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Bactolac Pharmaceutical, Inc. – ‘S-3’ on 7/16/97

As of: Wednesday, 7/16/97 · Accession #: 927356-97-808 · File #: 333-31411

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/16/97  Bactolac Pharmaceutical, Inc.     S-3                    4:251K                                   Donnelley R R & S… 08/FA

Registration Statement for Securities Offered Pursuant to a Transaction — Form S-3
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-3         Form S-3 for Nutrition for Life                       82    442K 
 2: EX-23.1     Consent                                                1      4K 
 3: EX-23.2     Consent                                                1      4K 
 4: EX-23.3     Consent                                                1      5K

S-3 — Form S-3 for Nutrition for Life
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Available Information Business Certain Transactions Common Stock Company, The Consolidated Balance Sheets Description of Securities Disclosure Regarding Forward-Looking Statements Distribution and Marketing Dividend Policy Exhibits Experts Government Regulations Indemnification of Directors and Officers Index to Financial Statements Information Incorporated by Reference Legal Matters Legal Proceedings Management Management's Discussion and Analysis of Financial Condition and Results of Operations Notes to Consolidated Financial Statements Order Assurance Program Other Expenses of Issuance and Distribution Plan of Distribution Preferred Stock Price Range of Securities Principal Shareholders Risk Factors Selling Shareholders Summary Financial Data The Company Undertakings Use of Proceeds
1	1st Page - Filing Submission
4	Available Information
"	Information Incorporated by Reference
5	Disclosure Regarding Forward-Looking Statements
6	The Company
7	Summary Financial Data
8	Risk Factors
12	Government Regulations
14	Use of Proceeds
"	Dividend Policy
15	Price Range of Securities
18	Management's Discussion and Analysis of Financial Condition and Results of Operations
27	Business
28	Distribution and Marketing
31	Order Assurance Program
39	Legal Proceedings
40	Management
46	Principal Shareholders
48	Certain Transactions
49	Selling Shareholders
50	Plan of Distribution
51	Description of Securities
"	Common Stock
"	Preferred Stock
52	Legal Matters
53	Experts
54	Index to Financial Statements
55	Consolidated Balance Sheets
59	Notes to Consolidated Financial Statements
77	Item 14. Other Expenses of Issuance and Distribution
"	Item 15. Indemnification of Directors and Officers
"	Item 16. Exhibits
79	Item 17. Undertakings

S-3 1st Page of 82 TOC ↑Top Previous Next ↓Bottom Just 1st
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1997
REGISTRATION NO. _________________

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

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
__________

FORM S-3

REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

NUTRITION FOR LIFE INTERNATIONAL, INC.
--------------------------------------
(Exact name of Registrant as specified in its charter)

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Texas 5122 76-0416176
(State or jurisdiction of (Primary Standard (IRS Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)

9101 JAMEEL
HOUSTON, TEXAS 77040
(713) 460-1976
(Address of principal executive offices)

DAVID P. BERTRAND
9101 JAMEEL
HOUSTON, TEXAS 77040
(713) 460-1976

(Name, address, and telephone number of agent for service)

Copies of communications to:

ROBERT M. BEARMAN, ESQ.
BEARMAN TALESNICK & CLOWDUS
PROFESSIONAL CORPORATION
1200 17TH STREET, SUITE 2600
DENVER, COLORADO 80202
TELEPHONE: (303) 572-6500
FACSIMILE: (303) 572-6511

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

If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: ( )

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. (x)

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. ( )

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. ( )

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

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

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----------------------------------------------------------------------------------------------
Title of Each Class Amount to be Proposed Maximum Proposed
of Securities to be Registered Offering Price per Maximum Amount of
Registered Unit(1) Aggregate Registration fee
Offering Price
----------------------------------------------------------------------------------------------

Common Stock, $.01 480,000 shares $7.88 $3,782,400 $1,304.28
Par Value
----------------------------------------------------------------------------------------------

(1) Calculated in accordance with Rule 457(c) under the Securities Act based on
the average of the high and low sale prices of the Common Stock of the
Registrant on July 14, 1997, as reported on The Nasdaq Stock Market.

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 OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

S-3 2nd Page of 82 TOC 1st Previous Next ↓Bottom Just 2nd
NUTRITION FOR LIFE INTERNATIONAL, INC.
CROSS REFERENCE SHEET

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Item in Form S-3 Caption in Prospectus
-------------------------------------- --------------------------------------

1. Forepart of the Registration Facing Page; Outside Front Cover Page
Statement and Outside Front Cover
of Prospectus

2. Inside Front and Outside Back Inside Front Cover Page
Cover Pages of Prospectus

3. Summary Information, Risk The Company; Risk Factors
Factors and Ratio of Earnings to
Fixed Charges

4. Use of Proceeds Outside Front Cover Page; Use of
Proceeds

5. Determination of Offering Price Not Applicable

6. Dilution Not Applicable

7. Selling Security Holders Selling Shareholders

8. Plan of Distribution Plan of Distribution

9. Description of Securities to Description of Securities
be Registered

10. Interests of Named Experts and Legal Matters; Experts
Counsel

11. Material Changes The Company; Business; Legal
Proceedings; Management's Discussion
and Analysis of Financial Condition
and Results of Operations

12. Incorporation of Certain Information Incorporated by Reference
Information by Reference

13. Disclosure of Commission Not Applicable
Position on Indemnification for
Securities Act Liabilities

S-3 3rd Page of 82 TOC 1st Previous Next ↓Bottom Just 3rd
PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 16, 1997

NUTRITION FOR LIFE INTERNATIONAL, INC.

480,000 Shares of Common Stock

This Prospectus relates to the offering (the "Offering") from time to time of up
to 480,000 shares (the "Shares") of common stock, par value $.01 per share (the
"Common Stock") of Nutrition For Life International, Inc. (the "Company") by the
Selling Shareholders named herein. See "Selling Shareholders". The Company will
not receive any of the proceeds from the sale of the Shares by the Selling
Shareholders.

The Registration Statement, of which this Prospectus is a part, was filed by the
Company to fulfill its obligations to the Selling Shareholders. The Shares may
be sold from time to time by the Selling Shareholders, acting alone or in
combination with each other, or by pledgees, donees, transferees or other
successors-in-interest of the Selling Shareholders. Such sales may be made on
The Nasdaq Stock Market or otherwise, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices or otherwise. Selling Shareholders may
effect such transactions by selling the Shares to or through broker-dealers and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they
sell as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). The Company has agreed to pay
substantially all the fees and expenses incurred in connection with the
registration of the Shares, other than any underwriting fees, discounts or
commissions attributable to the sale of the Shares, any out-of-pocket expenses
of the Selling Shareholders (or any agents who manage their accounts) and fees
and disbursements of any counsel for any Selling Shareholders. The Selling
Shareholders, and any agents or broker-dealers who participate with the Selling
Shareholders in a distribution of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and any commissions received by them and any profit on their resale of
the Shares may be deemed to be underwriting commission or discounts under the
Securities Act. See "Plan of Distribution".

The Company's Common Stock is traded on The Nasdaq Stock Market under the symbol
"NFLI". On July 14, 1997, the last reported sales price of the Common Stock on
The Nasdaq Stock Market was $7.88.

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

SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is ____________, 1997

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State or jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State or jurisdiction.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

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AVAILABLE INFORMATION

The Company is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
periodic reports, proxy statements and other information with the Securities and
Exchange Commission ("the Commission"). Reports, proxy statements and other
information concerning the Company may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 as
well as at its offices at Northwestern Atrium Center, 500 W. Madison St., Ste.
1400, Chicago, Illinois 60661 and Seven World Trade Center, Ste. 1300,New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth St., N.W.,
Room 1024, Washington, D.C. 20549 at prescribed rates. Electronic filings are
publicly available through the Commission's Web site (www.sec.gov).

The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and exhibits thereto. For further information with respect to the Company and
the securities offered hereby, reference is made to the Registration Statement,
including the exhibits filed as a part thereof. Statements herein concerning
the provisions of any contract or other document are not necessarily complete
and, in each instance, reference is made to the contract or other document filed
as an exhibit to the Registration Statement. Any interested party may obtain
copies of all or any portion of the Registration Statement and its exhibits at
prescribed rates from the Public Reference Section of the Commission at its
principal office at Judiciary Plaza, 450 Fifth St., N.W., Room 1024, Washington,
D.C. 20549.

INFORMATION INCORPORATED BY REFERENCE

The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(1) the Company's Annual Report on Form 10-KSB, as amended, for the year ended
September 30, 1996, (2) the Company's Proxy Statement dated April 10, 1997
concerning the Company's Annual Meeting of Stockholders held May 12, 1997, (3)
the Company's Reports on Form 10-Q for the quarters ended December 31, 1996 and
March 31, 1997, and (4) all other documents subsequently filed pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and before the termination of this offering, which shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.

Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request, a copy of any or all documents incorporated into this Prospectus by
reference (other than exhibits incorporated by reference into such document
which are not specifically incorporated by reference into such documents).
Requests for documents should be submitted to Nutrition For Life International,
Inc., 9101 Jameel, Ste. 180, Houston, Texas 77040. The information relating to
the Company contained in this Prospectus does not purport to be comprehensive
and should be read together with the information contained in the documents
incorporated or deemed to be incorporated by reference herein.

S-3 5th Page of 82 TOC 1st Previous Next ↓Bottom Just 5th
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical fact included in this
Prospectus, including without limitation, the statements under "The Company,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding the Company's financial position
and liquidity, the Company's operations and proposed operations, and other
matters, are forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations are disclosed in this Prospectus, including without limitation in
conjunction with the forward-looking statements included in this Prospectus.

S-3 6th Page of 82 TOC 1st Previous Next ↓Bottom Just 6th
THE COMPANY

The Company develops products that are designed for health-conscious consumers,
and sells those products to consumers through its network of independent
distributors. The Company has developed a network of approximately 93,900
distributors. The Company offers a product line of approximately 320 products
in eight categories, including nutritional supplements, health foods, weight
management items, skin care products, and other consumer products.

The Company develops products that it believes will have market appeal to its
distributors and their customers, and assists its distributors in building their
own businesses. The Company assists its new distributors in starting their
business without the normal start-up costs and other difficulties usually
associated with new ventures. The Company provides product development,
marketing aids, customer service, and essential record-keeping functions for its
distributors. The Company also provides other support programs to the
distributors including international teleconferencing calls, international and
regional seminars, a proprietary "monthly" magazine, business training systems
and a site on the Worldwide Web of the Internet (www.nutritionforlife.com).

The Company's marketing program is designed to provide incentive for
distributors to build an organization of recruited distributors in their
downline to maximize their earning potential. The Company has experienced a
substantial increase in the number of distributors. The number of distributors
increased from approximately 37,800 on September 30, 1994 to 57,300 on September
30, 1995. During the year ended September 30, 1996, the number of distributors
increased to 87,400. At March 31, 1997, the Company had approximately 93,900
distributors. The Company's continued growth depends to a significant degree on
its ability to retain and motivate its existing distributors and to attract new
distributors. In addition, in 1996 the Company's marketing program became the
subject of regulatory scrutiny and the Company was named as a defendant in class
action lawsuits. These matters have had a material effect on the Company's
operations and financial condition and could materially impact the Company in
the future. See "Risk Factors", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Legal Proceedings".

The Company purchases most of its products directly from manufacturers and sells
them to its independent distributors located in all 50 states, the District of
Columbia, Canada, Guam, Ireland, Korea, the Philippines, Puerto Rico and the
United Kingdom. The Company expects to expand its efforts in these countries
and in other parts of the world.

The Company intends to pursue its business strategy of increasing sales and
profitability by (1) attracting and retaining distributors to its network
marketing system; (2) increasing product sales; and (3) expanding its marketing
activities into new international markets. The Company also intends to pursue
potential opportunities for growth through mergers and acquisitions of
complementary businesses.

The Company's offices are located at 9101 Jameel Street, Houston, Texas 77040.
Its telephone number is (713) 460-1976.

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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)

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YEARS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
-------------------- -------------------
1996 1995 1997(1) 1996
--------- ------- --------- -------
STATEMENTS OF OPERATIONS DATA: (UNAUDITED)

Net sales................................................... $97,404 $32,290 $40,469 $51,578
Gross profit................................................ 29,577 8,774 10,596 16,448
Operating income............................................ 13,347 2,921 582 9,430
Net income (loss)........................................... 8,705 2,244 (3,770) 6,195
Earnings (loss) per share:
Primary................................................... 1.36 .65 (.60) .94
Fully diluted............................................. 1.36 .51 (.60) .94
Weighted average number of shares outstanding(2):
Primary................................................... 6,405 3,437 6,292 6,526
Fully diluted............................................. 6,405 4,444 6,292 6,597

OPERATING DATA:
Number of distributors (3)................................ 87,400 57,300 93,900 82,500
Average monthly sales per distributor (4)................. $ 112 $ 58 $ 74 $ 123
Total products offered.................................... 320 270 320 300

MARCH 31,
1997
-----------
BALANCE SHEET DATA: (UNAUDITED)
Working capital........................................... $ 9,884
Total assets.............................................. 31,708
Total liabilities......................................... 18,023
Stockholders' equity...................................... 13,685
______________________

(1) See "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation" for discussion of the decline in the
operating results.

(2) The weighted average number of shares of Common Stock outstanding for each
period presented has been calculated giving effect to a three-for-five
stock split on July 10, 1995 and a two-for-one stock split on December 8,
1995, and after giving effect to dilutive stock options and warrants.

(3) Includes "active" distributors only at the end of the period indicated. See
"Business-Distribution and Marketing."

(4) Computed using a simple average for the periods indicated.

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RISK FACTORS

In addition to the other information contained in this Prospectus, the following
factors should be considered carefully in evaluating the Company, its business
and this Offering before purchasing any of the Common Stock offered hereby.

RISKS RELATED TO THE COMPANY

RECENT LOSSES. Although the Company experienced rapid growth in sales and
income during its last three fiscal years, it incurred a substantial loss in the
six months ended March 31, 1997. This loss was attributable primarily to
accrual of expenses related to the conditional settlement of class action
lawsuits against the Company. However, the Company also experienced a decline
in net sales as compared to the six months ended March 31, 1996. In addition,
the Company experienced significant increases in both cost of sales and
marketing, distribution and administrative expenses as a percentage of net
sales. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company has increased its infrastructure during its
growth phase. Particularly in view of the Company's increased level of
expenditures, the Company's future operating results will be negatively impacted
if the Company is not successful in regaining its growth in sales.

DISTRIBUTOR NETWORK. The Company's products are distributed through an
extensive network marketing system of distributors. Distributors are
independent contractors who purchase products directly from the Company for
resale and/or for their own use. Distributors typically work on a part-time
basis for the Company, and may engage in other business activities, including
the sale of products offered by competitors of the Company. The Company has
experienced rapid growth in its number of distributors during the past three
fiscal years. At March 31, 1997, the Company had 93,900 distributors. The
Company's growth depends to a significant degree on its ability to retain and
motivate its existing distributors and to attract new distributors by continuing
to offer new products and new marketing programs.

REGULATORY SCRUTINY AND LEGAL PROCEEDINGS. The Company's network marketing
system is subject to governmental laws and regulations generally directed at
ensuring that product sales are made to consumers of the products and that
compensation and advancement within the marketing organization is based on sales
of products rather than investment in the organization. These laws and
regulations include the federal securities laws, matters administered by the
Federal Trade Commission and various state anti-pyramid and business opportunity
laws. Although the Company believes that it is in compliance with all such laws
and regulations, the Company remains subject to the risk that, in one or more of
its present or future markets, its marketing system or the conduct of certain
distributors could be found not to be in compliance with applicable laws or
regulations. Failure by the Company or significant distributors to comply with
these laws and regulations could have an adverse material effect on the Company
in a particular market or in general.

To become a distributor of the Company, a person must be sponsored by an
existing distributor, sign the official Distributor Agreement, and purchase a
"distributor success kit" from the Company, which is currently priced at $49.
The Company's distributors earn the right to receive commissions upon obtaining
the level of "executive." Executive level distributors may earn commissions on
sales generated by other distributors in their downline organization. There are
four ways for a distributor to meet the requirement to become an executive. A
distributor may elect to meet these requirements the same day he or she enrolls
as a distributor or over an extended period of time at their discretion. The
Company previously used the terminology of "Instant Executive Program" to
reference the qualifications for becoming an executive distributor on an
accelerated basis. The Instant Executive Program, particularly as marketed by
Kevin Trudeau, a key independent distributor, and his marketing organization,
has been the subject of legal and regulatory scrutiny.

In April 1996 the Attorney General of the State of Illinois (the "Attorney
General") filed suit against the Trudeau Marketing Group, Inc., Kevin Trudeau
and Jules Leib, People v. Trudeau (the "Illinois Suit") alleging violations of
-----------------
the Illinois Consumer Fraud and Deceptive Practices Act and the Illinois
Business Opportunities Sales Law of 1995 by, among other things, operating a
"pyramid sales scheme." Mr. Leib works with Mr. Trudeau. In addition, the
Secretary of State of the State of Illinois issued to Mr. Trudeau and the
Trudeau Marketing Group a Summary Order to Cease and Desist prohibiting them
from offering or selling "business opportunities" in the State of Illinois.

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Generally, a "business opportunity" is an agreement involving sales of products
or services enabling the purchaser to start a business when the purchaser is
required to pay more than $500. Many other states have "business opportunity"
statutes. See "Business-Distribution and Marketing" for further information
regarding Mr. Trudeau. KT Corp., an affiliate of Mr. Trudeau, is a Selling
Shareholder. See "Selling Shareholders".

The Company was not named as a defendant in the Illinois Suit, but the Company's
management viewed the Illinois Suit as an opportunity to discuss the Company's
marketing program and to resolve confusion surrounding the program. On July 16,
1996, the Company entered into an "Assurance of Voluntary Compliance" (the
"AVC") with the Illinois Attorney General. The AVC preserves the ability of a
new distributor to become an executive distributor the day that he or she
enrolls by purchasing qualifying products and by joining Company programs.
Under the AVC, the Company will maintain its same executive level
qualifications, but to aid clarification, it will no longer use the "Instant
Executive" designation. The Company entered into similar agreements with the
States of Florida, Hawaii, Idaho, Kansas, Kentucky, Michigan, Missouri, New
Jersey and Pennsylvania. The Company has agreed that in Florida, distributors
who want to receive commissions must state, when placing orders, that they have
sold to consumers 70% of their prior commissionable product purchase. The
Company has also established procedures to independently verify consumer sales
on a random basis and to sanction distributors submitting false information.
The Company may negotiate agreements with other states. See "Business-
Distribution and Marketing".

The effect of the implementation of the measures in the AVC, including the
requirement that executive distributors must make at least five retail sales in
a month, and of any agreements the Company may make with other states, is
uncertain. Implementation of these agreements may be expensive and could make
the program less attractive to distributors. These factors could impact the
Company's future operating results. Moreover, because the Company has not
operated under these agreements for an extended period of time, there may be
other consequences which are not presently ascertainable and which could
adversely affect the Company.

The Company has been informed that in July 1996, Mr. Trudeau signed a consent
decree resolving the lawsuit with the Illinois Attorney General and entered into
a settlement agreement with the Illinois Secretary of State resolving the Cease
and Desist Order. Among other things, Mr. Trudeau has agreed to abide by all
applicable provisions of the AVC entered into between the Company and the
Illinois Attorney General. The Company has also been informed that Mr. Leib
signed a consent decree with the Illinois Attorney General.

In April 1996, the Company received notice from the Securities and Exchange
Commission of a formal order of private investigation into possible violations
by the Company of the federal securities laws. In December 1996 the Company
received a letter from the Securities and Exchange Commission notifying the
Company that the staff inquiry had been terminated and that no enforcement
action had been recommended at that time to the Commission.

