SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10- KSB
(Mark One)

[x]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [FEE REQUIRED]

      For the fiscal year ended December 31, 1997

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

      For the transition period from ______________  to ______________

                         Commission File Number 0-25238

                           NATURAL HEALTH TRENDS CORP.
                 (Name of small business issuer in its charter)

        Florida                                           59-2705336
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)



<PAGE>


               2001 West Sample Road, Pompano Beach, Florida 33064
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (954) 969-9771

      Securities registered pursuant to Section 12(b) of the Exchange Act: ___

      Securities registered pursuant to Section 12(g) of the Exchange Act:
                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of Class)

                                Class A Warrants
                                (Title of Class)
                                ----------------

                                Class B Warrants
                                ----------------
                                (Title of Class)

                                      Units
                                      -----
                                (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 ___



<PAGE>



Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained,  to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year:  $6,992,516




The number of shares of Common Stock held by nonaffiliates of the registrant (as
determined  for the purpose of this Form  10-KSB  only) as of March 31, 1998 was
$32,460,427, with an approximate aggregate market value of $2,598,889 (based 
upon the average of the bid and asked prices of such shares as of such date).  
The number of shares of the Common Stock of the issuer outstanding as of March 
31, 1998 was 38,380,427 (not adjusted for the one for 40 reverse stock split in 
April 1998).


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                                TABLE OF CONTENTS

                                                                           Page
                                                                          Number
                                                                          ------
                            Item Number and Caption


PART I

         Item 1.  Description of Business..................................   4
         Item 2.  Description of Properties................................  19
         Item 3.  Legal Proceedings........................................  21
         Item 4.  Submission of Matters to a Vote of Security Holders......  21

PART II

         Item 5.  Market for Common Equity and Related Stockholder Matters.  22
         Item 6.  Management's Discussion and Analysis of Financial
                          Condition and Results of Operation...............  23
         Item 7.  Financial Statements.....................................  23
         Item 8.  Changes in and Disagreements with Accountants
                          on Accounting and Financial Disclosure...........  23

PART III

         Item 9.  Directors, Executive Officers, Promoters
                          and Control Persons..............................  24
         Item 10. Executive Compensation...................................  26
         Item 11. Security Ownership of Certain Beneficial
                          Owners and Management............................  28
         Item 12. Certain Relationships and Related Transactions...........  30
         Item 13. Exhibits, Financial Statement Schedules,
                          and Reports on Form 8-K..........................  31





                                       -3-

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                                     PART I

Item 1. Description of Business.

     Natural Health Trends Corp. (the "Company") is a corporation which develops
and operates  businesses  to promote  human  wellness.  The Company is presently
engaged in two separate lines of business.  Through Global Health  Alternatives,
Inc. ("GHA"), the Company's wholly-owned subsidiary,  the Company markets a line
of natural,  over-the-counter ("OTC") homeopathic pharmaceutical products. Doing
business as the Florida College of Natural Health, the Company owns and operates
three vocational  schools as a junior college in the Orlando area, Pompano Beach
and Miami,  Florida  (individually,  the "Orlando  School,"  the "Pompano  Beach
School"  and the "Miami  School"  and  collectively  the  "Schools")  that offer
training  and  preparation   for  licensing  in  therapeutic   massage  and  for
registration in skin care.  Unless the context otherwise  requires,  the Company
and its subsidiaries,  including GHA, are sometimes  referred to collectively as
the "Company."

     In July  1997  the  Company  acquired  all of the  capital  stock of GHA in
exchange  for  5,800,000  shares of Common  Stock,  plus a number of  additional
shares of Common Stock to be determined based upon the operating  performance of
GHA. In June 1997, GHA commenced  marketing  Natural Relief  1222,  a line of
topical  homeopathic  medicines  in a  patented  base  of  natural  ingredients,
acquired in May 1997 from Troy Laboratories, Inc. From GHA's inception on August
3, 1993 through  June 1997,  GHA was  primarily  engaged in  organizational  and
financing  activities,  including  business and product line  acquisitions,  and
preliminary marketing and distribution activities.  GHA's primary focus has been
to develop a distribution  network for its line of Natural Relief 1222 products.
GHA has obtained  initial  distribution  of Natural Relief 1222 in mass channels
primarily chain drug stores and health food stores.  Other GHA products  include
the Ellon flower  remedies  which utilize  homeopathic  active  ingredients in a
tincture  appropriate  for oral  consumption  or in a  topical  form  without  a
patented inactive base.


     The  Schools  seek to  fulfill  the  educational  needs of  adults  seeking
augmented  career  skills  or  whose  educational  needs  have  not  been met in
traditional  educational  environments.  These  individuals  are primarily  high
school  graduates and  underemployed  adults seeking  specific career skills and
training.  As of December 31, 1997,  707 students  were enrolled in the Schools.
The Schools are licensed  under  Florida law and  approved by the United  States
Department  of Education  (the  "USDOE") to provide  financial  aid to qualified
applicants.   For  the  year  ended  December  31,  1997,  the  Schools  derived
approximately  66% of its revenues from  financial aid provided under Federal or
state assistance programs.

     The Company's  strategy is to focus on developing GHA's business,  which is
to identify natural products that have  demonstrable  health benefits and can be
marketed   without   prior   approval  of  the  United   States  Food  and  Drug
Administration  (the  "FDA"),  and to promote  and  market  those  products.  In
addition,  the Company  intends to acquire,  although  there can be no assurance
thereof,  existing  products  and  companies  which  are  complementary  to  the
Company's existing products.



                                       -4-

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     As part of the  Company's  shift in emphasis to the sale and  marketing  of
natural health  products,  the Company closed the Company's  natural health care
center in Boca  Raton,  Florida in  October,  1997 and the  natural  health care
center in Pompano  Beach,  Florida in January  1998.  The  natural  health  care
centers  provided  multidisciplinary  complementary  health care in the areas of
alternative and nutritional medicine. In March 1998, the Company sold the assets
of The Corporate Body, Inc.,  which offered on-site  massages to businesses. The
Company intends to sell the Schools to Neal R. Heller,  the Company's President,
Chief Executive Officer, a principal stockholder  and a director, Elizabeth  S. 
Heller,  his wife,  the  Company's secretary, a principal stockholder and a 
director and Florida College of Natural Health,  Inc., a company  controlled by 
Mr. and Mrs. Heller.  The purchase price for the Schools is $1,800,000.  In 
connection with the sale of the Schools,  Mr. and Mrs. Heller's employment 
agreements will be cancelled,  Mr. and Mrs. Heller will resign as directors  and
officers of the Company,  and Mr. and Mrs.  Heller will transfer to the Company 
3,034,000 shares of Common Stock (78,850 shares of Common Stock  post-split) and
options to purchase 800,000 shares of Common Stock (20,000 shares of Common
Stock post-split).


     The Company was  incorporated  under the name Florida  Institute of Massage
Therapy, Inc. in Florida in December 1988 and changed its name to Natural Health
Trends Corp. in June 1993. The Company's  principal  offices are located at 2001
West Sample Road, Pompano Beach, Florida 33064 and its telephone number is (954)
969-9771.

Product Acquisition and Licensing Agreements

     GHA has obtained its current product  portfolio by acquiring  product lines
and companies and entering into licensing  agreements  relating to the marketing
and manufacture of its products.  GHA has not developed any of its products, and
does not maintain a research and development staff or research facilities.

     In October  1996 GHA  acquired  two natural  product  lines:  Ellon  flower
essence products and Fruitseng(R) new age beverages. The Ellon products comprise
38 traditional  English  homeopathic  flower remedies and one combination flower
remedy.  These  products are sold  principally  through  natural and health food
stores. The Fruitseng line of  ginseng-supplemented  fruit juice drinks and iced
tea drinks was  distributed  prior to the  acquisition  through  specialty  food
distributors and mass market beverage distributors. Following the acquisition of
the Fruitseng line, GHA elected to develop, less capital-intensive products, and
Fruitseng  is not  currently  in  distribution  nor  does the  Company  have any
intention of allocating resources to reintroduce the brand.

     In November 1996 GHA entered into an option agreement to acquire all of the
capital stock of Natural  Health  Laboratories,  Inc.,  which held marketing and
distribution  rights to a line of natural,  homeopathic topical medical products
utilizing a patented base and marketed under the Natural Relief 1222  trademark.
In connection with the acquisition,  Natural Health Laboratories,  Inc. acquired
the rights to the patent from Troy Laboratories,  Inc. and H. Edward Troy. Prior
to the  acquisition,  GHA funded the operations of Natural Health  Laboratories,
Inc. pursuant to the option agreement.


                                       -5-

<PAGE>



     In April 1998,  the Company  restructured  its agreement  with the previous
holder of the patented base for Natural  Relief 1222. The Company agreed to make
certain  payments  to and on behalf of the  previous  holders  of the  patent in
settlement  of  accrued  royalties  and for the  modification  of the  scheduled
royalties.  Under the  agreement,  the Company will pay  royalties in connection


with the patent equal to 3% of net sales up to $2,000,000,  2% of net sales from
$2,000,000  to  $4,000,0000  and 1% of net sales  thereafter.  In the event of a
default in the payment of royalties  or other  payments in  connection  with the
agreement, the patent will revert back to the original holders.

Overview of the Natural Health Product Market

     The Company  believes that the market for natural  products and supplements
is being driven by  information  in the mass media which  continues to highlight
problems with the American diet;  the fact that American  consumers are becoming
increasingly  disenchanted  with and skeptical about many  conventional  medical
approaches to disease treatment;  growing consumer interest in and acceptance of
natural  and  alternative   therapies  and  products;   and,   finally,   recent
clarifications  and changes of food and drug laws that have eased  significantly
the regulatory  burdens  associated  with the  introduction  and sale of dietary
supplements.

     The Company  believes  that public  awareness  of the  positive  effects of
nutritional  supplements  and natural  remedies on health has been heightened by
widely publicized reports and medical research findings indicating a correlation
between  the  consumption  and use of a wide  variety of  nutrients  and natural
remedies and the reduced incidence of certain diseases.

     The Company believes, although there can be no assurance, that the aging of
the United States  population,  together with an increased focus on preventative
and alternative health care measures, will continue to fuel increased demand for
certain nutritional  supplement  products and natural remedies.  Management also
believes that the continuing shift to managed  healthcare  delivery systems will
place greater emphasis on disease prevention and health maintenance,  areas with
which natural health products are most identified.

     With  respect  to  the  distribution  of  natural  health  products,  while
distribution through small to large sized natural and health food stores remains
significant,  the bulk of the  growth  is found  in the mass  merchandisers  and
health food chains such as General  Nutrition  Centers  which now  represent the
majority of sales, and represent the fastest growing channels of distribution.

Products

     The Company's  initial mass  market-oriented  product,  Natural Relief 1222
Arthritis  Relief  ("Arthritis  Relief")  is  a  topical,  natural,  homeopathic
medicine.  The active ingredients are Bryonia 6X and Rhus Toxicodendron 6X, in a
patented  base of natural  ingredients.  This product is intended to be utilized
for the  temporary  relief of minor  pains and  stiffness  of muscles and joints
associated with arthritis.  Arthritis Relief was introduced in July 1997 through
a nationwide television direct response advertising  campaign.  The Company also
introduced Arthritis Relief to the mass


                                       -6-

<PAGE>



consumer  distribution  channels  through  a broker  network.  The  Company  has
obtained  distribution of Arthritis  Relief in eight of the top ten drug chains,
including  Rite Aid,  Walgreens  and  Eckerd  Drug.  The  Company  also  markets
Arthritis Relief through catalogue and electronic media marketing companies.

     The total  market for topical  analgesics  in mass market  channels in 1997
exceeded $230 million.  The category consists of two general types of products -
counter-irritants, such as BenGay, which mask pain by irritating the skin in the
area of application,  and capsaicin products, such as Zostrix, which utilize the
pain-reducing  properties of a component of hot chili  peppers.  It is estimated
that approximately 50 million Americans have some form of arthritis.

     In December 1997 GHA introduced three extensions to the Natural Relief 1222
product line - Sports Rub, Wart Remover and  Dermatitis & Eczema  Relief.  These
products have been  introduced to existing mass market and  natural/health  food
distribution  channels  through the Company's broker networks and direct selling
efforts.

     Natural  Relief  1222  Sports  Rub,  like  Arthritis  Relief,  is a topical
analgesic  comprised of a homeopathic active ingredient,  Thuja occidentalis 2C,
in a patented  base of natural  ingredients.  This  product  is  intended  to be
utilized  for  prompt,  temporary  relief  of  minor  pain,  strains,   sprains,
stiffness,  bruising,  inflammation  and  weakness  in muscles and joints due to
overexertion  and  athletic  activity.  The Company  intends  Sports Rub to be a
companion product to Arthritis Relief within the topical analgesics category.

     Natural  Relief 1222 Wart Remover is a natural  alternative  to traditional
salicylic  acid-based  products,  and  is  comprised  of  a  homeopathic  active
ingredient,  Thuja occidentalis 2C, in a patented based of natural  ingredients.
This product is intended to be utilized for the removal of common warts.

     Natural Relief 1222 Dermatitis & Eczema Relief is a natural  alternative to
traditional  hydrocortisone-based  products,  and is comprised of a  homeopathic
active  ingredient,  Lycopodium  2C, in a patented base of natural  ingredients.
This  product is intended to be utilized for  temporary  relief of scalp or skin
itching,  irritation,  redness,  flaking and scaling  associated with seborrheic
dermatitis or eczema.

     The Company  markets a line of homeopathic  flower remedies under the Ellon
trade name, which consists of 38 individual  flower remedies and one combination
flower  remedy,  sold as Calming  Essence(R).  These  products are regulated OTC
pharmaceuticals  which are  intended to be utilized for the relief of a range of
emotional and  psychological  stresses.  Calming Essence is sold  principally to
natural and health food retailers and  distributors,  and to alternative  health
care  practitioners.  The Company utilizes a combination of brokers and in-house
telemarketers to sell the Ellon products.  The Company competes in this category
with several other established tines of homeopathic  flower remedies,  including
the Bach and Flower Essence Services product lines.



                                       -7-

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     Management  anticipates  introducing  additional products under the Natural
Relief 1222 product line. The Company  currently has developed  formulations for
acne  relief and for first aid use for minor  abrasions  and  contusions.  Other
Natural  Relief  1222  products  in  development  include a natural  anti-fungal
topical pharmaceutical and a natural burn and wound topical pharmaceutical.

Manufacturing

     The Company does not intend to develop its own  manufacturing  capabilities
since management  believes that the availability of manufacturing  services from
third parties on a contract basis is adequate to meet the Company's  needs.  The
Company has utilized a number of manufacturers who have sufficient manufacturing
capacity to meet the Company's anticipated production needs.

     The Company has used the services of a number of  companies to  manufacture
its  Natural  Relief  1222 and the Ellon  product  lines.  Natural  Relief  1222
products  generally require the mixing and processing of the active and inactive
ingredients,  which are then filled in tubes and packaged for retail sale. Ellon
products  involve the  preparation  of  homeopathic  medicines  according to the
Homeopathic  Pharmacopecia  of the United States,  and are generally sold in the
form of tinctures packaged in small dropper bottles labeled for retail sale. The
products are shipped from the Company's Portland,  Maine facility or independent
distribution centers located in Maine and New Jersey. The Company's products are
manufactured  to the Company's  specifications  in facilities in compliance with
Federal Good Manufacturing Practice regulations.

     The Company has no existing  contractual  commitments or other arrangements
for the  future  manufacture  of its  products.  Rather,  it places  orders  for
component or finished goods manufacturing  services as required based upon price
quotations and other terms obtained from selected manufacturers.

     Natural  Relief  1222  Arthritis  Relief,  Sports Rub and Wart  Remover are
manufactured  in the United  States.  Natural  Relief 1222  Dermatitis  & Eczema
Relief utilizes  certain  components  manufactured  in the Peoples'  Republic of
China,  and  packaged  in the United  States.  Ellon  products  utilize  certain
components  manufactured in the United Kingdom. and are further manufactured and
packaged in the United  States.  The Company  anticipates  that it will, for the
foreseeable  future,  continue  to rely  on  foreign  sources  for  certain  key
components for certain of its products.

