As filed with the Securities and Exchange Commission on September 17, 1997

Registration No. 333-17767

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-------------------------
NICHE PHARMACEUTICALS, INC.
(Name of Small Business Issuer in its Charter)

Delaware 2834 75-2376714
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code No.) Identification Number)
incorporation or
organization)
200 North Oak
P.O. Box 449
Roanoke, Texas 76262
Telephone: (817)491-2770
Telecopier: (817)491-3533
(Address and telephone number of principal executive offices)
(Address of principal place of business or intended principal place of business)
-------------------------
Stephen F. Brandon, President
NICHE PHARMACEUTICALS, INC.
200 North Oak
P.O. Box 449
Roanoke, Texas 76262
Telephone: (817) 491-2770
Telecopier: (817) 491-3533
(Name, address and telephone number of agent for service)
-------------------------

Copies to:
Fred Skolnik, Esq. Chase A. Caro, Esq.
Gavin C. Grusd, Esq. Caro & Graifman, P.C.
Certilman Balin Adler & Hyman, LLP 60 East 42nd Street
90 Merrick Avenue New York, New York 10165
East Meadow, NY 11554 Telephone: (212) 682-6000
Telephone: (516) 296-7000 Telecopier: (212) 867-4762
Telecopier: (516) 296-7111

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the registration statement.

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o ______________

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o ____

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. o ------------

CALCULATION OF REGISTRATION FEE

Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate Offering Amount of
Titles of Each Class of Securities to be Registered Registered (1) per Share (2) Price (2) Registration Fee
- ------------------------------------------------ -------------------- ------------------ --------------------- -------------------

Common Shares 1,400,000 $5.00 $7,000,000 $2,121.00
Underwriter's Common Share Purchase 140,000 --- $ 100 ---
Warrants (3)
Common Shares (4) 140,000 $7.50 $1,050,000 $318.15
Common Shares (5) 20,000 $5.00 $ 100,000 $ 30.30
------------
Total Registration Fee: $2,469.45 (6)
================================================ ======================= ===================== ================== ================

(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended
("Securities Act"), this Registration Statement covers such additional
indeterminate number of Common Shares and Underwriter's Common Stock
Purchase Warrants (the "Underwriter's Warrants") as may be issued by reason
of adjustments in the number of shares of Common Stock and Underwriter's
Warrants pursuant to anti-dilution provisions contained in the
Underwriter's Warrants. Because such additional shares of Common Stock and
Underwriter's Warrants will, if issued, be issued for no additional
consideration, no registration fee is required.

(2) Estimated solely for the purpose of calculating the registration fee.

(3) To be issued to the Underwriter.

(4) Issuable upon exercise of the Underwriter's Warrants.

(5) Registered on behalf of selling stockholder.

(6) Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.

SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1997
PROSPECTUS
Niche Pharmaceuticals, Inc.
1,400,000 Shares of Common Stock, par value $.01 per share
Offering Price Per Share - $5.00
---------------

Niche Pharmaceuticals, Inc., a Delaware corporation (the "Company"), hereby
offers 1,400,000 shares of common stock, par value $.01 per share (the "Common
Shares"). See "Risk Factors" and "Description of Securities." The "Risk Factors"
section begins on page 6 of this Prospectus.

The Company has applied for inclusion of the Common Shares on the Nasdaq
SmallCap Market, although there can be no assurances that an active trading
market will develop even if the securities are accepted for quotation. See "Risk
Factors - Lack of Prior Market for Common Shares; No Assurance of Public Trading
Market" and "Risk Factors - Penny Stock Regulations May Impose Certain
Restrictions on Marketability of Securities."

Prior to this offering (the "Offering"), there has been no public market
for the Common Shares. It is currently anticipated that the initial public
offering price will be $5.00 per Common Share. The price of the Common Shares
has been determined by negotiations between the Company and Clayton, Dunning &
Company Inc., the underwriter of this Offering (the "Underwriter"), and does not
necessarily bear any relationship to the Company's assets, book value, net worth
or results of operations or any other established criteria of value. The
Underwriter may enter into arrangements with one or more broker-dealers to act
as co-agents of this Offering. For additional information regarding the factors
considered in determining the initial public offering price of the Common
Shares, see "Risk Factors - Arbitrary Offering Price; Possible Volatility of
Stock Price," "Risk Factors - Lack of Prior Market for Common Shares; No
Assurance of Public Trading Market," "Description of Securities" and
"Underwriting."

The Offering is being made on a "best efforts-all or none" basis. Funds
received from subscribers will be deposited in escrow with First Union National
Bank of Florida. If payment for all 1,400,000 Shares is not received by the
Company within 45 days from the date hereof (which period may be extended for up
to an additional 45 days at the option of the Company and the Underwriter) (the
"Offering Period"), all such funds will be refunded to subscribers in full
without interest or deduction. The Company has the right to reject any
subscription in whole or in part. See "Underwriting."

The registration statement of which this Prospectus forms a part also
covers the resale of 20,000 Common Shares issued to a certain unaffiliated
bridge lender (the "Selling Stockholder"). The Company will not receive any of
the proceeds from the resale of the Common Shares by the Selling Stockholder.
The Common Shares held by the Selling Stockholder may be resold at any time
following the date of this Prospectus, subject to an agreement with the
Underwriter restricting the transfer of such Common Shares for a period of two
years without the Underwriter's consent. The resale of the Common Shares by the
Selling Stockholder is subject to Prospectus delivery and other [Cover Continued
on Next Page]

requirements of the Securities Act of 1933, as amended (the "Act"). Sales of
such Common Shares or the potential of such sales at any time may have an
adverse effect on the market price of the Common Shares offered hereby. See
"Principal and Selling Stockholders" and "Risk Factors - Shares Eligible for
Future Sale May Adversely Affect the Market."
----------------

AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK
VALUE OF THE COMMON SHARES OFFERED HEREBY AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. THESE ARE SPECULATIVE SECURITIES.
SEE "RISK FACTORS" AND "DILUTION."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

Price Underwriting Discounts Proceeds to
to Public and Commissions (1) Company (2)

Per Share.......................... $5.00 $.50 $4.50
Total.............................. $7,000,000 $700,000 $6,300,000

(1) Does not reflect additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $210,000 and (ii)
a warrant (to be purchased by the Underwriter for $100) to purchase 140,000
Common Shares (10% of the total number of Common Shares sold pursuant
hereto) (the "Underwriter's Warrant"), exercisable for a period of three
years, commencing one year from the date of this Prospectus. The Company
and the Underwriter have agreed to indemnify each other against certain
liabilities, including liabilities under the Act. The Company has been
informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy and is therefore
unenforceable. See "Underwriting."

(2) Before deducting expenses of the Offering payable by the Company estimated
at $550,000, including the Underwriter's non-accountable expense allowance
referred to in footnote (1), registration fees, transfer agent fees, NASD
fees, Blue Sky filing fees and expenses, legal fees and expenses, and
accounting fees and expenses. See "Use of Proceeds" and "Underwriting."

CLAYTON, DUNNING & COMPANY INC.

The date of this Prospectus is , 1997.

A SIGNIFICANT PORTION OF THE COMMON SHARES TO BE SOLD IN THIS OFFERING MAY
BE SOLD TO CUSTOMERS OF THE UNDERWRITER. SUCH SALES MAY AFFECT THE MARKET FOR
AND LIQUIDITY OF THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES, AS TO WHICH
THERE CAN BE NO ASSURANCE. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN
TRANSACTIONS FOR THE SALE OR PURCHASE OF THE COMMON SHARES THROUGH AND/OR WITH
THE UNDERWRITER.

ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM TIME TO
TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
SECURITIES. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR THE COMMON SHARES. HOWEVER, THERE IS NO
ASSURANCE THAT THE UNDERWRITER WILL OR WILL NOT CONTINUE TO BE A DOMINATING
INFLUENCE. THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED HEREBY MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, OF THE UNDERWRITER'S PARTICIPATION
IN SUCH MARKET. THE UNDERWRITER MAY DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR
FROM TIME TO TIME. SEE "RISK FACTORS - LACK OF PRIOR MARKET FOR COMMON SHARES;
NO ASSURANCE OF PUBLIC TRADING MARKET."

PROSPECTUS SUMMARY

The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information appearing elsewhere herein. In
addition, unless otherwise indicated to the contrary, the information appearing
herein does not give effect to the issuance of (a) 140,000 Common Shares upon
exercise of the Underwriter's Warrant; or (b) 558,125 Common Shares upon the
exercise of stock options and warrants that are currently outstanding or will be
outstanding upon the consummation of the Offering. However, all references to
Common Shares and prices per share in this Prospectus give retroactive effect to
a 1.25 for 1 stock split effectuated on October 15, 1996 as part of the
Company's reincorporation in the State of Delaware. See "Management-Stock
Options," "Certain Relationships and Related Transactions" and "Underwriting."
Each prospective investor is urged to read this Prospectus in its entirety.

The Company

Niche Pharmaceuticals, Inc. (the "Company") manufactures through third
party contractors, and markets and distributes, non-prescription pharmaceutical
and nutraceutical dietary supplement products. The Company seeks to exploit
product niches that have generally been overlooked or neglected by the major
drug companies because of the relatively small perceived size of the market for
such products. The Company's current products are a patented, state-of-the-art,
sustained release magnesium supplement marketed under the name Mag-Tab(R)SR, and
a dietary fiber supplement marketed as Unifiber(R).

The Company markets its products to virtually all of the drug and dietary
supplement wholesalers in the United States which, in turn, supply retail
pharmacies, numerous state and federal institutions, and group and managed care
purchasing organizations ("GPOs") acting on behalf of hospitals, extended care
facilities and nursing homes. In order to secure meaningful retail distribution
and create a loyal core of physicians, pharmacists, dietary specialists and
other health care professionals to recommend the use of its products, the
Company's marketing strategy includes direct marketing and promotional programs
aimed at such persons. See "Business - Sales and Marketing."

The Company's founders and current management team are individuals who have
significant experience in the domestic and international sales and marketing of
prescription and non-prescription pharmaceutical products. See "Management."

The Company intends to use a substantial portion of the net proceeds of
the Offering to increase its sales promotion and marketing efforts, hire
additional sales personnel, acquire or license additional niche products, and
undertake research and development activities on existing and acquired products.
See "Use of Proceeds."

The Company commenced operations in 1991 as a Texas corporation, and was
reincorporated as a Delaware corporation on October 15, 1996. The Company
maintains its executive offices at 200 North Oak, Roanoke, Texas 76262;
telephone number (817) 491-2770.

See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the Company and its business.

The Offering

Common Shares Being Offered ....... 1,400,000 shares

Common Shares Outstanding Prior to
the Offering ...................... 1,119,227 shares

Common Shares to be Outstanding
After the Offering (1)............. 2,519,227 shares

Use of Proceeds.................... The net proceeds to the Company from
the sale of the 1,400,000 Common Shares
offered hereby are estimated to be
$5,750,000 The net proceeds are expected
to be applied in the following approximate
percentages for the following purposes:
marketing and advertising (33.7%),
repayment of indebtedness (12.3%), hiring
of additional personnel (9.6%), product
acquisition (8.7%), research and develop-
ment (5.2%) and working capital (30.5%).
See "Use of Proceeds."

Risk Factors...................... An investment in the securities offered
hereby involves a high degree of risk and
immediate substantial dilution of the book
value of the Common Shares and should be
considered only by persons who can afford
the loss of their entire investment. See
"Risk Factors" and "Dilution."

Proposed Nasdaq SmallCap Market
Symbol(2)......................... NCHE
- -----------------

(1) Does not give effect to the issuance of (i) 140,000 Common Shares upon
exercise of the Underwriter's Warrant; or (ii) 558,125 Common Shares upon
the exercise of stock options and warrants that are currently outstanding
or will be outstanding upon the consummation of the Offering. See
"Management-Stock Options," "Certain Relationships and Related
Transactions" and "Underwriting."

(2) Although the Company has applied for inclusion of the Common Shares on the
Nasdaq SmallCap Market, there can be no assurance that the Company's
securities will be included for quotation, or, if so included, that the
Company will be able to continue to meet the requirements for continued
inclusion, or that a public trading market will develop or, if such market
develops, that it will be sustained. See "Risk Factors - Lack of Prior
Market for Common Shares; No Assurance of Public Trading Market."

Summary Financial Information

The following summary financial information has been derived from the
financial statements of the Company included elsewhere in this Prospectus. The
information should be read in conjunction with the financial statements and the
related notes thereto. All amounts are in dollars except number of Common
Shares. See "Financial Statements."

Statement of Operations Data

Six Months Ended Year Ended

June 30, December 31
------------------- ----------------
1997 1996 1996 1995
---- ---- ---- ----

Revenues . . . . . . . . . . . . . . . . . . $ 469,514 $533,276 $1,127,316 $ 606,268
Gross profit . . . . . . . . . . . . . . . . 313,985 337,293 728,501 423,122
Operating income (loss) . . . . . . . . . . . . . (84,856) (21,194) (273,958) 88,181
Net (loss)(1). . . . . . . . . . . . . . . . (400,005) (122,256) (499,639) (1,003)
Net (loss) per share(1) . . . . . . (.36) (.11) (.45) ---
Weighted average number
of Common Shares outstanding. . . 1,101,904 1,101,500 1,101,500 1,101,500

Balance Sheet Data

June 30, 1997 December 31,1996

Actual As Adjusted(2) Actual

Working capital (deficit) . . . . . . . $(745,816) $4,709,184 $(623,244)
Total assets. . . . . . . . . . . . . . . . 1,500,789 6,542,789 1,884,243
Total liabilities. . . . . . . . . . . . . . 2,278,782 1,570,782 2,500,831
Total stockholders' equity (deficit) (777,993) 4,972,007 (616,588)

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

(1) Results for six months ended June 30, 1997 give effect to amortization of
deferred financing costs of $203,420 ($.18 per share).

(2) Adjusted to give effect of the receipt and application of the net proceeds
of approximately $5,750,000 from the sale of the Common Shares offered
hereby. See "Use of Proceeds."

RISK FACTORS

An investment in the securities offered hereby is speculative and involves
a high degree of risk and substantial dilution and should only be purchased by
investors who can afford to lose their entire investment. Prospective
purchasers, prior to making an investment, should carefully consider the
following risks and speculative factors, as well as other information set forth
elsewhere in this Prospectus, associated with this Offering, including the
information contained in the financial statements herein.

1. Going Concern Uncertainty; No History of Earnings; Accumulated Deficit;
Working Capital Deficit and Stockholders' Deficit. The report of the Company's
independent auditors on the Company's financial statements for the years ended
December 31, 1996 and 1995 indicates that such financial statements have been
prepared assuming that the Company will continue as a going concern, and
references a note to such financial statements which states that such financial
statements have been prepared in conformity with generally accepted accounting
principles which contemplates continuation of the Company as a going concern,
and the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The note states that the ability
of the Company to continue as a going concern is dependent upon the success of
the Company's marketing efforts and its ability to obtain sufficient funding to
continue operations. The Company has suffered recurring losses since inception
and for the year ended December 31, 1996 and six months ended June 30, 1997, the
Company had net losses of $499,639 and $400,005, respectively. As of December
31, 1996 and June 30, 1997, the Company's accumulated deficit totaled $1,117,600
and $1,517,605, respectively. In addition, as of December 31, 1996 and June 30,
1997, the Company had a working capital deficit of $623,244 and $745,816,
respectively. Moreover, as of December 31, 1996 and June 30, 1997, the Company
had a stockholders' deficit of $616,588 and $777,993, respectively. Further, as
noted above, a substantial portion of the Company's assets consists of
intangible assets. The amortization expense with respect thereto will have a
material adverse effect upon the Company's results of operations. There can be
no assurance that the Company will be able to operate profitably. The Company is
subject to many business risks which include, but are not limited to, unforeseen
marketing and promotional expenses, potential negative publicity with respect to
the Company's industry and products, and intense competition. Many of the risks
may be beyond the control of the Company. There can be no assurance that the
Company will successfully implement its business plan in a timely or effective
manner, or that management of the Company will be able to market and sell enough
products to generate sufficient revenues to continue as a going concern. See
"Business" and "Financial Statements."

2. Dependence on Offering Proceeds; Possible Need for Additional Financing.
The Company's cash requirements have been and will continue to be significant.
The Company is dependent on the proceeds from this Offering in order to further
expand its operations. The Company intends to use approximately $708,000, or
12.3% of the net proceeds of this Offering, to repay certain indebtedness;
accordingly, such amount will not be available to fund future business
activities. The Company plans to increase the reach and frequency of its
advertising and marketing programs and the expansion and enhancement of its
infrastructure, including, without limitation, hiring additional personnel and
engaging consultants for particular tasks, such as marketing and computer system
enhancement and other projects,

all of which the Company has designed to be implemented over the 18 month period
following the closing date of the Offering. Based on the foregoing, the Company
believes that the net proceeds of this Offering, together with anticipated
increased revenues from operations, will be sufficient to conduct the Company's
operations for at least 18 months. In the event that the Company's plans change,
or the costs of operations prove greater than anticipated, the Company could be
required to curtail its expansion plans or seek additional financing sooner than
currently anticipated. The Company believes that its operations would be
restricted absent expansion. The Company has no current arrangements with
respect to additional financing and there can be no assurance that such
additional financing, if available, will be on terms acceptable to the Company.
See "Use of Proceeds" and "Management's Discussion and Analysis Liquidity and
Capital Resources."

3. Inexperience of Underwriter. This is the first offering underwritten by
the Underwriter. There can be no assurance that the Underwriter's limited
experience will not adversely affect the development of a trading market for, or
liquidity of, the Company's securities. Therefore, purchasers of the Common
Shares offered hereby may suffer a lack of liquidity in their investment or a
material diminution of the value of their investment. See "Underwriting."

4. No Firm Commitment; Escrow of Investors' Funds. This is a "best efforts"
offering and there is no firm commitment on the part of anyone to purchase all
or any part of this Offering, and no assurance can be given that the Offering
will be sold. If the Offering is not sold during the Offering Period, the
Offering will terminate and any monies received from subscribers will be
returned without interest thereon or deduction therefrom. In such event,
subscribers will have lost the use of and interest on their funds during such
Offering Period. See "Underwriting."

5. Dependence on Key Management and Qualified Personnel. The Company is
highly dependent upon the efforts of its senior management. The loss of the
services of one or more members of the senior management could significantly
impede the achievement of development objectives. Although the Company intends
to obtain a $1,000,000 key-man insurance policy on the life of each of Stephen
F. Brandon, Chairman of the Board, Chief Executive Officer and President of the
Company, and Thomas F. Reed, Executive Vice President - Corporate Development
and a Director of the Company, the Company does not believe the proceeds of any
policies obtained would be adequate to compensate for the loss of either of
them. It is noted that Jean R. Sperry, a Vice President and a director of the
Company, will only devote 10% of his working time to the Company's business. The
Company is also highly dependent upon its ability to attract and retain
qualified key management personnel. There is always competition for qualified
personnel in the areas of the Company's activities, and there can be no
assurance that the Company will be able to continue to attract and retain
qualified personnel necessary for the development of its existing business and
its expansion into areas and activities requiring additional expertise, such as
marketing. The loss of, or failure to recruit, managerial personnel could have a
material adverse effect on the Company. In addition, the Company relies on
consultants to assist it in formulating its research and development strategy
and in conducting clinical trials of its products. All of the Company's
consultants are employed by other employers, or are principals of other
companies or professional practices, and each such consultant may have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability to the Company. See "Management."

6. Reliance on Two Products. The Company currently relies entirely on the
sales of its two products, Mag-Tab(R)SR and Unifiber(R), to produce revenues.
Revenues from the sale of Mag-Tab(R)SR and Unifiber(R) (i) for the year ended
December 31, 1996 were approximately $573,000, or 50.8% of revenues, and
approximately $554,000, or 49.2% of revenues, respectively, and (ii) for the six
months ended June 30, 1997 were approximately $210,000, or 44.8% of revenues,
and approximately $259,000, or 55.2% of revenues, respectively. Although the
Company plans to seek other product acquisitions in the future, sales of these
two products are expected to account for all of the Company's revenues for the
foreseeable future. Certain factors, such as a decline in market demand, no
future market acceptance and increased competition for superior or alternative
products, could have a material adverse effect on the Company's financial
condition and results of operations. See "Business - Products."

7. Dependence on Major Customers. A significant portion of the Company's
products is ultimately sold or supplied to consumers and patients through
pharmacies throughout the United States. However, the Company does not supply
these outlets directly. The Company markets its products to virtually all of the
drug and dietary supplement wholesalers in the United States which, in turn,
supply pharmacies, healthcare institutions, and GPOs acting on behalf of
healthcare institutions. For the fiscal year ended December 31, 1996 and the six
months ended June 30, 1997, four drug and dietary supplement wholesalers
accounted for 28% and 28%; 15% and 22%; 15% and 13%; and 14% and 11% of the
Company's revenues, respectively. Although each of these wholesalers currently
supplies most of the pharmacies, GPOs and healthcare institutions on a
nonexclusive basis, the loss of any one of these customers could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business - Sales and Marketing."

8. No Manufacturing Capability or Experience; Dependence on Others. The
Company currently does not have facilities or personnel capable of directly
manufacturing any of its own products. The Company has no current plans to
manufacture its products and is dependent on third parties in this regard.

The Company has an exclusive agreement (the "Schering Agreement") with
Schering Corporation ("Schering") for the manufacture of Mag-Tab(R)SR. Schering,
a Food and Drug Administration ("FDA") regulated company, manufactures
Mag-Tab(R)SR for the Company at FDA Good Manufacturing Practices standards
("GMPs") for drug products, although, as a nutritional supplement, Mag-Tab(R)SR
is not required to comply with those standards. The Company relies solely on
Schering for the manufacture and packaging of this product. Pursuant to the
Schering Agreement, Schering supplies all raw materials and packaging components
for the production of Mag-Tab(R)SR according to the Company's specifications,
and Schering utilizes the quality control and manufacturing processes provided
by the Company. The Schering Agreement became effective as of July 1, 1997 and
the initial term of the Schering Agreement expires five years after the date of
the Company's first purchase order. The Schering Agreement, which replaced a
previous two-year agreement with similar terms, is automatically renewable for
successive two year terms, unless written notice of termination is given by
either party at least one year prior to the expiration of the initial or a
successive term. The terms of the Schering Agreement provide that, in the event
of early termination by Schering, Schering will, at the Company's request,
provide the Company with a supply of Mag-Tab(R)SR up to the total amount of
product purchased by the

Company in the previous year. In the event the Schering Agreement is terminated
or expires and the Company does not renew its relationship with Schering, the
Company believes, but cannot assure, that it will be able to engage an
alternative manufacturer on comparable terms to the Schering Agreement to
manufacture Mag-Tab(R)SR at drug product GMPs levels.

