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, 1998

                                                        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)

                    250 Park Avenue, New York, New York 10177
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (212) 490-6609

             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:  $1,191,120


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, 1999 was
6,190,909 with an approximate  aggregate market value of $26,698,00  (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,
1999 was 6,190,909.





<PAGE>



                                TABLE OF CONTENTS

                                      Page
                          Numbertem Number and Caption


PART I   ...................................................................-4-
  Item 1.  Description of Business..........................................-4-
  Item 2.  Description of Properties........................................-14-
  Item 3.  Legal Proceedings................................................-14-
  Item 4.  Submission of Matters to a Vote of Security Holders..............-15-

PART II  ...................................................................-16-
  Item 5.  Market for Common Equity and Related Stockholder Matters.........-16-
  Item 6.  Management's Discussion and Analysis of Financial Condition 
           and Results of Operation.........................................-17-
  Item 7.  Financial Statements.............................................-21-
  Item 8.  Changes in and Disagreements with Accountants on Accounting 
           and Financial Disclosure.........................................-21-

PART III ...................................................................-22-
  Item 9.  Directors, Executive Officers, Promoters and Control 
           Persons..........................................................-22-
  Item 10. Executive Compensation...........................................-23-
  Item 11. Security Ownership of Certain Beneficial Owners and
           Management.......................................................-25-
  Item 12. Certain Relationships and Related Transactions...................-26-
  Item 13. Exhibits, Financial Statement Schedules, and Reports on 
           Form 8-K.........................................................-27-






                                       -3-

<PAGE>



                                     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.  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.  Unless the context otherwise requires, the Company
and its subsidiaries, including GHA, are sometimes referred to collectively as 
the "Company."

                  In June 1997, GHA commenced  marketing Natural Relief 1222(R),
a  line  of  topical  homeopathic  medicines  in  a  patented  base  of  natural
ingredients,  acquired in May 1997 from Troy Laboratories, Inc. In July 1997 the
Company acquired all of the capital stock of GHA. 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.

                  The Company's  strategy has been 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.

                  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  Company's
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 and in August 1998, sold the Company's three vocational schools.

                  In February 1999, the Company  acquired  substantially  all of
the assets of Kaire  International,  Inc.("Kaire"),  which is further  described
below.  Kaire  develops  and  distributes,  through  a  network  of  independent
associates, products that are intended to appeal to health conscious consumers.



                                       -4-

<PAGE>



                  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 250 Park Avenue,  New York,  New York,  and its  telephone  number is
(212) 490-6609.

Acquisition of Substantially all of the Assets of Kaire

                  In February  1999,  the Company's  newly formed,  wholly-owned
subsidiary,  NHTC Acquisition Corp. ("NHTC"),  acquired substantially all of the
tangible and intangible assets (the "Kaire Assets") of Kaire including,  but not
limited to, the names "Kaire,"  "Kaire  International,  Inc." and all variations
thereof and any other  product  name and all other  registered  or  unregistered
trademarks,  tradenames, service marks, patents, logos, and copyrights of Kaire,
all accounts receivable,  contractual rights and product formulations to any and
all products of Kaire, product inventory,  "800" and other "toll-free" telephone
numbers,   product  supply  contracts  (including,   but  not  limited  to,  its
EnzogenolTM  product),  independent associate lists, and shares of capital stock
owned by Kaire in each of its wholly-owned  and/or partially owned  subsidiaries
including, but not limited to, Kaire New Zealand Ltd., Kaire Australia Pty Ltd.,
Kaire Trinidad, Ltd. and Kaire Europe Ltd. (but excluding Kaire Korea Ltd.).

              In exchange for the Kaire Assets, the Company issued (i) to Kaire,
$2,800,000  aggregate  stated  value of Series F  Preferred  Stock;  (ii) to two
creditors of Kaire, $350,000 aggregate stated value of Series G Preferred Stock;
and  (iii) to  Kaire,  five-year  warrants  to  purchase  200,000  shares of the
company's common stock. In addition, NHTC has agreed to make certain payments to
Kaire each year for a period of five  years  (the  "NHTC Net  Income  Payments")
commencing  with the year ending December 31, 1999, to be determined as follows:
(i)25%  of the net  income of NHTC if the net sales of NHTC in any such year are
between  $1.00 and  $10,000,000;  (ii) 33% of NHTC's net income if its net sales
are between  $10,000,000 and  $15,000,000;(iii)  40% of NHTC's net income if its
net sales are between  $15,000,000 and  $40,000,000;  and (iv) 50% of NHTC's net
income if its net sales are in excess of $40,000,000.

              The  NHTC   Net   Income   Payments   shall   be   reduced   on  a
dollar-for-dollar  basis to the extent of (A) all  indebtedness of Kaire assumed
by NHTC; (B) all other direct and/or  indirect costs or expenses  assumed and/or
otherwise  incurred by the Company of, or resulting from, Kaire  including,  but
not limited to,  litigation  costs,  including,  but not limited to,  reasonable
attorneys'  fees,  payments  of sales or other  taxes,  expenses  of officers of
Kaire, and other payments or expenses  resulting directly and/or indirectly from
the  acquisition  of the  Kaire  Assets;  and (C) any  reasonable  inter-company
obligations  of the  Company  resulting  from third party  payments  made by the
Company on behalf of (or allocable  proportionately to) NHTC by the Company that
resulted  from the  acquisition  of the Kaire Assets.  In addition,  all amounts
set-off  against NHTC Net Income  Payments are cumulative and, if not set-off in
the year  they are paid (or  incurred)  because  NHTC did not have a  sufficient
amount of net income (or for any reason),  such set-off amounts shall accrue and
be used as a set-off in the earliest possible year or years.


                                       -5-

<PAGE>



              In  connection  with the  acquisition  of the Kaire  Assets,  NHTC
assumed certain  specified  liabilities of Kaire  including:  (i)  approximately
$475,000  owed to MW  International  Inc.;  (ii)  approximately  $50,000 owed to
Manhattan Drug Company;  (iii)  approximately  $120,000 in the aggregate owed to
Robert  Richards and Mark Woodburn (both officers and directors of Kaire);  (iv)
up to  approximately  $120,000 in unpaid  payroll taxes of Kaire;  and (v) up to
$180,000 owed to STAR Financial Bank.

              In  connection  with the  acquisition  of the  Kaire  Assets,  the
Company  has agreed to appoint to its Board of  Directors  one nominee of Kaire,
Robert L. Richards.  In addition,  NHTC has agreed to indemnify certain officers
of Kaire against all amounts paid following the  acquisition of the Kaire Assets
by such persons  resulting from unpaid sales taxes accrued by Kaire prior to the
closing date.

              In  connection  with the  acquisition  of the  Kaire  Assets,  the
Company had retained  BLH,  Inc. as  consultant  and advisor to the Company (the
"Consultant")  pursuant  to a written  agreement  dated  September  2, 1998 (the
"Consulting  Agreement").  In  accordance  with  the  terms  of  the  Consulting
Agreement,  the  Consultant  was to identify  companies  which the Company could
acquire and/or merge with. BLH introduced Kaire to the Company.  Pursuant to the
terms of the Consulting  Agreement  during its term the Company shall pay a cash
fee  (the  "Cash  Fee") to the  Consultant  equal to ten  (10%)  percent  of the
aggregate consideration ("Consideration"), paid by the Company in a Transaction.
The Cash Fee shall be payable at each closing of a Transaction. At the option of
the Company,  however,  the Company may pay to the  Consultant in lieu of paying
the  Cash  Fee,  a fee in  shares  of  preferred  stock of the  Company  with an
aggregate stated value of the preferred stock equal to 120% of the Cash Fee (the
"Fee  Preferred  Stock").  The  Fee  Preferred  Stock  shall  be  issued  to the
Consultant at any closing,  pay quarterly  dividends at a rate of 8% annually in
cash (or at the  option of the holder in shares of Common  Stock of the  Company
valued at the Conversion Price, as defined below), and shall be convertible into
shares of Common Stock of the Company at a  conversion  price equal to the lower
of (i) 110% the average closing bid price of the Common Stock of the Company for
the five days immediately  preceding the date of the Consulting  Agreement,  and
(ii) 95% of the average closing bid price of the Common Stock of the Company for
the  three  (3)  trading  days  prior  to the  date of any  conversion.  The Fee
Preferred  Stock shall be redeemable at the option of the Company at a price per
share equal to 108% of the stated  value plus all unpaid and  accrued  dividends
and  shall  contain  piggyback  and  demand  registration   rights,  the  demand
registration  rights  commencing  eight (8) months  following the closing of the
Transaction.


Description of Kaire International, Inc.

              Kaire develops and  distributes,  through a network of independent
associates,  products that are intended to appeal to health-conscious consumers.
Current  Kaire  products  include  health care  supplements  and  personal  care
products. Kaire offers a line of approximately 50 products which it divides into
nine categories,  including Antioxidant Protection (Bodily) Defense,  Digestion,
Energy and Alertness, Stress, Vital Nutrients, Weight Management, Anti-Aging and
Personal Care.