Marketing and Distribution

     Natural  Relief  1222  Arthritis   Relief  was  introduced  in  July  1997.
Commercial shipments of the product were initiated in the same month. Extensions
on the Natural Relief 1222 product line (Sports Rub, Wart Remover and Dermatitis
& Eczema Relief) were introduced in December 1997.

     The  Company  has  pursued  a  "multi-channel"   distribution  strategy  in
marketing  its line of Natural  Relief  1222  products,  and intends to follow a
similar strategy with future products.  The Natural Relief 1222 line of products
is sold in eight of the top 10 drug chains, including Rite Aid,


                                       -8-

<PAGE>



Walgreens and Eckerd Drug, as well as in certain supermarket  chains,  including
Smith's.  The Company  also  distributes  its products to the health and natural
food  market  through  distributors  and  independent  health and  natural  food
retailers.  In addition,  the Company sells through  other  specialty  channels,
including  catalogues such as the Carol Wright catalogue,  television  marketing
channels  such  as  Home  Shopping  Network  and  electronic  media  such as CUC
International's world-wide web catalogue/website.  The nature of the product and
its target  market  dictate the channels of  distribution  in which a particular
product  is  launched,  and the  level of effort  directed  to each  channel  of
distribution.

     The Company utilizes a number of independent  brokers to assist in the sale
of its  products in the mass  market and  natural  and health food  distribution
channels.  Brokers  receive a commission on sales,  and in certain cases a fixed
monthly payment, under agreements that are terminable at will by either party on
short notice.  In most cases, the Company sells and ships its products  directly
to the warehouses  and  distribution  centers of major retail  chains.  To reach
smaller  chains and  independent  retailers,  the Company  distributes  products
through drug wholesalers such as McKesson and Bergen Brunswig, and natural foods
distributors such as Cornucopia (United Natural Foods).

     To support  its  marketing  efforts,  the Company  advertises  in trade and
consumer health magazines, on television,  and on radio, attends trade shows and
exhibitions,  sponsors  promotional programs and events and in-store promotions,
and  engages in a public  relations  effort  that has  resulted  in  articles in
health,  mature  audience,  trade and natural products  publications,  which the
Company uses to promote its products.  In May 1997, GHA entered into a five year
endorsement  contract  with  actor and  dancer  Donald  O'Connor.  Mr.  O'Connor
receives  royalties on sales of Natural Relief 1222 Arthritis Relief products at
the rate of 1.5% for  domestic  retail sales up to  $10,000,000;  1.0% for sales
between  10,000,000  and  $20,000,000;  .5% for sales  between  $20,000,000  and
$30,000,000  and .25% for sales over  $30,000,001.  In  addition,  Mr.  O'Connor
receives  royalties for direct  response  sales at the rate of between 2% and 4%
and between 2.5% and 1.5% for electronic home shopping sales.  Mr. O'Connor will
receive 1% of all retail and direct response  international sales. All royalties
to be paid to Mr. O'Connor will be applied against a minimum  guaranteed royalty
payment.  The  Company  has made  extensive  use of  television  and other media
advertising featuring Mr. O'Connor, and it is anticipated that Mr. O'Connor will
be featured in future promotional and public relations  activities.  The Company
may utilize additional paid endorsers for its products in the future.

     In the twelve-month  periods ended December 31, 1996 and December 31, 1997,
GHA's  expenditures  for product  advertising  and promotion were  approximately
$89,100 and $2,317,800, respectively.

Competition - Products

     Over the counter medicine  products are distributed  primarily  through the
mass market channels of distribution,  including chain drug stores,  independent
drug stores,  supermarkets  and mass  merchandisers.  The Company's  competitors
include such companies as Genderm, Thompson Medical,


                                       -9-


<PAGE>



Schering Plough, Pfizer, Chattem and Warner Lambert.

     The  Company's   products   include  FDA  recognized   homeopathic   active
ingredients in a patented base of natural ingredients. The Company's competitors
have access to these same  homeopathic  ingredients and would be able to develop
and market similar products. However,  competitors would be unable to completely
duplicate the products'  formulae due to the patent  protection  that extends to
the use of certain inactive ingredients.  Nonetheless,  marketplace success will
probably  be  determined  more by  marketing  and  distribution  strategies  and
resources than by product uniqueness.

Government Regulation

     The Company  believes  that all of its existing  products  are  homeopathic
medicines which do not require governmental  approvals prior to marketing in the
United States. The processing.  formulation, packaging, labeling and advertising
of such  products,  however,  are subject to  regulation  by one or more federal
agencies including the FDA, the Federal Trade Commission,  the Consumer Products
Safety  Commission,  the Department of  Agriculture,  the Department of Alcohol,
Tobacco and Firearms and the  Environmental  Protection  Agency.  The  Company's
activities are also subject to regulation by various  agencies of the states and
localities  in  which  its  products  are  sold.  In  addition,  the sale of the
Company's  products by distributors in foreign markets are subject to regulation
and oversight by various federal, state and local agencies in those markets.

     The FDA  traditionally  has been the main  agency  regulating  the types of
products sold by  homeopathic  and natural OTC  pharmaceutical  firms.  Official
legal recognition of homeopathic drugs in the United States dates to the federal
Food,  Drug and Cosmetic Act of 1938  ("FDCA").  The FDCA provides that the term
"drug" includes articles recognized in the official Homeopathic Pharmacopoeia of
the United States ("HPUS").  The FDCA further  recognizes the separate nature of
homeopathic drugs from traditional,  allopathic drugs by providing that whenever
a drug is  recognized in both the United  States  Pharmacopoeia  ("USP") and the
HPUS it shall be subject to the requirements of the USP unless it is labeled and
offered for sale as a homeopathic drug, in which case it shall be subject to the
provisions of the HPUS and not to those of the USP.

     In 1988,  the FDA issued a Compliance  Policy Guide  ("CPG") that  formally
established  the  manner  in which  homeopathic  drugs  are  regulated.  The CPG
provides that homeopathic drugs may only contain  ingredients that are generally
recognized  as  homeopathic.  Such  recognition  is most often  obtained via the
publication  of a monograph in the HPUS. The FDA has also noted that a product's
compliance with a HPUS monograph  system does not  necessarily  mean that it has
been shown to be safe and effective.  According to the CPG, and consistent  with
established FDA principals  regarding  allopathic  drugs, a homeopathic drug may
only  be  marketed   without  a  prescription  if  it  is  intended  solely  for
self-limiting disease conditions amenable to self-diagnosis and treatment. Other
homeopathic drugs must be marketed as prescription  products. In addition, if an
HPUS  monograph  states that a drug should only be available  on a  prescription
basis, this criteria will apply even if the drug is intended for a self limiting
condition.  The CPG provides  that the FDA's  general  allopathic  drug labeling
requirements   are  also  applicable  to  homeopathic   drugs.  All  firms  that
manufacture, prepare,


                                      -10-

<PAGE>



compound,  or  otherwise  process  homeopathic  drugs must  register  their drug
establishments  with the FDA and must also  "list"  their drugs with the agency.
Homeopathic  drugs must also be manufactured  in conformance  with "current good
manufacturing practices" ("GMP"). In addition, homeopathic drugs are exempt from
FDA's requirements for expiration date labeling.

     The HPUS is updated  regularly.  The HPUS was  initially  published  by the
Committee on Pharmacy of the American  Institute of Homeopathy  and is currently
published  by the  Homeopathic  Pharmacopoeia  Convention  of the United  States
("HPCUS"),  a private,  non-profit entity organized  exclusively for charitable,
educational, and scientific activities. The HPUS is an official publication that
is cited in the Federal Food and Drug Laws and CPU. The HPUS  contains  hundreds
of monographs for homeopathic  ingredients  that have been found by the HPCUS to
be both safe and  effective.  The HPUS also contains  general  standards for the
preparation of homeopathic drugs.

Employees

     As of December 31, 1997 the  Company's  Schools had 54 full time  employees
and 16 part time employees including 34 full time  administration  employees and
33 part time administration employees. The Schools have 20 full time and 13 part
time  faculty  members  and the  Corporate  Massage  Service  had one full  time
employee.  GHA also has 13 full time  employees and one part time  employee,  of
which,  five  are  executive  and  administrative,  six  are in  accounting  and
operations  and three are in marketing  and sales.  GHA also employs  three full
time  consultants.  None of the Company's  employees are represented by a union,
and the Company believes that its employee relations are good.

Insurance

     The  Company  presently  maintains  workers'   compensation   coverage  and
liability insurance relating to hazards on the Company's  premises.  The Company
carries a general liability policy which provides for coverage of $1,000,000 per
occurrence and $2,000,000 in the aggregate. The Company's professional liability
policy  provides for coverage of $1,000,000 per occurrence and $3,000,000 in the
aggregate.  The Company is and will be engaged in a business  which could expose
it to personal injury and other liability claims.  GHA carries general liability
insurance in the amount of  $5,000,000  per  occurrence  and  $6,000,000  in the
aggregate  including  products liability  insurance.  There can be no assurance,
however,  that the Company's  insurance  will be  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 on the Company.

Patents and Trademarks

     GHA, through Natural Health Laboratories,  Inc., has a United States Patent
covering the use of certain inactive botanical ingredients as a base for several
of its Natural Relief 1222 products. The Company also has obtained marketing and
manufacturing  rights to a family of Chinese-origin,  patented,  natural topical
medical products.


                                      -11-

<PAGE>



     GHA has federal  trademark  registrations  for Natural Relief 1222,  Ellon,
Calming  Essence  and  Mesozoic   Minerals.   The  Company  also  has  trademark
registrations  for  Nature's  Relief and  Nature's  Relief  1222 in Canada.  The
Company's  general policy is to pursue  registrations  of trademarks  associated
with its key  products  and to  protect  its legal and  commercial  rights  with
respect  to the use of those  trademarks.  The  Company  relies  on  common  law
trademark rights to protect its unregistered trademarks.

     Additional  trademark  registration  applications which may be filed by the
Company  with  the  United  States  Patent  and  Trademark  Office  and in other
countries  may or may not be granted and the breadth or degree of  protection of
the Company's existing or future trademarks may not be adequate.  Moreover,  the
Company  may not be able to defend  successfully  any of its legal  rights  with
respect  to its  present or future  trademarks.  The  failure of the  Company to
protect  its legal  rights to its  trademarks  from  improper  appropriation  or
otherwise may have a material adverse affect on the Company.

Seasonality

     Sales of topical analgesic  products are strongest during the colder winter
months when  arthritis  sufferers  tend to feel pain and stiffness more acutely.
Conversely, sales of skin treatment products (e.g., hydrocortisone creams, etc.)
are slightly stronger during the non-winter months. The Company does not believe
that the sales of wart removal products are seasonal.

Operation of the Schools

Curricula

     The primary  focus of the Schools  has been on massage  therapy,  which the
Company  believes  has  achieved  increased  public  awareness  and  acceptance.
Currently,  23 states,  including Florida and New York, require  individuals who
practice  massage therapy to be licensed.  The Schools prepare  students to take
the  examination  offered by the National  Certification  Board for  Therapeutic
Massage and Bodywork (the "NCBTMB") for  certification  as a massage  therapist.
The NCBTMB's  certification of massage therapists satisfies the requirements for
licensing in 11 of the states requiring licenses, including Florida. The Schools
also offer training in skin care. The State of Florida requires  registration of
skin care  professionals.  Upon  completing the skin care program and passing an
exam administered by the School,  the School's students satisfy the requirements
for registration as a skin care professional by the State of Florida.

     The Schools also offer a combined  massage  therapy and skin care  program,
requiring approximately 900 hours of study. The Schools require that the massage
therapy portion of the curriculum be completed  first,  followed by 300 hours of
skin care.



                                      -12-

<PAGE>



Student Recruitment

     The Company believes that enrollment at the Company's Schools is influenced
by a number of factors,  including  (i) a growing need for  individuals  to have
technical  and  occupational  training in order to obtain  employment,  (ii) the
number of high school  graduates  and other  demographic  trends,  and (iii) the
availability   of   competing   alternatives,    including   other   educational
opportunities, other vocational training alternatives, employment and service in
the U.S.  military.  The Company  believes that successful  student  recruitment
depends upon a number of factors,  including a school's  educational  reputation
and accreditation,  job placement record,  frequency and schedule of classes and
location, as well as the availability of Federal student financial aid. In order
to attract potential students and increase  recognition of its name and programs
of study, the Company utilizes a variety of marketing  methods  including radio,
newspapers, mailings, presentations and public relations.

Job Placement

     The Company  believes  that the  placement of its graduates is essential to
its ability to attract  students.  The Company's  Office of Job Placement  works
with students and graduates by advising them about employment  opportunities and
offering other placement assistance. Based on the placement calculation mandated
by the Accrediting  Commission of Career Schools and Colleges of Technology,
approximately 84% of the School's 1997 graduates have found positions, including
those who are self-employed and have entered private practice.


The Natural Health Shoppe, Inc.

     The Natural Health Shoppe,  Inc.,  the Company's  wholly-owned  subsidiary,
operates a bookstore at each of the  Schools'  campuses.  Inventory  consists of
such items as massage tables, headrests, other equipment related to the practice
of and utilized to provide massage therapy services, educational materials, skin
care products,  and clothing,  including uniforms and shirts.  Customers include
students,  instructors,  graduates of the Schools, practicing therapists and the
public.  The  Natural  Health  Shoppe,  Inc.  intends to continue to offer these
products and expand its inventory to include updated and related products.

Regulation of the Schools

General

     Participation  in Federal  student  financial  aid  programs  subjects  the
Company to extensive  regulation and to audit and compliance review by the USDOE
and other administering  agencies.  Failure to comply with these regulations may
have  serious  consequences  and  may  result  in  suspension,   limitation,  or
termination  hearings to determine if an  institution's  participation  in these
programs  should be reduced or  terminated.  No such  suspension,  limitation or
termination  proceeding  has been  instituted  against the Company.  The Company
would be materially affected adversely if one of these


                                      -13-

<PAGE>



proceedings were instituted against the Company and it resulted in a curtailment
of the Company's participation in government student financial aid programs.

     The Schools must hold a state license or be registered with the appropriate
state  authorities  to operate as a school.  The  Schools  are  licensed  by the
Florida  Department of Education  (the "Florida  Department of  Education").  In
addition,  the Schools  must  generally  comply with  standards  established  by
Florida state laws governing proprietary schools.  Typically, these laws and the
related   regulations   concern  such  matters  as  standards   and  methods  of
instruction,  qualifications of teachers and management  personnel,  adequacy of
school  facilities  and  equipment,  advertising,  form and content of contracts
between schools and their students and tuition collection  methods.  The Company
holds all required Florida licenses and  registrations,  and believes that it is
in substantial compliance with such laws and related regulations. As a result of
these  laws and  regulations,  the  Company  must  obtain  the  approval  of the
appropriate state education  departments before offering new programs or courses
and before implementing any changes in existing programs or courses.

     The Company and its Schools must comply with a variety of Federal and state
regulations  to qualify  as  institutions  where  eligible  students  can obtain
government  financial aid for tuition and related  expenses.  These  regulations
include  rules which set minimum  tuition  refund  levels for students who leave
school  before  completing  their  programs of study.  In addition,  the Federal
regulations  require  the  accreditation  of the school by  private  commissions
recognized by the USDOE.  The  accreditation  commissions  establish  additional
standards with respect to such matters as curriculum and teacher qualifications.

     Under current USDOE  regulations,  a change in control of the Schools could
result in a temporary or a permanent loss of Federal  financial aid funds to the
Schools' students. In addition,  under the regulations of the Florida Department
of Education a change of  ownership  resulting in a change of control may result
in the termination of the Schools'  licenses.  The Schools will also require the
approval  of the  Schools'  accrediting  commission  upon a change  of  control.
Pursuant to the USDOE regulations,  a determination of a change of control would
involve a review of which  persons or entities have the power to direct or cause
the  direction of  management  and  policies of the  Schools.  Under the Florida
Department of Education's regulations,  a change of control constitutes a change
in  the  authority  to  establish  or  modify  school  policies,  standards  and
procedures  or the  authority  to make the  effective  decisions  regarding  the
implementation or enforcement of school policies,  standards and procedures.  In
such event,  the prior  approval  of the  Florida  Department  of  Education  is
required.  Under the rules of the Schools' accrediting  commission,  a change of
control occurs when a person or a corporation  obtains  authority to control the
actions of the  institution,  including  a change of control  which  occurs as a
result of a transfer in voting interest.  The Company  believes,  although there
can be no  assurance,  that  there has not been a change of  control  that would
result in a loss of its eligibility for Federal financial aid funds, a review of
its  licenses,   or  the  requirement  of  prior  approval  by  its  accrediting
commission. The issue of whether there was a change of control, if raised by the
USDOE, the Florida Department of Education or the accrediting commission,  would
be determined  pursuant to the  standards  set forth above,  on the basis of the
facts  then  existing,   including  the  percentage  ownership  of  the  present
shareholders,  officers and  directors,  as compared with the holdings of others
and other factors


                                      -14-

<PAGE>



relating to the actual control of the Company.  Should there be a  determination
that a change of control had occurred by the USDOE,  the Florida  Department  of
Education or the Schools'  accrediting  commission and there was a disruption or
termination  of the  availability  of  Federal  financial  aid  to the  Schools'
students or a termination or  interruption of the licenses or  accreditation  of
the  Schools,  there  would be a material  adverse  effect on the  Company,  its
business and its prospects.

