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, 1996

                                       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)

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

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

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

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

                                Class A Warrants
                                (Title of Class)

                                Class B Warrants
                                (Title of Class)

                                      Units
                                (Title of Class)

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





<PAGE>

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

Issuer's revenues for its most recent fiscal year.     $   7,218,841
                                                    ----------------


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 February  28, 1997
date was  6,648,471,  with an approximate  aggregate  market value of $6,856,236
(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
February 28, 1997 was 11,900,471.



<PAGE>



                                TABLE OF CONTENTS

                                      Page
                         Item Number and Caption Number

PART I


         Item 1.    Description of Business....................................4
         Item 2.    Description of Properties.................................19
         Item 3.    Legal Proceedings.........................................22
         Item 4.    Submission of Matters to a Vote of Security Holders...... 22

PART II

         Item 5.    Market for Registrant's Common Equity
                        and Related Stockholder Matters.......................23
         Item 6.    Management's Discussion and Analysis of Financial
                        Condition and Results of Operation....................24
         Item 7.    Financial Statements......................................26
         Item 8.    Changes in and Disagreements with Accountants on
                        Accounting and Financial Disclosure...................26

PART III

         Item 9.    Directors, Executive Officers, Promoters and Control
                        Persons; Compliance with Section 16(a)
                        of the Exchange Act...................................27
         Item 10.   Executive Compensation ...................................29
         Item 11.   Security Ownership of Certain Beneficial
                        Owners and Management.................................30
         Item 12.   Certain Relationships and Related Transactions............31
         Item 13.   Exhibits and Reports on Form 8-K..........................33



                                       -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. Doing business
as the Florida Institute, the Company owns and operates three vocational schools
as a junior college in Oviedo,  Pompano Beach and Miami, Florida  (individually,
the "Oviedo  School,"  the  "Pompano  Beach  School" and the "Miami  School" and
collectively the "Schools") that offer training and preparation for licensing in
therapeutic  massage and for  registration  in holistic  skin care.  Through its
wholly owned subsidiary,  Health Wellness Nationwide Corp. ("HWNC"), the Company
owns two natural health care centers,  one in Boca Raton,  Florida and the other
in Pompano Beach,  Florida (the "Natural  Health Care  Centers"),  both of which
provide multi-disciplinary complementary health care in the areas of alternative
and nutritional medicine.

              The  Schools  seek to  fulfill  the  educational  needs of  adults
seeking  augmented career skills or whose educational needs have not been met in
traditional  educational  environments.  These  individuals  are primarily  high
school  graduates and  underemployed  adults seeking  specific career skills and
training.  As of December 31, 1996,  650 students  were enrolled in the Schools.
The Schools are licensed  under  Florida law and  approved by the United  States
Department  of Education  (the  "USDOE") to provide  financial  aid to qualified
applicants.   For  the  year  ended  December  31,  1996,  the  Schools  derived
approximately  61% of its revenues from  financial aid provided under Federal or
state assistance programs.

              The Company plans to expand its business  operations by increasing
the enrollment of the Schools,  opening  additional Natural Health Care Centers,
as well as acquiring,  developing and marketing proprietary lines of health care
products.  However,  there can be no assurance  that the Company will be able to
successfully expand its operations.

              In November 1996, the Company signed a letter of intent to acquire
all of the capital stock of Global Health Alternatives, Inc. ("GHA"), which is a
company which acquires,  develops and markets health care products. However, the
Company  has  not  entered  into a  definitive  agreement  and  there  can be no
assurance that the Company will consummate such acquisition.

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


                                       -4-

<PAGE>



Expansion Strategy

General

              The Company plans to expand its business  operations by seeking to
increase the enrollment of the Schools and developing  programs to offer massage
therapy and other  alternative  health care services to the public.  In order to
increase its ability to recruit students,  the Company obtained licensing by the
State of Florida to operate as a degree-granting junior college in January 1997.
In addition,  in May 1995 the Company acquired the property located at 2001 West
Sample Road, Pompano Beach,  Florida (the "Pompano  Property"),  and in 1996 the
Company  completed  the  relocation  of the Pompano  Beach School and  corporate
headquarters  from  Lauderhill,  Florida to the  Pompano  Property.  In 1996 the
Company  acquired two Natural  Health Care Centers and the Company plans to open
additional Natural Health Care Centers.  However, there can be no assurance that
it will do so. In addition,  the Company intends to acquire,  develop and market
proprietary  lines of health care products  through its intended  acquisition of
GHA and other health care product companies.  However, there can be no assurance
that the Company will consummate such acquisitions or enter into the health care
product field.

Degree-Granting Junior College

              In January,  1997, the Schools  obtained  approval to operate as a
degree-granting  junior  college  from the State of  Florida.  Graduates  of the
Schools'  programs will receive an associates  degree in holistic  studies while
majoring in the areas of massage therapy,  paramedical  esthetics,  acupuncture,
nutrition  or  homeopathy.  The  Company  believes  that  the  approval  of  its
application  to operate as a  degree-granting  junior  college  will enhance the
Schools' ability to recruit students,  although the Company has not obtained any
studies to confirm such belief.  There can be no assurance that the Company will
be able to maintain or increase the Schools'  enrollment  or that the  Company's
marketing and expansion of the Schools will be successful or profitable.

Corporate Massage Service

              In  September,  1995 the Company  commenced  the  operation of the
Corporate  Massage Service to offer on-site  massages to businesses with massage
therapists who are  independent  contractors.  The Company's  initial  marketing
efforts have  concentrated  on Florida.  The Corporate  Massage  Service has had
minimal  revenues  while  incurring  significant   expenses.   The  Company  has
reorganized management of the Corporate Massage Service and presently intends to
place less emphasis on this aspect of the Company's business.



                                       -5-

<PAGE>



Natural Health Care Centers

              In January 1996, the Company  through HWNC purchased the assets of
Sam Lilly,  Inc.  which owned and  operated a Natural  Health Care Center  doing
business as Medicine and Lifestyles in Boca Raton,  Florida (the "Boca Center").
The  purchase  price for the  assets  was  380,000  shares of Common  Stock.  In
addition,  the Company,  entered into employment agreements with Samantha Haimes
and Leonard Haimes,  M.D. Each of the employment  agreements  initially provided
for a three-year term. Mrs. Haimes and Dr. Haimes received  salaries of $295,625
and  $159,183,  respectively,  for 1996.  Mrs.  Haimes and Dr.  Haimes were also
entitled to a percentage  of the gross  revenues of HWNC. As of January 1997 the
employment  agreements  were  amended and each provide that for a two year term,
Dr. Haimes will work at the Boca Center two days each week and Mrs.  Haimes will
be a part-time consultant. Dr. Haimes will receive a salary of $90,000 per annum
and Ms. Haimes will receive  consulting fees of $310,000 per annum. The payments
to the  Haimeses  will be reduced to  one-third  of the gross income of the Boca
Center if the gross income is less than $1,000,000 per annum.

              In June 1996 the Company  acquired  the  capital  stock of Medical
Service Consultants,  Inc.,  Diagnostic  Services,  Inc., Managenet Inc. and KBM
Consultants which companies operated a Natural Health Care Center doing business
as the Institute of Natural  Medicine (the "Pompano  Center") in Pompano  Beach,
Florida. The purchase price was 110,000 shares of Common Stock. The Company also
entered into an employment  agreement  with Kaye Lenzi,  who directs the Pompano
Center.  The  employment  agreement  provides for a salary of $100,000 per annum
subject to adjustment based upon the gross income of the Pompano Center.

                  The Natural Health Care Centers  specialize in alternative and
traditional medicine therapies to promote human wellness,  including homeopathy,
environmental and internal  medicine,  allergy and Candida  treatment,  clinical
nutrition,   pain  management,   massage  therapy,   stress   reduction,   colon
hydrotherapy  and chelation  therapy.  The Natural  Health Care Centers  promote
wellness as opposed to treating  health crises.  As such the Natural Health Care
Centers  concentrate  on  treating  illnesses  which do not  strike  as a sudden
crisis,  but develop  gradually and refuse to go away.  Such illnesses  includes
most of the diseases  related to aging and lifestyle - arthritis,  osteoporosis,
lower back pain, high blood pressure, coronary artery disease and ulcers.

              The Natural  Health Care  Centers were  established  in light of a
perceived  growing  national  interest  in  alternative  medicine  fueled  by  a
dissatisfaction  with traditional  medicine. A 1994 survey indicated that thirty
percent of people questioned had tried some form of unconventional  therapy. The
alternative  medicine  industry  has been  estimated  to be a $27 billion a year
industry and is expected to grow as the "baby boomer" population ages.

              The Company plans to open additional  Natural Health Care Centers.
However,  there can be no  assurance  that the  Company  will do so. The Company
believes that holistic  health care has been marketed to only a small segment of
the population. The Company anticipates that it


                                       -6-

<PAGE>



will direct its  advertising and educational  materials  toward  individuals who
have not previously  considered  homeopathic health care remedies or maintenance
techniques. The Company may need to seek additional financing to open additional
Natural Health Care Centers.

Operation of the Schools

Curricula

              The  primary  focus of the  Schools  has been on massage  therapy,
which  the  Company  believes  has  achieved   increased  public  awareness  and
acceptance.  Currently,  19  states,  including  Florida  and New York,  require
individuals  who practice  massage  therapy to be licensed.  The Schools prepare
students to take the examination offered by the National Certification Board for
Therapeutic  Massage and Bodywork (the "NCBTMB") for  certification as a massage
therapist.  The  NCBTMB's  certification  of massage  therapists  satisfies  the
requirements  for licensing in 11 of the states  requiring  licenses,  including
Florida.  The Schools also offer  training in holistic  skin care.  The State of
Florida requires  registration of skin care  professionals.  Upon completing the
holistic skin care program and passing an exam  administered by the School,  the
School's  students  satisfy the  requirements  for  registration  as a skin care
professional by the State of Florida.

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

              The  Company  may,  in the  future,  seek  to  expand  its  course
offerings to include  programs of study in paramedical  esthetics,  acupuncture,
nutrition and homeopathy.  There is no assurance that such  additional  programs
will ever be offered or that, if offered that they will result in an increase in
enrollment or revenues.

Student Recruitment

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



                                       -7-

<PAGE>



              The  Company  employs  an  admissions  director,  who is  directly
responsible  for all areas  concerning  the  marketing and  advertising  for the
Schools, recruitment of prospective students and training admissions personnel.

School Faculty and Administration

              As of December 31, 1996 the Company had 28 full-time  employees in
the administration of the Schools and 7 part-time administrators,  as well as 11
part-time  faculty  members and 18 full-time  faculty  members.  Generally,  the
Company  tries to provide one  teacher  for every 10  students  in the  clinical
classroom  and one  teacher  for every 35  students  in the  lecture  classroom.
Faculty members are required to meet certain state licensing  requirements.  The
Company prefers teachers who have had some practical experience in the fields in
which they are instructing  students.  The Company has experienced no difficulty
in obtaining  qualified faculty members and believes that qualified teachers can
be readily employed. Each of the Schools is managed by a school director who has
responsibility for all aspects of the School. The school director is assisted by
an executive staff,  which monitors teacher  performance,  and by administrative
coordinators.