              Kaire  develops  products that it believes will have market appeal
to  its  associates  and  their   customers,   and  assists  its  associates  in
establishing  their own  businesses.  Kaire  associates  can start a home  based
business  without  significant  start-up  costs and other  difficulties  usually
associated  with new ventures.  Kaire produces  product  development,  marketing
aids, customer service, and essential record-keeping functions to its associates
without  charge.  Kaire also provides  other support  programs to its associates
including a 24-hour  touch talk system,  international  teleconferencing  calls,
seminars and business training systems with audio and video tapes.

              It is Kaire's  strategy and expectation  that associates  actively
recruit  interested  people to become new associates.  These recruits are placed
beneath the  recruiting  associate in the "network" and are referred to by Kaire
as that associate's  "organization." Associates earn commissions on purchases by
associates  in their  organization  as well as retail  profits on the sales they
make themselves. Kaire's marketing program is designed to provide incentives for
associates to build an  organization  of recruited  associates to maximize their
earning potential.  Approximately  60,000 of Kaire's associates have had product
purchases  in excess of $50 during  1997 and are  considered  to be  "active" as
opposed to approximately 108,000 and 156,000 in 1996 and 1995, respectively.

              
                                      -6-
<PAGE>
Kaire purchases most of its products  directly from  manufacturers
and markets them to its independent  associates located in all fifty states, the
District of Columbia, Puerto Rico, Guam, and Canada. In 1995, Kaire expanded the
number of its  associates  located  in other  parts of the  world,  particularly
Australia  and New  Zealand.  Kaire  expanded its  operations  into South Korea,
Tobago and the United Kingdom during 1997.  Kaire has since discontinued its 
operations in South Korea in October 1998.

              Unless  the  context  otherwise  requires,   the  balance  of  the
discussion  in this Form 10-KSB  excludes  the  acquisition  of the Kaire Assets
which were not acquired until February 1999.

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.

                  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


                                       -7-

<PAGE>



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 consumer  distribution
channels  through a broker  network.  The Company has obtained  distribution  of
Arthritis Relief in several drug chains.  However,  due to the capital intensive
nature of mass market  distribution the Company has revised its business plan of
marketing and support for GHA's products, decreasing its emphasis on mass market
advertising. Instead, the Company plans to use its resources for the development
of  other  less  capital-intensive   distribution  channels  (e.g.,  multi-level
marketing which will be facilitated  through the acquisition of the Kaire Assets
and institutional marketing), possibly via acquisition. 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



                                       -8-

<PAGE>



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
direct mail and in-house  telemarketers to sell the Ellon products.  The Company
competes in this category with several other  established  lines of  homeopathic
flower remedies, including the Bach and Flower Essence Services product lines.

                  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.





                               
                                       -9-

<PAGE>



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 Pharmacopoeia 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 of 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 several drug chains.  However,  due to the capital intensive
nature of mass market  distribution the Company has revised its business plan of
marketing and support for GHA's products, decreasing its emphasis on mass market
advertising. Instead, the Company plans to use its resources for the development
of  other  less  capital-intensive   distribution  channels  (e.g.,  multi-level
marketing which will be facilitated through the acquisition of the Kaire

                                      -10-

<PAGE>



Assets and institutional  marketing).  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 Publishers Clearinghouse.  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  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.

                  For the years ended December  31, 1997  and December 31, 1998,
GHA's expenditures for product advertising and promotion were approximately 
$1,771,095 and $692,344, espectively.

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,  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.



                                      -11-

<PAGE>



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,  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.


                                      -12-

<PAGE>



Employees

                  As of December 31, 1998 the Company had 13 full time employees
including 6 full time administration employees, 6 in marketing and sales and one
in operations.  None of the Company's employees are represented by a union, and
the Company believes that its employee relations are good.

Insurance

                  The Company 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 and for content  mints,  a
natural  stress  relief  tablet.  The Company  also has obtained  marketing  and
manufacturing  rights to a family of Chinese-origin,  patented,  natural topical
medical products.

              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 effect 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.


                                      -13-

<PAGE>



Item 2.       Description of Properties

Leased Properties

              The Company leases  approximately  2,200 square feet of office and
warehouse space in Portland, Maine at a monthly rental of $2,200 plus utilities.
These leases expires on November  30,  2001,  although  the Company may elect to
terminate  the lease  commencing  December 1, 1998 with six months  notice.  The
Company leases approximately 1,500 square feet of office space for its corporate
headquarters at 250 Park Avenue,  New York, New York. The current annual rent is
$65,400 and the lease expires on October 31, 2001.


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 Erie  Laboratories,  Inc. ("Erie") 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 Erie  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.

                  In GHA and Ellon,  Inc. v. Leslie  Kaslof,  Ralph Kaslof,  and
Ellon USA, Inc., pending in the United States District Court for the District of
Maine (the "Maine Kaslof Case") claims have been made arising out of the sale of
Ellon USA's ("Old Ellon") assets to GHA's wholly-owned  subsidiary,  Ellon, Inc.
("New  Ellon").  In connection  with that sale,  Leslie Kaslof and Ralph Kaslof,
former  shareholders  and  officers of Old Ellon,  entered into  employment  and
consulting  agreements with GHA. GHA's potential obligation to the Kaslofs under
the employment and consulting



                                      -14-

<PAGE>



agreements was  approximately  $525,000.  The complaint in the Maine Kaslof Case
seeks a  determination  that the Kaslofs  materially  breached their  respective
obligations  under the  agreements  and that GHA and New Ellon are excused  from
further  performance  thereunder.  The complaint  includes a breach of fiduciary
claim  against  Ralph  Kaslof,  as  well  as a claim  to  recover  approximately
$142,000.  In a related civil action brought by the Kaslofs and Old Ellon in the
United States District Court for the Eastern District of New York (the "New York
Kaslof  Action").  The Kaslofs  have  alleged  breaches of the purchase and sale
agreement,  the  employment  and  consulting  agreements,  and other  agreements
executed in connection with the sale of Old Ellon's assets.  The complaint seeks
to recover damages in an unspecified amount, but not less than $1,300,000, costs
of court,  reasonable  attorney  fees,  and interest.  GHA intends to vigorously
defend any and all claims asserted by the Kaslofs and their corporation.

                  Inter/Media Time Buying Corp.  ("Inter/Media") v. GHA, et al.,
which is pending in the United States District Court for the Central District of
California (the "Inter/Media  Action"),  is based on Inter/Media's  provision of
marketing,  media  purchasing,  and  related  advertising  services  to  GHA  in
connection with Natural Relief 1222. The complaint seeks compensatory damages of
$144,463.77,  unstated  special  damages,  attorney fees and costs of court. GHA
answered the complaint,  denying all material allegations therein, and asserting
a counterclaim  arising out of  Inter/Media's  creation of a defective  national
direct response  campaign which prevented a successful  nationwide retail launch
for a clinically-proven product. By its counterclaim,  which includes claims for
breach of contract,  negligence,  intentional  interference  with a  prospective
economic  advantage,  fraud and  intentional  misrepresentation,  and  negligent
misrepresentation,  GHA  seeks to  recover  general  damages  of not  less  than
$6,500,000,  special  damages,  costs of suit,  and  reasonable  attorney  fees.
Inter/Media has sought an attachment against GHA's assets for the full amount of
its claims.

                  In PIC-TV v. GHA, et al. (the "PIC-TV  Action"),  PIC-TV seeks
to  recover  compensatory  damages  of not less  than  $319,656,  together  with
interest  and  costs  of  suit,  based  on the  sale  of  advertising  time  and
sponsorships to GHA. GHA has answered the complaint,  and is also continuing its
settlement discussions with PIC-TV.

                  On July 13,  1998,  Preferred  Real Estate  Investments,  Ltd.
commenced  an action in the  Circuit  Court of  Florida,  in and for Palm  Beach
County, for unpaid rent against the Company and its wholly-owned subsidiary. The
Company  claims  that there was a  settlement  and that there are no  additional
amounts due to the landlord.


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

              There  were no matters  submitted  to a vote of  security  holders
during the fourth quarter of 1998.




                                      -15-

<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  reflects the  Company's one for 40 reverse stock
split which occurred in April 1998.


                                                       Common Stock
                                                 High               Low
1997
First Quarter.............................     100.00               40.00
Second Quarter............................      90.00               35.00
Third Quarter.............................      40.00                8.75
Fourth Quarter............................      10.00                1.25

1998
First Quarter ............................       5.00                1.88
Second Quarter............................       3.75                 .56
Third Quarter.............................       2.13                 .78
Fourth Quarter............................       4.0                 1.91

1999
First Quarter.............................       5.63                3.56

Holders

                  As of January 22,  1999,  the Company  had  approximately  192
record holders of its Common Stock, and as of January 22, 1999, 1,669 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


                                      -16-

<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.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Overview

                  Prior to August 1997,  the Company's  operations  consisted of
the operation of natural health care centers,  and vocational schools.  Upon the
acquisition  of GHA on July  23,  1997,  the  Company  commenced  marketing  and
distributing  a line of  natural,  over-the-counter  homeopathic  pharmaceutical
products.  The Company  subsequently  discontinued the operations of the natural
health care  centers  during the third  quarter of 1997 and sold the  vocational
schools  in August  1998.  During  most of the year  ended  December  1997,  the
Company's  current  ongoing line of business  (GHA natural  products) was not in
operation, not having been acquired until July 1997.