Accreditation and Licensing

     Accreditation is a means of recognizing that learning institutions have met
uniform  standards of  educational  performance,  primarily  through  impartial,
non-governmental   peer   evaluations  by  national  or  regional   professional
associations.  A school becomes  accredited by formal action of the  accrediting
body,  which bases its decision on  information  submitted by the school and the
reports of a specially  appointed  inspection  team which has visited the school
and evaluated the programs and operations  according to  established  standards.
Accreditation  by at least  one  accrediting  body  recognized  by the  USDOE is
required  to permit a  school's  students  to  participate  in  Federal  student
financial  aid  programs.   Accreditation   is  also  an  important   factor  in
establishing an institution's  reputation with potential  students and employers
of its graduates.

     Accredited  schools are subject to periodic review by accrediting bodies to
ensure that the schools maintain the level of performance, integrity and quality
required by the  accrediting  body.  There can be no assurance that the existing
accreditation of the School will be renewed. In addition,  a change in ownership
of the Company would require notification of, and possible re-evaluation of, the
Company's  accreditation by the accrediting agencies in order for the Schools to
retain their accreditation.

     Although accreditation is a private,  voluntary process designed to promote
educational  quality,  the Company  believes that  accreditation is an important
asset.  Accreditation of a school provides  significant  competitive  advantages
over non-accredited, for-profit educational institutions. College and university
administrators  look to accreditation in deciding whether to accept transfers of
credit.  Employers rely on an institution's  accredited status when evaluating a
job   applicant's   credentials.   Moreover,   accreditation   is  required  for
participation in government financial aid programs.

     Each  School is  licensed  by the Florida  Department  of  Education  as an
institution that provides  instruction or training that leads to an occupational
objective.  Such  institutions  are  subject  to  annual  or,  if they have been
licensed  and in good  standing  for  five  years or  more,  biennial  licensing
renewal.  The present state licenses for the Miami School and Orlando School are
subject to annual  review,  while the license for the  Pompano  Beach  School is
subject to biennial review, and expire on September 30, 1998,  November 30, 1998
and March 31, 2000,  respectively.  Each  institution  must meet certain minimum
standards  established  by the Florida  Department of Education  with respect to
administrative  organization,   educational  program  and  curricula,  finances,
financial stability, faculty requirements, library facilities, student personnel
services,  physical plant and facilities,  and  publications.  In addition,  the
institution is required to disclose to the Florida Department of Education


                                      -15-

<PAGE>



and its students  the status of the  institution  with  respect to  professional
certification  and licensure.  Failure to maintain  compliance  with the Florida
Department  of  Education's  minimum  standards  could result in  revocation  or
suspension  of a School's  license,  or other  penalties  imposed by the Florida
Department  of  Education.  The rules of the  Florida  Department  of  Education
require  prior  approval  of  written  contracts  between  the  student  and the
institution,  changes of location in certain events and  significant  changes to
programs  and  methods  of  operation.   Each  institution  is  required  to  be
incorporated  and have  adequate  administrative  staff and  faculty  to provide
instruction in its licensed programs. In addition, each program to be offered by
an  institution  must be  described  in  detail  in the  institution's  catalog,
including a listing of required equipment and instructional materials. Moreover,
institutions  must submit  financial  statements at the time of application  for
renewal. If the institution has a ratio of current assets to current liabilities
of less than 1 to 1, the Florida  Department  of Education is authorized to deny
the  renewal of the  license or to require a  demonstration  to provide  further
justification  for  the  renewal  of the  license.  The  Florida  Department  of
Education may also require the  institution to post a bond to assure the Florida
Department  of  Education  that  the  institution  will be able to  fulfill  its
obligations to its students.  The institution  must maintain a placement rate of
its  graduates of at least 60%,  otherwise the  institution  will be required to
submit reports implementing  placement improvement  measures. In addition,  each
institution  must maintain a retention  rate of 50% of its students.  Presently,
the Florida  Department  of  Education  rules  require a minimum of 500 hours of
training for massage  practice.  Agents  employed by the  institution to solicit
students  outside the institution are required to be licensed and are subject to
annual  licensure  and payment of fees.  The rules of the Florida  Department of
Education  provide that the advertising of the institution must be in compliance
with its  requirements,  which  include  limits  on the use of  superlatives  or
non-factual  statements or  illustrations.  Any  statement  which is intended to
mislead the public could result in  revocation  of licensure or other  sanctions
imposed by the Florida Department of Education.

     The School's are accredited by the Accrediting Commission of Career Schools
and Colleges of Technology. The Schools' Therapeutic Massage Training Program is
accredited by the Commission on Massage Training  Approval/Accreditation  of the
American Massage Therapy Association. There can be no assurance that the Schools
will be able to maintain their accreditation.

     The Company is also a member of the Career College Association, the Florida
Association of Post Secondary  Schools and Colleges and the Florida  Association
of Estheticians.  The Schools are approved by the Florida State Board of Massage
as a  provider  of  continuing  education  units  and  by  the  Immigration  and
Naturalization  Service to provide student visas.  The Schools are also approved
by the Veteran's Administration to accept veteran's benefits.

Degree-Granting Junior College

     As a  degree-granting  junior  college,  the  success of the Schools may be
dependent, in part, upon the transferability of credits from the Schools to four
year  institutions.   The   transferability  of  credits  from  one  educational
institution  to  another,  absent  an  articulation  agreement  between  the two
schools,  is generally  at the  discretion  of the  receiving  institution.  The
factors that receiving  institutions  typically  consider  include,  but are not
limited to, the similarity of accrediting commissions, the


                                      -16-

<PAGE>



licensing  status of the two institutions and the similarity of program content,
curriculum and textbooks. In addition, many institutions enter into articulation
agreements which establish specific  guidelines for the transfer of credits from
one institution to another.  However,  these agreements are not required by law,
and the content may vary dramatically  depending on whether the institution is a
public,  private,  academic or  vocational/technical  school. In general, if the
institutions are accredited by the same or a similar  accreditation  commission,
then the transfer of credits  between  such  institutions  is more  likely.  The
accreditation  commission  requirements  may be identical or similar in terms of
faculty  to  student  ratios,   equipment   requirements,   library  facilities,
curriculum development and other factors.  Students may also attempt to transfer
credits  from  one   institution  to  another  without  regard  to  whether  the
institutions are licensed by the Florida  Department of Education of Independent
Colleges and Universities or the Florida Board of Regents (the head of the state
university  system).  Absent  articulation  agreements  between the two schools,
consideration  for the acceptance of transfer of credits is more subjective than
the  transfer  of  credits   between   otherwise   similar   public  or  private
institutions.  There can be no assurance that credits from the Schools'  courses
will be transferable.

Student Financial Aid

     Students  at the  Schools  finance  their  education  through a variety  of
sources,  including individual  resources,  earnings from part-time  employment,
family  contributions  and tuition payment from their  employers.  However,  the
principal  source of tuition  financing  at the Schools is  government-sponsored
financial aid programs.  Students at the Schools receive financial aid under the
following  primary  programs:  (i) Federal Pell Grant Program (formerly known as
Basic  Educational   Opportunity  Grants);  (ii)  Federal  Direct  Student  Loan
Programs,  which includes subsidized and unsubsidized loans (previously known as
the  Guaranteed  Student  Loan  Program),  the  Parent  Loans for  Undergraduate
Students  ("PLUS")  program,  and  the  Federal  Perkins  Loan  Program;   (iii)
Supplemental  Educational  Opportunity  Grants;  and (iv) the College Work Study
program.

     Commencing in April 1995, the Schools became  participants  in the National
Direct  Student  Loan  Program  ("NDSL").  NDSL Loans are  available to students
studying at least 16 hours per week at an approved educational institution. NDSL
Loans may be obtained in amounts up to $6,625 per year. If a student's income or
family income is below a specified  level, a student pays no interest on an NDSL
Loan while in school and for a six-month "grace period" thereafter,  after which
time the student is required to pay monthly  installments of at least $50, which
includes  interest at a rate prescribed by Federal law. If the student's  income
or family income is above a specified  level,  then interest accrues on the loan
at a rate prescribed by Federal law. The interest rate on NDSL Loans ranges from
8.25% to  8.98%  per  annum.  NDSL  Loans  are  direct  loans  from the  Federal
government.

     Under the  provisions  of the  Reauthorization  of Higher  Education Act of
1965, as amended (the  "Reauthorization  Act"),  educational  institutions  with
annual student loan default rates in excess of 25% (30% prior to 1994) for three
consecutive  years may lose their  eligibility  for student loans.  The Schools'
student  loan  default  rates for 1994 and 1995 were  determined  to be 9.9% and
12.9%,  respectively.  The default rates for 1996 and 1997 will not be available
from the USDOE until the third quarters of 1997 and 1998, respectively,  since a
student is not deemed to be in default until


                                      -17-

<PAGE>



eight  months  after a  six-month  grace  period  from the time that the student
leaves school.  There can be no assurance that the Company will be successful in
continuing  to maintain an  acceptable  student loan default  rate, or otherwise
remain eligible for Federal funding.

     The  Reauthorization  Act prohibits an institution from enrolling more than
50% of its students on the basis of "Ability to  Benefit."  "Ability to Benefit"
students are those without a high school or general  equivalency  degree.  As of
December 31, 1995, 1996 and 1997,  approximately  12%, 15% and 15% respectively,
of the  Company's  students  at the  School's  were  classified  as  "Ability to
Benefit" students.

     Under  USDOE   regulations,   the  Schools  are   proprietary   schools  (a
"for-profit"   educational  institution  that  provides  job  or  career-related
training).  A  proprietary  school may be deemed  ineligible to  participate  in
financial  aid  programs  if  the  USDOE  determines  that  85% or  more  of the
institution's operating revenue is derived from Title IV financial aid programs.
The application of the 85-15 Rule depends largely on the USDOE's  interpretation
of what constitutes "revenue" for such institutions.  According to the Company's
preliminary  calculations,  the  Schools  derived  approximately  66%  of  their
revenues  for the  calendar  year  ending  December  31,  1997 from the Title IV
financial aid programs.  The official  determination of the Company's compliance
for the year ended  December 31, 1997 with the 85-15 Rule will likely be made by
the end of 1999.  Accordingly,  if it is determined that the Company did or does
not comply  with these  regulations,  some or all of the student  financial  aid
received by the students at the Schools  could be curtailed or  eliminated.  The
reduction or termination of Federal student  financial aid would have a material
adverse effect on the Company.

     The USDOE has considered,  and the U.S. Congress is presently  considering,
changes in the  administration of certain student financial aid programs.  There
is no assurance that  government  funding of the financial aid programs in which
the Company's  students  participate  will be maintained  at current  levels.  A
reduction in funding  levels could result in lower  enrollments.  Extensive  and
complex  regulations  govern all of the  government  grant and loan  programs in
which the  Company  participates.  As such,  the  Company is subject to periodic
reviews  and audits by the USDOE and  Federal  and State  Guaranty  Agencies  to
determine compliance with applicable  regulations.  Because financial assistance
programs are required to be administered in accordance with the standard of care
and diligence of a fiduciary,  any regulatory  violation  could be the basis for
the initiation of a suspension, limitation or termination proceeding against the
Company. If such a proceeding were initiated against the Company and resulted in
a  substantial  reduction  or  termination  of the  Company's  participation  in
government  grant or loan programs the Company would be materially and adversely
affected.

     The Company's  Schools also offer a payment plan which enables  students to
pay for their  tuition in monthly  installments.  The Company  charges  students
participating  in this payment  program a finance  charge of $25 and interest at
the annual rate of 12%.  Students  participating in this program are required to
pay the remaining balance of their tuition accounts prior to graduation.

                                      -18-

<PAGE>



Competition - The Schools

     The Schools  compete  with (i)  regional  vocational  schools and  national
vocational  schools  which  offer  occupational  training  programs  in  massage
therapy,  holistic skin care and in related and unrelated  fields,  (ii) two and
four year  universities and colleges,  and (iii) on-the-job  training offered by
private  and  government   employers.   The  Company  believes  that  there  are
approximately five schools in the Schools geographic area that offer programs of
study in massage therapy and  approximately  five schools that offer programs of
study in holistic skin care. The Company  believes that the massage  therapy and
holistic  skin care  programs of study  offered by its  Schools  offer a broader
range of courses than other schools in its  geographic  area.  In addition,  the
ability of the Schools' students to receive financial aid under Federal programs
provides  a  competitive  advantage  over those  schools  which do not have such
ability.  Many competitors have greater financial,  recruiting and job placement
resources  than  the  Company,  have  longer  operating  histories  and are more
established  than the  Company,  and have  more  extensive  facilities  and more
personnel than the Company has now or will have in the foreseeable future.


Item 2. Description of Properties

Leased Properties

     The Company leases approximately 12,000 square feet for the Miami School at
7925 Northwest 12th Street,  Miami, Florida. The current annual rent is $199,000
and the lease  expires on October 31,  1998.  The Company  leases  approximately
7,590 square feet in Orlando,  Florida, the former site of the Company's Orlando
School. The lease and the sublease expire in November,  2000. The Company leases
such space at an annual rent of $86,000 while the annual rental income under the
sublease is $81,500. In September 1997, the Company leased  approximately 18,240
square feet for the Orlando School.  The current annual rent is $266,424 and the
lease expires in September 2002.

     The Company leases  approximately 2,200 square feet of office and warehouse
space in  Portland,  Maine at a monthly  rental of $2,150 plus  utilities.  This
lease expires on November 30, 2001.  although the Company may elect to terminate
the lease commencing December 1, 1998 with six months notice.

Pompano Property

     The Company  owns the property  located at 2001 West Sample  Road,  Pompano
Beach, Broward County,  Florida, which includes a four story building consisting
of 50,438  square feet which is known as the Tricom  Office Center (the "Pompano
Property").  The Pompano  Property is  encumbered by a mortgage in the amount of
$2,250,000 held by Banc One Mortgage  Capital Markets LLC. The note provides for
monthly  payments of principal in the amount of $17,725 plus accrued interest at
the rate of 8.24% per annum.  The unpaid  balance  of the  principal  is due and
payable on November 1, 2007.  Principal on the note may not be prepaid  prior to
the third year without penalty.


                                      -19-

<PAGE>



     Approximately  42.8% of the building is occupied by the Company's corporate
offices,   and  the  Pompano  Beach  School  and  the  balance  is  occupied  by
non-affiliated tenants. Approximately 26,000 square feet of the Pompano Property
is presently  leased to seven  tenants at an aggregate  rental of  approximately
$309,000 per annum.  The current  leases  expire at various  times  between 1998
through 2001 and require  annual  rentals that range from $16,600 to $56,800 per
annum.  The three largest tenants account for  approximately  66% of the Pompano
Property's  rental income,  and none of the other tenants accounts for more than
9% thereof. Three of the largest tenant leases expire in October 1998, May 2001,
and  July  2001  and  such  leases   provide  for  current   annual  rentals  of
approximately  $20,800,  $137,446  and $27,500  respectively.  In the event that
leases  representing  a  significant  percentage of rental income expire and the
space is not  promptly  rented on  advantageous  terms,  there may be a material
adverse effect on the Company's earnings.

     In March 1998, NHTC Real Estate Inc., the Company's wholly-owned subsidiary
which owns the Pompano Property,  entered into a purchase  agreement to sell the
Pompano Property for a purchase price of $3,000,000.  The purchase  agreement is
subject to the satisfaction of certain conditions prior to the closing.