The Company does not believe that the manner in which it markets its products
constitutes a "pyramid scheme" or a "security." The only financial requirement
to become a distributor is to purchase a "distributor success kit" which is
currently priced at $49. The Company does not pay a fee or other compensation
to distributors as direct remuneration for enrolling distributors in their
"downline" and the Company encourages all distributors to retail their products
to consumers who are not Company executives. In addition, the Company does not
pay a fee or other compensation to distributors for sales of product to their
downline; thus, all product purchases are to be consumed by the distributor or
sold to the ultimate consumer. The Company believes that the efforts it has
undertaken with the Illinois Attorney General and regulatory authorities in
other states, which culminated in the AVC in Illinois and elsewhere, will assist
the Company in complying with government laws and regulations in the future.
Nonetheless, there can be no assurance that the appropriate authorities in any
states will not initiate court proceedings against the Company for violation of
applicable laws, the AVC or similar agreements with the Company, or for actions
by distributors of the Company. In particular, there can be no assurance that
one or more states will not contend that the Company or its distributors unduly
emphasize recruiting new distributors, unduly reward those product sales made in
connection with the recruitment of new executives, unduly emphasize immediate
qualifications as an executive, unduly rely upon the Company's Order Assurance
Program and/or inadequately promote product sales.

CLASS ACTION LITIGATION. In August 1996, a suit was filed against the Company
in the United States District Court for the Southern District of Texas, Houston
Division (the "Federal Action"). Also named as defendants were Kevin Trudeau,
the Trudeau Marketing Group, Inc., Bernard Sherman, the largest

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beneficial owner of the Company's Common Stock, certain officers of the Company,
and Cohig & Associates, Inc. and Neidiger/Tucker/Bruner, Inc., the investment
banking firms which previously served as underwriters of the July 1995 public
offering of the Company's securities. The Federal Action was brought as a class
action on behalf of persons who became "instant" executive distributors of the
Company and on behalf of persons who purchased the Company's Common Stock and
Warrants between July 11, 1995 and July 16, 1996.

The principal allegations of the complaint in the Federal Action are that
certain aspects of the executive distributor compensation program constituted an
illegal pyramid scheme and the sale of an unregistered security and that the
Company failed to disclose the alleged illegality of the program and failed to
completely disclose Mr. Trudeau's past. The plaintiffs seek unspecified
damages, costs and fees of litigation and punitive damages.

In August 1996, a suit was also filed against the Company and the same
defendants named in the Federal Action in the District Court of Harris County,
Texas (the "State Action"). The State Action was brought as a class action on
behalf of persons who purchased Common Stock and Warrants of the Company during
the period from July 11, 1995 through July 16, 1996.

The principal allegations of the complaint in the State Action are substantially
similar to the Federal Action, i.e., that certain aspects of the executive
distributor compensation program constituted an illegal pyramid scheme and that
the Company failed to disclose that its outstanding financial results were
directly attributable to the questioned aspects of its marketing practices and
failed to adequately disclose Mr. Trudeau's past. The plaintiffs seek
unspecified damages, costs and fees of litigation and punitive damages.

In January 1997, the Company reached two preliminary settlement agreements which
should resolve the class action lawsuits. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Legal
Proceedings".

NEGATIVE MEDIA AND OTHER REPORTS. The Company's ability to continue its growth
is dependent upon the Company's success in retaining and motivating its existing
distributors and in attracting new distributors. A significant part of the
Company's recent growth is attributable to the efforts of Kevin Trudeau and his
marketing organization (collectively referred to as "Trudeau"). Mr. Trudeau has
twice been convicted of criminal charges during the past 10 years. See
"Business-Distribution and Marketing" for biographical information concerning
Mr. Trudeau. Trudeau has been particularly successful in recruiting new
distributors who quickly attain executive level status with the Company.

Mr. Trudeau's criminal past was highlighted in an article which appeared in The
---
Wall Street Journal on January 19, 1996. The author of the article also
---- ------ -------
questioned the legality of Trudeau's marketing practices and, in particular, the
marketing of the instant executive program. Similar negative reports were
published on the same day by Bloomberg, a news wire service, and by cable
television station CNBC. Other negative media reports occurred subsequently.

The Company believes that the negative reports in the financial media have had a
negative impact on the Company's retention and recruitment of distributors. If
the negative reports in the financial media or any legal developments continued,
distributor recruitment and/or retention could suffer, and there could be an
adverse effect on the Company's future sales. Moreover, even if the Company's
operating results were unaffected, the negative media coverage could adversely
impact the price of the Common Stock.

In addition, an individual who several years ago was associated with, and a
major shareholder of a predecessor of the Company, has embarked on a campaign to
discredit and harm the Company and Mr. Trudeau. He has published negative
statements on the Internet and elsewhere regarding the Company and Mr. Trudeau
and has contacted various regulatory agencies to complain about the Company and
Mr. Trudeau. In separate actions, the Company and Mr. Trudeau brought defamation
lawsuits against this individual. The Company was awarded a default judgment in
November 1996 and in 1997 the court enjoined the individual from making any
communication about the Company. In his suit, Mr. Trudeau was awarded damages in
a default judgment and this individual was enjoined from publishing the
statements alleged to be defamatory in Mr. Trudeau's complaint against him. The
individual has filed for bankruptcy and the Company does not expect to collect
any part of its

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monetary judgment. There is a risk that this individual and/or others may engage
in actions which would damage the reputation of the Company and adversely affect
the Company's operations.

STATEMENTS AND OTHER ACTIONS BY DISTRIBUTORS. The Company's distributors are
required to sign the Company's official Distributor Agreement which requires
them to abide by the Company's policies. Nonetheless, in certain instances
distributors have created promotional material which does not accurately
describe the Company's marketing program or may have made statements regarding
potential earnings or other matters not in accordance with the Company's
policies. Although the Company was not sued by regulatory authorities, such
actions lead to increased regulatory scrutiny as described above. In order to
assure itself that its policies and practices and those of its independent
distributors conform to law and fairly protect the interests of consumers, the
Company entered into an AVC with the State of Illinois and similar agreements
with several other states. Among other things, the Company agreed in the AVC to
more carefully monitor against misdescriptions by distributors of the Company's
executive compensation plan. The Company has approximately 93,900 distributors.
Although the Company intends to increase its efforts to monitor its
distributors' statements and activities, there can be no assurance that the
Company will be able to accomplish this objective and the Company could be
subject to additional regulatory scrutiny and potential claims. In addition,
distributors, including key distributors such as Kevin Trudeau, could make
predictive statements about the Company's operations or other unauthorized
remarks regarding the Company which the Company may be unable to control. Mr.
Trudeau and other distributors are not authorized to make such statements on
behalf of the Company. Nonetheless, statements or actions by Mr. Trudeau or
other distributors could also adversely affect the Company.

DISTRIBUTOR RETENTION; COMPETITION FOR DISTRIBUTORS. The Company's distributors
are independent contractors who do not commit to devote any specific portion of
their business time to marketing of the Company's products, or to a specified
term in which they will serve as distributors of the Company. No distributor is
obligated to continue acting as a distributor of the Company. The Company is
subject to significant competition from other marketing organizations for the
recruitment of distributors. The Company's ability to remain competitive
depends, in significant part, on the Company's success in recruiting and
retaining distributors.

Any distributor, including key distributors such as Kevin Trudeau, may determine
to reduce their time devoted to the Company's business, or to terminate these
activities. Moreover, if key distributors of the Company determine to either
start, or become a distributor in, a competing business, other distributors of
the Company may choose to join them. There can be no assurance that the
Company's programs for recruitment and retention of distributors will be
successful.

PRODUCT COMPETITION. The business of distributing and marketing vitamins and
minerals, personal care items, weight management items, and other products
offered by the Company is highly competitive. Numerous manufacturers,
distributors and retailers compete actively for consumers. Many of the
Company's competitors are substantially larger than the Company and have greater
financial resources. The market is highly sensitive to the introduction of new
products or weight management plans that may rapidly capture a significant share
of the market. As a result, the Company's ability to remain competitive depends
in part upon the successful introduction of new products.

DEPENDENCE ON KEY PERSONNEL. The Company's future success depends on the
continued availability of certain key management personnel, including David P.
Bertrand and Jana Mitcham, founders, officers and directors of the Company. The
Company has obtained "key man" insurance on the lives of Mr. Bertrand and Ms.
Mitcham with benefit amounts to the Company of $1,060,000 and $660,000,
respectively. The Company has also entered into employment agreements with each
of Mr. Bertrand and Ms. Mitcham. The Company's continued growth and
profitability also depends on its ability to attract and retain other management
personnel.

FAMILY RELATIONSHIPS. At March 31, 1997, the Company employed approximately 220
persons. Of these 220 persons, 14 persons have a family relationship, through
birth or marriage, with either David P. Bertrand or Jana Mitcham, executive
officers of the Company. The Company's management believes that all of the
Company's employees have been employed by the Company on the basis of their
qualifications, and that their retention by, and advancement within, the Company
has been, and will continue to be, determined by their individual performances
as

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an employee of the Company, and not due to any family relationship. Nonetheless,
due to the large number of family relationships, the potential for conflicts of
interest could be significant.

GOVERNMENT REGULATIONS. Although the Company confines its activities to
marketing and distribution, the manufacturing, processing, formulation,
packaging, labeling and advertising of the Company's products are subject to
regulation by federal agencies, including the Food and Drug Administration (the
"FDA"), the Federal Trade Commission, the Consumer Product Safety Commission,
the United States Department of Agriculture, the United States Postal Service
and the United States Environmental Protection Agency. These activities are
also subject to regulation by various agencies of the states and localities in
which the Company's products are sold. In October 1994 the "Dietary Supplement
Health and Education Act of 1994" was enacted. The FDA has not yet reconciled
its existing regulations with this new legislation. Therefore, the Company
cannot determine to what extent any changed or amended regulations will affect
its business. The Company cannot determine what effect currently proposed FDA
regulations, when and if promulgated, will have on its business in the future.
Such regulations could, among other things, require expanded or different
labeling, the recall or discontinuance of certain products, additional record
keeping and expanded documentation of the properties of certain products and
scientific substantiation. In addition, negative publicity associated with a
regulatory inquiry regarding products sold by the Company may adversely affect
the Company. See "Business-Distribution and Marketing". The Company cannot
predict whether new legislation regulating its activities will be enacted, which
new legislation could have a material adverse effect on the Company. See
"Business--Government Regulations".

EXPANSION INTO FOREIGN MARKETS. Although the Company intends to continue to
expand into foreign markets, there can be no assurance that the Company can open
markets on a timely basis or that such new markets will prove to be profitable.
Significant regulation and legal barriers must be overcome before marketing can
begin in any foreign market. Also, before marketing has commenced, it is
difficult to assess the extent to which the Company's products and sales
techniques will be successful in any given country. In addition to significant
regulatory barriers, the Company may also expect problems related to entering
new markets with different cultural bases and legal systems from those
encountered in the past. See "Business-Markets". Moreover, expansion of the
Company's operations into new markets entails substantial working capital and
capital requirements associated with regulatory compliance.

EFFECT OF EXCHANGE RATE FLUCTUATIONS. The Company has commenced efforts to
expand its marketing organization in foreign countries. As a result, exchange
rate fluctuations may have a significant effect on the Company's sales and its
gross margins. Further, if exchange rates fluctuate dramatically, it may become
uneconomical for the Company to establish or continue activities in certain
countries.

NO FIRM CONTRACTS WITH SUPPLIERS OR MANUFACTURERS. The Company does not have
any written contracts with any of its suppliers or manufacturers or commitments
from any of its suppliers or manufacturers to continue to sell products to the
Company. A substantial portion of the products purchased by the Company have
been supplied by NION Laboratories ("NION"). Richard S. Kashenberg, a director
of the Company, served as the chief executive officer of NION until December
1996. Mr. Kashenberg is currently a consultant to NION pursuant to an agreement
which will expire in October, 1997. Until June 1995 NION was owned by Shermfin
Corp., a Selling Shareholder in this Offering, and Mr. Kashenberg. Since June
1995, NION has been owned by a privately held corporation with no affiliation
with the Company other than Mr. Kashenberg's positions with NION. Since June
1995 NION has continued to be a principal supplier of product to the Company and
the Company believes that its relationship with NION is satisfactory. However,
there can be no assurance that NION will continue to be a significant and
reliable supplier to the Company. The Company also purchases products from
Nightingale-Conant Corporation, a Selling Shareholder in this Offering. The
Company does not have long term supply agreements with NION, Nightingale-Conant
Corporation, or any other vendor. Accordingly, there is a risk that any of the
Company's suppliers or manufacturers could discontinue selling their products to
the Company for any reason. Although the Company believes that it could
establish alternate sources for most of its products, any delay in locating and
establishing relationships with other sources could result in product shortages
and back orders for the products, with a resulting loss of revenues to the
Company. In addition, such delays could interrupt momentum in growth of product
sales and distributor recruitment.

PRODUCT LIABILITIES. Although the Company does not engage in the manufacture of
any of the products it markets and distributes, the Company could be exposed to
product liability claims. The Company has not had any

S-3 13th Page of 82 TOC 1st Previous Next ↓Bottom Just 13th
such claims to date. Although the Company maintains product liability insurance
which it believes to be adequate for its needs, there can be no assurance that
the Company will not be subject to claims in the future or that its insurance
coverage will be adequate.

DIVIDENDS. The Company declared an initial cash dividend of $.02 per share of
Common Stock in September 1996. The Company paid dividends of $.02 per share of
Common Stock in each of January 1997, March 1997 and June 1997. Although it is
the Company's present intent to declare dividends on a quarterly basis, the
determination of whether to pay dividends will be made by the Board of Directors
and will depend on many factors. See "Dividend Policy".

SHARES AVAILABLE FOR ISSUANCE; POSSIBLE ADVERSE IMPACT OF ISSUANCE OF PREFERRED
STOCK. The Company is authorized to issue 20,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock. A total of 5,784,024 shares of Common
Stock are presently issued and outstanding. A substantial number of authorized
shares of Common Stock are available for issuance. These shares may be issued
at the discretion of the Board of Directors of the Company in accordance with
the Texas Business Corporation Act (the "TBCA"). Unless otherwise required by
the TBCA, as in the case of certain extraordinary actions, shareholder approval
will not be required for the issuance of additional shares of Common Stock.

The Company has available for issuance 1,000,000 shares of Preferred Stock.
There are currently no shares of Preferred Stock outstanding. Shares of
Preferred Stock may be issued by the Company in the future without shareholder
approval and upon such terms as the Company's Board of Directors may determine.
The rights of the holders of Common Stock will be subject to and may be affected
adversely by the rights of holders of any Preferred Stock that may be issued in
the future. The availability of Preferred Stock, while providing desired
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of discouraging a third party from acquiring
control of the Common Stock. The Company has no plans to issue any shares of
Preferred Stock. See "Description of Securities - Preferred Stock".

S-3 14th Page of 82 TOC 1st Previous Next ↓Bottom Just 14th
USE OF PROCEEDS

The Company will not receive any portion of the net proceeds from the sale of
the Shares by the Selling Shareholders. See "Plan of Distribution".

DIVIDEND POLICY

The Company declared its first cash dividend of $.02 per share on its Common
Stock in September 1996. The Company paid dividends of $.02 per share of Common
Stock in each of January 1997, March 1997 and June 1997. The Company currently
intends to declare dividends in this amount on a quarterly basis. However, the
determination of the payment of dividends in the future will be within the
discretion of the Company's Board of Directors and will depend on the earnings,
capital requirements and operating and financial condition of the Company, among
other factors.

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PRICE RANGE OF SECURITIES

Since July 1995, the Common Stock has traded on the National Market System of
The Nasdaq Stock Market under the symbol "NFLI". From June 1994 to July 1995,
the Common Stock was traded on the Electronic Bulletin Board system operated by
the National Association of Securities Dealers, Inc. Quotations in the table
below for the periods prior to the quarters ended September 30, 1995 reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily reflect actual transactions. The quotations for the quarters
ended September 30, 1995 and thereafter represent the range of high and low
trade quotations. For the earlier periods, the quotations reflect the high bid
and low bid prices. The quotations have been adjusted to give effect to a
three-for-five split of the Common Stock effected on July 10, 1995 and a two-
for-one split of the Common Stock effected on December 8, 1995.

The Warrants commenced trading in July 1995 on the National Market System of The
Nasdaq Stock Market under the symbol "NFLIW". The holder of one Warrant is
entitled to purchase one share of Common Stock at an exercise price of $3.75 per
share until July 10, 1998 unless the Warrants are earlier called for redemption
by the Company. See "Description of Securities".

[Download Table]

Common Stock Warrants
------------ --------
Quarter Ended High Low High Low
------------- ------ ------ --------- ------

Fiscal 1995
-----------
December 31, 1994....................$ 1.67 $ 1.25
March 31, 1995....................... 3.54 1.67
June 30, 1995........................ 3.65 1.67
September 30, 1995................... 9.50 2.50 $ 5.63 $ 0.25

Fiscal 1996
-----------
December 31, 1995.................... 24.00 8.63 20.13 5.00
March 31, 1996....................... 35.00 16.75 31.50 13.00
June 30, 1996........................ 23.00 8.50 19.25 5.00
September 30, 1996................... 17.75 9.50 14.25 6.50

Fiscal 1997
-----------
December 31, 1996.................... 17.50 11.00 14.00 8.25
March 31, 1997....................... 13.25 7.00 9.375 4.00
June 30, 1997........................ 10.50 7.50 6.63 3.75

On July 14, 1997, the closing prices of the Common Stock and Warrants were $7.88
per share and $4.00 per Warrant, respectively. As of September 30, 1996, there
were 1,433 record holders of Common Stock.

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SELECTED FINANCIAL DATA

The selected financial data presented below for each year in the four-year
period ended September 30, 1996 have been derived from the audited financial
statements of the Company. The selected financial data for the year ended
September 30, 1992 is derived from the unaudited financial statements of the
Company prepared on the same basis as the audited financial statements and
contains all adjustments (consisting of normal recurring accruals) that
management believes are necessary for a fair presentation of such data. The data
presented below should be read in conjunction with the Company's financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

[Download Table]

YEARS ENDED SEPTEMBER 30,
(In thousands, except Per Share and Operating Data)
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- -----

Statements of operations:
Net sales...................... $97,404 $32,290 $17,583 $13,838 $14,028
Gross profit................... 29,577 8,774 4,801 3,686 3,033
Operating income (loss)........ 13,347 2,921 442 136 (256)
Net income (loss).............. 8,705 2,244 250(4) 85 (352)
Earnings (loss) per share:
Primary........................ 1.36 .65 0.09 0.03 (0.13)
Fully diluted.................. 1.36 .51 0.08 0.03 (0.13)
Weighted average number of
shares outstanding(1):
Primary........................ 6,405 3,437 2,824 2,824 2,824
Fully diluted.................. 6,405 4,444 3,792 3,792 3,792
Operating data:
Number of distributors(2)...... 87,400 57,300 37,800 29,500 31,500
Average monthly sales
per Distributor(3)............. $ 112 $ 58 $ 44 $ 38 $ 38
Total products offered......... 320 270 258 236 242
Balance Sheet Data:
Working capital............... 14,556 6,082 546 181 1
Total assets.................. 27,628 12,566 2,633 1,986 2,019
Total liabilities............. 10,026 5,407 1,985 1,769 1,888
Stockholders' equity.......... 17,602 7,159 648 216 131

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

(1) The weighted average number of shares of Common Stock outstanding for each
period presented has been calculated giving effect to a three-for-five stock
split on July 10, 1995 and a two-for-one stock split on December 8, 1995,
and after giving effect to dilutive stock options and warrants.

(2) Includes "active" distributors only at the end of the period indicated. See
"Business-Distribution and Marketing."

(3) Computed using a simple average for the periods indicated.

(4) Net income is net of a $181,243 preferred stock conversion expense.