Revenues

                  Total  revenues for  continued  operations  for the year ended
December 31, 1998 were $1,191,120, as compared to revenues of $1,133,726 for the
year ended December 31, 1997, an increase of 5.1%.  Although revenues  increased
during  the year  ended  December  31,  1998,  the  revenues  for the year ended
December 31, 1998 reflect operations for a full year. However,  the revenues for
the year ended  December 31, 1997,  reflect  operations  for five months.  On an
annualized  basis  revenues  decreased  by 57%.  The Company  believes  that the
decrease  in  revenues is  primarily  attributable  to a decrease in the sale of
Natural Relief 1222 to mass market retailers and major drug chains.  The Company
believes  that such  decrease is due to a decrease in spending on marketing  and
advertising  as a result  of the  Company's  decision  to  pursue  less  capital
intensive channels of distribution.

Cost of Sales

                  Cost of Sales  for the  year  ended  December  31,  1998  were
$454,370  (38.1% of revenues),  as compared to $375,034  (33.1% of revenues) for
the year ended  December 31, 1997.  Gross profit for the year ended December 31,
1998 was $736,750  (61.9% as a  percentage  of revenues) as compared to $758,692
(66.9% as a percentage  of revenues) for the year ended  December 31, 1997.  The
Company  believes  that the decrease in gross profit as a percentage of revenues
is primarily  attributable to a write-down of $75,000 for obsolete inventory for
the year ended December 31, 1998.



                                      -17-

<PAGE>



Selling, General and Administrative Expenses

                  Selling,  general  and  administrative  expenses  for the year
ended December 31, 1998 were $3,277,047,  as compared to $4,194,044 for the year
ended  December  31, 1997, a decrease of 21.9%.  The Company  believes  that the
decrease in selling, general and administrative expenses primarily  attributable
to reduced spending on advertising  and  promotion.  Advertising  and  promotion
expenses  were  $1,771,095  for the year ended  December 31, 1997 as compared to
$692,344 for the year ended December 31, 1998.

Interest Expense

                  Interest  expense  for the year ended  December  31,  1998 was
$199,757 as compared to $868,721 for the year ended December 31, 1997. Excluding
the amortization of notes payable discount (related to the Company's convertible
debentures)  which  amounted  to  $433,333  for year ended  December  31,  1997,
interest  expense  decreased by 54.2%. The Company believes that the decrease in
interest  expense is primarily  attributable  to the  conversion of  convertible
debentures during the fourth quarter of the year ended December 31, 1998 and the
first quarter of the year ended December 31, 1997.

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 anticipated losses on
these  discontinued  operations  were  reflected in the year ended  December 31,
1997. In August 1998, the Company sold its three vocational  schools and certain
related businesses,  recognizing a gain of $1,424,379 from the sale. In November
1998, the Company sold an office  building  which  previously  accommodated  its
corporate  headquarters and one of its vocation schools,  realizing an estimated
loss of $829,000 which was reflected in the quarter ended September 30, 1998.

Gain on Forgiveness of Debt

                  During the year ended December  1998,  the Company  realized a
gain of $816,000 on the work-out of various debt and trade payables.

Liquidity and Capital Resources

                  The  Company  has  funded  its  working  capital  and  capital
expenditure  requirements  primarily from cash provided  through  borrowing from
institutions and individuals,  and from the sale of the Company's  securities in
private placements. The Company's other ongoing source of cash receipts has been
from the sale of GHA's products.


                                      -18-

<PAGE>



                  In February 1998,  the Company issued  $300,000 face amount of
Series B Preferred  Stock,  net of  expenses of $38,500.  The Series B Preferred
Stock has been converted into 541,330 shares of Common Stock.

                  In April 1998,  the Company issued  $4,000,000  face amount of
Series C Preferred  Stock,  net of expenses of $493,000.  The Series C Preferred
Stock pays a dividend of 10% per annum and is  convertible  into Common Stock at
75% of the market value of the Common Stock,  commencing 41 days after issuance.
From the proceeds raised,  the Company paid $2,500,000 to retire $1,568,407 face
value of Series A Preferred Stock outstanding.  The Series C Preferred Stock has
been converted into 3,608,296 shares of Common Stock.

                  In July 1998, the Company issued $75,000 face amount of Series
D Preferred Stock, which was redeemed in August 1998 for $91,291.

                  In August 1998, the Company issued  $1,650,000  face amount of
Series E Preferred  Stock,  net of expenses of $211,000.  The Series E Preferred
Stock pays dividends of 10% per annum and is  convertible  into shares of common
stock at the lower of the  closing  bid price of the date of issuance or 75% of
the market value of the Common Stock.

                  In March and  April  1999 the  Company  issued  $1,400,000  of
Series H Preferred Stock. The Series H Preferred Stock pays dividends of 10% per
annum and is convertible into shares of Common Stock at the lower of the closing
bid price on the date of issuance or 75% of the market value of the common 
stock.

                  In August 1998, the Company sold its three vocational  schools
and certain related businesses for $1,778,333 and other consideration.  From the
proceeds from the sale of the schools, the Company paid $1,030,309 to retire the
remaining  $631,593  face value of Series A  Preferred  Stock  outstanding,  and
$91,291 to redeem all of the Series D Preferred Stock outstanding. The remaining
proceeds were used to pay down notes payable.

                  At December  31,  1998 the ratio of current  assets to current
liabilities  was  .30  to  1.0  and  there  was a  working  capital  deficit  of
$2,016,734.

                  Cash used in operations for the period ended December 31, 1998
was  $4,777,957,  attributable  primarily to the net loss of $1,288,012  and net
cash  used in  discontinued  operations  of  $2,645,638.  Other  uses of cash in
continuing operations were decreases in accounts payable and accrued expenses of
$660,673 and  $698,805,  respectively.  Cash  provided by  investing  activities
during  1998  was  approximately  $4,342,000,  mainly  from  proceeds  from  the
disposition of discontinued  operations.  Cash provided by financing  activities
during  fiscal 1998 was  approximately  $625,000,  mainly  from the  issuance of
preferred stock of $5,283,000  offset by payments of notes payable  $940,000 and
redemptions of preferred stock $3,621,600.



                                      -19-

<PAGE>



                  The Company  intends to offer to sell its  securities to raise
gross  proceeds of $3,500,000 to $5,500,000  during the second  quarter of 1999.
However,  there can be no  assurance  that the  Company  will do so. The Company
intends  to use the  gross  proceeds  of the  offering  to retire  the  Series F
Preferred Stock and the Series G Preferred Stock and to provide working capital.

              The Company anticipates that further additional  financing will be
required to finance the Company's  continued  operations  during the next twelve
months,  principally  to fund  Kaire's  operations.  Management  has revised its
business  plan  of  marketing   development  and  support  for  GHA's  products,
decreasing its emphasis on mass market advertising.  Instead,  the Company plans
to use its  resources  for  the  development  of  other  less  capital-intensive
distribution channels. Management believes that Kaire will require approximately
$1,200,000  over the next 12 months and that GHA will not require any additional
financing provided that GHA is successful in reaching  satisfactory  settlements
with its creditors.  As of December 31, 1998,  GHA owed approximately $1,600,000
to creditors and had a working capital  deficit of approximately $1,300,000. In 
the event that the Company cannot reach  satisfactory  settlements  with GHA's 
creditors,  the Company may discontinue  the  operation of GHA.  There can be no
assurance that the Company will be able to achieve satisfactory settlements with
its creditors or secure such  additional  financing. The failure of the Company 
to achieve  satisfactory settlements  with its  creditors  or secure  additional
financing  would have a material  adverse  effect  on  the  Company's business,
prospects, financial conditions and results of operations.

Year 2000 Issue

              Many currently  installed  computer systems and software  products
are coded to accept only two-digit  entries to represent  years in the date code
field.  Computer systems and products that do not accept four-digit year entries
will need to be upgraded or replaced to accept four-digit entries to distinguish
years  beginning  with 2000 from prior  years.  Management  is in the process of
becoming  compliant  with the  Year  2000  requirements  and  believes  that its
management  information  system will be compliant on a timely basis at a minimal
cost.  The Company  currently does not  anticipate  that it will  experience any
material  disruption  to  its  operations  as a  result  of the  failure  of its
management  information  system  to be  Year  2000  compliant.  There  can be no
assurance,  however, that computer systems operated by third parties,  including
customers,   vendors,   credit  card  transaction   processors,   and  financial
institutions,  with which the Company's management  information system interface
will continue to properly interface with the Company's system and will otherwise
be  compliant  on a timely  basis  with  Year  2000  requirements.  The  Company
currently is  developing a plan to evaluate the Year 2000  compliance  status of
third  parties with which its system  interfaces.  Any failure of the  Company's
management  information system or the systems of third parties to timely achieve
Year 2000  compliance  could have a  material  adverse  effect on the  Company's
business, financial condition, and operating results.