Until December 31, 1996, the Company's Unifiber(R) product was manufactured
by Bertek Pharmaceuticals Inc. (formerly Dow Hickam Pharmaceuticals Inc.)
("Bertek"), a subsidiary of Mylan Pharmaceuticals Inc., pursuant to an agreement
(the "Bertek Agreement") under which the Company acquired the rights to
Unifiber(R). Pursuant to the Bertek Agreement, Bertek continued to manufacture
the Unifiber(R) product in sufficient quantity to meet the Company's projected
sales needs through 1997 and the Company has a six month supply, based on
current sales levels, of Unifiber(R) in inventory. In September 1997, the
Company entered into an exclusive agreement (the "IFP Agreement") with IFP, Inc.
("IFP") for the manufacture of Unifiber(R). The Company relies solely on IFP for
the manufacture and packaging of this product. Pursuant to the IFP Agreement,
IFP supplies all raw materials and packaging components for the production of
Unifiber(R) according to the Company's specifications, and IFP utilizes the
quality control and manufacturing processes provided by the Company. The IFP
Agreement became effective as of September 1, 1997 and the initial term of the
IFP Agreement expires three years after the date of the Company's first purchase
order. The IFP Agreement is automatically renewable for successive two year
terms, unless written notice of termination is given by either party at least
one year prior to the expiration of the initial or a successive term. The terms
of the IFP Agreement provide that, in the event of early termination by IFP, IFP
will, at the Company's request, provide the Company with a supply of Unifiber(R)
up to the total amount of product purchased by the Company in the previous year.
In the event the IFP Agreement is terminated or expires and the Company does not
renew its relationship with IFP, the Company believes, but cannot assure, that
it will be able to engage an alternative manufacturer on comparable terms to the
IFP Agreement to manufacture Unifiber(R).

Although the Company's policy is to maintain an approximately three month
supply of each of Mag-Tab(R)SR and Unifiber(R) (as noted above, the Company has
a six month supply of Unifiber(R)), the failure to engage, or delays in
engaging, a manufacturer for either product could result in the Company being
unable to fill orders on a timely basis, or at all, resulting in cancellation of
orders, reduced sales, loss of customers, loss of goodwill, and other events
which could have a material adverse effect on the Company. Additionally, if the
Company is unable to engage a manufacturer on terms at least as favorable as the
Schering Agreement or the IFP Agreement, the costs of goods sold may be raised,
reducing profit margins. See "Business - Manufacturing."

9. Uncertainty of Third Party Reimbursement and Product Pricing. Although
reimbursement or funding from third party healthcare payors currently represents
an immaterial portion of the Company's revenues, future profitability of the
Company may depend in part upon the availability of reimbursement or funding
from third party healthcare payors such as government programs (e.g., Medicaid),
private insurance plans and managed care plans. The United States Congress is
considering a number of legislative and regulatory reforms that may affect
companies engaged in the healthcare industry in the United States. Although the
Company cannot predict whether these proposals will be adopted or the

effects such proposals may have on its business, the existence and pendency of
such proposals could have a material adverse effect on the Company.

In addition, third party payors are continuing their efforts to contain or
reduce the cost of healthcare through various means. For example, third party
payors are increasingly challenging the prices charged for medical and
healthcare products and services. A third party payor may deny reimbursement if
it determines that a product was not used in accordance with cost-effective
treatment methods or for other reasons. There can be no assurances that
Mag-Tab(R)SR and Unifiber(R) will continue to qualify for reimbursement by
Medicaid in accordance with guidelines established by the Health Care Financing
Administration, by state government payors, or by commercial insurance carriers.
Also, the trend toward managed healthcare in the United States and the
concurrent growth of organizations, such as health maintenance organizations,
which can control or significantly influence the purchase of healthcare services
and products, as well as legislative proposals to reform healthcare or reduce
government insurance programs, may result in lower prices for pharmaceutical
products. The cost containment measures that healthcare providers are
instituting and the effect of any healthcare reform could materially adversely
affect the Company's ability to sell its products. See "Business - Third Party
Reimbursement."

10. Uncertainty of Protection of Patents and Proprietary Rights. The
Company's success will depend in part on its ability to obtain and enforce
patent protection for its patented products, preserve its trade secrets, and
operate without infringing on the proprietary rights of third parties, both in
the United States and in other countries. In the absence of patent protection,
the Company's business may be adversely affected by competitors who develop
substantially equivalent technology. Because of the substantial length of time
and expense associated with bringing new products through development to the
marketplace, the pharmaceutical and nutraceutical industries place considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. The Company currently owns a United
States patent related to its Mag-Tab(R)SR product which will expire in March
2008, and a patent application relating to Mag-Tab(R)SR is pending in Canada.
The Unifiber(R) technology is not patentable. The trademark "Unifiber(R)" is
registered in the United States. See "Business - Patents and Proprietary
Information."

There can be no assurance that the Company will have sufficient resources
to protect its patent from infringers, that the Company will acquire or develop
additional products that are patented or patentable, or that present or future
patents will provide sufficient protection to the Company's present or future
technologies, products and processes. In addition, there can be no assurance
that others will not independently develop substantially equivalent proprietary
information, design around the Company' s current patents or future patents, or
obtain access to the Company's know-how, or that others will not successfully
challenge the validity of the Company's current patent or future patents, or be
issued patents which may prevent the sale of one or more of the Company's
products, or require licensing and the payment of significant fees or royalties
by the Company to third parties in order to enable the Company to conduct its
business. No assurance can be given as to the degree of protection or
competitive advantage any patents issued to the Company will afford, the
validity of any such patents or the Company's ability to avoid infringing any
patents issued to others. Further, there can be no guarantee

that any patents issued to, or acquired or licensed by, the Company will not be
infringed by the products of others. Litigation and other proceedings involving
the defense and prosecution of patent claims can be expensive and time
consuming, even in those instances in which the outcome is favorable to the
Company, and can result in the diversion of resources from the Company's other
activities. An adverse outcome could subject the Company to significant
liabilities to third parties, require the Company to obtain licenses from third
parties or require the Company to cease any related research and development
activities or sales of infringing products. See "Business - Patents and
Proprietary Rights."

11. Significant Competition. The Company is engaged in the pharmaceutical
and nutraceutical industry, which is characterized by extensive research
efforts, rapid technological progress and intense competition. There are many
public and private companies, including well-known companies engaged in
developing and marketing pharmaceuticals and nutraceuticals, that represent
significant competition to the Company. Existing products and therapies and
improvements thereto do and will compete directly with products the Company
manufactures and markets, and may manufacture and market in the future. Many of
the Company's competitors have substantially greater financial and technical
resources, production and marketing capabilities and experience than does the
Company.

Competitors who do not rely on third party contract manufacturers may be
able to compete more effectively on price. Additionally, other technologies are,
or may in the future become, the basis for competitive products. Competition may
increase further as a result of the potential advances from structure-based drug
design and greater availability of capital for investment in this field. There
can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than the Company's
products or products which the Company may acquire in the future, or that would
render the Company's technology and products obsolete or noncompetitive. See
"Business - Competition."

12. Dependence on Market Acceptance of Company's Products. The Company's
continued success will depend upon broad acceptance and adoption by physicians
and dietary specialists of the Company's products and the therapeutic benefits
of such products, as well as the Company's ability to broaden sales of its
products to patients of these physicians and dietary specialists. In order to
penetrate this market more effectively, the Company has expanded its sales and
marketing activities, including targeted direct mail, field sales activity,
attendance at medical conventions and meetings, development of product advocate
programs, medical and trade journal advertising and telemarketing. There can be
no assurance that these or other activities or programs will be successful in
obtaining broader market acceptance for the Company's products. Failure to do so
could have a material adverse effect on the Company's business. See "Business -
Sales and Marketing."

13. Potential of Material Adverse Effect of Product Liability Claims on the
Company. The Company's business involves the risk of product liability claims
inherent to the pharmaceutical business. If such claims arise in the future they
could have a material adverse impact on the Company. The Company maintains
product liability insurance on an occurrence basis in the amount of $3 million
per occurrence and an aggregate amount of $3 million per policy term period. The
term of the policy is 12 months which is renewable for successive 12 month
periods. Additionally, the Company attempts to

reduce its risk by obtaining indemnity undertakings with respect to such claims
from the third party contract manufacturers of its products. There is no
assurance that such coverage or indemnification will be sufficient to protect
the Company from product liability claims, or that product liability insurance
will be available to the Company at reasonable cost, if at all, in the future.
Currently, there are no pending or threatened claims known to the Company. See
"Business - Product Liability Insurance; Indemnification."

14. Possible Significant Impact of Consumer Laws and Government Regulation
on the Company's Business and Products. The Company is subject to the Federal
Food, Drug and Cosmetics Act (including the Dietary Supplement Health and
Education Act of 1994), the Federal Trade Commission Act, the Fair Packaging and
Labeling Act, the Consumer Product Safety Act, the Federal Hazardous Substance
Act and product safety laws in foreign jurisdictions as well as to the
jurisdiction of the Consumer Product Safety Commission. Such regulation subjects
the Company to the possibility of requirements of repurchase or recall of
products found to be defective and the possibility of fines, penalties, seizure
of its products, injunction, and criminal prosecution for repeated violations of
the law. The FDA regulates product labeling, including product claims. The
Federal Trade Commission ("FTC") also regulates product claims made in
advertising. Existing and future government regulations could impact certain
products of the Company. Additionally, products which the Company may acquire in
the future (if any) may be subject to FDA approval and regulation, which could
be time consuming and costly. See "Business - Government Regulation."

15. Risks Attendant to Expansion. The Company intends to utilize a
significant portion of the net proceeds of this Offering to expand its business.
In this regard, the Company intends to allocate a substantial portion of the net
proceeds for the following purposes: approximately $1,940,000, or 33.7% of the
net proceeds, to market and advertise the Company's products, approximately
$500,000, or 8.7% of the net proceeds, to acquire new products and approximately
$1,752,000, or 30.5% of the net proceeds, for working capital, including general
administrative costs. Many of the risks of expansion may be unforeseeable or
beyond the control of management. At present the Company has not identified any
product acquisition candidates, and it does not have any current plans,
proposals or arrangements with respect to any acquisitions; however, it is
actively seeking such candidates. There can be no assurance that the Company
will successfully implement its business plan in a timely or effective manner,
or that the Company will be able to generate sufficient revenue to continue as a
going concern. Furthermore, there can be no assurance that the Company will
identify any acquisition candidates or, if it does, that it will be able to
reach any agreements to acquire such products on terms acceptable to the
Company. To the extent that the Company may enter into any agreements with
related parties in the future (of which none are presently contemplated), the
Company anticipates that the terms of such agreements will be commercially
reasonable and no less favorable to the Company than the Company could obtain
from unrelated third parties. Additionally, the Company intends that such
agreements will be approved by a majority of disinterested directors. See "Use
of Proceeds" and "Business - General."

16. Control by Existing Management and Stockholders; Effect of Certain
Anti-Takeover Considerations. Upon completion of the Offering, the Company's
directors, executive officers and certain principal stockholders and their
affiliates will own beneficially approximately 37% of the

Common Shares. Accordingly, such holders, if acting together, may have the
ability to exert significant influence over the election of the Company's Board
of Directors and other matters submitted to the Company's stockholders for
approval. The voting power of these holders may discourage or prevent any
proposed takeover of the Company unless the terms thereof are approved by such
holders. Pursuant to the Company's Certificate of Incorporation, Preferred
Shares may be issued by the Company in the future without stockholder approval
and upon such terms as the Board of Directors may determine. The rights of the
holders of Common Shares will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Shares that may be issued in the
future. The issuance of Preferred Shares could have the effect of discouraging a
third party from acquiring a majority of the outstanding Common Shares of the
Company and preventing stockholders from realizing a premium on their Common
Shares. The Certificate of Incorporation also provides for staggered terms for
the members of the Board of Directors. A staggered Board of Directors and
certain provisions of the Company's by-laws and of Delaware law applicable to
the Company could delay or make more difficult a merger, tender offer or proxy
contest involving the Company. See "Management," "Principal and Selling
Stockholders" and "Description of Securities."

17. Management's Broad Discretion in Application of Proceeds. The Company
intends to use the net proceeds of this Offering as described in the "Use of
Proceeds" section of this Prospectus for the following purposes: approximately
$1,940,000, or 33.7% of the net proceeds, to market and advertise the Company's
products, approximately $708,000, or 12.3% of the net proceeds, to repay
indebtedness (including approximately $295,487, or 5.1% of the net proceeds, to
repay a loan to Mr. Brandon), approximately $550,000, or 9.6% of the net
proceeds, to hire additional personnel, approximately $500,000, or 8.7% of the
net proceeds, to acquire new products, approximately $300,000, or 5.2% of the
net proceeds, for research and development, and approximately $1,752,000, or
30.5% of the net proceeds, for working capital. However, management of the
Company has broad discretion to adjust the application and allocation of such
net proceeds in order to address changed circumstances and opportunities,
including, without limitation, the possible acquisition of additional products
which the Company has not yet identified. As a result of the foregoing, the
success of the Company will be substantially dependent upon the discretion and
judgment of the management of the Company with respect to the application and
allocation of the net proceeds of this Offering. Pending use of the proceeds,
the funds will be invested in certificates of deposit, high grade commercial
paper and government securities or other low risk investments. See "Use of
Proceeds."

18. Arbitrary Offering Price; Possible Volatility of Stock Price. The
initial public offering price of the Common Shares was determined by negotiation
between the Company and the Underwriter, may not be indicative of the market
price for such securities in the future, and does not necessarily bear any
relationship to the Company's assets, book value, net worth or results of
operations of the Company or any other established criteria of value. Among the
factors considered in determining the price of the Common Shares were the
history of, and prospects for, the industry in which the Company operates,
estimates of the business potential of the Company, the present state of the
development of the Company's business, the Company's financial condition, an
assessment of the Company's management, the general condition of the securities
markets at the time of this Offering, and the demand for similar securities of
comparable companies. It should be noted that the stock market in recent years
has

experienced extreme price and volume fluctuations that have particularly
affected the market prices of many smaller companies. Frequently, such
fluctuations have been unrelated or disproportionate to the operating
performance of such companies. These fluctuations, as well as general economic
and market conditions, may have a material adverse effect on the market price of
the Common Shares. See "Description of Securities," "Underwriting" and
"Financial Statements."

19. Lack of Prior Market for Common Shares; No Assurance of Public Trading
Market. Prior to this Offering, no public trading market existed for the Common
Shares. There can be no assurances that a public trading market for the Common
Shares will develop or that a public trading market, if developed, will be
sustained. Although the Company anticipates that, upon completion of this
Offering, the Common Shares will be eligible for inclusion on the Nasdaq
SmallCap Market, no assurance can be given that the Common Shares will be listed
thereon. Under prevailing rules of The Nasdaq Stock Market, Inc., in order to
qualify for initial quotation of securities on the Nasdaq SmallCap Market, a
company, among other things, must have (i) either net tangible assets (i.e., net
of goodwill) of $4,000,000, a market capitalization of $50,000,000 or net income
for the latest fiscal year or two of the last three fiscal years of $750,000,
(ii) a minimum market value of public float of $5,000,000, (iii) a minimum bid
price of $4.00 per share, and (iv) either one year of operating history or a
market capitalization of $50,000,000. For continued listing on the Nasdaq
SmallCap Market, a company must have, among other things, (i) either net
tangible assets of $2,000,000, a market capitalization of $35,000,000, or net
income for the latest fiscal year or two of the last three fiscal years of
$500,000, (ii) a minimum market value of public float of $1,000,000 and (iii) a
minimum bid price of $1.00 per share. In order to be included on the Nasdaq
SmallCap System, the Company also will need a minimum of three market makers for
its Common Shares. A minimum of two market makers is required for continued
inclusion. Additionally, for both initial listing and continued listing on the
Nasdaq SmallCap Market, companies must have at least two independent directors,
an Audit Committee, a majority of the members of which must be independent
directors, and at least 300 round lot shareholders (i.e., holders of 100 or more
shares).

If the Company is unable to satisfy the requirements for quotation on the
Nasdaq SmallCap Market under the current rules, trading, if any, in the Common
Shares offered hereby would be conducted in the over-the-counter market in what
is commonly referred to as the "pink sheets" or on the NASD OTC Electronic
Bulletin Board. As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, the securities offered
hereby. The above-described rules may adversely affect the liquidity of the
market for the Company's securities. If a trading market does in fact develop
for the Common Shares offered hereby, there can be no assurance that it will be
maintained. In any event, because certain restrictions may be placed upon the
sale of securities at prices under $5.00 per share, if the price of the Common
Shares falls below such threshold, unless such Common Shares qualify for an
exemption from the "penny stock" rules, such as a listing on the Nasdaq SmallCap
Market, some brokerage firms will not effect transactions in the Company's
securities and it is unlikely that any bank or financial institution will accept
such securities as collateral. Such factors could have a material adverse effect
on the market for the Common Shares. See "Risk Factors - 'Penny Stock'
Regulations May Impose Certain Restrictions on Marketability of Securities" and
"Underwriting."

Although it has no legal obligation to do so, the Underwriter may from time
to time act as a market maker and may otherwise effect and influence
transactions in the Company's securities. However, there is no assurance that
the Underwriter will continue to effect and influence transactions in the
Company's securities. The prices and liquidity of the Company's Common Shares
may be significantly affected by the degree, if any, of the Underwriter's
participation in the market. The Underwriter may voluntarily discontinue such
participation at any time. Further, the market for, and liquidity of, the
Company's Common Shares may be materially adversely affected by the fact that a
significant portion of the Common Shares may be sold to customers of the
Underwriter.

The Underwriter has agreed, but is not obligated, to act as a market maker
for the Company's Common Shares. Although the Company anticipates that it will
have additional market makers, it has not identified any as of the date of this
Prospectus. If the Company cannot engage additional market makers, it may not
satisfy the requirements for inclusion, or continued listing, on the Nasdaq
SmallCap Market.

20. "Penny Stock" Regulations May Impose Certain Restrictions on
Marketability of Securities. The Commission has adopted regulations which
generally define "penny stock" to be any equity security that has a market price
less than $5.00 per share, subject to certain exceptions. If, as anticipated,
the Common Shares offered hereby are accepted for quotation on the Nasdaq
SmallCap Market upon the completion of this Offering, such securities will
initially be exempt from the definition of "penny stock." If the Common Shares
offered hereby are removed from listing on the Nasdaq SmallCap Market at any
time, the Company's Common Shares may become subject to rules that impose
additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the Commission relating to the penny stock market. The broker-dealer must also
disclose the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell the
Company's Common Shares and may affect the ability of purchasers in this
Offering to sell the Company's Common Shares in the secondary market as well as
the price at which such purchasers can sell any such Common Shares.

21. Immediate and Substantial Dilution; Equity Securities Sold Previously
at Below Offering Price. Upon completion of this Offering, without giving effect
to the exercise of the Underwriter's Warrant, the pro forma net tangible book
value per share of the Company's Common Shares as of June 30, 1997 would have
been $1.48. At the initial public offering price of $5.00 per share, investors
in this Offering will experience an immediate dilution of approximately $3.52 or
70% in net tangible book value

per share, and existing investors will experience an increase of approximately
$3.13 per share. The present stockholders of the Company have acquired their
respective equity interest at costs substantially below the public offering
price. Accordingly, to the extent that the Company incurs losses, the public
investors will bear a disproportionate risk of such losses. The exercise of
certain options and warrants granted or anticipated to be granted to Stephen F.
Brandon, Thomas F. Reed, Jean R. Sperry, Allan R. Avery and J. Leslie Glick, the
executive officers and directors of the Company, and an affiliate of Mr. Avery
to purchase up to an aggregate of 547,500 Common Shares will result in further
dilution to the public investors. Messrs. Brandon, Reed, Sperry and Avery, and
Dr. Glick are subject to an agreement with the Underwriter restricting the
transferability of their Common Shares for a period of two years from the date
of this Prospectus without the consent of the Underwriter. See "Dilution,"
"Management - Stock Options," "Certain Relationships and Related Transactions"
and "Underwriting."

22. No Dividends. The Company has never paid any dividends on its Common
Shares and does not intend to pay dividends on its Common Shares in the
foreseeable future. Any earnings which the Company may realize in the
foreseeable future are anticipated to be retained to finance the growth of the
Company. See "Dividend Policy."

23. Shares Eligible for Future Sale May Adversely Affect the Market. All of
the Company's outstanding Common Shares are "restricted securities" and, in the
future, may be sold in compliance with Rule 144 or pursuant to registration
under the Act (see discussion below with respect to the Bridge Lenders). Rule
144 currently provides, in essence, that a person holding "restricted
securities" for a period of one year may sell an amount every three months up to
the greater of (a) one percent of the Company's issued and outstanding
securities of that class of securities or (b) the average weekly volume of sales
of such securities during the four calendar weeks preceding the sale if there is
adequate current public information available concerning the Company.
Additionally, non-affiliates (who have not been affiliates of the Company for at
least three months) may sell their "restricted securities" in compliance with
Rule 144 without volume limitations after they have held such securities for a
period of two years. An aggregate of 1,001,500 Common Shares have been owned by
the holders thereof (all affiliates of the Company) for more than two years.
However, an aggregate of 965,000 of such Common Shares, as well as 72,727 other
Common Shares, are subject to an agreement with the Underwriter restricting
their transferability for a period of two years without the Underwriter's
consent. Additionally, the holders of an aggregate of 61,500 Common Shares have
entered into an agreement with the Underwriter restricting the transferability
of such Common Shares for a period of six months.

The Company is registering for resale the 20,000 Common Shares issued to
the bridge lender (the "Bridge Lender") in the Company's Bridge Financing
Transaction. Such shares may be resold at any time following the date of this
Prospectus, subject to an agreement between the Bridge Lender and the
Underwriter restricting the transferability of such Common Shares for a period
of two years without the Underwriter's consent. Prospective investors should be
aware that the possibility of resales by the Selling Stockholder and other
stockholders of the Company may have a material depressive effect on the market
price of the Company's Common Shares in any market which may develop, and,
therefore, the ability of any investor to sell his Common Shares may be
dependent directly upon the number of

Common Shares that are offered and sold. See "Bridge Financing" and "Principal
and Selling Stockholders."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,400,000 Common
Shares offered hereby, are estimated to be $5,750,000 (after deducting
underwriting discounts of $700,000 and other expenses of this Offering estimated
to be $550,000 including the Underwriter's non-accountable expense allowance in
the amount of 3% of the gross proceeds of the Offering) (but not considering any
exercise of the Underwriter's Warrant). The Company, based upon all currently
available information, intends to utilize such net proceeds approximately as
follows:

Approximate Approximate
Amount of Percentage
Net Proceeds of Net Proceeds

Marketing and advertising (1) $1,940,000 33.7%

Repayment of indebtedness (2) 708,000 12.3%

Hiring of additional personnel (3) 550,000 9.6%

Product acquisition (4) 500,000 8.7%

Research and development (5) 300,000 5.2%

Working capital (6) 1,752,000 30.5%
--------- -----

Total $5,750,000 100.0%
========= ======

(1) The Company intends to utilize funds to create sales force literature,
sales brochures and advertisements, hold educational symposia for
physicians, undertake medical, pharmacy and trade journal advertising and
direct mail campaigns, and supply product samples to physicians and
pharmacies.

(2) To be used for the repayment of (i) a promissory note in the aggregate
principal amount of $100,000, issued in connection with the Company's
Bridge Financing transaction; (ii) a certain loan made to the Company by
Mr. Brandon in January 1991, currently in the principal amount of $295,487,
which is due in January 1999, and which may be prepaid without penalty; and
(iii) a term loan in the principal amount of $300,000 made to the Company
by a bank. Interest accrues on the Bridge Financing promissory note at the
rate of 10% per annum. Interest accrues on Mr. Brandon's loan at the rate
of 10% per annum and is paid monthly. Interest accrues on the bank loan at
a rate equal to the prime rate of interest plus 1% per annum. See "Bridge
Financing" and "Certain Relationships and Related Transactions."

(3) Upon the closing of this Offering, the Company intends to hire additional
employees, including a national field sales manager and ten to twelve field
sales representatives.

(4) Part of the Company's strategy to develop its business includes the
acquisition of unique products that meet important patient needs in the
underserved, neglected areas of medicine and healthcare (a strategy that
the Company pursued in the acquisition of Mag-Tab(R)SR and Unifiber(R)). It
is anticipated that, if less than the full amount or none of the proceeds
allocated for product acquisition is utilized for such purpose, the unused
amount will be reallocated to working capital. At present, the Company has
not identified any acquisition candidates, but it is actively seeking such
opportunities. See "Business General."