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[Enlarge/Download Table]

SELECTED QUARTERLY FINANCIAL INFORMATION
(In thousands, except Per Share)
Quarter Ended
------------------------------------------------
December 31 March 31 June 30 September 30 Fiscal Year
----------- -------- ------- ------------ -----------

Fiscal 1996
Net sales................. $21,263 30,315 26,281 19,545 97,404
Gross profit.............. 6,770 9,677 8,240 4,890 29,577
Operating income.......... 3,869 5,561 3,284 633(1) 13,347
Net income................ 2,553 3,642 1,877 633 8,705

Dividends per share....... $0.02 0.02

Fiscal 1995
Net sales................. $ 5,235 6,012 7,943 13,100 32,290
Gross profit.............. 1,470 1,546 1,941 3,817 8,774
Operating income.......... 267 308 576 1,770 2,921
Net income................ 238 283 551 1,172 2,244

________________

(1) Includes a $782,000 charge for resolution of the state regulatory issues.

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

RESULTS OF OPERATIONS - OVERVIEW

The following table sets forth for the periods indicated the percentages which
selected items in the Consolidated Statement of Operations bear to net sales:

[Download Table]

Six Months Ended
----------------
Years Ended September 30, March 31,
-------------------------- ---------

1996 1995 1994 1997 1996
---- ---- ---- ---- ----

Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.6 72.8 72.7 73.8 68.1
----- ----- ----- ----- -----
Gross profit 30.4 27.2 27.3 26.2 31.9
Marketing, distribution and
administrative expenses 16.7 18.1 24.8 24.7 13.6
----- ----- ----- ----- -----
Income from operations 13.7 9.1 2.5 1.5 18.3
Other income (expense), net 0.6 0.3 (0.1) (15.2) 0.6
----- ----- ----- ----- -----
Income (loss) before income
tax expense (benefit) 14.3 9.4 2.4 (13.8) 18.9
Income tax expense (benefit) 5.4 2.4 0.0 (4.5) 6.9
----- ----- ----- ----- -----
Net income (loss) 8.9 7.0 2.4 (9.3) 12.0
Preferred stock conversion 0.0 0.0 1.0 0.0 0.0
----- ----- ----- ----- -----
Net income (loss) applicable
to common shares 8.9% 7.0% 1.4% (9.3)% 12.0%
===== ===== ===== ===== =====

SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996

Net sales for the six months ended March 31, 1997 decreased by $11,109,000 or
21.5% to $40,469,000 as compared to net sales of $51,578,000 for the six months
ended March 31, 1996. At March 31, 1997, the Company had approximately 93,900
distributors compared to approximately 82,500 at March 31, 1996 and 87,400 at
September 30, 1996. The increase in distributors since September 30, 1996,
occurred primarily during March, 1997. Commencing in the latter part of
February 1997 and continuing through April 1997, the Company featured a
marketing promotion allowing executive qualification at a reduced price. Net
sales for the three months ended March 31, 1997, were $21,200,000. The quarter
ended March 31, 1997 was the first quarter with an increase in net sales as
compared to the immediate preceding quarter since March 31, 1996.

The ability of the Company to increase its number of distributors and its sales
per average number of distributors is material to the growth of the Company.
Management believes that the regulatory scrutiny and legal proceedings initiated
in the year ended September 30, 1996, as well as the negative media reports,
were significant factors affecting distributor recruitment and retention and
sales efforts by distributors during the last two quarters of fiscal 1996 and
the first two quarters of fiscal 1997. Although the Company has resolved many
of these issues, the ability of the Company to regain its former rate of growth
cannot be predicted with certainty.

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The decrease in net sales is recapped below:

New executive initial purchases $(18,962,000)

Increase in sales due to increased
number of distributors 17,268,000

Decrease in distributor average sales (9,415,000)
-----------

$(11,109,000)
==========

The decrease in net sales was primarily due to fewer new distributors
electing to qualify immediately as executives. The Company's net sales per
average number of distributors per month decreased from $123 during the six
months ended March 31, 1996 to $74 for the six months ended March 31, 1997.

Cost of sales decreased by $5,257,000 or 15.0% to $29,873,000 for the
six months ended March 31, 1997 from $35,130,000 for the six months ended March
31, 1996. Cost of sales as a percentage of net sales increased from 68.1% in
the six months ended March 31, 1996 to 73.8% in the six months ended March 31,
1997. Cost of sales, which includes product costs, commissions and bonuses paid
to distributors, and shipping costs, is recapped below:

[Download Table]

Six months ended
March 31,
---------
1997 1996
---- ----

Product costs 29.9% 24.9%
Commissions and bonuses paid to distributors 37.6 39.2
Shipping costs 6.3 4.0
---- ----
73.8% 68.1%
==== ====

The percentage of product costs increased 5.0% primarily as a result of the
reduction in the number of new executive initial purchases, which carried a
lower product cost margin than the products sold individually and the marketing
promotion described above whereby the same amount of product costs were incurred
for a reduced sales amount. In addition, there has been an increase in the
amount of literature sales which carry a higher product cost margin. The
percentage of commissions and bonuses paid to distributors decreased 1.6%
because the products with higher product cost margins have a reduced base for
the calculation of commissions and bonuses. Shipping costs increased 2.3%
primarily as a result of the reduction in the number of new initial purchases
and the marketing promotion mentioned above. In other words, proportionately
there are more small orders which have higher associated shipping costs.

Gross profit decreased 35.6% or $5,851,000 from $16,448,000 for the six months
ended March 31, 1996 to $10,596,000 for the six months ended March 31, 1997.
Gross profit as percentage of net sales decreased from 31.9% for the six months
ended March 31, 1996 to 26.2% for the six months ended March 31, 1997.

Marketing, distribution and administrative expenses increased $2,997,000 or
42.7% from $7,018,000 for the six months ended March 31, 1996 to $10,014,000 for
the six months ended March 31, 1997. As a percentage of net sales, marketing,
distribution, and administrative expenses increased to 24.7% for the six months
ended March 31, 1997 from 13.6% for the six months ended March 31, 1996. The
dollar increase resulted primarily from greater personnel costs, postage,
professional fees, and facilities lease costs to support the growth in the
Company's infrastructure and a $1,200,000 accrual for a special award for a
group of executives as described below. Particularly in view of the Company's
increased level of expenditures, the Company's future operating results will be
negatively impacted if the Company is not successful in regaining its growth in
sales experienced during the first half of fiscal 1996.

The Company has also determined that, in connection with the recruitment of
certain distributors by Kevin Trudeau,

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a key distributor of the Company, certain representations may have been made
regarding entitlement to benefits or prizes, principally cruises, as performance
incentives to these distributors. Although the Company does not believe that it
is legally responsible for any such representations, in the interest of
promoting good distributor relations, the Company intends to offer certain
distributors the right to participate in cruises at the Company's expense. The
Company estimates that its cost will be approximately $1,200,000 for these
programs, which has been accrued in the six months ended March 31, 1997.

Income from operations for the six months ended March 31, 1997 decreased
$8,848,000 or 93.8% to $582,000 from $9,430,000 for the six months ended March
31, 1996, principally as a result of lower level of net sales, the decrease in
the gross profit as a percentage of sales, and the increase in marketing,
distribution and administrative expenses. Income from operations as a
percentage of net sales decreased from 18.3% for the six months ended March 31,
1996 to 1.4% for the six months ended March 31, 1997.

Other income (expense) decreased to $6,169,000 of net other expense for the six
months ended March 31, 1997 from $299,000 of net other income for the six months
ended March 31, 1996. The decrease was primarily the result of the $6,425,000
incurred in the settlement of the class action lawsuits as described below.

As a result of a loss before income tax expense (benefit) for the six months
ended March 31, 1997, an income tax benefit of $1,817,000 has been accrued. Of
this tax benefit, $2,249,000 relates to the tax effect of the settlement of the
class action lawsuits.

In January, 1997, the Company reached two preliminary settlement agreements
which should resolve the class action lawsuits that were filed against the
Company in 1996. Under the first Settlement Agreement, the Company has agreed
to set aside a reserve fund of between $1.2 to $1.5 million to be paid, under
certain provisions, to persons who became "instant executives" between April 1,
1995 and January 19, 1996. The Company will pay out of the reserve fund an
amount equal to the 10% restocking charge which has been or would otherwise be
imposed upon a refund to them, and refund the amount paid for any unused
perishable product which the distributor has tendered or tenders for refund in
an unused condition. Any amounts left in the reserve fund will be refunded to
the Company six months after the final approval of the Settlement Agreement.
Also under the first Settlement Agreement, the Company has agreed that persons
who became "instant executives" between April 1, 1995 and April 15, 1996 will
receive product of the Company's choice with a retail value equivalent to the
face amount of any expired, unredeemed Order Assurance Program certificates held
by those persons. The Company estimates that the cost of the product and
shipping will be approximately $800,000.

In a separate agreement, the Company agreed to pay up to $2 million to persons
who purchased the Company's Common Stock or Warrants between July 11, 1995 and
July 15, 1996 and lost money. The Settlement Agreements are subject to federal
court approval. See "Legal Proceedings." The Company estimates that its
additional attorneys' fees, administrative costs and costs and fees of attorneys
for the plaintiffs in the amount of approximately $2,125,000 will be incurred.

Net loss was $3,770,000 for the six months ended March 31, 1997, a decrease of
160.9% compared to net income of $6,195,000 for the six months ended March 31,
1996. The decrease was principally the result of lower net sales, a lower gross
profit margin, increased marketing, distribution and administrative expenses,
and accrual for settlement of the class action lawsuits.

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YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995

Net sales for the year ended September 30, 1996 increased by $65,114,000 or
201.7% to $97,404,000 from $32,290,000 for the year ended September 30, 1995.
The increase in net sales is primarily the result of the Company increasing its
number of distributors and its sales per average number of distributors. At
September 30, 1996, the Company had approximately 87,400 distributors compared
to approximately 57,300 at September 30, 1995. However, the rate of growth in
the number of distributors slowed during the three months ended June 30, 1996
and September 30, 1996, respectively, to a net increase of 3,502 and 1,452
distributors. The ability of the Company to increase its number of distributors
and its sales per average number of distributors is material to the growth of
the Company. Management believes that the regulatory scrutiny and legal
proceedings initiated in the year ended September 30, 1996, as well as the
negative media reports, were significant factors affecting distributor
recruitment and retention and sales efforts by distributors during the last two
quarters of the year ended September 30, 1996. The Company has resolved certain
of these issues, but the ability of the Company to regain the rate of growth
realized during the first two quarters of the year ended September 30, 1996
cannot be predicted with certainty. The increase in net sales is recapped
below:

[Download Table]

New executive initial purchases $30,163,000

Growth in sales due to increased number
of distributors 16,818,000

Increase in distributor average sales 18,133,000
-----------
$65,114,000
===========

The Company's net sales per average number of distributors per month increased
from $59 during the year ended September 30, 1995 to $112 for the year ended
September 30, 1996. Approximately 46% of the increase in net sales was due to
new distributors electing to purchase product to qualify as an executive under
the program formerly known as the Instant Executive Program. No one distributor
has directly accounted for more than 5% of the Company's net sales in any of the
past three fiscal years.

The Instant Executive Program had referred to an option by which a distributor
could quickly attain the level of "executive". Executive level distributors may
earn commissions on sales generated by other distributors in their downline
organization. The Instant Executive Program, particularly as marketed by Kevin
Trudeau, a key distributor of the Company, has been the subject of legal and
regulatory scrutiny.

In April 1996 the Attorney General of the State of Illinois (the "Attorney
General") filed suit against the Trudeau Marketing Group, Inc., Kevin Trudeau,
and Jules Leib, People v. Trudeau (the "Illinois Suit"). The Company was not
-----------------
named as a defendant in the Illinois Suit, but the Company's management viewed
the Illinois Suit as an opportunity to discuss the Company's marketing program
and to resolve confusion surrounding the program. On July 16, 1996, the Company
entered into an "Assurance of Voluntary Compliance" (the "AVC") with the
Attorney General. The AVC preserves the ability of a new distributor to become
an executive distributor the day that he or she enrolls by generating at least
$1,000 in qualifying product volume and by joining the Order Assurance Program
("OAP") and Master Developer Series. Under the AVC, the Company may maintain
its same executive level qualifications, but to aid clarification, it will no
longer use the "instant executive" terminology.

S-3 22nd Page of 82 TOC 1st Previous Next ↓Bottom Just 22nd
distributors to redeem OAP certificates for product and to limit the number of
OAP certificates, and to monitor customer purchases. The Company also agreed to
make a contribution to the Illinois Consumer Education Fund.

The Company also entered into agreements with the states of Florida, Hawaii,
Idaho, Kansas, Kentucky, Michigan, Missouri, New Jersey, and Pennsylvania. See
"Business--Distribution and Marketing". The Company may enter into agreements
with other states in the future.

The Company expended significant time and resources engaging in the discussions
with the Attorney General and other state attorneys general. Included in the
results of operations for the year ended September 30, 1996 were expenses of
approximately $782,000 related to the Company's resolution of these states'
legal issues. These expenses included contributions to state funds, legal fees,
costs associated with revised marketing literature and other distributor
communications, and the establishment of a World Wide Web site on the Internet.
In addition, uncertainty about the possible outcome of these discussions, the
SEC investigation, the class action lawsuits and certain unfavorable media
reports appears to have affected the efforts of some of the Company's
distributors during the year ended September 30, 1996. The future effect of the
resolution of these issues in Illinois, Florida and the other eight states, and
the implementation of, and continued compliance with, the AVC could negatively
impact the Company's future operating results. See "Risk Factors"; and
"Business-Distribution and Marketing".

The AVC preserves the OAP, a popular option for distributors. Under the OAP, a
distributor may elect to enroll in a minimum ordering program to maintain
eligibility for bonuses. Minimum orders ranging from $41 to $300 per month are
automatically placed by credit card or check. So long as distributors continue
to enroll in the OAP the Company is assured of sales and the distributor is
assured participation in bonus programs. The Company has agreed in the AVC to
take additional steps to encourage distributors to redeem OAP certificates for
product and to limit the number of OAP certificates which may be issued. The
OAP is voluntary and no restrictions are placed upon any participant's ability
to exit the Program. As of September 30, 1996 and 1995, respectively, there
were approximately 41,700 and 18,000 participants in this Program. On the
average during the year ended September 30, 1996, the Company issued OAP
certificates for approximately 40% of the participants. The percentage for the
comparable period in 1995 is not available.

The Company recognizes revenues on the OAP certificates when they are redeemed
for product or when they expire. The Company recognized revenues from the
redemption of certificates of $7,647,000 and $1,090,000 for the years ended
September 30, 1996 and 1995. The Company recognized revenues from expired
certificates of $3,025,000 and $876,000 during the years ended September 30,
1996 and 1995. At September 30, 1996 and 1995, the Company had a liability for
unredeemed certificates of $3,893,600 and $347,800 which is included in deferred
income in the "Financial Statements". The effect of the AVC on future revenues
from OAP certificates is uncertain, but could have a negative impact on the
Company's future operating results.

Cost of sales increased by $44,312,000 or 188.4% to $67,827,000 for the year
ended September 30, 1996 from $23,515,000 for the year ended September 30, 1995.
Also included in the cost of sales for the year ended September 30, 1996, is
approximately $58,000 of the $782,000 incurred in resolving the state legal
issues discussed above. Cost of sales as a percentage of net sales decreased
from 72.8% in the year ended September 30, 1995 to 69.6% in the year ended
September 30, 1996. Cost of sales, which includes product costs, commissions
and bonuses paid to distributors, and shipping costs, is recapped below:

[Download Table]

Year Ended
September 30,
-----------------
1996 1995
---- ----

Product costs 23.6% 24.3%
Commissions and bonuses
paid to distributors 39.2 40.5
Shipping costs 6.8 8.0
---- ----
69.6% 72.8%
==== ====

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The percentage of product costs decreased 0.7% primarily as a result of improved
pricing with higher volume. The decrease in the percentage of commissions and
bonuses paid of 1.3% was the result of the significant growth in new executive
initial purchases and the lower level of the associated commissions and bonuses
in relation to a slower growing organization. The decrease of 1.2% in the
percentage of shipping costs resulted from economies of scale in shipping costs
associated with the volume of sales from new executive initial purchases.

Gross profit increased 237.1% or $20,802,000 from $8,775,000 for the year ended
September 30, 1995 to $29,577,000 for the year ended September 30, 1996. Gross
profit as a percentage of sales increased from 27.2% for the year ended
September 30, 1995 to 30.4% for the year ended September 30, 1996.

Marketing, distribution and administrative expenses increased $10,377,000 or
177.3% from $5,853,000 for the year ended September 30, 1995 to $16,230,000 for
the year ended September 30, 1996. As a percentage of net sales, marketing,
distribution and administrative expenses decreased to 16.7% for the year ended
September 30, 1996 from 18.1% for the year ended September 30, 1995. The dollar
increase resulted primarily from increased personnel costs, credit card fees,
postage and professional fees to support the Company's growth. Also included in
the increase in marketing, distribution and administrative expenses is
approximately $724,000 of the $782,000 incurred in resolving the state legal
issues discussed above. As a result of the increase in marketing, distribution
and administrative costs incurred in connection with the Company's growth and
the increased expenses related to legal issues, the Company's future operating
results will be negatively impacted if the Company is not successful in
regaining its growth in sales experienced during the first two quarters of the
year ended September 30, 1996.

Income from operations for the year ended September 30, 1996 increased
$10,426,000 or 356.9% to $13,347,000 from $2,921,000 for the year ended
September 30, 1995, principally as a result of the higher level of sales, the
increase in income recognized from expired OAP certificates, and the increase in
the gross profit as a percentage of sales. Income from operations as a
percentage of sales increased from 9.1% for the year ended September 30, 1995 to
13.7% for the year ended September 30, 1996.

Other income increased to $648,000 for the year ended September 30, 1996 from
$88,000 for the year ended September 30, 1995. The increase was primarily a
result of interest income earned.

Income tax expense increased $4,525,000 to $5,290,000 for the year ended
September 30, 1996 from $765,000 for the year ended September 30, 1995. The
dollar increase resulted from higher taxable income, an increased base tax rate,
and a reduced effect of the utilization of approximately $150,000 of net
operating loss carryforward compared to approximately $423,000 in the prior
fiscal year.

Net income was $8,705,000 for the year ended September 30, 1996, an increase of
287.9% compared to $2,244,000 for the year ended September 30, 1995, principally
as a result of higher level of sales and the increase in gross profit as a
percentage of sales.

YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994

Net sales for the year ended September 30, 1995 increased by $14,707,000 or
84% to $32,290,000 from $17,583,000 for the year ended September 30, 1994. The
increase in net sales is primarily the result of a 51.6% growth in the number of
distributors. As of September 30, 1995, the Company had approximately 57,300
distributors compared to approximately 37,800 at September 30, 1994. Of the
19,500 increase in distributors, 7,700 were new distributors utilizing the
Instant Executive option. In addition, a price increase was enacted on June 1,
1995 on certain products to offset related increases in product costs. The
increase in net sales is recapped below:

S-3 24th Page of 82 TOC 1st Previous Next ↓Bottom Just 24th
[Download Table]

Net executive initial purchases $7,700,000
Growth in sales due to increased number of distributors 6,067,000
Sales price increase 940,000
----------
$14,707,000

Also included in the increase in net sales was in increase in sales outside the
United States. Net sales in Canada increased from $2,435,000 for the year ended
September 30, 1994 to $4,157,000 for the year ended September 30, 1995. Net
sales in Puerto Rico for the year ended September 30, 1995 were $2,214,000, up
from $264,000 for the year ended September 30, 1994.

Cost of sales increased by $10,732,000 or 84% to $23,515,000 for the year ended
September 30, 1995 from $12,783,000 for the year ended September 30, 1994. Cost
of sales as a percentage of net sales increased only slightly in the year ended
September 30, 1995 compared to the year ended September 30, 1994. Cost of
sales, which includes product costs, commissions and bonuses paid to
distributors, and shipping costs, is recapped as a percentage of net sales in
the following table:

[Download Table]

September 30,
-------------
1995 1994
---- ----

Product costs 24.3% 24.1%
Commissions and bonuses paid to distributors 40.5% 39.7%
Shipping costs 8.0% 8.9%
---- ----
72.8% 72.7%
==== ====

The percentage of product costs increased slightly as the Company balanced
increases in product costs with increases in sales prices as noted above. The
increase in the percentage of commissions and bonuses paid to distributors of
0.8% was the result of maturing distributor incentives and the balancing of
selected product incentive levels. The decrease of 0.9% in the percentage of
shipping costs resulted from economies of scale in shipping costs and a
reduction in shipping costs associated with the volume of sales of product in
the Instant Executive Program.

