SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X]	Preliminary Proxy Statement

[ ]	Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

[ ]	Definitive Proxy Statement

[ ]	Definitive Additional Materials

[ ]	Soliciting Material Pursuant to

[ ]	Rule 14a-11 (c) or rule 14a-12

ADVANCED NUTRACEUTICALS, INC.
(Name of Registrant as Specified In Its Charter)

Not Applicable
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)

Title of each class of securities to which transaction applies:

(2)

Aggregate number of securities to which transaction applies:

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

(4)

Proposed maximum aggregate value of transaction:

(5)

Total fee paid:

Fee paid previously with preliminary materials:

[X]	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

(1)

Amount previously paid:

$58.62

(2)

Form, Schedule or Registration Statement no.:

Schedule 13E-3

(3)

Filing Party:

Advanced Nutraceuticals, Inc.

(4)

Date Filed:

June 8, 2006

Advanced Nutraceuticals, Inc.
106 South University Boulevard, Unit 14
Denver, Colorado 80209

PROXY STATEMENT AND
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ________, 2006

To our shareholders:

You are cordially invited to attend the annual meeting of the shareholders of Advanced Nutraceuticals, Inc. (the “Company”) at 410 Seventeenth Street, 22^nd Floor, Denver, Colorado at 10:00 a.m. (Denver, Colorado time) on________, 2006, or at any adjournment or postponement thereof, for the following purposes:

To reverse split the Company’s common stock on the basis of one share for each 500 shares currently outstanding.

To elect five directors of the Company.

To amend the Company’s Articles of Incorporation to change the Company’s name to Bactolac Pharmaceutical, Inc.

To transact such other business as may properly come before the meeting.

Details relating to the above matters are set forth in the attached Proxy Statement. All shareholders of record of the Company as of the close of business on May 16, 2006 will be entitled to notice of and to vote at such meeting or at any adjournment or postponement thereof.

All shareholders are cordially invited to attend the meeting. If you do not plan to attend the meeting, you are urged to sign, date and promptly return the enclosed proxy. A reply card is enclosed for your convenience. The giving of a proxy will not affect your right to vote in person if you attend the meeting.

By Order of the Board of Directors

Gregory Pusey
President and Chief Executive Officer

______________, 2006

ADVANCED NUTRACEUTICALS, INC.
PROXY STATEMENT
TABLE OF CONTENTS

			Page
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING				1
What is the purpose of the meeting?				1
Who is entitled to vote?				1
Who can attend the meeting?				1
What constitutes a quorum?				2
How do I vote?				2
Can I change my vote after I return my proxy card?				2
What are the board of directors' recommendations?				2
What vote is required to approve each item?				2
What are "broker non-votes" and how will they be counted?				3
Who will bear the cost of soliciting proxies?				3
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION				3
PROPOSAL 1 - APPROVAL OF REVERSE STOCK SPLIT				3
SUMMARY TERM SHEET				3
Why are we proposing the reverse split?				3
What are the effects of the reverse split?				4
How does the board of directors recommend that I vote?				4
Does the board of directors believe that the terms of the reverse split are fair?				4
What are the federal income tax consequences of the reverse split?				5
Do I have appraisal or dissenters' right?				5
Which approvals are required to effect the reverse split?				5
Do I need to exchange my certificate?				5
Who can help answer my questions?				5
SPECIAL FACTORS				5
Introduction				5
Background and Reasons for the Reverse Split				5
Certain Effects of the Reverse Split				6
Effects of the Reverse Split on Cashed-Out Shareholders				7
Effects of the Reverse Split on Remaining Shareholders				8
Financing of the Reverse Split				8
Certain Federal Income Tax Consequences				8
Fees and Expenses				9
Fairness Determination by Filing Persons				9
No Unaffiliated Representative				10
Approvals Required for the Reverse Split				10
Approval of Unaffiliated Shareholders is not Required				10
Appraisal/Dissenters' Right of the Company's Shareholders				10
Effective Date of the Reverse Split				10
Exchange of Certificates; Payment for Fractional Shares				10
STOCK OWNERSHIP				10


FINANCIAL INFORMATION				12
Summary Financial Information				12
MARKET FOR COMMON STOCK AND DIVIDENDS				14
PRIOR STOCK PURCHASES				14
PROPOSAL 2 - ELECTION OF DIRECTORS				14
The Board of Directors and its Committees				16
Board of Directors				16
Audit Committee				16
Compensation Committee				16
Nominating and Corporate Governance Committee				16
Code of Ethics				17
PROPOSAL 3 - AMENDMENT OF ARTICLES OF INCORPORATION TO CHANGE THE COMPANY'S NAME				17
Introduction				17
Reasons for Name Change				17
DIRECTORS AND EXECUTIVE OFFICERS				17
Compensation of Directors				18
Executive Compensation				18
Employment Agreements				19
Equity Compensation Plan Information				20
Option Grants in Fiscal Year Ended September 30, 2005				20
Option Exercises and Year-End Values				21
Compensation Committee Report				21
Compensation Committee Interlocks and Insider Participation				22
Audit Committee Report				22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS				23
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT				23
AUDIT AND OTHER FEES				24
PROPOSALS OF SHAREHOLDERS FOR PRESENTATION AT NEXT ANNUAL MEETING OF SHAREHOLDERS				24
ANNUAL REPORT ON FORM 10-KSB				24
WHERE YOU CAN FIND MORE INFORMATION				24
OTHER BUSINESS				25

Advanced Nutraceuticals, Inc.
106 South University Boulevard, Unit 14
Denver, Colorado 80209
Telephone: (303) 722-4008

ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ________, 2006

This proxy statement contains information related to the annual meeting of shareholders of Advanced Nutraceuticals, Inc. to be held on________, 2006, beginning at 10:00 a.m. (Denver, Colorado time) at the offices of Brownstein Hyatt & Farber, P.C., 410 Seventeenth Street, 22^nd Floor, Denver, Colorado 80202, and at any postponements or adjournments thereof.

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

What is the purpose of the meeting?

At our annual meeting, shareholders will act upon the following matters:

To reverse split our common stock on the basis of one share for each 500 shares currently outstanding.

To elect five directors.

To amend the our Articles of Incorporation to change our name to Bactolac Pharmaceutical, Inc.

To transact such other business as may properly come before the meeting.

The purpose of the reverse stock split is to allow us to eliminate the substantial expenses of being a Securities and Exchange Commission reporting company under the Securities Exchange Act of 1934, as amended. If approved and completed, the reverse split will reduce the number of record shareholders of the company to fewer than 300, and will allow us to terminate the registration of our common stock under the Securities Exchange Act. As a result of the reverse split, holders of record of less than 500 shares will receive $3.20 per share in exchange for their shares and holders of 500 or more shares will remain shareholders of the company following the reverse split. Our common stock will be removed from quotation on the OTC Bulletin Board following the reverse split and there is not expected to be an active trading market for our common stock following the reverse split, although a market may develop in the “Pink Sheets”. The reverse split requires the approval of a majority of the outstanding shares of our common stock present and entitled to vote at the annual meeting.

This document provides you with detailed information about the proposed reverse stock split and the other matters to be voted upon at the annual meeting. Please see the “Summary Term Sheet” and the other material referred to herein for important additional information and “Where You Can Find More Information” on page 34 for additional information about the Company on file with the SEC.

THE REVERSE STOCK SPLIT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

Who is entitled to vote?

Only shareholders of record at the close of business on the record date, May 16, 2006, are entitled to receive notice of the annual meeting and to vote the shares of common stock that they held on that date at the meeting, or any postponement or adjournment of the meeting. Each outstanding share entitles its holder to cast one vote on each matter to be voted upon at the meeting.

Who can attend the meeting?

All shareholders as of the record date, or their duly appointed proxies, may attend the meeting. Seating, however, is limited. Admission to the meeting will be on a first-come, first-served basis. Registration and seating will begin at 9:45 a.m. (Denver, Colorado time) and the meeting will begin at 10:00 a.m. (Denver, Colorado time). Each shareholder may be asked to present valid picture identification, such as a driver’s license or passport. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

Many of you hold your shares in “street name,” that is, through a broker or other nominee. If you hold your shares in street name, you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the meeting.

What constitutes a quorum?

The presence at the meeting, in person or by proxy, of the holders of one-third of the shares of common stock outstanding on the record date will constitute a quorum, permitting the meeting to conduct its business. As of the record date, 4,733,678 shares of common stock were outstanding and entitled to vote at the meeting. Thus, the presence of the holders of common stock representing at least 1,577,893 shares will be required to establish a quorum.

Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting.

How do I vote?

If you complete and properly sign the accompanying proxy card and return it to us, it will be voted as you direct. If you are a registered shareholder and attend the meeting, you may deliver your completed proxy card in person. “Street name” shareholders who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares.

Can I change my vote after I return my proxy card?

Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised by filing with our Corporate Secretary either a notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy holders will be suspended if you attend the meeting in person and so request, although attendance at the meeting will not by itself revoke a previously granted proxy.

What are the board of directors’ recommendations?

Our board of directors recommends a votefor approval of the reverse stock split,for election of the nominated slate of directors andfor amendment of our Articles of Incorporation to change our name.

You should note that all of our directors who own shares, own more than 500 shares and expect to remain shareholders after the reverse split. No director or executive officer is expected to receive cash in the reverse split.