Graduate Job Placement

              The  Company  believes  that the  placement  of its  graduates  is
essential to its ability to attract  students.  The Company's Office of Graduate
Job  Placement  works  with  students  and  graduates  by  advising  them  about
employment  opportunities and offering other placement assistance.  Based on the
placement  calculation  mandated  by the  Accrediting  Commission  of the Career
Schools and  Colleges of  Technology,  approximately  84% of the  School's  1996
graduates have found positions,  including those who are  self-employed and have
entered private practice.

F.I.M.T.E. Supply, Inc.

              F.I.M.T.E.  Supply Inc., ("F.I.M.T.E.") the Company's wholly-owned
subsidiary,  operates a bookstore at each of the Schools' campuses and publishes
a catalog that is available to the public.  Inventory  consists of such items as
massage  tables,  headrests,  other  equipment  related to the  practice  of and
utilized to provide massage therapy services,  educational materials,  skin care
products,  and  clothing,  including  uniforms  and  shirts.  Customers  include
students,  instructors,  graduates of the Schools, practicing therapists and the
public.  F.I.M.T.E.  intends to continue to offer these  products and expand its
inventory to include updated and related products.

Acquisition of Oviedo School

              In November 1995, the Company  acquired all of the assets of Reese
Institute, Inc. ("Reese") which included the Oviedo School, for a purchase price
of $250,000.  Of the $250,000  purchase price,  $125,000 was paid at the closing
and the  balance is payable  over four years  pursuant  to a secured  promissory
note. In addition, the Company entered into a five-year


                                       -8-

<PAGE>



lease  agreement with Jean Reese,  the sole  stockholder of Reese,  to lease the
7,590 square foot property which is occupied by the Oviedo School.

Regulation

General

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

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

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

              Under  current  USDOE  regulations,  a change  in  control  of the
Schools could result in a temporary or a permanent loss of Federal financial aid
funds to the  Schools'  students.  In  addition,  under the  regulations  of the
Florida  State Board a change of ownership  resulting in a change of control may
result in the  termination  of the  Schools'  licenses.  The  Schools  will also
require the approval of the  Schools'  accrediting  commission  upon a change of
control. Pursuant


                                       -9-

<PAGE>



to the USDOE regulations, a determination of a change of control would involve a
review  of which  persons  or  entities  have the  power to  direct or cause the
direction of  management  and policies of the Schools.  Under the Florida  State
Board's  regulations,  a change of control constitutes a change in the authority
to  establish  or  modify  school  policies,  standards  and  procedures  or the
authority  to make the  effective  decisions  regarding  the  implementation  or
enforcement of school  policies,  standards and procedures.  In such event,  the
prior  approval of the Florida  State Board is required.  Under the rules of the
Schools' accrediting  commission,  a change of control occurs when a person or a
corporation  obtains  authority  to  control  the  actions  of the  institution,
including a change of control  which  occurs as a result of a transfer in voting
interest.  The Company believes,  although there can be no assurance,  that as a
result of the Company's completion of its initial public offering and additional
issuances of shares of Common Stock that there has not been or would be a change
of control that would result in a loss of its eligibility for Federal  financial
aid funds, a review of its licenses, or the requirement of prior approval by its
accrediting commission.  Should the percentage ownership of the Company's Common
Stock by the Company's  present  shareholders,  officers and directors  decrease
further through the issuance of additional  shares of Common Stock, the issue of
whether there was a change of control, if raised by the USDOE, the Florida State
Board  or the  accrediting  commission,  would  be  determined  pursuant  to the
standards set forth above,  on the basis of the facts then  existing,  including
the percentage ownership of the present shareholders, officers and directors, as
compared  with the holdings of others and other  factors  relating to the actual
control of the Company. Should there be a determination that a change of control
had occurred by the USDOE,  the Florida State Board or the Schools'  accrediting
commission  and there was a disruption or  termination  of the  availability  of
Federal  financial aid to the Schools' students or a termination or interruption
of the  licenses  or  accreditation  of the  Schools,  there would be a material
adverse effect on the Company, its business and its prospects.

Accreditation and Licensing

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

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

                                      -10-

<PAGE>




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

              Each  School  is  licensed  by  the  Florida  State  Board  as  an
institution that provides  instruction or training that leads to an occupational
objective.  Such  institutions  are  subject  to  annual  or,  if they have been
licensed  and in good  standing  for  five  years or  more,  biennial  licensing
renewal.  The present state  licenses for the Miami School and Oviedo School are
subject to annual  review,  while the license for the  Pompano  Beach  School is
subject to biennial review, and expire on September 30, 1997,  November 30, 1997
and March 31, 1998,  respectively.  Each  institution  must meet certain minimum
standards  established by the Florida State Board with respect to administrative
organization,  educational program and curricula, finances, financial stability,
faculty requirements,  library facilities,  student personnel services, physical
plant and facilities, and publications. In addition, the institution is required
to  disclose  to the  Florida  State  Board and its  students  the status of the
institution with respect to professional certification and licensure. Failure to
maintain  compliance  with the Florida State  Board's  minimum  standards  could
result in revocation or suspension  of a School's  license,  or other  penalties
imposed by the Florida State Board. The rules of the Florida State Board require
prior  approval of written  contracts  between the student and the  institution,
changes of location in certain  events and  significant  changes to programs and
methods of operation.  Each  institution is required to be incorporated and have
adequate administrative staff and faculty to provide instruction in its licensed
programs.  In  addition,  each program to be offered by an  institution  must be
described  in detail  in the  institution's  catalog,  including  a  listing  of
required  equipment and  instructional  materials.  Moreover,  institutions must
submit  financial  statements  at the time of  application  for renewal.  If the
institution has a ratio of current assets to current  liabilities of less than 1
to 1, the Florida  State Board is  authorized to deny the renewal of the license
or to require a demonstration to provide further  justification  for the renewal
of the license. The Florida State Board may also require the institution to post
a bond to assure the Florida  State Board that the  institution  will be able to
fulfill  its  obligations  to its  students.  The  institution  must  maintain a
placement rate of its graduates of at least 60%,  otherwise the institution will
be required to submit reports implementing  placement  improvement  measures. In
addition,  each  institution  must  maintain  a  retention  rate  of  50% of its
students.  Presently,  the Florida  State  Board rules  require a minimum of 500
hours  of  training  for  massage  practice,  with a  maximum  of 625  hours  of
instruction.  Agents employed by the institution to solicit students outside the
institution are required to be licensed and are subject to annual  licensure and
payment  of  fees.  The  rules  of the  Florida  State  Board  provide  that the
advertising  of the  institution  must be in compliance  with its  requirements,
which include limits on the use of  superlatives  or  non-factual  statements or
illustrations.  Any  statement  which is intended  to mislead  the public  could
result in  revocation  of  licensure or other  sanctions  imposed by the Florida
State Board.



                                      -11-

<PAGE>



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

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

Degree-Granting Junior College

              As a  degree-granting  junior college,  the success of the Schools
may be dependent,  in part, upon the transferability of credits from the Schools
to four year institutions.  The  transferability of credits from one educational
institution  to  another,  absent  an  articulation  agreement  between  the two
schools,  is generally  at the  discretion  of the  receiving  institution.  The
factors that receiving  institutions  typically  consider  include,  but are not
limited to, the similarity of accrediting  commissions,  the licensing status of
the two  institutions  and the  similarity of program  content,  curriculum  and
textbooks.  In addition,  many institutions  enter into articulation  agreements
which  establish  specific  guidelines  for the  transfer  of  credits  from one
institution to another.  However,  these agreements are not required by law, and
the content may vary  dramatically  depending  on whether the  institution  is a
public,  private,  academic or  vocational/technical  school. In general, if the
institutions are accredited by the same or a similar  accreditation  commission,
then the transfer of credits  between  such  institutions  is more  likely.  The
accreditation  commission  requirements  may be identical or similar in terms of
faculty  to  student  ratios,   equipment   requirements,   library  facilities,
curriculum development and other factors.  Students may also attempt to transfer
credits  from  one   institution  to  another  without  regard  to  whether  the
institutions are licensed by the Florida State Board of Independent Colleges and
Universities  or the Florida Board of Regents (the head of the state  university
system). Absent articulation  agreements between the two schools,  consideration
for the acceptance of transfer of credits is more  subjective  than the transfer
of credits between otherwise similar public or private  institutions.  There can
be no assurance that credits from the Schools' courses will be transferable.

Student Financial Aid

              Students at the Schools finance their education  through a variety
of sources, including individual resources,  earnings from part-time employment,
family  contributions  and tuition payment from their  employers.  However,  the
principal  source of tuition  financing  at the Schools is  government-sponsored
financial aid programs.  Students at the Schools receive financial aid under the
following  primary  programs:  (i) Federal Pell Grant Program (formerly known as
Basic  Educational  Opportunity  Grants);  (ii) Federal Family  Educational Loan
Programs, which


                                      -12-

<PAGE>



includes the Stafford Loan Program  (previously known as the Guaranteed  Student
Loan Program), the Parent Loans for Undergraduate Students ("PLUS") program, and
the  Supplemental  Loans  for  Students  ("SLS")  program;   (iii)  Supplemental
Educational Opportunity Grants; and (iv) the College Work Study program.

              Commencing in April 1995, the Schools became  participants  in the
National  Direct  Student Loan  Program  ("NDSL").  NDSL Loans are  available to
students  studying  at  least  16  hours  per  week at an  approved  educational
institution.  NDSL Loans may be obtained in amounts up to $2,625 per year.  If a
student's  income or family income is below a specified level, a student pays no
interest  on an NDSL Loan while in school  and for a  six-month  "grace  period"
thereafter, after which time the student is required to pay monthly installments
of at least $50, which includes interest at a rate prescribed by Federal law. If
the student's income or family income is above a specified level,  then interest
accrues on the loan at a rate  prescribed  by Federal law. The interest  rate on
NDSL Loans  ranges  from 8.25% to 8.98% per annum.  NDSL Loans are direct  loans
from the Federal government.

