of Series
H Preferred Stock and $6,389 of accrued dividends were converted into 40,422
shares of Common Stock.

In May 2001, NHTC issued 50 shares of Series H Preferred Stock for $50,000
realizing net proceeds of $43,500. The Series H Preferred Stock pays dividends
of 10% per annum and is convertible into shares of Common Stock at the lower of
the closing bid price on the conversion date or 75% of the market value of the
Common Stock on the conversion date. In September 2002, 25 shares of Series H
Preferred Stock were converted into 23,087 shares of Common Stock. In November
2002, 25 shares of Series H Preferred Stock and $5,440 of accrued dividends were
converted into 36,248 shares of Common Stock.

If NHTC does not have an effective Common Stock registration 120 days subsequent
to the issuance of the Series H Preferred Stock, a 2% penalty on the face amount
of $1,400,000 accrues for every 30 days without an effective registration
statement. As of the year ended December 31, 2001 NHTC had recorded a charge of
$12,000 due to non-compliance with this clause.

During the year ended December 31, 2001, NHTC had converted 615 shares of the
Series H Preferred Stock into 276,994 shares of Common Stock.

As of December 31, 2002, there were no shares of Series H Preferred Stock
outstanding.

Series J Preferred Stock.

In March 2000, NHTC sold 1,000 shares of Series J Preferred Stock with a stated
value of $1,000 per share realizing net proceeds of $936,000. The preferred
stock pays a dividend at the rate of 10% per annum, payable in cash or stock at
NHTC's option. The preferred stock and the accrued dividends thereon are
convertible into shares of the Company's Common Stock at a conversion price
equal to the lower of the closing bid price on the date of issuance or 70% of
the average closing bid price of the Common Stock for the lowest three trading
days during the twenty day period immediately preceding the date on which NHTC
receives notice of conversion from a holder.

Pursuant to the terms of the Series J Preferred, if NHTC does not have an
effective registration statement 120 days subsequent to the issuance of the
Series J Preferred Stock, a 2% penalty on the face amount of $1,000,000 accrues
for every 30 days without an effective registration statement.

In the year ended December 31, 2002, NHTC recorded an additional $4,626 in
accrued dividends was recorded for the period such stock was outstanding.

During the year ended December 31, 2001, NHTC had converted 206 shares of the
Series J Preferred Stock into 122,604 shares of Common Stock.

During the year ended December 31, 2002, NHTC had converted 778 shares of Series
J Preferred Stock into 1,025,397 shares of Common Stock.


                                      F-16
<PAGE>

As of December 31, 2002, there were 16 shares of Series J Preferred Stock
outstanding.

Convertible Debentures

During 2002, NHTC converted approximately $263,000 of its promissory notes, plus
accrued interest of $16,455 into 236,663 shares of Common Stock.

Common Stock for Services and Acquisitions

In April 2002, NHTC issued 17,500 shares of Common Stock to Surrey Associates
Ltd. for certain legal services.

In December 2002, NHTC issued 2,010 shares of Common Stock to an individual as
an incentive for lending NHTC money.

NHTC issued 55,000 shares of Common Stock to certain management employees in
April 2001 and recorded $30,500 of compensation expense.

NHTC issued 2,000 shares of Common Stock in a verbal agreement to Capital
Development S.A., a consulting firm in August 2001 and recorded $11,800 of
consulting expense.

In August 2001, NHTC issued 200,000 shares of Common Stock to Summit Trading
Ltd., a consulting firm, as part of a long-term consulting agreement. This
issuance was recorded as deferred compensation and will be amortized over the
life of the agreement.

In January 2001, NHTC entered into a joint venture with Lexxus International and
formed a new majority-owned subsidiary, Lexxus International, Inc., a Delaware
corporation. The original founders of Lexxus International received an aggregate
of 100,000 shares of NHTC's Common Stock, par value of $0.001.