                                      -20-

<PAGE>



Item 7.       Financial Statements.

              See Item 13 of this form 10-KSB "Exhibits and Reports on Form 8K"


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


              None.

                                      -21-

<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                64          Chairman of the Board and Director
Joseph P. Grace                  48          President and Director
Martin C. Licht                  56          Director
Dirk Goldwasser                  38          Director
Ralph Ellison                    37          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.  Prior to co-founding  GHA in October 1995, Mr. Wolfson
served as Chairman of Wembley, PLC from 1986 to 1995. Mr. Wolfson is currently a
director of Fruit of the Loom, Inc., Kepner- Tregoe,  Inc., Playboy Enterprises,
Inc., and Autotote Corporation, Inc.

                  Joseph P. Grace has been the President and a Director of the 
Company since  October, 1998 and Co-Chief Operating Officer of GHA since October
1996. From 1995 to 1996, Mr. Grace was a principal of Natural  Health 
Laboratories, Inc. From 1994 to 1996, Mr. Grace was Chairman of Ovation, Inc., a
health and fitness equipment supplier.  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.

              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.

              Dirk Goldwasser has been a consultant/trader with Filin Corp. from
August 1996 to the present.  From June 1994 to July 1996 he was a vice president
with Bankers Trust Securities Company. From December 1993 to June 1994 he was an
associate with  Oppenheimer  and Co. From 1988 to 1994, he was director of sales
for Galbreath Asset Advisors/Loews Organization.


                                      -22-

<PAGE>



             Ralph Ellison has been the president of PolarRx Biopharmaceuticals,
a biotechnology company, since 1997. From 1995 to 1997, he was a principal of 
Parna LLC, a real estate consulting firm.  From 1990 to 1995 he was the director
of clinical research at Research Testing Laboratories.



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, 1998,  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, 1998, 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 the Company did not receive 
any Form 5's from its officers and directors or Form 3's from Messrs. Grace, 
Goldwasser or Ellison.

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, 1996,
1997, and 1998 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
          Name and                                                  Annual        Stock Award(s)   Options       Payouts   Compensa-
     Principal Position         Year   Salary($)    Bonus($)  Compensation ($)(1)         $        SARs(#)         ($)      tion($)
     ------------------         ----   ---------    --------  ------------------- -------------------------       -----    --------
<S>                             <C>    <C>            <C>            <C>              <C>            <C>          <C>           <C>
Joseph P. Grace, President      1998   $162,500       ----           ----              ----          ----         ----          ----
and Chief Executive Officer

Sir Brian Wolfson, Chairman of  1998     50,000       ----           ----              ----          ----         ----          ----
the Board (2)                   1997     50,000

Neal R. Heller,                 1998    155,365       ----           ----              ----          ----         ----          ----
President and                   1997    201,500       ----           ----              ----          ----         ----          ----
Chief Executive Officer         1996    162,500       ----           ----              ----          ----         ----          ----

Elizabeth S. Heller             1998     50,885       ----           ----              ----          ----         ----          ----
Secretary                       1997    141,100       ----           ----              ----          ----         ----          ----
                                1996    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, 1998 to the named executive officers.




                                      -23-

<PAGE>


<TABLE>
<CAPTION>
<S>             <C>                       <C>                    <C>                        <C>   
                                             Percent of Total
                   Number of Securities     Options Granted to
                    Underlying Options      Employees in Fiscal   Exercise or Base Price
  Name                    Granted                  Year                   ($.SH)              Expiration Date
--------        -----------------------     -------------------   ----------------------      ---------------
Joseph P. Grace           50,000                   41.6%                  $1.00                 August 2003

</TABLE>



Year-end  Option Table.  During the fiscal year ended December 31, 1998, 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, 1998 by the named executive officers.

<TABLE>
<CAPTION>
<S>                 <C>                                               <C>    
                    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
---------            ----------------        -----------------        ---------------        ----------------
Joseph P. Grace              0                     50,000                     0                    143,750
</TABLE>


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 , 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 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, 
except for Mr. Goldwasser who received options to purchase 50,000 shares of 
Common Stock and consulting fees of $ 5,000 per month, and Mr. Ellison who 
received options to purchase 20,000 shares of Common Stock. See "-- Executive  
Compensation."  No director received any other form of  compensation  for the 
fiscal year ended December 31, 1998.

Stock Options

         The 1998 Stock Option Plan (the "1998 Plan") provides for the granting 
of options to key employees, including officers, non-employee directors and 
consultants of the Company and its subsidiaries to purchase up to 200,000 shares
of Common Stock which  are intended to qualify either as Incentive Stock Options
within the meaning of the Code or as optins which are Nonstatutory Stock 
Options.

         The Stock  Option Plan (the "1997  Plan")  provides for the granting of
options to key employees, including officers, non-employee directors and 
consultants of the Company and



                                      -24-

<PAGE>



its  subsidiaries  to  purchase  up to 75,000  shares of Common  Stock 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 16,667  options 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 Plans 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 Plans  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 percent of the Company's
Common Stock.  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.


Name and Address              Number of Shares
of Beneficial Owner(1)(2)    Beneficially Owned                Percent of Class
----------------------       ------------------                ----------------
Joseph P. Grace(3)                    11,479                          *
Martin C. Licht(4)
                                       1,300                          *
Sir Brian Wolfson(5)                     850                          *



                                      -25-

<PAGE>




Dirk D. Goldwasser(6)                  1,125                          *
Ralph Ellison(7)                      15,000                          *

All Executive Officers and            39,754                          *
   Directors (5 persons)

*Owns less than one (1%) percent.

(1) The address of each executive  officer and director is c/o the Company,  250
Park Avenue,  New York,  New York 10177.  (2) Does not include  shares of Common
Stock  issuable  upon the  conversion of the  Company's  issued and  outstanding
Series C Preferred Stock and Series E Preferred Stock.  Pursuant to the terms of
the Series C 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%,  except in
the event of a mandatory  conversion.  On the date of a mandatory  conversion of
the Preferred  Stock with respect to the Series C Preferred Stock and the Series
E Preferred Stock, a change in control of the Company may occur,  based upon the
number  of  shares  of  Common  Stock  issuable.  As of the  date of this  Proxy
Statement,  1,650 shares of Series E Preferred Stock are issued and outstanding.
(3) Mr. Grace is the President and a Director of the Company. (4) Mr. Licht is a
Director of the  Company.  (5) Sir Brian is Chairman of the Board and a Director
of the Company. (6) Mr. Goldwasser is a Director of the Company. (7) Mr. Ellison
is a Director of the Company.  Includes  warrants to purchase  20,000  shares of
Common Stock at an exercise  price of $1.00 per share,  of which 5,000  warrants
have vested and 5,000  additional  warrants will vest on each of March 1, June 1
and September 1, 1999.

Item 12.           Certain Relationships and Related Transactions.

                  In August 1998, the Company sold its three vocational  schools
that it  operates  as a junior  college  in  Orlando,  Pompano  Beach and Miami,
Florida (the  "Schools")  that offer training and  preparation  for licensing in
therapeutic  massage and skin care to Florida  College of Natural  Health,  Inc.
("FCNH").  Neal R. Heller,  the  Company's  former  President,  Chief  Executive
Officer, a principal stockholder and a former director, Elizabeth S. Heller, his
wife,  the Company's  former  secretary,  a principal  stockholder  and a former
director, and Mr. Arthur Kaiser, a former director of the Company, are principal
shareholders of FCNH. The purchase price for the Schools was $1,778,333 in cash.
In  addition,  FCNH  assumed  all of the  liabilities  in  connection  with  the
operations of the Schools together with additional  liabilities in the aggregate
amount of  approximately  $2,559,244.  The  Company was not  released  from such
liabilities despite such assumption by FCNH.



                                      -26-

<PAGE>



                  In connection with the sale of the Schools, Mr. and Mrs. 
Heller's employment agreements were canceled, and they each resigned as 
directors and officers of the Company.  Mr. and Mrs. Heller also transferred to
the Company 79,175 shares of Common Stock and options to purchase 20,000 shares 
of Common Stock.

                  In connection with the refinancing of the Company's property 
in Pompano Beach, Florida (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 was 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.  Martin C. Licht, a director of the Company, was a 
member of law firms which received $153,351 attributable to 1997 and $263,221 
attributable to 1998.