Our board of directors’ recommendation is also set forth together with the description of each item in this proxy statement. Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of our board of directors. All of our directors have indicated that they intend to vote for approval of each of the proposals in the proxy statement.

With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by our board of directors or, if no recommendation is given, in their own discretion.

What vote is required to approve each item?

For each item other than the election of directors, the affirmative vote of the holders of a majority of the shares represented in person or by proxy and entitled to vote on the matter is required for approval. Directors shall be elected by a plurality of the votes cast by shareholders entitled to vote in the election of directors.

•

"WITHHOLD AUTHORITY"with respect to the election of one or more directors; or

•

"ABSTAIN"with respect to any other matters

will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, such a proxy will have the effect of a negative vote. A properly executed, but unmarked proxy will be votedfor the election of the nominated slate of five directors andfor each of the other proposals.

What are “broker non-votes” and how will they be counted?

“Broker non-votes” occur when you hold your shares in “street name” through a broker or other nominee, and you do not give your broker or nominee specific instructions on your proxy card. If you fail to complete your proxy card:

•

your broker or nominee may not be permitted to exercise voting discretion with respect to some of the matters to be acted upon; and

•

your shares may not be voted on those matters and will not be counted in determining the number of shares necessary for approval.

Broker non-votes will have the effect of a negative vote. Shares represented by “broker non-votes” will be counted in determining whether there is a quorum.

Who will bear the cost of soliciting proxies?

We will bear the cost of soliciting proxies, including expenses in connection with preparing and mailing this proxy statement. In addition, we will reimburse brokerage firms and other persons representing you for their expenses in forwarding proxy material to you. Our directors, officers and employees may also solicit you by telephone and other means, but they will not receive any additional compensation for the solicitation.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

Certain information contained in this proxy statement that does not relate to historical information may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Such statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, but there can be no assurance that management’s expectation, beliefs or projections will be achieved or accomplished. Actual events or results may differ materially as a result of risks facing us. Such risks include, but are not limited to, changes in business conditions, the general economy, competition, changes in product offerings, as well as regulatory developments that could cause actual results to vary materially from the future anticipated results indicated, expressed or implied, in such forward-looking statements. We disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date hereof.

PROPOSAL 1
APPROVAL OF REVERSE STOCK SPLIT
SUMMARY TERM SHEET

This summary highlights selected information from this proxy statement regarding the reverse stock split and may not contain all of the information that is important to you. For a more complete description of the terms and conditions of the reserve stock split and its effects, you should carefully read this entire document, the attachments, and any other documents to which we refer.

•	*Why are we proposing the reverse split?*

The purpose of the reverse split is to reduce the number of shareholders of record below 300, which will enable us to terminate the registration of our common stock under the Securities Exchange Act.

By terminating our registration under the Securities Exchange Act, we hope to:

•

Achieve significant savings in ongoing legal, accounting and other administrative costs associated with being a public company and related to the reporting process and shareholder communications required by the Securities Exchange Act;

•

Avoid significant expenses and efforts that would be necessary for us to comply with additional procedures relating to internal control that otherwise are required by year-end 2007 under the Sarbanes-Oxley Act and SEC regulations; and

•

Enable management, employees, and the board of directors to focus their efforts on the operations and management of the Company’s business, rather than the reporting processes.

See “Special Factors – Introduction” and “Special Factors – Background and Reasons for the Reverse Split.”

•	*What are the effects of the reverse split?*

The number of our issued and outstanding shares will be reduced from 4,733,678 to approximately 9,467. Shareholders owning less than 500 shares will receive cash for their fractional shares based on the market price of our common stock. The percentage ownership of the company held by the remaining shareholders following the reverse split will increase on a proportionate basis as a result of the elimination of fractional shares.

In addition, after we terminate the registration of our common stock, we will no longer prepare and file quarterly, annual, and other reports and proxy statements with the Securities and Exchange Commission. We will continue to issue reports and proxy materials, but these may not contain all of the information that is contained in the annual report and proxy statements that we currently distribute. Further, after we terminate the registration of our common stock, we will not be eligible for future quotation or listing on any stock exchange or organized market.

See “Special Factors – Effects of the Reverse Split, ” “Special Factors – Effects of the Reverse Split on Cashed-Out Shareholders” and “Special Factors – Effects of the Reverse Split on Remaining Shareholders.”

•	*How does the board of directors recommend that I vote?*

Our board of directors has unanimously approved the reverse split and recommends that you vote in favor of the reverse split. You should note that all of our directors who own shares, own more than 500 shares and will thereafter remain shareholders after the reverse split. No director or executive officer is expected to receive cash in the reverse split.

See “Questions and Answers about the Annual Meeting – What are the Board of Directors’ Recommendations?,” “Questions and Answers about the Annual Meeting – How does the Board of Directors Recommend that I Vote?” and “Special Factors – Introduction.”

•	*Does the board of directors believe that the terms of the reverse split are fair?*

Yes. Our board of directors believes that the terms of the reverse split are fair, including the amount to be paid per fractional share, and in our best interest and in our shareholders’ best interest. In reaching its conclusion, our board of directors considered, among other things:

•

The matters discussed in “Special Factors – Introduction”, “Special Factors –Background and Reasons for the Reverse Split” and “Special Factors –Fairness Determination.”

•

Our current financial position and its available sources of liquidity.

•

Our business and financial prospects.

•	*What are the federal income tax consequences of the reverse split?*

The reverse split will be considered a “recapitalization” under applicable federal tax laws and regulations. Therefore, no gain or loss should be recognized by the company or the remaining shareholders. However, shareholders whose fractional shares following the reverse split are repurchased by us will recognize gain for federal income tax purposes to the extent that the payment made to them exceeds the shareholder’s tax basis in his or her shares. See “Special Factors – Certain Federal Income Tax Consequences.”

•	*Do I have appraisal or dissenters’ right?*

No. See “Summary Term Sheet–Do I have appraisal or dissenters’ rights?"

•	*Which approvals are required to effect the reverse split?*

Our shareholders and CapitalSource Finance LLC, our lender, need to approve the reverse split. See “Special Factors – Approvals Required for the Reverse Split.”

•	*Do I need to exchange my certificate?*

If the reverse split takes place, you can exchange, if you wish, your certificate. See “Special Factors – Exchange of Certificates.”

•	*Who can help answer my questions?*

If you have additional questions about the reverse split, you should contact Gregory Pusey, President and Chief Executive Officer, at Advanced Nutraceuticals, Inc., 106 South University Boulevard, Unit 14, Denver, Colorado 80209, telephone (303) 722-4008.

SPECIAL FACTORS

Introduction

Our board of directors has unanimously adopted resolutions approving a proposal to effect a reverse split of our common stock, subject to the approval of our shareholders. The reverse split, when approved, will combine our outstanding common stock on a one share for 500 shares basis. In other words, once the reverse split takes place, every 500 shares of common stock held by shareholders will be reduced to one share. Accordingly, the 4,733,678 shares currently issued and outstanding will be reduced to approximately 9,467 shares (subject to rounding and prior to the purchase of any fractional shares) issued and outstanding, and the number of record shareholders is expected to be reduced from approximately 3,000 to approximately 50.

Background and Reasons for the Reverse Split

In July 2002, the Public Company Accounting Reform and Investor Protection Act of 2002, commonly referred to as Sarbanes-Oxley, was signed into law. Since then, the SEC has issued and adopted a substantial body of new and revised regulations and disclosure requirements to implement the requirements of Sarbanes-Oxley. As a result of the implementation of these new provisions, management and the board of directors became concerned that the new procedures and disclosures required to comply with Sarbanes-Oxley would significantly increase the management, staff, and board of directors time and resources dedicated to the securities reporting and disclosure process, including the time needed for training employees in the particulars of the new provisions and additional procedures involved in the management attestations and certifications of internal controls and financial statements. Concern also arose with respect to potential increases in expenses incurred for those processes, including the fees of counsel, accountants, and other compliance advisors and service providers. The board of directors and management were also concerned about the potential additional civil and criminal proceedings or liabilities to which the President and Chief Financial Officer could become subject as a result of the new financial statement certification requirements, our potential liability to indemnify them if they successfully defended themselves, and the costs of our participation in any such suit, investigation or proceeding.

The primary purpose of the reverse split is to reduce the number of holders of our common stock below 300, which will enable us to suspend filing periodic and annual reports with the SEC and to no longer incur the significant costs of complying with the reporting requirements of the Securities Exchange Act. The elimination of those requirements will allow management to refocus the time spent preparing reporting documents and engaging in securities law compliance activities to the pursuit of operational and business goals. In considering the proposed amendments, our board of directors considered the benefits and costs to us and our shareholders set forth below.

•

We believe that as a result of the reverse split we will be able to realize cost savings of at least approximately $200,000 annually by eliminating the requirements to make periodic public reports and by reducing the expenses of shareholder communications, including legal expense ($60,000), audit and accounting expense ($40,000), printing expense ($15,000), postage ($8,000), data entry, stock transfer and other administrative expenses ($5,000), as well reduced staff and management time ($75,000) spent on reporting and securities law compliance matters. In addition, we will avoid the costs of initial compliance with the internal control over financial reporting systems requirements of the Sarbanes-Oxley Act, currently expected to be required for public companies of our size by year-end 2007, which are estimated to range from $150,000 to $200,000, and continued annual costs of related compliance and reporting in amounts not determined. Our board of directors believes that the increased disclosure and procedural requirements will result in continuing increased legal, accounting and administrative expense, and diversion of board of directors, management and staff effort without a commensurate benefit to our shareholders.