(5) The Company intends to fund clinical studies of its products and research
on new formulations of Mag-Tab(R)SR, including a liquid, a unit dosage
package, and a combination magnesium supplement product containing other
nutrients. See "Business - Products - Mag-Tab(R)SR."

(6) To be used for general operating and overhead expenses, the manufacture of
product, and the payment of a $250,000 installment payment, due in March
1998, in connection with the acquisition of the rights to Unifiber(R). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Business - General."

The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company, at its discretion.

The Company believes that the proceeds of this Offering will enable it to
increase its annual revenues through the expansion of its business and
development of product lines. As a result, the Company believes that the net
proceeds of this Offering, together with anticipated increased revenues from
operations, will be sufficient to conduct the Company's operations for at least
18 months.

It is anticipated that, to the extent that the Company's expenditures are
less than projected, the resulting balances will be retained and used for
general working capital purposes. Conversely, to the extent that such
expenditures require the utilization of funds in excess of the amounts
anticipated, additional financing may be sought from other sources, such as debt
financing from financial institutions. The Underwriting Agreement generally
restricts the Company from issuing additional equity or debt securities, in
either public or private offerings, or from obtaining debt financing, for a
period of three years following the date of this Prospectus without the prior
written approval of the Underwriter, which approval may not be unreasonably
withheld. Even if the Underwriter consents to the Company obtaining debt
financing, there can be no assurance that such additional financing, if
available, will be on terms commercially reasonable or acceptable to the
Company. See "Risk Factors - Dependence on Offering Proceeds; Possible Need for
Additional Financing" and "Risk Factors - Risks Attendant to Expansion."

Pending use of the proceeds, the funds will be invested in certificates of
deposit, high grade commercial paper and government securities, or other low
risk investments.

DILUTION

All references herein to pro forma net tangible book value and pro forma
net tangible book value per Common Share assume no exercise of the Underwriter's
Warrant. See "Bridge Financing" and "Underwriting."

As of June 30, 1997, the Company had an aggregate of 1,174,227 Common
Shares outstanding and a net tangible book value deficit of ($1,938,615), or
($1.65) per Common Share. Net tangible book value (deficit) per share represents
the total amount of the Company's tangible assets, less the total amount of its
liabilities, divided by the total number of Common Shares outstanding.

After giving effect to the sale of 1,400,000 Common Shares by the Company
at the Offering price of $5.00 per Common Share, with net proceeds of
$5,750,000, the pro forma net tangible book value of the Company as of June 30,
1997 would be $3,811,385, or $1.48 per Common Share. This amount represents an
immediate dilution (the difference between the price per Common Share to
purchasers in this Offering and the pro forma net tangible book value per Common
Share as of June 30, 1997, after giving effect to the issuance of the 1,400,000
Common Shares) of approximately $3.52 per Common Share to new investors and an
immediate increase (the difference between the pro forma net tangible book value
per Common Share as of June 30, 1997, after giving effect to the issuance of the
1,400,000 Common Shares, and the net tangible book value (deficit) per Common
Share as of June 30, 1997, before giving effect to the Offering) of
approximately $3.13 per Common Share to the Company's current stockholders. Such
increase to the Company's current stockholders is solely attributable to the
cash price paid by purchasers of the Common Shares offered for sale by the
Company.

The following table illustrates the per share dilution as of June 30, 1997:

Public offering price per share(1)......................... $5.00

Net tangible book value (deficit) per share before giving
effect to the Offering................................... $ (1.65)

Increase per share attributable to the sale of the
Common Shares offered hereby............................. 3.13
----
Pro forma net tangible book value per share after the
Offering(2)............................................... 1.48
----
Dilution per share to purchasers in the Offering (3) ....... $3.52
====

(1) Before deduction of underwriting discounts and commissions and estimated
expenses of the Offering.

(2) After deduction of underwriting discounts and commissions and estimated
expenses of the Offering.

(3) Does not give effect to the exercise of the Underwriter's Warrant. See
"Underwriting."

The following table sets forth the relative cost and ownership percentage
of the Common Shares offered hereby as compared to the Common Shares outstanding
immediately prior to the Offering.

Common Shares Average
Acquired Total Consideration Price

Number Percent Amount Percent Per Share

Current Stockholders........ 1,119,227 44.4% $ 301,012 4.1% $ .27
Purchasers of Common
Shares in the Offering... 1,400,000 55.6% $7,000,000 95.9% 5.00
--------- ------- --------- -------
Total......................2,519,227 100.0% $7,301,012 100.0%
========= ====== ========= =======

CAPITALIZATION

The following table sets forth the unaudited capitalization of the Company
as of June 30, 1997 and as adjusted to give effect to the issuance and sale of
the 1,400,000 Common Shares offered by the Company at $5.00 per Common Share,
and the application of net proceeds of approximately $5,650,000 therefrom. This
table should be read in conjunction with the financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.

June 30, 1997
Actual As Adjusted(1)

Short-Term Debt................................. $ 820,291 $ 407,291
========== =======

Long-Term Debt.................................. $1,210,606 $ 915,606
--------- -------
Stockholders' Equity (Deficit):

Common Shares, $.00105 par value,
15,000,000 shares authorized, 1,174,227
shares issued and outstanding (actual)
and 2,574,227 shares issued and
outstanding (as adjusted) ................... 1,234 2,704

Additional Paid-in Capital.................... 738,378 6,486,908

Accumulated Deficit (2)....................... (1,517,605) (1,517,605)
--------- ---------
Total Stockholders' Equity (Deficit)............ (777,993) 4,972,007
-------- ---------
Total Capitalization............................ $ 432,613 $5,887,613
========= =========

(1) Reflects the issuance of the 1,400,000 Common Shares of the Company offered
hereby, and the anticipated application of the net proceeds of $5,750,000
therefrom, after deducting underwriting discounts and commissions and
estimated expenses of the Offering.

(2) Accumulated Deficit includes a deferred financing charge of $203,420
resulting from the Company's Bridge Financing transaction. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview."

DIVIDEND POLICY

Holders of the Company's Common Shares are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. The Company has not declared or paid any dividends in the past and
does not currently anticipate declaring or paying any dividends in the
foreseeable future. The Company intends to retain earnings, if any, to finance
the development and expansion of its business. Future dividend policy will be
subject to the discretion of the Board of Directors and will be contingent upon
future earnings, if any, the Company's financial condition, capital
requirements, general business conditions, and other factors. Therefore, there
can be no assurance that any dividends will ever be paid.

BRIDGE FINANCING

In December 1996, the Company borrowed $100,000 from an unaffiliated lender
(the "Bridge Lender"). In consideration for making the loan to the Company, the
Bridge Lender received (i) a $100,000 promissory note (the "Bridge Note")
payable on December 9, 1997 and (ii) 100,000 Common Shares. On September 10,
1997, in consideration for an acceleration of the due date of the Bridge Note to
December 1, 1997, the Bridge Lender returned 80,000 of such Common Shares to the
Company for retirement and cancellation.

The Bridge Note bears interest at the rate of 10% per annum and is due and
payable upon the earlier of (i) December 1, 1997 or (ii) the closing date of the
initial underwritten public offering of the Company's securities described in
this Prospectus. The Company intends to use a portion of the proceeds of this
Offering to repay the Bridge Lender. See "Use of Proceeds."

The Company entered into the Bridge Financing transaction because it
required additional financing to fund costs and expenses relating to this
Offering, and no other sources of financing were available to the Company at
that time. As part of the Bridge Financing transaction, the Company agreed to
register the Common Shares issued to the Bridge Lender by the Company for resale
under the Act. Therefore, the Registration Statement, of which this Prospectus
forms a part, includes the 20,000 Common Shares held by the Bridge Lender. See
"Principal and Selling Stockholders" and "Underwriting."

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company was formed in 1991 as a Texas corporation and reincorporated in
Delaware in October 1996. Since inception, the Company has focused its business
strategy on marketing, distributing, and acquiring non-prescription
pharmaceutical and nutraceutical products. During 1991, the Company acquired its
first product, Mag-Tab(R)SR, a patented sustained-release magnesium supplement.
Mag- Tab(R)SR was the Company's only product until November 1995, at which time
the Company acquired and began selling its second product, Unifiber(R), a
dietary fiber supplement. See "Business."

The Company's revenues are generated from sales of its products to
wholesale drug and dietary supplement distributors, which, in turn, supply
retail pharmacies, direct retail pharmacy accounts, and international
distributors who purchase the Company's products for resale to patient or
consumer end users. Since 1991, annual revenues of the Company have grown from
approximately $130,000 to more than $1,127,000 for the year ended December 31,
1996. For 1996, approximately $573,000 of revenues was attributed to sales of
MagTab(R)SR, while the remainder was attributed to sales of Unifiber(R). For the
six months ended June 30, 1997, the Company had revenues of $469,514,
approximately $210,000 of which was attributed to MagTab(R)SR and approximately
$259,000 of which was attributed to Unifiber(R).

The Company believes that it may be able to achieve greater sales results
with sufficient working capital to pursue its marketing strategies and acquire
other products. Historically, working capital has been made available by
stockholder and director loans, and bank loans, including, (i) a loan from
Stephen F. Brandon, Chief Executive Officer, President and Chairman of the Board
of the Company, originally in the principal amount of $500,000, of which
$295,487 remains outstanding, (ii) loans from certain stockholders and directors
in the aggregate principal amount of $112,500, (iii) a $250,000 credit facility
from one of the Company's banks, of which approximately $103,679 and $85,486 was
due and outstanding at December 31, 1996 and June 30, 1997, respectively,
guaranteed by the U.S. Small Business Administration, the repayment of which is
secured by a pledge of all of the Common Shares held by Mr. Brandon and (iv) a
$300,000 unsecured loan by another bank. See "Use of Proceeds" and "Certain
Relationships and Related Transactions."

In December 1996, the Company borrowed $100,000 from the Bridge Lender in
the Bridge Financing transaction. In consideration for making the loan to the
Company, the Bridge Lender received (i) a $100,000 Bridge Note payable on
December 9, 1997 and (ii) 100,000 Common Shares. On September 10, 1997, the
payment date of the Bridge Note was accelerated to December 1, 1997 in
consideration for which the Bridge Lender returned 80,000 Common Shares to the
Company for retirement and cancellation. The Company has granted the Bridge
Lender certain "piggyback" registration rights with respect to its 20,000 Common
Shares. The Bridge Note bears interest at the rate of 10% per annum. The Bridge
Note is due and payable upon the earlier of (i) December 1, 1997 or (ii)

the closing of any initial public offering of the Company's securities. See "Use
of Proceeds" and "Bridge Financing."

The fair value of the Bridge Lender's 100,000 Common Shares, at the date of
issuance, of approximately $400,000, is a non-cash charge which will be recorded
as a deferred financing cost and amortized over the earlier of (i) the one year
term of the Bridge Note or (ii) the period commencing upon the closing of the
Bridge Financing and ending upon the closing of this Offering, if the Offering
closes prior to the payment of the Note.

In January 1997, the Company entered into a credit facility loan agreement
(the "Credit Agreement") with an affiliate of Allan R. Avery, a director of the
Company, to borrow up to $150,000. As of the date of this Prospectus, the
Company has borrowed the full amount (which amount is currently outstanding).
The outstanding amounts under the Credit Agreement are due and payable on or
before January 20, 1998. Interest accrues on the unpaid amounts borrowed at the
rate of 10% per annum. In consideration for entering into the Credit Agreement,
the Company issued to the affiliate of Mr. Avery warrants to purchase an
aggregate of 30,000 Common Shares, at an exercise price of $6.00 per share, for
a period of five years commencing on the first anniversary date of this
Prospectus. See "Certain Relationships and Related Transactions."

Results of Operations

Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996.

Revenues for the six months ended June 30, 1997 were $469,514 compared to
$533,276 for the six months ended June 30, 1996, a 12% decrease. The decrease in
sales was attributable to a shift in the timing of purchases for MagTabSR(R) by
the Company's international licensee in South America from the second quarter of
1996 until the third quarter of 1997. In addition, due to a decreased marketing
budget for the year ended December 31, 1997, the Company did not offer a major
promotional marketing program to its drug wholesalers in June 1997 as it did in
June 1996.

Gross profit for the six months ended June 30, 1997 was $313,985 compared
to $337,293 for the six months ended June 30, 1996, a 7% decrease. Gross profit
as a percentage of revenues for the six months ended June 30, 1997 increased to
approximately 67% as compared to approximately 63% for the six months ended June
30, 1996. The increase in profit margin was due principally to the reduced cost
of goods of Unifiber(R). The Company believes, but cannot assure, that gross
margins and the cost of sales for Unifiber will be further improved as a result
of a new third party contract manufacturing agreement, which is effective as of
September 1, 1997 whereby packaging and freight costs can be reduced.

Accounts receivable as of June 30, 1997 were $111,012 compared to $115,413
as of June 30, 1996. The small decrease in receivable is a result of decreased
revenues for the first six months of 1997 as compared to the first six months of
1996. Management anticipates that, in the future, accounts receivable may vary
significantly from month to month or quarter to quarter due to certain
promotional

activities such as offering its customers special promotional discounts and or
the introduction of a new product.

Selling, general and administrative expenses were $398,841 for the six
months ended June 30, 1997 compared to $358,487 for the six months ended June
30, 1997, an 11% increase. The increase in selling, general, and administrative
expenses was attributed to increased salaries, and operating and administrative
expenses.

Interest expense for the six months ended June 30, 1997 was $101,020
compared to $102,976 for the six months ended June 30, 1996. A substantial
portion of these interest expenses was imputed interest related to the
Unifiber(R) acquisition.

Amortization of deferred financing costs for the six months ended June 30,
1997 was $203,420. There were no deferred financing costs for the six months
ended June 30, 1996. Such financing costs were related to the Bridge Financing
transaction, which closed on December 9, 1996.

Overall, the Company had a net operating loss of $84,856 for the six months
ended June 30, 1997 compared to a net operating loss of $21,194 for the six
months ended June 30, 1996, a 300% increase. The increase in operating loss was
due to a combination of decreased sales and increased selling, general and
administrative expenses. The Company experienced a net loss of $400,005 for the
six months ended June 30, 1997 compared to a net loss of $122,256 for the six
months ended June 30, 1996. The primary reason for this difference was a write
off of deferred offering costs related to a prior terminated offering and the
amortization of deferred financing costs for the Bridge Financing.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Revenues for the year ended December 31, 1996 were $1,127,316 compared to
$606,268 for the year ended December 31, 1995. The increase in revenues resulted
from (i) an increased demand for MagTabSR(R) in certain of the Company's
geographic markets and (ii) revenues generated by the sale of Unifiber(R)
product, the rights to which the Company acquired in November 1995.

Gross profit for the year ended December 31, 1996 was $728,501 compared to
$423,122 for the year ended December 31, 1995, a 72% increase. The increase was
primarily due to the additional revenues from the sale of the Unifiber(R)
product. Gross profit as a percentage of revenues for the year ended December
31, 1995 decreased from 78% to approximately 65% in the year ended December 31,
1996. This net decrease was due to the inclusion of revenues in the year ended
December 31, 1995 from the settlement of a lawsuit, and smaller gross margins on
Unifiber(R) compared to MagTabSR(R). Additionally, cost of sales increased
marginally due to increased freight costs associated with the shipping and
receiving of Unifiber(R).

Selling, general and administrative expenses for the year ended December
31, 1996 was $1,002,459 compared to $334,941 in the year ended December 31,
1995, a 199% increase. This increase reflects increased salaries and marketing
costs incurred by the Company. The increased expenses

included the salaries of a new Key Account Sales Manager and a new Contracts and
Bids Administrator, as well as the costs related to new management information
software programs needed to support Unifiber(R) and MagTabSR(R) contract sales
and chargebacks. The capability to handle contract sales and rebates
electronically positions the Company to compete favorably with other companies
that serve the large number of existing GPOs and the expanding managed health
care market. The significant increase in selling, general and administrative
expense was also attributable to the $130,053 in expenses associated with a
prior terminated offering.

Interest expense for the year ended December 31, 1996 was $203,935 compared
to $91,800 for the year ended December 31, 1995, a 122% increase. The increase
was due principally to imputed interest related to the Unifiber(R) acquisition.

The Company's net loss for the year ended December 31, 1996 was $499,639
compared to a net loss for the year ended December 31, 1995 of $1,003. The
increase in loss came primarily from imputed interest related to the Unifiber(R)
acquisition, expenses related to a prior terminated offering, and an increase in
selling, general and administrative expenses.

Liquidity and Capital Resources

At June 30, 1997, the Company had a working capital deficit of $745,816 as
compared to a working capital deficit of $623,244 at December 31, 1996. The
increase in the working capital deficit resulted primarily from the decrease in
the Company's inventory level from December 31, 1996 to June 30, 1997.

During the six months ended June 30, 1997, $140,996 of net cash was used
for operating activities. This was primarily due to the decrease in accounts
payable and accrued expenses from December 31, 1996 to June 30, 1997. Such
decrease was due to the payment of amounts owed various vendors and
professionals during the six months ended June 30, 1997. Such result was also
due to the net loss of $400,005, reduced by depreciation and amortization of
$258,031, amortization of imputed interest discount of $53,368, amortization of
deferred debt discount of $10,730 and a reduction of inventory of $113,183. For
the six months ended June 30, 1996, net cash of $20,672 was provided by
operations. Such result was primarily due to a decrease in inventory of $29,400
and an increase in accounts payable of $46,965, offset by an increase in
accounts receivable of $47,262. The net loss of $122,256 for such period was
reduced by depreciation and amortization of $56,058 and amortization of imputed
interest discount of $57,250.

No investing activities occurred in the six months ended June 30, 1997, and
no significant investing activities occurred in the six months ended June 30,
1996.

Net cash of $131,807 was provided by financing activities for the six
months ended June 30, 1997. Such financing activities were the result of the
proceeds of $150,000 from a related party under a line of credit in the same
amount and the repayment of long term debt of $18,193. For the six months ended
June 30, 1996, net cash used for financing activities was $61,931 due to the
repayment of notes

payable to stockholders of $39,258 and the repayment of long-term debt of
$22,673. For the six months ended June 30, 1997, the Company issued 72,727
Common Shares in payment of a $200,000 installment due to Bertek in connection
with the Unifiber(R) acquisition.

For the six months ended June 30, 1997, net cash decreased by $9,189, as
compared to a net decrease in cash of $42,427 for the six months ended June 30,
1996.

At present, the Company's sales and marketing efforts are focused on
expanding the promotion of its existing products to physicians and other health
care professionals. The Company believes that the Company's existing United
States markets for its products have the potential for substantial expansion.

Additionally, the Company intends to utilize a portion of the proceeds from
the Offering to expand the Company's product lines, which the Company believes
will result in increased product sales and the ability to compete more
aggressively in the niche market segments of the pharmaceutical and
neutraceutical industries. The Company, however, cannot assure that it will
identify any products which meet the Company's acquisition criteria in the near
future, or at all. Additionally, even if such a product is identified, there can
be no assurance that the Company will be able to acquire such product. See "Use
of Proceeds."

The Company believes that it has a diverse and growing market for its
products. While the Company is dependent on third party contract manufacturers
to supply its products, it believes it has developed relationships with
alternative manufacturers that could supply finished product should the Company
have this need. At the present, the Company's sales are geographically dispersed
across the United States. See "Risk Factors-No Manufacturing Capability or
Experience; Dependence on Others."

The Company believes that the net proceeds from the Offering, together with
anticipated revenues from operations, should be sufficient to fund operations
for at least 18 months. Management intends to utilize approximately $1,940,000
and approximately $500,000 of the net proceeds of the Offering to expand its
business through the marketing and advertising of its products, and for the
acquisition of new products, respectively. In addition, part of the net proceeds
will be used to repay approximately $300,000 of related party debt,
approximately $108,000 of Bridge Financing debt and approximately $300,000 of
bank debt. On a long-term basis, the Company believes that the growth of sales
of its product lines will ultimately result in revenues sufficient to fund the
Company's operations. To the extent that cash flow is not sufficient to fund
operations, it will be necessary for the Company to seek external debt or equity
financing or scale back operations. Management cannot ensure that financing will
be obtainable on terms favorable to the Company, or at all. See "Risk
Factors-Dependence on Offering Proceeds; Possible Need for Additional Financing"
and "Use of Proceeds."

The Company's independent certified accountants issued a modified going
concern opinion with regard to the December 31, 1996 financial statements based
upon an accumulated deficit of $1,117,600 and a working capital deficit of
$623,244 at December 31, 1996. Such financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business
(including, without limitation, the

Company's lease for its premises which requires minimum rental payments
aggregating $50,400 in 1997 and 1998, and payments under employment agreements
which the Company intends to enter into, which will require minimum payments
aggregating $221,000 over a three year period, commencing on the closing date of
the Offering). The continuation of the Company as a going concern is dependent
upon its ability to generate sufficient cash from operations and financing
activities. The Company's working capital deficit raises substantial doubt about
the entity's ability to continue as a going concern. The Company's viable plans
to address the foregoing include the following:

1. An increase in revenues by substantially increasing its marketing
activities, both in and outside the United States. See
"Business--Sales and Marketing."

2. The closing of this Offering with anticipated net proceeds of
approximately $5,750,000, a portion of which will be used to
satisfy certain outstanding obligations of the Company. See "Use
of Proceeds."

The Company believes that these plans can be effectively implemented in the
next twelve months. There can be no assurances, however, that the Company will
be successful in these endeavors. The Company's ability to continue as a going
concern is dependent on the implementation and success of these plans. The
financial statements do not include any adjustments in the event the Company is
unable to continue as a going concern.

Impact of Inflation

Inflation has not been a major factor in the Company's business. However,
there can be no assurance that this will continue.

BUSINESS

General

The Company manufactures through third party contractors, and markets and
distributes, non- prescription pharmaceutical and nutraceutical dietary
supplement products. The Company seeks to exploit product niches that have
generally been overlooked or neglected by the major drug and dietary supplement
companies because of the relatively small perceived size of the market for such
products. The Company's current products are a patented, state-of-the-art,
sustained release magnesium supplement marketed under the name Mag-Tab(R)SR, and
a dietary fiber supplement marketed as Unifiber(R).

In 1991, the Company acquired all rights to Mag-Tab(R)SR, which is
manufactured for the Company by Schering Corporation ("Schering"). See "Risk
Factors - No Manufacturing Capability or Experience; Dependence on Others" and
"Business - Manufacturing."

In November 1995, the Company acquired all rights to Unifiber(R) from
Bertek Pharmaceuticals Inc. (formerly Dow Hickam Pharmaceuticals Inc.)
("Bertek"), a subsidiary of Mylan Pharmaceuticals Inc.

Pursuant to the acquisition agreement (the "Bertek Agreement"), Bertek continued
to manufacture Unifiber(R) for the Company through December 31, 1996 and the
Company has a six month supply of Unifiber(R), based on current sales levels. In
September 1997, the Company entered into an exclusive agreement (the "IFP
Agreement") with IFP, Inc. ("IFP") for the manufacture of Unifiber(R). See "Risk
Factors - No Manufacturing Capability or Experience; Dependence on Others" and
"Business Manufacturing."

The Company markets Mag-Tab(R)SR and Unifiber(R) nationally to virtually
all of the drug wholesalers in the United States, which, in turn, supply retail
pharmacies, state and federal institutions, and group and managed care
purchasing organizations ("GPOs") acting on behalf of hospitals, extended care
facilities and nursing homes. See "Business - Sales and Marketing."