              Under the provisions of the  authorization of Higher Education Act
of 1965, as amended (the "Reauthorization Act"),  educational  institutions with
annual student loan default rates in excess of 25% (30% prior to 1994) for three
consecutive  years may lose their  eligibility for student loans.  The Company's
schools'  student loan default rates for 1993 and 1994 were determined to be 10%
and  8.9%,  respectively.  The  default  rates  for 1995  and  1996  will not be
available   from  the  USDOE  until  the  third   quarters  of  1997  and  1998,
respectively,  since a student is not deemed to be in default until eight months
after a six-month  grace  period from the time that the student  leaves  school.
Commencing  in April 1995,  the Company  became a  participant  in the  National
Direct Student Loan Program.  Management  knows of no written  regulations  with
respect to the requirements for determining and maintaining student loan default
rates below specified  levels for the National  Direct Student Loan Program.  In
addition, the Certification Office of the USDOE monitors student drop-out rates.
Under Federal  regulations,  a student drop-out rate in excess of 33% may impair
an institution's  ability to administer financial aid programs and is one factor
in determining whether to deny an institution's  certification to participate in
Federal student aid programs. A student drop-out rate exceeding 33%, however, is
not alone sufficient to disqualify an institution from such  participation,  but
must be  viewed  in  conjunction  with  other  factors  such  as  loss of  state
licensing,  loss of accreditation,  poor periodic reviews,  or high student loan
default rates.  The Schools' dropout rate in 1996 was  approximately  12%. There
can be no  assurance  that the  Company  will be  successful  in  continuing  to
maintain an  acceptable  student loan default rate, or dropout rate or otherwise
remain eligible for Federal funding.

              The  Reauthorization  Act prohibits an institution  from enrolling
more than 50% of its students on the basis of "Ability to Benefit."  "Ability to
Benefit" students are those without a high school or general equivalency degree.
As of  December  31,  1994,  1995 and  1996,  approximately  15%,  12%,  and 15%
respectively,  of the  Company's  students at the School's  were  classified  as
"Ability to Benefit" students.



                                      -13-

<PAGE>



              Under USDOE  regulations,  the Schools are proprietary  schools (a
"for-profit"   educational  institution  that  provides  job  or  career-related
training).  A  proprietary  school may be deemed  ineligible to  participate  in
financial  aid  programs  if  the  USDOE  determines  that  85% or  more  of the
institution's operating revenue is derived from Title IV financial aid programs.
The application of the 85-15 Rule depends largely on the USDOE's  interpretation
of what constitutes "revenue" for such institutions.  According to the Company's
preliminary  calculations,  the  Schools  derived  approximately  61%  of  their
revenues  for the  calendar  year  ending  December  31,  1996 from the Title IV
financial aid programs.  The official  determination of the Company's compliance
for the year ended  December 31, 1996 with the 85-15 Rule will likely be made by
the end of 1998.  Accordingly,  if it is determined that the Company did or does
not comply  with these  regulations,  some or all of the student  financial  aid
received by the students at the Schools  could be curtailed or  eliminated.  The
reduction or termination of Federal student  financial aid would have a material
adverse effect on the Company.

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

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

Licensing

              The health care practitioners and massage  therapists  employed by
the Company are  required to satisfy  professional  licensing  requirements.  In
Florida,  the Company's  massage  therapists  employed by the Corporate  Massage
Service and the Natural  Health Care  Centers are subject to  regulation  by the
Division of  Professions,  Board of Massage of the  Department  of Business  and
Professional  Regulation  under the Florida Massage Practice Act. All physicians
and other  specialists  employed at Natural Health Care Centers must be licensed
and are also subject to ongoing professional licensing requirements. The failure
of such persons to practice


                                      -14-

<PAGE>



in accordance with  professional  licensing  requirements  could have a material
adverse effect on the Company.

Competition

The Schools

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

Natural Health Care Centers and Corporate Massage Service

              The Company's  Natural  Health Care Centers  compete with doctors,
hospitals  and medical  clinics  offering  traditional  forms of health care and
other practicing  therapists offering  traditional forms of health care, as well
as with  other  providers  of  alternative  forms  of  health  care  and  health
maintenance.  The Corporate Massage Service competes against  individual massage
therapists,  health clubs and other massage providers. Many of these competitors
have established  practices and greater financial resources than the Company. In
addition,  the services  offered by the Company's  competitors may be covered by
medical insurance or other third party reimbursement. Medical insurance coverage
and other third party  reimbursement  is not  available for most of the services
offered by the Natural  Health Care Centers and to the extent that such services
are  covered,  coverage is limited.  The lack of medical  insurance  coverage or
other third party reimbursement for all of the services performed at the Natural
Health Care Center may affect their ability to attract and retain patients.

Employees

              As of December 31, 1996 the Company had 74 full time employees and
22 part time employees including 34 full time  administration  employees and one
part-time  administration  employee.  The Schools  have 18 full time and 11 part
time faculty members.  The Corporate Massage Service has one full time employee,
and the  Natural  Health  Care  Centers  have 21 full time  employees  and three
part-time employees.


                                      -15-

<PAGE>




Insurance

              The Company presently maintains workers' compensation coverage and
liability insurance relating to hazards on the Company's  premises.  The Company
carries a general liability policy which provides for coverage of $1,000,000 per
occurrence and $2,000,000 in the aggregate. The Company's professional liability
policy  provides for coverage of $1,000,000 per occurrence and $3,000,000 in the
aggregate.  The Company is and will be engaged in a business  which could expose
it to personal injury and other liability claims. The Company carries $1,000,000
per loss event and  $3,000,000  in the  aggregate  of  malpractice  insurance in
connection  with the Natural  Health Care  Centers.  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.

Item 2.       Description of Properties

Leased Properties

              The Company leases  approximately 11,500 square feet at 5453 North
University  Drive,  Lauderhill,  Florida the previous  site of the Pompano Beach
School and the  Company's  corporate  headquarters.  The current  annual rent is
approximately  $116,000 and the lease expires on July 31, 1997 . The Company has
relocated  its  corporate  headquarters  and the School  located in  Lauderhill,
Florida to the Pompano Property.  The Company believes that its liability on the
lease is approximately  $140,000. The Company leases approximately 12,000 square
feet for the Miami School at 7925 Northwest  12th Street,  Miami,  Florida.  The
current  annual rent is $199,000 and the lease expires on October 31, 1998.  The
Company  leases  approximately  7,590  square feet in Oviedo,  Florida  which is
occupied  by the Oviedo  School.  The lease  expires in  November,  2000 and the
annual rent payable under the lease is $86,000.  The Company also has the option
to purchase the leased property for $550,000.  The Company leases  approximately
11,000  square feet for the Boca Center.  The lease  expires in January 2001 and
the  annual  rent  increases  from  $136,000  in the first  year of the lease to
$87,500 in the fifth year.  The Company leases  approximately  5,600 square feet
for the Pompano Center. The annual rent is $76,000 and the lease expires in June
1998.

Pompano Property

              In May 1995,  the  Company  purchased  the Pompano  Property  from
Merrick  Venture  Capital,  Inc. (the  "Seller") for  $2,350,000 and Justin Real
Estate Corp.  ("Justin  Corp.")  concurrently  acquired an adjacent  parcel (the
"Adjacent Parcel"), consisting of four acres of undeveloped land from the Seller
for $450,000.  All of the outstanding  capital stock of Justin Corp. is owned by
Neal R. Heller and  Elizabeth  S.  Heller.  The  Pompano  Property is located on
approximately  three  acres at 2001 West Sample  Road,  Pompano  Beach,  Broward
County,  Florida, and includes a four story building consisting of 50,438 square
feet  which is known as the Tricom  Office  Center.  The  Company  financed  the
purchase of the Pompano Property with


                                      -16-

<PAGE>



two  mortgage  loans,  secured by both the  Pompano  Property  and the  Adjacent
Parcel, in the aggregate principal amount of $1,875,000.  The Company obtained a
first mortgage loan from TransFlorida  Bank in the original  principal amount of
$1,350,000  (the "First  Mortgage  Loan"),  which bears  interest at two percent
above the prime rate of Sun Banks, Inc., and provides for repayment of principal
based on a 25 year amortization schedule. The First Mortgage Loan matures in May
2002 and is guaranteed  by Neal R. Heller and  Elizabeth S. Heller.  The Company
obtained a second  mortgage  loan in the original  principal  amount of $525,000
from the Seller (the "Second Mortgage  Loan"),  which bears interest at the same
rate as the First Mortgage  Loan, and provides for repayment of principal  based
on a 25 year amortization schedule. The Second Mortgage Loan matures in May 2000
and is also  guaranteed by Neal R. Heller and  Elizabeth S. Heller.  The Pompano
Property and the Adjacent Parcel are also encumbered by a $450,000 mortgage loan
from  TransFlorida  Bank to Justin Corp. (the "Adjacent  Parcel Mortgage Loan").
The Company  has agreed to make the  payments on the  Adjacent  Parcel  Mortgage
Loan.  The  mortgages  on the  Pompano  Property  and the  Adjacent  Parcel  are
summarized below:
<TABLE>
<CAPTION>
                                                                                                                 Entity
                                                    Property                                                     Making
                               Amount              Encumbered              Mortgage            Mortgagor       Payments
                          --------------       --------------------     --------------      --------------     -----------
<S>                        <C>                 <C>                      <C>                 <C>                <C>

First Mortgage                $1,350,000       Pompano Property         TransFlorida        Company            Company
Loan                                           (land and building)      Bank

Second                          $525,000       Pompano Property         Seller              Company            Company
Mortgage Loan                                  and Adjacent                                 and Justin
                                               Parcel                                       Corp.

Adjacent Parcel                 $450,000       Pompano Property         TransFlorida        Company            Company
Mortgage Loan                                  and Adjacent             Bank                and Justin
                                               Parcel                                       Corp.

</TABLE>


              Approximately  42.8% of the building is occupied by the  Company's
corporate  offices,  and the Pompano Beach School and the balance is occupied by
non-affiliated tenants. Approximately 29,000 square feet of the Pompano Property
is  presently  leased to 11  tenants  at an  aggregate  rental of  approximately
$309,000 per annum.  The current  leases  expire at various  times  between 1997
through  1999 and require  annual  rentals that range from $5,300 to $55,000 per
annum.  The three largest tenants account for  approximately  45% of the Pompano
Property's  rental income,  and none of the other tenants accounts for more than
12% thereof.  Three of the largest tenant leases expire in April 1998, May 1998,
and  December  1998 and such  leases  provide  for  current  annual  rentals  of
approximately  $44,000,  $55,000  and  $39,000  respectively.  In the event that
leases  representing  a  significant  percentage of rental income expire and the
space is not  promptly  rented on  advantageous  terms,  there may be a material
adverse effect on the Company's earnings.

     Justin  Corp.  has  granted  to  the  Company  a  perpetual   non-exclusive
right-of-way for ingress and egress on the Adjacent Parcel. In addition,  Justin
Corp.  has granted to the Company  the  perpetual  right to use a portion of the
Adjacent  Parcel  to  park  up  to  25  vehicles.  If  the  Adjacent  Parcel  is
subsequently  developed,  Justin  Corp.  has  agreed  to  provide  a  comparable
alternative for the Company's parking rights. The Company believes that there is
sufficient

                                      -17-

<PAGE>



parking  to meet the  anticipated  short-term  needs of  operating  the  Pompano
Property.  However,  the Company  believes that the  additional  parking  rights
afforded by the Adjacent  Parcel will be useful in the event of increased use as
a result of the Company's  anticipated  expansion.  Moreover,  although there is
separate  access  to  the  Pompano  Property,  the  Company  believes  that  the
additional  access rights provided by the right-of-way  over the Adjacent Parcel
will be beneficial  to the use of the Pompano  Property by the Company and third
parties.