•

Given the limited trading in our common stock, our board of directors does not believe that the costs of reporting are justified. Our earnings are sufficient to permit our expected growth and we are not dependent on access to the capital markets to obtain additional financing. If it becomes necessary to raise additional capital, we believe that there are adequate sources of additional capital available through private or institutional sales of equity or debt securities, although we recognize that there can be no assurance that we will be able to raise additional capital when required, or that the cost of such capital will be attractive.

•

The reverse split is expected to result in the cashing-out at a price determined to be fair by our board of directors of the equity interest of approximately 2,950 record shareholders (98%) of our common stock who own less than 500 shares of our common stock on the record date.

•

Our board of directors has determined that the price to be paid for the shares of our common stock to be cashed out in the reverse split is fair, and that the transaction is fair to our remaining shareholders.

•

The reverse split will enable small shareholders to divest themselves of their positions without the expenditure of efforts disproportionate to the value of their holdings, without transaction expenses and at a price which reflects the current market value of our common stock.

•

The reverse split and deregistration will have an impact on the ability to trade our common stock, as our common stock will not longer be available for quotation on the OTC Bulletin Board. Trades will continue to be the result of direct communications between buyers and sellers, although a market may develop in the “Pink Sheets.”

•

Operating as a private company will allow management to better focus its efforts on the operations of the company.

•

The reverse split and deregistration will permit a significant number of our shareholders to continue as shareholders and to enjoy the benefits of share ownership, including dividends, when, as and if declared, and potential capital appreciation. Currently, under our senior credit facility we are prohibited from paying dividends. At the same time, we will be relieved of significant expense and diversion of management time and effort, which may result in improved operating efficiencies and reduced need for additional compliance-related employees, and in potentially increased net earnings.

Certain Effects of the Reverse Split

The following table illustrates the principal effects of the reverse split on the our common stock based on the number of shares issued and outstanding as of the date hereof, and the number of shares authorized resulting from approval of the proposal.


Authorized common stock	20,000,000	20,000,000
Issued and outstanding
common stock	4,733,678	9,467
Common stock available	15,266,322	19,990,533
for issuance

(1)

Prior to the repurchase of any fractional shares. We expect to purchase approximately 340 fractional shares after the reverse split.

In addition, we believe that the reverse split will reduce the number of record shareholders from approximately 3,000 to approximately 50.

Fractional shares will be paid in cash based upon the average closing bid price of the our common stock on the OTC Bulletin Board for the 10 trading days prior to the annual meeting. Shares of common stock issued pursuant to the reverse split will be fully paid and nonassessable. The reverse split will not alter the relative voting and other rights of holders of the common stock, and each share of common stock will continue to entitle its owner to one vote.

As a result of the reverse split, the number of shares of our common stock presently outstanding will be consolidated but the number of shares of common stock authorized for issuance will remain unchanged at 20,000,000. Accordingly, we will have the ability to issue more shares of common stock than is presently the case without additional shareholder approval. Doing so may have a dilutive effect on the equity and voting power of our existing shareholders.

The reverse split will not affect our shareholders’ equity as reflected on our financial statements, except to change the number of issued and outstanding shares of common stock and to reduce additional paid-in capital to the extent we pay cash for fractional shares. Accordingly, the payment of cash will reduce our shareholders’ equity and shares of our common stock outstanding.

Once our common stock is no longer held by 300 or more shareholders of record, we will suspend filing reports required by the Securities Exchange Act. Suspension of our reporting obligations under Section 13 of the Securities Exchange Act and the Sarbanes-Oxley Act will substantially reduce the information we are required to furnish to our shareholders and to the SEC. It would also make certain provisions of the Securities Exchange Act, such as proxy statement disclosure in connection with shareholder meetings and the related requirement of an annual report to shareholders, no longer applicable to us. Accordingly, we estimate it will eliminate costs and expenses associated with continuance of the Securities Exchange Act registration, currently estimated at approximately $200,000 per year. In addition, we will avoid the costs of initial compliance with the internal control systems requirements of the Sarbanes-Oxley Act, currently expected to be required for public companies of our size by year-end 2007, which are estimated to range from $150,000 to $200,000, and continued annual compliance costs related to those requirements in amounts not determined. We intend to apply for such suspension of registration as soon as practicable following completion of the reverse split.

Effects of the Reverse Split on Cashed-Out Shareholders

Upon consummation of the reverse split, shareholders owning less than 500 shares immediately prior to the reverse split will:

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Receive $3.20 in cash, without interest, per share;

•

Not be required to pay any brokerage commissions or other service charges in connection with the reverse split;

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No longer have any equity interest in the company and therefore will not participate in our future potential earnings or growth, if any, as a shareholder; and

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Be required to pay federal and, if applicable, state and local income taxes on the cash amount received for the purchase of fractional shares. See “Special Factors–Certain Federal Income Tax Consequences.”

Effects of the Reverse Split on Remaining Shareholders

The effects of the reverse split on shareholders owning 500 or more shares immediately prior to the effective time of the reverse split will include:

•

Continued Ownership of Shares. Shareholders who own 500 or more shares immediately prior to the effective time of the reverse split will continue to be shareholders of the company;

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Increased Ownership Percentage. Remaining shareholders will have an increased ownership percentage in the company as a result of the reverse split;

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Decreased Liquidity. The liquidity of the shares of our common stock held by remaining shareholders will decrease by the reverse split due to the reduced number of shares of common stock outstanding and the fact that our common stock will not longer be available for quotation on the OTC Bulletin Board; and

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Decreased Access to Information. If the reverse split is effected, we intend to suspend our reporting obligations to the SEC under the Securities Exchange Act. As a result, we will no longer be subject to the periodic reporting requirements and the proxy rules of the Securities Exchange Act.

Financing of the Reverse Split

To fund the repurchase of fractional shares resulting from the reverse split, we expect to utilize a combination of available cash on hand and a funds available under the revolving portion of our senior secured credit facility with CapitalSource Finance LLC.

Under our credit facility, we have a revolving credit line in an amount up to $2,500,000 subject to the terms and conditions contained in our agreements with our lender. The term of the revolver is three years from July 2005. The revolver bears interest at the applicable prime rate plus 0.5% (subject to a floor of 6.25%). Principal under the revolver will vary daily depending upon our draws and cash collection and interest will be due and payable monthly. We intend to repay amounts borrowed under the credit facility for the purchase of fractional shares with available cash flow.

The credit facility is guaranteed by our subsidiaries and is secured by all of our assets, all of the assets of our subsidiaries and all of the capital stock of our subsidiaries. A default interest rate will apply in the event of a default on any loans under the credit facility at a rate per annum of 3.0% above the then applicable rate of interest under the credit agreement.

The credit agreement contains representations, warranties and conditions to borrowing, covenants and events of default customary for facilities of this nature. Among the financial covenants contained in the credit agreement, we are required to maintain compliance with a minimum “fixed charge coverage ratio, maximum “senior leverage ratio” and “capital expenditures” and a minimum “EBITDA” requirement (as such terms are defined in the credit agreement). All borrowings under the credit facility are subject to conditions precedent that include, among other things, requirements relating to prior notice of borrowing, the accuracy of representations and warranties contained in the credit agreement and the absence of any “default” or “event of default” (as such terms are defined in the credit agreement).

Certain Federal Income Tax Consequences

The following is a summary of the material anticipated federal income tax consequences of the proposed reverse split. This summary is based upon existing law which is subject to change by legislation, administrative action and judicial decision, and is necessarily general. In addition, this summary does not address any consequence of the reverse split under any state, local or foreign tax laws. Accordingly, this summary is not intended as tax advice to any person or entity, and we advise you to consult with your own tax advisor for more detailed information relating to your individual circumstances.

We understand that the reverse split will be a “recapitalization” under applicable federal tax laws and regulations. As a result of such tax treatment, no gain or loss should be recognized by us or our shareholders as a result of the reverse split or the exchange of pre-reverse split shares for post-reverse split shares. A shareholder’s aggregate tax basis in his or her post-reverse split shares should be the same as his or her aggregate tax basis in the pre-reverse split shares. In addition, the holding period of the post-reverse split shares received by such shareholder should include the period during which the pre-reverse split shares were held, provided that all such shares were held as capital assets in the hands of the shareholder at the time of the exchange.

The receipt of cash for the fractional shares will be taxable for United States federal income tax purposes. The shareholders holding fractional shares will be treated as either having sold the shares of our common stock for the cash received or as having received the cash as a dividend. In general, the receipt of cash in exchange for the shares of our common stock will be treated as a sale or exchange and these shareholders will recognize gain or loss in an amount equal to the cash received less their adjusted tax basis of their shares exchanged for such cash if they actually and constructively own no shares of our common stock immediately after the reverse split. If such shareholders actually or constructively own shares of our common stock after the reverse split, their receipt of cash in exchange for their shares of our common stock may be taxed as a dividend.

Fees and Expenses

We estimate that the reverse split related fees and expenses will total approximately $50,000, assuming the reverse split is completed. This amount consists of the following estimated fees:

Description	Amount
Legal fees and expenses		15,000
Accounting fees and expenses		5,000
SEC filing fee		59
Printing, solicitation and mailing costs		29,941

Total:	$	50,000

Fairness Determination

Our directors and executive officers, in determining the fair value of our common stock for purposes of purchasing fractional shares have considered, among other information, (a) historical market prices per share, (b) net book value per share, (c) estimated going concern value, (d) estimated liquidation value and (e) non-binding contingent offers to buy or merge the company from unaffiliated third parties during the past two years. Based upon these considerations, for purposes of the repurchase of fractional shares, it was determined that the average of the closing public market prices on the OTC Bulletin Board for the 10 days preceding the annual meeting reflects fair value for such transactions.