In addition to manufacturing and selling Mag-Tab(R)SR and Unifiber(R), the
Company intends to explore opportunities to add, through acquisition or
licensing, other unique products that meet important needs in the underserved,
neglected areas of medicine and healthcare, or that do not fit the strategic
plans of the major drug and dietary supplement companies. At present, the
Company has not identified any acquisition candidates but it is actively seeking
such opportunities. See "Risk Factors - Risks Attendant to Expansion" and "Use
of Proceeds."

A glossary of certain terms used in this section is included in the
Prospectus beginning on page 55.

Industry

Magnesium

Numerous scientific articles, published in medical journals by leading
academic physicians, have clearly shown that magnesium is an important metabolic
electrolyte, and that magnesium depletion accompanies many medical disorders.
Mag-Tab(R)SR and other magnesium formulations are administered in pharmacologic
or physiologic doses because magnesium replacement is critical to preventing
complications from magnesium deficiency associated with certain serious medical
conditions.

Magnesium, the second most abundant intracellular cation, is also one of
the most crucial, being an essential cofactor in more than 300 enzymatic
reactions in the human body. Neuromuscular transmission and protein metabolism
also depend on proper magnesium balance. Data show, for example, that up to 10%
percent of all hospitalized persons and 50% of those in critical care units are
magnesium deficient. The scope of the problem is underscored by a study,
reported in the Journal of the American Medical Association (Vol. 263, p. 3063,
1990). The investigators measured magnesium levels from more than 1,000 blood
serum specimens that had been provided for electrolyte determinations. Almost
half of these specimens demonstrated hypomagnesemia (low-serum magnesium), and
yet magnesium measurements were specifically requested on only 10% of the
specimens. In the Company's opinion, those findings probably underestimated the
true incidence of magnesium deficiency as serum magnesium levels do not
correlate well with magnesium tissue stores. The body stores about 24 grams

of magnesium, but less than 1% of that is in the serum. Consequently, while a
low serum magnesium level always indicates a severe deficiency, a normal level
does not rule out inadequate body stores. Conversely, high magnesium serum
levels are rare and occur only in the presence of severe kidney disease. Many
factors contribute to hypomagnesemia or low magnesium body stores. Anything that
impairs magnesium absorption through the small bowel or promotes excessive loss
through the kidney, including diarrhea, malabsorption syndrome, diabetes, renal
disorders, drugs (such as amino glycosides), chemotherapy agents, diuretics used
for hypertension, and alcohol, can lead to magnesium deficiency.

In 1992, the National Council on Magnesium and Cardiovascular Disease
stated that an increased oral intake of magnesium should be seriously considered
to counter magnesium depletion associated with the following diseases and
conditions:

Cardiovascular
o Congestive heart failure, ventricular arrhythmias, essential
hypertension, and diuretic therapy with or without associated
hypokalemia (low potassium).

Co-Morbid Conditions
o Diabetes;
o Alcohol intake;
o Weight loss, especially liquid preparations;
o Diarrhea, transient or associated with chronic inflammatory
bowel disease.

Other published data have indicated that oral magnesium supplementation may
be effective to counter magnesium depletion associated with PMS symptoms,
migraine headaches, chronic fatigue syndrome, dementias (such as Alzheimer's
disease) and osteoporosis.

The Company's market research shows that approximately 46,000 physicians
are responsible for 90% or more of ethical uses for oral magnesium products and
that those physicians are primarily family practitioners, cardiologists,
internists, neurologists, obstetricians/gynecologists and endocrinologists. The
Company believes that most primary care physicians, such as family practice
physicians, are unaware of the causes, frequency, and serious consequences of
magnesium deficiency. However, recent clinical studies have shown that magnesium
given intravenously, after myocardial infarction, improves mortality rates.
Moreover, recent published data have given the average physician a much greater
awareness of magnesium deficiency.

The current United States oral magnesium market is under $10 million, but
independent market research indicates that the total potential for current
future applications of magnesium is estimated to exceed $1 billion. This
estimated potential is based on physician surveys of intent to recommend an oral
magnesium supplement for certain conditions, as well as target population counts
of certain conditions where published scientific data links magnesium deficiency
as a complicating factor.

A recent Gallup poll revealed that 74% of the United States population
is magnesium deficient. Published articles indicate that the conditions
discussed above are often accompanied by magnesium

deficiency. Based on the target population counts of these conditions, there are
at least 20 million people in the United States who could benefit from oral
magnesium supplementation from a product such as Mag-Tab(R)SR. In addition to
such target population potential, healthcare publications also discuss the
potential value of oral magnesium supplementation in other situations, thereby
indicating that the total United States market potential for magnesium products
may actually exceed 50 million people. In support of the prospects for a rapidly
growing magnesium market in the United States, a comparison may be made to the
European market, which represents 3% less than the United States. in terms of
the world healthcare dollar market (i.e. 28% vs 31%). However, consistent with
its early adoption of low cost nutritional usage, oral magnesium products in
Europe are approaching $500 million in sales. In France alone, with a population
of only 20% of that in the United States, oral magnesium product sales exceeded
$110 million in 1994.

Notwithstanding all the publicity that magnesium is receiving, the Company
believes it may still take several years and significant financial resources to
fully educate the majority of physicians on why and when to routinely recommend
a magnesium supplement. Part of the Company's marketing strategy is to
facilitate physician education and awareness of the potential of magnesium
products in order to achieve Mag-Tab(R)SR's full market potential.

Fiber

Dietary fiber refers to certain plant foods not digested in the human small
intestine. This includes relatively indigestible carbohydrates and
carbohydrate-like components of food, such as cellulose, lignin, hemicelluloses,
pentosans, gums and pectins.

All fibers can be grouped into two broad categories: water-insoluble
fibers, which include cellulose, lignin and many hemicelluloses; and soluble
fibers, which include pectin, gums, certain hemicelluloses and storage
polysaccharides. Unifiber(R) is composed of 75% powdered cellulose combined with
corn syrup solids and xanthan gum.

Physiological effects of dietary fibers differ in the small intestine and
colon. For example, fibers such as guar delay absorption and slow transit in the
small intestine, but are rapidly degraded by colonic bacteria and have a
relatively minor influence on colonic function. In contrast, cellulose and bran
(which is high in insoluble fiber) have little physiological effect on the small
intestine and undergo little degradation by colonic bacteria; however, both
accelerate colonic transit and increase stool bulk and weight.

In recent years, much has been written about the importance of dietary
fiber in a healthy diet and its recognized role in healthy bowel habits, its
possible benefits in a variety of conditions, including diverticulosis,
irritable bowel syndrome and glycemic responses in diabetics, elevated lipids
often associated with cardiovascular disease, and its possible protective
effects against colon cancer. Much of the impetus for study of dietary fiber in
these conditions (particularly colon cancer) has resulted from earlier
publications of epidemiological studies in diverse cultures and populations
consuming high-fiber diets. However, fiber is not the only variable to be taken
into account in establishing correlations. For

example, the high fiber content in these cultures and populations are also
typically low in fat. Additionally, significant differences in environment
cannot be overlooked.

Recent animal and clinical pharmacology studies have attempted to determine
the role of high- fiber foods and certain fiber entities (including cellulose)
in the prophylaxis and/or treatment of specific diseases under more controlled
conditions. The data are not always consistent, however, and whether or not a
dietary supplement such as Unifiber(R), or any other dietary fiber, has any
meaningful effects to promote healthy bowel functions in these situations has
yet to be ascertained.

Although, as indicated above, there are certain as yet unresolved questions
regarding dietary fiber in disease therapy, there now appears to be no question
that fiber is considered an important part of the diet. In 1986, the National
Institutes of Health recommended that Americans increase their daily fiber
intake from about 11 grams per day to between 20 and 30 grams per day. The
preferred approach of healthcare professionals to accomplish this is by
increasing the intake of fiber-rich foods as part of a balanced diet. However,
it is also recognized that certain individuals cannot, or will not, consume
adequate amounts of fiber due to such reasons as poor dentition or palatability.
This situation is common among elderly and institutionalized individuals, for
example, which is significant in that these populations tend to be predisposed
to constipation. Fiber supplementation is appropriate in these individuals, and
the Company believes that the use of Unifiber(R) as a dietary fiber supplement
is well suited for such individuals due to its flexibility in mixing with foods
and its taste properties. Fiber supplementation programs with Unifiber(R) in
nursing homes support this position and have been particularly helpful in
promoting healthy bowel function without laxatives.

The $250 million market for bulk fiber products has grown, and is
anticipated to continue to grow, for the foreseeable future at the approximate
rate of 15-20% per year. See "Business Competition". These dietary fiber
products are normally used to treat or prevent constipation by promoting normal
bowel function. The target populations that the Company believes would benefit
from daily fiber supplementation include:

o Individuals undergoing kidney dialysis;
o Institutionalized individuals who are in state hospitals or
extended care facilities;
o Individuals receiving enteral
naso-gastric feedings;
o Pregnant women needing a pure fiber supplement without
aspartame as a sweetener;
o Individuals with bowel function problems associated with
Diabetes.

Products

Mag-Tab(R)SR

Mag-Tab(R)SR is currently the only patented, true sustained release
magnesium supplement product on the market. The patent for Mag-Tab(R)SR is for
the formula composition and the manufacturing process that enables magnesium
L-lactate dihydrate to be compressed into a sustained release tablet formulation
containing 3-10 mEq of elemental magnesium lactate. The benefit of this

patented formulation is that its delivery mechanism releases a highly absorbable
magnesium lactate to the distal intestine, ensuring 10-12 hours of prolonged
absorption at any given pH level, without exceeding the renal threshold and
without the gastrointestinal side effects that are often seen with many
competitive brands. Mag-Tab(R)SR administration maintains higher serum levels
over a 12 hour period than its major competitor, SlowMag(R). Mag-Tab(R)SR's
patent expires in March 2008. See "Business Competition" and "Business - Patents
and Proprietary Rights."

Mag-Tab(R)SR is currently marketed in caplet form packaged in 60 caplet and
100 caplet sizes. The Company also plans to market other dosage forms of
Mag-Tab(R)SR in the future, such as a liquid, a unit dosage and a combination
magnesium supplement product containing other nutrients.

Unifiber(R)

Unifiber(R) (comprised of 75% powdered cellulose) is a unique bulk bowel
management product which offers measurable differential advantages to its users.
Unifiber(R) is a non-patented proprietary dietary fiber supplement with
significant advantages over competitive brands. As compared to all other bulk
fiber supplements, Unifiber(R) requires no forced fluid intake, is
electrolyte-free, contains no aspartame, and is an ultrafine, tasteless,
non-gelling powder that mixes with virtually any soft food or liquid substance.
See "Business - Competition."

The Company plans to conduct a number of open label trials with key
physician groups, certified renal dieticians, and other decision makers of
long-term care facilities to promote Unifiber(R) acceptance with the target
groups discussed under "Business - Industry - Fiber." No such trials have been
undertaken to date and the Company cannot predict the results of such trials.

Sales and Marketing

The Company uses a very selective and targeted approach to market its
products. Its overall strategy involves several steps, including securing
meaningful retail distribution and creating a loyal core base of physicians,
pharmacists, dietary specialists and other healthcare professionals to recommend
the use of the Company's products. In implementing its strategy, the Company
uses multiple promotional techniques to, among others, 21,000 targeted
physicians, including targeted direct mail, field activity using its own or
contracted sales forces, attendance at medical conventions and meetings,
developing product advocate programs, medical and trade journal advertising, and
telemarketing in the most lucrative metropolitan and rural markets.

To create physician and healthcare professional awareness of Mag-Tab(R)SR's
benefits, the Company's marketing materials have focused primarily on (i)
education regarding magnesium deficiency, and (ii) emphasis on the features and
benefits of Mag-Tab(R)SR's unique sustained release formulation as compared to
competitive products.

The majority of bulk fiber product sales are accounted for by physician
recommendation and consumer purchases from retail pharmacies. The Company's
marketing strategy with Unifiber(R) is to

focus on certain target populations and market segments where fiber
supplementation is important and where the product's functions show it to be the
product of choice. This opportunity is with certain subsets of persons listed
above in "Business - Industry - Fiber," whose daily fiber supplementation
requires special consideration.

The Company employs a wholesale oriented policy for the supply of its
products. This practice results in greater profitability for the Company and
creates cooperation and goodwill with the wholesale drug and dietary supplement
distributors. The Company also offers incentive programs to its wholesalers
wherein the Company provides discounts in return for product promotion by the
wholesalers.

Currently, virtually all of the drug and dietary supplement wholesalers in
the United States stock two sizes of Mag-Tab(R)SR (60 and 100 caplet packages)
and three sizes of Unifiber(R) (5 ounce, 9 ounce and 16 ounce powdered cellulose
packages) for the benefit of their retail and hospital pharmacy customers. It is
estimated that the current national retail distribution has reached
approximately 20% of all the retail outlets for Mag-Tab(R)SR and slightly less
for Unifiber(R). The Company is targeting the proper corporate decision makers
at major wholesale and chain pharmacy headquarters and is developing particular
marketing programs for these customers with a view to improving overall
distribution in the near future. These marketing programs include, among other
things, seminars tied into medical and healthcare conventions to link the
Company's products with the subject matter of such conventions, the undertaking
of a 12 month clinical study with a view to presenting the results thereof in
healthcare and consumer publications, and the use of identified contractors for
sales and marketing projects in order for the Company to implement multimarket
promotions of its products.

To complement these activities, direct mail promotional materials are being
mailed to approximately 65,000 targeted independent and chain pharmacists in key
metropolitan markets across the United States. Trade journal advertising is also
planned to help reinforce the distribution and physician marketing programs. The
Company believes that these tactics will improve Mag-Tab(R)SR and Unifiber(R)
availability in retail outlets and increase demand for the products. However,
based on results of operations to date and the limited time that the Company has
been implementing its marketing strategy, the Company cannot predict the effect
of its marketing strategies or whether they will be successful at all.

The Company's direct customers for both Mag-Tab(R)SR and Unifiber(R)
comprise virtually all of the drug and dietary supplement wholesalers in the
United States, GPOs, and state and federal institutions, such as state and
county supported hospitals that are affiliated with medical schools and the
Veterans Administration hospital system. The following drug and dietary
supplement wholesalers, which supply retail and hospital pharmacies nationwide,
account for the following percentage of annual revenues of the Company for the
fiscal year ended December 31, 1996 and the six months ended June 30, 1997,
respectively: McKesson Drug Company, 28% and 28%; Cardinal Health Company, 15%
and 22%; Bergen Brunswig, 15% and 13%; and Amerisource Corporation, 14% and 11%.
The Company believes that its relationship with these customers is excellent.
However, the loss of any one of these customers may have a substantial adverse
effect on the financial condition of the Company. See "Risk Factors - Dependence
on Major Customers."

GPOs and institutional and government accounts are growing markets for the
sale of Mag- Tab(R)SR and Unifiber(R). The Company utilizes direct marketing
strategies to help penetrate these markets by creating specifications for the
Company's products. Such strategies include providing bids to GPOs and
government institutions; encouraging selection of Company products due to cost
effectiveness and other previously discussed advantages over the competitive
products and therapies; and participating in state Medicaid reimbursement
programs.

In addition to the above programs and strategies, the Company intends to
initiate a press and other media release program through its advertising agency
to create product awareness and corporate image. In the past, these tactics have
been effective in generating new demand and creating opportunities to evaluate
new products, services and possible marketing/licensing agreements; however,
results of this program with GPOs and institutional and government accounts
cannot be predicted.

Within the United States, the Company distributes its products from its
warehouse in Roanoke, Texas (see "Business - Property") via UPS, Federal
Express, common carriers (both land and sea) or United States Postal Service.
The Company has virtually no backlog since orders are generally shipped out the
same day as they are received.

Foreign Distribution

The Company has a distribution agreement with Laboratorios Rider S.A.
("Laboratorios") of Santiago, Chile, pursuant to which Laboratorios is granted
the exclusive right to distribute and market Mag-Tab(R)SR in Chile and Argentina
(the "Laboratorios Agreement"). The initial term of the Laboratorios Agreement
expires in November 1997 and is automatically renewable for successive three
year periods unless terminated by either party at least 180 days prior to the
termination of the initial or any renewal term. Neither party has given any
notice of termination. Accordingly, the expiration date of the Laboratorios
Agreement has been extended to November 2000. Based on the Company's current
relationship with Laboratorios, the Company anticipates, but cannot assure, that
the Laboratorios Agreement will be renewed at the end of the initial term.

In April 1996, the Company entered into an exclusive marketing and
distribution agreement with Corporation for Russian American Enterprise ("CRAE")
pursuant to which CRAE has the right to exclusively market and distribute
Mag-Tab(R)SR in Russia and the other republics comprising the former Soviet
Union (the "CRAE Agreement"). The 24-month term of the CRAE Agreement commences
on the first date that either of the Company's products is commercially sold in
CRAE's territory, which sales will be subject to prior approval from the
jurisdictions in its territory. The Company anticipates that such approval will
not be obtained in the foreseeable future, and the Company does not anticipate
that any material revenues will develop as a result of the CRAE Agreement.

Both the Laboratories Agreement and the CRAE Agreement provide that the
Company will sell Mag-Tab(R)SR to each of Laboratories and CRAE, respectively,
in no less than established minimum order amounts on an established cost-plus
basis. Both agreements provide for payment to the Company not later than 60 days
from the date of shipment.

To date, revenues from foreign sales have been nominal.

Manufacturing

The Company does not currently manufacture its own products and has no
current plans to do so. It plans to continue to avoid this capital expense by
utilizing third party contract manufacturing in FDA- approved facilities.

Mag-Tab(R)SR

Mag-Tab(R)SR is manufactured and packaged by Schering, a major
FDA-regulated pharmaceutical company, via a long-term exclusive manufacturing
agreement (the "Schering Agreement") which became effective on July 1, 1997 and
which replaced a previous two-year agreement with similar terms. The initial
term of the new Schering Agreement expires in five years after the date of the
Company's first purchase order and is automatically renewable for successive two
year terms thereafter unless written notice of termination is given by either
party at least one year prior to the expiration of the initial or successive
term.

The Schering Agreement provides for the manufacture of Mag-Tab(R)SR in
compliance with FDA Good Manufacturing Practices standards ("GMPs") required for
the manufacture of FDA-regulated drugs, even though Mag-Tab(R)SR, as a dietary
supplement, currently need not comply with such drug product GMPs.

The Company believes that its relationship with Schering is excellent and
anticipates that its relationship will continue for the foreseeable future. In
the event the Schering Agreement is terminated or expires and the Company does
not renew its relationship with Schering, the Company believes, but cannot
assure, that it will be able to engage another third party to manufacture
Mag-Tab(R)SR in compliance with GMPs on terms comparable to those set forth in
the Schering Agreement. See "Risk Factors - No Manufacturing Capability or
Experience; Dependence on Others."

Unifiber(R)

Unifiber(R) is manufactured and packaged by IFP pursuant to the IFP
Agreement, which became effective on September 1, 1997. The initial term of the
IFP Agreement expires three years after the date of the Company's first purchase
order and is automatically renewable for successive two year terms thereafter
unless written notice of termination is given by either party at least one year
prior to the expiration of the initial or successive term. Unifiber(R) was
previously manufactured by Bertek under the Bertek Agreement, which covered the
Company's acquisition of Unifiber(R). The Company has a six month inventory
supply of Unifiber(R) based on current sales levels. Pursuant to the Bertek
Agreement, Bertek has agreed not to compete with the Company with respect to
Unifiber(R) anywhere in the world until 2002. See "Risk Factors - No
Manufacturing Capability or Experience; Dependence on Others."

Although the Company's policy is to maintain an approximately three month
supply of each of Mag-Tab(R)SR and Unifiber(R) (of which, as noted above, it has
a six month supply), failure to engage or delays in engaging a manufacturer for
either product could result in the Company being unable to fill orders on a
timely basis, or at all, resulting in cancellation of orders, reduced sales,
loss of customers, loss of goodwill, and other events which could have a
material adverse effect on the Company. Additionally, if the Company is unable
to engage a manufacturer on terms at least as favorable as the Schering
Agreement or the IFP Agreement, the costs of goods sold may be raised, thereby
reducing profit margins. See "Risk Factors - No Manufacturing Capability or
Experience; Dependence on Others."

Competition

The Company competes in both the magnesium supplement market and dietary
fiber market with companies that have substantially greater resources, including
capital, research and development resources, and manufacturing and marketing
capabilities with respect to well established products. Accordingly, there can
be no assurance that the Company will be able to compete successfully with
respect to either of its products.

Mag-Tab(R)SR

Because magnesium is presently emerging as a dietary supplement (i.e.
market of less than $10 million), there are few current competitors. The market
leader is G.D. Searle ("Searle"), which is estimated to possess more than a 70%
market share with its product, SlowMag(R). SlowMag(R) is an enteric coated
dosage form (not sustained-release) of magnesium chloride. Searle invested
several million dollars towards physician and pharmacy promotion when it
launched this product in 1989 and 1990 and, as a result, Searle has been a major
factor in the magnesium supplement market. SlowMag(R) is the only dietary
supplement product that Searle has in its product line. Even though Searle has
greatly reduced its promotional efforts with respect to SlowMag(R) in recent
years, the product has grown over 30% in unit volume since 1992.

The other major competitor of the Company in the magnesium supplement
market is Blaine Co., Inc. ("Blaine") whose product's trade name is MagOx(R)
(magnesium oxide tablets). Blaine, a company with no field sales force, has
gained significant market share from SlowMag(R) in recent years. MagOx's(R)
market share is currently approximately 15%, a position the Company believes
Blaine has accomplished through steady direct mail promotion to targeted
physicians and specialists.

Mag-Tab(R)SR's patented sustained release formulation provides significant
advantages over its major competitors, MagOx(R) and SlowMag(R). Compared to
MagOx(R), (i) Mag-Tab(R)SR's formula (magnesium L-lactate dihydrate) is 600%
more soluble at any given pH level, thus assuring better bioavailability, and
(ii) published data suggest that the insolubility of magnesium oxide tablets
(MagOx(R)) causes it to be poorly absorbed, thereby leading to a high potential
for gastrointestinal side effects such as diarrhea. Compared to SlowMag(R),
Mag-Tab(R)SR provides 33% more elemental magnesium per dose, thus providing
individuals with a dosage regimen requiring fewer tablets at less

daily cost. In addition, Mag-Tab(R)SR's 12-hour sustained release formulation
allows patients to take their dose twice daily, resulting in better overall
patient compliance.

Unifiber(R)

Currently, Proctor and Gamble is the leader in the dietary fiber market, as
its Metamucil(R) (psyllium) product line has an approximately 70% market share.
Metamucil(R) is promoted primarily via consumer advertising and limited
professional sampling. The Metamucil(R) product line is offered in a wide range
of flavors and sizes with each product containing almost a totally different set
of ingredients in the formulation. The Company believes that this diversity,
along with the numerous line extensions on the retail shelf, makes it difficult
for health care professionals and patients to determine the right formula for
their specific needs, as the various formulae may have different effects on
consumers who are pregnant or have renal disease or diabetes.

Other competitors in the dietary fiber market include SmithKline Beecham
with Citrucel(R) (methyl cellulose) (with approximately a 10% market share), and
several other companies that also have a psyllium product, such as Konsyl(R)
(with approximately a 5% market share). Citrucel(R)'s initial promotional
campaign focused on the non-gelling, better tasting, "low gas" features of the
product. After establishing an ethical base with the gastroenterologist,
Citrucel(R) marketing has shifted more towards the consumer. Konsyl(R), owned by
Konsyl Pharmaceuticals, Inc. ("Konsyl"), is an older psyllium product similar to
Metamucil(R), whose initial base of business was established via ethical
marketing to colo-rectal surgeons and obstetrician/gynecologists. Currently,
Konsyl continues to market to these physician groups but has also initiated
consumer promotion.