              In the event of the sale of the  Adjacent  Parcel,  the Seller has
agreed to release the  Adjacent  Parcel from the Second  Mortgage  Loan upon the
payment of $200,000 and the accrued interest thereon. The Company is responsible
for such  payment,  which will be a reduction  of the  principal  balance of the
Second  Mortgage  Loan, as part of the  Company's  obligation to make all of the
payments on the Second Mortgage Loan. If Justin Corp.  makes such payment,  then
the Company will repay such amount to Justin Corp.,  based upon the terms of the
Second Mortgage Loan. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."


Item 3.       Legal Proceedings.

              Principal Mutual Life Insurance Company, as landlord, commenced an
action in July 1996 in the Circuit Court of the 17th Judicial Circuit in Broward
County,  Florida against the Company,  Neal R. Heller and Elizabeth S. Heller to
recover  rent and  possession  in  connection  with the  property  leased by the
Company in Lauderhill,  Florida.  The Company  believes that the maximum claimed
exposure in such litigation is approximately $195,000.


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


              None.


                                      -18-

<PAGE>



                                     PART II

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

Market Information

              The Units,  Common  Stock,  Class A Warrants  and Class B Warrants
have been  quoted on the  NASDAQ  SmallCap  Market  under the  symbols  "NHTCU,"
"NHTC," "NHTCW," and "NHTCZ," respectively.  The Units are no longer quoted. 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 quotations are the
actual quotations for the periods indicated and do not reflect the Company's two
for one stock split which occurred in October, 1995.

                                                 Common Stock
                                               High         Low
1995
Third Quarter.............................     41/16       31/16
Fourth Quarter............................     61/2        35/8

1996
First Quarter.............................       6         41/4
Second Quarter............................     53/4        47/8
Third Quarter.............................       5         31/2
Fourth Quarter............................     35/8          1

1997
First Quarter (through February
28, 1997).................................     21/2          1



Holders

              As of December 31, 1996, the Company had  approximately  63 record
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


                                      -19-

<PAGE>



other things, will 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.

Years ended December 31, 1995 and 1996

              In June 1996, the Company  acquired all of the outstanding  Common
Stock of four companies known as the Institute of Natural Medicine,  in exchange
for 110,000  shares of the Company's  Common  Stock.  the  acquisition  has been
accounted for as a pooling of interests.  Accordingly,  the financial statements
have been restated for all periods prior the acquisition to include the accounts
and operations of the Institute.

              Tuition revenues  constituted  approximately  57% of the Company's
revenues  in fiscal  1996 and  approximately  88% of the  Company's  revenues in
fiscal  1995.  The  Schools  derived  approximately  61% of  their  income  from
financial aid under federal and state assistance programs.  The Company acquired
both Natural Health Care Centers in 1996, which accounted for  approximately 33%
of the  Company's  revenue  in fiscal  1996.  The  revenues  from the  Company's
bookstores  constituted  approximately  5% of the  Company's  revenues  for 1996
compared to  approximately  6% in fiscal 1995.  The  Corporate  Massage  Service
accounted for approximately 1% of the Company's revenues in fiscal 1996 compared
to  approximately  .3% in  1995.  Rental  income  which  commenced  in May  1995
accounted for approximately 4% of the Company's  revenues for fiscal 1996, while
accounting for  approximately  6% in fiscal 1995. Total revenues for fiscal 1996
were  $7,218,841,  an 83% increase  over  revenues of $3,941,259 in fiscal 1995.
Management  believes that the increase  resulted  primarily  from  approximately
$1,573,000  in revenues  from the two Natural  Health Care  Centers  acquired in
1996, a $1,357,000  increase in tuition revenues,  $104,000 in additional rental
income,  and a $158,000 increase from the bookstores.  Management  believes that
the  increase in tuition  revenues is due to a general  increase in the level of
enrollment,  particularly in the Oveido School,  which was fully operational for
the entire 1996 fiscal year as opposed to less than two months in fiscal 1995.

              Cost of sales  was  $4,442,499  in  fiscal  1996,  a 96%  increase
compared  to cost of sales of  $2,268,866  in  fiscal  1995.  Gross  profit as a
percentage  of revenues  was 38% in fiscal 1996  compared to 42% in fiscal 1995.
Management believes the decrease in gross profit is related to the change in mix
of  services  provided by the  Company,  specifically  the  Natural  Health Care
Centers  acquired  during fiscal 1996,  which have higher costs for salaries and
products.

              Selling,  general and  administrative  expenses were $3,412,769 in
fiscal 1996 compared to  $2,359,600  in fiscal 1995, a 45% increase.  Management
believes that the increase in such expenses resulted from the acquisition of the
Natural  Health  Care  Centers  as well as from an  increased  level of  support
services required to maintain the higher level of operations.


                                      -20-

<PAGE>



Additionally,  increased  activity related to exploring and developing new lines
of business contributed to the increase.

              During 1996,  the Company  issued 16,000 shares of Common Stock to
employees as compensation which resulted in $22,000 of expense.

              The Company's net loss for fiscal 1996 was $889,539 as compared to
$1,838,548   for  fiscal  1995.  The  net  loss  in  fiscal  1996  is  primarily
attributable to a combination of all of the factors discussed above.

              The loss in fiscal 1995 reflects  $1,061,000 of non-cash expenses.
Such expenses  were incurred as a result of expensing the remaining  $330,000 of
finance costs  attributable  to the loans in the aggregate  principal  amount of
$350,000 (the "Bridge  Loans")  borrowed during the first half of 1995 and other
loans in the aggregate principal amount of $130,000. Such expenses also included
an expense of $731,000, which is the assumed fair market value of 472,000 shares
of Common Stock issued to the Company's  officers and a director of the Company,
10,000 shares issued to an employee and 40,000 shares transferred by a principal
shareholder to three individuals for service.

              Interest  expense  was  approximately  $231,000  in fiscal 1996 as
compared  to  $118,000  in fiscal  1995,  reflecting  increased  interest on the
mortgages as well as increased borrowing during the year.

Liquidity and Capital Resources

              The   Company   has  funded  its   working   capital  and  capital
expenditures requirements from cash provided through borrowing from institutions
and from the sale of the  Company's  securities  in private  placements  and the
initial public offering of its securities.  The Company's primary source of cash
receipts is from  payments for tuition,  fees,  and books.  These  payments were
funded  primarily  from student and parent  educational  loans and financial aid
under various  Federal and state  assistance  programs and, to a lesser  extent,
from  student  and parent  resources.  The  Company's  secondary  source of cash
receipts is from services rendered at the Natural Health Care Centers.

              In December 1996, the Company issued  $900,000 of 10%  convertible
debentures,  principal on the  debentures is due in December 1998. The principal
and accrued  interest on the  debentures are  convertible  into shares of Common
Stock of the Company commencing in February 1997, at a conversion price equal to
80% of the  average  closing  bid price for the five  trading  days  immediately
preceding the notice of conversion.

              At December 31, 1996, the Company had working  capital of $698,481
as compared to working capital of $1,025,597 at December 31, 1995, a decrease of
$327,116. The decrease was primarily attributed to the loss for the fiscal year.



                                      -21-

<PAGE>



              During  1996,  net cash  used in  operations  was  $802,704.  This
compares to net cash used in  operations  of $873,112  during  fiscal 1995.  The
primary use of cash during 1996 was the net loss of $889,539,  offset by charges
not  requiring the use of cash  approximating  $266,000.  The major  elements of
operations  requiring the use of cash were  increases in accounts  receivable of
$707,544 and  inventory of $130,295.  Cash inflows were provided by increases in
deferred  revenues of $278,636  and  increases  in accounts  payable and accrued
expenses of $384,422.  Cash provided by financing  activities during fiscal 1996
was approximately $855,000, mainly from the issuance of the debentures.

              The Company's  capital  expenditures  totaled $438,650 in 1996 and
$2,714,402 in 1995.  The 1996  expenditures  relate to renovation of the Pompano
property to accommodate the Pompano  School.  The Company  anticipates  that net
cash flow along with available lines of credit will be sufficient to finance the
Company's operations for at least the next twelve months.


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.


                                      -22-

<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

Neal R. Heller               36           Chairman of the Board, President,
                                          Chief Executive Officer, Chief
                                          Financial and Accounting Officer
                                          and Director

Elizabeth S. Heller          35           Secretary, Treasurer and Director

Martin C. Licht              55           Director

Arthur Keiser                42           Director



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

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


     Elizabeth S. Heller has been  Secretary,  Treasurer,  and a director of the
Company  since its  inception  in 1988.  Mrs.  Heller  earned a Bachelor of Arts
degree from the University of Miami in 1983.  Mrs. Heller is the wife of Neal R.
Heller. Mr. and Mrs. Heller are the sole shareholders of Justin Corp.

     Arthur  Keiser has been the  President of Keiser  College  since 1977.  Mr.
Keiser  became a  director  of the  Company in July  1995.  Keiser  College is a
regionally  accredited  independent  privately-owned  junior  college  which has
facilities  in  five  Florida  locations,  namely  Ft.  Lauderdale,   Melbourne,
Tallahassee,  Sarasota  and  Daytona.  Mr.  Keiser  is a member  of the board of
directors of the Career College  Association and is the Secretary of the Florida
Association of Post-Secondary  Schools and Colleges.  Mr. Keiser received a B.A.
from Tulane University in 1975.
                                      -23-
<PAGE>
     Martin C. Licht has been a  practicing  attorney  since 1967 and has been a
partner of the law firm of Lane & Mittendorf  LLP since January 1997.  Mr. Licht
became a director of the Company in July 1995.  Mr.  Licht is also a director of
two companies  traded on the NASDAQ  SmallCap Market - Gaylord  Companies,  Inc.
which operates retail  bookstores and retail stores selling cookware and serving
equipment and Cable & Co. Worldwide,  Inc. which imports and markets footwear on
a wholesale basis.

     Leonard  Haimes,  M.D.  joined the board of directors  in August  1996.  He
resigned  as a member  of the board of  directors  in  March,  1997.  He was the
medical  director at the Boca Center Florida,  from 1992 through 1996, which the
Company  purchased  in 1996 and prior  thereto he was in private  practice.  Dr.
Haimes  received a B.S.  degree from Temple  University in 1949 and M.D.  degree
from Hahnemann Medical College in 1953.