7. INCOME TAXES

NHTC accounts for income taxes under the provisions of SFAS 109. SFAS 109
requires the recognition of deferred tax assets and liabilities for both the
expected impact of differences between the financial statement and tax basis of
assets and liabilities, and for the expected future tax benefit to be derived
from tax loss and tax credit carryforwards. SFAS 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets. At December 31, 2002, NHTC had net deferred tax assets
of approximately $2,000,000. NHTC has established a valuation allowance for the
full amount of such deferred tax assets at December 31, 2002, as management of
NHTC has not been able to determine that it is more likely than not that the
deferred tax assets will be realized.




The following table reflects NHTC's deferred tax assets and (liabilities) at
December 31, 2002:

                                                 December 31, 2002
                                                    -----------
                Net operating loss deduction        $ 2,000,000
                Valuation allowance                  (2,000,000)
                                                    -----------
                                                    $        --
                                                    ===========

The provision for income taxes (benefits) differs from the amount computed by
applying the statutory federal income tax rate to income loss before income
taxes as follows:


                                      F-17
<PAGE>

                                                  For the year Ended
                                                      December 31,
                                            -------------------------------
                                                2002                2001
                                            -----------         -----------
    Income tax (benefit) computed at        $ 1,400,000         $(3,500,000)
    statutory rate
    Effect of permanent differences
    Tax benefit not recognized               (1,400,000)          3,500,000
                                            -----------         -----------
    Provision for income taxes (benefit)    $        --         $        --
                                            ===========         ===========

The net operating loss carryforward at December 31, 2002 was approximately
$6,000,000 and expires in the years 2012 to 2020. The net operating loss
carryforward may be subject to an annual limitation as defined by Section 382 of
the Internal Revenue Code. Current and future equity transactions could further
limit the net operating losses available in any one year.

8. COMMITMENTS AND CONTINGENCIES

NHTC utilizes approximately 1,000 square feet of office space in Irving, Texas
on an as needed basis, through an arrangement with Regus Business Centre which
provides business solutions for companies. NHTC pays a minimum annual rental fee
of $2,100. Lexxus leases an aggregate of approximately 16,000 square feet of
office and warehouse space in Dallas, Texas. The lease term is 38 months,
expiring on September 30, 2004, and the current rent is approximately $151,500
per year. Additional warehousing for Lexxus is located in Hollister, Missouri
where Lexxus utilizes approximately 35,000 square feet of warehouse space. The
lease term is on a month-to-month basis at a rent of $18,000 per year. The
Canadian office and warehouse of Lexxus and eKaire leases office space in
Langley, British Columbia, totaling approximately 3,600 square feet. The lease
term is 36 months, expiring on December 1, 2004 and the current rent is
approximately $25,000 per year.

Kaire Australia, Kaire New Zealand, Lexxus Australia and Lexxus New Zealand
lease office space and warehouse facilities of approximately 2,475 square feet
in Queensland, Australia. The lease term is 60 months, expiring on January 1,
2007, and the current rent is approximately $20,000 per year.

In March 2002, Lexxus Taiwan entered into a 24 month agreement for 6,314 square
feet of office space at a current rate of approximately $74,796 per year.

In April 2002, Lexxus India entered into a 60 month agreement for 2,665 square
feet of office space at a current rate of approximately $12,086 per year.

In August 2002, Lexxus Hong Kong entered into a 36 month agreement for
approximately 5,400 square feet of office space at a current rate of
approximately $140,260 per year.

In July 2002, Lexxus Singapore entered into a 36 month agreement for 4,155
square feet of office space at a current rate of approximately $115,891 per
year.

In November 2002, MyLexxus Europe entered into a 12 month agreement for 1,841
square feet of office space in Russia at a current rate of approximately $21,600
per year. In October 2002, MyLexxus Europe also entered into a 12 month
agreement for 1,582 square feet of office space in France at a current rate of
$21,841 per year.