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

(a)      Index to Financial Statements

  1. Financial Statements                                               Page

     Index to Financial Statements                                       F-1
     
     Independent Auditors' Report                                        F-2

     Consolidated Balance Sheet - December 31, 1998                      F-3

     Consolidated Statements of Operations - Years Ended December 
     31, 1998 and 1997                                                   F-4

     Consolidated Statement of Stockholders' Equity - For 
     the period from December 31, 1996 through December 31, 1998         F-5

     Consolidated Statements of Cash Flow - Years Ended December 31, 
     1998 and 1997                                                       F-6-7

     Notes to Consolidated Financial Statements                          F-8-20



                                      -27-

<PAGE>



                  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 Statements of Stockholders' Equity                         F-5
Consolidated Statements of Cash Flows                                   F-6-7
Notes to Consolidated Financial Statements                              F-8-20


                                       F-1

<PAGE>






                          INDEPENDENT AUDITORS' REPORT


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

         We have audited the accompanying  consolidated balance sheet of Natural
Health Trends Corp.  and  Subsidiaries  as of December 31, 1998, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years ended December 31, 1998 and 1997.  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, 1998,  and the results of its  operations  and its cash flows
for the years ended  December 31, 1998 and 1997,  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, 1999.  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.

                                           \S\Feldman Sherb Ehrlich & Co., P.C.
                                           Feldman Sherb Ehrlich & Co., P.C.
                                           Certified Public Accountants
New York, New York
February 26, 1999, except for Note 13
as to which the date is April 14, 1999



                                       F-2


<PAGE>

                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                               December 31, 1998




                                     ASSETS

CURRENT ASSETS:
     Cash                                             $                 294,220
     Accounts receivable                                                 19,331
     Inventories                                                        314,367
     Due from affiliate                                                 250,000
     Prepaid expenses                                                     3,370
                                                        ------------------------
            TOTAL CURRENT ASSETS                                        881,288

PROPERTY AND EQUIPMENT                                                   78,436
PREPAID ROYALTIES                                                       498,125
PATENTS AND CUSTOMER LISTS                                            4,415,049
GOODWILL                                                                829,468
DEPOSITS AND OTHER ASSETS                                               150,350
                                                        ------------------------

                                                      $               6,852,716
                                                        ========================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                 $               1,685,313
     Accrued expenses                                                   139,566
     Accrued expenses for discontinued operations                       314,593
     Current portion of long-term debt                                  314,684
     Accrued consulting contract                                        405,385
     Other current liabilities                                           38,481
                                                        ------------------------
            TOTAL CURRENT LIABILITIES                                 2,898,022

COMMON STOCK SUBJECT TO PUT                                             380,000

STOCKHOLDERS' EQUITY:
     Preferred Stock, no par value; 1,500,000 shares authorized;
         1,650 shares issued and outstanding                          1,439,500
     Common Stock, $.001 par value; 50,000,000 shares authorized;
         6,230,663 shares issued and outstanding                          6,231
     Additional Paid-in Capital                                      16,878,747
     Retained Earnings (Accumulated Deficit)                        (14,369,784)
     Common Stock Subject to Put                                       (380,000)
                                                        ------------------------
            TOTAL STOCKHOLDERS' EQUITY                                3,574,694
                                                        ------------------------

                                                      $               6,852,716
                                                        ========================


                See Notes to Consolidated Financial Statements.

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

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                     Year Ended December 31,
                                                         -------------------------------------------------
                                                                    1998                      1997
                                                         -----------------------   -----------------------
<S>                                                    <C>                       <C>   
REVENUES                                               $              1,191,120  $              1,133,726

COST OF SALES                                                           454,370                   375,034
                                                         -----------------------   -----------------------

GROSS PROFIT                                                            736,750                   758,692

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                          3,277,047                 4,194,044
                                                         -----------------------   -----------------------

OPERATING LOSS                                                       (2,540,297)               (3,435,352)

     Interest (net)                                                    (199,757)                 (868,721)
                                                         -----------------------   -----------------------

LOSS FROM CONTINUING OPERATIONS                                      (2,740,054)               (4,304,073)

DISCONTINUED OPERATIONS:
     Loss From Discontinued Operations                                  (86,234)               (2,919,208)
     Gain (Loss) on Disposal                                            722,640                  (501,839)
                                                         -----------------------   -----------------------

GAIN (LOSS) FROM DISCONTINUED OPERATIONS                                636,406                (3,421,047)
                                                         -----------------------   -----------------------

LOSS BEFORE EXTRAORDINARY GAIN                                       (2,103,648)               (7,725,120)

EXTRAORDINARY GAIN - FORGIVENESS OF DEBT                                815,636                         0
                                                         -----------------------   -----------------------

NET LOSS                                               $             (1,288,012) $             (7,725,120)
                                                         =======================   =======================

INCOME (LOSS) PER COMMON SHARE:
     Continuing Operations                             $                  (0.09) $                  (9.91)
     Discontinued Operations                                               0.18                     (7.88)
     Extraordinary Gain                                                    0.24                      0.00
                                                         -----------------------   -----------------------
 
     Net Loss                                          $                  (0.07) $                 (17.79)
                                                         =======================   =======================

WEIGHTED AVERAGE COMMON SHARES USED                                   3,440,788                   434,265
                                                         =======================   =======================

</TABLE>


                See Notes to Consolidated Financial Statements.

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

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                                      Common
                                                                            Additional  Retained      Stock    Deferred
                                        Common Stock    Preferred Stock      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, 1996           308,650  $  309      0   $        0  $ 6,242,689 $(2,595,123) $(380,000)$(96,250) $ 3,171,625

Sale of Convertible Series A 
  preferred stock                           0       0  2,200    1,900,702            0           0          0        0    1,900,702
Preferred stock dividends imputed           0       0      0            0      733,333    (733,333)         0        0           0
Conversion of debentures              303,986     303      0            0    1,207,172           0          0        0    1,207,475
Stock issued for acquisition          145,000     145      0            0    2,899,855           0          0        0    2,900,000
Other issuances                           500       1      0            0       24,999           0          0        0       25,000
Issuance of stock options for 
  compenstion                               0       0      0            0      400,000           0          0        0      400,000
Amortization of deferred stock 
  compensation                              0       0      0            0            0           0          0   82,500       82,500
Discount on debentures                      0       0      0            0      433,333           0          0        0      433,333
Net Loss                                    0       0      0            0            0  (7,725,120)         0        0   (7,725,120)
                                 ------------- ------  ------  ----------  -----------  ----------- ---------  -------  -----------

BALANCE - DECEMBER 31, 1997           758,136     758  2,200    1,900,702   11,941,381 (11,053,576)  (380,000) (13,750)   2,395,515

Sale of Convertible Series 
  B preferred stock                         0       0    300      261,500            0           0          0        0      261,500
Sale of Convertible Series
  C preferred stock                         0       0  4,000    3,507,500            0           0          0        0    3,507,500
Sale of Convertible Series 
  D preferred stock                         0       0     75       75,000            0           0          0        0       75,000
Sale of Convertible Series 
  E preferred stock                         0       0  1,650    1,439,500            0           0          0        0    1,439,500
Preferred stock dividends imputed           0       0      0            0    2,011,905  (2,011,905)         0        0            0
Redemption of Series A 
  preferred stock                           0       0 (2,200)  (1,900,702)  (1,629,607)          0          0        0   (3,530,309)
Redemption of Series D 
  preferred stock                           0       0    (75)     (75,000)           0     (16,291)         0        0      (91,291)
Conversion of debentures              206,603     207      0            0      188,418           0          0        0      188,625
Conversion of Series B 
  preferred stock                     541,330     541   (300)    (261,500)     260,959           0          0        0            0
Conversion of Series C 
  preferred stock                   3,608,296   3,608 (4,000)  (3,507,500)   3,503,892           0          0        0            0
Conversion of notes payable         1,195,473   1,196      0            0      697,917           0          0        0      699,113
Redemption of shares re: 
  school sale                         (79,175)    (79)     0            0      (96,118)          0          0        0      (96,197)
Shares cancelled in reverse
  stock split                         (10,332)    (10)     0            0           10           0          0        0            0
Amortization of deferred stock 
  compensation                              0       0      0            0            0           0          0   13,750       13,750
Net Loss                                    0       0      0            0            0  (1,288,012)         0        0   (1,288,012)
                                ------------- ------  ------  ----------   ----------  ----------- ---------  -------  ------------

BALANCE - DECEMBER 31, 1998         6,220,331  $6,221  1,650   $1,439,500  $16,878,757 $(14,369,784)$(380,000) $     0  $ 3,574,694
                                 ============= ======  ======  ==========   ==========  =========== ==========  =======  ==========

</TABLE>
                See notes to consolidated financial statements.