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, 1996,  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, 1996, it has been  determined  that no Reporting
Person is delinquent with respect to his or her reporting  obligations set forth
in Section 16(a) of the Exchange Act,  except that Arthur Keiser,  a director of
the Company,  has not filed a Form 5 for the fiscal year ended December 31, 1996
and Dr. Haimes has not made any filings under Section 16(a).


                                      -24-

<PAGE>



Item 10.          Executive Compensation.

Summary Compensation Table

         The   following   table   provides  a  summary  of  cash  and  non-cash
compensation  for each of the last three fiscal  years ended  December 31, 1994,
1995, and 1996 with respect to the following officers of the Company:
<TABLE>
<CAPTION>

                                                 Annual Compensation                             Long Term Compensation
                                        -------------------------------------------   -----------------------------------
                                                                                                Awards             Payouts
                                                                                      -------------------------    ------
                                                                    Other                             Securities
                                                                    Annual             Restricted     Underlying    LTIP   All Other
          Name and                                               Compensation         Stock Award(s)   Options     Payouts Compensa-
     Principal Position          Year    Salary($)   Bonus($)       ($)(1)                  $          SARs(#)       ($)     tion($)
     ------------------          ----    ---------   --------   -------------------   -------------  ----------    ------   --------
<S>                              <C>     <C>         <C>        <C>                   <C>            <C>           <C>      <C>

Neal R. Heller,                  1996    $162,500      ----           ----               ----            ----       ----       ----
Chairman of the Board,           1995     150,000      ----           ----               ----            ----       ----       ----
President, Chief Financial and   1994     144,400      ----           ----               ----            ----       ----       ----
Accounting Officer and
Chief Executive Officer


Elizabeth S. Heller              1996     150,000      ----           ----               ----            ----       ----       ----
Secretary and Treasurer          1995     150,000      ----           ----               ----            ----       ----       ----
                                 1994     137,000      ----           ----               ----            ----       ----       ----
</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.


Employment Agreements

         The Company has entered into employment  agreements with Neal R. Heller
and Elizabeth S. Heller,  which will expire in December  2001,  under which they
will be full-time  employees.  Mr. and Mrs. Heller received  salaries in 1996 of
$162,500 and $150,000,  respectively. Each agreement provides that the executive
will be eligible  to receive  short-term  incentive  bonus  compensation  if the
Company is  profitable,  the amount of which,  if any, will be determined by the
Board of Directors based on the executive's  performance,  contributions  to the
Company's   success  and  on  the  Company's   ability  to  pay  such  incentive
compensation.  The employment  agreements also provide for termination  based on
death, disability,  voluntary resignation or material failure in performance and
for  severance  payments  upon  termination  under  certain  circumstances.  The
agreements contain non-competition  provisions that will preclude each executive
from  competing  with the  Company  for a period of two  years  from the date of
termination of employment.

Directors' Compensation

         Directors  of the  Company do not receive  any fixed  compensation  for
their  services as  directors.  The Company  grants each  non-employee  director
options to purchase  1,000  shares of Common  Stock under the 1994 Stock  Option
Plan, at an exercise price equal to the fair


                                      -25-

<PAGE>



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.  Except for 4,000
options  granted to Mr. Licht and 4,000  options  granted to Mr.  Keiser for the
fiscal year ended  December 31, 1996,  the Company did not pay its directors any
cash or  other  form of  compensation  for  acting  in such  capacity,  although
directors  who  were  also  executive  officers  of the  Company  received  cash
compensation for acting in the capacity of executive officers. See "-- Executive
Compensation."  No  director  received  any other form of  compensation  for the
fiscal year ended December 31, 1996.

Stock Options

         The Company has adopted the 1994 Stock Option Plan (the  "Plan")  under
which up to 666,666 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. As of the date hereof,  18,000 options to purchase shares of Common
Stock were granted and  outstanding  under the Plan.  Options  granted under the
Plan may be either (i) options  intended to qualify as "incentive stock options"
under  Section  422 of the  Internal  Revenue  Code of  1986,  as  amended  (the
"Internal Revenue Code"), or (ii) non-qualified  stock options.  Incentive stock
options  may be granted  under the Plan to  employees,  including  officers  and
directors who are employees.  Non-qualified options may be granted to employees,
officers, directors and consultants of the Company.

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

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

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

         The  following  table sets forth certain  information  as to the Common
Stock  ownership of each of the Company's  directors,  executive  officers,  all
executive officers and directors as a


                                      -26-

<PAGE>



group, and all persons known by the Company to be the beneficial  owners of more
than five percent of the Company's Common Stock.

                                            Number of        Approximate
Name and Address of Beneficial Owner(1)     Shares          Percentage of
                                                            Common Stock

Neal R. Heller and Elizabeth S. Heller
2397 N.W. 64th Street
Boca Raton, Florida  33496                5,182,000(2)            43.5%

Martin C.Licht
Selden Lane
Greenwich, Connecticut  06831                54,000(3)                *

Arthur Keiser
6324 NW 79th Way
Parkland, Florida 33067                      34,000(4)                *

All Officers and Directors as a Group
         (4 persons)                      5,270,000                44.1%



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

         (2) Mr. Heller owns 2,522,000  shares of Common Stock,  and Mrs. Heller
owns 2,660,000  shares of Common Stock and each has sole voting and  dispositive
power with  respect to such  shares.  As they are husband and wife,  each may be
deemed the beneficial owner of the shares owned by the other.

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

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

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



Item 12.           Certain Relationships and Related Transactions.

     As of  December  31, 1996 Mr. and Mrs.  Heller  owed the Company  $136,495,
which is unsecured,  non-interest  bearing and is payable upon demand.  In April
1995,  the Company issued 190,000 shares of Common Stock to each of Mr. and Mrs.
Heller as additional  compensation to which the Company  attributed an aggregate
value of $494,000.  In May 1995, Mr. Heller advanced  $570,000 to the Company in
connection  with the purchase of the Pompano  Property which was repaid from the
proceeds of the Company's initial public offering. Mr. and Mrs. Heller have also
guaranteed  the  financing in the  aggregate  principal  amount of $1,875,000 in
connection with the Company's acquisition of the Pompano Property.  Mr. and Mrs.
Heller  may be deemed  parents  of the  Company  as a result of their  executive
positions,  service as directors  and  ownership of  approximately  43.5% of the
Common Stock .
                                      -27-

<PAGE>
     In May 1995,  Justin Corp.  purchased the Adjacent Parcel for $450,000 from
the Seller  concurrently  with the closing of the Pompano  Property.  All of the
common stock of Justin Corp. is owned by Neal R. Heller and Elizabeth S. Heller.
Upon the acquisition of the Adjacent Parcel, Justin Corp. delivered the Adjacent
Parcel  Mortgage  Loan  in  the  original   principal   amount  of  $450,000  to
TransFlorida Bank, which has been guaranteed by Mr. and Mrs. Heller. The Pompano
Property is also  encumbered by the Adjacent  Parcel Mortgage Loan, on which the
Company has agreed to make the payments.

     The $525,000  Second  Mortgage  Loan  delivered to the Seller in connection
with the purchase of the Pompano  Property also  encumbers the Adjacent  Parcel.
Although Justin Corp. is jointly and severally  liable with the Company thereon,
the Company has agreed to make all of the payments on the Second  Mortgage Loan,
which will provide a benefit to Mr. and Mrs. Heller, in consideration for Justin
Corp's  grant of ingress,  egress and  parking  rights to the Company and Justin
Corp.'s  payment for excavating a portion of the Adjacent Parcel which contained
elevated   volatile   organic   compounds  in  the  soil.  See  "Description  of
Properties."

     In the event of the sale of the Adjacent  Parcel,  the Seller has agreed to
release the Adjacent  Parcel from the Second  Mortgage  Loan upon the payment of
$200,000 and the accrued interest  thereon.  The Company is responsible for such
payment,  which  will be a  reduction  of the  principal  balance  of the Second
Mortgage  Loan, as part of the Company's  obligation to make all of the payments
on the Second  Mortgage  Loan.  If Justin  Corp.  makes such  payment,  then the
Company  will  repay  such  amount to Justin  Corp.  based upon the terms of the
Second  Mortgage  Loan.  The Company  does not have any options or any rights of
first  refusal to purchase the Adjacent  Parcel.  The Company has also agreed to
make the payments on the $450,000 Adjacent Parcel Mortgage Loan.

     In July 1996 the Company  borrowed  $125,000 from Arthur Keiser, a director
of the  Company,  and repaid such  amount  plus  interest at the rate of 12% per
annum in December  1996. In July 1996, in connection  with such loan the Company
granted Mr. Keiser an option to purchase  10,000 shares of the Company's  Common
Stock at an exercise  price  equal to the fair  market  value on the date of the
grant for a period of five years.

     Martin C. Licht was issued  50,000  shares of Common Stock in April 1995 in
consideration  of his  agreement  to serve as a  director  of the  Company.  The
Company  paid law firms in which Mr.  Licht  was a member  $268,812  in 1995 and
$49,000 in 1996 and owed such firms an  additional  $30,000 as of  December  31,
1996. In addition,  in December,  1995, Neal R. Heller, the Company's  President
transferred  20,000 shares of his Common Stock to Arthur  Keiser,  a director of
the Company.
                                      -28-

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

(a)    Index to Financial Statements

    1. Financial Statements                                                 Page

       Independent Auditor's Report                                         F-2

       Consolidated Balance Sheet - December 31, 1996                       F-3

       Consolidated Statements of Operations - Years Ended
       December 31, 1996 and 1995                                           F-4

       Consolidated  Statement  of  Changes  in  Stockholders'  Equity 
       - For the period from December 31, 1994 through December 31, 1996    F-5

       Consolidated Statements of Cash Flow - Years Ended December
       31, 1996 and  1995                                                   F-6

       Notes to Financial Statements                                        F-8

    2. Exhibits Included Herein

       See  Exhibit  Index on page 34 hereof for the  exhibits  filed as part of
       this Form 10-KSB.

(b)    Reports on Form 8-K

       None.

(c)    Exhibit Index


Number       Description of Exhibit



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

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

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

4.2         Form of Class A Warrant.*



                                      -29-

<PAGE>





4.3         Form of Class B Warrant.*

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

4.5         Form of Underwriter's Warrants.*

4.6         1994 Stock Option Plan.*

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

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

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

10.4        Lease,  dated April 10, 1991,  between Florida  Institute of Massage
            Therapy,  Inc.,  as tenant,  and Superior  Investment &  Development
            Corporation, as agent, for IDCOR 50/50 Associates.*

10.5        Department of Education, Office of Postsecondary Education, Office
            of Student Financial Assistance Program Participation Agreement,
            dated March 28, 1994, between the Company and the USDOE.*

10.6        Purchase and Sale Agreement between Merrick Venture Capital, Inc.,
            as seller, and the Company, as buyer.*

10.7        First Mortgage Loan Documents  between the Company and  TransFlorida
            Bank in connection with the purchase of the Pompano Property.