Our directors and executive officers are deemed to be “filing persons” under the SEC rules that govern going-private transactions. These rules require each filing person to state whether he or she believes that the transaction is fair to unaffiliated security holders. The filing persons consist of the individuals listed under the caption “Directors and Executive Officers.”

In forming his or her belief as to the fairness of the transaction to the unaffiliated shareholders, each of the filing persons has relied upon the factors considered by our board of directors and has adopted our board of directors’ analysis and conclusions. See “Summary Term Sheet,” “Special Factors — Introduction,” “Special Factors – Background and Reasons for the Reverse Stock Split” and “Special Factors – Effects of the Reverse Split.” Based on those factors, each of the filing persons believes that the reverse split and the process by which the transaction was approved are fair to each of the unaffiliated shareholders, including those whose fractional shares resulting from the reverse split will be repurchased by us and those who will retain their shares of our common stock. The filing persons have not received any report, opinion, or appraisal from an outside party that is materially related to the reverse split. The belief of each of the filing persons is his or her individual belief and does not constitute investment advice. If a shareholder is unsure of whether to vote in favor of the reverse split, that shareholder should consider the recommendation of our board of directors or consult with the shareholder’s personal financial advisor.

In reaching its conclusion, our board of directors also determined that the reverse split is in the best interests of unaffiliated shareholders who will receive cash in the reverse split as well as those who will retain their shares of common stock after the reverse split. Our board of directors also believes that the process by which the transaction was approved is fair to all of our shareholders, and fair to unaffiliated shareholders receiving cash for their fractional shares as well as those unaffiliated shareholders who will retain their shares after the reverse split.

Finally, each of our directors and executive officers has advised us that he intends to vote his shares in favor of the reverse split for the reasons described above. As of May 15, 2006, our directors and executive officers beneficially own a total of 3,244,231 shares of our outstanding common stock, or approximately 68.5% (not including any shares that may be acquired pursuant to the exercise of outstanding stock options), of the total shares entitled to vote at the annual meeting. Accordingly, the reverse split will be approved without the need of the approval of the remaining shareholders.

No Unaffiliated Representative

The majority of our directors who are not employees has not retained an unaffiliated representative to act solely on behalf of our unaffiliated shareholders for purposes of negotiating the terms of the reverse split and/or preparing a report concerning the fairness of the reverse split.

Approvals Required for the Reverse Split

Under Texas law and our charter documents, we are required to seek and obtain the approval of our shareholders to consummate the reverse split. In addition, pursuant to the terms of our credit facility with CapitalSource Finance LLC, we must receive our lender’s approval in order to consummate the reverse split. We are seeking shareholder approval of the reverse split at the annual meeting and although we have not yet received our lender’s consent, we expect to receive that consent in the form of an amendment to our credit agreement prior to the annual meeting.

Approval of Unaffiliated Shareholders is not Required

The reverse split does not require the approval of at least a majority of our unaffiliated shareholders.

Appraisal/Dissenters’ Right of the Company’s Shareholders

Under Texas law, our shareholders do not have any appraisal or dissenters’ rights with respect to the reverse split.

Effective Date of the Reverse Split

If the proposal is approved by our shareholders and lender, we anticipate that the reverse stock split will become effective on or about________, 2006. After the reverse split is effective, certificates representing shares of pre-reverse split common stock will be deemed to represent only the right the receive the appropriate number of shares of post-reverse split common stock or the market price for fractional shares resulting from the reverse split.

Exchange of Certificates; Payment for Fractional Shares

Our shareholders are not being asked to exchange their certificates at this time. However, shareholders holding 500 or more shares of our common stock prior to the reverse split are entitled to do so if the reverse split takes place, if they wish, by contacting our transfer agent, Corporate Stock Transfer, Denver, Colorado. Otherwise, certificates representing pre-reverse split shares will be exchanged for certificates reflecting post-reverse split shares at the first time they are presented to the transfer agent for transfer. In the event the reverse split is approved, shareholders of record holding less than 500 shares prior to the reverse split will receive a transmittal letter from our transfer agent instructing them to submit their stock certificates to the transfer agent for payment. Shareholders holding less than 500 shares of our common stock in “street name” prior to the reverse split will automatically be paid for such shares through their broker or other nominee without taking any action.

_________________

The board of directors recommends a votefor
the approval of the reverse stock split.

_________________

STOCK OWNERSHIP

The following table sets forth certain information as of May 15, 2006 concerning stock ownership by all persons who hold of record or are known by us to hold beneficially of record 5% or more of the outstanding shares of our common stock, our current directors and executive officers and by all current directors and executive officers as a group. Our directors and executive officers have indicated that they intend to votefor each of the proposals in this proxy statement.

Except as otherwise noted, the persons named in the table own the shares beneficially and of record and have sole voting and investment power with respect to all shares of common stock shown as owned by them, subject to community property laws, where applicable. The table also reflects all shares of common stock which each individual has the right to acquire within 60 days from May 15, 2006 upon exercise of stock options.

Beneficial Owner			Percentage of Ownership
Pailla M. Reddy	2,426,496	⁽¹⁾		50	.5%
7 Oser Avenue
Hauppauge, NY 11788

Gregory Pusey	501,441	⁽²⁾		10	.4%
106 S. University, #14
Denver, CO 80209

Jeffrey G. McGonegal	278,865	⁽³⁾	��	5	.8%
1905 West Valley Vista Drive
Castle Rock, CO 80109

F. Wayne Ballenger	50,417	⁽⁴⁾		1	.1%
3134 Meadway Drive
Houston, TX 77082

Randall D. Humphreys	324,690	⁽⁵⁾		6	.9%
9150 Glenwood
Overland Park, KS 66212

David E. Welch	26,072	⁽⁶⁾		0	.6%
1729 E. Otero Ave
Centennial, CO 80122

All Officers and Directors as a Group	3,607,981	^{(1) - (6)}		70	.8%
(Six Persons)

(1)	Includes options to acquire 70,000 shares of our common stock at $4.345 per share.

(2)

Includes (i) 24,712 shares held by Mr. Pusey’s wife and children, (ii) 174 shares held by Cambridge Holdings, Ltd., a corporation in which Mr. Pusey is the President and a principal shareholder and (iii) options to acquire (a) 12,500 shares of our common stock at $11.36 per share and (b) 60,000 shares of our common stock at $4.345 per share.

(3)	Includes (i) 1,371 shares held in the name of McGonegal Family Partnership and (ii) options to acquire (a) 25,000 shares of our common stock at $9.00 per share, (b) 25,000 shares of our common stock at $2.25 per share and (c) 60,000 shares of our common stock at $3.95 per share.

(4)

Includes options to acquire (i) 6,250 shares of our common stock at $11.36 per share, (ii) 12,500 shares of our common stock at $1.16 per share, (iii) 10,000 shares of our common stock at $.46 per share, (iv) 6,667 shares of our common stock at $.52 per share, (v) 5,000 shares of our common stock at $.72 per share and (vi) 10,000 shares of our common stock at $3.95 per share. Does not include options to acquire 3,333 shares of our common stock at $.52 per share which become exercisable in December 2006.

(5)

Includes (i) 280,523 shares of our common stock held by Glenwood Capital Partners I, LP, a partnership in which Mr. Humphreys is the general partner and (ii) options to acquire (a) 12,500 shares of our common stock at $1.26 per share, (b) 10,000 shares of our common stock at $.46 per share, (c) 6,667 shares of our common stock at $.52 per share, (d) 5,000 shares of our common stock at $.72 per share and (d) 10,000 shares of our common stock at $3.95 per share. Does not include options to acquire 3,333 shares of our common stock at $.52 per share which become exercisable in December 2006.

(6)

Includes options to acquire (i) 3,333 shares of our common stock at $.63 per share, (ii) 3,333 shares of our common stock at $.52 per share and (iii) 10,000 shares of our common stock at $3.95 per share. Does not include options to acquire 3,333 shares of our common stock at $.52 per share which become exercisable in December 2006.

FINANCIAL INFORMATION

Our annual report on Form 10-KSB for the year ended September 30, 2005 and our quarterly report on Form 10-QSB for the period ended March 31, 2006 are being mailed to our shareholders together with this proxy statement, but they are not part of our proxy solicitation materials.

The impact of the reverse split and corresponding repurchase of fractional shares is not expected to have a material effect on our financial position and, accordingly, no pro forma disclosure of the transaction is presented.