                                      F-5
<PAGE>
                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                 Year Ended December 31,
                                                                                 ---------------------------------------------------
                                                                                            1998                       1997
                                                                                 -----------------------   -------------------------
<S>                                                                           <C>                       <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Loss                                                                 $              (1,288,012)$                (7,725,120)
                                                                                 -----------------------   -------------------------
         Adjustments to reconcile net loss to net cash
            used in operating activities:
                Loss from discontinued operations                                                86,234                   2,919,208
                (Gain) loss on disposal of discontinued operations                             (722,640)                    501,839
                Depreciation and amortization                                                   549,668                     255,345
                Interest settled by issuance of stock                                           112,971                     116,065
                Write-down of patent                                                            200,000                           0
                Amortization of note payable discount                                                 0                     433,333

            Changes in assets and liabilities:
                Decrease (increase) in accounts receivable                                      141,774                     (62,446)
                Decrease (increase) in inventories                                              405,359                    (219,144)
                Decrease in prepaid expenses                                                      7,970                     102,353
                (Increase) decrease in prepaid royalties                                       (491,825)                          0
                Decrease in deposits and other assets                                           343,214                      66,775
                (Decrease) increase in accounts payable                                        (660,673)                  1,380,509
                (Decrease) increase in accrued expenses                                        (698,805)                    506,021
                (Decrease) increase in accrued expenses for discontinued operations             (41,469)                    356,062
                Increase in accrued consulting contract                                          45,254                     360,131
                (Decrease) increase in other current liabilities                               (121,339)                     33,397
                                                                                 -----------------------   -------------------------
            Net cash used in continuing operations                                           (2,132,319)                   (975,672)
            Net cash used in discontinued operations                                         (2,645,638)                 (3,417,394)
                                                                                 -----------------------   -------------------------

NET CASH USED IN OPERATING ACTIVITIES                                                        (4,777,957)                 (4,393,066)
                                                                                 -----------------------   -------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                                        (7,510)                    (32,658)
     Proceeds from disposition of discontinued operations                                     4,349,700                           0
                                                                                 -----------------------   -------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                           4,342,190                     (32,658)
                                                                                 -----------------------   -------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from preferred stock                                                            5,283,000                   2,200,000
     Proceeds from sale of debentures                                                                 0                   1,626,826
     Payments of debentures                                                                           0                    (355,650)
     Loan origination costs - preferred stock                                                         0                    (299,299)
     Proceeds from note payable and long-term debt                                                    0                     850,000
     Payments of notes payable and long-term debt                                              (940,000)                     (8,692)
     Redemption of common stock                                                                 (96,197)                          0
     Redemptions of preferred stock                                                          (3,621,600)                          0
                                                                                 -----------------------   -------------------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                                       625,203                   4,013,185
                                                                                 -----------------------   -------------------------

NET INCREASE (DECREASE) IN CASH                                                                 189,436                    (412,539)

CASH, BEGINNING OF PERIOD                                                                       104,784                     517,323
                                                                                 -----------------------   -------------------------

CASH, END OF PERIOD                                                           $                 294,220 $                   104,784
                                                                                 =======================   =========================

</TABLE>


                 See notes to consolidated financial statements.

                                       F-6
<PAGE>
                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                            Year Ended December 31,
                                                                                ---------------------------------------------------
                                                                                         1998                       1997
                                                                                -----------------------   -------------------------
<S>                                                                          <C>                        <C>   
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the year for interest                                   $                 151,580 $                   450,470
                                                                                =======================   =========================

DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
     (1)    Conversion of preferred stock to common stock                     $               5,744,702 $                         0
     (2)    Conversion of debentures and accrued interest to common stock     $                 887,738 $                 1,207,475


</TABLE>
                 See notes to consolidated financial statements.
                                      F-7
<PAGE>
                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 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.

         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 1998,  the Company  sold its schools  and related  facilities,  that
         offered  curricula  in  therapeutic  massage  training  and  skin  care
         therapy.  These  operations  are being  accounted  for as  discontinued
         operations.

         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 inter-company 
                  transactions have been eliminated in consolidation.

         B.       Accounts Receivable - Accounts receivable are stated net of 
                  allowance for doubtful accounts of $2,000.

         C.       Inventories - Inventories consisting primarily of natural 
                  remedies 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 
                  over the useful lives of the various assets.



                                       F-8

<PAGE>



         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.       Earnings (Loss) Per Share - In February 1997, the Financial 
                  Accounting Standards Board issued Statement of Financial 
                  Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 
                  128"), which became effective for both interim and annual
                  financial statements for periods ending after December 15, 
                  1997. SFAS No. 128 requires a presentation of "Basic" and 
                  (where applicable) "Diluted" earnings per share. Generally, 
                  Basic earnings per share is computed on only the weighted 
                  average number of common shares actually outstanding during 
                  the period, and the Diluted computation considers potential 
                  shares issuable upon exercise or conversion of other 
                  outstanding instruments where dilution would result. 
                  Furthermore, SFAS 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 SFAS No. 128.

         G.       Accounting Estimates - The preparation of financial statements
                  in accordance with generally  accepted  accounting  principles
                  requires  management to make  estimates and  assumptions  that
                  affect the reported  amounts of assets and  liabilities 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.

         H.       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.

         I.       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.

         J.       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 adopted
                  the pro forma disclosure requirements of Statement No. 123.

         K.       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,
                  1998, the Company recorded a charge against a patent upon such
                  a review (Note 4).

                                       F-9

<PAGE>



         L.       Basis of  Presentation - At December 31, 1998, the Company has
                  a working capital  deficiency of approximately  $2,017,000 and
                  has recorded a net loss of  approximately  $1,288,000  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.

         M.       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.


3.       PROPERTY AND EQUIPMENT

         Property and Equipment consisted of the following at December 31, 1998:


                                          Life Range                Amount
                                      ------------------       ----------------
Equipment, furniture and fixtures           5 to 7          $            91,795
Leasehold improvements                      3 to 5                        4,190
                                                               ----------------
                                                                         95,985
Less: Accumulated depreciation                                          (17,549)
                                                            $            78,436
                                                               ================


4.       PATENTS, CUSTOMER LIST AND GOODWILL

         Patents and customer  list  consisted of the  following at December 31,
1998:


Patents, net of accumulated amortization of $873,540         $        4,374,674
Customer list, net of accumulated amortization of $16,625                40,375

                                                                 ---------------
                                                             $        4,415,049
                                                                 ===============

Goodwill, net of accumulated amortization of $89,319         $          829,468
                                                                 ===============

         The  goodwill,  the patents,  and the customer list arose in connection
         with the  acquisitions  of businesses  made by the Company in 1997. The
         goodwill,  the patents,  and the customer list are being amortized over
         their  estimated  useful lives which are 5 years for the customer list,
         15 years for  goodwill and 11 and 17 years for  patents.  In 1998,  the
         Company under Statement of Financial  Accounting  Standards  (SFAS) No.
         121, "Accounting for the Impairment of

                                      F-10

<PAGE>



         Long-Lived Assets and for Long-Lived  Assets to be Disposed"  evaluated
         the  recoverability  of one of its patents,  by comparing  its carrying
         amount to income generated.  As a result of such evaluation the Company
         recorded a charge of $200,000 against this patent.


5.       LONG-TERM DEBT

         Long-term debt consisted of the following at December 31, 1998:


$375,000 face amount note  payable,  non interest 
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, non interest 
bearing, due September 15, 1998 (less unamortized 
discount based on imputed interest rate 
of 12% per annum - $1,349).                                               47,819

$69,000 face amount note payable, non interest 
bearing, due October 15, 1997.                                            27,000
                                                                    ------------
                                                                     $   314,684

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

         The above notes were issued upon the  purchase of Ellon,  Inc. in 1996.
         Scheduled  payments have not been made since 1997, due to disputes with
         the note holders,  and  accordingly all unpaid balances are included in
         current portion of long-term debt.


6.       STOCKHOLDERS' EQUITY

         A.       Common Stock - The Company is authorized to issue 50,000,000 
                  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.

                  Series A Preferred  Sock - 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

                                      F-11

<PAGE>



                  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.

                  In 1998 all  2,200  shares of Series A  preferred  stock  were
                  redeemed for $3,503,309,  inclusive of face amount, redemption
                  value, penalties and dividends.

                  Series B Preferred Stock - In February 1998 the Company issued
                  300 shares of Series B Preferred  Stock with a stated value of
                  $1,000 per share  realizing  net  proceeds  of  $261,500.  The
                  preferred  stock  and  the  accrued   dividends   thereon  are
                  convertible  into shares of the  Company's  common  stock at a
                  price  equal to the lower of 70% of the  average  closing  bid
                  price  of  the  common  stock  for  the  three   trading  days
                  immediately  preceding  the notice of conversion or $ .625 per
                  share.  Due  to  the  beneficial  conversion  features  in the
                  issuance  of  this  series  of  preferred  stock,  an  imputed
                  dividend of $128,572 has been recorded.

                  In 1998 all 300 shares of Series B Preferred  Stock  converted
                  to a total of 541,330 shares of the Company's common stock.