10.8        Equity Credit Plan and Note, dated March  , 1994, among the Company,
            F.I.M.T.E. Supply, Inc., Neal R. Heller, Elizabeth S. Heller and
            American Bank of Hollywood.*

10.9        Form of Financial Consulting Agreement between the Company and the
            Underwriter.*

10.10       Second Mortgage Loan Documents between the Company and Merrick
            Venture Capital, Inc.*

10.11       Agreement dated June 7, 1995 between Natural Health Trends Corp. and
            Justin Real Estate Corp.*

10.12       Property Management Agreement dated June 7, 1995 between Natural
            Health  Trends Corp. and Justin Real Estate Corp.*

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



                                      -30-

<PAGE>

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

21.1        List of Subsidiaries.

27.1        Financial Data Schedule


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





                                      -31-

<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:  March  21, 1997                  NATURAL HEALTH TRENDS CORP.

                                      By:/s/Neal R. Heller______________________
                                         Neal R. Heller, Chairman of the
                                         Board, President, Chief Financial
                                         and Accounting Officer and Chief
                                         Executive Officer


                                      By:/s/Elizabeth S. Heller_________________
                                         Elizabeth S. Heller, Secretary and
                                         Treasurer



         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/Neal R. Heller ____       Chairman of the Board, President,    March 21, 1997
Neal R. Heller               Chief Financial and Accounting
                             Officer, Chief Executive Officer and
                             Director


/s/Elizabeth S. Heller_      Secretary, Treasurer and Director    March 21, 1997
Elizabeth S. Heller


/s/Arthur Keiser________     Director                             March 21, 1997
Arthur Keiser


/s/Martin C. Licht______     Director                             March 21, 1997
Martin C. Licht


<PAGE>


                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS




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


                                       F-1

<PAGE>






                          INDEPENDENT AUDITORS' REPORT



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

     We have  audited the  accompanying  consolidated  balance  sheet of Natural
Health Trends Corp.  and  Subsidiaries  as of December 31, 1996, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years ended December 31, 1996 and 1995.  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, 1996,  and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995, in conformity  with  generally  accepted
accounting principles.



                                                    /s/Feldman Radin & Co., P.C.
                                                    ----------------------------
                                                    Feldman Radin & Co., P.C.
                                                    Certified Public Accountants

New York, New York
March 7, 1997

                                       F-2


<PAGE>


                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 1996


                                     ASSETS



CURRENT ASSETS:
     Cash                                                     $         517,323
     Restricted cash                                                    258,932
     Accounts receivable                                              1,481,589
     Inventories                                                        255,182
     Due from officers                                                  136,495
     Due from affiliate                                                  23,724
     Prepaid expenses and other current assets                           46,317
                                                                ----------------
         TOTAL CURRENT ASSETS                                         2,719,562

PROPERTY AND EQUIPMENT                                                3,126,586

OTHER ASSETS                                                          1,626,135
                                                                ----------------

                                                              $       7,472,283
                                                                ================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                         $         447,378
     Accrued expenses                                                   347,441
     Deposits                                                            37,580
     Current portion of long-term debt                                  424,802
     Deferred revenue                                                   763,880
                                                                ----------------
         TOTAL CURRENT LIABILITIES                                    2,021,081
                                                                ----------------

LONG-TERM DEBT                                                        1,899,577

COMMON STOCK SUBJECT TO PUT                                             380,000


STOCKHOLDERS' EQUITY:
     Preferred stock, $.001 par value, 1,500,000 shares authorized;
         no shares issued and outstanding                                    -
     Common stock, $.001 par value; 40,000,000 shares authorized;
         12,346,012 shares issued and outstanding                        12,346
     Additional paid-in capital                                       6,230,652
     Accumulated deficit                                             (2,595,123)
     Common stock subject to put                                       (380,000)
     Prepaid stock compensation                                         (96,250)
                                                                ----------------
         TOTAL STOCKHOLDERS' EQUITY                                   3,171,625
                                                                ----------------

                                                              $       7,472,283
                                                                ================




               The accompanying notes are an integral part of the
                       consolidated financial statements.

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

                      CONSOLIDATED STATEMENT OF OPERATIONS



                                                   Year Ended December 31,
                                             -----------------------------------
                                                   1996               1995
                                             ----------------   ----------------


REVENUES                                   $       7,218,841  $       3,941,259

COST OF SALES                                      4,442,499          2,268,866
                                             ----------------   ----------------
GROSS PROFIT                                       2,776,342          1,672,393

SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                       3,412,769          2,359,600

NON-CASH IMPUTED COMPENSATION EXPENSE                 22,000            731,000
                                             ----------------   ----------------

OPERATING INCOME (LOSS)                             (658,427)        (1,418,207)

WRITE-OFF OF DEFERRED FINANCE COSTS                        -           (329,974)
INTEREST EXPENSE, net                               (231,112)          (117,661)
                                             ----------------   ----------------

INCOME (LOSS) BEFORE INCOME TAXES                   (889,539)        (1,865,842)

PROVISION FOR INCOME TAXES                                 -            (27,294)
                                             ----------------   ----------------

NET INCOME (LOSS)                          $        (889,539) $      (1,838,548)
                                             ================   ================

EARNINGS (LOSS) PER COMMON SHARE           $           (0.08) $           (0.20)
                                             ================   ================

WEIGHTED AVERAGE COMMON SHARES USED               11,213,980          9,314,816
                                             ================   ================


















               The accompanying notes are an integral part of the
                       consolidated financial statements.

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

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                        
<TABLE>
<CAPTION>
                                                                                                Common               
                                               Common Stock          Additional   Retained       Stock      Deferred
                                          ------------------------    Paid-in     Earnings      Subject       Stock
                                            Shares        Amount      Capital     (Deficit)      to Put    Compensation    Total
                                          -----------  -----------  -----------  ------------  -----------  -----------  ----------
<S>                                       <C>         <C>          <C>          <C>          <C>           <C>          <C>

BALANCE - DECEMBER 31, 1994                6,727,744  $     6,727  $   159,490  $   132,964  $  (110,000)  $     -      $  189,181

     Shares issued in bridge financing       361,672          362       62,931        -              -           -          63,293
     Shares issued to employees and director 472,000          472      598,528        -              -           -         599,000
     Shares issued in bridge financing       720,000          720      125,280        -              -           -         126,000
     Shares issued to various lenders        127,692          128      165,872        -              -           -         166,000
     Shares transferred by principal
         shareholder for services               -             -        132,000        -              -           -         132,000
     Initial public offering               2,300,000        2,300    2,623,188        -              -           -       2,625,488
     Cancellation of put on common stock        -             -            -          -          110,000         -         110,000
     Net loss                                   -             -            -     (1,838,548)         -           -      (1,838,548)
                                          -----------  -----------  -----------  -----------  -----------  ----------   -----------

BALANCE - DECEMBER 31, 1995               10,709,108       10,709    3,867,289   (1,705,584)         -           -       2,172,414

     Shares issued for acquisitions          380,000          380    1,367,620        -              -           -       1,368,000
     Shares issued for consulting agreement  100,000          100      164,900        -              -       (165,000)         -
     Amortization of prepaid consulting         -             -            -          -              -         68,750       68,750
     Shares issued to employees               16,000           16       21,984        -              -           -          22,000
     Convertible debenture treated as
        converted                          1,140,904        1,141      808,859        -              -           -         810,000
     Common stock subject to put               -              -            -          -         (380,000)        -        (380,000)
     Net loss                                  -              -            -       (889,539)         -           -        (889,539)
                                         ------------  -----------  -----------  -----------  -----------  -----------  -----------

BALANCE - DECEMBER 31, 1996               12,346,012  $    12,346  $ 6,230,652  $(2,595,123) $  (380,000) $   (96,250) $ 3,171,625
                                         ============  ===========  ===========  ===========  =========== ============  ===========

</TABLE>











               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-5

<PAGE>
                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                                                      Year Ended December 31,
                                                                                                 -----------------------------------
                                                                                                      1996               1995
                                                                                                 ----------------   ----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                                         $        (889,539) $      (1,838,548)
                                                                                                 ----------------   ----------------
<S>                                                                                              <C>                <C>

     Adjustments to reconcile  net income  (loss) to net cash  provided by (used
         in) operating activities:
         Depreciation and amortization                                                                   244,571             96,066
         Non-cash imputed compensation expense                                                            22,000            731,000
         Write-off of deferred finance costs                                                                   -            329,974

     Changes in assets and liabilities (net of effects of acquisition):
         Decrease (increase) in accounts receivable                                                     (707,544)           (13,406)
         Decrease (increase) in inventories                                                             (130,295)           (55,616)
         Decrease (increase) in prepaid expenses and other current assets                                 31,393            (44,891)
         Decrease (increase) in due from affiliate                                                        (1,200)           (22,524)
         Decrease (increase) in other assets                                                             (11,023)            13,055
         Payments for deferred finance costs                                                                   -           (120,681)
         Increase (decrease) in accounts payable                                                          97,959             28,421
         Increase (decrease) in accrued expenses                                                         286,463             58,087
         Increase (decrease) in deposits                                                                 (23,495)            61,075
         Increase (decrease) in deferred revenue                                                         278,636            (67,830)
         Increase (decrease) in deferred taxes                                                                 -            (27,294)
                                                                                                 ----------------   ----------------
            TOTAL ADJUSTMENTS                                                                             87,465            965,436
                                                                                                 ----------------   ----------------

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                                     (802,074)          (873,112)
                                                                                                 ----------------   ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash paid for acquisitions, net of cash acquired                                                   (11,388)           (108,933)
     Capital expenditures                                                                               (438,650)        (2,714,402)
                                                                                                 ----------------   ----------------

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                                     (450,038)        (2,823,335)
                                                                                                 ----------------   ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Increase in due from officer                                                                         (1,887)            (6,800)
     Increase in restricted cash                                                                        (258,932)                 -
     Proceeds from sale of debentures                                                                    810,000                  -
     Proceeds from notes payable and long-term debt                                                      349,851          2,158,077
     Payments of notes payable and long-term debt                                                        (44,215)          (528,275)
     Proceeds from issuance of common stock, net of expenses                                                   -          2,986,300
                                                                                                 ----------------   ----------------

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                                      854,817          4,609,302
                                                                                                 ----------------   ----------------

NET INCREASE (DECREASE) IN CASH                                                                         (397,295)           912,855

CASH, BEGINNING OF YEAR                                                                                  914,618              1,763
                                                                                                 ----------------   ----------------

CASH, END OF YEAR                                                                              $         517,323  $         914,618
                                                                                                 ================   ================
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-6
<PAGE>

                   NATURAL HEALTH TRENDS CORP. AND SUBSIDIARY

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                   (CONTINUED)

<TABLE>
<CAPTION>

                                                                                                      Year Ended December 31,
                                                                                                 -----------------------------------
                                                                                                      1996               1995
                                                                                                 ----------------   ----------------
<S>                                                                                            <C>                 <C>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the year for:
         Interest                                                                              $         236,671  $         131,077
                                                                                                 ================   ================
         Income taxes                                                                          $               -  $               -
                                                                                                 ================   ================
</TABLE>

DISCLOSURE OF NONCASH FINANCING  AND INVESTING ACTIVITIES:

     In July 1995, an individual  converted  $10,000 in debt for 7,692 shares of
common stock.