Compared to the aforementioned competitive products, the Company believes
that Unifiber(R) offers a number of unique advantages, including the following:
(i) there is no requirement for additional forced fluid intake, and (ii)
Unifiber(R) is electrolyte-free, contains no aspartame and is an ultrafine,
tasteless, non-gelling powder that mixes with virtually any soft food or liquid
substance. These characteristics are attractive to renal dieticians, home health
care professionals, diabetic educators, long-term care providers and consumers.

The Company's competitive position in both the magnesium and fiber markets
also depends on its ability to attract and retain qualified personnel, obtain
and defend patent and other intellectual property protection, or otherwise
develop or acquire proprietary products or processes, and secure sufficient
capital resources to manufacture, market, distribute and sell its products. See
"Risk Factors - Uncertainty of Protection of Patents and Proprietary Rights" and
"Risk Factors - Dependence on Key Management and Qualified Personnel."

Patents and Proprietary Rights

The Company owns a patent on Mag-Tab(R)SR in the United States, which
expires in March 2008. A patent application with respect to Mag-Tab(R)SR is
currently pending in Canada. Additionally, the

trademark "Mag-Tab(R)SR" is a registered trademark in the United States.
Unifiber(R) is not patented; however, Unifiber(R) is a registered trademark in
the United States.

The Company's policy is to actively seek, when appropriate, intellectual
property protection for its products and proprietary information by means of
United States and foreign patents, trademarks and contractual arrangements. In
addition, the Company relies upon trade secrets and contractual arrangements to
protect certain of its proprietary information and products.

The Company's success will depend in part on its ability to enforce its
current patent, obtain patent protection for any products which may be developed
or acquired by the Company in the future, preserve its trade secrets, and
operate without infringing on the proprietary rights of third parties, both in
the United States and other countries. In the absence of patent protection, the
Company's business may be adversely affected by competitors who develop
substantially equivalent technology. Because of the substantial length of time
and expense associated with bringing new products through development to the
marketplace, the pharmaceutical and nutraceutical industries place considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. There can be no assurance that the
Company will have sufficient resources to protect its patent from infringers,
that the Company will develop or acquire additional products that are patented
or patentable, or that present or future patents will provide sufficient
protection to the Company's present or future technologies, products and
processes. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information, design
around the Company's patent, or future patents, if any, or obtain access to the
Company's know-how, or that others will not successfully challenge the validity
of the Company's patents or be issued patents which may prevent the sale of one
or more of the Company's products, or require licensing and the payment of
significant fees or royalties by the Company to third parties in order to enable
the Company to conduct its business. No assurance can be given as to the degree
of protection or competitive advantage the Company's current patent or any
patents issued to, or acquired by, the Company will afford, the validity of such
patents, or the Company's ability to avoid violating or infringing any patents
issued to others. Further, there can be no guarantee that any patents issued to,
or licensed by, the Company will not be infringed by products of others.
Litigation and other proceedings involving a defense and prosecution of patent
claims can be expensive and time consuming, even in those instances in which the
outcome is favorable to the Company, and can result in the diversion of
resources from the Company's other activities. An adverse outcome could subject
the Company to significant liabilities to third parties, require the Company to
obtain licenses from third parties or require the Company to cease any related
research and development, and sales of infringing products. See "Risk Factors -
Uncertainty of Protection of Patents and Proprietary Rights."

The Company does not currently undertake basic research and development
activities to develop new products. Instead, the Company's strategy is to
contract with third party manufacturers or dietary supplement development
companies to formulate new dosage forms of its existing products and to target
for licensing or acquisition products that are already developed and tested.
This would also include existing products with sales revenues, which are
generally owned by large pharmaceutical or nutraceutical companies but which are
neglected by them. The Company depends on the unpatentable

knowledge, experience and skills of scientific and technical consultants to
conduct clinical trials commissioned by the Company from time to time, as well
as to develop new formulations of its existing products. The Company requires
that each of its executive employees, consultants, manufacturers, and
distributors execute a contract containing a confidentiality agreement with
respect to the Company's proprietary rights. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's
proprietary information in the event of an unauthorized use or disclosure of
such confidential information.

Government Regulation

The Company is subject to the Federal Food, Drug and Cosmetic Act
(including the Dietary Supplement Health and Education Act of 1994), the Federal
Trade Commission Act, the Fair Packaging and Labeling Act, the Consumer Product
Safety Act, the Federal Hazardous Substance Act and product safety laws in
foreign jurisdictions, as well as to the jurisdiction of the Consumer Product
Safety Commission. Such regulation subjects the Company to the possibility of
requirements of repurchase or recall of products found to be defective and the
possibility of fines, penalties, seizure of its products, injunction and
criminal prosecution for repeated violations. The FDA regulates product
labeling, including claims. In addition, the FTC regulates product claims made
in advertising. Existing and future governmental regulations could impact
certain products of the Company. Additionally, products which the Company may
acquire in the future (if any) may be subject to FDA approval and regulation,
which could be time consuming and costly. See "Risk Factors - Possible
Significant Impact of Consumer Laws and Government Regulation on the Company's
Business and Products."

Third Party Reimbursement

Health care reform in the United States is currently an area of national
attention. Certain reforms may influence customer purchases and, if adopted,
could impose limitations on the prices the Company may be able to charge in the
United States, or on the amount of reimbursement available from government
agencies and private third party payors for magnesium supplements and dietary
fiber.

In the United States, the Health Care Financing Administration ("HCFA")
establishes guidelines for coverage and the reimbursement of healthcare
providers treating Medicare and Medicaid patients. The Medicare program has
detailed coverage and reimbursement rules, but the program does not currently
provide reimbursements for drugs or nutritional supplements. The Medicaid
program, which is a Federal program, is state administered. Therefore, although
Medicaid reimbursement codes currently exist for Mag-Tab(R)SR and Unifiber(R),
HCFA does not control the policy of every state. At present, approximately 15
states approve patient reimbursement under Medicaid for the Company's products.
There can be no guarantee that Mag-Tab(R)SR, Unifiber(R) or any new products of
the Company will be covered in the future by Medicaid or other third party
payors, and, if covered, there can be no guarantee as to the level of
reimbursement that will be provided. See "Risk Factors - Uncertainty of Third
Party Reimbursement and Product Pricing."

Product Liability Insurance; Indemnification

The Company's business involves the inherent risk of product liability
claims. If such claims arise in the future, they could have a material adverse
impact on the Company. The Company maintains product liability insurance on an
occurrence basis in the amount of $3 million per occurrence and an aggregate
amount of $3 million per policy term period. The policy term of 12 months is
renewable for successive 12 month periods. There is no assurance that such
coverage will be sufficient to protect the Company from risks to which it may be
subject, or that product liability insurance will be available to the Company at
a reasonable cost, if at all, in the future. Mag-Tab(R)SR and Unifiber(R) have
been on the market for approximately seven and twelve years, respectively. The
Company is not aware of any adverse side effects resulting from the use of these
products. However, the Company cannot assure that users will not experience
adverse side effects from these products in the future, or that claims will not
be brought against the Company arising from the use of these products.

Additionally, the Company attempts to reduce its risk by obtaining
indemnity undertakings with respect to product liability claims from the third
party manufacturers of its products. The Company may acquire and market other
products in the future, which may be the subject of claims against the Company,
that may or may not be covered by any or adequate insurance or indemnities.
Currently, the Company is not aware of any pending or threatened claims against
it. See "Risk Factors - Potential of Material Adverse Effect of Product
Liability Claims on the Company."

Employees

The Company currently has seven employees, three of whom are engaged in
direct sales and marketing activities. The remaining employees provide services
with regard to finance, administration, product development, and customer
service. No employees of the Company are covered by any collective bargaining
agreements, and management considers its employee relations to be excellent. The
Company intends to use part of the proceeds from this Offering to hire
additional employees in 1997, including a full-time controller, a national field
sales manager and ten to twelve field sales representatives. See "Use of
Proceeds."

Property

The Company's principal executive offices and warehouse are located at 200
North Oak, Roanoke, Texas, a 5,000 square foot leased facility. The lease
provides for a term ending on August 31, 2001 and a current monthly rental of
$2,000 (which increases in $200 increments each year until 2000) plus costs of
utilities and taxes. The lease is renewable for an additional five years by the
Company at a monthly rental of $2,600. The Company believes that its existing
facilities are adequate for the foreseeable future. Additionally, there is
unimproved space adjacent to the building, allowing for expansion of the current
facility if the Company determines that expansion is necessary. The lease grants
the Company an option to purchase the real property (including the Company's
premises and the adjacent space) for a period of 24 months commencing on
September 1, 1996 at a price equal to $20,000 above its market value as

determined by an appraiser. The Company has no current plans to exercise the
option, or lease or acquire any other real estate. See "Financial Statements -
Notes to Financial Statements 14[B]."

Litigation

There is no litigation pending against the Company, nor is the Company
aware of any threatened litigation, or any proceeding contemplated by a
governmental authority, against it.

MANAGEMENT

The names and ages of, and the positions held by, the executive officers
and directors of the Company are set forth below.

Class of
Name Age Positions Held Directorship(1)

Stephen F. Brandon 51 Chief Executive Officer, Class III
President, Treasurer and
Chairman of the Board

Thomas F. Reed 52 Executive Vice President - Class I
Corporate Development,
Secretary and Director

Jean R. Sperry 70 Vice President and Director Class II

Allan R. Avery 37 Director and Member of Class III
Audit Committee

J. Leslie Glick 57 Director and Member of Class I
Audit Committee
- --------------------

(1) The Company's Certificate of Incorporation provides for three classes
of directors. The term of each class is three years, except that the initial
term of office of the Class I directors will expire at the Company's annual
meeting of stockholders in 1997 and the initial term of office of the Class II
directors will expire at the Company's annual meeting in 1998.

Stephen F. Brandon has served as Chief Executive Officer, President and
Chairman of the Board of the Company since its inception in 1991. He was elected
Treasurer of the Company in October 1996. From 1988 to 1991, Mr. Brandon pursued
entrepreneurial activities and served as Executive Vice President of Sales &
Marketing at Lectus Associates, a pharmaceutical marketing firm created by him

and two other associates. From 1970 to 1988, Mr. Brandon held numerous sales and
sales management positions with Marion Laboratories, Inc. ("Marion"), a major
United States pharmaceutical company.

Thomas F. Reed has served as Executive Vice President-Corporate Development
and a director of the Company since 1991. Mr. Reed was elected Secretary of the
Company in October 1996. Prior to joining the Company, Mr. Reed had a 21-year
career with Marion, where he held various management positions, including
Director of Pharmaceutical Marketing, Company Vice President, and President of
the International Products Division. In such capacities, Mr. Reed was
responsible for overseeing the marketing of Marion's prescription products,
managing the strategic development and market introduction of Marion's two most
successful products (Cardizem (R) and Carafate (R)), and marketing,
manufacturing, licensing and distribution operations.

Jean R. Sperry has served as Vice President and a director of the Company
since 1991. Mr. Sperry is responsible for developing marketing strategies, sales
plans, and strategic alliances and devotes approximately 10% of his working time
to the Company's business. For more than 30 years prior to joining the Company,
Mr. Sperry served in various sales and marketing capacities with Marion,
including National Sales Manager, Vice President of Sales and Senior Vice
President of Marketing. Additionally, during that time, Mr. Sperry founded and
served as the President of Marion's international division from 1976 to 1986.

Allan R. Avery has been a director of the Company since February 1996.
Since 1990, Mr. Avery has served as the President and Chief Executive Officer of
GEM Communications Inc., a health care communications company which he founded.
From 1990 to 1991, Mr. Avery was Vice President of Client Services at PRO
Communications, a pharmaceutical education project company. Prior thereto, Mr.
Avery held various sales and marketing positions at Marion during a nine year
career.

J. Leslie Glick, Ph.D. has been a director of the Company since October
1996. Since 1993, Dr. Glick has been an independent management consultant, and
has served as Editor-in-Chief of Technology Management, a management journal,
since 1992. He has also been an adjunct professor of technology management in
the Graduate School of Management & Technology at the University of Maryland
University College since 1988. Additionally, from 1987 to 1993, Dr. Glick served
as Chief Executive Officer, President and Chairman of the Board of Bionix
Corporation, a biotechnology company. From 1977 to 1987, Dr. Glick served as
President and Chief Executive Officer of Genex Corporation, a publicly-traded
biotechnology company.

The Company has undertaken to have a designee of the Underwriter serve as a
director of the Company for a period of three years. The Company has been
advised by the Underwriter of its intention to designate Robert C. Lau to such
position.

Robert C. Lau is President and Chief Executive Officer of Clayton, Dunning
& Company Inc., a member of the National Association of Securities Dealers Inc.
Mr. Lau has been in the investment business for over 35 years, involved in
retail and institutional brokerage, investment management and investment
banking. He is a graduate of Yale University and has post-graduate training in
Economics.

Mr. Lau has held various management positions at several major New York Stock
Exchange member firms during his career. He became a certified financial planner
in 1974, and served on the Board of Regents and the Adjunct Faculty of the
College for Financial Planning. He is engaged by leading securities firms as a
securities expert, is a member of the NASD Board of Arbitrators and is a
mediator certified by the Florida Supreme Court. Mr. Lau is also an investment
advisor registered with the SEC.

There are no family relationships between the executive officers and
directors of the Company.

Executive Compensation

The following table provides summary information concerning cash and
certain other compensation paid or accrued by the Company to, or on behalf of,
Mr. Brandon, the Company's Chief Executive Officer, during the last three fiscal
years. No executive officer of the Company had a combined salary and bonus in
excess of $100,000 for any year during such period.

Summary Compensation Table

Annual Compensation Long-Term Compensation

Awards Payouts

Restricted Securities
Name and Principal Other Annual Stock Underlying LTIP All Other
Positions Year Salary Bonus Compensation(1) Award(s) Options Payouts Compensation
- -------------------- ---- ------ ------ ---------------- -------- ------- ------- -------------

Stephen F. Brandon 1996 $74,000 $12,000 - - - - -
Chief Executive 1995 48,000 12,000 - - - - -
Officer, President 1994 41,400 12,000 - - - - -
and Chairman of the
Board

(1) Represents annual club dues paid by the Company on behalf of Mr. Brandon.

Each director of the Company is entitled to be reimbursed for reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
of the Company. The members of the Board of Directors intend to meet at least
quarterly.

Employment Agreements

At the Closing of the Offering, the Company intends to enter into an
employment agreement with Mr. Brandon pursuant to which he shall serve as the
Company's Chief Executive Officer, President and Chairman of the Board for a
period of three years from the date of this Prospectus at a salary of $120,000
per annum.

At the Closing of the Offering, the Company intends to also enter into an
employment agreement with Mr. Reed pursuant to which he shall serve as the
Company's Executive Vice President-Corporate

Development for a period of three years from the date of this Prospectus at a
salary of $96,000 per annum.

The employment agreements for Messrs. Brandon and Reed will each further
provide for reimbursement of business expenses. Additionally, Mr. Brandon's
employment agreement will provide for reimbursement of club dues not to exceed
$15,000 on an annual basis. The employment agreements will also provide for the
payment of full salary in the event of disability for three months and 50% of
salary if such disability continues for the next three month period. The Company
will have the right to terminate the employment agreements in the event
disability continues for more than six consecutive months or for 150 business
days in any nine month period. The employment agreements will contain a
restrictive covenant precluding Messrs. Brandon and Reed, respectively, from
competing with the Company during the term, and for a period of one year after
the termination, of the employment agreement, without the Company's consent.
Furthermore, the employment agreements will entitle Messrs. Brandon and Reed to
participate in any health, compensatory or other plan or program adopted by the
Company for the benefit of its executive employees.

Stock Options

1996 Senior Executive Stock Option Plan

In December 1996, the Board of Directors of the Company adopted the 1996
Senior Executive Stock Option Plan (the "1996 Senior Executive Plan") which
provides for the grant of options to a certain senior management group for the
purchase of up to 405,000 Common Shares of the Company. The purpose of the 1996
Senior Executive Plan is to provide an incentive and reward for such senior
management group to contribute substantially to the progress and success of the
Company, to closely align the interests of such employees with the interests of
the stockholders of the Company by linking benefits to performance and to retain
the services of such employees. In furtherance of that purpose, the 1996 Senior
Executive Plan provides for the grant to Messrs. Brandon, Reed, Sperry and Avery
of options to purchase 283,500, 72,900, 24,300, and 24,300 Common Shares of the
Company, respectively, at an exercise price of $5.00 per share (the "Senior
Executive Plan Options"). The Senior Executive Plan Options shall terminate in
December 2006 and vest in one-third increments in each of 1999, 2000, and 2001
following the issuance of audited financial statements for the prior year,
provided the Company's cumulative pre-tax income from operations exceeds
$300,000 (without giving effect to any deferred financing cost resulting from
the issuance of 100,000 Common Shares to the Bridge Lender, 80,000 of which were
subsequently returned to the Company in the Company's Bridge Financing
transaction), $3,000,000 and $7,500,000 for the fiscal years ended December 31,
1998, December 31, 1999 and December 31, 2000, respectively (the "Cumulative
Goals"). In the event a particular Cumulative Goal is not reached through
December 31 of any given year, the particular installment of such Senior
Executive Plan Options will nevertheless vest in a future year if the Cumulative
Goal for a succeeding year is met. It is anticipated that the Senior Executive
Plan Options will be granted at the Closing of the Offering. Following the grant
of the Senior Executive Plan Options described herein, no further Senior
Executive Plan Options will be available under the 1996 Senior Executive Plan.

1996 Stock Option Plan

In February 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1996 Stock Option Plan
(the "1996 Option Plan") which provides for the grant of options for the
purchase of up to 131,250 Common Shares of the Company. The purpose of the 1996
Option Plan is to advance the interests of the Company by providing additional
incentive to, and to attract and retain, qualified competent employees,
non-employee directors, consultants and advisors through the encouragement of
stock ownership in the Company by such persons.

In February 1996, pursuant to the 1996 Option Plan, the Company granted to
Messrs. Reed and Sperry options to purchase 12,500 and 75,000 Common Shares,
respectively, at an exercise price of $1.50 per share. Messrs. Reed's and
Sperry's options, which are currently exercisable, expire in February 2006.

In July 1996, pursuant to the 1996 Option Plan, the Company granted to each
of Mr. Avery and Dr. Glick options to purchase 12,500 Common Shares at an
exercise price of $1.50 per share. The options vest to the extent of 20% per
year over a period of five years commencing in July 1997 and terminate in July
2006. Other than the options already granted as described herein, no further
options will be granted under the 1996 Option Plan.

1996 Non-Senior Executive Stock Option Plan

In December 1996, the Company adopted and the stockholders approved the
1996 Non-Senior Executive Stock Option Plan (the "1996 Non-Senior Executive
Plan") which provides for the grant of options to employees, non-employee
directors, consultants and advisors of the Company, other than eligible
optionees under the 1996 Senior Executive Plan, to purchase up to 150,000 Common
Shares. The purpose of the 1996 Non-Senior Executive Plan is to provide an
incentive and reward the eligible employees, non-employee directors, consultants
and advisors to contribute to the progress and success of the Company, to
closely align the interests of such eligible optionees with the interests of the
stockholders of the Company by linking benefits to performance, to retain the
services of such employees, non-employee directors, consultants and advisors,
and to attract new employees, non-employee directors, consultants and advisors.
No options have been granted under the 1996 Non-Senior Executive Plan as of the
date of this Prospectus.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information as of the date of this
Prospectus with respect to the beneficial ownership of the outstanding Common
Shares of the Company by (i) any holder of more than 5% of the outstanding
Common Shares; (ii) the Company's directors; and (iii) the directors and
executive officers of the Company as a group; and (iv) the Selling Stockholder:

Number of Number of
Common Number of Common
Shares Common Shares
Beneficially Percentage of Shares Beneficially Percentage of
Name and Address of Owned Prior Class Prior to Offered Owned After Class After
Beneficial Owner to Offering Offering Hereby Offering Offering (1)
- ---------------- ----------- -------- ------ -------- ------------

Stephen F. Brandon . . . . . . . . 731,500(2)(3) 65.4% -0- 731,500(2)(3) 29.0%
200 North Oak
Roanoke, Texas
Jean R. Sperry . . . . . . . . . . 122,500(3)(4) 10.3% -0- 122,500(3)(4) 4.7%
200 North Oak
Roanoke, Texas
Thomas F. Reed . . . . . . . . . .98,000(3)(5) 8.7% -0- 98,000(3)(5) 3.9%
12704 Eaton Circle
Leawood, Kansas
Gerald L. Beckloff, M.D. ......... 75,500 6.7% -0- 75,500 3.0%
Commerce Plaza II, Suite 720
7400 West 110th Street
Overland Park, Kansas
Bertek Pharmaceuticals Inc.(6) 72,727 6.5% -0- 72,727 2.9%
10410 Corporate Drive
Sugar Land, Texas
Dominant Construction 20,000 1.8% 20,000(8) - 0 - --
Corp.(7) . . . . . . . . . . . . .
523 Route 303
Orangeburg, New York
Allan R. Avery . . . . . . . . . . 17,500(3)(9) 1.6% -0- 17,500(3)(9) *
40 Richards Avenue
Norwalk, Connecticut
J. Leslie Glick . . . . . . . . . . 2,500(9) * -0- 2,500 *
10899 Deborah Drive
Potomac, Maryland
All directors and executive 972,000(2)(3) 80.2% -0- 972,000(2)(3) 37.2%
officers as a group (five (4)(5)(9) (4)(5)(9)
persons)..........................
- --------------------

* Less than 1%

(1) Does not give effect to the exercise of the Underwriter's Warrant. See
"Underwriting."

(2) Mr. Brandon's shares are pledged as security for the repayment of
indebtedness. See "Principal and Selling Stockholders-Changes in Control."

(3) Does not include shares issuable upon the exercise of options that may be
granted under the 1996 Senior Executive Plan, the exercisability of which
will be subject to the attainment of certain performance goals. See
"Management-Stock Options."

(4) Includes 75,000 share issuable upon the exercise of currently exercisable
options. See "Management-Stock Options."

(5) Includes 12,500 shares issuable upon the exercise of currently exercisable
options. See "Management-Stock Options."

(6) The Company has been advised that Bertek Pharmaceuticals Inc. is a
wholly-owned subsidiary of Mylan Pharmaceuticals Inc.

(7) The Company has been advised that Alexa Dove is the sole stockholder,
director and officer of Dominant Construction Corp. (the "Selling
Stockholder") and that Peter M. Dove is the General Manager of the Selling
Stockholder and the husband of Alexa Dove. Both Mr. and Mrs. Dove may be
deemed to be beneficial owners of the Common Shares owned by the Selling
Stockholder.

(8) As noted below, the Selling Stockholder has agreed that it will not
transfer any of its Common Shares for a period of two years following the
date of this Prospectus without the prior consent of the Underwriter.

(9) Includes for each of Messrs. Avery and Glick 2,500 shares issuable upon the
exercise of currently exercisable options. See "Management-Stock Options."

The Registration Statement, of which this Prospectus forms a part, covers
the resale of 20,000 Common Shares issued to the Selling Stockholder by the
Company in connection with the Bridge Financing completed in December 1996. See
"Bridge Financing."