In January 2003, Lexxus Philippines entered into a 24 month agreement for 6,641
square feet of office space at a current rate of approximately $50,112 per year.


                                      F-18
<PAGE>

NHTC believes that such properties are suitable and adequate for the current
operating needs. The table below shows the future minimum lease payments due
under non-cancelable operating leases at December 31, 2002. Such payments total
$1,324,617.

                              Year                  $
                      2003                       628,515
                      2004                       489,149
                      2005                       171,848
                      2006                        32,084
                      2007 and thereafter          3,021


B. Litigation

From time to time, NHTC is involved in legal proceedings incidental to the
course of business. NHTC believes that pending actions, both individually and in
the aggregate, will not have a material adverse effect on the financial
condition, results of operations, cash flows or prospects. Management believes
that adequate provision has been made for the resolution of such actions and
proceedings.

C. Major Supplier

NHTC currently buys all of its Pycnogenol(R), an important component of its
products, from a single supplier, Natural Health Sciences, L.L.C.

NHTC currently buys all of its Enzogenol(TM) from a single supplier, Enzo
Nutraceuticals Ltd.

NHTC currently buys all its Alura(TM) from 40 J's, LLC.

Although there are a limited number of manufacturers of this component,
management believes that other suppliers could provide similar components on
comparable terms. NHTC does not maintain any contractual commitments or similar
arrangements with other suppliers.

NHTC purchases its products from manufacturers and suppliers on an as needed
basis. Should these relationships terminate, NHTC's supply and ability to meet
consumer demands would not be adversely affected.


                                      F-19
<PAGE>

9. STOCK OPTION PLANS AND WARRANTS

The following table summarizes the changes in options and warrants outstanding,
and the related exercise price for shares of NHTC's Common Stock:

<TABLE>
<CAPTION>
                                                       Weighted                                        Weighted
                                                       Average                                         Average
                                                       Exercise                                        Exercise
                                                     Price Stock                                        Price
                                        Shares         Options       Exercisable        Shares         Warrants      Exercisable
<S>                                   <C>             <C>              <C>                <C>         <C>                 <C>
Outstanding at December 31, 2000             441      $ 1,568.00             441          29,521      $   674.00          29,521
                                      ----------      ----------      ----------      ----------      ----------      ----------
  Granted                                 62,000            1.00          62,000              --              --              --
  Cancelled                                   --              --              --              --              --              --
Outstanding at December 31, 2001          62,441      $    12.00          62,441          29,521      $   674.00          29,521
                                      ----------      ----------      ----------      ----------      ----------      ----------
  Granted                              1,200,000            1.00       1,200,000              --              --              --
  Cancelled                                   --              --              --              --              --              --
Outstanding at December 31, 2002       1,262,441      $     1.54       1,262,441          29,521      $   674.00          29,521
                                      ----------      ----------      ----------      ----------      ----------      ----------
</TABLE>

The following table summarizes information about exercisable stock options and
warrants at December 31, 2002:

            Range of       Number     Remaining   Average    Number     Average
            Exercise    Outstanding  Contractual Exercise  Exercisable  Exercise
             Price                      Life       Price                 Price
          ----------------------------------------------------------------------
 Options:    $1.00 -     1,262,441     1 -10     $  1.54   1,262,441   $  1.54
           10,120.00
Warrants:  $100.00 -        29,521     0 - 5     $674.00      29,521   $674.00
           11,375.00


For disclosure purposes in according with Statement of Financial Accounting
Standards 123 ("SFAS 123"), the fair value of options is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for stock options granted during the years
ended December 31, 2002 and 2001 respectively: annual dividends of $0; expected
volatility of 200%; risk free interest rate of 7% and expected life of 10 years.
The weighted average fair value of stock options granted during the years ended
December 31, 2002 and 2001 was $1.00 and $0, respectively. If NHTC had
recognized compensation cost of stock options in accordance with SFAS 123,
NHTC's proforma income (loss) and net income (loss) per share would have been as
follows:


                                      F-20
<PAGE>

                                              Year Ended December 31,
                                               2002             2001
                                            -----------      -----------
Net Income to Common Stockholders
  As reported                               $ 4,031,909      $ 2,022,621
  Pro forma                                 $ 2,831,909      $ 1,947,621
Basic net income per share to common
stockholders
   As reported                              $      1.29      $      0.70
   Pro forma                                $      0.91      $      0.70
Diluted net income per share to common
stockholders
   As reported                              $      1.24      $      0.39
   Pro forma                                $      0.87      $      0.39

10. FORGIVENESS OF DEBT

During the year ended December 31, 2001, NHTC realized a gain of approximately
$820,000 in other income due to the reduction of the reserve for contingent
liabilities related to the sale of Kaire Nutraceuticals, Inc.

During the year ended December 31, 2002, NHTC realized a gain of approximately
$800,000 in other income due to the reduction of the reserve for contingent
liabilities related to the sale of Kaire Nutraceuticals, Inc.

11. FOREIGN SALES

NHTC has substantially increased its international presence both in sales and
long-lived assets. NHTC's sales and long-lived assets by country as of December
31, 2002 are approximately as follows:

------------------     ------------    ------------
                          Sales to      Long-lived
                       unaffiliated      assets at
                         customers     December 31,
                                           2002
------------------     ------------    ------------
United States           $12,200,000       $752,000
------------------     ------------    ------------
Taiwan                    6,500,000        341,000
------------------     ------------    ------------
Hong Kong                 7,300,000        181,000
------------------     ------------    ------------
Russia                   10,100,000         42,000
------------------     ------------    ------------
Other                     3,900,000        284,000
------------------     ------------    ------------
Consolidated            $40,000,000     $1,600,000
------------------     ------------    ------------


12. SUBSEQUENT EVENTS:

In March 2003, in order to enhance the price of our Common Stock and to enable
us to better use our capital stock to compensate management and motivate
employees, as well as consideration for future acquisition transactions, our
stockholders approved and we effected a 1-for-100 reverse stock split with
respect to our outstanding shares of Common Stock. As a result, on March 19,
2003 the number of outstanding shares of Common Stock declined from 462,873,100
to 4,628,731 and the closing price per share increased from $0.01 on March 18,
2003 to $1.50 on March 19, 2003, as reported on the OTC Bulletin Board. In
addition, the trading symbol for the shares of our Common Stock changed from
"NHTC" to "NHLC".


                                      F-21
<PAGE>

As of January 31, 2003, we entered into a Database Purchase Agreement with
NuEworld.com Commerce, Inc. ("NuEworld"), and Lighthouse Marketing Corporation,
our wholly-owned subsidiary ("Lighthouse"), pursuant to which Lighthouse
purchased a database of distributors from NuEworld in exchange for the issuance
of 360,000 shares of our Common Stock. NuEworld was in the business of marketing
and selling a variety of products and services through its multi-level marketing
distribution network. We believe that the NuEworld database will allow us to
recruit many new distributors for our Lexxus business.



                                      F-22

<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.

         NHTC's consolidated financial statements, including the notes thereto,
together with the report of independent certified public accountants thereon,
are presented beginning at page F-1.

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

         Feldman Sherb & Co., P.C., a professional corporation of certified
public accountants ("Feldman") was the independent accounting firm for NHTC, for
the fiscal years ended December 31, 2001 and 2000 and the four month ten day
period ended May 10, 2002. The report of Feldman on the 2001 and 2000
consolidated financial statements of NHTC contained no adverse opinion,
disclaimer of opinion or modification of the opinion except that their report on
the 2000 financial statements contains an explanatory paragraph that states that
"the accompanying financial statements have been prepared assuming that NHTC
will continue as a going concern. We had incurred a loss in year ended December
31, 2000 and as more fully described in Note 2, the Company anticipates that
additional funding will be necessary to sustain NHTC's operations through the
fiscal year ending December 31, 2001. These conditions raise substantial doubt
about our ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty."