Gross profit increased by 83% or $3,973,000 from $4,801,000 for the year ended
September 30, 1994 to $8,774,000 for the year ended September 30, 1995. Gross
profit as a percentage of sales decreased from 27.3% for the year ended
September 30, 1994 to 27.2% for the year ended September 30, 1995.

Marketing, distribution and administrative expenses increased $1,494,000 or
34.3% to $5,853,000 for the year ended September 30, 1995 from $4,359,000 for
the year ended September 30, 1994. As a percentage of sales, marketing,
distribution and administrative expenses decreased from 24.8% for the year ended
September 30, 1994 to 18.1% for the year ended September 30, 1995. The dollar
increase resulted primarily from increased salaries, credit card discount rate
charges, postage, travel and marketing expense to provide for the growth in
sales.

Income from operations increased $2,479,000 or 561% to $2,921,000 for the year
ended September 30, 1995 compared to $442,000 for the year ended September 30,
1994, principally as a result of the higher level of sales. Income from
operations as a percentage of sales increased from 2.5% for the year ended
September 30, 1994 to 9.1% for the year ended September 30, 1995.

Other income increased to $88,000 for the year ended September 30, 1995 from a
deficit of $11,000 for the year ended September 30, 1994. The increase was
primarily a result of a partial collection of a legal judgment in favor of
the Company and interest income earned.

The Company incurred income tax expense of $765,000 for the year ended September
30, 1995. There was no income tax expense for the year ended September 30, 1994
as the Company was able to utilize its loss carryforwards to offset income. As
of September 30, 1995, the Company had approximately $553,000 of net operating
loss available to carryforward subject to limitations imposed by the Tax Reform
Act of 1986.

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Net income was $2,244,000 for the year ended September 30, 1995, an increase of
420% compared to net income of $431,000 for the year ended September 30, 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and cash equivalents of $17,517,000 at March 31, 1997
compared to $15,589,000 at September 30, 1996. The cash provided by operating
activities of $3,176,000 for the six months ended March 31, 1997 was
significantly reduced from the cash provided by operating activities of
$8,255,000 for the six months ended March 31, 1996. This decrease was due
primarily to the factors discussed under "Results of Operations". The Company
used approximately $1,101,000 and $1,160,000, respectively, to purchase property
and equipment during the six month periods ended March 31, 1997 and 1996. In
addition, $223,000 was paid in dividends to shareholders during the six months
ended March 31, 1997.

The Company had working capital of $9,884,000 at March 31, 1997 compared to
$14,556,000 at September 30, 1996. The $4,672,000 decrease in working capital
was caused primarily by the remaining $5,843,000 accrual for the class action
settlement and the cruise, net of related deferred tax benefits.

The Company currently anticipates expanding into new foreign markets, but the
extent of the expansion has not been determined and will be dependent upon
results of operations and other factors. As a result of the cost of the class
action settlement discussed above, the Company's pace of expansion may be
reconsidered. While Management is hopeful that the business disruption
associated with the regulatory scrutiny and legal issues and the negative media
reports will subside, there can be no guarantee that profitable operations will
result in the future.

In May 1997, the Company determined to acquire an enterprisewide state-of-the-
market computer information system. The total cost, including implementation
and training, is expected to be approximately $1,500,000 to $2,100,000. The
primary benefits expected to be achieved are improved administrative cost
control, enhanced customer service and improved multinational support. The
Company is currently exploring opportunities to enter into a lease arrangement
for this system, but has no firm agreements or understandings at this time.

The Company has not been subjected to material price increases by its suppliers
and inflation is not expected to have a material impact on the Company's
business during the next twelve months.

In September, 1996, the Board of Directors authorized a repurchase program of
the Company's Common Stock. Under the program the Company could purchase up to
200,000 shares in the open market or through privately negotiated transactions.
The Company purchased 9,000 shares of Common Stock. The program terminated June
30, 1997. The Board of Directors may consider repurchases of Common Stock in
the future.

At September 30, 1996, the Company had approximately $130,000 of net operating
loss available to carry forward subject to limitations imposed by Section 382 of
the Internal Revenue Code expiring through 2008. The deferred tax asset at
December 31, 1996 increased $2,170,000 to $3,670,000 from $1,500,000 at
September 30, 1996. This increase was the result of the accrual of the deferred
tax benefit from the loss before income tax benefits for the three months ended
December 31, 1996. It is Management's opinion, based on prior operating results
and expected future operating results, that it will be more likely than not that
the Company will utilize its entire net operating loss carryforward before
expiration.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). SFAS No.
121 requires, among other things, that impairment losses on assets to be held,
and gains or losses from assets that are expected to be disposed of, be included
as a component of income from continuing operations. SFAS No. 121 is effective
for fiscal years beginning after December 15, 1995. The Company has adopted
SFAS No. 121 for the year ending September 30, 1997 and its implementation has
not had a material effect on the financial statements.

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In October 1995, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 encourages entities to adopt the
fair value method in place of the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), for all
arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of its stock. The Company does not anticipate
adopting the fair value method encouraged by SFAS No. 123 and will continue to
account for such transactions in accordance with APB No. 25. However, the
Company will be required to provide additional disclosures beginning in the year
ending September 30, 1997 providing pro forma effects as if the Company had
elected to adopt SFAS No. 123.

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128").
This pronouncement provides a different method of calculating earnings per share
than is currently used in accordance with APB No. 15, "Earnings Per Share."
SFAS No. 128 provides for calculation of "Basic" and "Diluted" earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could share in the earnings
of an entity, similar to fully diluted earnings per share. The Company will
adopt SFAS No. 128 in 1997 and its implementation is not expected to have a
material effect on the consolidated financial statements.

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BUSINESS

BUSINESS DEVELOPMENT

The Company is a Texas corporation organized in September 1993 to be the
surviving corporation of the merger (the "Merger") of the Company and its
predecessors, Nutrition Express Corporation of Colorado, Inc. and Nutrition
Express Corporation of Utah, Inc. The Merger was effected in June 1994.

The Company develops products that are designed for health-conscious consumers,
and sells those products to consumers through its network of independent
distributors. The Company has developed a network of 93,900 distributors. The
Company offers a product line of approximately 320 products in eight categories,
including nutritional supplements, health foods, weight management items, skin
care products, and other consumer products.

The Company develops products that it believes will have market appeal to its
distributors and their customers, and assists its distributors in building their
own businesses. The Company provides product development, marketing aids,
customer service, and essential record-keeping functions for its distributors.
The Company also provides other support programs to the distributors including
international teleconferencing calls, international and regional seminars, a
proprietary "monthly" magazine, business training systems and a site on the
World Wide Web of the Internet (www.nutritionforlife.com).

In 1996 the Company's marketing program became the subject of regulatory
scrutiny and the Company was named as a defendant in class action lawsuits.
These matters have had a material effect on the Company's operations and
financial condition, and the ability of the Company to operate profitability in
the future is not assured. See "Risk Factors"; "Legal Proceedings"; and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

The Company intends to pursue its business strategy of increasing sales and
profitability by (1) attracting and retaining distributors to its network
marketing system; (2) increasing product sales to existing distributors; and (3)
expanding its marketing activities into new international markets. The Company
also intends to pursue potential opportunities for growth through mergers and
acquisitions of complementary businesses.

The Company's executive offices are located at 9101 Jameel, Houston, TX 77040.
Its telephone number is (713) 460-1976.

S-3 28th Page of 82 TOC 1st Previous Next ↓Bottom Just 28th
DISTRIBUTION AND MARKETING

The Company's products are distributed through a network marketing system
consisting of a network of approximately 93,900 distributors. Distributors are
independent contractors who purchase products directly from the Company for
their own use and for resale to retail consumers. Distributors may elect to
work on a full-time or part-time basis. Management believes that its network
marketing system is well suited to marketing its nutritional supplements and
other products because sales of such products are strengthened by ongoing
personal contact between retail consumers and distributors, many of whom use the
Company's products themselves. The Company encourages its distributors to use
the Company's products. No one distributor directly accounted for more than 5%
of the Company's sales in either of the past three fiscal years.

The Company's ability to increase sales is significantly dependent on its
ability to attract, motivate and retain distributors. The Company utilizes an
innovative marketing program which it believes is superior to programs offered
by other network marketing companies. The program provides financial
incentives, distributor training and support, a low priced starter kit, no
inventory requirements, and a low monthly purchase requirements. Management
intends to reach potential new distributors through advertising, the Company's
site on the World Wide Web, teleconferencing and regional sales meetings. The
Company experienced a net increase in the number of distributors during the
fiscal year ended September 30, 1995 of 19,500 and during the fiscal year ended
September 30, 1996, 30,100 distributors were added.

Distributors' revenues are derived from several sources. First, distributors
may receive revenues by purchasing the Company's products at wholesale prices
and selling the Company's products to customers at retail prices. Second,
distributors earn the right to receive commissions upon attaining the level of
"executive." Executive level distributors may earn commissions on product
purchases by other distributors in their downline organization. The first level
of each executive may initially have no more than four executives, and, until
qualifying as a Platinum executive, commissions may be earned on the sale of
product to executives in up to the first seven levels of their downline. The
qualification for a distributor to earn commissions is a one time requirement
and there are four ways of meeting this requirement which are as follows:

. Generate cumulative qualifying product volume of $1,500 over any
period of time

. or generate cumulative qualifying product volume of $1,200 over any
period of time and enroll in the optional Order Assurance Program

. or generate cumulative qualifying product volume of $1,000 over any
period of time, enroll in the optional Order Assurance Program at
the monthly level of $100 and subscribe to the $35 monthly optional
Master Developer Series

. or generate cumulative qualifying product volume of $500, enroll in
the optional Order Assurance Program at the monthly level of $100,
subscribe to the $35 monthly optional Master Developer Series and
the monthly optional Virtual Voice Messaging Service, and purchase
selected business building tools for $150

"Qualifying product volume" is product the distributor and his other downline
distributors purchase at wholesale directly from the Company either for personal
use or for sale to other customers at retail. There is no time limit to meet
these qualifications, and distributors may choose to become executives the same
day that they enroll as a distributor or over any period of time. An executive
level distributor may attain higher levels of commission based on sales
generated by distributors within his or her organization. The only
qualification to remain an executive is to purchase $40 in product every other
month, expect that distributors who have become executives by generating
cumulative qualifying product value of only $500 must continue their
participation in the other programs noted above for one year from enrollment in
order to maintain executive status. Management believes that the right of
executive level distributors to earn commissions contributes significantly to
the Company's ability to retain its productive distributors. Management also
believes that the timely introduction of new and topical programs and products
has assisted the Company to increase its network of distributors.

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The Company previously denominated a program as the "Instant Executive Program".
The Instant Executive Program designation merely referred to the option by which
distributors could choose to qualify immediately rather than through incremental
product purchases over time. The Instant Executive Program, particularly as
marketed by Kevin Trudeau, a key distributor of the Company, has been the
subject of legal and regulatory scrutiny. The Company has determined to
discontinue the use of the terminology, "Instant Executive Program". However,
the qualification requirements for distributors to attain the level of
"executive distributor" and the commissions and bonuses which may be earned as
an executive distributor have not changed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

In April 1996 the Attorney General of the State of Illinois (the "Attorney
General") filed suit against the Trudeau Marketing Group, Inc., Kevin Trudeau,
and Jules Leib, People v. Trudeau (the "Illinois Suit"). The Company was not
-----------------
named as a defendant in the Illinois Suit, but the Company's management viewed
the Illinois Suit as an opportunity to discuss the Company's marketing program
and to resolve confusion surrounding the program. On July 16, 1996, the Company
entered into an "Assurance of Voluntary Compliance" (the "AVC") with the
Attorney General. The AVC preserves the ability of a new distributor to become
an executive distributor the day that he or she enrolls by generating at least
$1,000 in qualifying product volume and by joining the Order Assurance Program
("OAP") and Master Developer Series. Under the AVC, the Company will maintain
its same executive level qualifications, but to aid clarification, it will no
longer use the "instant executive" terminology.

Other key features of the AVC focus on the Company's commitment to: (a) create
an official explanation of its marketing and compensation plan and to prohibit
distributors from creating their own explanations of how the marketing and
compensation plan works; (b) make clear that there are no mandatory purchases of
product to become a distributor; (c) take further steps to stress distributor
compliance with the Company's policies and procedures; and (d) create a World
Wide Web site on the Internet to provide more information about the Company's
products and programs. The Company also agreed to provide distributor earnings
disclosures and to make clear that executive distributors cannot earn
commissions unless they are engaged in the sale of the Company's products to
consumers at retail, including procedures to verify retail sales. Specifically,
an executive distributor will not be entitled to receive bonuses or commissions
on downline sales unless within the preceding one month period the executive
distributor has made at least five retail sales, or within the preceding two
month period has made ten retail sales. The Company also agreed to take
additional steps to encourage distributors to redeem OAP certificates for
product and to limit the number of OAP certificates (See "Order Assurance
Program"), to monitor customer purchases, and to make a contribution to the
Illinois Consumer Education Fund.

The Company entered into similar agreements with the states of Florida, Hawaii,
Idaho, Kansas, Kentucky, Michigan, Missouri, New Jersey and Pennsylvania. The
Company has agreed that in Florida, distributors who want to receive commissions
must state, when placing orders, that they have sold to consumers 70% of their
prior commissionable product purchase. The Company has agreed to establish
procedures to independently verify consumer sales on a random basis and to
sanction distributors submitting false information. Implementation of these
agreements by the Company may be expensive and could make the program less
attractive to distributors. These factors could negatively impact the Company's
future operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The Company may enter into
agreements with other states in the future.

To become a distributor, a person must be sponsored by an existing distributor,
sign the official Distributor Agreement and purchase a "distributor success kit"
from the Company. The Company revised its official Distributor Agreement in
connection with the AVC. It is emphasized in the Distributor Agreement that in
order for a distributor to be successful in the Company's program, the
distributor must purchase and sell the Company's products at retail and sponsor
other distributors to do the same. It is also emphasized that the distributor
must retail or use in business building 70% of the product he or she purchases
before more product may be purchased from the Company. A distributor success kit
currently costs approximately $49 and provides sales aids, brochures, order
forms, audio and video cassette recordings and a subscription to the Company's
monthly publication, Lifestyles.

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The following table sets forth the number of the Company's
distributors on the dates indicated:

[Enlarge/Download Table]

At March 31, At September 30,
------------ ----------------
1997 1996 1995 1994
---- ---- ---- ----

Approximate number of distributors(1) 93,900 87,400 57,300 37,800
-------------------------

(1) Includes "active" distributors only. A distributor remains active by
generating a minimum of $40 in sales volume at least once every 12
months. In order to maintain executive status and to be eligible for
commissions and bonuses, an executive distributor must generate a
minimum of $40 in sales volume every other month.

The Company seeks to expand its distributor base in each market by offering
distributors attractive compensation opportunities. Management believes the
Company's executive level distributor compensation plan is superior to that of
other network marketing organizations because the program offers an opportunity
for the distributor to become successful without having to finance a large
inventory of products and requires only a modest amount of sales to meet the
commission requirements.

The Company participates in rallies in various key cities in North America,
Puerto Rico, the United Kingdom and Pacific Rim countries and participates in
motivational and training events in key countries, all of which are designed to
inform large numbers of prospective and existing distributors about the
Company's product line and selling techniques. Distributors give presentations
relating to their experiences with the Company's products and the methods by
which they develop their distributor organizations. Specific selling techniques
are explained, and emphasis is placed on the need for consistency in using such
techniques. Participants are encouraged to ask questions regarding selling
techniques and product developments and to share information with other
distributors attending the rallies. Distributors are also given opportunities
to interact with other distributors and to develop confidence in selling and
goal-setting techniques. Motivation is offered to participants in the form of
recognition, gifts, excursions and tours, which are intended to foster an
atmosphere of excitement throughout the distributor organization. Prospective
distributors are educated about the structure, dynamics and benefits of the
Company's network marketing system. During the years ended September 30, 1995
and 1996, the Company expended approximately $138,000 and $348,000,
respectively, on promotional activities related to distributors' rallies and the
annual convention.

In July 1996 the Company entered into an Administrative and Consulting Services
Agreement (the "Agreement") with Distributor Services, L.L.C. ("DS"). DS is an
affiliate of Nightingale-Conant, a major supplier of self improvement programs
to the Company. See "Selling Shareholders." It is provided in the Agreement
that, except to the extent the Company produces its own material in-house, DS
will have the exclusive right to produce and sell all of the Company's
recruiting and training material. Such materials will be produced and marketed
at the expense of DS and DS will be entitled to all revenues received from the
sales of such materials. DS has also been granted the exclusive right to
produce, organize and sell, at its own expense, admission to all Company
sponsored recruiting or promotional events and to receive all revenues received
therefrom. The Company will have the exclusive right of approval over the
content of all materials and meetings produced by DS. Without additional
compensation, DS will provide consulting services to the Company with respect to
the Company's marketing strategy and program, including the Company's weekly
teleconference, magazine and other communications with distributors. For a fee,
DS will also produce and provide to the Company each month at least four master
cassettes for sale by the Company in the Company's Master Developer Series. The
term of the Agreement is fifteen years and the parties have agreed to negotiate
in good faith successive fifteen year terms. The Agreement may be earlier
terminated for breaches of any material obligation. Kevin Trudeau, a key
distributor of the Company, is principally responsible for DS's performance in
connection with this Agreement. Mr. Trudeau also produces self improvement tapes
which are sold by Nightingale-Conant to the Company and others.

The Company continues to develop marketing strategies and programs to motivate
distributors. These programs are designed to increase distributors' monthly
product sales and the recruiting of new distributors. Some of the programs that
the Company has implemented are as follows:

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CAR BONUS PROGRAM. The Company offers a car bonus program, whereby it makes car
payments up to $3,500 per month for qualifying distributors. The Company has no
liability relating to the financing or purchasing of the automobile. The car
bonus program was initiated in fiscal 1990. At September 30, 1996, the Company
had 357 distributors in the program. The requirements for a distributor to
qualify for the car bonus program are as follows:

. Generate $100 sales volume for nine consecutive months (or six
months if the distributor attends one of the Company's training
programs or subscribes to the optional Master Developer Series).

. The distributors' third level executives must generate at least
$4,000 in sales volume for two consecutive months (that would be in
either the fifth and sixth month, or eighth and ninth month,
depending on qualifications).

. As the distributors' third level generates higher sales volume, the
Company will make larger monthly payments up to a maximum of $750
per month.

ORDER ASSURANCE PROGRAM. The Company provides a program whereby the distributor
may enroll in a minimum ordering program in order to save for big ticket items
and enhance their eligibility for commissions. Minimum orders ranging from $41
to $300 per month are automatically placed by credit card or check. Differing
amounts for the optional Order Assurance Program exist to allow generation of
sales volume at various levels that generally correspond to commission and bonus
qualification levels, i.e., $40 is the minimum sales volume to remain an active
executive; $80 is the minimum sales volume to qualify as a bronze or silver
executive; $100 is the minimum sales volume qualification level for the car
bonus program; $160 is the minimum sales volume to be eligible for gold
executive; and $300 is the minimum sales volume requirement to be a platinum
executive. Therefore, this Program promotes sales for the Company and the
distributors participation in bonus programs. The Order Assurance Program was
initiated in fiscal 1993. The Order Assurance Program is voluntary and no
restrictions are placed upon any participant's ability to exit the Order
Assurance Program. The Company has agreed in the AVC that, effective in January
1997, a distributor will not receive additional product certificates under the
Program and will be given 30 days notice that their Program status will be
suspended if: (i) four monthly unredeemed certificates are issued consecutively
to the distributor for a maximum credit of four times the distributors
enrollment level; or (ii) the distributor has accumulated unredeemed
certificates with a total face value of six times the distributors then
designated Program amount. However, these requirements would not be applicable
if the distributor redeems one or more of the issued certificates, or notifies
the Company that he is accumulating toward a "big ticket" item. The Company has
also agreed in the AVC to encourage distributors to redeem their certificates
for product. As of September 30, 1995 and September 30, 1996, resectively,
there were approximately 22,800 and 41,700 distributors enrolled in the Order
Assurance Program.