The Company will not receive any of the proceeds from the resale of the
Common Shares by the Selling Stockholder. The Common Shares held by the Selling
Stockholder may be resold at any time following the date of this Prospectus,
subject to an agreement between the Selling Stockholder and the Underwriter
restricting the transfer of the Common Shares for a period of two years without
the Underwriter's consent. The Underwriter has advised the Company that it will
not waive the transfer restriction with respect to the Selling Stockholder for
30 days following the date of this Prospectus, and that it has no plans to waive
such transfer restriction prior to its expiration. However, the Underwriter has
informed the Company that it may contemplate the waiver of such transfer
restriction in the future if the sale of the Selling Stockholder's Common Shares
would not have an adverse effect on the market price of the Company's Common
Shares and the market could sustain such sale. The foregoing notwithstanding,
the sale of such Common Shares or the potential of such sales at any time may
have an adverse effect on the market prices of the Common Shares offered hereby.
See "Risk Factors-Shares Eligible For Future Sale May Adversely Affect the
Market."

The Common Shares offered may be sold from time to time directly by the
Selling Stockholder. Alternatively, the Selling Stockholder may from time to
time offer such Common Shares through underwriters, dealers, or agents. The
distribution of Common Shares by the Selling Stockholder may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholder in connection with such sales of Common Shares. The Common Shares
offered by the Selling Stockholder may be sold by one or more of the following
methods, without limitation: (i) a block trade in which a broker or dealer so
engaged will attempt to sell the Common Shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (ii)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (iii) ordinary brokerage
transactions in which the broker solicits purchasers; and (iv) face-to-face
transactions between seller and purchasers without a broker-dealer. In effecting
sales, brokers or dealers engaged by the Selling Stockholder may arrange for
other brokers or dealers to participate . The Selling Stockholder, and
intermediaries through whom such Common Shares are sold, under certain
circumstances, may be deemed "underwriters" within the meaning of the Act with
respect to the Common Shares offered, and any profits realized or commissions
received may be deemed underwriting compensation.

At the time a particular offer of Common Shares is made by or on behalf of
the Selling Stockholder, to the extent required, a Prospectus Supplement will be
prepared which will set forth the number of Common Shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, the purchase price paid by any underwriter for Common Shares
purchased from the Selling Stockholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.

Changes in Control

Mr. Brandon has pledged to the First National Bank of Grapevine, Grapevine,
Texas (the "Lender") and the United States Small Business Administration (the
"SBA") all of his 731,500 Common Shares of the Company, representing
approximately 65% of the Common Shares outstanding prior to the Offering and 29%
of the Common Shares after the Offering. Such pledge was made in furtherance of
a loan by the Lender in the original principal amount of $250,000 to the Company
and a guaranty of the loan by the SBA. In the event of a default under the loan
(the principal amount of which as of June 30, 1997 was $85,486), the Lender and
the SBA have the right to foreclose on the Common Shares which could result in,
among other things, the Lender and the SBA obtaining voting control over a
significant portion of the outstanding Common Shares of the Company.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company is obligated to repay to Mr. Brandon a loan in the outstanding
principal amount of $295,487 (the "Brandon Loan"). The Brandon Loan accrues
interest at the rate of 10% per annum,

payable monthly, and is payable on January 11, 1999. The Brandon Loan,
originally in the principal amount of $500,000, was made on January 11, 1991 and
the term has been renewed for successive one year terms each year since January
1992. The Company intends to prepay the remaining principal balance out of the
proceeds of this Offering. See "Use of Proceeds."

In January 1997, the Company entered into an unsecured Credit Agreement
with GEM Communications, Inc. ("GEM"), an entity wholly owned by Allan R. Avery,
a director of the Company, which provides for the Company to borrow up to
$150,000. The Credit Agreement further provides that all amounts borrowed shall
be repaid in full on or before January 20, 1998. Interest accrues on the unpaid
principal at the rate of 10% per annum and is payable upon demand. At the date
of this Prospectus, the Company has borrowed $150,000 under the Credit
Agreement, all of which is outstanding. As further consideration to enter into
the Credit Agreement, the Company issued to GEM warrants to purchase 30,000
Common Shares of the Company at an exercise price of $6.00 per share, such
warrants being exercisable for a period of five years commencing on the first
anniversary date of this Prospectus. The Company entered into the Credit
Agreement because it required additional financing to fund the Company's working
capital needs and no other sources of financing were available to the Company at
that time. The Company believes that the terms of the Credit Agreement and the
warrant are commercially reasonable and are at least as favorable as the Company
could have obtained from an unrelated third party. Amounts borrowed under the
Credit Agreement will be repaid out of operating revenues of the Company. No
part of the proceeds obtained in this Offering will be utilized to repay the GEM
loan.

To the extent that the Company may enter into any agreements with related
parties in the future (of which none are presently contemplated), the Company
anticipates that the terms of such agreements will be commercially reasonable
and no less favorable to the Company than the Company could obtain from
unrelated third parties. Additionally, the Company intends that such agreements
will be approved by a majority of disinterested directors.

DESCRIPTION OF SECURITIES

Common Shares

The Company is authorized to issue up to 15,000,000 Common Shares, par
value $.01 per share, of which 1,119,227 shares are issued and outstanding as of
the date of this Prospectus. All of the issued and outstanding Common Shares are
validly issued, fully paid and non-assessable.

Holders of the Common Shares of the Company are entitled to share equally
on a per share basis in such dividends as may be declared by the Board of
Directors out of funds legally available therefor. There are presently no plans
to pay dividends with respect to the Common Shares. See "Dividend Policy." Upon
liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Shares, if any, the assets of the Company will be divided pro rata on
a per share basis among the holders of the Common Shares. The Common Shares are
not subject to any liability for further assessments. There are no conversion or

redemption privileges nor any sinking fund provisions with respect to the Common
Shares, and the Common Shares are not subject to call. The holders of the Common
Shares do not have any preemptive or other subscription rights.

Holders of the Common Shares are entitled to cast one vote for each share
held at all stockholders' meetings, including the annual meeting for the
election of directors. The Common Shares do not have cumulative voting rights.

The Company has agreed with the Underwriter that it will not issue any
Common Shares (other than pursuant to outstanding options and warrants, the
Underwriter's Warrant, or grants under the 1996 Senior Executive Plan and 1996
Non-Senior Executive Plan) for a period of three years from the date of the
Prospectus without the prior written consent of the Underwriter. See
"Underwriting."

Preferred Shares

The Company's Certificate of Incorporation authorizes 2,000,000 "blank
check" Preferred Shares, par value $.01 per share, whereby the Board of
Directors of the Company shall have the authority, without further action by the
holders of the outstanding Common Shares, to issue Preferred Shares from time to
time in one or more series, to fix the number of shares constituting any series
and the stated value thereof, if different from the par value, and to fix the
terms of any such series, including dividend rights, dividend rates, conversion
or exchange rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price and the liquidation preference of
such series. As of the date of this Prospectus, there are no Preferred Shares
issued and outstanding, and the Company has no plans to issue any Preferred
Shares. The Company has agreed with the Underwriter that it will not issue any
Preferred Shares for a period of three years from the date of this Prospectus
without the prior written consent of the Underwriter. See "Underwriting."

Delaware Anti-Takeover Law

The Company is governed by the provisions of Section 203 of the General
Corporation Law of Delaware, an anti-takeover law enacted in 1988. In general,
the law prohibits a Delaware public corporation from engaging in a 'business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless it is approved in a prescribed manner. As a result of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such securities at above-market prices pursuant to such
transactions.

Limitation on Liability of Directors; Indemnification

provision, however, does not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the Delaware General Corporation Law (with respect to unlawful
dividend payments and unlawful stock purchases or redemptions), or (iv) for any
transaction from which the director derived an improper personal benefit.

Additionally, the Company has included in its Certificate of Incorporation
and its by-laws provisions to indemnify its directors, officers, employees and
agents and to purchase insurance with respect to liability arising out of the
performance of their duties as directors, officers, employees and agents as
permitted by Section 145 of the Delaware General Corporation law. The Delaware
General Corporation law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors, officers, employees and agents may be entitled under the Company's
by-laws or any agreement, or by vote of stockholders, or otherwise.

The effect of the foregoing is to require the Company, to the extent
permitted by law, to indemnify the directors, officers, employees and agents of
the Company for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.

In connection with the Offering, the Underwriter has agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Act with respect to any statement in or omission from the
registration statement or the Prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to the Company by the Underwriter specifically for or in connection with
the preparation of the registration statement, the Prospectus, or any such
amendment or supplement thereto.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.

The Company intends to obtain liability insurance coverage for its officers
and directors in the amount of $1,000,000 per person.

Transfer Agent

The transfer agent for the Company's Common Shares is Continental Stock
Transfer and Trust Company.

UNDERWRITING

General

The Company has entered into an underwriting agreement (the "Underwriting
Agreement") with Clayton, Dunning & Company, Inc. to act as the Underwriter of
this Offering. Pursuant to the Underwriting Agreement, the Underwriter will
serve as the exclusive agent for the Company to sell 1,400,000 Common Shares on
a "best efforts - all or none" basis. The Shares will be offered to the public
through the Underwriter and participating selected dealers at the public
offering price of $5.00 per Share. The Underwriter has agreed to use its best
efforts to find purchasers for the Shares within the Offering Period .

All proceeds from subscriptions for the Common Shares will be deposited
promptly into a non-interest bearing account (the "Escrow Account") with First
Union National Bank of Florida, as escrow agent (the "Escrow Agent"), pursuant
to an escrow agreement among the Company, the Underwriter and the Escrow Agent.
Funds will be transmitted to the Escrow Agent for deposit in the Escrow Account
no later than noon of the business day following receipt. All checks must be
made payable to "First Union National Bank of Florida, as Escrow Agent for Niche
Pharmaceuticals, Inc." In the event that 1,400,000 Common Shares are not sold
within the Offering Period, as extended, and funds are not cleared within ten
business days thereafter (during which time no additional subscriptions will be
accepted), or the Company and the Underwriter agree to terminate the Offering
prior to the end of the Offering Period before the Common Shares have been sold,
funds will be refunded promptly to subscribers in full without deduction
therefrom or interest thereon. During the Offering Period, no subscriber will be
entitled to a refund of any subscription. No funds will be released from the
Escrow Account until the 1,400,000 Common Shares offered hereby are sold and
paid for or the Offering is terminated because of a failure to sell the minimum
number of Shares within the Offering Period. In no event will the Offering
extend beyond the Offering Period.

The Company and/or its principal stockholders and their associates
anticipate providing the Underwriter with the names of persons whom they believe
may be interested or who may have contacted the Company with an interest in
purchasing the Common Shares. The Underwriter may sell the Common Shares to such
persons if they reside in a state in which the Common Shares may be sold and in
which the Underwriter is permitted to sell the Common Shares. The Underwriter is
not obligated to sell Common Shares to any such persons.

The Underwriter has advised the Company that it proposes to offer the
Common Shares to the public at an offering price of $5.00 per Share and that it
may allow certain dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") a concession as it may determine but such
concession shall not exceed $___ price per Common Share.

The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities arising under the Act. Insofar
as indemnification for liabilities arising under the Act may be

provided to officers, directors or persons controlling the Company, the Company
has been informed that, in the opinion of the Commission, such indemnification
is against public policy and is therefore unenforceable.

The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the aggregate Offering price of the Common Shares
offered hereby.

The Company has agreed to sell to the Underwriter, or its designees, for an
aggregate purchase price of $100, a warrant (the "Underwriter's Warrant") to
purchase 140,000 Common Shares. The Underwriter's Warrant shall be exercisable
during a three year period commencing one year from the Effective Date. Any
profits realized upon the sale of the Common Shares issuable upon exercise of
the Underwriter's Warrant may be deemed to be additional underwriting
compensation. The exercise price of the Common Shares issuable upon exercise of
the Underwriter's Warrant shall be $7.50 per share (150% of the initial public
offering price of the Common Shares). The exercise price of the Underwriter's
Warrant and the number of Common Shares covered thereby are subject to
adjustment in certain events to prevent dilution. The sale, transfer or
hypothecation of the Underwriter's Warrant is restricted for a period of one
year from the effective date of the Registration Statement of which this
Prospectus is a part, except to officers of the Underwriter, other NASD members
participating in the Offering and their officers and partners. For the life of
the Underwriter's Warrant, the holders thereof are given, at a nominal cost, the
opportunity to profit from a rise in the market price of the Company's Common
Shares with a resulting dilution in the interest of other stockholders. The
Company may find it more difficult to raise capital for its business if the need
should arise while the Underwriter's Warrant is outstanding. At any time when
the holders of the Underwriter's Warrant might be expected to exercise it, the
Company would probably be able to obtain additional capital on more favorable
terms. The Company has granted the Underwriter certain "demand" and "piggyback"
registration rights with respect to the Underwriter's Warrant and the underlying
Common Shares.

Additionally, for a period of three years following the date of this
Prospectus, the Underwriter has been granted the right to purchase from any
officer, director or holder of 5% or more of the Company's Common Shares, or any
of their respective affiliates (collectively, the "Insiders"), for its account,
or to sell for the account of any of such Insiders, any of the Company's
securities which the Insiders propose to sell pursuant to Rule 144 promulgated
under the Act, on terms at least as favorable as the Insiders can secure
elsewhere.

The Company has also agreed to have a designee of the Underwriter serve as
a director of the Company, or as an observer of the Board of Directors, for a
period of three years following the date of this Prospectus. See "Management."

The Insiders and the Selling Stockholder have agreed that they will not
transfer any of their Common Shares for a period of two years following the date
of this Prospectus without the prior consent of the Underwriter. The Underwriter
has advised the Company that it will not waive the transfer restrictions with
respect to the Selling Stockholder for 30 days following the date of this
Prospectus, and that in any event, it has no plans to waive such transfer
restriction prior to its expiration. However, the

Underwriter has informed the Company that it may contemplate the waiver of such
transfer restriction in the future if the sale of the Selling Stockholder's
Common Shares would not have an adverse effect on the market price of the
Company's Common Shares and the market could sustain such sale. In addition, all
other persons who are holders of the Company's Common Shares immediately prior
to the date of this Prospectus have agreed that they will not transfer their
Common Shares for a period of six months following the date of this Prospectus,
without obtaining the prior consent of the Underwriter. See "Principal and
Selling Stockholders."

The Company has agreed not to issue any securities for a period of three
years from the date of this Prospectus, without the prior written consent of the
Underwriter (not to be unreasonably withheld), subject to certain exceptions.
See "Description of Securities."

The Underwriter, a registered broker-dealer, purchases and sells securities
on behalf of its customers. The Underwriter also engages in investment banking
activities and provides companies with financial advisory services.

The Underwriter does not intend to sell any of the Company's Common Shares
to accounts for which it exercises discretionary authority. The Underwriter has
advised the Company that there are no plans, proposals, arrangements or
understandings between it and the Selling Stockholder with respect to any future
transactions.

The foregoing is a summary of certain provisions of the Underwriting
Agreement and Underwriter's Warrant which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.

Determination of Public Offering Price

Prior to this Offering, there has been no public market for the Common
Shares. The initial public offering price for the Common Shares has been
determined by negotiations between the Company and the Underwriter. Among the
factors considered in the negotiations were an analysis of the areas of activity
in which the Company is engaged, the present state of the Company's business,
the Company's financial condition, the Company's prospects, an assessment of
management, the general condition of the securities market at the time of this
Offering and the demand for similar securities of comparable companies. The
public offering price of the Shares does not necessarily bear any relationship
to assets, earnings, book value or other criteria of value applicable to the
Company. See "Risk Factors - Arbitrary Offering Price; Possible Volatility of
Stock Price."

The Company anticipates that the Common Shares will be listed for quotation
on the Nasdaq SmallCap Market under the symbol "NCHE", but there can be no
assurances that an active trading market will develop, even if the securities
are accepted for quotation. The Underwriter intends to make a market in the
Common Shares of the Company.

LEGAL MATTERS

The validity of the securities being offered hereby will be passed upon for
the Company by Certilman Balin Adler & Hyman, LLP, 90 Merrick Avenue, East
Meadow, New York 11554. Certilman Balin Adler & Hyman, LLP beneficially owns
25,000 Common Shares of the Company. Certain legal matters will be passed upon
for the Underwriter by Caro & Graifman, P.C., 60 East 42nd Street, New York, New
York 10165.

EXPERTS

The financial statements of the Company as of December 31, 1996 and for the
years ended December 31, 1996 and 1995 included in this Prospectus have been
audited by Moore Stephens, P.C., 331 Madison Avenue, New York, New York 10017,
independent certified public accountants, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

This Prospectus constitutes part of a Registration Statement on Form SB-2
filed by the Company with the Commission under the Act and omits certain
information contained in the Registration Statement. Reference is hereby made to
the Registration Statement and to its exhibits for further information with
respect to the Company and the Common Shares offered hereby. Statements
contained herein concerning provisions of documents are necessarily summaries of
such documents, and each statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.

The Registration Statement, including the exhibits thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, Washington, D.C. 20549, and at the offices of
the Commission located at 7 World Trade Center, New York, NY 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, Washington, D.C. 20549 at prescribed rates.
Furthermore, the Commission maintains a Web site that will contain reports,
proxy and information statements and other information regarding the Company.
The address of such Web site is http://www.sec.gov.

GLOSSARY

As used in this Prospectus, the terms set forth have the following
meanings:

amino glycosides - bactericidal antibiotics used primarily in the treatment of
gram negative infections.

aspartame - an artificial sweetener (a compound formed from two amino acids,
phenylalanine and aspartate, and methanol).

bioavailability - an absolute term that indicates measurement of both the rate
and total amount (extent) of supplement or nutrient that reaches the general
circulation from an administered dosage form.

cellulose - a fibrous form of polysaccharide constituting the supporting
framework of plant.

co-morbid - joint factor related to disease.

cofactor - the substance that activates an enzyme.

dentition - the process and time of teething.

distal - farthest point of the medical line when referencing the anatomy of a
living organism..

diverticulosis - inflammation in the intestinal tract.

elemental magnesium - the absolute amount of the mineral magnesium contained in
the salt presentation (e.g. the amount of magnesium cation in magnesium
L-lactate dihydrate).

enteral - within or by way of the intestine.

enteric - pertaining to the intestinal tract.

enzymatic reaction - a catalytic reaction produced by living cells.

epidemiological - pertaining to the study of infectious disease.

ethical pharmaceutical - refers to pharmaceuticals that are dependent on
healthcare professionals' recommendation or prescription for use.

glycemic- condition of sugar or glucose in the blood.

guar - a legume.

gum - any resinlike substance given off by plants.

hemicellulose - a polysaccharide that is intermediate in complexity between
sugar and cellulose.

intracellular cation - magnesium, potassium, calcium and sodium are the four
major cations or positively charged ions in fluids. Their relative
concentrations determine the integrity of the cell

membrane and the electrical potential of tissues. All of the cations work
together to maintain proper cell function.

lignin - a polymer that functions as a natural binder and support for the
cellulose fiber of woody plants.

lipid - fats that are insoluble in water.

magnesium L-lactate dihydrate- a highly soluble magnesium salt containing 10%
elemental magnesium by weight (e.g. 850 milligrams of magnesium L-lactate
dihydrate contains 84 milligrams of elemental magnesium).

metabolic electrolyte - electrically conducting ions, i.e. negatively or
positively charged atoms, that are associated with the chemical process of
maintaining life.

myocardial infarction - development of an area of necrotic tissue in the heart.

naso-gastric - the area between the nasal cavity and the stomach.

nutraceutical - pertaining to nutritional supplements.

pectin - a plant carbohydrate that forms a gelatinous mass.

pentogens - any one of a group of complex carbohydrates found with cellulose in
many woody plants and yielding pentoses, i.e. five-carbon sugars, upon
hydrolysis.

pharmaceutical - an oral, injectable, liquid, or topical dosage form of a
chemical entity dispensed by healthcare professionals.

pharmacologic - the activity of a supplement or nutrient which will produce a
physiologic or qualitatively different effect in a living organism.

physiologic - the dose of a naturally occurring agent, within the range of
concentrations or potencies that would occur naturally, capable of affecting the
activity, functions, and/or processes of a living organism.

polysaccharide - a carbohydrate consisting of a polymer of simple sugars, which,
as a dietary or nutritional supplement, is capable of affecting the activities,
functions, and/or processes of a living organism.

prophylaxis - the preventive treatment of disease.

renal - pertaining to, or in the region of, the kidneys.

serum - the liquid portion of whole blood.

ventricular arrhythmias - an irregularity of the heart's action affecting one of
the lower chambers of the heart, which propel blood into the arteries.

NICHE PHARMACEUTICALS, INC.
- -------------------------------------------------------------------------------

INDEX
- -------------------------------------------------------------------------------

Page to Page

Independent Auditor's Report.......................................................................... F-1.........

Balance Sheets as of June 30, 1997 [Unaudited] and
December 31, 1996..................................................................................... F-2......... F-3

Statements of Operations for the six months ended June 30, 1997
and 1996 [Unaudited] and for the years ended December 31, 1996 and 1995............................... F-4.........

Statements of Stockholders' [Deficit] for the six months ended June 30, 1997
[Unaudited] and for the years ended December 31, 1996
and 1995.............................................................................................. F-5...........

Statements of Cash Flows for the six months ended June 30, 1997 and
1996 [Unaudited] and for the years ended December 31, 1996 and 1995................................... F-6......... F-7

Notes to Financial Statements......................................................................... F-8.........F-19

. . . . . . . . . . . . . . .

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders of
Niche Pharmaceuticals, Inc.
Roanoke, Texas

We have audited the accompanying balance sheet of Niche Pharmaceuticals,
Inc. as of December 31, 1996, and the related statements of operations,
stockholders' [deficit], and cash flows for each of the two years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Niche Pharmaceuticals, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements
and as discussed in Note 3 to the financial statements, the Company has suffered
recurring losses since its inception in 1991; has an accumulated deficit of
$1,117,600 and a working capital deficit of $623,244 at December 31, 1996. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

MOORE STEPHENS, P.C.
Certified Public Accountants.

New York, New York
August 5, 1997 except for Notes
16H and 16I as to which dates
are September 1, 1997 and
September 10, 1997 respectively

F-1

NICHE PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------

BALANCE SHEETS
- --------------------------------------------------------------------------------

June 30, December 31,
1 9 9 7 1 9 9 6
[Unaudited]
Assets:
Current Assets:

Cash $ 51,767 $ 60,956
Accounts Receivable (net of allowance for discounts
of $1,820 and $7,279, respectively) 111,012 115,413
Inventory 157,106 270,289
Other Current Assets 2,475 ---
----- -------

Total Current Assets 322,360 446,658
------- -------

Property and Equipment - Net 17,807 20,051
------ ------

Other Assets:
Intangible Assets - Net 981,032 1,033,399
Deferred Financing Costs 179,050 382,470
Miscellaneous Receivable and Deposit 540 1,665
------------- --------------

Total Other Assets 1,160,622 1,417,534
--------- ---------

Total Assets $ 1,500,789 $ 1,884,243
========= =========

Substantially all assets are pledged.

The Accompanying Notes are an Integral Part of these Financial Statements.