                                      -20-

<PAGE>



Item 3. Legal Proceedings.

     On  August 4,  1997  Samantha  Haimes  brought  an action in the  Fifteenth
Judicial Circuit of Palm Beach County, Florida, against the Company and National
Health Care Centers of America, Inc., the Company's wholly-owned subsidiary. The
Company has asserted  counterclaims  against Samantha Haimes and Leonard Haimes.
The  complaint  arises out of the  defendant's  alleged  breach of  contract  in
connection  with the Company's  natural  health care center which was located in
Boca  Raton,  Florida.  The Company is  vigorously  defending  the  action.  The
plaintiff is seeking damages in the amount of approximately $535,000.

     On September  10, 1997  Rejuvenation  Unlimited,  Inc. and Sam Lilly,  Inc.
brought  an action in the  Fifteenth  Judicial  Circuit  of Palm  Beach  County,
Florida,  arising out of the Company's  alleged breach of contract in connection
with the  acquisition  of the  Company's  natural  health care center  which was
located in Boca Raton,  Florida  from the  plaintiff.  The  plaintiff is seeking
damages in excess of $15,000.

     In an action brought by Troy Laboratories, Inc. ("Labs") and H. Edward Troy
("Troy") v.  Patricia J. Fisher,  Richard Aji and Edward G. Coyne in the Supreme
Court of the State of New York,  Onondaga County,  the plaintiffs are seeking to
have a purported  assignment of patent  utilized for Natural  Relief 1222 to the
defendants  declared null and void and to have Labs declared the lawful owner of
such patent.  The  plaintiffs  have prevailed at the trial level,  however,  the
defendants  have  filed a notice of  appeal.  In the event  that the  defendants
prevail, then the defendants would have equal rights to the patent.


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

        None.




                                      -21-

<PAGE>



                                     PART II


Item 5. Market for Common Equity and Related Stockholder Matters.

Market Information

     The Common Stock is quoted on the NASDAQ  SmallCap  Market under the symbol
"NHTC." The following  table sets forth the range of high and low bid quotations
as reported by The NASDAQ  SmallCap Market for the Common Stock for the quarters
indicated.  The quotations reflect  inter-dealer  prices without retail mark-up,
mark-down or commissions,  and may not represent actual transactions.  The table
below does not  reflect  the  Company's  one for 40 reverse  stock  split  which
occurred in April 1998.


                                                Common Stock
                                               --------------
                                               High       Low
                                               ----       ---
1996
First Quarter.............................     6          4 1/4
Second Quarter............................     5 3/4      4 7/8
Third Quarter.............................     5          3 1/2
Fourth Quarter............................     3 5/8      1

1997
First Quarter ............................     2 1/2      1
Second Quarter............................     2 7/6       25/32
Third Quarter.............................       1/16       1/16
Fourth Quarter............................       1/16       1/16

1998
First Quarter.............................       5/32       1/32

Holders

     As of March 31, 1998, the Company had  approximately  179 record holders of
its Common Stock, and as of January 21, 1998,  1,685  beneficial  holders of its
Common Stock.

Dividends

     The Company has not paid any dividends since its inception. The Company has
no intention of paying any cash dividends on its Common Stock in the foreseeable
future,  as it intends to use any  earnings to generate  increased  growth.  The
payment by the Company of cash dividends, if any, in the future rests within the
discretion of its Board of Directors and, among other things, will



                                      -22-

<PAGE>



depend  upon  the  Company's  earnings,   capital   requirements  and  financial
condition, as well as other relevant factors.


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

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

Years ended December 31.  1996 and 1997

The following  discussion  should be read in conjunction  with the  consolidated
financial statements and the notes contained therein.

Forward-Looking Statements

When used in this Form  10-KSB  and in future  filings by the  Company  with the
Securities and Exchange  Commission,  the words "will likely  result",  and "the
Company expects", "will continue", is anticipated",  "estimated",  "project", or
"outlook"  or similar  expressions  are  intended to  identify  "forward-looking
statements" within the meaning of the Private Securities Litigation Act of 1995.
The  Company  wishes to caution  readers  not to place  undue  reliance  on such
forward-looking  statements,  each of which speak only as of the date made. Such
statements  are  subject to certain  risks and  uncertainties  that could  cause
actual results to differ materially from historical earnings and those presently
anticipated or projected.  The Company has no obligation to publicly release the
result of any revisions which may be made to any forward- looking  statements to
reflect anticipated or unanticipated events or circumstances occurring after the
date of such statements.

Results of Operations


                      YEAR ENDED DECEMBER 31,1997 AND 1996

Revenues:

Total revenues were  $6,992,516 for the year ended December 31, 1997 compared to
$4,844,372 for the year ended December  31,1996.  This represents an increase of
$2,148,144  or 44.3%.  The  Company  believes  that the  increase  is  primarily
attributable  to a $1,010,000  increase in tuition and bookstore  revenue by the
Company's  Florida College of Natural Health division.  The main portion of this
increase was reflected in the Orlando School which  relocated to larger premises
during the latter  portion of the fiscal  year.  Additionally,  the  addition of
$1,134,000 in product sales by GHA, acquired on July 23,1997,  accounted for the
other significant portion of the increase.

Cost of sales:

Cost of sales for the year ended December  31,1997 were  $2,868,094  compared to
$1,909,989 for the comparable  period last year. Gross profit as a percentage of
revenues was 59.0% compared with 60.6% for the year ended December 31,1996.  The
School's  gross profit was 55.4% for 1997 compared to 57.9% in 1996. The Company
believes  that the decline is  attributable  to  increased  expenses  related to
expansion of each of the Schools'  library as required for licensing as a degree
granting junior college.  In addition,  additional space was leased at the Miami
School with the introduction of an electrolysis class. Global's gross profit was
65%.


<PAGE>



Selling, General and Administrative Expenses:

Selling,  general and administrative expenses were $7,636,911 for the year ended
December 31,1997.  This represents an increase of $4,171,384 over the year ended
December  31,1996.  The Company  believes that this increase is due primarily to
$3,608,470  of selling,  general and  administrative  expenses  related to GHA's
operations.  These costs  consisted  principally  of  advertising  and promotion
expense of $1,771,095 and salaries and related  employee costs of $708,602.  The
advertising and promotion  expenses were incurred in conjunction with the launch
and  the  continued   media  support  of  GHA's  Natural  Relief  1222  line  of
all-natural,  over-the-counter  pharmaceutical  products, as well as promotional
support for the initial sale of products into national chain drug accounts.

An  additional  component  of the  Company's  increase in  selling,  general and
administrative expense was an increase in payroll expense at the Florida College
of Natural  Health  division of $111,000  due to the need for  additional  staff
because of the increase in enrollment at the Orlando School as well as personnel
such as librarians.  Legal and accounting  expenses increased by $251,000 as the
result of costs  associated with potential  acquisitions  of additional  medical
clinics, obtaining additional financing and litigation related to the Boca Raton
Natural  Health  Care  Center  for  accreditation  as a degree  granting  junior
college.  Travel  expenses  increased  approximately  $190,000 over the previous
year.  This increase is due in part to costs  associated with GHA acquisition as
well as travel related to GHA's nationwide marketing program.


Litigation settlement:

The litigation  settlement  expense of approximately  $118,000 resulted from the
settlement  of  the  litigation  for  approximately  $198,000  commenced  by the
landlord  in  connection  with  property  leased by the  Company in  Lauderhill,
Florida.  The  Company had  previously  accrued  approximately  $80,000 for this
litigation.  The leased  property was the previous site of the Company's  School
now located in Pompano Beach, Florida.


Non-cash Imputed Compensation Expense:

In the first  quarter of 1997,  the  Company  expensed  $25,000  relating to the
issuance of 20,000  shares of Common  Stock  (pre-split)  to an  employee  which
amount represents the fair market value of the shares issued to this individual.
In the third  quarter of 1997,  the  Company  expensed  $400,000  related to the
issuance of options to acquire 800,000 shares of Common Stock (pre-split) to two
officers. The expense represents the difference between the fair market value of
the shares underlying the options on the date of grant and the exercise price of
the options. These non-cash expenses were accompanied by corresponding increases
in the Company's additional paid in capital account and resulted in no change to
stockholder's equity.






<PAGE>



Interest Expense

Interest  expense  for the year  ended  December  31,  1997 were  $1,064,301  as
compared to $231,112  for the year ended  December  31,  1996.  The  increase is
mainly due to the  interest  payable to  holders  of the  Company's  convertible
debentures  issued in April 1997,  as well as interest  payable on GHA's notes.

Income(Loss) from Continuing Operations:

The loss from  continuing  operations was $5,200,679 for the year ended December
31,1997 as  compared to  $786,346  for the year ended  December  31,  1996.  The
increase in the loss is primarily  attributable  to the impact of the individual
elements discussed above.

Discontinued Operations

In October  1997,  the  Company  closed its  natural  health care center in Boca
Raton,  Florida. In February 1998, the Company sold its remaining natural health
care center in Pompano  Beach,  Florida.  The  Company  has  reflected a loss of
$2,524,441  in the year ending  December 31, 1997 compared to a loss of $103,192
in the same period for 1996 for the discontinued segment.. The loss includes the
write-off of goodwill  associated with the acquisition of the Boca Raton natural
health care  center,  the  write-off  of fixed  assets,  estimated  future costs
associated  with the medical  clinics such as future rents due on the Boca Raton
natural  health  care  center,  as well as the  $497,246  cost  of  severing  an
employment  agreement  with an  employee at the Boca Raton  natural  health care
center, previously recognized by the Company in the quarter ended June 30, 1997.
Revenues for the natural health care center segment were $1,754,066 for the year
ended December 31,1997 and $2,374,469 for the year ended December 31, 1996.


Net Loss

For the year ended December 31, 1997, the net loss was $7,725,120  compared to a
net loss of $889,539 for the year ended  December 31, 1996.  The increase in the
net loss is  attributable  to the impact of the  individual  elements  discussed
above.



                                          Liquidity and Capital Resources

The Company has funded its working capital and capital expenditure  requirements
from cash provided through  borrowing from institutions and from the sale of the
Company's  securities in private  placements and the initial public  offering of
its  securities.  The  Company's  primary  source of cash  receipts  is from the
payments for tuition, fees, and books. These payments were funded primarily from
students and parent  educational  loans and financial aid under various  federal
and state assistance  programs and, to a lesser extent,  from student and parent
resources.  The  Company's  secondary  source of cash receipts has been from the
sale of GHA's products.



<PAGE>



In January 1997, the Company sold $100,000 of convertible  debentures which were
subsequently converted into Common Stock.  In February 1997, the Company sold
$300,000 of convertible debentures which were subsequently converted into
Common Stock.

 In April 1997,  the Company  issued  $1,300,000 of 6%  convertible  debentures.
Principal on the  debentures  is due in March 2000.  The  principal  and accrued
interest  on  the  debentures  are  convertible  into  shares  of  Common  Stock
commencing July 1997 at a conversion price equal to the lesser of $1.4375 or 80%
of the average closing bid price for the five trading days immediately preceding
the  notice of  conversion.  As of  December  31,1997,  a total of  $820,233  in
principal and $25,416 in related  interest had been  converted  into  11,789,312
shares of Common Stock (pre-split).  In January 1998, the remaining principal of
$179,767  and  related  interest  of $8,858  was  converted  into an  additional
7,054,994 shares of Common Stock (pre-split).

In  conjunction  with the debenture  issuance,  the Company  issued  warrants to
purchase  200,000  shares of Common Stock.  The warrants are  exercisable  until
April 3, 2002. Half of the warrants are exercisable at $2.4375 per share,  while
the remaining half are exercisable at $3.25 per share.

In June  1997,  the  Company  sold  2,200  shares  of its  convertible  series A
preferred stock for $1,000 a share, and realized net proceeds of $1,900,702. The
preferred stock pays a dividend at the rate of 8% per annum payable in shares of
Common Stock.  The preferred  stock is convertible  commencing 60 days after the
issuance,  provided  that a  registration  statement  covering the resale of the
shares of common stock is  effective,  at the rate of 75% of the market price of
the Common Stock.  In addition,  a penalty of 2.5% per month for a period of six
months  accrued  on the  Series A  Preferred  Stock  which is payable in cash or
shares of Common  Stock at the  conversion  price.  The  registration  statement
covering such conversion  shares was declared  effective on January 12, 1998. In
April 1998,  the Company  sold an  aggregate of  $4,000,000  of 10%  convertible
preferred  stock,  realizing  proceeds  after  expenses  of  approximately  $3.4
million,  $2.5 million of which were  utilized to redeem the  previously  issued
preferred  stock. The new preferred stock provides for a conversion to common at
75% of the market price.

On July 23,  1997,  the Company  acquired  all of the capital  stock of GHA. The
purchase  price for the  acquisition  of GHA was  settled  with the  issuance of
5,800,000 shares of Common Stock,  plus additional  shares of common stock to be
issued to the former GHA shareholders  contingent upon the operating performance
of GHA. Specifically, the Company has agreed to issue to former GHA shareholders
additional  shares  of  Common  Stock  as  follows:  (i)  up to  800,000  shares
(pre-split) if GHA pre-tax operating earnings equal or exceed $1,200,000 for the
period from July 1, 1997  through  June 30,  1998,  and (ii) shares equal to the
market value of the lesser of $45 million or eight times GHA's pre-tax operating
earnings  for the period from July 1, 1999  through June 30, 2000 minus the fair
market  value on the date of issuance of the  5,800,000  shares of Common  Stock
(pre-split) initial  consideration or the 800,000 contingent shares (pre-split),
if they are earned.

In August 1997, the Company issued a $100,000  unsecured  promissory  note at an
interest rate of 18% to fund the  expansion of the Orlando  School into a larger
facility. This note is due on August 26, 1998.



<PAGE>



In October and  November  1997,  the Company  issued  $850,000 of 12.5%  secured
promissory  notes to fund continuing  operations of GHA. The secured  promissory
notes pay  interest at the rate of 12.5% per annum and are due on  February  28,
1998.

At December 31, 1997 the ratio of current assets to current  liabilities was .43
to 1.0. There was a working capital deficit of approximately $4,635,000.

In  February  1998,  the Company  sold  300,000  shares of Series B  Convertible
Preferred Stock which are convertible  into shares of Common Stock commencing on
April 4, 1998 at a  conversion  price  equal to the lower of (i)  seventy  (70%)
percent of the average closing bid price of the Common Stock or (ii) $.0625.

In April 1998 the Company issued  40,000 shares of Series C Preferred Stock.
Each  share of Series C Preferred  Stock is convertible  into shares of Common
Stock  commencing 41 days after  the date of  issuance  at a  conversion  price
equal to the lower of the closing  bid price of the  Common  Stock on the date 
of  issuance  or 75% of the average  closing  bid  price  of the  Common  Stock 
for the five  trading  days immediately preceding the date of the notice of 
conversion. Each share of Series C Preferred Stock shall automatically be
converted into Common Stock on the date which is 24 months from the date of  
issuance.  In no event shall the Company be required to issue more than 
7,676,085 shares of Common Stock (pre-split)  unless the  stockholders  of the 
Company  approve the issuance of additional  shares of Common Stock or Nasdaq 
waives the  requirement of stockholder  approval.  In the event that the Company
has issued 7,676,085  shares of Common Stock  (pre-split) upon the  conversion 
of the Series C  Preferred  Stock and the  Company has not obtained such waiver
from Nasdaq or stockholder  approval,  then the Company has agreed  to  redeem 
any  shares of Series C  Preferred  Stock  outstanding  at a redemption  price  
equal to 133% of the face  amount  of the  shares of Series C Preferred Stock 
and any accrued and unpaid dividends.  The net proceeds from the sale of the 
Series C  Preferred  Stock was  approximately  $3,400,000.  Of such amount, 
$2,500,000 was utilized to redeem 1,568.407 shares of Series A Preferred Stock.