PERSONAL RECRUITING AND SALES CAMPAIGNS. These programs were developed to
assist distributors in developing their downlines and increasing product sales.
These programs provide special incentives for quicker qualification into the
executive level distributor compensation program.

As a part of the Company's commitment to maintain constant communication with
its distributor network, the Company offers the following support programs:

24 HOUR TELECONFERENCE. The Company provides 24 hour access to a weekly
recorded teleconference call to its distributors that includes interviews with
successful distributors, current product information, announcements and product
specials offered by the Company. The teleconference calls were initiated in
fiscal 1994.

VIRTUAL VOICE. The Company provides a special voice messaging program which
gives distributors voice messaging capabilities to communicate more efficiently
with their downline. This program also allows the Company to automatically
voice message all distributors on the Virtual Voice Program.

MIND AND BODY INSTITUTE. The Company developed a series of one-day product
workshops to enhance distributor understanding and appreciation of the Company's
product time.

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FREEDOM MAGAZINE. The Company publishes Freedom Magazine, a multilingual
publication that provides information on the network marketing industry and the
Company. The magazine was developed in fiscal 1994 to recruit new distributors
by answering the most commonly asked questions by potential new distributors.
Management believes it is one of the more effective marketing tools in the
industry.

MASTER DEVELOPER SERIES. The Company provides a monthly subscriber service of
leading self development books and audio programs that serve as a link between
the philosophy and ideals of the Company and its distributors.

PRODUCT LITERATURE. The Company produces for its distributors comprehensive and
attractive four color catalogues and brochures that display and describe the
Company's products.

TOLL FREE ACCESS. The Company furnishes toll free numbers for: (1) placement
of orders, (2) customer service assistance, and (3) faxing of orders and
applications.

The Company experienced significant growth in sales in the fiscal years ended
September 30, 1995 and September 30, 1996. Management of the Company believes
this is directly related to the increases in both the number of distributors and
the monthly sales per average number of distributors. Management also believes
the significant part of the Company's growth is attributable to the enthusiasm
and momentum generated by executive level distributors who are able to motivate
their downline organizations through various marketing methods, including the
use of newsletters, brochures and other sales aids and the holding of meetings
and rallies at the expense of the sponsoring distributor.

In the last quarter of the fiscal year ended September 30, 1995 and in the
fiscal year ended September 30, 1996, one executive level distributor, Kevin
Trudeau, was particularly noteworthy in this regard, and he has made a
significant contribution to the growth of the Company during this period. In
addition to the marketing methods described above, Mr. Trudeau has sponsored
radio and newspaper advertisements and radio and television infomercials to
attract new distributors. Mr. Trudeau has substantial prior experience in
product sales through the use of infomercials. In addition, he has served as a
host of a series of infomercials entitled "A Closer Look" and "Vantage Point".

Mr. Trudeau is the producer of the "Mega Memory" home study course and is the
author of Kevin Trudeau's Mega Memory book which was published in 1995 by
----- --------- ---- ------
William Morrow. He founded the American Memory Institute, a memory training
school, in 1983. Mr. Trudeau has also been featured as a prominent speaker at
motivational seminars and other programs.

During the past five years, Mr. Trudeau has also been engaged in other
activities, including KT Corp. (see "Selling Shareholders"), which is a
distributor of the Company, the Trudeau Marketing Group, and Distributor
Services, L.L.C., which markets sales aids, memory tapes and other products to
distributors of the Company, and Mega Systems, Inc., which markets memory and
other home study courses. Mr. Trudeau is no longer employed by Mega Systems,
Inc. In December 1996 Mr. Trudeau informed the Company that he is the subject
of a potential complaint by the U.S. Federal Trade Commission ("FTC"), which
alleges that a number of infomercials in which Mr. Trudeau participated in
marketing products of Mega Systems, Inc., including "Mega Memory" tapes, were
false and misleading. Mr. Trudeau has not informed the Company how he intends to
proceed in connection with this matter. The pendency of this matter may affect
Mr.Trudeau's ability to act effectively as a distributor of the Company. It is
presently unknown whether this matter will affect the Company's distribution and
marketing of "Mega Memory" tapes or other products produced by Mega Systems,
Inc. See "Risk Factors".

In 1990 Mr. Trudeau plead guilty in a Massachusetts state court to larceny
involving a bank overdraft. He was incarcerated for 21 days and received a
suspended sentence of three years. In 1991, Mr. Trudeau plead guilty in
federal court in Massachusetts to credit card fraud involving the use of credit
cards belonging to others for personal use and was sentenced to 24 months
incarceration and 24 months supervised release. Mr. Trudeau has informed the
Company that he is no longer under any parole or other type of supervised
provisions. In addition, in 1990, Mr. Trudeau filed a Petition under Chapter 13
of the Bankruptcy Code in the United States Bankruptcy Court in Dallas, Texas.
Shortly after the filing, Mr. Trudeau withdrew the Petition and no further
action was taken. Mr. Trudeau has been the subject of regulatory scrutiny and
certain legal proceedings. Mr. Trudeau is a key independent

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distributor of the Company, but is not an officer or director of the Company,
and is not authorized to make statements about Company policy. See "Risk
Factors".

MARKETS

The following chart sets forth the countries in which the Company currently
operates, the year operations were commenced in each country, and historical
sales information by country during the periods indicated.

[Download Table]

Year Ended September 30,
------------------------
(in Thousands)
Year
Country Entered 1996 1995 1994
------- ------- ---- ---- -----

United States 1984 $89,400 $25,800 $14,700
Canada 1993 6,100 4,200 2,400
Puerto Rico 1994 1,500 2,200 300
United Kingdom(1) 1996 200 --- ---
Korea(2) 1991 100 100 100
Philippines(2) 1993 100 100 100

_____________________
(1) The Company commenced operations in the United Kingdom in September 1996.
The Company commenced operations in Ireland in May 1997.

(2) The Company sells its products to distributors in Korea and the Philippines
which do not use the Company's network marketing system. The Company expects
to introduce its network marketing system in the Philippines in June 1997.

The Company currently plans to enter additional markets outside the continental
United States. In some instances, regulatory approvals may be required. During
the regulatory compliance process, the Company may alter the formulation,
packaging or labeling of its products to conform to applicable regulations as
well as local variations in customs and consumer habits, and the Company may
modify certain aspects of its network marketing system as necessary to comply
with applicable regulations.

The Company may also need to undertake the steps necessary to meet the
operational requirements of new markets, including plans to satisfy the
inventory, distribution, personnel and transportation requirements of the new
market. The Company may also need to modify its distributor manuals, cassette
recordings, videocassette and other training materials as necessary to be
suitable for the new markets. The Company has prepared manuals in English,
French and Spanish. Currently, the Company's products are distributed to all
markets from the Company's Houston, Texas distribution center. The Company has
established an office and warehouse center in Warrington, England which will
provide administrative, shipping and warehouse support for the Company's
operations in the United Kingdom and Ireland.

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PRODUCTS

The Company markets and distributes an extensive product line of approximately
320 items in eight different categories: (1) vitamins, minerals and
antioxidants; (2) Nutique personal care items; (3) food and weight management
items; (4) herbal formulas; (5) homeopathic and special formulas; (6) cleaning
concentrates; (7) filtration systems; and (8) self-improvement programs. The
line consists of primarily consumable products that are designed to target the
growing consumer interest in natural health alternatives for nutrition and
personal care. In developing its product line, the Company has emphasized
quality, purity, potency, and safety.

VITAMINS AND MINERALS AND ANTIOXIDANTS. The Company markets approximately 44
vitamin and mineral products that are offered in a variety of combinations
including the Company's proprietary Grand Master(R), Master-Key Plus(R), and
OraFlow Plus(R) formulations.

NUTIQUE PERSONAL CARE ITEMS. The Company markets 25 Nutique hair and skin care
products including skin care formulas for men and women, shampoo and
conditioner, hand and body lotions, sunscreen, an alphahydroxy acid skin
rejuvenating complex, and a thigh creme. Each of these products contains
ingredients that are formulated to promote healthier looking skin and hair.

FOOD AND WEIGHT MANAGEMENT ITEMS. The Company markets over 51 food and weight
management products. These include a whey beverage in four flavors, the Nutri-
Mac line of pastas, the Nutri-Blend flour and baking mixes, instant food shakes,
fiber products, the Nutri-Cookie(R) and Lean Life(R), a herbal weight management
formulation.

HERBAL FORMULAS. The Company's 31 herb and herbal formulation products are
produced using only natural ingredients and are precisely measured and carefully
processed into a convenient tablet or capsule form. The line consists of many
traditionally popular herbs such as alfalfa, ginkgo biloba, and garlic, as well
as special blends developed by the Company.

HOMEOPATHIC AND SPECIAL FORMULAS. Homeopathic remedies, when prepared in minute
amounts, mimic disease symptoms and stimulate the body's defense systems. The
Company offers 65 homeopathic remedies that have been formulated in accordance
with the Homeopathic Pharmacopoeia of the United States. In addition, the
Company markets a variety of other special formula products including shark
cartilage liquid and capsules, pain relief formulations, cough syrup, digestive
aids, sports massaging gel, a special formula dentifrice and special
phytochemical products.

CLEANING CONCENTRATES. The Company markets household cleaning products that are
non-volatile and biodegradable. There are 18 products, including a liquid hand
and body soap, dishwasher concentrate, laundry concentrates, laundry softener, a
heavy duty cleaner-degreaser, and a pine disinfectant.

FILTRATION SYSTEMS. The Company markets 31 products designed to test or improve
the quality of air and water, including electrostatic air filters and water
filtration systems.

SELF IMPROVEMENT PROGRAMS. The Company markets approximately 55 motivational
and self improvement tapes and other products, including "Mega Memory" tapes.
The self improvement tapes are purchased primarily through arrangements with
Nightingale-Conant Corporation.

During the last three fiscal years, no single product has accounted for 10
percent or more of the Company's revenue. The Company continually seeks to
identify, develop and introduce innovative, effective and safe products. During
the fiscal year ended September 30, 1995 the Company introduced approximately 25
new products or services. From September 30, 1995 to September 30, 1996 the
Company introduced approximately 70 new products or services. Management
believes that its ability to introduce new products increases its distributors'
visibility and competitiveness in the marketplace.

The Company maintains significant amounts of products in its inventory to meet
rapid delivery requirements of customers and to minimize product back orders,
which have not been significant. Due to the nature of the Company's

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business, the Company typically does not carry a substantial backlog of orders.

NEW PRODUCT DEVELOPMENT

The Company expands its product line through the development of new products.
New product ideas are derived from a number of sources, including trade
publications, scientific and health journals, the Company's management and
consultants, and outside parties. Prior to introducing products into the
Company's markets, local counsel and other representatives retained by the
Company investigate product formulation matters as they relate to regulatory
compliance and other issues. To the extent possible, the Company's products are
formulated to suit both the regulatory and marketing requirements of the
particular market.

The Company does not maintain its own product research, development and
formulation staff but relies upon independent research, vendor research
departments, research consultants and others for such services. When the
Company, one of its consultants or another party identifies a new product
concept or when an existing product must be reformulated for introduction into a
new or existing market, the new product concept or reformulation is generally
submitted to the Company's suppliers for technological development and
implementation. The Company owns the proprietary rights to a majority of its
product formulations.

CONSUMER PRODUCT WARRANTIES AND RETURNS

The Company's product warranties and policy regarding returns of products are
similar to those of other companies in the industry. If a retail purchaser of
any of the Company's products is not satisfied with the product, he may return
it to the distributor from whom he purchased it at any time within 30 days of
his purchase. The distributor is required to refund the purchase price to the
retail purchaser. The distributor may then return the unused portion of the
product to the Company for an exchange of equal value. Most products are
warranted against defect by the manufacturers of those products. Most products
returned to the Company, however, are not found to be defective in manufacture.
As a result, most products returned to the Company are replaced by the Company
at its cost.

MANAGEMENT INFORMATION SYSTEM

The Company maintains a proprietary computerized system for processing
distributor orders and calculating distributor commission and bonus payments
which enables it to remit such payments promptly to distributors. The Company
believes that prompt remittance of commissions and bonuses is vital to
maintaining a motivated network of distributors and that this has enhanced the
loyalty of the distributors to the Company.

The Company's computer system makes available to the Company's distributors a
detailed monthly accounting of sales and recruiting activity. These convenient
statements eliminate the need for substantial record keeping on behalf of the
distributor. The computer system also is fully integrated with the Company's
financial reporting system that generates monthly reports, invoices and payroll.
As a precaution, duplicate copies of the Company's computer records are
transferred frequently to an off-site location for safekeeping.

The Company recently installed a White(R) automated inventory storage and
retrieval system in its warehouse/shipping facilities in Houston. The system is
expected to improve operator productivity, reduce error rates and speed through
put. The Company should be able to handle substantially increased sales volumes
without material staffing increases.

The Company has also contracted to acquire a SAP(R) enterprise wide state-of-
the-market computer information system. The system is expected to provide
improved administrative cost control, enhanced customer service and improved
multinational support. The total cost, including implementation and training,
will be approximately $1,500,000 to $2,100,000. The Company anticipates
entering into a lease arrangement for this system.

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MANUFACTURING AND SUPPLIES

The Company currently purchases all of its vitamins, nutritional supplements and
all other products from third parties that manufacture such products to the
Company's specifications and standards. The Company purchased products from
NION Laboratories ("NION") in the approximate amounts of $2,258,000 and
$5,234,000 for the fiscal years ended September 30, 1995 and 1996, respectively.
Richard S. Kashenberg, a director of the Company, served as the chief executive
officer of NION until December 1996. Mr. Kashenberg is currently a consultant
to NION. Until June, 1995 NION was owned by Shermfin Corp., the Company's
largest shareholder, and Mr. Kashenberg. Since June 1995 NION has continued to
be a principal supplier of product to the Company and the Company believes that
its relationship with NION is satisfactory. However, there can be no assurance
that NION will continue to be a significant and reliable supplier to the
Company.

The Company does not have long term supply agreements with NION or any other
vendor. Although the Company believes that it could establish alternate sources
for most of its products, any delay in locating and establishing relationships
with other sources could result in product shortages and back orders for the
products, with a resulting loss of revenues to the Company. In addition, such
delays could interrupt momentum in growth of product sales and distributor
recruitment.

The Company places significant emphasis on quality control. All nutritional
supplements, raw materials and finished products are subject to sample testing,
weight testing and purity testing by independent laboratories.

TRADEMARKS AND SERVICE MARKS

Most products are packaged under the Company's "private label". The Company has
registered trademarks with the United States Patent and Trademark Office for its
Master Key Plus(R), Oraflow Plus(R), LeanLife(R), Nutri-Cookie(R), Requin Grand
Master(R), Phytonol(R), BioWater(R), E-Lemonator(R), Phytogreen(R), ThinPen(R)
and NutritionForLife(R). It has applied for trademark registration for its
BioGlow(TM), BioRub(TM), MasterPiece(TM) and PowerPlay(TM).

COMPETITION

The Company competes with many companies marketing products similar to those
sold and marketed by the Company. It also competes intensely with other
network marketing companies in the recruitment of distributors.

There are many network marketing companies with which the Company competes for
distributors. Some of the largest of these are Amway, Nature's Sunshine, Inc.,
Herbalife International, Inc., and Rexall Sundown, Inc. Each of these companies
is substantially larger than the Company and has significantly greater
resources. The Company competes for distributors by means of its marketing
program that includes its commission structure, training and support services,
and other benefits.

Not all competitors market all types of products marketed by the Company, and
some competitors market products and services in addition to those marketed by
the Company. For example, some competitors are known for and are identified
with sales of herbal formulations, some are known for and are identified with
sales of household cleaning and personal care products, and others are known for
and are identified with sales of nutritional and dietary supplements. The
Company's principal methods of competition for the sale of products are its
responsiveness to changes in consumer preferences and its commitment to quality,
purity, and safety.

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GOVERNMENT REGULATIONS

Although the Company confines its activities to marketing and distribution, the
manufacturing, processing, formulation, packaging, labeling and advertising of
the Company's products are subject to regulation by federal agencies, including
the Food and Drug Administration (the "FDA"), the Federal Trade Commission, the
Consumer Product Safety Commission, the United States Department of Agriculture,
the United States Postal Service and the United States Environmental Protection
Agency. These activities are also subject to regulation by various agencies of
the states and localities in which the Company's products are sold.

In November 1991, the FDA issued proposed regulations designed to, among other
things, amend its food labeling regulations. The proposed regulations met with
substantial opposition. In October 1994, the "Dietary Supplement Health and
Education Act of 1994" (the "Dietary Supplement Law") was enacted. Section 11
of the Dietary Supplement Law provided that the advance notice of proposed rule
making by the FDA concerning dietary supplements was null and void. FDA
regulations that became effective on June 1, 1994 would require standard format
nutrition labeling on dietary supplements. However, because the new Dietary
Supplement Law also addresses labeling of dietary supplements, the FDA has
indicated that it will not enforce its labeling regulations until January 1,
1998 at the earliest. In the interim, new regulations are expected to be
proposed by the FDA. Because the FDA has not yet reconciled its existing
regulations with the new Dietary Supplement Law, the Company cannot determine to
what extent any changed or amended regulations will affect its business.

The Dietary Supplement Law did not affect the July 1, 1994 effectiveness of the
FDA's health claims regulations. However, enforcement of the health claims
regulations has been delayed pending the decision of the U.S. Court of Appeals
in Denver involving a challenge to the regulations on constitutional grounds.
Those regulations prohibit any express or implied health claims for dietary
supplements unless such claims are approved in advance by the FDA through the
promulgation of specific authorizing regulations. Such approvals are rarely
provided by the FDA. Therefore, no claim may be made on a dietary supplement
label or in printed sales literature, "that expressly or by implication
characterizes the relationship of any substance to a disease or health-related
condition". The Company cannot determine what effect currently proposed FDA
regulations, when and if promulgated, will have on its business in the future.
Such regulations could, among other things, require expanded or different
labeling, the recall or discontinuance of certain products, additional record
keeping and expanded documentation of the properties and certain products and
scientific substantiation. In addition, the Company cannot predict whether new
legislation regulating its activities will be enacted, which new legislation
could have a material adverse effect on the Company.

The Company has an ongoing compliance program with assistance from experienced
FDA counsel regarding the nature and scope of food and drug legal matters
affecting the Company's business and products. The Company is unaware of any
legal actions pending or threatened by the FDA against the Company.

The Company's network marketing system is subject to governmental laws and
regulations generally directed at ensuring that product sales are made to
consumers of the products and that compensation and advancement within the
marketing organization is based on sales of products rather than investment in
the organization. These laws and regulations include the federal securities
laws, matters administered by the Federal Trade Commission and various state
anti-pyramid and business opportunity laws. Although the Company believes that
it is in compliance with all such laws and regulations, the Company remains
subject to the risk that, in one or more of its present or future markets, its
marketing system or the conduct of certain distributors could be found not to be
in compliance with applicable laws or regulations. Failure by the Company or
significant distributors to comply with these laws and regulations could have an
adverse material effect on the Company in a particular market or in general.
See "Risk Factors" and "Business-Distribution and Marketing" for further
discussion regarding the AVC with the Illinois Attorney General and other
states, and "Legal Proceedings" regarding the class action litigation against
the Company.

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EMPLOYEES

At March 31, 1997, the Company employed approximately 220 persons. The majority
of the Company's employees are office, clerical and warehouse employees. The
Company believes that its relationship with its employees is good.

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LEGAL PROCEEDINGS

As more fully discussed in "Risk Factors" and "Business" and Note 8 to the Notes
to "Financial Statements", the Company entered into an "Assurance of Voluntary
Compliance" with the Illinois Attorney General and similar agreements with other
states. The Company may enter into agreements with other states and there can
be no assurance that one or more state attorneys general will not initiate
lawsuits against the Company or its independent distributors under anti-pyramid
or business opportunity laws.