         Feldman was merged into Grassi & Co., CPA's, P.C., ("Grassi") and the
principal accountants who had been responsible for our audit during the years
ended December 31, 2001 and 2000 left and started their own firm called Sherb &
Co., LLP ("Sherb"). As a result, on May 11, 2002, we dismissed Grassi and
selected Sherb to serve as independent public accountants for the fiscal year
2002.

         During the two most recent fiscal years and through May 10, 2002, NHTC
has not consulted with Sherb regarding the application of accounting principles
to a specific or contemplated transaction. Neither the Company nor anyone on its
behalf consulted with Sherb regarding the type of audit opinion that might be
rendered on the NHTC's financial statements or any matter that was the subject
of a disagreement or event as defined in Item 304(a)(2) of Regulation S-B.

         The decision to change accountants was recommended and approved by the
board of directors of the NHTC. During the period from January 1, 1999 to May
10, 2002, and through the date of this report, there were no disagreements with
Feldman on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Feldman, would have caused it to make reference to the
subject matter of the disagreements in connection with its reports on the NHTC's
financial statements as described on Item 304(a)(1)(iv)(A). In addition, there
were no such events as described under Item 304(a)(1)(iv)(B) of Regulation S-B
during such periods.


                                       34
<PAGE>

         NHTC requested that Grassi furnish it with a letter addressed to the
Securities and Exchange Commission stating whether or not Grassi agrees with the
above statements. A copy of such letter was filed with Securities and Exchange
Commission.


                                    PART III

ITEM 9.           DIRECTORS AND EXECUTIVE OFFICERS.

         Incorporated herein by reference to the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.

ITEM 10. EXECUTIVE COMPENSATION.

         Incorporated herein by reference to the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         Incorporated herein by reference to the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Incorporated herein by reference to the Company's definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934.

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

         (a) Exhibits

Index to Exhibits

NUMBER DESCRIPTION OF EXHIBIT

2.1      Acquisition Agreement between NHTC and Lexxus International. (2)
2.2      Acquisition Agreement among NHTC, NHTC Acquisition Corp.
         and Kaire International, Inc. (the "Acquisition Agreement"). (3)
2.3      Stock Purchase Agreement among Zeos International, Ltd. and
         NHTC (Sale of Kaire Nutraceuticals, Inc.). (2)
3.1      Amended and Restated Certificate of Incorporation of the Company. (4)
3.2      Amended and Restated By-Laws of NHTC. (4)
4.1      Specimen Certificate of NHTC's Common Stock. (4)
4.2      Form of Class A Warrant. (4)
4.3      Form of Class B Warrant. (4)
4.4      Form of Warrant Agreement between NHTC and Continental Stock Transfer &
         Trust Company for Class A and B Warrants. (4)


                                       35
<PAGE>

4.5      1994 Stock Option Plan. (4)
4.6      1997 Stock Option Plan. (11)
4.7      1998 Stock Option Plan. (11)
4.8      Articles of Amendment of Articles of Incorporation of the Company. (6)
4.9      Articles of Amendment of Articles of Incorporation- Series C Preferred
         Stock. (7)
4.10     Articles of Amendment of Articles of Incorporation- Series E Preferred
         Stock. (3)
4.11     Articles of Amendment of Articles of Incorporation- Series F Preferred
         Stock. (3)
4.12     Articles of Amendment of Articles of Incorporation- Series G Preferred
         Stock. (3)
4.13     Articles of Amendment of Articles of Incorporation- Series H Preferred
         Stock. (3)
4.14     Form of Warrant in connection with the Acquisition Agreement. (3)
4.15     Articles of Amendment of Articles of Incorporation - Series J Preferred
         Stock (13)
4.16     Stock Option Agreement between NHTC and Terry LaCore. (2)
4.17     Stock Option Agreement between NHTC and Benchmark Consulting Group. (2)
4.18     Convertible Promissory Note issued by NHTC to Augusta Street LLC in the
         amount of $100,000. (2)
4.19     Convertible Promissory Note issued by NHTC to Augusta Street LLC in the
         amount of $138,000. (2)
4.20     Consulting Agreement between NHTC and Summit Trading Limited. (2)
4.21     Lease for Registrant's Irving, Texas facility. (2)
4.22     Distributorship Agreement between Lexxus International, Inc. and 40 J's
         L.L.C. (2)
4.23     Stock Option Grant between NHTC and Naline Thompson. (2)
99.1     Certification of Chief Executive Officer and Chief Financial Officer.