Cash used in operations  for the period ended December  31,1997 was  $2,357,551,
attributable  primarily  to the net  loss of  $7,725,120  adjusted  for non cash
expenses and changes in operating assets and liabilities aggregating $5,367,569.
The major  elements of operations  requiring  the use of cash were  increases in
accounts  receivable  of $533,815 and  inventory of $271,235.  Cash inflows were
provided by increases in accounts  payable of  $1,613,581,  increases in accrued
expenses of $737,197 and increases in accrued  consulting  contracts of 360,131.
Cash  provided by  financing  activities  during  fiscal 1997 was  approximately
$4,501,000,  mainly from the issuance of preferred  stock of $2,200,000  and the
issuance of debentures of $1,626,826.  Proceeds from notes payable and long-term
debt provided approximately  $3,274,000 which was mainly a result of refinancing
the Pompano  Property.  Payments of notes  payable  and  long-term  approximated
$2,114,000  which  was  mainly  attributable  to the pay  down  of the  original
building financing.

The Company  maintains a $300,000  line of credit  secured with a $150,000  cash
deposit and certain  other assets of the  Company.  This credit facility expires
in 1998.


<PAGE>


The  Company's  capital  expenditures  totaled  $611,863,  primarily  due to the
expansion in the early part of fiscal 1997 of the Boca Raton natural health care
center and $424,000 in connection with the refinancing of the Pompano Property.

The Company also anticipates utilizing the proceeds from the anticipated sale of
the Schools and the sale of the Pompano Property to provide  financing, although
there can be no  assurance  thereof.  

     The Company  anticipates  that future additional financing will be required
to finance the Company's continued  operations during the next twelve months, 
principally to fund the continued development and growth of GHA's product sales
Management is currently seeking at least $4.0 million in additional  capital  to
continue  to pursue  GHA's  business  plan of  national advertising  in  support
of  national retail  distribution.  There  can  be no assurance that the Company
will be able to secure such additional debt or equity financing.  Failure to 
obtain  additional  financing  of at least  $2.5  million within the next 12 
months will require reductions in operating expenses, and may have a material 
impact on the ability of the Company to increase GHA's sales and to continue 
operations. If the Company obtains additional financing of at least $2.5 million
for the next twelve months, of which there can be no assurance, the Company 
believes that its net cash flow,  together  with  available  lines of credit may
be  sufficient to  finance  the  Company's  operations  for  the  period  of  at
least  12  months thereafter.








<PAGE>






Item 7. Financial Statements.
                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS




                                                                    PAGE NUMBER
Independent Auditors' Report                                           F-2
Consolidated Balance Sheet                                             F-3
Consolidated Statements of Operations                                  F-4
Consolidated Statement of Stockholders' Equity                         F-5
Consolidated Statement of Cash Flows                                   F-6
Notes to Consolidated Financial Statements                             F-8


                                       F-1

<PAGE>



                           INDEPENDENT AUDITORS' REPORT


Board of Directors
Natural Health Trends Corp. and Subsidiaries
Pompano Beach, Florida

     We have  audited the  accompanying  consolidated  balance  sheet of Natural
Health Trends Corp.  and  Subsidiaries  as of December 31, 1997, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years ended December 31, 1997 and 1996.  These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

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

     In our opinion,  the financial statements referred to above present fairly,
the financial  position of Natural  Health Trends Corp. and  Subsidiaries  as of
December 31, 1997,  and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1996, in conformity  with  generally  accepted
accounting principles.

     The accompanying  financial statements have been prepared assuming that the
Company will  continue as a going  concern.  The Company has incurred  losses in
each of the last two  fiscal  years and as more fully  described  in Note 2, the
Company  anticipates  that  additional  funding will be necessary to sustain the
Company's  operations  through the fiscal year ending  December 31, 1998.  These
conditions raise  substantial doubt about the Company's 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.

                                                   Certified Public Accountants
New York, New York                                 /S/ Feldman Radin & Co., P.C.
March 10, 1998 and                                     Feldman Radin & Co., P.C.
April 14, 1998 as to
Notes 2 (O), 6 (E) and 16

                                       F-2

<PAGE>
                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                December 31, 1997







                                     ASSETS

CURRENT ASSETS:
       Cash                                                   $         104,784
       Restricted cash                                                  250,000
       Accounts receivable                                            1,979,948
       Inventories                                                    1,026,999
       Prepaid expenses and other current assets                        184,576
                                                               ----------------
            TOTAL CURRENT ASSETS                                      3,546,307

PROPERTY AND EQUIPMENT                                                3,518,117
DEPOSITS AND OTHER ASSETS                                             6,740,497
                                                               ----------------

                                                              $      13,804,921
                                                               ================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       Accounts payable                                       $       3,026,436
       Accrued expenses                                               1,199,887
       Revolving credit line                                            217,422
       Accrued expenses for discontinued operations                     338,446
       Current portion of long term debt                              2,020,349
       Deferred revenue                                               1,089,647
       Current portion of accrued consulting contract                   246,607
       Other current liabilities                                        325,115
                                                               ----------------
            TOTAL CURRENT LIABILITIES                                 8,463,909
                                                               ----------------

LONG-TERM DEBT                                                        2,254,591
DEBENTURES PAYABLE                                                      179,767
ACCRUED CONSULTING CONTRACT                                             113,524
ACCRUED EXPENSES DISCONTINUED OPERATIONS                                 17,616

COMMON STOCK SUBJECT TO PUT                                             380,000

STOCKHOLDERS' EQUITY:
       Preferred stock, $.001 par value,
         1,500,000 shares authorized;
         2,200 shares issued and outstanding                          1,900,702
       Common stock, $.001 par value; 5,000,000
         shares authorized; 758,136 shares
         issued and outstanding at December 31, 1997                        758
       Additional paid-in capital                                    11,941,381
       Retained earnings (accumulated deficit)                      (11,053,577)
       Common stock subject to put                                     (380,000)
       Prepaid stock compensation                                       (13,750)
                                                               ----------------
            TOTAL STOCKHOLDERS' EQUITY                                2,395,514
                                                               ----------------

                                                              $      13,804,921
                                                               ================



                 See notes to consolidated financial statements.

                                       F-3
<PAGE>
                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


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

REVENUES                                  $        6,992,516 $        4,844,372

COST OF SALES                                      2,868,094          1,909,989
                                            ----------------   ----------------

GROSS PROFIT                                       4,124,422          2,934,383

SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                       7,636,911          3,465,527

NON-CASH IMPUTED COMPENSATION EXPENSE                425,000             22,000

LITIGATION SETTLEMENT                                118,206             -
                                            ----------------   ----------------

OPERATING INCOME (LOSS)                           (4,055,695)          (553,144)

OTHER INCOME (EXPENSE):
     Interest (net)                               (1,064,301)          (231,112)
     Other                                          (103,000)            -
     Miscellaneaous Revenue                           22,317             (2,090)
                                            ----------------   ----------------

INCOME(LOSS) FROM CONTINUING OPERATIONS
     BEFORE INCOME TAX                            (5,200,679)          (786,346)

PROVISION FOR INCOME TAX                              -                  -
                                            ----------------   ----------------

INCOME (LOSS) FROM CONTINUED
     OPERATIONS                                   (5,200,679)          (786,346)
                                            ----------------   ----------------

DISCONTINUED OPERATIONS:
     (Loss) From Discontinued Operations          (2,022,602)          (185,642)
     (Loss) On Disposal                             (501,839)            82,450
                                            ----------------   ----------------

INCOME (LOSS) FROM DISCONTINUED
     OPERATIONS                                   (2,524,441)          (103,192)
                                            ----------------   ----------------


NET INCOME (LOSS)                          $      (7,725,120) $        (889,538)
                                            ================   ================

BASIC INCOME (LOSS) PER COMMON SHARE:
     Continued Operations                  $          (11.98) $           (2.80)
     Discontinued Operations                           (5.81)             (0.37)
                                            ----------------   ----------------

NET INCOME (LOSS) PER COMMON SHARE         $          (17.79) $           (3.17)
                                            ================   ================

WEIGHTED AVERAGE COMMON SHARES USED                  434,265            280,350
                                            ================   ================




                 See notes to consolidated financial statements.

                                       F-4
<PAGE>
<TABLE>
<CAPTION>
                                    NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                                   CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


                                                                                              Common
                              Common Stock      Preferred Stock    Additional   Retained      Stock      Deferred
                           --------------------------------------   Paid-in     Earnings     Subject      Stock
                            Shares     Amount   Shares    Amount    Capital     (Deficit)     to Put   Compensation   Total
                           ---------- -------- ------- ----------- ----------- ------------ ---------- ------------- ------------

<S>                       <C>         <C>       <C>   <C>          <C>         <C>           <C>       <C>           <C>
BALANCE
 DECEMBER 31, 1995            267,728 $  268        -  $         - $ 3,877,730 $ (1,705,584) $       - $           - $  2,172,414

  Shares issued for
   acquisitions                 9,500      9        -            -   1,367,991            -          -             -    1,368,000
  Shares issued for
   consulting agreement         2,500      2        -            -     164,998            -          -      (165,000)           -
  Amortization of
   prepaid consulting               -      -        -            -           -            -          -        68,750       68,750
  Shares issued to employees      400      1        -            -      21,999            -          -             -       22,000
  Convertible debentures
   treated as converted        28,522     29        -            -     809,971            -          -             -      810,000
  Common stock
   subject to put                   -      -        -            -           -            -   (380,000)            -     (380,000)
  Net loss                          -      -        -            -           -     (889,539)         -             -     (889,539)
                           ---------- -------- ------- -----------  ---------- ------------ ---------- -------------   ----------

BALANCE
 DECEMBER 31, 1996            308,650    309        -            -   6,242,689   (2,595,123)  (380,000)      (96,250)   3,171,625


  Sale of convertible
   Series A preferred stock          -      -    2,200    1,900,702           -            -          -             -    1,900,702
  Preferred stock
   dividends imputed                 -      -        -            -     733,333     (733,333)         -             -            -
  Conversion of debentures     303,986    303        -            -   1,207,172            -          -             -    1,207,475
  Stock issued
   for acquisition             145,000    145        -            -   2,899,855            -          -             -    2,900,000
  Other issuances                  500      1        -            -      24,999            -          -             -       25,000
  Issuance of stock options          -      -        -            -     400,000            -          -             -      400,000
  Amortization of
   deferred stock compensation       -      -        -            -           -            -          -        82,500       82,500
  Discount on debentures             -      -        -            -     433,333            -          -             -      433,333
  Net loss                           -      -        -            -           -   (7,725,120)         -             -   (7,725,120)
                            ---------- -------- ------- -----------  ---------- ------------ ---------- ------------- ------------

BALANCE
 DECEMBER 31, 1997             758,136 $  758    2,200  $ 1,900,702 $11,941,381 $(11,053,577)$ (380,000)$     (13,750)$  2,395,514
                            ========== ======== ======= =========== =========== ============ ========== ============= ============







                                   
                                                            See notes to consolidated financial statements.

                                                                                F-5


</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                             Year ended
                                                                             December 31
                                                                -----------------------------------
                                                                       1997               1996
CASH FLOWS FROM OPERATING ACTIVITIES:                           ----------------   ----------------
<S>                                                          <C>                 <C>
  Net loss                                                    $      (7,725,120) $        (889,539)
                                                                ----------------   ----------------
  Adjustments to reconcile  net loss to net cash 
    provided by (used in) operating activities:
     Depreciation and amortization                                      567,670            244,571
     Non-cash imputed compensation expense                              425,000             22,000
     Loss on disposal of fixed assets, net                              105,001                  -
     Interest settled by issuance of stock                              116,065                  -
     Write-off of goodwill                                            1,325,605                  -
     Amortization of note payable discount                              433,333                  -

  Changes in assets and liabilities:
     (Increase) decrease in accounts receivable                        (533,815)          (707,544)
     (Increase) decrease in inventories                                (271,235)          (130,295)
     (Increase) decrease in prepaid expenses                            (24,566)            31,393
     (Increase) decrease in due from affiliate                                -             (1,200)
     (Increase) decrease in deposits and other assets                  (112,238)           (34,518)
     Increase (decrease) in accounts payable                          1,613,581             97,959
     Increase (decrease) in accrued expenses                            737,197            286,463
     Increase (decrease) in deferred revenue                            325,767            278,636
     Increase (decrease) in other current liabilities                   (55,989)                 -
     Increase (decrease) in accrued expenses for disc. operations       356,062                  -
     Increase (decrease) in accrued consulting contract                 360,131                  -
                                                                ----------------   ----------------
         TOTAL ADJUSTMENTS                                            5,367,569             87,465
                                                                ----------------   ----------------

NET CASH PROVIDED BY
 (USED IN) OPERATING ACTIVITIES                                      (2,357,551)          (802,074)
                                                                ----------------   ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                 (611,863)          (438,650)
  Net cash provided by (used for) acquistions                            20,241            (11,388)
  Loan to Global Health Alternatives, Inc.                           (1,964,000)            -
                                                                ----------------   ----------------

NET CASH USED IN INVESTING ACTIVITIES                                (2,555,622)          (450,038)
                                                                ----------------   ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  (Increase) decrease in due from officer                               136,495             (1,887)
  (Increase) decrease in due to related parties                          23,724                  -
  (Increase) decrease in restricted cash                                  8,932           (258,932)
  Proceeds from preferred stock                                       2,200,000                  -
  Proceeds from sale of debentures                                    1,626,826            810,000
  Payment of debentures                                                (355,650)                 -
  Offering costs of preferred stock                                    (299,299)                 -
  Proceeds from notes payable and long-term debt                      3,273,551            349,851
  Payments of notes payable and long-term debt                       (2,113,945)           (44,215)
                                                                ----------------   ----------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                             4,500,634            854,817
                                                                ----------------   ----------------

NET INCREASE (DECREASE) IN CASH                                        (412,540)          (397,295)

CASH, BEGINNING OF YEAR                                                 517,323            914,618
                                                                ----------------   ----------------

CASH, END OF YEAR                                             $         104,784  $         517,323
                                                                ================   ================

                 See notes to consolidated financial statements.

                                       F-6
<PAGE>


                   NATURAL HEALTH TRENDS CORP. AND SUBSIDIARY

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                   (CONTINUED)



                                                                          Year ended
                                                                          December 31
                                                               -----------------------------------
                                                                     1997               1996
                                                               ----------------   ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for:
  Interest                                                   $          450,470 $          236,671
                                                               ================   ================
  Income taxes                                               $                - $                -
                                                               ================   ================

DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:

During fiscal year 1997,  debentures and accrued  interest  totaling  $1,207,474
 were converted to Common Stock.








                         See notes to consolidated financial statements.

                                              F-7



</TABLE>

<PAGE>


                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



1.       ORGANIZATION

                  Natural Health Trends Corp. (formerly known as Florida
         Institute of Massage Therapy, Inc.) (the "Company") was incorporated
         under the laws of the State of Florida in December 1988.

         The  Company's  primary  business  is the  operation  of schools  which
         develop,  market and offer  curricula in therapeutic  massage  training
         and skin care therapy. The Company presently has a total of three 
         schools, located in the Miami, Pompano Beach and Orlando,  Florida 
         areas. Natural Health Shoppe, Inc. is a wholly owned  subsidiary which
         owns and operates on-site book stores servicing the school's students,
         practicing therapists and the public.

                  In July 1997, the Company acquired Global Health Alternatives,
         Inc.,("Global") a company incorporated in Delaware and headquartered in
         Portland, Maine, which is in the business of marketing and distribution
         of over-the-counter homeopathic pharmaceutical health products.  Global
         operates its business through its wholly owned subsidiaries: GHA
         (UK), Ltd., Ellon, Inc. ("Ellon"), Maine Naturals, Inc. ("MNI") and
         Natural Health Laboratories, Inc.

                  In 1996,  the Company  opened two natural  health care centers
         which provided  multi-  disciplinary  complementary  health care in the
         areas of alternative and nutritional  medicine.  These  facilities were
         closed  during  1997  and   accordingly  are  being  accounted  for  as
         discontinued operations.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         A.       Principles of Consolidation - The accompanying consolidated
         financial statements include the accounts of Natural Health Trends
         Corp. and its subsidiaries.  All material intercompany transactions
         have been eliminated in consolidation.

         B.       Accounts Receivable - Accounts receivable are stated net of
         allowance for doubtful accounts of $92,912.


                                       F-8

<PAGE>



         C.       Inventories - Inventories consisting primarily of books and
         supplies for the schools, and natural remedies for Global, are stated
         at the lower of cost or market.  Cost is determined using the
         first-in, first-out method.

         D.  Property  and  Equipment  -  Property  and  equipment  is  carried
         at cost. Depreciation is computed using the straight-line  method and 
         accelerated methods over the useful lives of the various  assets, which
         is generally  five to seven years for equipment,  and furniture and 
         fixtures,  and thirty-nine years for the building.