A formal investigation was commenced during the fiscal year September 30, 1996
by the Securities and Exchange Commission regarding possible violations by the
Company of the federal securities laws. In December 1996 the Company received a
letter from the Securities and Exchange Commission notifying the Company that
the staff inquiry had been terminated and that no enforcement action had been
recommended at that time to the Commission.

The Company is a defendant in class action lawsuits commenced in federal court
and state court in Texas in 1996. See "Risk Factors". In January 1997, the
Company reached two preliminary settlement agreements which should resolve these
class action lawsuits. The Settlement Agreements were in the Federal Action and
are subject to final federal court approval. Under the first Settlement
Agreement involving the "distributor class", the Company has agreed to set aside
a reserve fund of between $1,200,000 to $1,500,000 to be paid, under certain
provisions, to persons who became "Instant Executives" between April 1, 1995 and
January 19, 1996. The Company will pay out of the reserve fund an amount equal
to the 10% restocking charge which has been or would otherwise be imposed upon a
refund to them, and refund the amount paid for any unused perishable product
which the distributor has tendered or tenders for refund in an unused condition.
Any amounts left in the reserve fund will be refunded to the Company six months
after the final approval of the Settlement Agreement. Also under the first
Settlement Agreement, the Company has agreed that persons who became "Instant
Executives" between April 1, 1995 and April 15, 1996 will receive product of the
Company's choice with a retail value equivalent to the face amount of any
expired, unredeemed Order Assurance Program certificates held by those persons.
The Company estimates that its cost of the product and shipping will be
approximately $800,000.

In the other Settlement Agreement involving the "securities class", the Company
has agreed to pay up to $2,000,000 to persons who purchased the Company's Common
Stock or Warrants between July 11, 1995 and July 15, 1996 and lost money. On
February 5, 1997, a conditional order of the federal court was entered
preliminarily approving the settlement of the securities class. The conditional
approval was based on the presentation of the plan of allocation for
distribution of the settlement fund which was subsequently submitted by the
plaintiffs. On April 2, 1997, an order of the federal court was entered
preliminarily approving settlement of the securities class. On April 2, 1997,
an order was also entered preliminarily approving settlement of the distributor
class.

On April 11, 1997, an order was entered approving the forms of notice to be sent
to members of the securities class and distributors class. The time and place
for the settlement hearing was tentatively set for August 4, 1997 in the U.S.
Courthouse in Houston, Texas. The notices to both the securities class and the
distributors class were mailed by the claims administrator on May 12, 1997.

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MANAGEMENT

OFFICERS AND DIRECTORS

The officers and directors of the Company are as follows:

[Enlarge/Download Table]

NAME AGE POSITION
---- --- --------

David P. Bertrand 53 President, Director and Chairman of the Board of Directors

Jana Mitcham 48 Executive Vice President, Secretary and Director

Barry C. Loder 38 Vice-President, Chief Operating Officer and Chief Financial
Officer

John R. Brown, Jr. 59 Vice-President-Finance

Ronnie D. Meaux 42 Vice-President, Treasurer, and Assistant Secretary

F. Wayne Ballenger 48 Director

M. F. Florence 60 Director

Richard S. Kashenberg 41 Director

Gregory Pusey 44 Director

DAVID P. BERTRAND has served as President and Chairman of the Board of Directors
of the Company and its predecessors since 1984. Mr. Bertrand received a B.S.
degree in education in 1966 and a Master of Education degree in administration
and supervision in 1969, both from McNeese State University in Lake Charles,
Louisiana. Mr. Bertrand is the brother-in-law of Jana Mitcham.

JANA MITCHAM has served as Executive Vice President, Secretary and Director of
the Company and its predecessors since 1984. Ms. Mitcham received a B.A. degree
in 1974 in special education from McNeese State University and undertook
graduate work in special education at the Korean Extension of the University of
Maryland. Ms. Mitcham is the sister-in-law of David P. Bertrand.

BARRY C. LODER became Vice President and Chief Financial Officer of the Company
in March 1995. He became Chief Operating Officer of the Company in April 1997.
From October 1993 until he joined the Company, Mr. Loder was a financial
consultant, performing corporate finance, merger and acquisition and other
financing activities. From January 1992 to October 1993, he was in Corporate
Development with Allwaste, Inc., a publicly held environmental services company.
From December 1989 to December 1991, he was the Senior Vice President-Finance of
Republic Waste Industries, Inc., a publicly held integrated solid waste
management company. Mr. Loder received a B.B.A. degree in Accounting and
Finance from Walsh College and an M.B.A. degree from Houston Baptist University.
He is a Certified Public Accountant and is currently working towards a Chartered
Financial Analyst designation.

JOHN R. BROWN, JR. became Vice President-Finance of the Company in September,
1996. From April, 1989 until he joined the Company, Mr. Brown was a management
consultant performing merger and acquisition services, systems
analyses, financial reporting assistance, and other services for both publicly
and privately held companies. From June, 1987 to March, 1989 he was Vice
President-Finance & Administration for Environmental Protective Industries,
Inc., an environmental services organization. Mr. Brown is a Certified Public
Accountant and has over 20 years experience in public accounting with both
national and local firms. Mr. Brown received a B.S. in Mechanical Engineering
from

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Stanford University and an M.B.A. from the University of Texas at Austin.

RONNIE D. MEAUX has served in various accounting and finance capacities for the
Company and its predecessors since 1985. He is currently Vice President and
Treasurer of the Company. Mr. Meaux received a B.S. degree in accounting in
1977 from McNeese State University.

F. WAYNE BALLENGER has served as President of First Commercial Capital since
1995. He has also served as President of Puncture Guard L.L.C. since December
1994. From March 1992 to December 1994, he served as director of sales and
marketing for Petrolon, Inc., a multi-level marketing organization. Immediately
prior thereto, he served as a vice president of Southwest Bank of Texas with
commercial lending responsibilities. Mr. Ballenger received a B.B.A. degree
from the University of the South in 1968.

M. F. FLORENCE has served as President of Sherfam Inc. since 1989. Sherfam Inc.
is a holding company, principally of pharmaceutical companies and is the parent
of Shermfin Corp., which is a principal shareholder of the Company. From 1958
to 1989, Mr. Florence was associated with the firm of Wm. Eisenberg & Co., a
firm of chartered accountants in Canada. He served as a partner of the firm
from 1964 to 1989. Mr. Florence received a Bachelor of Commerce degree from the
University of Toronto. He is the recipient of a Chartered Accountant degree
from the Institute of Chartered Accountants of Ontario. Mr. Florence is
President of Citadel Gold Mines, Inc. Mr. Florence is also a Director of Barr
Laboratories, Inc., a publicly held corporation whose common shares are listed
on the American Stock Exchange. Mr. Florence has served as a director of the
Company since 1994.

RICHARD S. KASHENBERG served as President of NION Laboratories from 1982 to
1996. He presently serves as a consultant to NION is a principal supplier of
products sold by the Company. Mr. Kashenberg served as President and Director
of NEC-Utah from 1991 until its merger with the Company in 1994. Mr. Kashenberg
has served as a director of the Company since 1994. Mr. Kashenberg received a
Bachelor's degree from Vanier College.

GREGORY PUSEY is primarily engaged in private investment activities. He has
served both as President of Livingston Capital, Ltd. and President of the
General Partner of Graystone Capital, Ltd., venture capital firms, since 1987.
He is also President and a director of Cambridge Holdings, Ltd., a publicly held
real estate firm, and a co-founder and director of USMX, Inc., a publicly held
mining company. From May 1989 until January 1990, Mr. Pusey also served as
Chief Financial Officer of USMX, Inc. Mr. Pusey received a B.S. degree in
Finance from Boston College in 1974. Mr. Pusey became a director of the Company
in 1994.

The Company has entered into an agreement with Shermfin Corp. wherein it has
agreed that, for so long as Shermfin Corp. owns 10% or more of the outstanding
Common Stock of the Company, Shermfin Corp. will be entitled to designate one
person to serve as a member of the Company's Board of Directors. The current
designee is M. F. Florence who shall continue to serve in such capacity until
written notice otherwise is provided by Shermfin Corp. to the Company. See
"Certain Transactions".

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The Company's Board of Directors has two standing committees, the Audit
Committee and the Compensation Committee. M.F. Florence and Gregory Pusey serve
as the two members of the Audit Committee. The primary functions of the Audit
Committee are to review the scope and results of audits by the Company's
independent auditors, internal accounting controls, non-audit services performed
by the independent accountants and the cost of accounting services. F. Wayne
Ballenger, M.F. Florence and Richard S. Kashenberg serve as the three members of
the Option Committee. The Compensation Committee reviews stock option and other
compensation policies and programs.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding compensation paid
by the Company to the officers whose total annual compensation exceeded $100,000
during the fiscal years ended September 30, 1995 and 1996.

SUMMARY COMPENSATION TABLE

[Enlarge/Download Table]

LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------ -------
Other Annual Restricted All Other
Name and Principal Salary compensa- Stock Options/ LTIP Compensa-
Position Year ($) Bonus tion Awards SARs Payouts tion(1)
================== ======= ======== ======= ============ ========== ========= ======== ==========

David P. Bertrand 1994 143,256 24,000 -0- -0- -0- -0- 12,885
Chief Executive Officer of 1995 162,006 143,829 5,250 -0- 80,400 -0- 12,885
the Company 1996 162,000 530,812 15,750 -0- -0- -0- 12,885

Jana Mitcham 1994 144,826 24,000 -0- -0- -0- -0- 9,013
Executive Vice President of 1995 157,316 143,829 5,250 -0- 75,600 -0- 9,013
the Company 1996 156,000 526,649 15,500 -0- -0- -0- 9,013

Barry C. Loder 1994(2) -0- -0- -0- -0- -0- -0- -0-
Vice President and Chief 1995(2) 51,404 7,790 1,500 50,000 -0- -0- -0-
Financial Officer of the 1996 121,184 57,500 11,208 -0- -0- -0- -0-
Company

Ronnie D. Meaux 1994 74,626 -0- -0- -0- -0- -0- 6,392
Vice President and Assistant 1995 81,350 10,000 6,900 -0- 36,000 -0- 6,392
Secretary of the Company 1996 87,430 53,160 9,400 -0- -0- -0- 6,392

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

(1) The Company has obtained insurance policies on the lives of Mr. Bertrand,
Ms. Mitcham and Mr. Meaux, of which benefit amounts of $1,060,000, $660,000
and $467,000 on the lives of Mr. Bertrand, Ms. Mitcham and Mr. Meaux,
respectively, constitute "keyman" insurance and are payable to the Company.
Approximately 51% of the aggregate insurance benefits on the lives of Mr.
Bertrand, Ms. Mitcham and Mr. Meaux are payable to beneficiaries designated
by Mr. Bertrand, Ms. Mitcham and Mr. Meaux. In addition, part of the cash
value may be used as retirement benefits for the executive officers. The
premiums paid by the Company allocable to these items are included in the
table.

(2) Mr. Loder joined the Company in March 1995.

In 1995 the Company entered into employment agreements with Mr. Bertrand and Ms.
Mitcham which expired on September 30, 1996. The terms of the agreements were
essentially identical. Mr. Bertrand received an annual salary of $162,000 and
Ms. Mitcham received an annual salary of $156,000. Each was also entitled to 5%
of the first $2,000,000 of annual pre-tax income of the Company, 4% of the
amount in excess of $2,000,000 but less than $2,500,000, and 3% of the amount
over $2,500,000. Mr. Bertrand was also granted the right to create a special
bonus pool for key employees to receive up to 2% of the pre-tax income between
$2,000,001 and $2,500,000 and up to 4% of the pre-tax income greater than
$2,500,000.

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Effective October 1, 1996, the Company entered into new employment agreements
with Mr. Bertrand and Ms. Mitcham. The terms of these agreements are essentially
identical, except that Mr. Bertrand's annual salary is $400,000 and Ms.
Mitcham's annual salary is $376,000. Mr. Bertrand and Ms. Mitcham are each also
entitled to a bonus if the Company has pre-tax annual income between $3 million
and $20 million. Each is entitled to receive 5% of any annual pre-tax income
between $3 million and $5 million; four percent of the annual pre-tax income
between $5 million and $10 million; and three percent of the annual pre-tax
income between $10 million and $20 million. The term of each agreement is three
years. Each of the agreements may be earlier terminated upon mutual agreement,
death, disability or conviction of the officer, or a material breach of the
agreement by the officer.

OPTION PLANS

In 1993 and 1995 the Company adopted stock option plans for the grant of options
to employees and consultants (the "Plans"). The provisions for each of the
Plans are similar. There are presently outstanding or reserved for issuance
options to acquire up to 518,850 shares of Common Stock. Under the Plans, the
Company may issue options to purchase up to an additional 440,906 shares of
Common Stock. Under the Plans, options may be granted in the form of "incentive
stock options" as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and non-statutory stock options. The Board of Directors
has the authority to fix the terms and number of options to be granted and the
employees to receive the options. The exercise price of each stock option
granted under the Plans may not be less than 100% of the fair market value of
the Common Stock on the date of grant (110% in the case of incentive stock
options granted to employees owning more than 10% of the Common Stock). All of
the outstanding options were granted at exercise prices which were not less than
the fair market value on the respective grant dates. See "Principal
Shareholders" regarding outstanding options to officers and directors of the
Company.

The maximum term of options granted under the plans is 10 years. The aggregate
fair market value of the Common Stock with respect to which incentive stock
options are first exercisable in any calendar year may not exceed $100,000 per
optionee. Options granted under the Plans are non-transferable and generally
expire 30 days after the termination of any optionee's service to the Company.
In general, if an optionee is permanently disabled or dies during his or her
service to the Company, such person's option may be exercised up to 90 days
following such disability or death.

OPTION GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1996

No stock options were granted by the Company during the fiscal year ended
September 30, 1996 to any executive officer named in the Summary Compensation
Table.

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OPTION EXERCISES AND YEAR-END VALUES

The following table shows option exercises by the named executive officers
during the fiscal year ended September 30, 1996. Also reported are the year-end
values for their unexercised "in-the-money" options, which represent the
positive spread between the exercise price of any such option and the market
price of the Common Stock on September 30, 1996.

[Download Table]

Value of
Number of Unexercised
Unexercised In-the-Money
Number of Options Options at
Shares Under- Value At Year End (#) Year End ($)
lying Options Realized Exercisable/ Exercisable/
Name Exercised (#) ($) Unexercisable Unexercisable
---- ------------- -------- ---------------------- --------------

David P. Bertrand -- -- 66,400/14,000 853,580/183,190
Jana Mitcham -- -- 61,600/14,000 792,680/183,190
Barry C. Loder -- -- 33,333/16,667 402,079/201,040
Ronnie D. Meaux -- -- 18,500/6,000 238,495/78,510

COMPENSATION OF DIRECTORS

Directors who are not employees of the Company receive $18,000 per year, $400
for each Board meeting attended, and $200 for each committee meeting of the
Board attended. Directors who are also employees of the Company receive no
additional compensation for serving as Directors. The Company reimburses its
Directors for travel and out-of-pocket expenses in connection with their
attendance at meetings of the Board of Directors. The Company may also utilize
the services of its outside directors as consultants to the Company. During the
fiscal year ended September 30, 1995 the Company paid Mr. Pusey $40,000, Mr.
Kashenberg $ 12,000 and Mr. Florence $2,000 for consulting services. During the
fiscal year ended September 30, 1996, the Company paid Mr. Pusey $58,000, and
$12,000 to each of Mr. Kashenberg and Mr. Florence.

In November 1995, the Board of Directors of the Company adopted the 1995 Non-
Discretionary Stock Option Plan for directors of the Company who are not
eligible to participate in the other Plans (the "Non-Discretionary Plan.") The
Non-Discretionary Plan provides that the Company grant options to purchase 5,000
shares of the Company's Common Stock to each eligible director on the date of
adoption of the Non-Discretionary Plan (November 28, 1995), to each person who
thereafter becomes a director of the Company and, as of December 1 of each year
(commencing in 1996), options to purchase an additional 5,000 shares of Common
Stock will be granted to each eligible director. The exercise price of the
options is the fair market value of the Common Stock on the date the options are
granted. The options are exercisable in full as of the date of grant. The
shares acquired upon exercise of these options cannot be sold for six months
following the date of grant. In November 1995, the Company granted options to
purchase 5,000 shares of Common Stock at a price of $19.75 per share to each of
F. Wayne Ballenger, M.F. Florence and Richard S. Kashenberg. In December 1996
the Company granted options to purchase 5,000 shares of Common Stock at a price
of $12.38 per share to each of F. Wayne Ballenger, M.F. Florence and Richard S.
Kashenberg. Each option granted pursuant to the Non-Discretionary Plan will
expire five years from the date of grant, except that an option will expire, if
not exercised, 30 days after the optionee ceases to be a director of the
Company.

Options granted pursuant to the Non-Discretionary Plan will not qualify for the
special tax benefits given to incentive stock options under Section 422 of the
Code. Accordingly, all of the stock options granted pursuant to the Non-
Discretionary Plan may be deemed to be non-statutory stock options. The options
are generally non-transferable.

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INDEMNIFICATION AND LIMITATION ON DIRECTORS' AND OFFICERS' LIABILITY

The Company's Articles of Incorporation provide for the indemnification of
directors and officers of the Company. In general, the Company will indemnify
its officers and directors against expenses incurred by them in connection with
the defense of any action, suit or proceeding in which they are made parties,
except in relation to matters to which any such director or officer is adjudged
in such action, suit or proceeding to be liable for gross negligence or willful
misconduct in the performance of duty. The Company has no director and officer
liability insurance. There are no pending claims for indemnification, nor is
the Company aware of any pending or threatened claims which would result in a
claim for indemnification.

In addition, the Company's Articles of Incorporation eliminate liability of
directors to the Company and its shareholders for monetary damages for an act or
omission in the director's capacity as a director except in the case of
liability: (i) for a breach of the director's duty of loyalty to the Company or
its shareholders; (ii) for acts or omissions not in good faith or that
constitute a breach of duty of the director to the Company or an act or omission
that involves intentional misconduct or a knowing violation of law, (iii) a
transaction from which the director received an improper benefit, whether or not
the benefit resulted from an action taken within the scope of the director's
office or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute. It does not limit the rights of
third parties, nor does it limit or eliminate the rights of the Company or any
shareholder, to seek non-monetary relief such as an injunction or rescission if
a director breaches his duty of care. The provision applies only to the duty of
care and not to any other fiduciary duties to the Company and its shareholders.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, 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 Securities Act and
is, therefore, unenforceable.

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PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 25, 1997 by (i) each
shareholder who is known by the Company to own beneficially more than 5% of its
Common Stock, (ii) each director of the Company and (iii) all directors and
officers of the Company as a group.

[Download Table]

Number of Percentage of Ownership
Beneficial Owner Shares Owned -----------------------
--------------------------- ---------------

Apotex Foundation 650,000(1) 11.3
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9

Bernard Sherman 1,215,390(1) 21.1
150 Signet Dr.
Weston, Ontario, Canada
M9L 1T9

Shermfin Corp. 565,390(1) 9.8
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9

M. F. Florence 581,390(2) 10.1
150 Signet Dr.
Weston, Ontario, Canada
M9L 1T9

Jana Mitcham 377,304(3) 6.1
10618 Great Plains
Houston, Texas 77064

David P. Bertrand 328,692(4) 5.6
10622 Great Plains
Houston, TX 77064

Gregory Pusey 236,978(5) .4
1722 Buffehr Creek Road
Vail, Colorado 81657

Richard S. Kashenberg 60,372(6) 1.0
15501 First Street
Irwindale, CA 91706

F. Wayne Ballenger 10,000(7) .2
3134 Meadway Drive
Houston, Texas 77082

All Officers and Directors 1,716,352(8) 28.1
as a Group (9 Persons)
-------------------

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(1) Mr. Sherman may be deemed a beneficial owner of the shares held by the
Apotex Foundation due to his affiliations with the Apotex Foundation.
Messrs. Sherman and Florence may be deemed beneficial owners of the shares
held by Shermfin Corp. due to their affiliations with Shermfin Corp. In
July, 1994, Mr. Sherman and Shermfin Corp. consented to the issuance of an
Order of the Securities and Exchange Commission (the "Commission") that they
cease and desist from violations of certain reporting and anti-fraud
provisions of the Securities Exchange Act of 1934. Mr. Sherman and Shermfin
Corp. consented to this Order without admitting or denying the findings of
the Commission that they had failed to file reports of beneficial ownership
of the common stock of Kinesis, Inc. with the Commission on Form 3 and
Schedule 13G. The Company has no relationship with Kinesis, Inc. If all of
the shares offered by Shermfin Corp. are sold, Shermfin Corp. will hold
205,390 shares of Common Stock, which will represent approximately 3.6% of
the issued and outstanding Common Stock of the Company.