     In  November  1995,  the Company  incurred a note  payable in the amount of
$125,000 to the seller in a business acquisition.






































               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-7
<PAGE>

                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



1.       ORGANIZATION

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

     The Company's  primary  business is the operation of schools which develop,
market and offer  curricula in  therapeutic  massage  training and holistic skin
care therapy. The Company presently has a total of three schools, located in the
Miami,  Pompano Beach and Oviedo,  Florida areas.  F.I.M.T.E.  Supply, Inc. is a
wholly owned  subsidiary  which owns and operates  on-site book stores servicing
the school's students,  practicing  therapists and the public.  During 1995, the
Company formed Corporate Body, Inc., a wholly-owned  subsidiary which is engaged
in the business of providing  on-site  corporate  massage  primarily at business
establishments.  Additionally,  during 1995, the Company purchased a building in
Pompano Beach, Florida, part of which is used to house the Pompano Beach school,
and the rest of which is rented out to unrelated  commercial tenants,  providing
incidental rental income to the Company.

     In 1996, the Company purchased a natural health care center operated by Sam
Lilly, Inc. doing business as Medicine and Lifestyles in Boca Raton, Florida and
acquired the capital stock of Managenet Inc., KBM  Consultants,  Medical Service
Consultants,  and Diagnostic Services,  Inc., doing business as the Institute of
Natural  Medicine in Pompano  Beach,  Florida.  The natural  health care centers
provide multi-disciplinary complementary health care in the areas of alternative
and nutritional medicine.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     B. Accounts  Receivable - Accounts receivable consists primarily of tuition
due from students and federal and state governmental agencies.

                                       F-8

<PAGE>



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

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

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

     F. Earnings  (Loss) Per Common Share - Earnings (loss) per common share are
computed on the basis of weighted  average  number of common shares and dilutive
common  share  equivalents   outstanding  during  the  respective   periods.  In
accordance  with Securities and Exchange  Commission  accounting  rules,  shares
issued within one year of the Company's  initial public offering are included in
all reported periods for purposes of this calculation.

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

     H. 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.

     I. 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 intends to adopt the
pro forma disclosure requirements of Statement No. 123 in fiscal 1997.

     J. Impairment of Long - Lived Assets - The Company has adopted Statement of
Financial  Accounting Standards No. 121, "Accounting For The Impairment Of Long-
Lived Assets And For Long-Lived Assets To Be Disposed Of" as of January 1, 1996.
Such adoption had no material effect on the financial position of the Company.




                                       F-9

<PAGE>


3.       DUE FROM OFFICERS

                  As of December  31,  1996,  the Company is due  $136,495  from
         officers representing temporary non-interest bearing advances.


4.       PROPERTY AND EQUIPMENT

         Property and Equipment consisted of the following at December 31, 1996:


Equipment, furniture and fixtures                          $            378,641
Building and improvements                                             2,637,989
Land                                                                    470,000
                                                              ------------------
                                                                      3,486,630
Less: Accumulated depreciation                                         (360,044)
                                                              ------------------
                                                           $          3,126,586
                                                              ==================


5.       OTHER ASSETS

         Other assets consisted of the following at December 31, 1996:


Deposits                                                     $           45,799
Covenant not to compete, net of
accumulated amortization of $13,546                                      36,454
Goodwill, net of accumulated
amortization of $81,123                                               1,543,882
                                                               -----------------
                                                             $        1,626,135
                                                               =================

     The goodwill and the covenant not to compete arise in  connection  with the
acquisitions of businesses made by the Company in 1996 and 1995. The goodwill is
being amortized over its estimated  useful life of 20 years, and the covenant is
being amortized over its contractual term of four years.


                                      F-10

<PAGE>





6.       LONG-TERM DEBT

         Long-term debt consisted of the following at December 31, 1996:


Note payable for purchase of school, bearing interest at
8.75%, principal and interest payments due quarterly
commencing February 1996 through November 1999                    $      97,683

First Mortgage Note payable to a bank,  bearing  interest at 
prime +2%.  Monthly payments consisting of principal and interest
are approximately  $13,232 and are payable through May 1, 2002,
at which time the balance of principal is due in a balloon payment
on May 1, 2002                                                        1,331,425

Second Mortgage Note payable to a bank, bearing interest
at prime +2%.  Monthly payments consisting of principal
and interest are approximately $5,145 through May 1,
2002, at which time the balance of principal is due in a
balloon payment on May 1, 2000                                          518,117

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

Line of Credit - Capital Bank,  for a maximum  amount of $350,000
(with a total availability of $30,000 at December 31, 1996), 
maturing April 1997 and carrying interest at 7%                          30,000 

Other                                                                    47,154
                                                                  --------------
                                                                      2,324,379
Less: Current portion                                                  (424,802)
                                                                  --------------
                                                                  $   1,899,577
                                                                  ==============









                                      F-11

<PAGE>




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

          1997                  $ 424,802
          1998                     52,765
          1999                     57,650
          2000                     24,806
          2001                     27,677

7.       STOCKHOLDERS' EQUITY

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

     B. In January 1994,  the Company  issued 832,500 shares of its common stock
and 500,000 options to purchase  common stock for $1.63 per share.  Such options
were canceled in February  1996, at which time the individual  received  options
for  100,000  shares of the  Company's  common  stock at $1.65 per  share.  This
individual  also entered into a two year  consulting  agreement with the Company
providing for a total fee of $165,000,  which was accepted in lieu of the option
exercise price for the 100,000  shares.  The prepaid  portion of this consulting
fee is shown as a reduction in stockholders' equity.

     C.  In  October  1994,  the  Company  declared  a 1.56  to 1  stock  split.
Accordingly, the effect of the stock split has been retroactively applied to all
periods presented.

     D. In October and November  1994, the Company sold 733,334 shares of common
stock for $.15 per share in a private  placement.  Such shares were subject to a
put which expired upon  completion of the initial  public  offering.  Since such
sales  were made to  unrelated  third  parties  at $.15 per  share,  such  price
represents the fair market value of the Company's common stock at that time.

     E. In October 1994,  an  individual  converted an $80,000 note payable plus
$14,667 of accrued interest into 111,110 shares of the Company's common stock.

     F. In April 1995, the Company effected a 1 2/3 to one stock split which has
been retroactively applied to all common share data.


                                      F-12

<PAGE>
     G. In January and February,  1995,  the Company sold 361,672  shares of its
common  stock and  warrants to purchase up to 723,344  shares of common stock as
part of a private  placement of 14 Units.  Each Unit  consisted of (i) a $25,000
promissory note payable, bearing interest at 10% per annum, due upon the earlier
of December 31, 1995 or the receipt of $3,000,000 from the sale of the Company's
debt and/or  equity  securities  in a public or private  financing,  (ii) 25,834
shares of common  stock,  $.001 par  value,  (iii) a warrant to  purchase  up to
25,834  shares of common stock at $3.00 per share (the "Class A  Warrant"),  and
(iv) a warrant  to  purchase  up to 25,834  shares of common  stock at $3.63 per
share (the "Class B  Warrant").  The common stock issued in January and February
1995 was valued at $.175 per share which equaled the fair market value per share
as  determined  by the price per share paid by unrelated  third parties in April
1995. The aggregate  value of such shares was $63,293.  Such amount was recorded
as deferred  finance costs.  An additional  $120,681,  which  represents  direct
expenses  associated  with the financing  was also recorded as deferred  finance
costs.  The  unamortized  balance of the deferred  finance costs was written off
upon the early  repayment  of the notes upon  completion  of the initial  public
offering.

     H. In April 1995, the Company sold 720,000 shares of common stock for $.175
per share,  realizing gross proceeds of $126,000.  Since such sales were made to
unrelated third parties at $.175 per share such price represents the fair market
value of the  Company's  common  stock at that  time.  Also in April  1995,  the
Company issued a total of 380,000  shares to Company  officers and 50,000 shares
to an individual who agreed to serve as a director, all such shares being issued
as  compensation.  Such shares of common  stock were valued at the assumed  fair
market value of $1.30 (based on the initial  public  offering price of $1.63 per
share less a 20% discount for  restrictions on the resale of such shares).  This
resulted in an aggregate charge upon the issuance of such shares of common stock
of $559,000.

     I. In July 1995,  the Company  issued  32,000  shares to employees for past
services.

     J. In October  1995,  the  Company  issued  10,000  shares to an  employee,
recording  compensation  expense  aggregating  $40,000 in  connection  with this
issuance.

     K. In October 1995, the Company  declared a 2 for 1 stock split. All common
shares data is retroactively restated to reflect this transaction.

     L. In  December  1995,  the  Company's  president,  who is also a principal
shareholder,  transferred an aggregate of 40,000 shares to three individuals who
had provided services to the Company.  The fair market value of these shares has
been recorded as an expense totaling $132,000.

     M.  During  1996,   the  Company  issued  16,000  shares  to  employees  as
compensation.

     N. In  January  1996,  the  Company  issued  380,000  shares in a  business
acquisition accounted for as a purchase.

                                      F-13

<PAGE>



     O.  In  June  1996,  the  Company  issued  110,000  shares  in  a  business
acquisition  accounted for as a pooling.  Such shares are retroactively shown as
outstanding for all periods presented.

     P. In December 1996,  the Company sold $900,000 in convertible  debentures.
In March 1997, such  debentures  were converted into 1,140,904  shares of common
stock. The Company is accounting for these as an equity sale and such shares are
presented as outstanding from the date of sale.


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, 1996,
         the Company had net deferred tax assets of approximately  $663,000. 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, 1996:


Net operating loss deduction                          $                 515,000
Deferred revenue                                                        305,000
Section 481 adjustment                                                 (165,000)
Other                                                                     8,000
Valuation allowance                                                    (663,000)
                                                            --------------------
                                                      $             -
                                                            ====================











                                      F-14

<PAGE>



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

                                                                                 Year Ended
                                                                   ---------------------------------------
                                                                                December 31,
                                                                   ---------------------------------------
                                                                         1996                   1995
                                                                   -----------------      ----------------
<S>                                                            <C>                      <C>

Income tax (benefit) computed at statutory rate                $           (311,000)   $         (614,000)
Effect of temporary differences                                             137,000                   -
Effect of permanent differences                                             (18,000)              275,000
Tax benefit not recognized                                                  192,000               311,706
                                                                   -----------------      ----------------
Provision for income taxes (benefit)                           $           -           $          (27,294)
                                                                   =================      ================

</TABLE>


         The  net  operating  loss   carryforward   at  December  31,  1996  was
         approximately $1,288,000 and expires in the years 2010 to 2011.