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

         F.       Deferred Revenue - Deferred revenue represents tuition
         revenues which will be recognized into income as earned.  Tuition
         revenue is recognized as earned over the enrollment period.

         G.  Earnings  (Loss)  Per  Share  - In  February  1997,  the  Financial
         Accounting  Standards  Board issued  Statement of Financial  Accounting
         Standards No. 128,  "Earnings  Per Share" (FAS No. 128"),  which became
         effective for both interim and annual financial  statements for periods
         ending after December 15, 1997. FAS No. 128 requires a presentation  of
         "Basic" and (where applicable) "Diluted" earnings per share. Generally,
         Basic  earnings  per share are  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.  Furthermore,  FAS No. 128  requires the  restatement  of prior
         period reported earnings per share to conform to the new standard.  The
         per  share  presentations  in  the  accompanying  financial  statements
         reflect the provisions of FAS No. 128.

         H. Accounting  Estimates - The  preparation of financial  statements in
         accordance  with  generally  accepted  accounting  principles  requires
         management to make estimates and  assumptions  that effect the reported
         amounts  of  assets  and  liabilities  at the  date  of  the  financial
         statements and the reported amounts of revenues and expenses during the
         reported period. Actual results could differ from those estimates.

         I.  Concentration  of Credit  Risk - The  Company  has most of its cash
         maintained in an asset trust account with a financial institution where
         account  balances  are  not  federally-insured.  The  Company  has  not
         experienced any losses in the account.  The Company  believes it is not
         exposed to any significant credit risk on cash and cash equivalents.




                                       F-9

<PAGE>




         J. Income Taxes - Pursuant to SFAS 109, the Company accounts for income
         taxes  under the  liability  method.  Under  the  liability  method,  a
         deferred tax asset or liability is determined based upon the tax effect
         of the  differences  between the  financial  statement and tax basis of
         assets and  liabilities  as measured by the enacted rates which will be
         in effect when these differences reverse.

         K. Fair Value of Financial  Instruments - The carrying amounts reported
         in the  balance  sheet  for cash,  receivables,  and  accrued  expenses
         approximate  fair  value  based  on the  short-term  maturity  of these
         instruments.

         L.       Stock Based Compensation - The Company accounts for stock
         transactions in accordance with APB Opinion No. 25, "Accounting For
         Stock Issued To Employees."  In accordance with Statement of Financial
         Accounting Standards No. 123, "Accounting For Stock-Based Compensation,
         " the Company has adopted the pro forma disclosure requirements of
         Statement No. 123 in fiscal 1997.

         M. Impairment of Long - Lived Assets - The Company  reviews  long-lived
         assets,  certain  identifiable  assets  and  goodwill  related to those
         assets for impairment whenever circumstances and situations change such
         that  there is an  indication  that  the  carrying  amounts  may not be
         recovered.  At December 31, 1997,  the Company  believes that there has
         been no impairment of its long-lived assets.

         N.       Recent Accounting Pronouncements - SFAS No. 130, "Reporting
         Comprehensive Income," established standards for the reporting and
         display of comprehensive income and its components.  SFAS No. 131,
         "Disclosures about Segments of an Enterprise and Related Information,
         " establishes standards for reporting information about operating
         segments in annual and interim financial statements.  The Company will
         adopt these standards in the first quarter of 1998.  They will not have
         any significant effect on the Company's financial position or results
         of operations.

         O. Basis of  Presentation  - At December  31,  1997,  the Company has a
         working capital deficiency of approximately $4,918,000 and has recorded
         a net loss of  approximately  $7,725,000  for the year then ended.  The
         Company's  continued  existence  is  dependent on its ability to obtain
         additional  debt or  equity  financing  and to  generate  profits  from
         operations.  Management has instituted certain plans in regard to these
         matters as more fully described in Note 16.

         P.  Royalty  Expense - Royalties  that are  incurred on a per unit sold
         basis  are  included  in  Cost of  Sales.  Additional  royalty  amounts
         incurred to meet contractual  minimum levels are classified as Selling,
         General and Administrative Expenses.



                                      F-10

<PAGE>



3.       PROPERTY AND EQUIPMENT

         Property and Equipment consisted of the following at December 31, 1997:


                                          Life Range               Amount
                                     ---------------------    -----------------
Equipment, furniture and fixtures           5 to 7         $            393,507
Building and improvements                   3 to 5                    2,693,449
Land                                          ---                       893,809
                                                              -----------------
                                                                      3,980,764
Less: Accumulated depreciation                                         (462,647)
                                                              -----------------
                                                           $          3,518,117
                                                              =================


4.       OTHER ASSETS

         Other assets consisted of the following at December 31, 1997:


Deposits and other assets                                    $          162,732
Goodwill, net of accumulated
 amortization of $50,181                                              1,223,276
Deferred finance costs, net of accumulated
 amortization of $72,832                                                185,985
Patents and customer list, net of
 accumulated amortization of $216,909                                 5,063,091
Other intangible assets net of accumulated
 amortization of $194,800                                               105,413
                                                               -----------------
                                                             $        6,740,497
                                                               ================

                  The  goodwill,  the patents,  and the  customer  list arise in
         connection  with the  acquisitions of businesses made by the Company in
         1997,  1996 and 1995. The deferred  finance costs relate to convertible
         debentures made in 1997. The goodwill,  the patents, the customer list,
         and the deferred finance costs are being amortized over their estimated
         useful  lives  which are 5 years for the  customer  list,  20 years for
         goodwill and 11 and 17 years for patents.


                                      F-11


<PAGE>



5.       LONG-TERM DEBT

         Long-term debt consisted of the following at December 31, 1997:


Note payable for purchase of school, bearing interest at
8.75%, principal and interest payments due quarterly
commencing February 1996 through November 1999             $             67,896

Mortgage Note payable to a bank, bearing interest at
8.24%.  Monthly payments consisting of principal and
interest are approximately $29,352 and are payable
through November  2007, at which time the balance of
principal is due in a balloon payment in November 2007                2,247,725

$100,000 promissory note, bearing interest at 18%.
Interest starts accruing on August 26, 1997, with monthly
interest payments of $1,500 due on the 15th day of each
month.  Principal amount due in full on August 26, 1998                 100,000

Line of Credit - Merrill Lynch, for a maximum availability
of $300,000, annually renewable in November with
interest at prime +1%, collateralized by money market
accounts held with Merrill Lynch                                        217,422

$375,000 face amount note payable, noninterest bearing,
due October 1, 2000 (less unamortized discount based on
imputed interest rate of 12% per annum - $41,385).  Initial
payment of $93,750 on October 15, 1996, then monthly
payments of $7,813 beginning on November 1, 1997 and
ending October 1, 2000                                                  239,865

$75,000 face amount note payable, noninterest bearing,
due September 15, 1998 (less unamortized discount based
on imputed interest rate of 12% per annum - $1,349).
Monthly payments of $4,166 from October 1996 through
September 1997, and $2,084 from October 1997 through
September 1998                                                           47,819

$69,000 face amount note payable, noninterest bearing,
due October 15, 1997 (less unamortized discount based on
imputed interest rate of 12% per annum - $0).  Initial
payment of $19,500 on October 15, 1996, then monthly
payments of $4,500 from December 1996 through October
1997                                                                     27,000


                                      F-12

<PAGE>




Various  bridge notes totaling  $685,000,  bearing 
interest at 12.5%.  In the event of default,  14.5% 
interest rate will be applied from the date of default
on the unpaid principal and interest  balances.  
Principal and interest payments due in full on 
September 15, 1997                                                      685,000

Bridge notes issued in October and November 1997, 
bearing interest at 14% per annum, due in 
February 1998, $700,000 of which are secured by 
the schools and the Pompano building and $150,000 
of which are secured by Global common stock.                            850,000

Other                                                                     9,635
                                                              ------------------
                                                                      4,492,362
Less: Current portion                                                (2,237,771)
                                                              ------------------
                                                           $          2,254,591
                                                              ==================


                  The two noninterest bearing notes and the various bridge notes
         above were not paid on the  maturity  date and  accordingly  all unpaid
         balances are included in current portion of long-term debt.


                  Long-term  debt  maturities  for the next  five  years  are as
follows:



1998                       $        2,237,771
1999                                   66,411
2000                                   33,647
2001                                   36,527
2002                                   39,653


6.       STOCKHOLDERS' EQUITY

         A.       Common Stock - The Company was authorized to issue 40,000,000
         shares of common stock, $.001 par value per share.

         B.  Preferred  Stock - The Company is  authorized to issue a maximum of
         1,500,000  shares of $.001 par 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 the
         Company's board of directors may, from time to time, determine.

                                      F-13

<PAGE>




                  In June 1997, the Company sold 2,200 shares of its convertible
         Series A preferred  stock for $1,000 a share  realizing net proceeds of
         $1,900,702.  The preferred  stock pays  dividends at the rate of 8% per
         annum payable in cash or shares of the Company's common stock valued at
         75% of the closing bid price.  The  preferred  stock has a  liquidation
         preference  of $1,000 per share.  The  preferred  stock is  convertible
         commencing  60  days  after  issuance,  provided  that  a  registration
         statement  covering  the  resale  of the  shares  of  common  stock  is
         effective,  at the rate of 75% of the average  closing bid price of the
         common stock over the five days preceding the notice of redemption. The
         Company has the right to redeem the preferred  stock for 240 days after
         the date of  issuance  at the rate of 125% of the  stated  value.  If a
         registration  statement is not deemed  effective  within 60 days of the
         date of issuance, then the Company is obligated to pay a penalty at the
         rate of 2.5% per month.

         C.  Convertible   Debentures  -  In  April  1997,  the  Company  issued
         $1,300,000 of 6% convertible  debentures (the "Debentures").  Principal
         on the  Debentures  is due in March  2000.  The  principal  and accrued
         interest on the Debentures are convertible  into shares of common stock
         of the Company.  The Debentures are  convertible  into shares of common
         stock at a  conversion  price  equal to the lesser of $1.4375 or 75% of
         the average  closing bid price of the Common Stock for the five trading
         days immediately preceding the notice of conversion.  In June 1997, the
         Company  repaid  $300,000  of  the  Debentures.  As of  December  1997,
         $820,233 of such debentures were converted into shares of common stock.

                  In  conjunction  with  the  issuance  of the  Debentures,  the
         Company  issued  warrants to purchase an  aggregate  of 5,000 shares of
         Common  Stock.  The  warrants  are  exercisable  until  April 3,  2002.
         Warrants to purchase  2,500 shares of Common Stock are  exercisable  at
         $2.4375 per share, and the balance are exercisable at $3.25 per share.

         D. Issuance Of Options - During the quarter  ended  September 30, 1997,
         the  Company's  president  and  secretary  were issued an  aggregate of
         20,000,  10 year options,  exercisable at $.001 per share.  The Company
         has recorded a non-cash expense of $400,000 representing the difference
         between the exercise price and the fair value of the common stock.

         E. 1 For 40  Reverse  Stock  Split - On  April  6,  1998,  the  Company
         effected a 1 for 40 reverse  split of its Common  Stock,  amending  its
         certificate  of  incorporation  to provide for the  authority  to issue
         5,000,000 shares of $.001 par value Common Stock. All per share data in
         these financial  statements is  retroactively  restated to reflect this
         reverse split.





                                      F-14

<PAGE>




7.       DISCONTINUED OPERATIONS

                  During  the  third  quarter  of 1997,  the  Company  reached a
         decision to discontinue the medical clinic line of business. Net assets
         of  the  medical  clinics  were  approximately   $1,509,405  consisting
         primarily of furniture and equipment, accounts receivable and goodwill.
         Liabilities  were  approximately  $213,987.  The Company has accrued an
         estimated  loss on  disposal  of  approximately  $716,193  representing
         primarily   accrued   employment   contract  and  lease   terminations.
         Accordingly,  the results of the clinic operations are shown separately
         as "discontinued  operations." The Company's 1996 financial information
         has been reclassified to conform with the 1997 presentation.

                  Revenues of the discontinued business were $1,754,066 for 1997
         and $2,374,469 for 1996.


8.       INCOME TAXES

                  The Company accounts for income taxes under the provisions of 
         Statement of Financial Accounting Standards No. 109, "Accounting for
         Income Taxes" ("SFAS No. 109").  SFAS No. 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 No. 109 additionally 
         requires the establishment of a valuation allowance to reflect the 
         likelihood of realization of deferred tax assets.  At December 31, 
         1997, the Company had net deferred tax assets of approximately 
         $4,119,000.  The Company has established a valuation allowance for the 
         full amount of such deferred tax assets.  The following table gives the
         Company's deferred tax assets and (liabilities) at December 31, 1997:


Net operating loss deduction                          $               3,760,000
Deferred revenue                                                        436,000
Section 481 adjustment                                                 (124,000)
Other                                                                     5,000
Valuation allowance                                                  (4,077,000)
                                                            --------------------
                                                      $                       -
                                                            ====================



                                      F-15

<PAGE>






                  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:
<TABLE>
<CAPTION>


                                                                                  Year Ended
                                                                   -----------------------------------------
                                                                                 December 31,
                                                                   -----------------------------------------
                                                                          1997                   1996
<S>                                                           <C>                      <C> 
                                                                  ------------------      -----------------
Income tax (benefit) computed at statutory rate                $           (2,704,000)   $          (670,000)
Effect of temporary differences                                               152,000                146,000
Effect of permanent differences                                                13,000                 19,000
Tax benefit not recognized                                                  2,539,000                505,000
                                                                   ------------------      -----------------
Provision for income taxes (benefit)                           $           -            $          -
                                                                   ==================      =================

</TABLE>

                  The net operating loss  carryforward  at December 31, 1997 was
         approximately $9,401,000 and expires in the years 2011 to 2012.


9.       COMMITMENTS AND CONTINGENCIES

         A. The  Company  leases  its  school  facilities  under  non-cancelable
         operating  leases.  The lease  terms are five  years  and  expire  from
         October 1998 through  December  2002.  The Company  leases its Portland
         Maine office under a lease expiring in 1999. Rent expense for the years
         ended   December  31,  1997  and  1996  was  $1,306,597  and  $647,907,
         respectively.  Minimum rental  commitments over the next five years are
         as follows:


1998                           $          538,899  
1999                                      364,378
2000                                      378,272
2001                                      293,317
2002                                      302,112


                                      F-16

<PAGE>




         B. During the quarter  ended March 31, 1997,  the Company  renegotiated
         with a former  stockholder of Sam Lily, Inc. with whom it was obligated
         under an employment  agreement to cancel the  employment  agreement and
         replaced  it with a  consulting  agreement.  The  consulting  agreement
         requires the individual to provide  services to the Company for one day
         per week  through  December  1998 at the rated of $5,862 per week.  The
         Company has determined that the future  services,  if any, that it will
         require  will be of  little  or no  value  and is  accounting  for this
         obligation as a cost of severing the employment contract.  Accordingly,
         the  present  value  (applying  a  discount  rate of 10%) of all future
         payments is accrued in full at September  1997. The expense  associated
         with this  accrual is  recorded  as part of the loss from  discontinued
         operations.

         C.  Litigation - On August 4, 1997 Samantha Haimes brought an action in
         the Fifteenth Judicial Circuit of Palm Beach County,  Florida,  against
         the  Company  and  Health  Wellness  Nationwide  Corp.,  the  Company's
         wholly-owned subsidiary. The Company has asserted counterclaims against
         Samantha  Haimes and Leonard  Haimes.  The complaint  arises out of the
         defendant's alleged breach of contract in connection with the Company's
         medical  clinic  located  in Pompano  Beach,  Florida.  The  Company is
         vigorously  defending the action.  The plaintiff is seeking  damages in
         the amount of approximately $535,000. No accrual for the litigation has
         been made in the financial  statements  as it is the  Company's  belief
         that it will prevail in the litigation.

         On September 10, 1997 Rejuvenation Unlimited,  Inc. and Sam Lilly, Inc.
         brought  an action in the  Fifteenth  Judicial  Circuit  of Palm  Beach
         County,  Florida,  arising  out  of the  Company's  alleged  breach  of
         contract in connection  with the  acquisition of the Company's  medical
         clinic in Pompano Beach,  Florida from the plaintiff.  The plaintiff is
         seeking  damages  in excess  of  $15,000.  The  Company  is  vigorously
         defending  the  action  and  believes  that the loss,  if any,  will be
         immaterial.