(2) Includes options to acquire (i) 6,000 shares of Common Stock at $1.665 per
share, of which options to acquire 2,000 shares become exercisable in
October 1997, (ii) options to acquire 5,000 shares of Common Stock at $19.75
per share, and (iii) options to acquire 5,000 shares of Common Stock at
$12.38 per share.

(3) Includes 5,000 Warrants and options to acquire (i) 42,000 shares of Common
Stock at $1.665 per share, of which options to acquire 14,000 shares become
exercisable in October 1997, (ii) 16,800 shares of Common Stock at $1.875
per share, and (iii) 16,800 shares of Common Stock at $2.25 per share. Also
includes 11,554 shares of Common Stock owned by her daughter, 4,000 shares
of Common Stock owned by her husband, and options held by her husband to
acquire 4,800 shares of Common Stock at $1.665 per share. Does not include
options to purchase an aggregate of 45,000 shares of Common Stock at $13.00
per share, which become exercisable in equal amounts over a three-year
period commencing November 20, 1997.

(4) Includes options to acquire (i) 42,000 shares of Common Stock at $1.665
per share, of which options to acquire 14,000 shares become exercisable in
October 1997, (ii) 19,200 shares of Common Stock at $1.875 per share, and
(iii) 19,200 shares of Common Stock at $2.25 per share. Also includes
40,000 shares owned by his two sons and options held by his wife to acquire
4,800 shares of Common Stock at $1.665 per share. Does not include options
to purchase an aggregate of 47,400 shares of Common Stock at $13.00 per
share, which become exercisable in equal amounts over a three-year period
commencing November 20, 1997.

(5) Includes 3,000 Warrants and options to acquire (i) 6,000 shares of Common
Stock at $1.665 per share of which options to acquire 2,000 shares become
exercisable in October 1997, (ii) 6,000 shares of Common Stock at $1.875 per
share, and (iii) 6,000 shares of Common Stock at $2.25 per share. Also
includes 45,468 shares of Common Stock and 14,000 Warrants held by entities
which are affiliates of Mr. Pusey, and 20,104 shares of Common Stock and
1,000 Warrants held by his wife, individually, or as custodian for their
minor children. Does not include options to purchase an aggregate of 9,000
shares of Common Stock at $13.00 per share, which become exercisable in
equal amounts over a three-year period commencing November 20, 1997.

(6) Includes options to acquire (i) 6,000 shares of Common Stock at $1.665 per
share, of which options to acquire 2,000 shares become exercisable in
October 1997, (ii) options to acquire 5,000 shares of Common Stock at $19.75
per share, and (iii) options to acquire 5,000 shares of Common Stock at
$12.38 per share.

(7) Includes options to acquire (i) 5,000 shares of Common Stock at $19.75 per
share; and (ii) options to acquire 5,000 shares of Common Stock at $12.38
per share.

(8) Includes the following options and Warrants held by persons who are
officers, but not directors, of the Company: 9,000 Warrants and options to
acquire (i) 15,500 shares of Common Stock at $1.665 per share, of which
options to acquire 6,000 shares become exercisable in October 1997, (ii)
4,500 shares of Common Stock at $1.875 per share, (iii) 4,500 shares of
Common Stock at $2.25 per share, (iv) 50,000 shares of Common Stock at
$2.6875 per share, and (v) 10,000 shares of Common Stock at $11.50 per
share. Does not include options to purchase an aggregate of 37,250 shares
of Common Stock at $13.00 per share, which become exercisable in equal
amounts over a three-year period commencing November 20, 1997 or options to
purchase an aggregate of 30,000 shares of Common Stock at $10.375 per share
in equal amounts over a three-year period commencing April 9, 1998.

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CERTAIN TRANSACTIONS

The Company and its predecessors borrowed an aggregate of $650,000 from Shermfin
Corp. during the period from 1988 to 1991. The loans were evidenced by
promissory notes with interest at rates ranging from 9% to 11% per annum with
maturity dates from October 1995 to October 1996. The promissory notes were
convertible at the option of Shermfin Corp. into an aggregate of 966,834 shares
of Common Stock. In March 1995 the Company entered into an agreement with
Shermfin Corp. pursuant to which it was agreed that Shermfin Corp. would convert
$130,500 of debt from the note in the principal amount of $250,000 into 360,000
shares of the Company's Common Stock at the closing of the Company's public
offering of securities that year. It was further agreed that the remaining
principal balance of the promissory note in the principal amount of $250,000
($119,500), plus the entire principal balances of the other three notes (an
aggregate of $400,000) would be repaid to Shermfin Corp. at the closing of the
offering. The Company believes that the borrowing arrangements with Shermfin
Corp. were made on terms at least as favorable as could be obtained from third
parties.

In its March 1995 agreement with Shermfin Corp., the Company agreed to register
the 360,000 shares to be issued to Shermfin Corp. during the period commencing
one year after the date of commencement of the offering (July 10, 1995) and
ending four years after the date of the offering (July 10, 1999). See "Selling
Shareholders". The Company also agreed that, for so long as Shermfin Corp. owns
10% or more of the outstanding Common Stock of the Company, Shermfin Corp. will
be entitled to designate one person to serve as a member of the Company's Board
of Directors. The current designee is M.F. Florence who shall continue to serve
in such capacity until written notice otherwise is provided by Shermfin Corp. to
the Company. See "Management".

Prior to the Merger of the Company's predecessors, Nutrition Express Corporation
of Colorado, Inc., and Nutrition Express Corporation of Utah, Inc. ("NEC-Utah"),
into the Company in 1994, Shermfin Corp. held, among other securities, all of
the outstanding shares of the Series A Preferred Stock of NEC-Utah. In exchange
for the agreement of Shermfin Corp. to convert the Series A Preferred Stock into
common stock of NEC-Utah, NEC-Utah agreed to reduce the conversion rate. As a
result, the Company recognized a conversion expense against net income
applicable to common stock of $181,243 in the fiscal year ended September 30,
1994.

The largest supplier of products to the Company is NION Laboratories, a wholly
owned subsidiary of Shermfin Corp. NION Laboratories is a manufacturer of
pharmaceutical and consumer-related products. During the fiscal years ended
September 30, 1994 and 1995, the Company purchased approximately $1,706,000 and
$2,258,000 of goods, respectively, from NION Laboratories. During the year
ended September 30, 1996, the Company purchased $5,234,000 of goods from NION.
In addition, Richard S. Kashenberg, a director of the Company, served as the
chief executive officer of NION until December 1996. Mr. Kashenberg is
currently a consultant to NION. It is anticipated that this relationship will
continue in the future and the Company believes that the terms it has obtained
from NION are at least as favorable as could have been obtained from third
parties.

In October 1995 the Company granted warrants to purchase 500,000 shares of
Common Stock at $12.50 to Kevin Trudeau. The exercise period for the warrants
was April 15, 1996 to October 14, 1998. The exercise price of the warrants on
the date of grant was not less than the market price of the Company's Common
Stock on that date. In April 1996 Mr. Trudeau agreed to the cancellation of
these warrants and they are no longer outstanding.

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SELLING SHAREHOLDERS

This Prospectus relates to offers and sales from time to time by the Selling
Shareholders of the shares of Common Stock offered hereby. The Selling
Shareholders are Shermfin Corp., KT Corp. and Nightingale-Conant Corporation.
Shermfin Corp. is a principal shareholder of the Corporation. See "Principal
Shareholders". M.F. Florence, a principal of Shermfin Corp., is a director of
the Company. See "Management" and "Certain Transactions." The Company entered
into an agreement with Shermfin Corp. in March 1995 pursuant to which it agreed
to register 360,000 shares of the Common Stock issued to Shermfin Corp. during
the period commencing one year after the date of the commencement of a public
offering (which occurred July 10, 1995) and ending four years thereafter. See
"Certain Transactions". Shermfin Corp. has requested that the 360,000 shares be
registered pursuant to the Registration Statement of which this Prospectus is a
part.

In October 1995, Shermfin Corp. sold 50,000 shares of Common Stock to KT Corp.,
a major distributor of the Company and an affiliate of Kevin Trudeau, and 70,000
shares of Common Stock to Nightingale-Conant Corporation, a supplier of self-
improvement tapes to the Company and an affiliate of Distributors Services,
L.L.C. See "Business". The Company agreed with Nightingale-Conant Corporation
that it would file the Registration Statement of which this Prospectus is a part
upon the request of Nightingale-Conant Corporation.

To the Company's knowledge, the Selling Shareholders do not beneficially own any
Common Stock or any other securities of the Company other than the shares of
Common Stock offered pursuant to this Prospectus, except as set forth in the
"Principal Shareholders" section of this Prospectus. Because the Selling
Shareholders may offer all or some of the Common Stock that they hold pursuant
to the Offering contemplated by this Prospectus, and because there are currently
no agreements, arrangements or understandings with respect to the sale of any of
the Common Stock by the Selling Shareholders, no estimate can be given as to the
number of shares of Common Stock that will be held by the Selling Shareholders
after the completion of this Offering. See "Plan of Distribution". If all of
the shares offered by Shermfin Corp. are sold, Shermfin Corp. will hold 205,390
shares of Common Stock, which will represent approximately 3.6% of the issued
and outstanding Common Stock of the Company. Bernard Sherman, the principal
shareholder of Shermfin Corp., is also a trustee of the Apotex Foundation which
owns 650,000 shares of the Company's Common Stock. These shares were acquired
from Shermfin Corp. in May 1997. These shares are not offered for sale pursuant
to this Prospectus and represent approximately 11.3% of the issued and
outstanding Common Stock of the Company. Accordingly, if all of the shares
offered by Shermfin Corp. are sold, Bernard Sherman may be deemed the beneficial
owner of an aggregate of 855,390 shares of Common Stock, or approximately 14.9%
of the issued and outstanding Common Stock of the Company.

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PLAN OF DISTRIBUTION

The shares of Common Stock offered hereby may be sold from time to time by the
Selling Shareholders, acting alone or in combination with each other, or by
pledgees, donees, transferees or other successors-in-interest of the Selling
Shareholders. Such sales may be made on The Nasdaq Stock Market or otherwise,
at prices and at terms then prevailing, at prices related to the then current
market price or in negotiated transactions. The Selling Shareholders will be
acting independently of the Company in making decisions with respect to the
timing, manner and size of each sale.

The Selling Shareholders may also from time to time offer the Shares through
brokers, dealers or agents, or through underwriters, who may receive
underwriting discounts, concessions or commissions from the Selling Shareholders
and/or the purchasers from whom they act as agent. In that event, the offers or
sales may be made in the over-the-counter market (i) by a block trade in which a
broker or dealer, engaged for the purpose, will attempt to sell the Shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction, (ii) by purchases by a broker or dealer as principal
and resale by such broker or dealer for its own account, (iii) by ordinary
brokerage transactions or transactions in which the broker solicits purchasers,
(iv) in an underwritten transaction or (v) otherwise. In the event that brokers
or dealers are engaged by the Selling Shareholders, such brokers or dealers may
arrange for other brokers or dealers to participate. As of the date of this
Prospectus, the Selling Shareholders have advised the Company that they have not
entered into any agreement or understanding for an underwritten offering or with
any dealers or broker for the offer or sale of the Shares. The Selling
Shareholders may enter into such agreements or understandings in the future.
The Company will not receive any of the proceeds from the sales of the Common
Stock by the Selling Shareholders.

The Selling Shareholders and any broker, dealer or underwriter that participates
with the Selling Shareholders in the distribution of the Common Stock may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
commissions received by them and any profit on the resale of the Common Stock
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.

The Selling Shareholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of the Common Stock by the Selling
Shareholders.

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DESCRIPTION OF SECURITIES

The Company's authorized capital stock consists of 20,000,000 shares of Common
Stock, par value $.01 (the "Common Stock"), and 1,000,000 shares of preferred
stock, $.001 par value (the "Preferred Stock").

COMMON STOCK

As of the date of this Prospectus, the Company has outstanding 5,784,024 shares
of Common Stock. Holders of Common Stock are, subject to the rights of the
holders of Preferred Stock, entitled to receive dividends, when and if declared
by the Board of Directors, out of funds of the Company legally available
therefor. Each holder of Common Stock is entitled to cast one vote per share in
all matters to be voted upon by shareholders. Cumulative voting is not allowed
in the election of Directors or for any other purpose. Therefore, the holders
of more than 50% of the outstanding Common Stock can elect all Directors. The
holders of one-third of the outstanding Common Stock constitute a quorum at any
meeting of shareholders and the vote by the holders of the majority of the
outstanding shares is required to effect certain fundamental corporate changes,
such as liquidation, merger or amendment of the Articles of Incorporation. The
shares of the Company's Common Stock have no preemptive or conversion rights, or
redemption or sinking fund provisions, and are not liable for further call or
assessment. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company,
including any liquidation preference on the Preferred Stock of the Company, each
holder of Common Stock will be entitled to receive a pro rata portion of the
remaining net assets of the Company, if any.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
shareholders, to issue up to 1,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by shareholders. The Board has not designated any shares of
Preferred Stock. Therefore, the full 1,000,000 shares of Preferred Stock are
available for issuance in series. The issuance of Preferred Stock could affect
adversely the voting power of holders of Common Stock and the likelihood that
such holders would receive dividends and dividend payments and payments upon
liquidation could have the effect of delaying, deferring or preventing a change
in control of the Company. The Company has no present plan to issue any shares
of Preferred Stock.

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WARRANTS AND OPTIONS

As of the date of this Prospectus, the Company has outstanding 423,038 Warrants
to purchase an aggregate of 423,038 shares of Common Stock. The Warrants were
issued in a public offering pursuant to a Prospectus dated July 10, 1995. The
holder of one Warrant is entitled to purchase one share of the Company's Common
Stock at a price of $3.75 per share until July 10, 1998, unless earlier redeemed
by the Company. The Company may at any time and from time to time extend the
term of the Warrants or reduce the exercise price of the Warrants. Unless
exercised during the exercise period, the Warrants will expire automatically.

Subject to compliance with applicable securities laws, Warrant certificates may
be transferred or exchanged for new certificates of different denominations at
the offices of the Warrant Agent described below. The holders of Warrants as
such, are not entitled to vote, to receive dividends or to exercise any of the
rights of shareholders for any purpose.

For a holder to exercise Warrants, there must be a current registration
statement in effect with the SEC and various state securities authorities
registering the shares of Common Stock underlying the Warrants or, at the sole
determination of the Company and its counsel, there must be a valid exemption
therefrom. The Company intends to maintain a current registration statement
which will permit the exercise of the Warrants. Maintaining a current effective
registration statement could result in substantial expense to the Company and
there is no assurance that the Company will be able to maintain a current
registration statement covering the shares of Common Stock issuable upon
exercise of the Warrants. The Warrants may not be exercised in any state in
which the issuance of Common Stock and exercise of the Warrants is not permitted
under such state's "blue sky" or securities laws. Holders of the Warrants may
telephone the Company in order to ascertain in which states the Warrants may be
exercised. There is no minimum number of shares that must be purchased upon
exercise of the Warrants, except that no fractional shares will be issued.

The Company has the right, at its discretion, to call all of the Warrants for
redemption on 30 days' prior written notice at a redemption price of $.05 per
Warrant if: (i) the closing bid price of the Company's Common Stock exceeds the
exercise price of the Warrants by at least 50% during a period of at least 20 of
the 30 trading days immediately preceding the Notice of Redemption; (ii) the
Company has in effect a current registration statement covering the Common Stock
issuable upon exercise of the Warrants; and (iii) the expiration of the 30 day
notice period is within the term of the Warrants. If the Company elects to
exercise its redemption right, holders of Warrants may either exercise their
Warrants, sell such Warrants in the market or tender their Warrants to the
Company for redemption. Within five business days after the end of the 30-day
period, the Company will mail a redemption check to each registered holder of a
Warrant who holds unexercised Warrants as of the end of the 30-day period,
irrespective of whether such holder has surrendered the Warrant certificates for
redemption. The Warrants may not be exercised after the end of the 30-day
period.

In addition, in connection with the Company's public offering of securities
pursuant to a Prospectus dated July 10, 1995, the Company sold to Cohig &
Associates, Inc. and Neidiger/Tucker/Bruner, Inc., the Representatives of the
Underwriters and their designees, for $100 options to purchase an aggregate of
160,000 shares of Common Stock and 80,000 Warrants to purchase 80,000 shares of
Common Stock (the "Representatives' Securities"). The Representatives'
Securities are exercisable for a four-year period which commenced July 10, 1996
at $3.225 per share of Common Stock and at $.15 per Warrant. The Warrants have
the same exercise price ($3.75) as the Warrants issued to the public. As of the
date of this Prospectus, the Underwriters and their designees have exercised
options to purchase an aggregate of 149,920 shares of Common Stock and 77,479
Warrants.

TRANSFER AND WARRANT AGENT

Corporate Stock Transfer, Inc., 370 Seventeenth Street, Suite 2350, Denver,
Colorado 80202-4614, is the Transfer Agent for the Common Stock and the Warrants
and the Warrant Agent under the Warrant Agreement.

LEGAL MATTERS

The law firm of Bearman Talesnick & Clowdus Professional Corporation, Denver,
Colorado, has acted as counsel for the

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Company in connection with this offering. Attorneys in that law firm own 7,000
shares of the Common Stock.

EXPERTS

Financial statements of the Company as of September 30, 1996 and for the year
then ended included in this Prospectus and in the Registration Statement have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent set forth in their report appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given upon
the authority of said firm as experts in accounting and auditing. Financial
statements of the Company as of September 30, 1995 and for each of the years in
the two-year period ended September 30, 1995 have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

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INDEX TO FINANCIAL STATEMENTS

Interim Financial Statements (Unaudited):

Consolidated Balance Sheets..............................................F-2

Consolidated Statements of Operations....................................F-3

Consolidated Statements of Stockholders' Equity..........................F-4

Condensed Consolidated Statements of Cash Flows..........................F-5

Notes to Consolidated Financial Statements...............................F-6

Annual Financial Statements:

Independent Auditors' Reports............................................F-7

Consolidated Balance Sheets..............................................F-9

Consolidated Statements of Operations...................................F-10

Consolidated Statements of Stockholders' Equity.........................F-11

Consolidated Statements of Cash Flows...................................F-12

Notes to Consolidated Financial Statements..............................F-13

F-1

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NUTRITION FOR LIFE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

[Download Table]

MARCH 31,
1997 SEPTEMBER 30,
(UNAUDITED) 1996
----------- -----------

Current assets:
Cash and cash equivalents $17,517,032 15,588,504
Accounts receivable, net 713,210 368,062
Inventories 5,075,613 6,365,350
Deferred tax asset, net 3,400,000 1,500,000
Refundable federal income taxes 680,000 500,000
Prepaid expenses and other assets 520,952 260,091
----------- -----------
Total current assets 27,906,807 24,582,007

Property and equipment, net 3,327,731 2,493,759
Intangible assets, net 235,621 340,063
Other assets 238,172 212,031
----------- -----------
$31,708,331 27,627,860
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 4,361,925 2,577,101
Accrued bonuses and commissions 2,352,032 2,041,678
Accrued expenses and other liabilities 1,378,266 552,424
Accrued class action settlement 5,842,634 --
Deferred income 3,111,132 3,893,570
Federal and franchise tax payable 976,681 850,000
Dividends payable -- 111,371
----------- -----------
Total current liabilities 18,022,670 10,026,144
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000
authorized; none issued and outstanding -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 5,575,762 and 5,568,562 shares,
respectively 55,758 55,686
Additional paid-in capital 9,951,011 9,939,059
Retained earnings 3,618,925 7,611,580
Cumulative foreign currency translation
adjustment 59,967 (4,609)
----------- -----------
Total stockholders' equity 13,685,661 17,601,716
----------- -----------
$31,708,331 27,627,860
=========== ===========

See accompanying notes to consolidated financial statements.