9.       COMMITMENTS AND CONTINGENCIES

     A. The Company leases its school facilities under non-cancelable  operating
leases.  The  lease  terms  are five  years and  expire  from July 1997  through
November 2000.

     Rent  expense for the years ended  December  31, 1996 and 1995 was $647,907
and $365,068, respectively.  Minimum rental commitments over the next five years
are as follows:

          1997                                     $        573,092
          1998                                              434,966
          1999                                              175,880
          2000                                              164,493
          2001                                               15,458

     B.  The  Company  has  entered  into  employment  agreements  with  its two
executive officers which currently provide for annual salaries of $312,500.  The
agreements  expire  in  December  1997.  In  connection  with  the  acquisitions
occurring in 1996,  the Company  entered into  employment/consulting  agreements
with three individuals for aggregate annual  compensation of $500,000,  expiring
on various dates through June 1999.

                                      F-15

<PAGE>

     C. Litigation - In 1996 the landlord of premises  formerly  occupied by the
Company  filed suit  against the Company for the  collection  of unpaid rent and
other charges in the amount of approximately  $195,000.  The Company has accrued
certain  amounts that it feels are adequate as a contingency  for  settlement of
this suit.

10.      PURCHASE OF BUILDING

         The Company purchased a building located in Pompano Beach, Florida (the
         "Pompano Property") to which it relocated from Lauderhill, Florida. The
         purchase price for the property was $2,350,000, of which $1,875,000 was
         financed through a first and second  mortgage.  The Pompano Property is
         encumbered by mortgages  securing repayment of loans made to acquire an
         adjacent  parcel  which is owned by Justin Real Estate  Corp.  ("Justin
         Corp.").  All of the common stock of Justin Corp. is owned by principal
         shareholders of the Company. In the event that Justin Corp. defaults on
         its  obligations   under  such  mortgage  loans,  the  mortgagee  could
         foreclose on the mortgages encumbering the Pompano Property.


11.      INITIAL PUBLIC OFFERING

                  In  June  1995,  the  Company   completed  an  initial  public
         offering,  selling a total of 2,300,000  units for $1.63 per unit. Each
         unit  consisted  of one share of common  stock,  one Class A Warrant to
         acquire  one share of common  stock at $3.00 and one Class B Warrant to
         acquire one share at $3.63. Commencing June 21, 1996, the warrants will
         be exercisable for a period of four years. The underwriters received an
         option to purchase  200,000  units at 150% of the offering  price for a
         period  of four  years  commencing  June 21,  1996.  Additionally,  the
         Company entered into a consulting agreement with the underwriters for a
         term of 24 months at $2,000 per month, which was paid in advance at the
         closing of the offering.

12.      REVENUES

                  The schools  obtain a large  proportion of their revenues from
         Federal and State student  financial  aid programs.  For the year ended
         December 31, 1996,  the schools  derived  approximately  61% of tuition
         collections from students with financial aid and approximately 39% from
         students  without  financial  aid. The schools'  ability to obtain such
         funding is dependent on a number of factors,  including meeting various
         educational  accreditation  and  licensing  standards  and also certain
         financial  standards  such  as  maintaining  at  least a 15%  ratio  of
         non-financial aid students and not experiencing a

                                      F-16

<PAGE>

         student loan default rate in excess of 25% for three consecutive years.
         The  schools'  student  loan default rate for 1993 and 1994 was 10% and
         9%,  respectively.  The definitive default rates for 1995 and 1996 will
         not  be  available   until  the  third   quarters  of  1997  and  1998,
         respectively.  The  Company  believes  it has  complied  with all other
         factors necessary to obtain funding.

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


13.      COMMON STOCK SUBJECT TO PUT

                  In  connection  with the January 1996  acquisition  of the net
         assets of Sam Lilly,  Inc. the 380,000 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.


14.      PREFERRED STOCK

                  The Company is authorized by its articles of  incorporation 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.  No shares of preferred stock have been issued
         to date.

15.      STOCK OPTION PLAN

                  Under the  Company's  1994 Stock  Option  Plan,  up to 666,666
         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, 2,000 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 10,000 options to a director at a price equal to the fair market
         value on the date of grant.  No other  options  have been issued  under
         this plan.

         The Company has adopted the disclosure-only  option under SFAS No. 123,
         Accounting for  Stock-Based  Compensation,  as of December 31, 1995. If
         the  accounting  provisions of the new Statement had been adopted as of
         the beginning of 1995,  the effects on 1995 and 1996 net earnings would
         have been immaterial.

                                      F-17

<PAGE>



16.      ACQUISITIONS

     A. In November  1995, the Company made a business  acquisition  through the
acquisition of  substantially  all the operating  assets and  liabilities of the
Reese Institute ("Reese"),  located in Oviedo, Florida. The acquisition of Reese
has been accounted for as a purchase and  accordingly,  the assets  acquired and
liabilities  assumed  have been  recorded at their  estimated  fair values which
approximates book value. The following table summarizes this acquisition:

Purchase Price, including acquisition costs            $                267,550
Liabilities assumed                                                     130,727
Assets acquired                                                        (222,337)
                                                             -------------------
Goodwill                                               $                175,940
                                                             ===================

     Goodwill is being  amortized over a period of 20 years.  The purchase price
was settled through the payment of $125,000 at closing and a note payable to the
seller of $125,000.

     B. In January 1996,  the Company's  newly-formed  wholly-owned  subsidiary,
Health Wellness Nationwide Corp.,  acquired all of the assets and assumed all of
the  liabilities  of Sam Lilly,  Inc.  in  exchange  for  380,000  shares of the
Company's common stock. The acquisition has been accounted for as a purchase and
accordingly,  the assets acquired and liabilities  assumed have been recorded at
their estimated fair values which approximates book value as follows:


Purchase price, including acquisition costs       $                   1,416,000

Liabilities assumed                                                      29,000
Assets acquired                                                         (59,667)
                                                        ------------------------
Goodwill                                          $                   1,385,333
                                                        ========================

     Purchase  price  includes the  following:  $1,368,000  for stock issued and
$48,000 for acquisition costs consisting of professional fees.

     The  following  schedule  combines the unaudited  pro-forma  results of the
Company,  Sam Lilly,  Inc.,  and Reese  Institute,  Inc. as if the  acquisitions
occurred on January 1, 1995 and  includes  such  adjustments  which are directly
attributable to the acquisitions.  It should not be considered indicative of the
results that would have been achieved had the  acquisitions  not occurred or the
results that would have been obtained had the acquisitions  actually occurred on
January 1, 1995.

                                      F-18

<PAGE>


                                               Year ended December 31,
                               -------------------------------------------------
                                       1996                         1995
                                --------------------        --------------------
Net sales                      $         7,361,923         $          5,828,599
                                ====================        ====================
Net loss                       $          (912,325)        $         (1,941,609)
                                ====================        ====================
Net loss per share             $             (0.08)        $              (0.20)
                                ====================        ====================
Shares used in computation              11,229,813                    9,694,816
                                ====================        ====================

         C. In June 1996,  the Company  acquired all of the  outstanding  common
         stock of four  companies  doing  business as the  Institute  of Natural
         Medicine, in exchange for 110,000 shares of the Company's common stock.
         The  acquisition  has been  accounted  for as a pooling  of  interests.
         Accordingly,  the consolidated  financial statements have been restated
         for all periods  prior to the  acquisition  to include the accounts and
         operations of the Institute.

                  Net sales and net income  (loss) for the  individual  entities
are as follows:

<TABLE>
<CAPTION>

Year ended December 31, 1996                           NHT                     Institute                  Combined
----------------------------                           ---                     ---------                  --------
<S>                                        <C>                       <C>                        <C>
Net sales                                  $             6,418,273   $                 800,568  $             7,218,841
                                               ====================      =====================      ====================
Net income (loss)                          $              (971,989)  $                  82,450  $              (889,539)
                                               ====================      =====================      ====================

Year ended December 31, 1995
Net sales                                  $             3,138,203   $                 803,056  $             3,941,259
                                               ====================      =====================      ====================
Net income (loss)                          $            (1,938,869)  $                 100,321  $            (1,838,548)
                                               ====================      =====================      ====================
</TABLE>


17.      CONVERTIBLE DEBENTURES

                  In  December  1996,   the  Company  issued   $900,000  of  10%
         convertible  debentures.  In  March  1997,  all  such  debentures  were
         converted  into  shares  of  common  stock.   Shares   attributable  to
         conversions  of  principal   outstanding  at  December  31,  1996,  are
         retroactively  shown  as  outstanding  at  that  time.  The  debentures
         contained the provision  that any  principal  outstanding  on the third
         anniversary  converted  into shares of common stock.  Accordingly,  the
         Company  is  accounting  for these  securities  as equity  instruments.
         Associated  costs,  consisting of commissions  at 10% and  professional
         fees have been charged to paid in capital.  The  principal  and accrued
         interest on the debentures were convertible at the option of the holder
         into shares of common stock of the Company commencing in February 1997,
         at a conversion price equal to 80% of the average closing bid price for
         the five trading days  immediately  preceding the notice of conversion.
         An additional  $400,000 of debentures  were sold subsequent to year end
         through February 3, 1997.

                                      F-19
<PAGE>

18.      SEGMENT INFORMATION

         Summary information for the Company's two significant industry segments
is as follows:

<TABLE>
<CAPTION>

                                                                             Medical              Other Not Deemed
Year ended December 31, 1996                           Schools               Clinics                 Reportable        Total
                                                       -------               -------                 ----------        -----
<S>                                           <C>                   <C>                  <C>    <C>    <C>    <C>

     Revenues                                 $          4,444,074  $          2,374,469    $       400,298   $        7,218,841
                                                   ===============       ===============      =============      ===============
     Operating income (loss)                  $          1,015,420  $          (176,191)    $      (182,237)  $          656,992
                                                   ===============       ===============      =============
     General corporate expenses                                                                                       (1,546,531)
                                                                                                                 ---------------
     Net income (loss)                                                                                        $         (889,539)
                                                                                                                 ===============
     Identifiable assets                      $          1,883,951  $          1,486,728    $     4,101,604   $        7,472,283
                                                   ===============       ===============      =============     ================
     Other information:
     Depreciation and amortization            $             49,227  $             47,625
                                                   ===============       ===============
     Capital expenditures                     $           -         $             95,323
                                                   ===============       ===============
</TABLE>


                  The  Company  did not have  reportable  segments  for the year
         ended December 31, 1995.


19.      RELATED PARTY TRANSACTION

         The Company pays rent to an affiliate with respect to a parcel adjacent
to the Pompano property.  Rent expense for the years ended December 31, 1996 and
1995 was $62,000 and $37,000 respectively.


                                      F-20