                  Series C Preferred  Stock - In April 1998 the  Company  issued
                  4,000  shares of Series C preferred  Stock with a stated value
                  of $1,000 per share realizing net proceeds of $3,507,500.  The
                  preferred  stock  and  the  accrued   dividends   thereon  are
                  convertible  into shares of the  Company's  common  stock at a
                  conversion  price  equal  to 75% of the  average  closing  bid
                  prices of the  common  stock for the five day  trading  period
                  ending  on the  day  before  conversion  date,  or 100% of the
                  closing bid price on the day of funding. Due to the beneficial
                  conversion   features  in  the  issuance  of  this  series  of
                  preferred  stock,  an imputed  dividend of $1,333,333 has been
                  recorded.

                  In 1998 all 4,000 shares of Series C Preferred Stock converted
                  to a total of 3,608,296 shares of the Company's common stock.

                  Series D Preferred  Stock - In July 1998 the Company issued 75
                  shares  of Series D  preferred  Stock  with a stated  value of
                  $1,000 per share.  The stated value and the accrued  dividends
                  thereon are  convertible  into shares of the Company's  common
                  stock  at a  conversion  price  equal  to 70%  of the  average
                  closing  bid  prices  of the  common  stock  for the  five day
                  trading period ending on the day before conversion date.

                  In August 1998 all 75 shares of Series D Preferred  Stock were
                  redeemed for a total of $91,291.

                                      F-12

<PAGE>



                  Series E Preferred  Stock - In August 1998 the Company  issued
                  1,650  shares of Series E preferred  Stock with a stated value
                  of $1,000 per share realizing net proceeds of $1,439,500.  The
                  preferred  stock  and  the  accrued   dividends   thereon  are
                  convertible  into shares of the  Company's  common  stock at a
                  conversion  price  equal to the  lower  of 75% of the  average
                  closing  bid price of the  Common  stock for the five  trading
                  days immediately  preceding the conversion date or 100% of the
                  closing  bid price on the day of  funding.  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.   This  series  of  stock  is
                  convertible  commencing  60 days  after  issuance.  Due to the
                  beneficial  conversion features in the issuance of this series
                  of preferred  stock, an imputed  dividend of $550,000 has been
                  recorded.

         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 303,986 shares of common stock. As of December 
                  1998, the remaining $179,767 were converted into 206,603 
                  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.       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.

                  In connection  with the sale of the schools,  to the Company's
                  former president and secretary, the above options were 
                  canceled.

         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  50,000,000  shares of $.001 par value 
                  Common Stock.  All per share data in these financial
                  statements is retroactively restated to reflect this reverse 
                  split.

         F.       Conversion  of  Notes  Payable  -  In August 1998  the Company
                  converted $595,000 of its 12.5% promissory notes, plus accrued
                  interest of $104,113 into 1,195,473 shares of common stock.

                                      F-13

<PAGE>



         G.       Redemption of Shares - In connection with the sale of the 
                  schools, the Company redeemed 79,715 shares of common stock 
                  from its former president and secretary.


 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 an accrued
         employment contract and lease terminations. Accordingly, the results of
         the  clinic   operations   are  shown   separately   as   "discontinued
         operations."  As  of  December  31,  1998  accrued   expenses  on  this
         discontinued operation totaled $314,593.

         Revenues of the  discontinued  clinic line of business were  $1,754,066
         for 1997.

         During the third quarter of 1998, the Company sold its three vocational
         schools and certain related businesses.  Net assets of the schools were
         approximately   $2,875,285   consisting   primarily  of  furniture  and
         equipment,   accounts   receivable  and  goodwill.   Liabilities   were
         approximately  $2,559,249.  Accordingly,  the results of the vocational
         school operations are shown separately as "discontinued operations."

         Revenues of the discontinued vocational school business were $3,351,959
         in 1998 and $5,858,790 for the full year 1997.

         In  November  1998,  the  Company  sold an office  building  located in
         Pompano  Beach,  Florida that  previously  accommodated  the  Company's
         corporate  headquarters  and  one  of  its  vocational  schools.  Gross
         proceeds  were  approximately  $2,900,000,   less  net  book  value  of
         $3,238,000 plus closing and financing costs of $498,000.


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, 1998,
         the Company had net  deferred tax assets of  approximately  $4,464,000.
         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, 1998:


                                      F-14

<PAGE>




Net operating loss deduction                          $               4,464,000
Valuation allowance                                                  (4,464,000)
                                                            --------------------
                                                      $                       -
                                                            ====================

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

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                  ------------------------------------------
                                                                         1998                    1997
                                                                  ------------------       -----------------
<S>                                                          <C>                          <C>   
Income tax (benefit) computed at statutory rate               $            (451,000)             (2,704,000)
Effect of temporary differences                                                    -                 152,000
Effect of permanent differences                                                    -                  13,000
Tax benefit not recognized                                                   451,000               2,539,000
                                                                  ------------------       -----------------
Provision for income taxes (benefit)                          $            -                               -
                                                                  ==================       =================
</TABLE>
         The  net  operating  loss   carryforward   at  December  31,  1998  was
         approximately $11,160,000 and expires in the years 2012 to 2013.


9.       COMMITMENTS AND CONTINGENCIES

         A.       Leases - The Company  leases its  Portland  Maine office under
                  two lease  expiring in 2001.  Rent  expense for the year ended
                  December 31, 1998 was $24,000. In 1998 Corporate  headquarters
                  rented facilities in New York City. Minimum rental commitments
                  over the next five years are as follows:


                  1999                                  $               92,073
                  2000                                                  93,713
                  2001                                                  81,457
                  2002                                                       -
                  2003                                                       -


         B.       Employment Agreement - 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 replace  it 
                  with a consulting agreement. The consulting agreement required
                  the individual to

                                      F-15

<PAGE>



                  provide  services to the Company for one day per week  through
                  December  1998 at the rate of  $5,862  per week.  The  Company
                  determined  that the  future  services,  if any,  that it will
                  require will be of little or no value and  accounted  for this
                  obligation  as a cost of  severing  the  employment  contract.
                  Accordingly  all future  payments have been accrued in full at
                  September  1997. The expense  associated  with this accrual is
                  recorded as part of the loss from  discontinued  operations in
                  1997.

         C.       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.

         D.       Litigation - On August 4, 1997 a civil suit was brought 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 the individuals who initiated the suit.
                  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.

                  Global is a plaintiff in a litigation  against Ellon USA, Inc.
                  and  its  previous  owners.  The  litigation  involves  claims
                  arising out of the sale of defendants  Ellon USA, Inc. ("Ellon
                  USA") to Global.  The actions seeks a determination that Ellon
                  USA and their principals  materially breached their respective
                  obligations under the purchase  agreement,  and that Global is
                  excused  from  further  performance  under  the  agreement.  A
                  counter  claim by Ellon USA and their  owners  seek to recover
                  damages in an unspecified amount, but not less than $1,300,000
                  in legal,  court and interest  fees.  No  discovery  has taken
                  place in  either  case.  Management  believes  it has a strong
                  legal position in both cases; however, given the complexity of
                  the issues  involved,  it is unable to evaluate the likelihood
                  of a  favorable  or  unfavorable  outcome at this time.  As of
                  December 31, 1998, Global has accrued in excess of $420,000 in
                  current liabilities with Ellon USA and their owners.

                  As of December 31, 1998 the Company is seeking to  restructure
                  its trade debt in out of court  proceedings.  The  Company has
                  offered,  on  certain  terms and  conditions,  to settle  each
                  creditor's  claim by payment  of 40% of the claim,  payable in
                  either cash (or cash equivalent) or its publicly traded stock,
                  depending on the size of the claim.

                                      F-16

<PAGE>



                  As of December  31,  1998,  Global is a  defendant  in a legal
                  action  brought by a creditor  to whom the  Company  offered a
                  settlement   as   mentioned   above.   The   complaint   seeks
                  approximately $144,000 plus unstated special damages, attorney
                  fees and court cost, based on them having provided  marketing,
                  media purchasing and related  advertising  services to Global.
                  The  complaint  was  answered  by Global  with a  counterclaim
                  arising  out  of  the  complainants  creation  of a  defective
                  advertising  campaign.  Global seeks not less than  $6,500,000
                  plus unstated special  damages,  attorney fees and court cost.
                  No discovery has taken place, Global is unable to evaluate the
                  likelihood of a favorable or unfavorable outcome at this time.
                  As of December  31,  1998,  Global has  accrued  approximately
                  $144,000 of the complainants original fees.

                  As of December  31,  1998,  Global is a  defendant  in a legal
                  action  brought by a creditor  to whom the  Company  offered a
                  settlement   as   mentioned   above.   The   complaint   seeks
                  approximately  $320,000 plus interest and legal fees, based on
                  them having provided advertising time and sponsorship.  Global
                  has responded to the  complaint,  with  continuing  settlement
                  discussion as mentioned  above.  Global disputes the liability
                  on this  claim,  and  contends  that the  complainants  in the
                  $144,000 action are responsible for any claim should the Court
                  find in favor of this  lawsuit.  No discovery has taken place,
                  Global is unable to evaluate the  likelihood of a favorable or
                  unfavorable  outcome at this time.  As of December  31,  1998,
                  Global has accrued approximately  $320,000 of the complainants
                  original fees.