F-2

NICHE PHARMACEUTICALS, INC.
- -------------------------------------------------------------------------------

BALANCE SHEETS
- -------------------------------------------------------------------------------

June 30, December 31,
1 9 9 7 1 9 9 6
[Unaudited]

Liabilities and Stockholders' [Deficit]:
Current Liabilities:

Accounts Payable and Accrued Expenses $ 247,885 $ 427,239
Note Payable - Line of Credit - Related Party 122,130 --
Note Payable - Bank 300,000 300,000
Current Portion of Long-Term Debt 48,161 42,663
Notes Payable - Product Acquisition and Financing 250,000 200,000
Notes Payable - Bridge Financing 100,000 100,000
--------- -------

Total Current Liabilities 1,068,176 1,069,902
--------- ---------

Long-Term Liabilities:
Long-Term Debt - Less Current Maturities 37,325 61,016
Note Payable - Product Acquisition and Financing 765,294 961,926
Notes Payable - Stockholders 407,987 407,987
------- -------

Total Long-Term Liabilities 1,210,606 1,430,929
--------- ---------

Commitments and Contingencies [14] -- --
-------- ---------

Stockholders' [Deficit]:
Preferred Stock, $.01 Par Value, 2,000,000 Shares Authorized,
No Shares Issued and Outstanding -- --

Common Stock, $.00105 Par Value, 15,000,000 Shares
Authorized; Issued and Outstanding 1,174,227 Shares at
June 30, 1997 and 1,101,500 Shares at December 31, 1996 1,234 1,157

Additional Paid-in Capital 738,378 499,855

Accumulated [Deficit] (1,517,605) (1,117,600)
---------- ----------

Total Stockholders' [Deficit] (777,993) (616,588)
-------- --------

Total Liabilities and Stockholders' [Deficit] $ 1,500,789 $ 1,884,243
========= =========

The Accompanying Notes are an Integral Part of these Financial Statements.

F-3

NICHE PHARMACEUTICALS, INC.
- ------------------------------------------------------------------------------

STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------

Six months ended Years ended
June 30, December 31,
1 9 9 7 1 9 9 6 1 9 9 6 1 9 9 5
------- ------- ------- -------
[Unaudited] [Unaudited]

Revenues:

Sales - Net $ 469,514 $ 533,276 $ 1,127,316 $ 540,121
Other Revenues - -- -- 66,147
--------- ------- --------- --------
Total Revenues 469,514 533,276 1,127,316 606,268

Cost of Sales 155,529 195,983 398,815 183,146
------- ------- ------- -------

Gross Profit 313,985 337,293 728,501 423,122

Selling, General and Admin-
istrative Expenses 398,841 358,487 1,002,459 334,941
------- ------- --------- -------

Income (Loss) from Operations (84,856) (21,194) (273,958) 88,181
------- ------- --------- ------

Other [Expense] Income:
Interest Expense (101,020) (102,976) (203,935) (91,800)
Amortization of Deferred
Financing Costs (203,420) -- (24,530) --
Amortization of Debt Issue
Costs (10,730) -- -- --
Interest Income 21 1,914 2,784 2,616
--------- -------- -------- -------

Other [Expense] (315,149) (101,062) (225,681) (89,184)
-------- -------- -------- -------

Net [Loss] $ (400,005) $ (122,256) $ (499,639) $ (1,003)
========== =========== ============ ==========

Net [Loss] Per Share $ (.36) $ (.11) $ (.45) $ --
=========== ============ =========== ==========

Weighted Average Number of
Shares 1,101,904 1,101,500 1,101,500 1,101,500
========= ========= ========= =========

The Accompanying Notes are an Integral Part of these Financial Statements.

F-4

NICHE PHARMACEUTICALS, INC.
- -------------------------------------------------------------------------------

STATEMENTS OF STOCKHOLDERS' [DEFICIT]
- -------------------------------------------------------------------------------

Common Stock Additional Total
Number of Par Value Paid-in Accumulated Stockholders'
Shares [$.00105] Capital [Deficit] [Deficit]
------ ------- ------- -------

Balance - January 1,

1995 977,500 $ 1,026 $ 54,974 $ (616,958) $ (560,958)

Stock Issuance 22,500 24 44,976 -- 45,000

Net [Loss] -- -- -- (1,003) (1,003)
-------- ------- ------- ------ ------

Balance - December 31,
1995 1,000,000 1,050 99,950 (617,961) (516,961)

Stock Issuance -
Bridge Financing 100,000 105 399,895 -- 400,000

Other Stock Issuance 1,500 2 10 -- 12

Net [Loss] -- -- -- (499,639) (499,639)
-------- ------- ------- -------- --------

Balance - December 31,
1996 1,101,500 1,157 499,855 (1,117,600) (616,588)

Deferred Debt Expense
Incurred on Note
Payable - Line of
Credit - Related Party -- -- 38,600 -- 38,600

Common Stock Issued
in Payment of Install-
ment Due on Note
Payable - Product
Acquisition and
Financing 72,727 77 199,923 -- 200,000

Net [Loss] --------- ------- ------- (400,005) (400,005)
-------- --------

Balance - June 30,
1997 [Unaudited] 1,174,227 $ 1,234 $ 738,378 $ (1,517,605) $ (777,993)
========= ===== ======= ========== = ========

The Accompanying Notes are an Integral Part of these Financial Statements.

F-5

NICHE PHARMACEUTICALS, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------

Six months ended Years ended
June 30, December 31,
1 9 9 7 1 9 9 6 1 9 9 6 1 9 9 5
------- ------- ------- -------
[Unaudited] [Unaudited]
Operating Activities:

Net Loss $ (400,005) $ (122,256) $ (499,639) $ (1,003)
-------- --------- -------- ------
Adjustments to Reconcile
Net Loss to Net Cash [Used for] Provided by
Operating Activities:
Depreciation and Amortization 258,031 56,058 136,619 51,626
Amortization of Imputed Interest
Discount 53,368 57,250 115,146 18,845
Amortization - Deferred Debt
Discount 10,730 -- -- --
Reserve for Discounts 6,585 1,572 7,279 --
Write-off of Deferred Offering Costs -- -- 130,053 --

Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (2,184) (47,262) (38,036) (61,139)
Inventory 113,183 29,400 (164,888) (94,514)
Other Current Assets (2,475) -- -- --
Other Assets 1,125 (1,055) 4,363 (5,488)
Increase [Decrease] in:
Accounts Payable and Accrued
Expenses (179,354) 46,965 320,215 2,516
-------- ------ ------- -----
Total Adjustments 259,009 142,928 510,751 (88,154)
------- ------- ------- --------
Net Cash - Operating Activities (140,996) 20,672 11,112 (89,157)
--------- ------ ------ -------
Investing Activities:
Purchases of Property and
Equipment -- (1,168) (5,186) (14,745)
Payment for Purchases of Intangible
Assets -- -- -- (59,469)
------ ------ ----- --------
Net Cash - Investing Activities -- (1,168) (5,186) (74,214)
------ ------ ------ -------
Financing Activities:
Principal Payments on Long-Term
Debt (18,193) (22,673) (40,382) (35,381)
Proceeds of Notes Payable - Line
of Credit - Related Party 150,000 -- -- --
Principal Payments on Notes Payable -
Stockholders -- (39,258) (57,378) (33,974)
Proceeds of Note Payable - Bank -- -- -- 300,000
Proceeds from Bridge Loan -- -- 100,000 --
Repayment of Stockholders' Loans -- -- -- (14,300)
Proceeds from Issuance of Common Stock -- -- -- 45,000
Payment for Deferred Offering Costs -- -- (96,982) --
Payments of Deferred Financing
Costs -- -- (7,000) --
------- ------ ------ -------

Net Cash - Financing Activities 131,807 (61,931) (101,742) 261,345
------- ------- --------- -------

Net [Decrease] Increase in Cash (9,189) (42,427) (95,816) 97,974

Cash - Beginning of Periods 60,956 156,772 156,772 58,798
------ ------- ------- ------
Cash - End of Periods $ 51,767 $ 114,345 $ 60,956 $ 156,772
====== ======= ====== =======

The Accompanying Notes are an Integral Part of these Financial Statements.

F-6

NICHE PHARMACEUTICALS, INC.
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------

Six months ended Years ended
June 30, December 31,
1 9 9 7 1 9 9 6 1 9 9 6 1 9 9 5
------- ------- ------- -------
[Unaudited] [Unaudited]

Supplemental Disclosures of Cash Flow Information:

Cash paid during the periods for:
Interest $ 58,146 $ 34,236 $ 55,921 $ 96,046

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

The Company purchased the rights, title and interest in a pharmaceutical
product [See Note 4]. In connection with the purchase, the Company paid $200,000
during 1995 and assumed an obligation discounted to its net present value at the
date of acquisition of $1,227,935 [net of discount of $472,065]. The $200,000
paid at closing was used to purchase inventory and a portion of intangible
assets.

The Company issued 100,000 shares of common stock during 1996 in partial
exchange for the bridge financing. The value assigned to these shares is
reflected as $105 of common stock and $399,895 of additional paid-in capital.

In January 1997, in further consideration of $150,000 of a line of credit
extended by a related party, the Company issued warrants to purchase 30,000
shares of the Company's stock at $6.00 per share. The value of these warrants
($38,600) has been recorded as debt issue cost by the Company and will be
amortized over the lives of the notes payable issued under the line of credit.

The Company issued 72,727 shares of common stock in payment of an
installment, in the amount of $200,000, due under the notes payable - product
acquisition and financing.

The Accompanying Notes are an Integral Part of these Financial Statements.

F-7

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS

[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- -------------------------------------------------------------------------------

[1] Principles of Organization and Business

Niche Pharmaceuticals, Inc., a Delaware corporation [the "Company"], was
incorporated pursuant to the laws of the State of Delaware on October 14, 1996.
The Company is the successor to Niche Pharmaceuticals, Inc., a Texas corporation
["Niche Pharmaceuticals - Texas"] which was incorporated pursuant to the laws of
the State of Texas in 1991. The Company was organized to enable Niche
Pharmaceuticals - Texas to merge with and into the Company in November 1996 in
order to effectuate a reincorporation in the State of Delaware. Pursuant to the
terms of the merger, the Company effectuated a 1.25 to 1 stock split of all
shares of common stock on the date of merger. These financial statements have
been prepared giving retroactive effect to the merger.

The Company manufactures, through contract manufacturers, markets and
distributes non-prescription pharmaceutical and nutraceutical dietary supplement
products throughout the entire United States. The pharmaceutical and
nutraceutical industry is characterized by extensive research efforts, rapid
technological progress and intense competition. There are many public and
private companies, engaged in developing and marketing pharmaceuticals and
nutraceuticals, that represent significant competition to the Company.

[2] Summary of Significant Accounting Policies

[A] Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

[B] Economic Dependency - The Company has an exclusive agreement with a
pharmaceutical manufacturer and distributor for the manufacture and packaging of
one of its products. The initial term of the agreement expires in July 1997 and
is automatically renewable for successive two year terms, unless written notice
of termination is given by either party at least one year prior to the
expiration of the initial or a successive term. Neither party has given any
notice of termination. Accordingly, the expiration date of this agreement has
been extended to July 1999. The terms of this agreement provide that, in the
event of early termination by such manufacturer and distributor, such
manufacturer and distributor will, at the Company's request, provide the Company
with a supply of up to the total amount of product purchased by the Company in
the previous year. If the relationship with such manufacturer and distributor
were to cease, the Company believes, but cannot assure, that it will be able to
engage an alternative manufacturer on comparable terms to such agreement to
manufacture such product at comparable levels.

The Company's other product was being manufactured by another manufacturer and
distributor, pursuant to an agreement which expired on December 31, 1996.
Pursuant to such agreement, the manufacturer and distributor was obligated to
manufacture this product in sufficient quantity to meet the Company's projected
sales needs, which the Company estimates to be approximately $1,000,000 for
1997. See note 16[H].

The Company earned a substantial portion of its revenues from four customers
during each of the years ended December 31, 1996 and 1995. Revenues from these
customers were approximately 28%, 15%, 14% and 14% ($316,000, $169,000, $158,000
and $158,000, respectively) of operating revenues in 1996, and 25%, 16%, 13% and
13% ($135,000, $86,000, $70,000 and $70,000, respectively) of operating revenues
in 1995, exclusive of amounts received in settlement with a supplier [See Note
14]. Amounts included in accounts receivable from these customers were $37,107,
$1,696, $10,319 and $18,539 at December 31, 1996. The loss of any one of these
customers may have a substantial adverse effect on the Company.

F-8

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- -------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]

[C] Concentration of Credit Risk - The Company extends credit to its customers
which results in accounts receivable arising from its normal business
activities. The Company does not require collateral from its customers, but
routinely assesses the financial strength of the customers and, based upon
factors surrounding the credit risk of the customers, believes that its
receivable credit risk exposure is limited. Such estimate of the financial
strength of the customers may be subject to change in the near term.

[D] Inventories - Inventories, which consist solely of finished products, are
stated at the lower of cost or market. Cost is determined on the first-in,
first-out [FIFO] method.

[E] Property and Equipment - Property and equipment are recorded at cost.
Expenditures for normal repairs and maintenance are charged to earnings as
incurred. When assets are retired or otherwise disposed of, their costs and
related accumulated depreciation are removed from the accounts and the resulting
gains or losses are included in operations. Depreciation and amortization are
recorded using the straight-line method over the shorter of the estimated lives
of the related asset or the remaining lease term. Estimated useful lives are as
follows:

Office Equipment 5-7 Years
Computer Equipment 5 Years
Furniture and Fixtures 5-7 Years
Leasehold Improvements 5 Years

[F] Intangibles - Intangibles include contract rights, trademarks, patents,
educational materials, clinical data, covenants-not-to compete and organization
costs. Amortization of intangibles is being recognized by the straight-line
method based upon the economic lives of the assets. The Company continually
reevaluates the carrying values of these assets, by reviewing the estimated
useful lives to determine whether current events and circumstances warrant
adjustments to the carrying value and estimates of useful lives. At this time,
the Company believes that no impairment of these assets has occurred and that no
reduction of the estimated useful lives is warranted. Estimated useful lives are
as follows:

Contract Rights 15 Years
Trademarks 10-15 Years
Patent 17 Years
Educational Materials, Clinical Data and
Covenant-not-to Compete 7 Years
Organization Costs 5 Years

[G] Deferred Financing Costs - Deferred financing costs represent costs
associated with the bridge loan financing [Note 10] and are being amortized over
the life of the bridge loan.

[H] Deferred Offering Costs - These costs represent legal and accounting fees in
connection with the proposed public offering of the Company's common stock.
These costs will be charged to additional paid-in capital upon completion of the
proposed public offering. If the offering is not completed, these costs will be
expensed.

[I] Earnings Per Share - Earnings per share are based on the weighted average
number of shares outstanding for each period presented and includes the 100,000
shares issued in the bridge financing for all periods presented [See Note 10].
Certain shares or equivalents issued within a one year period prior to the
initial filing of the initial public offering of the registration statement are
treated as outstanding for all periods presented.

F-9

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]

[J] Advertising and Marketing - Advertising and marketing expense, primarily
comprised of print media distributed to current and potential customers, is
expensed as incurred. Advertising and marketing expense amounted to $66,942 and
$40,397 for the years ended December 31, 1996 and 1995, respectively.

[K] Stock Options and Similar Equity Instruments Issued to Employees - The
Company uses the intrinsic value method to recognize compensation expense
related to stock options and similar equity instruments issued to employees,
which is based on the difference between the fair market value of the common
stock and the exercise price at the grant date in accordance with Accounting
Principles Board ("APB") No. 25. The Company accounts for all transactions, in
which equity instruments are issued to non-employees pursuant to the acquisition
of goods or services, based upon the fair value of the consideration received or
the fair value of the equity instrument issued whichever is more reliable, in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 123.

[L] Cash and Cash Equivalents - The Company considers all highly liquid
investments with maturities of three months or less when purchased to be cash
equivalents. The Company had no cash equivalents at December 31, 1996.

[3] Going Concern

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplates continuation of the
Company as a going concern, and the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. As of December
31, 1996, the Company had an accumulated deficit of $1,117,600 and a working
capital deficit of $623,244.

The ability of the Company to continue as a going concern is dependent upon the
success of the Company's marketing efforts and its ability to obtain sufficient
funding to continue operations. The Company has been funded through December 31,
1996 by loans from its principal stockholders, bridge financing and through
third party debt which has been guaranteed by various stockholders and by the
sale of stock [See Notes 7, 8, 9 and 10]. The ability of the Company to effect
its transition, ultimately, to profitable operations is dependent upon obtaining
adequate financing and achieving an increase in revenues. Additionally certain
selling, general and administrative costs will be reduced. The Company has
acquired products that have proven market acceptance and management plans to
increase revenues by substantially increasing its marketing activities both in
and outside the United States. Management believes that these plans can be
effectively implemented in the next twelve months. There can be no assurance
that management will be successful in these endeavors. The Company's ability to
continue as a going concern is dependent on the implementation and success of
these plans. The financial statements do not include any adjustments in the
event the Company is unable to continue as a going concern.

[4] Product Acquisition and Financing

On October 17, 1995, pursuant to an agreement between a pharmaceutical
manufacturer and the Company, the Company purchased all rights, title and
interest to a product manufactured by such pharmaceutical manufacturer. Such
agreement requires the Company to pay the greater of $1,700,000 [$200,000 was
paid at the date of acquisition] or 20% of the annual product sales payable over
a five year installment period with a maximum payment of $3,000,000. Such
installment plan did not include a stated rate of interest; therefore, the
payments were discounted to a net present value of $1,227,935 using an imputed
interest rate of 11% which resulted in a discount of $472,065 that will be
amortized over the life of the agreement using the effective interest method.
The note is guaranteed by the principal stockholder of the Company.

F-10

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- --------------------------------------------------------------------------------

[4] Product Acquisition [Continued]

The following is a summary of the minimum payments required to be made on or
before March 31 of each year indicated below under this agreement as of December
31, 1996:

Years Ending December 31, Minimum Payment Due
1997 $ 200,000
1998 250,000
1999 300,000
2000 350,000
2001 400,000
-------
Total 1,500,000
Less: Unamortized Discounts 338,074

Net Present Value Due $ 1,161,926
--------------------- =========

The cost of this product was allocated to the following assets:

Asset Amount

Inventory $ 140,531
Trademark 300,000
Educational Materials 50,000
Clinical Data 200,000
Covenant-not-to Compete 100,000
Contract Rights 437,404
-------

Total $ 1,227,935
----- =========

Interest expense from discount amortization amounted to $115,146 for the year
ended December 31, 1996.

[5] Property and Equipment

Property and equipment consist of the following at December 31, 1996:

Furniture and Fixtures $ 26,018
Machinery and Equipment 20,051
Leasehold Improvements 5,938
-----

Total at Cost 52,007
Less: Accumulated Depreciation 31,956

Net $ 20,051
--- ======

Depreciation expense for the years ended December 31, 1996 and 1995 amounted to
$5,321 and $5,250, respectively.

F-11

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #5
[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- --------------------------------------------------------------------------------
[6] Intangibles

Intangibles consist of the following at December 31, 1996:

Original Cost

Contract Rights $ 442,404
Organizational Costs 122,039
Patents 84,000
Trademarks 303,000
Educational Material 50,000
Clinical Data 200,000
Covenant-not-to Compete 100,000
-------
Total at Cost 1,301,443
Less: Accumulated Amortization 268,044
-------

Net $ 1,033,399
--- =========

Amortization expense for these intangibles for the years ended December 31, 1996
and 1995 amounted to $106,767 and $46,376, respectively.

[7] Long-Term Debt

Long-term debt consists of a note payable to a bank, in the original principal
amount of $250,000 payable with interest currently calculated at the prime rate
plus 2.25% [10.5% at December 31, 1996]. Such interest rate is adjusted
annually. The amount due is payable in monthly installments of approximately
$4,400 including principal and interest through April 1999. The note is
collateralized by the Company's accounts receivable, inventory, working capital,
intangibles and the common shares of the Company held by its principal
stockholder. In addition, the repayment of the note is guaranteed by the
Company's principal stockholder and, in part, by the United States Small
Business Administration. Note Payable - Bank and Notes Payable - Stockholders
[See Notes 8 and 9] are subordinated to this debt.

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

Total Long-Term Debt $ 103,679
Less: Current Portion 42,663
------

Total $ 61,016
----- ======

At December 31, 1996, aggregate maturities of long-term debt are as follows:

Year Ending Amount
December 31,
1997 $ 42,663
1998 48,683
1999 12,333
------

Total $ 103,679
----- =======

Interest expense on this debt for the years ended December 31, 1996 and 1995 was
$16,196 and $17,747, respectively.

F-12

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #6

[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- --------------------------------------------------------------------------------

[8] Note Payable - Bank

Pursuant to an agreement dated October 11, 1995 and renewed on October 11, 1996,
the Company borrowed $300,000 from a bank, evidenced by a note payable. The note
bears interest at the bank's prime rate plus 1% [calculated at 9.25% at December
31, 1996]. Interest is due quarterly and the note matures on October 11, 1997.
The note payable is unsecured and guaranteed by a stockholder of the Company.
The stockholders' notes payable are subordinated to this debt. Interest expense
on this note for the year ended December 31, 1996 was $27,357. The weighted
average interest rate at December 31, 1996 on this short-term debt was 9.44%.

[9[ Notes Payable - Stockholders December 31,
------------
1 9 9 6

Unsecured note to stockholder, interest at 10% per annum, made January 11, 1991
in the original amount of $500,000, due January 11, 1999 with automatic renewal
of one year periods until written notice of termination at least 30 days prior
to the end of the initial or any renewal term. $295,487

Unsecured note to stockholder, interest at 10% per annum, made December 10, 1991
in the original amount of $37,500, due January 10, 1999, unless accelerated
pursuant to the terms of the agreement. 37,500
------
Total Notes Payable - Long-Term $407,987
------------------------------- ========

At December 31, 1996, aggregate maturities of notes payable - stockholders is as
follows:

Year Ending
December 31,
1997 $ --
1998 --
1999 407,987
-------

Total $ 407,987
----- =======

These notes are subordinated to the note payable - bank [See Note 8].

Interest expense on the notes for the years ended December 31, 1996 and 1995 was
$43,923 and $48,608, respectively.

[10] Bridge Loan

In December 1996, the Company borrowed $100,000 in a bridge loan financing from
unaffiliated persons at the rate of 10% simple annual interest. Such loans are
to be repaid the first anniversary date of the bridge loan closing. In further
consideration of the bridge loan, the Company issued 100,000 shares of common
stock. The fair value of the common stock at the date of issuance of
approximately $400,000 plus a placement fee of $7,000 is recorded as a deferred
financing cost and is being amortized over the estimated life of the debt.
Amortization of deferred financing costs totaled $24,530 for the year ended
December 31, 1996.

F-13

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #7

Generally accepted accounting principles require disclosing the fair value, to
the extent practicable, for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
disclosed therein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization on settlement. For certain financial instruments,
including cash, accounts receivable, payables and accrued expenses, it was
estimated that the carrying value approximates fair value because of the near
term maturities of such obligations. Management believes that the fair value of
the Company's stockholders' debt approximates its carrying value. The fair value
of the product financing, long-term debt and notes payable - bank is based on
current rates at which the Company could borrow funds at similar rates and
maturities. The carrying value of long-term debt approximates fair value.

[12] Income Taxes

For financial reporting purposes, at December 31, 1996, the Company has net
operating loss carryforwards of $945,000 expiring by 2011.

The expiration dates of net operating loss carryforwards are as follows:

December 31, Amount

2006 $ 114,000
2007 289,000
2008 126,000
2009 52,000
2010 14,000
2011 350,000
-------

Total $ 945,000
----- =======

A deferred tax asset arising primarily from the benefits of net operating loss
carryforwards of approximately $321,000 is offset by an allowance of $321,000
due to the uncertainty of its ultimate realization.

[13] Stockholders' Deficiency

The Company originally sold 20,000 shares of stock at $5 per share [50,000
shares as adjusted for stock splits - 27,500 in 1994 and 22,500 in 1995] during
the period November 1, 1994 through March 31, 1995 in a private placement.