Summary of Financial Information Table

Condensed Consolidated Statements of Operations
(in thousands except per share data)

	Six Months Ended March 31,						Year Ended September 30,
	2006			2005			2005			2004
Net sales	$	12,437		$	10,016		$	22,932		$	17,639
Cost of sales		8,734			6,885			16,602			11,611
General and
administrative expenses		1,737			1,511			3,309			2,849

Operating income		1,967			1,620			3,021			3,179

Other income (expense)		(315	)		(105	)		(224	)		(276	)

Income from continuing operations
before income tax expense		1,652			1,515			2,797			2,903

Income tax expense (benefit)		638			530			918			(1,332	)

Income from continuing operations		1,014			985			1,879			4,235

Loss from discontinued operations, net of
deferred income tax benefit of $663		—			—			—			(1,187	)
Net income (loss)	$	1,014		$	985		$	1,879		$	3,049

Basic earnings (loss) per share:
Income from continuing operations	$	0.22		$	0.19		$	0.36		$	0.84	)

Loss from discontinued operations	$	0.20		$	0.17			—			($ 0.23	)

Net income	$	0.22		$	0.19		$	0.36		$	0.61

Diluted earnings (loss) per share:
Income from continuing operations	$	0.22		$	0.19		$	0.32		$	0.74

Loss from discontinued operations	$	0.22		$	0.19			—			($ 0.21	)

Net income	$	0.22		$	0.19		$	0.32		$	0.53

Weighted average shares outstanding
Basic		4,669			5,097			5,191			5,029

Diluted		5,000			5,961			5,897			5,729

Ratio of Earnings to Fixed Charges
(in thousands)



Earnings:
Income from continuing operations
before income tax expense	$	1,652	$	1,515	$	2,797	$	2,903
Fixed charges - interest		325		114		251		281

Total earnings	$	1,977	$	1,629	$	3,048	$	3,184

Fixed Charges:
Interest	$	325	$	114	$	251	$	281

Ratio of earnings to fixed charges		6.1 to 1		14.3 to 1		12.1 to 1		11.3 to 1

Condensed Consolidated Statements of Cash Flows
(in thousands)



Cash flows provided (used) in operating activities:
Continuing operations	$	(455	)	$	904		$	2,918		$	2,594
Discontinued operations		—			—			—			(492	)
Net cash flows from operating activities		(455	)		904			2,918			2,102

Cash flows provided (used) in investing activities:
Continuing operations		(350	)		(302	)		(2,067	)		(243	)
Discontinued operations		—			109			109			—
Net cash flows from investing activities		(350	)		(193	)		(1,958	)		(243	)

Cash flows provided (used) in financing activities:
Continuing operations		2,037			(1,222	)		(2,068	)		(168	)
Discontinued operations		—			—			—			(4,338	)
Net cash flows from financing activities		2,037			(1,222	)		(2,068	)		(4,506	)

Net increase (decrease) in cash		1,232			(510	)		(1,109	)		743
Cash at beginning of period		678			1,787			1,787			1,044

Cash at end of period	$	1,909		$	1,277		$	678		$	3,049

Condensed Consolidated Balance Sheets
(in thousands)

	March 31, 2006		September 30, 2005
ASSETS

Current assets	$	10,846	$	8,204
Fixed assets, net		3,004		2,848
Other assets		8,089		8,126

Total assets	$	21,939	$	19,178

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities	$	5,955	$	3,632
Long term liabilities		2,126		2,703
Stockholders' equity		13,858		12,843

Total liabilities and stockholders' equity	$	21,939	$	19,178

Historical Book Value Per Share
(in thousands except per share amounts)


Common shares outstanding		4,734		4,662

Book value per share	$	2.93	$	2.75

MARKET FOR COMMON STOCK AND DIVIDENDS

Our common stock is traded on the OTC Bulletin Board and is not listed on any exchange. The high and low sales prices for each quarter of fiscal 2004 and 2005 are indicated below:

Quarter Ended		High			Low
Fiscal 2004:
December 31, 2003	$	0	.75	$	0	.42
March 31, 2004		1	.05		0	.55
June 30, 2004		5	.25		1	.20
September 30, 2004		4	.70		2	.30

Fiscal 2005:
December 31, 2004		4	.10		2	.15
March 31, 2005		4	.95		3	.25
June 30, 2005		4	.70		3	.25
September 30, 2005		4	.50		3	.51

We did not declare any dividends during the past two years. In addition, we are prohibited from paying any dividend on our common stock without the approval of our lender.

PRIOR STOCK PURCHASES

On July 25, 2005, we purchased, as a result of a self tender offer, 1,058,823 shares of our common stock at a price per share of $4.25 for a total cost of approximately $4.5 million from our stockholders of record on July 27, 2005.

For the past two years, no filing person has purchased any other shares other than upon exercise of stock options under our stock option plan and other than upon exercise of warrants.

PROPOSAL 2
ELECTION OF DIRECTORS

Our board of directors currently consists of five directors. The term of each director expires at the annual meeting.Our board of directors proposes that the five nominees described below, each of whom is currently serving as a member of our board of directors, be re-elected for a term of one year and until their successors are duly elected and qualified.

Each of the nominees has consented to serve a one-year term. If any director should become unavailable to serve as a director, our board of directors may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee designated by our board of directors.

The directors standing for re-election are:

F. Wayne Ballenger, age 58, serves as a loan officer for Small Business Loan Source, LLC, a position he has held since 2003. From 2000 to 2003, he served as a consultant in various financial consulting capacities. He served as President of First Commercial Capital from 1995 to 2000. He has also served as President of Puncture Guard LLC since December 1994. From March 1992 to December 1994, he served as director of sales and marketing for Petrolon, Inc., a multi-level marketing organization. Immediately prior thereto, he served as a vice president of Southwest Bank of Texas with commercial lending responsibilities. Mr. Ballenger received a B.B.A. degree from the University of the South in 1968. Mr. Ballenger became a director of our company in November 1995.

Randall D. Humphreys, age 50, is Chairman and Managing Director of Glenwood Capital, LLC, a position he had held since 2001. From 1997 to 2001, he was the Chairman and Managing Director of Enterprise Merchant Banc, L.L.C. During 1997, he led the diversification effort of St. Joseph Light and Power, a New York Stock Exchange listed utility. During 1996, he served as a financial consultant. From 1986 through 1995, Mr. Humphreys served as the Senior Operations Officer of Brierly Investments Limited. Mr. Humphreys is a graduate of Kansas State University. Mr. Humphreys became a director of our company in June 2001.

David E. Welch, age 58, has been a director of our company since February 2003. Mr. Welch has served as Vice President and Chief Financial Officer of American Millennium Corporation, Inc., a public company located in Golden, Colorado, since April 2004. He also is a self-employed financial consultant. From July 1999 to June 2002, Mr. Welch served as Chief Financial Officer, Secretary and Treasurer of Active Link Communications, Inc., another publicly traded company. During 1998, he served as Chief Information Officer for Language Management International, Inc., a multinational translation firm located in Denver, Colorado. From 1996 to 1997, he was Director of Information Systems for Mircromedex, Inc., an electronic publishing firm, located in Denver, Colorado. Mr. Welch also serves on the boards of directors of AspenBio Pharma, Inc. and Communication Intelligence Corporation, both publicly traded companies.

Gregory Pusey, age 53, has been a director of our company since November 1999. Until May 31, 2004, he also served as Chairman of our board of directors. Effective June 1, 2004, he was elected Chief Executive Officer and President. He has served as President of Livingston Capital, Ltd., a private venture capital firm since 1987. From 1986 to 1994, he served as a consultant to us, including our predecessors, and from 1994 to 1998, he served as a director and consultant to us. Since 1988, Mr. Pusey has been the President and a director of Cambridge Holdings, Ltd., a publicly held real estate and business development firm. Mr. Pusey also serves as Chairman and a director of AspenBio Pharma, Inc., and A4S Security, Inc., both publicly traded companies. Mr. Pusey graduated summa cum laude from Boston College with a B.S. degree in finance in 1974.

Pailla M. Reddy, age 45, has been a director of our company since 1999 and is currently Chairman of our board of directors and Chief Executive Officer and President of Bactolac Pharmaceutical, Inc. We acquired Bactolac in November 1999. Dr. Reddy founded Bactolac and has served as an officer and director of Bactolac since 1995. From 1991 to 1995, he was production manager for Max Pharmaceutical, Inc. From 1983 to 1991, Dr. Reddy held various positions with Wellcome Pharmaceuticals Ltd., including research chemist and production manager. Dr. Reddy received a B.Sc. degree in chemistry from Osmania University in India, and M.Sc. and Ph.D. degrees in organic chemistry from Kanpur University in India.

_________________

The board of directors recommends a vote
forthe election of the nominated slate of directors.

_________________

The Board of Directors and its Committees

Board of Directors

Our board of directors conducts its business through meetings and through its committees. During the year ended September 30, 2005, our board of directors held one meeting. During the fiscal year ended September 30, 2005, no director attended fewer than 100% of the total number of all meetings of our board of directors and any committee on which the director served.

Our board of directors has appointed an audit committee, a compensation committee and a nominating committee. The membership and duties of each committee are summarized below.

Audit Committee

We have a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. David E. Welch (Chairman), Randall D. Humphreys and F. Wayne Ballenger are members of the audit committee. Our board of directors has determined that at least one person on the audit committee, David E. Welch, qualifies as a “financial expert” as defined by Item 401 of Regulation S-B of the Sarbanes-Oxley Act of 2002. Mr. Welch also meets the Securities and Exchange Commission definition of an “independent” director. Our board of directors has adopted a written charter for the audit committee. Our audit committee held four meetings during the fiscal year ended September 30, 2005.

Compensation Committee

The compensation committee of the board of directors has been established to periodically review the compensation philosophy for our executives, and to recommend to our board of directors compensation packages for our executives. The compensation committee also reviews and recommends to our board of directors any additions to or revisions of our stock option plans. The compensation committee consists exclusively of non-employee directors, appointed by resolution of the entire board of directors and currently is comprised of F. Wayne Ballenger (Chairman), Randall D. Humphreys and David E. Welch. Our compensation committee held one meeting during the fiscal year ended September 30, 2005.