10.      PURCHASE OF BUILDING AND REFINANCE

                  The Company purchased a building located in Pompano Beach, 
         Florida (the "Pompano  Property") to which it relocated its Lauderhill,
         Florida  school and corporate offices. The purchase price for the 
         property was $2,350,000,  of which $1,875,000  was  financed  through  
         a first and  second  mortgage.  The  Pompano Property was encumbered by
         mortgages securing repayment of loans made to acquire an adjacent 
         parcel which is owned by Justin Real Estate Corp.  ("Justin Corp.").
         All of the common stock of Justin Corp.  is owned by principal 
         shareholders  of the Company.





                                      F-17

<PAGE>




                  In October 1997, the Company refinanced the mortgage and 
         entered into a new mortgage with another  financial  institution in the
         amount of $2,250,000. Monthly payments, including  principal and 
         interest are $17,725 through October 2007,  with the  balance of any  
         unpaid  principal  due in  November  2007.  The interest  rate is 8.24%
         per annum.  Simultaneously  with this  transaction,  the Company paid 
         off the underlying  mortgage on the adjacent parcel owned by Justin
         Corp.  in the amount of  $435,000. The Company has recorded this amount
         as an increase in the basis of the land.


11.      REVENUES

                  The schools  obtain a large  proportion of their revenues from
         Federal and State student  financial  aid programs.  For the year ended
         December 31, 1997,  the schools  derived  approximately  66% of tuition
         collections from students with financial aid and approximately 34% from
         students  without  financial  aid. The schools'  ability to obtain such
         funding is dependent on a number of factors,  including meeting various
         educational  accreditation  and  licensing  standards  and also certain
         financial  standards  such  as  maintaining  at  least a 15%  ratio  of
         non-financial  aid students.  The Company believes it has complied with
         all other factors necessary to obtain funding.

                  The duties of  disbursing  Federal  aid funds is handled by an
         independent  service company through  separate  federal trust accounts.
         All requests  and  payments  for Federal  funds are done by the outside
         service  company.  Federal  aid funds are wired  into a  separate  U.S.
         Federal Pell Trust Account and the money can only be transferred to the
         Company's operating accounts with check registers issued by the outside
         service  company.  The Company  believes that it is in compliance  with
         Federal  requirements with respect to the administration of Federal aid
         programs.


12.      COMMON STOCK SUBJECT TO PUT

                  In  connection  with the January 1996  acquisition  of the net
         assets of Sam Lilly,  Inc. the 9,500 shares issued in  connection  with
         the  acquisition  are  subject to the  seller's  ability to require the
         Company to repurchase such shares for a three year period for $380,000,
         in the event that the aggregate  market value of the shares falls below
         $380,000.  Such  shares  are  excluded  from  permanent  equity  on the
         accompanying balance sheet. As of March 1998, this matter is subject to
         litigation.





                                      F-18

<PAGE>




13.      STOCK OPTION PLAN

                  Under the  Company's  1994  Stock  Option  Plan,  up to 16,667
         shares of common stock are reserved for issuance. The exercise price of
         the options will be determined by the Stock Option  Committee  selected
         by the board of directors, but the exercise price will not be less than
         85% of the fair market  value on the date of grant.  Towards the end of
         1995,  50 options  were issued to each of two  directors at an exercise
         price  equal to the market  price at the time.  During 1996 the Company
         issued 250  options to a director  at a price  equal to the fair market
         value on the date of grant. In August 1997, the Company adopted a stock
         option plan covering officers, directors, employees and consultants. In
         August the Company  issued 43,750 ten year options under the 1997 Plan,
         exercisable at fair market value (which was $22.40 per share) to 
         certain of its  officers  who were  former  principals  of  Global. 
         Options to purchase  21,875  shares will be  exercisable  in August 
         1998,  and the remaining 21,875 will be exercisable in August 1999.

                  In fiscal 1997, the Company adopted the disclosure  provisions
         SFAS No. 123, "Accounting for Stock-Based Compensation". For disclosure
         purposes,  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, 1997 and December 31, 1996:  annual  dividends
         of $0;  expected  volatility  of 50%; 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, 1997 and December
         31,  1996  was $21.60 and  $142.00,  respectively. If the Company  had
         recognized  compensation  cost of stock options in accordance with SFAS
         No. 123, the Company's proforma net income (loss) and net income (loss)
         per share would have been  $(8,608,120)  and $(19.82) per share for the
         fiscal  year ended  December  31, 1997 and  $(983,538)  and $(3.40) per
         share for the fiscal year ended  December  31,  1997.  Pro forma income
         (loss) from  continuing  operations  would have been  $(6,083,679)  and
         $(14.01)  per share in 1997 and  $(850,346)  and  $(3.03)  per share in
         1996.


14.      ACQUISITIONS

         On July 23, 1997, the Company closed on the  acquisition of the capital
stock of Global Health Alternatives, Inc. ("Global"). The purchase price for the
acquisition  of Global was settled  with the  issuance of 145,000  shares of the
Company's  common  stock.  The  Company  has  agreed to issue to  former  Global
shareholders  additional  shares of  common  stock as  follows:  I) up to 20,000
shares if Global's pre-tax operating earnings equal or exceed $1,200,000 for the
period from July 1, 1997 through  June 30, 1998,  and ii) shares equal in market
value to the  lesser of $45  million or eight  times  Global  pre-tax  operating
earnings  for the period from July 1, 1999  through June 30, 2000 minus the fair
market value on the date of issuance of the 145,000 share initial  consideration
or the 20,000 contingent

                                      F-19

<PAGE>



shares, if they are earned. The following table summarizes the acquisition.




                  Purchase price                                    $ 2,900,000

                  Liabilities assumed                                 4,530,741

                  Fair value of assets acquired                      (6,511,954)
                                                                    ------------
                  Goodwill                                        $     918,787
                                                                    ============


         The assets  acquired  included two patents,  one (the"Troy  Patent") is
valued at  $4,819,000,  and is being  amortized  over its  remaining  life of 11
years,  the other (the "Xu Patent") is valued at $404,000 and is being amortized
over its  remaining  life of 17 years.  Additionally,  the  Company  acquired  a
customer list valued at $57,000, which is being amortized over 5 years.

         The  following  schedule  combines the unaudited  pro-forma  results of
operations the Company and Global, as if the acquisition  occurred on January 1,
1996 and  includes  such  adjustments  which are  directly  attributable  to the
acquisition, including the amortization of goodwill. It should not be considered
indicative of the results that would have been achieved had the  acquisition not
occurred  or the  results  that would have been  obtained  had the  acquisitions
actually occurred on January 1, 1996.

<TABLE>
<CAPTION>

                                                                    Year ended December 31,
                                                            --------------------------------------------------
                                                                    1997                        1996
                                                            ---------------------        ---------------------
<S>                                                   <C>                          <C> 
Revenues                                               $                7,856,071  $                 5,129,857
                                                            =====================        =====================
Loss from continuing operations                        $              (7,709,728)  $               (2,933,434)
                                                            =====================        =====================
Net loss                                               $             (10,234,169)  $               (3,036,626)
                                                            =====================        =====================
Loss per share from continuing operations              $                  (15.21)  $                    (6.90)
                                                            =====================        =====================
Net loss per share                                     $                  (20.20)  $                    (7.14)
                                                            =====================        =====================
Shares used in computation                                                506,765                      425,350
                                                            =====================        =====================




</TABLE>


15.      SEGMENT INFORMATION

         Summary information for the Company's two significant industry segments
is as follows:
<TABLE>
<CAPTION>
<S>                                             <C>                     <C>                          <C>   
                                                                                 Natural and
Year ended December 31, 1997                             Schools               Health Products                  Total
                                                         -------               ---------------                  -----
                                      Revenues    $          5,858,790   $               1,133,726    $             6,992,516
                                                    ==================      ======================      =====================
                       Operating income (loss)    $         (2,188,072)  $              (3,012,652)   $            (5,200,679)
                                                    ==================      ======================      =====================
                           Identifiable assets    $          8,712,964   $               5,091,957    $            13,804,921
                                                    ==================      ======================      =====================
                            Other information:
                 Depreciation and amortization    $            177,881   $                 196,669
                                                    ==================      ======================
                          Capital expenditures    $            431,570   $                  37,588
                                                    ==================      ======================
</TABLE>


16.      SUBSEQUENT EVENTS

         A.  Sale of  Preferred  Stock - In  April  1998,  the  Company  sold an
aggregate of $4,000,000 of 10% convertible  preferred stock,  realizing proceeds
after  expenses  of  approximately  $3.5  million,  $2.5  million  of which were
utilized to redeem  previously  issued  preferred  stock.  The  preferred  stock
provides for a conversion to common at 75% of the market price.

B.  Renegotiation of Patent Agreement - In April 1998, the Company  renegotiated
the terms of its  acquisition of the Troy Patent,  due to the agreement being in
breach because of unpaid minimum royalties.  Under the new agreement,  royalties
are payable at the rate of 3% of the first  $2,000,000 of related product sales;
2% of the next  $2,000,000 in sales and 1% of sales in excess of $4,000,000.  In
connection  with the new agreement,  the Company was required to assume $585,000
of debt owed to third parties by the Troy Sellers.

C.       Proposed Sale of Schools - In February, 1998, the Company entered into
discussions with its Chief Executive Officer, who is also a principal 
stockholder and director, and his wife, who is the Company's secretary and a 
principal stockholder and director, for the sale of the schools division. The 
contemplated sales price is $1,800,000.

                                      F-20

<PAGE>





D.       Proposed Sale of Building - In March, 1998, the Company entered in
discussions for the sale of the building, in which its Pompano School is
located.


                                      F-21
<PAGE>





Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial  Disclosure.


     None.


                                      -23-

<PAGE>



                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons

     The following table sets forth certain information concerning the directors
and executive officers of the Company.


Directors and Executive Officers

         Name                    Age                 Position
         ----                    ---                 --------
Sir Brian Wolfson                62         Chairman of the Board and Director
Neal R. Heller                   38         President, Chief Executive Officer
                                            and Director
Elizabeth S. Heller              36         Secretary and Director
Martin C. Licht                  56         Director
Arthur Keiser                    43         Director


     The  following  is a brief  summary  of the  background  of each  executive
officer and director of the Company:

     Sir Brian  Wolfson  has served as  Chairman  and a director  of the Company
since  July  1997 and  Chief  Executive  Officer  and  Chairman  of the Board of
Directors of GHA since its inception in October 1995.  Prior to co-founding  GHA
in October 1995,  Sir Brian served as Chairman of Wembley,  PLC from 1986 to
1995. Sir Brian  is  currently  a  director  of  Fruit  of the  Loom,  Inc.,
Kepner-Tregoe, Inc., Playboy Enterprises, Inc., and Autotote Corporation, Inc.

     Neal R.  Heller  has been the  President,  Chief  Executive  Officer  and a
director of the Company since its  inception in 1988.  Mr. Heller is an attorney
and has been admitted to practice in the State of Florida since 1985. Mr. Heller
earned a Bachelor  of Arts  degree  from the  University  of Miami in 1982 and a
Juris Doctor  degree from Nova  University  in 1985.  On December 18, 1990,  Mr.
Heller filed a voluntary petition under Chapter 7, Title 11 of the United States
Code,  in the  United  States  Bankruptcy  Court for the  Southern  District  of
Florida.  The Bankruptcy  Court entered an Order of Discharge of Debtor on April
5, 1991. Mr. Heller currently serves as President of the Broward  Association of
Career  Schools and is the  treasurer  and a member of the Board of Directors of
the Florida  Association of Post-Secondary  Schools and Colleges.  Mr. Heller is
the husband of Elizabeth S. Heller.

     Elizabeth S. Heller has been  Secretary and a director of the Company since
its  inception in 1988.  Mrs.  Heller  earned a Bachelor of Arts degree from the
University of Miami in 1983. Mrs. Heller is the wife of Neal R. Heller.


                                      -24-

<PAGE>




     Arthur  Keiser has been the  President of Keiser  College  since 1977.  Mr.
Keiser  became a  director  of the  Company in July  1995.  Keiser  College is a
regionally  accredited  independent  privately-owned  junior  college  which has
facilities  in  five  Florida  locations,  namely  Ft.  Lauderdale,   Melbourne,
Tallahassee,  Sarasota  and  Daytona.  Mr.  Keiser  is a member  of the board of
directors of the Career College  Association and is the Secretary of the Florida
Association of Post-Secondary  Schools and Colleges.  Mr. Keiser received a B.A.
from Tulane University in 1975.

     Martin C. Licht has been a  practicing  attorney  since 1967 and has been a
partner of the law firm of McLaughlin & Stern, LLP since January 1998. Mr. Licht
became a director of the Company in July 1995.  Mr.  Licht is also a director of
Cable & Co.  Worldwide,  Inc.,  a publicly  traded  company,  which  imports and
markets footwear on a wholesale basis.

Key Employees

     Joseph P. Grace,  age 48, has been the  Co-Chief  Operating  Officer of GHA
since October 1996. From 1995 to 1996, Mr. Grace was a marketing consultant
of  Natural  Health   Laboratories,   Inc.,   Inc. From 1994 to 1996 Mr. Grace
was head of marketing for Marketing Resources of America From  1989 to 1994,  
Mr. Grace was Vice Chairman of Ovation,  Inc., a health and fitness equipment 
supplier.  Mr. Grace has an M.B.A. from Cornell University and a B.S. in 
Electrical Engineering, also from Cornell University. [need 1992- 1997 
employment history]

     John M. Eldredge,  age 43, has been the Co-Chief  Operating  Officer of GHA
since 1996.  From 1991 to 1996,  Mr.  Eldredge was a principal  of  Commonwealth
Marketing & Development,  Inc., a marketing  consulting firm. From 1990 to 1991,
Mr.  Eldredge  served as Vice  President  of  Marketing  at Earth's  Best,  Inc.
(organic  baby food).  Mr.  Eldredge  has an  M.B.A.  from the Amos Tuck  School
at Dartmouth College and an A.B. in Psychology, also from Dartmouth.

Compliance with Section 16(a) of the Exchange Act

     Based  solely  upon a review  of (i) Forms 3 and 4 and  amendments  thereto
furnished  to the  Company  pursuant  to Rule  16a-3(e),  promulgated  under the
Securities  Exchange  Act of 1934 (the  "Exchange  Act"),  during the  Company's
fiscal year ended  December 31, 1997,  and (ii) Forms 5 and  amendments  thereto
and/or written representations furnished to the Company by any director, officer
or ten percent security holder of the Company (collectively "Reporting Persons")
stating  that he or she was not  required to file a Form 5 during the  Company's
fiscal year ended  December 31, 1997, it has been  determined  that no Reporting
Person is delinquent with respect to his or her reporting  obligations set forth
in Section 16(a) of the Exchange Act,  except that Arthur Keiser,  a director of
the Company,  has not filed a Form 5 for the fiscal year ended December 31, 1997
and Azure Limited Partnership I has not filed a Form 5 for the fiscal year ended
December 31, 1997.




                                      -25-

<PAGE>



Item 10. Executive Compensation.

Summary Compensation Table

     The following  table  provides a summary of cash and non-cash  compensation
for each of the last three fiscal years ended December 31, 1995,  1996, and 1997
with respect to the following officers of the Company:

<TABLE>
<CAPTION>
                                                       Annual Compensation                Long Term Compensation
                                         ---------------------------------------- -------------------------------------
                                                                                            Awards              Payouts
                                                                                  ------------------------      -------
                                                                                                 Securities
                                                                     Other          Restricted   Underlying       LTIP     All Other
Other
          Name and                                                  Annual        Stock Award(s)   Options      Payouts
Payouts   Compensa-
     Principal Position         Year    Salary($)   Bonus($)  Compensation ($)(1)       $          SARs(#)          $
       ($)      tion($)
     ------------------         ----    ---------   --------  ------------------- --------------   -------         ---
-------
<S>                             <C>     <C>           <C>            <C>              <C>            <C>          <C>
 
Sir Brian Wolfson, Chairman of  1997    $240,000      ----           ----              ----          ----
----        ----
the Board (2)
Neal R. Heller,                 1997     201,500      ----           ----              ----          ----         ----
----
President and                   1996     162,500      ----           ----              ----          ----         ----
----
Chief Executive Officer         1995     150,000      ----           ----              ----          ----         ----
----
Elizabeth S. Heller             1997     141,100      ----           ----              ----          ----         ----
----
Secretary                       1996     150,000      ----           ----              ----          ----         ----        ----
                                1995     150,000      ----           ----              ----          ----         ----        ----
</TABLE>


--------------------------------
(1)  Excludes  perquisites and other personal  benefits that in the aggregate do
     not exceed 10% of each of such individual's total annual salary and bonus.