(1)      Filed upon the initial filing of this Registration Statement.

(2)      Previously filed with NHTC's Form 10-KSB for the year ended
         December 31, 2001.

(3)      Previously filed with NHTC's Proxy Statement on Schedule 14A, dated
         January 25, 1999.

(4)      Previously filed with Registration Statement No. 33-91184.

(5)      Previously filed with NHTC's Form 8-K dated August 7, 1997.

(6)      Previously filed with NHTC's Form 10-QSB dated June 30, 1997.

(7)      Previously filed with the Company's Form 10-QSB dated September 30,
         1998.

(8)      Previously filed with the Company's Form 10-KSB for the year ended
         December 31, 1996.

(9)      Previously filed with NHTC's Form 10-KSB for the year ended
         December 31, 1998.

(11)     Previously filed with NHTC's Registration Statement, File No.
         333-80465.

(13)     Previously filed with NHTC's Form 8-K dated March 17, 2000.

(14)     Previously filed with NHTC's Form 10-KSB for the year ended December
         31, 2001.

         (b) Reports on Form 8-K

           None.


                                       36
<PAGE>

ITEM 14. CONTROLS AND PROCEDURES.

         Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's President and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, as defined in Exchange Act Rules 13a-14(c)
and 15d-14(c). Based upon that evaluation, the Company's President and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in enabling the Company to record, process, summarize
and report information required to be included in the Company's periodic SEC
filings within the required time period.

         There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         Incorporated herein by reference to the Company's proxy statement to be
filed pursuant to Regulation 14A under the Securities and Exchange Act of 1934.


                                       37
<PAGE>

                                   SIGNATURES

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

Dated:   Irving, Texas
         March 28, 2003


                                      NATURAL HEALTH TRENDS CORP.



                                      By: /s/ Mark D. Woodburn
                                         ---------------------------------------
                                          Mark D. Woodburn
                                          President and Chief Financial Officer
                                          (Principal Financial and Accounting
                                          Officer)


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

Signature                       Title                             Date
---------                       -----                             ----

/s/ Mark D. Woodburn            President, Chief Financial        March 28, 2003
---------------------           Officer and Director
Mark D. Woodburn


/s/ Terry LaCore                Director                          March 28, 2003
---------------------
Terry LaCore


<PAGE>

                                  CERTIFICATION

            Pursuant to Section 302 of the Sarbanes Oxley Act of 2002


I, Mark Woodburn, certify that:

1. I have reviewed this annual report on Form 10-KSB of Natural Health Trends
Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:

         a)       designed such internal controls to ensure that material
                  information relating to the registrant and its subsidiaries
                  (collectively, the "Company") is made known to me by others
                  within the Company, particularly during the period in which
                  this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's internal
                  controls as of a date within 90 days prior to the filing date
                  of this annual report (the "Evaluation Date"); and

         c)       presented in this annual report my conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on my evaluation as of the Evaluation Date;

5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors:

         a)       all significant deficiencies (if any) in the design or
                  operation of internal controls which could adversely affect
                  the registrant's ability to record, process, summarize and
                  report financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

Date:  March 28, 2003

/s/ Mark Woodburn
Mark Woodburn
President and Chief Financial Officer