The compensation committee’s objective is to set executive compensation at levels which (a) are fair and reasonable to the shareholders, (b) link executive compensation to long-term and short-term interests of our shareholders and (c) are sufficient to attract, motivate and retain outstanding individuals for executive positions.

Nominating and Corporate Governance Committee

The entire board of directors comprises our nominating and corporate governance committee. The nominating and corporate governance committee oversees the process by which individuals may be nominated to our board of directors. While we hope to establish a separate nominating and corporate governance committee consisting of independent directors once the number of directors is expanded, the current size of our board of directors does not facilitate the establishment of a separate committee. Our nominating and corporate governance committee held one meeting during the fiscal year ended September 30, 2005.

The functions performed by the nominating and corporate governance committee include identifying potential directors and making recommendations as to the size, functions and composition of our board of directors and its committees. In making nominations, our nominating and corporate governance committee is required to submit candidates who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who shall be most effective, in conjunction with the other nominees to the board, in collectively serving the long-term interests of our shareholders.

The nominating and corporate governance committee takes the following steps when making its determination as to whether to nominate someone to our board of directors:

•

Establish criteria for selection of potential directors, taking into consideration the following attributes which are desirable for a member of our board of directors: leadership; independence; interpersonal skills; financial acumen; business experiences; industry knowledge; and diversity of viewpoints. The nominating committee will periodically assess the criteria to ensure it is consistent with best practices and our goals.

•

Identify individuals who satisfy the criteria for selection to the board of directors and, after consultation with the chairman of the board of directors, make recommendations to the board of directors on new candidates for board membership.

•

Receive and evaluate nominations for board of directors membership which are recommended by existing directors, corporate officers, or shareholders in accordance with policies set by the nominating and corporate governance committee and applicable laws.

We have not engaged the services of or paid a fee to any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominees.

Code of Ethics

On December 12, 2003, our board of directors adopted a Code of Ethics that applies to all of our officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller. Our Code of Ethics establishes standards and guidelines to assist the directors, officers and employees in complying with both our corporate policies and with the law.

PROPOSAL 3
AMENDMENT OF ARTICLES OF INCORPORATION TO CHANGE THE COMPANY’S NAME

Introduction

Our board of directors has concluded that it is advisable for us to amend our Articles of Incorporation to change our name to Bactolac Pharmaceutical, Inc. If the amendment is approved, Article First of our Articles of Incorporation will be amended to read in its entirety: “The name of the Corporation is Bactolac Pharmaceutical, Inc.”

Reasons for Name Change

Our wholly-owned, Bactolac Pharmaceutical, Inc., comprises all of our business and operations. Accordingly, our board of directors believes that changing our name to Bactolac Pharmaceutical, Inc. will avoid confusion in the marketplace and allow us to focus on building brand awareness, both with our customers and with our investors, in one name rather than two.

Our board of directors has unanimously adopted resolutions setting forth the proposed amendment to the Articles of Incorporation, declaring its advisability and directing that the proposed amendment be submitted to our shareholders for their approval at the annual meeting. If adopted by the shareholders, the name change will become effective upon filing of the appropriate amendment to our Articles of Incorporation with the Secretary of State of the State of Texas, which we currently expect will occur on or about June 28, 2006.

_________________

The board of directors recommends a vote
for the amendment of our Articles of Incorporation to change our name.

_________________

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names and ages of our directors and executive officers:

Name	Age	Position
Dr. Pailla M. Reddy Gregory Pusey Jeffrey G. McGonegal F. Wayne Ballenger Randall D. Humphreys David E. Welch	45 53 55 58 50 58	Chairman and Director President, Chief Executive Officer and Director Senior Vice President - Finance and Secretary Director Director Director

Directors hold office for a period of one year from their election at the annual meeting of shareholders and until their successors are duly elected and qualified. Officers are elected by, and serve at the discretion of, our board of directors. None of the above individuals has any family relationship with any other.

Biographies for the members of our board of directors are set forth above.

Our board of directors has elected the following executive officer who is not a member of our board of directors. It is expected that our board of directors will elect officers annually following each annual meeting of shareholders.

Jeffrey G. McGonegal became our Senior Vice President — Finance in February 2000. Mr. McGonegal also serves as our Secretary. Since 1997, Mr. McGonegal has served as Managing Director of McGonegal and Co., a company engaged in providing accounting and business consulting services. Mr. McGonegal served as a consultant to us in connection with the acquisitions we made in 1999. From 1974 to 1997, Mr. McGonegal was an accountant with BDO Seidman LLP. While at BDO Seidman LLP, Mr. McGonegal served as managing partner of the Denver, Colorado office. Mr. McGonegal also serves as Chief Financial Officer of AspenBio Pharma, Inc. and A4S Security, Inc., both publicly held companies. Mr. McGonegal was elected in 2005 to serve on the board of Imagenetix, Inc., a publicly held company in the nutritional supplements industry, and he is a member of the board of directors of The Rockies Venture Club, Inc. He received a B.A. degree in accounting from Florida State University.

Compensation of Directors

Effective in November 2001, our policy is to pay directors who are not employees of the company $12,000 per year, payable monthly. Directors who are also employees of the company receive no additional compensation for serving as directors. We reimburse our directors for expenses incurred for attendance at meetings of our board of directors.

During the fiscal year ended September 30, 2005, we granted options to each of F. Wayne Ballenger, David E. Welch and Randall D. Humphreys to purchase 10,000 shares each of our common stock at a price of $3.95 per share. The option grants were made pursuant to our 1995 Stock Option Plan. Each option will expire 10 years from the date of grant, except that an option will expire, if not exercised, 30 days after the optionee ceases to be a consultant to the company. Each grant was made at an expense price equivalent to the trading price of our common stock on the date of grant.

Executive Compensation

The following table sets forth certain information regarding compensation paid by us to the chief executive officer and each of our other executive officers during the fiscal years ended September 30, 2003, 2004 and 2005:

Summary Compensation Table

								LONG TERM COMPENSATION
		ANNUAL COMPENSATION						AWARDS				PAYOUTS
Name and Principal Position	Year	Salary ($)		Bonus		Other Annual Compen- sation		Restricted Stock Awards		Options/SARs		LTIP Payouts		All other Compensation (2)
Greg Pusey
President, and	2003	$	144,711	$	—	$	—	$	—		—	$	—	$	—
Chairman of the Board	2004		127,404		19,808		—		—		75,000		—		—
of Directors of ANI	2005		125,000		4,808		—		—		60,000		—		—

Jeffrey G. McGonegal
Senior Vice President	2003		150,000		20,769		—		—		—		—		—
- Finance of ANI	2004		152,885		40,769		—		—		75,000		—		—
	2005		150,000		5,769		—		—		60,000		—		—
Pailla M. Reddy⁽¹⁾
Chairman of the Board of ANI,
President, Chief Executive	2003		250,000		9,616		—		—		—		—		—
Officer and Chairman of the	2004		254,808		109,615		—		—		150,000		—		—
Board of Directors of	2005		250,000		109,615		—		—		70,000		—		—
Bactolac

(1)

Under the terms of Dr. Reddy’s employment agreement, we provide the use of a company car to Dr. Reddy. Payments of approximately $600 per month are made for the car, plus approximately $200 per month in normal operating expenses, including gas and insurance. We have obtained a life insurance policy on Dr. Reddy. The benefit amount of $7,000,000 constitutes “key-man” insurance and is payable to us.

(2)

We provide medical, dental, life and disability coverage as a benefit to its employees. Net coverage paid by us on behalf of each of the listed officers totals approximately $860 per month for each of Mr. Pusey and Mr. McGonegal, and approximately $975 per month for Dr. Reddy.

Employment Agreements

In anticipation of the expiration of our employment agreement with Dr. Reddy, in November 2005, a new two-year agreement was signed. Under the agreement, Dr. Reddy receives an annual salary of $350,000, is entitled to participation in all of our benefit plans which shall be available from time to time to our domestic management employees and may receive a performance bonus at the discretion of Bactolac’s board of directors. (Messrs. Pusey, Reddy and McGonegal serve as the directors of Bactolac.)He is also entitled to continued use of the vehicle that is leased by us. If Dr. Reddy’s employment is terminated by Bactolac prior to the expiration of the term of the employment agreement, Dr. Reddy shall continue to receive his salary until the earlier of (a) 12 months following such date of termination or (b) November 1, 2007. If Dr. Reddy terminates his employment for “Good Reason” (as such term is defined in his employment agreement), Dr. Reddy will be entitled to severance benefits consisting of a lump-sum payment equal to the lesser of (i) his monthly base salary in effect on the date of termination for Good Reason multiplied by a factor of 12 or (ii) his monthly base salary in effect on the date of termination multiplied by the number of months remaining until November 1, 2007. Dr. Reddy’s employment agreement also contains customary confidentiality and non-solicitation provisions.

In February 2003, we entered into an employment agreement with Mr. McGonegal, Senior Vice President — Finance for a two-year term under which he currently receives an annual salary of $100,000 (as revised by mutual verbal agreement between us and Mr. McGonegal during the three months ended March 31, 2006) and may receive a performance bonus at our discretion. The agreement automatically renews annually, unless cancelled by either party.