(2)  Sir Brian Wolfson waived his 1997 salary.


     Options Grants in Last Fiscal Year. The following  table sets forth certain
information  with respect to option grants during the fiscal year ended December
31, 1997 to the named executive  officers.  The table below does not reflect the
Company's one for 40 reverse stock split which occurred in April 1998.


<TABLE>
<CAPTION>
                                                    Percent of Total
                          Number of Securities     Options Granted to
                           Underlying Options      Employees in Fiscal   Exercise or Base Price
         Name                    Granted                  Year                   ($.SH)              Expiration Date
         ----                    -------                  ----                   ------              ---------------
<S>                               <C>                    <C>                     <C>                    <C>
Sir Brian Wolfson                 800,000                31.4%                   $ .56                  July 2007
Neal R. Heller                    400,000                14.7%                    .001                  July 2007
Elizabeth S. Heller               400,000                15.7%                    .001                  July 2007
</TABLE>

Year-end  Option Table.  During the fiscal year ended December 31, 1997, none of
the named executive  officers  exercised any options issued by the Company.  The
following  table sets forth  information  regarding the stock options held as of
December  31,  1997 by the named  executive  officers.  The table below does not
reflect the  Company's  one for 40 reverse  stock split which  occurred in April
1998.



                                      -26-


<PAGE>

<TABLE>
<CAPTION>
                           Number of Securities Underlying Unexercised          Value of Unexercised
In-the-Money
                                   Options at Fiscal Year-End                       Options at Fiscal Year End
                           -------------------------------------------         ------------------------------------
         Name                  Exercisable            Unexercisable            Exercisable            Unexercisable
         ----                  -----------            -------------            -----------            -------------
<S>                                <C>                     <C>                    <C>                        <C>
Sir Brian Wolfson                        0                 800,000                  --                       --
Neal R. Heller                     400,000                       0                18,750                     --
Elizabeth S. Heller                400,000                       0                18,750                     --
</TABLE>


Employment Agreements

     The Company has entered into employment  agreements with Neal R. Heller and
Elizabeth S. Heller,  which will expire in December 2001,  under which they will
be  full-time  employees  and shall  receive  salaries of $247,000  and $78,000,
respectively.  Mr. and Mrs.  Heller  received  salaries in 1997 of $201,500  and
$141,000,  respectively.  Each  agreement  provides that the  executive  will be
eligible to receive  short-term  incentive bonus  compensation if the Company is
profitable,  the amount of which,  if any,  will be  determined  by the Board of
Directors based on the executive's  performance,  contributions to the Company's
success and on the Company's  ability to pay such  incentive  compensation.  The
employment  agreements also provide for termination based on death,  disability,
voluntary  resignation  or material  failure in  performance  and for  severance
payments upon termination under certain  circumstances.  The agreements  contain
non-competition provisions that will preclude each executive from competing with
the  Company  for a  period  of two  years  from  the  date  of  termination  of
employment.

     Sir  Brian  Wolfson  has  fixed-term  employment  agreement  of  one  year,
commencing  January 1, 1998, at an annual salary of $50,000.  Joseph Grace has a
fixed-term  employment agreement of two years,  commencing October 15, 1996. Mr.
Grace's base salary in year one was  $150,000,  with an escalator to $200,000 in
year two. Mr.  Grace's  agreement  calls for a  guaranteed  bonus of 25% of base
salary, payable at the end of each contract year, which has been deferred in the
first year.  John Eldredge has a fixed-term  employment  agreement of two years,
commencing October 15, 1996. Mr. Eldredge's base salary in year one was $90,000,
with an escalator to $112,500 in year two. Mr. Eldredge's  agreement calls for a
bonus of up to 25% of base salary, at the Company's  discretion,  payable at the
end of each contract year, which was deferred in the first year.

Directors' Compensation

     Directors  of the Company do not receive any fixed  compensation  for their
services as directors.  The Company grants each non-employee director options to
purchase  1,000 shares of Common  Stock under the 1994 Stock Option Plan,  at an
exercise price equal to the fair market value of the Common Stock on the date of
grant,  and pays  non-employee  directors  $500 for each meeting of the Board of
Directors they attend. Directors are reimbursed for their reasonable


                                      -27-

<PAGE>



out-of-pocket  expenses  incurred in connection with performance of their duties
to the Company.  The Company did not pay its directors any cash or other form of
compensation  for  acting in such  capacity,  although  directors  who were also
executive  officers of the Company received cash  compensation for acting in the
capacity of executive  officers.  See "-- Executive  Compensation."  No director
received any other form of  compensation  for the fiscal year ended December 31,
1997.

Stock Options

     The 1997 Stock Option Plan (the "1997  Plan")  provides for the granting of
options ("Options") to key employees, including officers, non-employee directors
and consultants of the Company and its  subsidiaries to purchase up to 3,000,000
shares of Common  Stock  (pre-split)  which are  intended  to qualify  either as
incentive  stock  options  ("Incentive  Stock  Options")  within the  meaning of
Section 422 of the Internal Revenue Code of 1986, as amended,  (the "Code"),  or
as options  which are not  intended  to meet the  requirements  of such  section
("Nonstatutory Stock Options").

     The Company has adopted the 1994 Stock  Option Plan (the "1994 Plan") under
which up to 666,666  options  (pre-split) to purchase shares of Common Stock may
be granted to key employees,  officers,  consultants and members of the Board of
Directors  of the  Company.  Options  granted  under the 1994 Plan may be either
Incentive Stock Options or Nonstatutory Options.

     The plans are administered by the Board of Directors.  Under the plans, the
Board of Directors  has the  authority to determine  the persons to whom options
will be granted, the number of shares to be covered by each option,  whether the
options  granted  are  intended to be  incentive  stock  options,  the manner of
exercise, and the time, manner and form of payment upon exercise of an option.

     Incentive  stock  options  granted  under the Plan may not be  granted at a
price less than the fair market  value of the Common  Stock on the date of grant
(or less than 110% of fair market value in the case of employees  holding 10% or
more of the voting stock of the  Company).  Non-qualified  stock  options may be
granted at an exercise price established by the Stock Option Committee  selected
by the Board of Directors,  but may not be less than 85% of fair market value of
the shares on the date of grant.  Incentive stock options granted under the Plan
must  expire not more than ten years  from the date of grant,  and not more than
five years from the date of grant in the case of incentive stock options granted
to an employee holding 10% or more of the voting stock of the Company.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The following  table sets forth certain  information as to the Common Stock
ownership of each of the Company's directors,  executive officers, all executive
officers and  directors as a group,  and all persons  known by the Company to be
the beneficial owners of more than five


                                      -28-

<PAGE>



percent of the  Company's  Common  Stock.  The table  below does not reflect the
Company's one for 40 reverse stock split which occured in April 1998.

<TABLE>
<CAPTION>
                                                        Number of                           Approximate
Name and Address of Beneficial Owner(1)                 Shares(2)                   Percentage of
Common Stock
---------------------------------------                 ---------                   --------------------------
<S>                                                            <C>                             <C>
Neal R. Heller and Elizabeth S. Heller
2397 N.W. 64th Street
Boca Raton, Florida  33496                                     5,834,000(3)                    18.7%

Martin C. Licht
Selden Lane
Greenwich, Connecticut  06831                                     52,000(4)                      *

Arthur Keiser
6324 NW 79th Way
Parkland, Florida 33067                                           34,000(5)                      *

Sir Brian Wolfson
Global Health Alternatives, Inc.
44 Welbeck Street
London, England  W1N7HF                                                0(6)                      *

Azure Limited Partnership I
13 Eagles Nest Drive
La Conner, Washington 98257                                       1,662,667                    5.5%

All Executive Officers and Directors as a
Group
         (5 persons)                                              5,920,000                   19.0%
</TABLE>

     (1) Unless otherwise noted, all persons named in the table have sole voting
and  dispositive  power with respect to all shares of Common Stock  beneficially
owned by them.

     (2) The table does not include  shares of Common  Stock  issuable  upon the
conversion of the Company's Series A Preferred  Stock.  Pursuant to the terms of
the Series A Preferred Stock, the holders thereof  generally are not entitled to
convert such  instruments to the extent that such conversion  would increase the
holders'   beneficial   ownership   of  Common  Stock  to  in  excess  of  4.9%.
Notwithstanding  the  foregoing,  on  June 4,  2000,  the  date  of a  mandatory
conversion  of the Series A  Preferred  Stock a change in control of the Company
may occur, based upon the number of shares of Common Stock issuable.

     (3) Mr. Heller owns 2,374,000  shares of Common Stock, and Mrs. Heller owns
2,660,000 shares of Common Stock and each has sole voting and dispositive  power
with  respect to such shares.  As they are husband and wife,  each may be deemed
the  beneficial  owner of the shares owned by the other.  Includes up to 800,000
shares of Common  Stock  issuable  upon the  exercise of options held by Mr. and
Mrs. Heller.


                                      -29-

<PAGE>


     (4) Includes presently  exercisable  options to purchase up to 2,000 shares
of Common Stock held by Mr. Licht.

     (5) Includes presently  exercisable options to purchase up to 14,000 shares
of Common Stock held by Mr. Keiser.

     (6) Does not include  options to  purchase  up to 800,000  shares of Common
Stock which are not exercisable within 60 days.

*    Represents less than 1% of applicable shares of Common Stock outstanding.


Item 12. Certain Relationships and Related Transactions.

     In  connection  with the  refinancing  of the Pompano  Property in October,
1997,  the Company  paid a mortgage  loan in the amount of $443,727  (the "Prior
Mortgage  Loan")  which  encumbered  both the Pompano  Property  and an adjacent
parcel of land (the  "Adjacent  Parcel")  which was owned by Justin  Real Estate
Corp.  ("Justin").  The  capital  stock of Justin is owned by Neal R. Heller and
Elizabeth S. Heller.  Mr. and Mrs. Heller also had guaranteed the Prior Mortgage
Loan.

     As of October  1997,  the  Company  had  advanced  to Mr.  and Mrs.  Heller
$142,442.  In October 1997, Mr. and Mrs.  Heller advanced the sum of $240,295 on
behalf of the Company and the Company advanced  $24,412 to Justin.  In November,
1997, the Company  advanced  $53,523 on behalf of Justin.  In December 1997, Mr.
and Mrs. Heller waived the repayment of the sum of $19,918 from the Company.  As
of December 31, 1997, there were no amounts due to the Company from Mr. and Mrs.
Heller or Justin and no amounts were due to the Company from Mr. and Mrs. Heller
or Justin.

     In connection with the refinancing of the Pompano Property,  Neal R. Heller
has  guaranteed the  obligations  of the Company  pursuant to leases between the
Company and its wholly owned  subsidiary  which owns the Pompano  Property.  Mr.
Heller has  collateralized  such guarantee with a $100,000 letter of credit.  In
addition,  Mr. Heller has agreed to indemnify Banc One Mortgage Capital Markets,
LLC, in certain limited instances. In July 1997, the Company issued an aggregate
of 800,000 options  (pre-reverse  split) exercisable for a period of 10 years at
an exercise price of $.001 per share to Mr. and Mrs. Heller.  Martin C. Licht, a
director  of the  Company,  was a member of law firms  which  received  $189,452
attributable  to 1996 and $153,351  attributable  to 1997.  In  addition,  as of
December  31,  1997,  the Company owed law firms of which Mr. Licht was a member
$150,112.  In July 1996 the Company  borrowed  $125,000  from Arthur  Keiser,  a
director of the Company, and repaid such amount plus interest at the rate of 12%
per annum in  December  1996.  In July 1996,  in  connection  with such loan the
Company  granted Mr. Keiser an option to purchase 10,000 shares of the Company's
Common Stock at an exercise  price equal to the fair market value on the date of
the grant for a period of five years.


                                      -30-

<PAGE>




Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)      Index to Financial Statements

         1.   Financial Statements                                          Page
                                                                            ----
              Independent Auditor's Report                                   F-2

              Consolidated Balance Sheet - December 31, 1997                 F-3

              Consolidated Statements of Operations -
              Years Ended December 31, 1997 and 1996                         F-4

              Consolidated Statement of Changes in Stockholders'
              Equity - For the period from December 31, 1995 through
              December 31, 1997                                              F-5

              Consolidated Statements of Cash Flow - Years Ended
              December 31, 1997 and  1996                                    F-6

              Notes to Financial Statements                                  F-8

         2.  Exhibits Included Herein

              See Exhibit Index on page __ hereof for the exhibits filed as part
              of this Form 10-KSB.

(b)      Reports on Form 8-K

              None.

(c)      Exhibit Index


Number        Description of Exhibit
------        ----------------------

3.1           Amended and Restated Certificate of Incorporation of the Company.*

3.2           Amended and Restated By-Laws of the Company.*

4.1           Specimen Certificate of the Company's Common Stock.*

4.2           Form of Class A Warrant.*

4.3           Form of Class B Warrant.*



                                      -31-

<PAGE>



Number        Description of Exhibit
------        ----------------------

4.4           Form of Warrant  Agreement  between the  Company  and  Continental
              Stock Transfer & Trust Company.*

4.5           Form of Underwriter's Warrants.*

4.6           1994 Stock Option Plan.*

4.7           Form of Debenture **

4.8           Registration Rights Agreement dated July 23, 1997 by and among the
              Company, Global and the Global Stockholders. +

4.9           Agreement as to Transfers dated July 23, 1997 by and between 
              Capital Development, S.A. and the Compant. +

4.10          Articles of Amendment of Articles of Incorporation of the 
              Company. ***

4.11          Form of Debenture. **

10.1          Form of  Employment  Agreement  between  the  Company  and Neal R.
              Heller.*

10.2          Form of Employment  Agreement between the Company and Elizabeth S.
              Heller.*

10.3          Lease,  dated April 29, 1993, between Florida Institute of Massage
              Therapy,  Inc.,  as tenant,  and MICC  Venture,  as  landlord,  as
              amended.*


10.4          Agreement among Natural Health Trends Corp., Health Wellness 
              Nationwide Corp., Samantha Haimes and Leonard Haimes. ++


10.13         Agreement  among  Natural  Health  Trends  Corp.  Health  Wellness
              Nationwide Corp., Samantha Haimes and Leonard Haimes.

10.14         Employment  Agreement between Health Wellness Nationwide Corp. and
              Kaye Lenzi.

10.15         Mortgage note in the amount of $2,250,000, dated October 30, 1997
              between NHTC Real Estate, Inc. as maker and BANC One Mortgage 
              Capital Markets, LLC as payee.

21.1          List of Subsidiaries.

27.1          Financial Data Schedule

----------
*    Previously filed with Registration Statement No. 33-91184.

**   Previously filed with the Company's Form 10-QSB for the quarter ended 
     March 31,1997.
     

***  Previously filed with the Company's Form 10-QSB dated June 30, 1997.

+    Previously filed with the Company's Form 8-K dated Auhust 7, 1997.

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

+++  Previously filed with this Registration Statement No. 333-35935



                                 -32-

<PAGE>




                                   SIGNATURES

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

Dated:  April   , 1998                      NATURAL HEALTH TRENDS CORP.

                                       By:  /s/ Neal R. Heller
                                            ------------------------------------
                                            Neal R. Heller, President, and Chief
                                            Executive Officer


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

                 Name                    Title                        Date
                 ----                    -----                        ----
/s/ Sir Brian Wolfson        Chairman of the Board                April 15, 1998
-------------------------
Sir Brian Wolfson

/s/ Neal R. Heller           President, Chief Executive Officer   April 15, 1998
-------------------------     and Director
Neal R. Heller


\s\ Elizabeth S. Heller      Secretary and Director               April 15, 1998
-------------------------
Elizabeth S. Heller

\s\ Arthur Keiser            Director                             April 15, 1998
-------------------------
Arthur Keiser

\s\ Martin C. Licht          Director                             April 15, 1998
-------------------------
Martin C. Licht