                  As of December  31,  1998,  Global is a  defendant  in a legal
                  action  brought by a creditor  to whom the  Company  offered a
                  settlement   as   mentioned   above.   The   complaint   seeks
                  approximately  $9,700 plus  interest and legal fees,  based on
                  them having provided  Global with radio air time.  Global does
                  not dispute  the amount of the claim,  but  contends  that the
                  complainants  in the $144,000  action are  responsible for any
                  claim should the Court find in favor of this  lawsuit.  Global
                  believes that the plaintiff in this case is likely to obtain a
                  judgement if a settlement is not reached, and Global's ability
                  to charge the  complainants  in the $144,000 action is subject
                  to the outcome of Global's  counterclaim in that legal action.
                  As of December  31,  1998,  Global has  accrued  approximately
                  $9,000 of the complainants original fees.

                  As of December  31,  1998,  Global is a  defendant  in a legal
                  action  brought by a creditor who seeks  approximately  $8,600
                  plus  interest  and legal fees,  based on them having sold raw
                  materials to Global. It is Global's position that the products
                  sold did not meet  specifications  contained  in the  purchase
                  order and were defective.  Global has answered the claim,  and
                  filed a counterclaim  seeking damages of approximately  $6,100
                  paid by Global, to their customers, due to the poor quality of
                  the materials  purchased.  An additional  $25,000 is sought by
                  Global due to loss of goodwill and  deterioration  of customer
                  relations  due to  the  poor  quality  of  the  raw  materials
                  purchased.  No discovery has taken place,  Global is unable to
                  evaluate the likelihood of a favorable or unfavorable  outcome
                  at this time. As of December 31, 1998,  Global has not accrued
                  for any possible outcome.




                                      F-17

<PAGE>



                  As of December  31,  1998,  Global is a  defendant  in a legal
                  action  brought by a creditor  to whom the  Company  offered a
                  settlement   as   mentioned   above.   The   complaint   seeks
                  approximately  $7,000 based on them having  provided radio air
                  time.  Global does not dispute the amount of the claim.  As of
                  December 31, 1998, Global has accrued  approximately $7,000 of
                  the complainants original fees.


10.      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, the seller had exercised
         the put and this matter is now subject to litigation.


11.      STOCK OPTION PLAN AND WARRANTS

         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
         became  exercisable  in August 1998,  and the remaining  21,875 will be
         exercisable in August 1999.

         In  August  1998 the  Company  adopted  a stock  option  plan  covering
         officers,  directors,  employees  and  consultants  to  purchase  up to
         200,000 shares of common stock.

         In 1998 the Company  issued  100,000  warrants to two  directors  at an
         exercise  price of $1.00,  which was equal to the fair market  value at
         the date of grant.

         In fiscal 1997, the Company  adopted the disclosure  provisions of 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, 1998 and 1997  respectively:  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, 1998 and 1997 was
         $0

                                      F-18

<PAGE>



         and $21.60, respectively. If the Company had recognized compensation 
         cost of stock options in accordance with SFAS No. 123, the Company's 
         proforma loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>

                                                                                             Year Ended December 31,
                                                                                   -------------------------------------------
                                                                                          1998                     1997
                                                                                   ------------------       ------------------
<S>                                                      <C>                <C>                       <C>  
Net loss:                                                 As reported        $            (1,288,012) $            (7,725,120)
                                                          Pro forma          $                      - $            (8,481,120)

Net loss from continuing operations:                      As reported        $            (2,740,054) $            (4,304,073)
                                                          Pro forma          $                      - $            (5,060,073)

Net loss per share:
                                              Basic       As reported        $                 (0.37) $                (17.79)
                                                          Pro forma          $                      - $                (19.53)
Net loss per share - continuing operations:
                                              Basic       As reported        $                 (0.79) $                 (9.91)
                                                          Pro forma          $                      - $                (11.65)
</TABLE>


12.      ACQUISITIONS

         On July 23, 1997, the Company closed on the  acquisition of the capital
         stock of 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, which did not occur 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.  The  following
         table summarizes the acquisition.





                                      F-19

<PAGE>




         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")  was  valued at  $404,000.  In
         December 1998 management evaluated the recoverability of the Xu patent,
         by comparing its carrying  amount to income  generated.  As a result of
         such evaluation the Company  recorded a charge of $200,000 against this
         patent.  The "Xu Patent" is being  amortized over its remaining life of
         17  years,  from the date of  purchase,  with  adjustments  for  future
         amortization  in regards to the charge  against it.  Additionally,  the
         Company  acquired a customer  list  valued at  $57,000,  which is being
         amortized over 5 years.


13.      SUBSEQUENT EVENTS

The Company in February 1999,  pursuant to an asset purchase  agreement acquired
substantially all the assets of Kaire International, Inc., ("Kaire") in exchange
for the (i)  issuance to Kaire,  of  $2,800,000  aggregate  stated  value of the
Company's  Series F  Preferred  stock,  par value of  $.001,  (ii)  issuance  to
creditors of Kaire of $350,000  aggregate stated value of the Company's Series G
Preferred  stock,  par  value of  $.001,  (iii)  issuance  to Kaire of five year
warrants to purchase  200,000 shares of the Company's common stock, par value of
$.001, (iv) the assumption of certain indebtedness of Kaire, (v) indemnification
to certain  officers of Kaire against certain  liabilities  accrued prior to the
closing date of the asset  purchase,  and (vi) certain annual  payments to Kaire
for a period of five years commencing  December 31, 1999 based upon revenues and
net income.

Kaire  is  in  the  business  of  marketing  and  distributing  over-the-counter
pharmaceutical health products.

In March and April 1999 the  Company  issued  $1,400,000  of Series H  Preferred
Stock.  The  Series H  Preferred  Stock  pay  dividends  of 10% per annum and is
convertible into shares of common stock at the lower of the closing bid price on
the date of issue or 75% of the market value of the common stock.

                                      F-20

<PAGE>


         2.  Exhibits Included Herein

                  See Exhibit Index on page 28 hereof for the exhibits  filed as
                  part of this Form 10-KSB.

(b)      Reports on Form 8-K

                  The Company filed a current report on Form 8-K on December 4,
                  1998.

(c)      Exhibit Index

<TABLE>
<CAPTION>
Number            Description of Exhibit
<S>      <C>  
2.1      Assets Purchase Agreement dated April 29, 1998 by and among Natural Health Trends
         Corp., Neal R. Heller & Elizabeth S. Heller and Florida College of Natural Health, Inc. #
2.2      Acquisition Agreement among the Company, NHTC Acquistion Corp., Kaire International,
         Inc. and the Company (the "Acquisition Agreement"). ##
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.*
4.4      Form of Warrant Agreement between the Company and Continental Stock Transfer and 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 Company.+
4.10     Articles of Amendment of Articles of Incorporation of the Company.***
4.11     Articles of Amendment of Articles of Incorporation - Series C Preferred Stock.****
4.12     Articles of Amendment of Articles of Incorporation - Series E Preferred Stock.****
4.13     Articles of Amendment of Articles of Incorporation - Series F Preferred Stock.##
4.14     Articles of Amendment of Articles of Incorporation - Series G Preferred Stock.##
4.15     Articles of Amendment of Articles of Incorporation - Series H Preferred Stock.##
4.16     Form of Warrant in connection with the Acquisition Agreement.##
10.1     Agreement among Natural Health Trends Corp. Health Wellness Nationwide Corp.,
         Samantha Haimes and Leonard Haimes.++
21.1     List of Subsidiaries.
27.1     Financial Data Schedule.

*        Previously filed with the Company's Registration Statement No. 33-991184.
**       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 10-QSB dated September 30, 1998.
+        Previously filed with the Company's Form 8-K dated August 7, 1997.
++       Previously filed with the Company's Form 10-KSB for the year ended December 31, 1996.
+++      Previously filed with the Company's Registration Statement No. 333-35935.
#        Previously filed with the Company's Proxy Statement on Schedule 14A, dated May 14, 1998.
##       Previously filed with the Company's Proxy Statement on Schedule 14A, dated January 25,
         1999.


</TABLE>

                                     -28-
<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 14, 1999                   NATURAL HEALTH TRENDS CORP.

                                          By:      /s/ Joseph P. Grace
                                          Joseph P. Grace, President, and Chief
                                          Executive Officer and Director


         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 14, 1999
--------------------------------
Sir Brian Wolfson

/s/ Joseph P. Grace                President, Chief Executive    April 14, 1999
--------------------------------   Officer and Director
Joseph P. Grace

/s/ Martin C. Licht                Director                      April 14, 1999
--------------------------------
Martin C. Licht

/s/ Dirk Goldwasser                Director                      April 14, 1999
--------------------------------
Dirk Goldwasser

/s/ Ralph Ellison                  Director                      April 14, 1999
--------------------------------
Ralph Ellison
                                       29