Equity Compensation Plan Information

The following table gives information about our common stock that may be issued upon the exercise of options under our 1995 Stock Option Plan as of September 30, 2005:

Plan Category		(b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights
Equity Compensation Plans
Approved by Stockholders	655,354	$	2.75	594,646	1,250,000

Equity Compensation Plans
Not Approved by
Stockholders	None		—	—	—


Total	655,354	$	2.75	594,646	1,250,000

Option Grants in Fiscal Year Ended September 30, 2005

The following table sets forth information with respect to stock option grants to our executive officers during the fiscal year ended September 30, 2005:

	Individual Grants									Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation For Option Term
Name	Number of Securities underlying Options/SARs granted (#)		Percent of Total options/SARs granted to employees in fiscal year		Exercise or base price ($/Sh)		Expiration date			5% ($)		10% ($)
Gregory Pusey		60,000		27%	$	4.345		2010	$	—	$	3,300
Jeffrey G. McGonegal		60,000		27%	$	3.95		2015	$	30,000	$	57,000
Pailla M. Reddy		70,000		32%	$	4.345		2010	$	—	$	3,850

Option Exercises and Year-End Values

The following table shows option exercises by our executive officers during the fiscal year ended September 30, 2005 and the number and value of unexercised options at September 30, 2005:

Name		Value Realized ($)		Number of Unexercised Options At Year End (#) Exercisable/ Unexercisable	Value of Unexercised In-the-Money Options at Year End ($) Exercisable/ Unexercisable⁽¹⁾
Gregory Pusey	187,500	$	750,000	97,500/ 0	$84,850/ $0
Jeffrey G. McGonegal	175,000	$	708,750	135,000/ 0	$127,250/ $0
Pailla M. Reddy	291,667	$	1,312,502	103,333/ 0	$113,132/ $0

⁽¹⁾	Based on the price of our common stock of $3.90 on September 30, 2005 as reported by the OTC Bulletin Board

Compensation Committee Report

The compensation committee of our board of directors has been established to periodically review the compensation philosophy for our executives, and to recommend to our board of directors compensation packages for our executives. The committee also reviews and recommends to our board of directors any additions to or revisions of our stock option plan. The committee consists exclusively of non-employee directors, appointed by resolution of the entire board of directors.

The committee’s objective is to set executive compensation at levels which (a) are fair and reasonable to our shareholders, (b) link executive compensation to long-term and short-term interest of our shareholders and (c) are sufficient to attract, motivate and retain outstanding individuals for executive positions.

Fairness to our shareholders is balanced with the need to attract, retain and motivate outstanding individuals by comparing our executive compensation with the compensation of executives at other companies. The committee’s overall goal is to achieve strong performance by the company and our executives by affording the executives the opportunity to be rewarded for strong performance. The committee attempts to provide both short-term and long-term incentive pay. To accomplish its objectives, the committee has structured the executive compensation program with three primary components. These primary components are base salary, annual incentives and long-term incentives.

The committee periodically reviews executive salaries. In addition to the external competitive compensation market, base salary levels reflect each officer’s performance over time and each individual’s role in our company. Consequently, employees with higher levels of sustained performance over time and/or employees assuming greater responsibilities will typically be paid correspondingly higher salaries. Individual performance criteria used to assess performance include leadership, professionalism, initiative and dependability. However, individual performance assessments are made qualitatively and in total, and no specific weightings are attached to these performance indicators, nor is a formula utilized in determining appropriate salary increases or salary levels. Information regarding salary levels is included in the compensation table above.

The committee periodically reviews the performance of executive officers to determine whether bonuses should be paid to those persons. The committee has not established specific performance measures for determining the award of bonuses. The committee believes that bonuses should be provided to reward key employees based on company and individual performance and to provide competitive cash compensation opportunities to our executives. During the year ended September 30, 2005, bonuses of $109,615, $4,808 and $5,769 were paid to Messrs. Reddy, Pusey and McGonegal, respectively. During the year ended September 30, 2004, bonuses of $109,615, $19,808 and $40,769 were paid to Messrs. Reddy, Pusey and McGonegal, respectively.

Our stock option plans are designed to focus executive efforts on our long-term goals and to maximize total return to our shareholders. The committee believes that stock options advance the interests of employees and shareholders by providing value to the executives through stock price appreciation only. Options terminate if the employee’s employment with us is terminated. All options awarded must have an exercise price of at least 100% of fair market value on the date of grant.

The exact number of shares granted to a particular participant reflects both the participant’s performance and role in our company, as well as our financial success, and our future business plans. All of these factors are assessed subjectively and are not weighted. In determining each grant, the committee also considers the number of stock options which are outstanding, and the total number of options to be awarded.

In making grants during the fiscal year ended September 30, 2005, the committee also considered the number of outstanding options previously granted to each officer. The committee believes that its awards were consistent with our compensation philosophy to increase the emphasis placed on long-term incentives and to be competitive in its total compensation program.

Under Section 162(m) of the Internal Revenue Code of 1986, as amended, public companies are precluded from receiving a tax deduction on compensation paid to executive officers in excess of $1,000,000, unless the compensation is excluded from the $1,000,000 limit as a result of being classified performance-based. At this time, our executive officers’ cash compensation levels do not exceed the payment limit and will most likely not be affected by the regulations in the near future. Nonetheless, the committee intends to review its executive pay plans over time in light of these regulations.


	Respectfully submitted, Compensation Committee F. Wayne Ballenger Randall D. Humphreys David E. Welch

Compensation Committee Interlocks and Insider Participation

Our compensation committee currently consists of F. Wayne Ballenger, Randall D. Humphreys and David E. Welch. Messrs. Ballenger, Humphreys and Welsh have never been officers or employees of our company or any of our subsidiaries. No member of the compensation committee has a reportable relationship with us.

Audit Committee Report

The audit committee report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of our other filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this report by reference therein.

The members of the audit committee for the year ended September 30, 2005 were David E. Welch (Chairman), Randall D. Humphreys and F. Wayne Ballenger. Our board of directors has adopted a written charter for the audit committee. The audit committee has prepared the following report detailing its policies and responsibilities relating to the auditing of our consolidated financial statements.

The audit committee oversees our financial reporting process on behalf of our board of directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the audit committee reviewed the audited financial statements in the Annual Report on Form 10-K with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the consolidated financial statements.

Together with our independent registered public accounting firm, GHP Horwath, P.C. (who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States of America), the audit committee reviewed the auditors’ judgments as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed with the audit committee under auditing standards generally accepted in the United States of America. The audit committee’s review included discussion with the auditor’s of matters required to be discussed pursuant to Statement on Auditing Standards No. 61. In addition, the audit committee has discussed the independence of GHP Horwath, P.C. from management and our company generally, including the matters in the written disclosures required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).

The audit committee discussed with GHP Horwath, P.C. the overall scope and plans for their respective audit. The audit committee met with GHP Horwath, P.C., with and without management present, to discuss the results of their examination, their evaluation of our internal controls, and the overall quality of our financial reporting.

In reliance on the reviews and discussions referred to above, the audit committee recommended to our board of directors (and our board of directors has approved) that the audited consolidated financial statements be included in the Annual Report on Form 10-K for the year ended September 30, 2005 for filing with the Securities and Exchange Commission.


	Respectfully submitted, Audit Committee David E. Welch Randall D. Humphreys F. Wayne Ballenger

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Our wholly-owned subsidiary, Bactolac Pharmaceutical, Inc., headquartered in Hauppauge, New York, conducts its operations in a facility leased from Shilpa Saketh Realty, Inc., an entity owned by Dr. Pailla M. Reddy, Chairman of the board of directors and President of Bactolac, comprising approximately 32,700 square feet. The current monthly rental is approximately $30,000, of which approximately $6,000 pertains to improvements made by Shilpa Saketh Realty, Inc., that escalates over the remaining term of the lease through December 2010. We have a five-year renewal option on the facility. Subsequent to September 30, 2005, we agreed to lease an additional 4,000 sq. ft. in the existing facility, beginning January 1, 2006, for the same term as the existing lease, initially at $5,250 per month, which escalates over the term of the lease through December 2010. We have a five-year renewal option on the facility.

During November 2005, we and Dr. Reddy entered into a new employment agreement extending Dr. Reddy’s employment to November 1, 2007. In addition to a base annual salary of $350,000, and performance bonus features, the agreement contains customary confidentiality and benefit provisions.

In February 2003, we entered into an employment agreement, which renews annually unless terminated by either party, with Jeffrey G. McGonegal, Senior Vice President — Finance, for a two-year term under which he currently receives an annual salary of $100,000 (as revised by mutual verbal agreement between us and Mr. McGonegal during the three months ended March 31, 2006) and may receive a performance bonus at our discretion.

During June 2004, a total of 85,000 warrants that were held by Cambridge Holdings, Ltd. (an entity controlled by Gregory Pusey) and Glenwood Capital Partners I, LP (an entity controlled by Randall Humphreys) were converted into 68,653 shares of our common stock on a cashless basis, as provided for under the terms of the warrant agreements.

During March 2006, Messrs. Reddy, Pusey and McGonegal exercised 33,333, 25,000 and 25,000 options with exercise prices of $.506 per share, $.506 per share and $.46 per share, respectively, to purchase our common stock on a cashless basis.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

Based solely on our review of copies of Section 16(a) reports filed by officers, directors and greater than 10% shareholders with the Securities and Exchange Commission, which have been received by us and written representations from these persons that no other reports were required for those persons, we believe that all filing requirements applicable to those persons were complied with for the fiscal year ended September 30, 2005, with the exception of one late report on Form 4 for each of Messrs. Humphreys, Pusey, Reddy, McGonegal, Welch and Ballenger, filed on January 18, 2005, to report a January 12, 2005 grant of options to purchase shares of our common stock.