During 1994, the Board of Directors declared a 3.8 to 1 split. In addition, in
February 1996, the Board of Directors declared a 2 to 1 stock split for
stockholders of record. In addition, as part of the reincorporation of the
Company in Delaware, the Company also effectuated a 1.25 to 1 stock split. The
financial statements have been retroactively restated to reflect all such stock
splits which reduced the par value of the Company's shares from $.01 to $.00105.

Preferred Shares - Pursuant to the Company's Certificate of Incorporation [the
"Certificate of Incorporation"], preferred stock may be issued by the Company in
the future without stockholder approval and upon such terms as the Board of
Directors may determine. The rights of holders of common shares will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
shares that may be issued in the future.

F-14

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #8
[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- -------------------------------------------------------------------------------

[14] Commitments and Contingencies

[A] The Company reached a settlement in its lawsuit with a supplier in which the
Company sought recovery from such supplier for damages it sustained as a result
of conduct on the part of such supplier pertaining to one of its products. The
Company received net proceeds of $66,147 during 1995 and agreed to terminate all
litigation in return. Such amount has been included in revenue for the year
ended December 31, 1995.

[B] Other Related Party Transactions [Lease of premises] - The Company leased
its office and warehouse space on a month to month basis from its president and
principal stockholder through September 1996. Rental expense for the office and
warehouse for the years ended December 31, 1996 and 1995 was $20,273 and
$16,749, respectively.

In September 1996, the principal stockholder sold the office and warehouse
premises to a third party. Effective September 1996, the Company entered into a
five (5) year noncancelable operating lease with the new owners of the same
premises. The lease, which expires in August of 2001, requires an annual rental
of $24,000 for the first year, with annual increases of $2,400 each year for the
next three (3) years. The Company has the option to renew the lease for a period
of up to five (5) years at a monthly rental of $2,600. The Company pays property
taxes, insurance, utilities and certain repairs related to the leased property.

Future minimum rental payments under the above and another noncancelable lease
as of December 31, 1996 are as follows:

Years ending Amount
December 31,
1997 $ 37,300
1998 42,200
1999 32,100
2000 31,200
2001 20,800
------

Total $ 163,600
----- =======

[C] Other Commitments - The Company leases equipment for its operations under
five (5) noncancelable operating leases expiring at various dates through March
1999.

Future minimum rental payments under the above noncancelable operating leases as
of December 31, 1996 are as follows:

Year ending
December 31, Amount

1997 14,814
1998 9,193
1999 1,124
-----

Total $ 25,131
----- ======

F-15

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #9

[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- --------------------------------------------------------------------------------

[15] Stock Option Plans

[A] The 1996 Stock Option Plan - In February 1996, the Board of Directors of the
Company adopted, and the stockholders of the Company approved the adoption of,
the 1996 Stock Option Plan [the "1996 Stock Plan"] which provides for the grant
of options for the purchase of up to 131,250 common shares of the Company.

In February 1996, pursuant to the 1996 Stock Plan, the Company granted to two
directors of the Company options to purchase 12,500 and 75,000 common shares,
respectively, at an exercise price of $1.50 per share, commencing February 1997
and terminating February 2002. The market price of the common stock was $1.50
when such options were issued.

In February 1996, pursuant to the 1996 Stock Plan, the Company granted to
various non-executive employees of the Company options to purchase 16,875 common
shares, respectively, at an exercise price of $1.50 per share. The options vest
to the extent of 20% per year over a period of five years, commencing in
February 1997 and terminate in February 2006. The market price of the common
stock was $1.50 when such options were issued.

In July 1996, pursuant to the 1996 Option Plan, the Company granted to each of
two other directors options to purchase 12,500 common shares at an exercise
price of $1.50 per share. The options vest to the extent of 20% per year over a
period of five years commencing in July 1997 and terminate in July 2006. The
market price of the common stock was $1.50 when such options were issued.

No options were granted pursuant to any other stock option plan [See Notes 15B
and 15C].

The average exercise price information for the year ended December 31, 1996 was
$1.50.

All options were granted at an exercise price equal to the fair market value of
the Company's common stock at the date of grant, and pursuant to APB Opinion No.
25 no compensation cost was recognized in operations. The fair value of the
options was estimated using the Black-Scholes fair value method with the
following weighted average assumptions:

Exercise Price $1.50

Expected Life 3 years

Volatility 76.25%

Expected Dividends -0-

Risk Free Interest Rate 6%

The weighted average fair value of options at the date of grant using the fair
value based method during 1996 was estimated to be $.80.

If the Company had accounted for the issuance of all options and compensation
based warrants pursuant to the fair value based method of SFAS No. 123, the
Company would have recorded additional compensation expense totaling $104,000
for the year ended December 31, 1996, and the Company's net loss and net loss
per share would have been as follows:

Year Ended
December 31,
1996

Net Loss as Reported $ (499,639)
==========
Pro Forma Net Loss $ (603,639)
==========
Net Loss Per Share as Reported $ (.45)
===========
Pro Forma Net Loss Per Share $ (.55)
===========

F-16

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #10

[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- --------------------------------------------------------------------------------

[15] Stock Option Plans [Continued]

A summary of the activity in the option plans is as follows:

Options outstanding at January 1, 1996 -0-
Granted 129,375
Exercised -0-
Forfeited -0-
------
Outstanding at December 31, 1996 129,375
-------------------------------- =======

Exercisable at December 31, 1996 -0-
=======

The following summarizes option information as of December 31, 1996:

Range of Weighted Average Weighted Average
Exercise Prices Shares Contractual Life Exercise Price

$1.50 149,325 6.5 Years $1.50

[B] 1996 Senior Executive Stock Option Plan - This Plan provides for the grant
of options to a certain management group for the purchase of up to 405,000
common shares of the Company. The 1996 Executive Plan provides for the grant to
executives and directors of the Company options to purchase 405,000 common
shares of the Company, respectively, at an exercise price of $5.00 per share
[the "Executive Plan Options"]. The Executive Plan Options shall terminate in
2006 and vest in one-third increments in each of 1999, 2000 and 2001 following
the issuance of audited financial statements for the prior year, provided the
Company's cumulative pre-tax income from operations exceeds $300,000, without
giving effect to any charge to earnings resulting from an issuance of common
shares to bridge lenders [See Note 10], $3,000,000 and $7,500,000 for the fiscal
years ending December 31, 1998, December 31, 1999 and December 31, 2000,
respectively [the "Cumulative Goals"]. In the event a particular Cumulative Goal
is not reached through December 31 of any given year, the particular installment
of such Executive Plan Options will nevertheless vest in a future year when the
cumulative Goal for a succeeding year is met. No amount has been accrued,
because the best estimate is that a positive outcome of the performance
condition is remote.

[C] 1996 Non-Executive Stock Option Plan - This Plan provides for the grant of
options to employees of the Company other than to eligible optionees under the
1996 Senior Executive Stock Option Plan to purchase up to 150,000 common shares.
No options have been granted under the 1996 Non-Executive Stock Option Plan.

[16] Subsequent Events

[A] Prior Initial Public Offering - A prior proposed public offering, initiated
by the Company during 1996, was terminated in February 1997. Deferred offering
costs of $130,053, related to this proposed public offering, have been expensed
in 1996, and $33,377, incurred in 1997, were expensed in 1997.

[B] Line of Credit - Related Party

In January 1997 the Company was extended a $150,000 line of credit from a
related party. $75,000 of this facility was drawn upon in January 1997, and the
remaining $75,000 was drawn upon in May 1997. Any amounts drawn on the line are
to be repaid on the first anniversary date funds were drawn. Interest is payable
on demand at an annual rate of 10 percent. In further consideration for the
loan, the Company will issue warrants to purchase 30,000 shares of the Company's
common stock at an exercise price of $6.00 per share. Such warrants become
exercisable for a ten year period commencing on the first anniversary date funds
were drawn.

The fair value of the warrants at the date of issuance, of approximately
$38,600, will be recorded as a debt discount and will be amortized over the term
of the debt into interest expense.

F-17

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #11

[C] Notes Payable - Product Acquisition and Financing - In May 1997, the Company
and the holder of the notes payable note - product acquisition and financing
[See Note 4] agreed to extend the due date of the 1997 installment payment of
$200,000 from March 31, 1997 to June 30, 1997. Pursuant to the agreement, the
holder and the Company agreed that, if the installment due on June 30, 1997 was
not made, the Company would issue 72,727 shares of its common shares to the note
holder in lieu of such installment payment. On June 30, 1997, the Company issued
72,727 shares of common stock to such note holder.

[D] Proposed Initial Public Offering - The Company is offering for public sale
1,400,000 shares of common stock at a price of $5.00 per share. Although no
assurance can be given that the proposed initial public offering will be
successful, the Company intends to utilize the net proceeds from the proposed
initial public offering of approximately $5,750,000 for the partial repayment of
debt, product acquisition, research and development, hiring of additional
personnel and working capital purposes.

[E] Employment Agreement - The Company intends to enter into an employment
agreement with the President Chief Executive Officer and Executive Vice
President on the closing date of the initial public offering for an initial term
of three years, providing a salary of $120,000 and $96,000, per annum,
respectively.

[F] Underwriter's Purchase Options - As a part of the consideration of its
services in connection with the Company's proposed initial public offering
described herein [See Note 16D], the Company has agreed to issue to the
underwriter, for nominal consideration, a warrant to purchase up to 140,000
shares of common stock at an exercise price of 150% of the public offering price
of such shares and warrants for a three year period commencing one year after
the effective date of the proposed initial public offering. The non-cash cost of
such options, representing a cost of raising capital will be recorded as a
charge and credit to stockholders' equity when the options are issued.

[G] Stockholder's Equity - In July, 1997 the Company issued 25,000 common shares
to its SEC Counsel in consideration for current work being done pursuant to the
Company's proposed initial public offering. Such shares were recorded at their
fair value (approximately $100,000) at the date of issuance and have been
classified as a cost of the proposed initial public offering.

[H] Economic Dependency - On September 1, 1997, the Company entered in a
exclusive agreement (the "Agreement") with another manufacturer, whereby such
manufacturer will produce this product in sufficient quantity to meet the
Company's projected sales. This Agreement has an initial term of three years
from the date that the first order is placed by the Company. This Agreement is
automatically renewable for successive two year terms unless written notice of
termination is given by either party at least one year prior to the termination
of the initial or successive term. In the event of early termination of the
Agreement, the manufacturer, at the Company's request, will provide the Company
with a supply of the product equal to the amount purchased by the Company in the
previous year.

[I] Bridge Financing - On September 10, 1997 in consideration for an
acceleration of the due date of the bridge note payable (see note 10) to
December 1, 1997, the bridge lender relinquished 80,000 common shares to the
Company. Such common shares were then retired by the Company. Such transaction
has been recorded as a change in accounting estimate by the Company.

[17] Authoritative Pronouncements

The Financial Accounting Standards Board ["FASB"] issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" in June of 1996. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishing of
liabilities. SFAS No. 125 is effective for financial statements issued for
fiscal years occurring after December 31, 1996 and is to be applied
prospectively. SFAS No. 125 is not expected to have an impact on the Company.
Some provisions of SFAS No. 125, which are unlikely to apply to the Company,
have been deferred by the FASB.

F-18

NICHE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #12

[Information as of and for the six months ended June 30, 1997 and 1996 is
Unaudited]
- --------------------------------------------------------------------------------
The FASB has issued SFAS No. 128, "Earnings Per Share" and SFAS No. 129,
"Disclosure of Information About Capital Structure." Both are effective for
financial statements issued for periods ending after December 15, 1997. SFAS No.
128 simplified the computation of earning per share by replacing the
presentation of primary earnings per share with a presentation of basic earnings
per share. The statement requires dual presentation of basic and diluted
earnings per share by entities with complex capital structures. Basic earnings
per share includes no dilution and is computed by dividing income available to
common stockholders by the weighted average number of shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of securities
that could share in the earnings of an entity similar to fully diluted earnings
per share.

While the Company has not analyzed SFAS No. 128 sufficiently to determine its
long-term impact on per share reported amounts, SFAS No. 128 should not have a
significant effect on historically reported per share loss amounts.

SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.

[17] Authoritative Pronouncements [Continued]

In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income" and
SFAS 131, "Disclosures About Segments of an Enterprise and Related Information."
Both are effective for financial statements for fiscal years beginning after
December 15, 1997. The Company will adopt both statements on January 1, 1998.
Adoption is not expected to have a material impact on the financial position and
results of operations.

[18] Unaudited Interim Statements

The financial statements for the six months ended June 30, 1997 and 1996 are
unaudited; however, in the opinion of management, all adjustments [consisting
solely of normal recurring adjustments] necessary to make the financial
statements not misleading have been made. The results of interim periods are not
necessarily indicative of the results to be obtained for a full fiscal year.

F-19

_______________________ ________________

No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or the Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
-----------
TABLE OF CONTENTS
Page

Prospectus Summary.............................................................
Risk Factors...................................................................
Use of Proceeds................................................................
Dilution.......................................................................
Capitalization.................................................................
Dividend Policy................................................................
Bridge Financing...............................................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................................................
Business.......................................................................
Management.....................................................................
Principal and Selling Stockholders.............................................
Certain Relationships and Related Transactions.................................
Description of Securities......................................................
Underwriting...................................................................
Legal Matters..................................................................
Experts........................................................................
Additional Information.........................................................
Glossary.......................................................................
Financial Statements...........................................................

-------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

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

1,400,000 Shares of Common Stock

NICHE PHARMACEUTICALS, INC.

------------
PROSPECTUS

CLAYTON, DUNNING &
COMPANY INC.

, 1997

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

Article X of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the Company and its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permitted by Section 102 of the Delaware General Corporation Law, provided that
this provision shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) arising under Section 174 of the
Delaware General Corporation Law (with respect to unlawful dividend payments and
unlawful stock purchases or redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.

Additionally, the Company has included in its Certificate of Incorporation
and its by-laws provisions to indemnify its directors, officers, employees and
agents and to purchase insurance with respect to liability arising out of the
performance of their duties as directors, officers, employees and agents as
permitted by Section 145 of the Delaware General Corporation law. The Delaware
General Corporation law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors, officers, employees and agents may be entitled under the Company's
by-laws, any agreement, vote of stockholders or otherwise.

The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers, directors, employees and agents of
the Company for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.

The Company intends to obtain has liability insurance coverage for its
officers and directors in the amount of $1,000,000 per person.

Insofar as indemnification for liabilities arising under the securities act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

Item 25. Other Expenses of Issuance and Distribution.

The estimated expenses to be incurred by the Company in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions, are estimated as follows:

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SEC Registration Fee $ 2,712.10
NASD Filing Fee 2,000.00
Blue Sky Fees and Expenses 21,000.00
Registrant's Counsel Fees and Expenses 150,000.00
Accountant's Fees and Expenses 45,000.00
Underwriter's Non-Accountable Expense Allowance 210,000.00
Printing Expenses 40,000.00
Nasdaq Listing Fee 7,500.00
Blue Sky Counsel Fees 35,000.00
Transfer Agent and Registrar's Fee and Expenses 2,000.00
Miscellaneous Expenses 34,787.90
----------
Estimated Total $550,000.00
==========

Item 26. Recent Sales of Unregistered Securities.

The Company sold the following Common Shares during the past three years.
The number of Common Shares referred to herein gives effect to a 2 for 1 stock
split on February 8, 1996, and a 1.25 for 1 stock split effective as of October
15, 1996 in connection with the Company's reincorporation in the State of
Delaware.

During the period November 1994 through March 1995, the Company sold the
following number of Common Shares in a private offering, for $2.00 per share in
cash, to the following persons (in the years indicated below):

1994
Number of Aggregate
Common Cash
Name Shares Consideration

Roger G. Boyer 2,500 $ 5,000
Frank E. Putt 2,500 5,000
Joseph A. Spinella 2,500 5,000
B.J. Shaw 2,500 5,000
Richard L. Shumate, Jr. 2,500 5,000
Billy J. Baxley 7,500 15,000
Allan R. Avery 7,500 15,000
------ ------
Total 27,500 $ 55,000
====== ======

1995
Number of Aggregate
Common Cash
Name Shares Consideration

David A. Wang 2,500 $5,000
Ronald Tennissen 2,500 5,000
Don J. Teague 2,500 5,000
W. Craig Carlisle 2,500 5,000
Ron L. Montgomery 2,500 5,000
Robert T. Meyer 2,500 5,000
Allan R. Avery 7,500 15,000
----- ------
Total 22,500 $ 45,000
====== ======

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In December 1996, the Company borrowed $100,000 from Dominant Construction
Corp. (the "Bridge Lender") in a Bridge Financing transaction. In consideration
for making the loan, the Company issued to the Bridge Lender 100,000 Common
Shares (of which 80,000 have been relinquished by the Bridge Lender and
cancelled).

In January 1997, the Company entered into a Credit Agreement with an
affiliate of Allan R. Avery which provided the Company with a $150,000 credit
facility all of which has been borrowed by the Company. In consideration for
providing the credit facility, the Company issued Mr. Avery's affiliate a
warrant to purchase 30,000 Common Shares of the Company at an exercise price of
$6.00 per share, such warrant being exercisable for a period of five years
commencing on the first anniversary of the date of the Prospectus included in
this Registration Statement.

As of June 30, 1997, the Company issued 72,727 Common Shares to Bertek
Pharmaceuticals, Inc. in payment of a $200,000 installment on the purchase price
for Unifiber(R).

Effective July 1997, the Company issued to Certilman Balin Adler & Hyman,
LLP 25,000 Common Shares in consideration of legal services.

All the foregoing transactions were private transactions not involving a
public offering and were exempt from the registration provisions of the Act
pursuant to Section 4(2) thereof. Except as otherwise indicated below, sales of
the Common Shares were without the use of an underwriter, and the certificates
evidencing the securities relating to the foregoing transactions bear
restrictive legends permitting the transfer thereof only upon registration of
such securities or an exemption under the Act. The Company believes that the
purchasers in the foregoing transactions were sophisticated or accredited
investors.

Sterling Foster & Company, Inc. ("Sterling Foster") acted as placement
agent for the Company in connection with the Bridge Financing on a "best
efforts, all or none" basis. Sterling Foster received a placement fee of 7% of
the gross proceeds of the bridge financing, or $7,000. The Company also paid the
fees and disbursements of Sterling Foster's counsel in connection with
representing the Underwriter in its capacity of placement agent in the Bridge
Financing transaction.

Item 27. Exhibits.

Exhibit
Number Title of Exhibit

1.1 Form of Underwriting Agreement by and between the Company and the
Underwriter.

2.1 Agreement of Merger between the Company and Niche Pharmaceuticals,
Inc., a Texas corporation.*

3.1 Articles of Incorporation of the Company.*

3.2 By-Laws of the Company.*

4.1 Specimen Common Share Certificate.*

4.2 Form of Underwriter's Common Share Purchase Warrant.

5.1 Opinion of Certilman Balin Adler & Hyman, LLP, counsel for the
Company.**

10.1 Loan Agreement, dated January 11, 1991, between Stephen F. Brandon and
the Company.*

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10.2 $500,000 Promissory Note (the "Brandon Note"), dated January 11,
1991, by the Company to Stephen F. Brandon.*

10.3 Letter Agreement dated November 22, 1996, between Stephen F.
Brandon and the Company, extending the payment date of the Brandon
Note to January 11, 1998.*

10.4 Authorization and Loan Agreement among the U.S. Small Business
Administration (dated January 9, 1992), the Company (dated April 8,
1992), and First National Bank of Grapevine (dated April 8, 1992).*

10.5 $250,000 Promissory Note, dated April 8, 1992, of the Company to
First National Bank of Grapevine.*

10.6 $300,000 Promissory Note, dated October 11, 1996, of the Company to
Mercantile Bank of Kansas City.*

10.7 Purchase Agreement, dated October 17, 1995, between the Company
and Bertek Pharmaceuticals Inc. (formerly known as Dow
Hickam Pharmaceuticals Inc.)*

10.8 Lease, dated July 30, 1996, between Eva L. Zweifel Huntsman and the
Company.*

10.9 Third Party Manufacturing Agreement between the Company (dated June
19, 1997) and Schering Corporation (dated July 1, 1997).

10.10 Form of Employment Agreement between the Company and Stephen F.
Brandon.*

10.11 1996 Stock Option Plan, as amended.*

10.12 1996 Senior Executive Stock Option Plan.

10.13 1996 Non-Senior Executive Stock Option Plan.*

10.14 Credit Agreement, dated January 20, 1997, between GEM
Communications, Inc. and the Company.*

10.15 Promissory Note, dated January 20, 1997, by the Company to GEM
Communications, Inc.*

10.16 Common Share Purchase Warrant, dated January 20, 1997, issued to
GEM Communications, Inc. to purchase 30,000 Common Shares.*

10.17 Third Party Manufacturing Agreement, effective as of September 1,
1997, between IFP, Inc. and the Company.

10.18 Escrow Agreement dated __, 1997 among the Company, the Underwriter
and First Union National Bank of Florida.**

23.1 Consent of Moore Stephens, P.C., independent certified public
accountants.

23.2 Consent of Certilman Balin Adler & Hyman, LLP (included in its
opinion filed as Exhibit 5.1 hereto).

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23.3 Consent of Robert C. Lau, the Underwriter's designee to the Company's
Board of Directors.

27.0 Financial Data Schedule.

* Previously filed.

** To be filed by Amendment.

Item 28. Undertakings.

(a) Rule 415 Offering.

The undersigned Company will:

(1) file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:

(i) include any prospectus required by section 10(a)(3) of the Act;

(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth
in the registration statement; and

(iii)include any additional or changed material information on the plan of
distribution.

(2) for determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and
the offering of the securities at that time to be the initial bona fide
offering.

(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

(b) Equity Offerings of Nonreporting Small Business Issuers.

The undersigned Company will provide to the Underwriter, at the closing
specified in the underwriting agreement, Common Share certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the provisions referred to in Item 24 of this Registration Statement, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling persons of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

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(d) Rule 430A.

The undersigned Company will:

(1) for determining any liability under the Act, treat the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Company under Rule 424(b)(1) or (4) or 497(h) under the Act, as part of
this Registration Statement as of the time the Commission declared it
effective;

(2) for determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration
statement for the securities offered in the Registration Statement, and
that offering of the securities at that time as the initial bona fide
offering of those securities.

(e) Rule 424(c) Supplement; Post Effective Amendment.

The undersigned Company will, in the event the Underwriter in this Offering
enters into transactions with the Selling Stockholder, or waives the
"lock-up" restrictions applicable to such Selling Stockholder's Common
Shares:

(1) involving from 5% up to 10% of the Selling Stockholder's Common Shares,
file "sticker" supplements to the Prospectus pursuant to Rule 424(c) under
the Act; or

(2) involving over 10% of the Selling Stockholder's registered Common Shares,
file a post-effective amendment to the Registration Statement.

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SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the Company certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Roanoke, State of Texas, on September 16, 1997.

NICHE PHARMACEUTICALS, INC.

By:/s/ Stephen F. Brandon
Stephen F. Brandon, President
Chief Executive Officer, and Treasurer

In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.

Signature Title Date

/s/ Stephen F. Brandon President, Chief Executive September 16, 1997
Stephen F. Brandon Officer, Treasurer, Principal
Accounting Officer and
Director

*
- --------------------- Executive Vice President- September 16, 1997
Thomas F. Reed Corporate Development
and Director

*
- --------------------- Vice President and Director September 16, 1997
Jean R. Sperry

*
- --------------------- Director September 16, 1997
Allan R. Avery

*
- --------------------- Director September 16, 1997
J. Leslie Glick

* By: /s/ Stephen F. Brandon
Stephen F. Brandon
Attorney-in-Fact

II-7