AUDIT AND OTHER FEES

GHP Horwath, P.C., Denver, Colorado, conducted the audit of our financial statements for the year ended September 30, 2005. It is our understanding that this firm is obligated to maintain audit independence as prescribed by the accounting profession and certain requirements of the Securities and Exchange Commission. As a result, our directors do not specifically approve, in advance, non-audit services provided by the firm, nor do they consider the effect, if any, of such services on audit independence.

During fiscal years 2004 and 2005, we paid the following fees to GHP Horwath, P.C. for services rendered:

	Years Ended September 30,
	2005		2004
Audit Fees	$	51,100	$	55,000
Audit Related Fees		0		0
Tax Related Fees		0		0
All Other Fees		0		0

PROPOSALS OF SHAREHOLDERS FOR PRESENTATION
AT NEXT ANNUAL MEETING OF SHAREHOLDERS

Any shareholders of record of the company who desires to submit a proper proposal for inclusion in the proxy materials relating to the next annual meeting of shareholders must do so in writing and it must be received at our principal executive offices prior to our fiscal year end. The proponent must be a record or beneficial shareholder entitled to vote at the next annual meeting of shareholders on the proposal and must continue to own the securities through the date on which the meeting is held.

ANNUAL REPORT ON FORM 10-KSB

Our annual report on Form 10-KSB for the fiscal year ended September 30, 2005 (which is not part of our proxy solicitation material) is being mailed to our shareholders together with this proxy statement.

QUARTERLY REPORT ON FORM 10-QSB

Our quarterly report on Form 10-QSB for the period ended March 31, 2006 (which is not part of our proxy solicitation material) is being mailed to our shareholders together with this proxy statement.

WHERE YOU CAN FIND MORE INFORMATION

We file reports, proxy statements and other information with the Securities Exchange Commission under the Securities Exchange Act of 1934, as amended. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. You may read and copy, at the prescribed rates, this information at the SEC's Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549. The SEC also maintains an Internet world wide web site that contains reports, proxy statements and other information about issuers, including the company, who file electronically with the SEC. The address of that site is http://www.sec.gov.

We have filed with the SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3 in respect of the reverse split. As permitted by the SEC, this proxy statement omits certain information contained in the Schedule 13E-3. The Schedule 13E-3, including any amendments and exhibits filed or incorporated by reference as a part thereof, is available for inspection or copying as set forth above or is available electronically at the SEC's website.

OTHER BUSINESS

Our management is not aware of any other matters which are to be presented to the annual meeting, nor has it been advised that other persons will present any such matters. However, if other matters properly come before the meeting, the individual named in the accompanying proxy shall vote on such matters in accordance with his best judgment.

The above notice and proxy statement are sent by order of our board of directors.

Gregory Pusey
President and Chief Executive Officer

________________, 2006

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
ADVANCED NUTRACEUTICALS, INC.
TO BE HELD __________, 2006

The undersigned hereby appoints Jeffrey G. McGonegal as the lawful agent and proxy of the undersigned (with all the powers the undersigned would possess if personally present, including full power of substitution), and hereby authorizes him to represent and to vote, as designated below, all the shares of common stock of Advanced Nutraceuticals, Inc. (the “Company”) held of record by the undersigned on May 16, 2006, at the annual meeting of shareholders to be held ________, 2006, or any adjournment or postponement thereof.

1. Proposal to reverse split the Company's common stock on the basis of one share for each 500 shares outstanding.

FOR

AGAINST

WITHHOLD AUTHORITY

2. Election of Directors.

___________FOR the election as a director of the five nominees listed below (except as marked to the contrary below).

___________WITHHOLD AUTHORITY to vote for the nominees listed below.

NOMINEES: ____________________________________________________

INSTRUCTION: To withhold authority to vote for individual nominees, write their names in the space provided below.

_______________________________________________________________________________________

3. Proposal to amend the Company's Articles of Incorporation to change the Company's name to Bactolac Pharmaceutical, Inc.

FOR

AGAINST

WITHHOLD AUTHORITY

4. In his discretion, the proxy is authorized to vote upon any matters which may properly come before the annual meeting, or any adjournment or postponement thereof.

It is understood that when properly executed, this proxy will be voted in the manner directed herein by the undersigned shareholder. Where no choice is specified by the shareholder, the proxy will be votedforthe election of directors named in item 1 above,forthe reverse stock split andforthe name change.

The undersigned hereby revokes all previous proxies relating to the shares covered hereby and confirms all that said proxy may do by virtue hereof.

Please indicate whether you will attend the annual meeting of shareholders on __________, 2006.

I |_| plan |_| do not plan to attend the annual meeting.

PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.


SIGNATURE_________________________________________ SIGNATURE ________________________________________ Signature if held jointly	Date: _____________________ Date: ______________________

NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, or guardian, please provide full title and capacity. Corporations must provide full name of corporation and title of authorized officer signing.

Bactolac Pharmaceutical (BTCA) Inactive PRER14APreliminary revised proxy

Advanced Nutraceuticals, Inc.106 South University Boulevard, Unit 14Denver, Colorado 80209

PROXY STATEMENT ANDNOTICE OF ANNUAL MEETING OF SHAREHOLDERSTO BE HELD ________, 2006

ADVANCED NUTRACEUTICALS, INC.PROXY STATEMENTTABLE OF CONTENTS

Advanced Nutraceuticals, Inc.106 South University Boulevard, Unit 14Denver, Colorado 80209Telephone: (303) 722-4008

ANNUAL MEETING OF SHAREHOLDERSTO BE HELD ________, 2006

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

PROPOSAL 1APPROVAL OF REVERSE STOCK SPLITSUMMARY TERM SHEET

SPECIAL FACTORS

Introduction

Background and Reasons for the Reverse Split

Certain Effects of the Reverse Split

Effects of the Reverse Split on Cashed-Out Shareholders

Effects of the Reverse Split on Remaining Shareholders

Financing of the Reverse Split

Certain Federal Income Tax Consequences

Fees and Expenses

Fairness Determination

No Unaffiliated Representative

Approvals Required for the Reverse Split

Approval of Unaffiliated Shareholders is not Required

Appraisal/Dissenters’ Right of the Company’s Shareholders

Effective Date of the Reverse Split

Exchange of Certificates; Payment for Fractional Shares

The board of directors recommends a voteforthe approval of the reverse stock split.

STOCK OWNERSHIP

FINANCIAL INFORMATION

MARKET FOR COMMON STOCK AND DIVIDENDS

PRIOR STOCK PURCHASES

PROPOSAL 2ELECTION OF DIRECTORS

The board of directors recommends a voteforthe election of the nominated slate of directors.

The Board of Directors and its Committees

PROPOSAL 3AMENDMENT OF ARTICLES OF INCORPORATION TO CHANGE THE COMPANY’S NAME

Introduction

Reasons for Name Change

DIRECTORS AND EXECUTIVE OFFICERS

Compensation of Directors

Executive Compensation

Employment Agreements

Equity Compensation Plan Information

Option Grants in Fiscal Year Ended September 30, 2005

Option Exercises and Year-End Values

Compensation Committee Report

Compensation Committee Interlocks and Insider Participation

Audit Committee Report

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

AUDIT AND OTHER FEES

PROPOSALS OF SHAREHOLDERS FOR PRESENTATIONAT NEXT ANNUAL MEETING OF SHAREHOLDERS

ANNUAL REPORT ON FORM 10-KSB

QUARTERLY REPORT ON FORM 10-QSB

WHERE YOU CAN FIND MORE INFORMATION

OTHER BUSINESS

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

PROXYFOR THE ANNUAL MEETING OF SHAREHOLDERS OFADVANCED NUTRACEUTICALS, INC.TO BE HELD __________, 2006

____ FOR____ AGAINST____ WITHHOLD AUTHORITY

____ FOR____ AGAINST____ WITHHOLD AUTHORITY

Advanced Nutraceuticals, Inc.
106 South University Boulevard, Unit 14
Denver, Colorado 80209

PROXY STATEMENT AND
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ________, 2006

ADVANCED NUTRACEUTICALS, INC.
PROXY STATEMENT
TABLE OF CONTENTS

Advanced Nutraceuticals, Inc.
106 South University Boulevard, Unit 14
Denver, Colorado 80209
Telephone: (303) 722-4008

ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ________, 2006

PROPOSAL 1
APPROVAL OF REVERSE STOCK SPLIT
SUMMARY TERM SHEET

The board of directors recommends a votefor
the approval of the reverse stock split.

PROPOSAL 2
ELECTION OF DIRECTORS

The board of directors recommends a vote
forthe election of the nominated slate of directors.

PROPOSAL 3
AMENDMENT OF ARTICLES OF INCORPORATION TO CHANGE THE COMPANY’S NAME

PROPOSALS OF SHAREHOLDERS FOR PRESENTATION
AT NEXT ANNUAL MEETING OF SHAREHOLDERS

PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
ADVANCED NUTRACEUTICALS, INC.
TO BE HELD __________, 2006

FOR

AGAINST

WITHHOLD AUTHORITY

FOR

AGAINST

WITHHOLD AUTHORITY