F-2

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NUTRITION FOR LIFE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

[Download Table]

SIX MONTHS
ENDED MARCH 31,
-------------------------
1997 1996
----------- -----------

Net sales $40,469,268 51,577,877
Cost of sales 29,873,040 35,130,375
---------- ----------
Gross profit 10,596,228 16,447,502
Marketing, distribution and
administrative expenses 10,014,352 7,017,809
---------- ----------
Income from operations 581,876 9,429,693
---------- ----------
Other income (expense):
Class action settlement (6,425,000) --
Interest, net 334,672 337,762
Other, net (78,592) (38,823)
---------- ----------
(6,168,920) 298,939
---------- ----------
Income (loss) before income tax expense (benefit) (5,587,044) 9,728,632
Income tax expense (benefit) (1,817,130) 3,533,500
---------- ----------
Net income (loss) $(3,769,914) 6,195,132
========== ==========
Primary earnings (loss) per common share $ (.60) .94
========== ==========
Fully diluted earnings (loss) per common share $ (.60) .94
========== ==========
Weighted average common shares:
Primary 6,291,553 6,525,924
========== ==========
Fully diluted 6,291,553 6,597,194
========== ==========

See accompanying notes to consolidated financial statements.

F-3

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NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)

[Enlarge/Download Table]

Cumulative
Additional Retained Foreign Total
Common Paid-in Earnings Currency Stockholders'
Stock Capital (Deficit) Adjustment Equity
----- ------- ------- ---------- ------

Balance, at September 30, 1995 $50,565 $8,089,992 $ (982,213) $ -- $ 7,158,344

Net income -- -- 6,195,131 -- 6,195,131

Exercise of stock options 262 36,736 -- -- 36,998

Exercise of warrants 4,161 1,551,604 -- -- 1,555,765
------- ---------- ----------- ------- -----------
Balance, at March 31, 1996 $54,988 $9,678,332 $ 5,212,918 $ -- $14,946,238
======= ========== =========== ======= ===========
Balance, at September 30, 1996 $55,686 $9,939,059 $ 7,611,580 $(4,609) $17,601,716

Net (loss) -- -- (3,769,914) -- (3,769,914)

Cash dividends -- -- (222,741) -- (222,741)

Foreign currency adjustment -- -- -- 64,576 64,576

Exercise of stock options 72 11,952 -- -- 12,024
------- ---------- ----------- ------- -----------
Balance, at March 31, 1997 $55,758 $9,951,011 $ 3,618,925 $59,967 $13,685,661
======= ========== =========== ======= ===========

See accompanying notes to consolidated financial statements.

F-4

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NUTRITION FOR LIFE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

[Download Table]

SIX MONTHS
ENDED MARCH 31,
--------------------------
1997 1996
------------ -----------

Net cash provided by operating activities $ 3,175,942 8,254,591
Net cash used in investing activities (1,101,274) (5,104,109)
Net cash provided by (used in) financing activities (210,716) 1,592,763
Cumulative foreign currency translation adjustment 64,576 --
----------- -----------
Net increase in cash and cash equivalents 1,928,528 4,743,245

Cash and cash equivalents at beginning of period 15,588,504 8,960,100
----------- -----------
Cash and cash equivalents at end of period $17,517,032 13,703,345
=========== ===========

See accompanying notes to consolidated financial statements.

F-5

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NUTRITION FOR LIFE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INTERIM FINANCIAL STATEMENTS

In the opinion of Management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in financial position at March 31, 1997, and
for all periods presented have been made. Certain information and footnote data
necessary for fair presentation of financial position and results of operations
in conformity with generally accepted accounting principles have been condensed
or omitted. It is therefore suggested that these financial statements be read in
conjunction with the summary of significant accounting policies and notes to
financial statements included in the Company's Annual Report on Form 10-KSB. The
results of operations for the interim periods ended March 31, 1997 and 1996 are
not necessarily indicative of operating results for the full year.

The Company has adopted SFAS No. 121 for the year ended September 30,
1997 and its implementation has not had a material effect on the financial
statements. The Company has not yet adopted Statements of Financial Accounting
Standards No. 123 or No. 128. The Company will be required to adopt these
Statements during the fiscal year ended September 30, 1997. The Company does not
believe either Statement will have a material impact on the financial
statements.

F-6

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INDEPENDENT AUDITORS' REPORT
----------------------------

To the Board of Directors
and Shareholders of
Nutrition for Life International, Inc.

We have audited the consolidated balance sheet of Nutrition for Life
International, Inc. as of September 30, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Nutrition for Life International, Inc. at September 30, 1996 and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

BDO Seidman, LLP

Houston, Texas
November 1, 1996, except Notes 7 and 8
which are dated December 4, 1996.

F-7

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INDEPENDENT AUDITORS' REPORT
----------------------------

The Board of Directors
Nutrition For Life International, Inc.:

We have audited the accompanying balance sheet of Nutrition For Life
International, Inc. as of September 30, 1995 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
two-year period ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 Nutrition For Life
International, Inc. as of September 30, 1995 and the results of its operations
and its cash flows for each of the years in the two-year period ended September
30, 1995 in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Houston, Texas
November 2, 1995, except as to note 2,
which is as of December 8, 1995

F-8

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NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995

[Enlarge/Download Table]

1996 1995
---- ----
ASSETS
------

Current Assets:

Cash and cash equivalents......................... $15,588,504 $ 8,960,100
Accounts receivable, less allowance for doubtful
accounts of $38,000 and $0....................... 368,062 172,762
Inventories....................................... 6,365,350 2,267,617
Deferred tax asset, net (Note 5).................. 1,500,000 -
Refundable federal income taxes................... 500,000 -
Prepaid expenses and other assets................. 260,091 89,251
----------- -----------

Total Current Assets............................ 24,582,007 11,489,730

Property and Equipment, Net (Note 4).......................... 2,493,759 620,818
Deferred Tax Asset, Net (Note 5).............................. - 79,142
Intangible Assets, Net........................................ 340,063 227,498
Other Assets.................................................. 212,031 148,425
----------- -----------
$27,627,860 $12,565,613
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

[Enlarge/Download Table]

Current Liabilities:

Accounts payable.................................... $ 2,577,101 $ 2,389,706
Accrued bonuses and commissions..................... 2,041,678 1,266,616
Deferred income (Note 7)............................ 3,893,570 347,795
Accrued expenses and other liabilities.............. 552,424 559,415
Federal and franchise tax payable................... 850,000 843,737
Dividends payable (Note 2).......................... 111,371 -
----------- -----------

Total Current Liabilities......................... 10,026,144 5,407,269
----------- -----------

Commitments and Contingencies (Note 8)
Stockholders' Equity (Note 2):
Preferred stock, $.001 par value; 1,000,000
authorized; none issued and outstanding........... - -
Common stock; $.01 par value; 20,000,000
and 10,000,000 shares authorized.................. 55,686 50,565
Additional paid-in capital.......................... 9,939,059 8,089,992
Retained earnings (deficit)......................... 7,611,580 (982,213)
Cumulative foreign currency translation adjustment.. (4,609) -
----------- -----------
Total Stockholders' Equity........................ 17,601,716 7,158,344
----------- -----------
$27,627,860 $12,565,613
=========== ===========

See accompanying notes to consolidated financial statements.

F-9

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NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

[Enlarge/Download Table]

1996 1995 1994
---- ---- ----

Net sales (Notes 7 and 10)................... $97,403,757 $32,289,752 $17,583,195
Cost of sales (Note 9)....................... 67,826,803 23,515,259 12,782,597
----------- ----------- -----------
Gross profit 29,576,954 8,774,493 4,800,598
Marketing, distribution and
administrative expenses (Note 8)........... 16,230,023 5,853,330 4,358,503
----------- ----------- -----------

Income from operations....................... 13,346,931 2,921,163 442,095
----------- ----------- -----------
Other income (expense)
Interest, net.................... 711,563 (51,499) (59,539)
Other, net (Note 8).............. (63,533) 139,189 48,747
----------- ----------- -----------
648,030 87,690 (10,792)
----------- ----------- -----------
Income before income tax expense............. 13,994,961 3,008,853 431,303
Income tax expense (Note 5).................. 5,289,797 764,595 -
----------- ----------- -----------
Net income 8,705,164 2,244,258 431,303
Preferred stock conversion (Note 3).......... - - 181,243
----------- ----------- -----------
Net income applicable to common shares....... $ 8,705,164 $ 2,244,258 $ 250,060
=========== =========== ===========
Primary earnings per common share............ $1.36 $.65 $.09
=========== =========== ===========
Fully-diluted earnings per common share...... $1.36 $.51 $.08
=========== =========== ===========

Weighted average common shares outstanding:
Primary.......................... 6,405,152 3,437,258 2,824,734
Fully-diluted.................... 6,405,152 4,443,532 3,791,566
=========== =========== ===========

See accompanying notes to consolidated financial statements.

F-10

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NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

[Enlarge/Download Table]

Cumulative
Foreign
Common Stock Additional Retained Currency Total
------------------ Paid-in Earnings Translation Stockholders'
Shares Amount Capital (Deficit) Adjustment Equity
--------- ------- ----------- ------------ ----------- -----------

Balance, at October 1, 1993.............. 2,824,734 $28,247 $3,664,711 $(3,476,531) $ - $ 216,427

Net income............................... - - - 431,303 - 431,303

Preferred stock conversion............... - - 181,243 (181,243) - -
--------- ------- ---------- ----------- ----------- -----------

Balance, at September 30, 1994........... 2,824,734 28,247 3,845,954 (3,226,471) - 647,730

Net income............................... - - - 2,244,258 - 2,244,258

Conversion of debt....................... 360,000 3,600 126,900 - - 130,500

Public offering.......................... 1,840,000 18,400 4,089,331 - - 4,107,731

Exercise of stock options................ 30,790 308 24,067 - - 24,375

Exercise of warrants..................... 1,000 10 3,740 - - 3,750
--------- ------- ---------- ----------- ----------- -----------

Balance, at September 30, 1995........... 5,056,524 50,565 8,089,992 (982,213) - 7,158,344

Net income............................... - - - 8,705,164 - 8,705,164

Cash dividends (Note 2).................. - - - (111,371) - (111,371)

Foreign currency translation adjustment.. - - - - (4,609) (4,609)

Exercise of stock options................ 27,454 275 36,723 - - 36,998

Exercise of warrants..................... 484,584 4,846 1,812,344 - - 1,817,190
--------- ------- ---------- ----------- ----------- -----------

Balance, at September 30, 1996........... 5,568,562 $55,686 $9,939,059 $ 7,611,580 $ (4,609) $17,601,716
========= ======= ========== =========== =========== ===========

See accompanying notes to consolidated financial statements.

F-11

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NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

[Enlarge/Download Table]

1996 1995 1994
------------- ------------ ----------

Cash flows from operating activities:
Net income........................................ $ 8,705,164 $ 2,244,258 $ 431,303
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 400,368 211,469 161,112
Bad debt expense............................... 671,198 93,744 88,581
Deferred tax benefit........................... (1,420,858) (79,142) -
Changes in assets and liabilities:
Accounts receivable......................... (866,498) (171,025) (100,654)
Inventories................................. (4,097,733) (1,241,050) (70,887)
Refundable federal income taxes............. (500,000) - -
Prepaids and other assets................... (170,840) 30,795 (89,487)
Other assets................................ (63,606) (48,976) (60,094)
Accounts payable............................ 187,395 1,847,497 87,801
Consigned inventory deposits................ - (48,881) 24,491
Deferred income............................. 3,545,776 245,023 10,088
Accrued expenses and other liabilities...... 768,070 1,205,013 73,322
Federal and franchise tax payable........... 6,263 843,737 -
----------- --------- -------
Net cash provided by operating activities................. 7,164,699 5,132,462 555,576
----------- --------- -------
Cash flows from investing activities:
Purchase of property and equipment................ (2,174,214) (407,882) (167,039)
Purchase of intangible assets..................... (211,660) - -
----------- --------- -------
Net cash used in investing activities..................... (2,385,874) (407,882) (167,039)
----------- --------- -------
Cash flows from financing activities:
Exercise of stock options......................... 36,998 24,375 -
Exercise of warrants.............................. 1,817,190 3,750 -
Principal repayments on long-term debt............ - (519,500) -
Proceeds from notes payable - bank................ - - 45,000
Principal repayments on notes payable - bank...... - (20,000) (25,000)
Net proceeds from public offering................. - 4,107,731 -
----------- --------- -------
Net cash provided by financing activities................. 1,854,188 3,596,356 20,000
----------- --------- -------
Net increase in cash and cash equivalents................. 6,633,013 8,320,936 408,537
Cash and cash equivalents, beginning of year.............. 8,960,100 639,164 230,627
Cumulative foreign currency translation adjustment........ (4,609) - -
----------- --------- -------
Cash and cash equivalents, end of year.................... $15,588,504 $ 8,960,100 $ 639,164
=========== ============ =========
Supplemental disclosure of noncash financing activities:
Conversion of convertible long-term debt to
common stock.................................... $ - $ 130,500 $ -
============ ============ =========

Declaration of dividends.......................... $ 111,371 $ - $ -
============ ============ =========
Supplemental disclosure of cash flow information:
Federal and state income taxes paid............... $ 7,210,000 $ - $ -
============ ============ =========

See accompanying notes to consolidated financial statements.

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NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS

Nutrition for Life International, Inc., ("NFLI" or the "Company"), a Texas
corporation, was formed on September 15, 1993 for the purpose of being the sole
survivor of a merger between Nutrition Express Corporation of Colorado, Inc.
(NEC-Colorado) and Nutrition Express Corporation of Utah, Inc. (NEC-Utah) and
the Company, as discussed in Note 3. The effect of the merger was that, instead
of NEC-Colorado and NEC-Utah conducting operations through their ownership of a
general partnership, Nutrition for Life International (the Partnership), these
corporations were merged and the business operations have been conducted through
one corporation, NFLI. The assets and liabilities of the Partnership became the
assets and liabilities of the Company, and the business operations have
continued as they were conducted previously.

The Company operates as a wholesale distributor through its network
marketing organization, by selling a variety of consumer products and services
through independent distributors in the United States and abroad. The Company
develops products that are designed for health-conscious consumers, and sells
those products to consumers through its network of independent distributors.
The Company offers a product line of approximately 320 products in eight
categories, including nutritional supplements, health foods, weight management
items, skin care products and other consumer products.

The Company develops products that it believes will have market appeal to
its distributors and their customers, and assist its distributors in building
their own businesses. The Company provides product development, marketing aids,
customer service and essential record keeping functions for its distributors.

Distributors actively recruit interested people to become new distributors
for the Company. These recruits are placed beneath the recruiting distributor
in the "network" and are referred to by the Company as that distributor's
"downline." Distributors earn commissions on sales generated by the
distributors in their downline as well as on the sales they generate directly.
The Company's operations depend to a significant degree on the Company's ability
to retain and motivate its existing distributors and to attract new distributors
by continuing to offer new products and new marketing programs.

Although the Company confines its activities to marketing and distribution,
the manufacturing, packaging, labeling and advertising of the Company's products
are subject to regulation by several federal agencies, as well as various
agencies of the states in which the Company's products are sold. In addition,
the Company's network marketing system is subject to governmental regulations
generally directed at ensuring that product sales are made to consumers of the
products and that advancement within the marketing organization is based on
sales of products rather than investments in the organization.

The Company's wholly-owned subsidiary, Nutrition For Life International
(UK) Ltd. ("UK"), was incorporated on April 8, 1996 in the United Kingdom and
was formed primarily to operate as a wholesale distributor of the Company's
products throughout the United Kingdom.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated.

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NUTRITION FOR LIFE INTERNTAIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVENTORIES

Inventories consist mainly of health and skin care products, dietary
supplements, food products and household cleaning products. Inventories are
valued at the lower of cost or market. Cost is determined on a first-in, first-
out basis.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation on equipment is
provided using the straight-line method over the estimated useful lives of the
assets. For income tax purposes, depreciation on certain assets is calculated
using accelerated methods. Leasehold improvements are amortized over the terms
of the lease, not in excess of their estimated useful lives.

INTANGIBLE ASSETS

Intangible assets represent organizational costs and the value assigned to
nutrition and homeopathic product formulations. These assets are being
amortized over 10 years.

REVENUE RECOGNITION

The Company sells its products directly to independent distributors. Sales
are recorded when products are shipped. Net sales represent orders shipped,
less estimated returns and allowances. Provisions have been made for estimated
returns and allowances at the time of sale. Included in cost of sales are
rebates and other commissions which are paid monthly and are calculated using
specific rates based on actual sales volume.

NFLI issues product redemption certificates to distributors who enroll in
the Company's order assurance program. Revenues are recorded when these
certificates are redeemed for product. However, if the certificates are not
redeemed for product, the Company records revenues ratably over a 150 day period
commencing with the ending of the expiration period of 120 days (see Note 7).
Such revenues are recorded as part of the Company's net sales.

INCOME TAXES

The Company recognizes income tax expense using the liability method of
accounting for deferred income taxes. A deferred tax asset or liability is
recorded based upon the tax effect of temporary differences between the tax
basis of assets and liabilities and their carrying value for financial reporting
purposes. Deferred tax expense or benefit is the result of changes in the
deferred tax assets and liabilities during the year. The Company adjusts the
deferred tax asset valuation allowance based upon the anticipated future
realization of the deferred tax benefits supported by demonstrated trends in the
Company's operating results.

EARNINGS PER COMMON SHARE

Earnings per common share were computed by dividing net income applicable
to common shares, which has been reduced by the charge for conversion of
preferred stock for the year ended September 30, 1994 (see Note 3), and by the
weighted average number of shares of common stock outstanding after giving
effect to dilutive stock options and warrants. The stock options and warrants
are included as share equivalents using the treasury stock method, based on the
average market price of the common shares during the year.

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NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fully-diluted earnings per common share for the years ended September 30,
1995 and 1994 are determined on the assumption that the convertible long-term
debt outstanding as of those dates was converted as of the beginning of the
year. Net income applicable to common shares was adjusted for the interest on
the convertible long-term debt, net of its tax effect. In addition, stock
options and warrants are included as share equivalents in 1995 and 1994 using
the treasury stock method, based on the market price of the common shares as of
September 30, 1995 and 1994.

As certain debt was retired with the proceeds of the Company's public
offering (see Note 2) and certain debt was converted in connection with the
offering, supplementary earnings per share information is presented herein.
Supplementary earnings per share for 1995 is $0.59. Such amount is calculated
by increasing net income by the amount of interest expense related to the debt,
net of tax, and increasing the weighted average shares outstanding by the number
of shares issued on the conversion (278,137 weighted average shares) and the
number of shares whose proceeds from the offering would be required to retire
the debt (143,346 weighted average shares).

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include
cash held on hand and in short-term, interest bearing deposits with original
maturities of three months or less.

MANAGEMENT'S ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affects the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. The actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISK

At September 30, 1996, the Company's cash in financial institutions
exceeded the federally insured deposit limit by approximately $5,665,000.

SHORT-TERM INVESTMENTS

The carrying amount approximates fair value because of the short-term
maturity of those investments.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). SFAS No.
121 requires, among other things, that impairment losses on assets to be held,
and gains or losses from assets that are expected to be disposed of, be included
as a component of income from continuing operations. SFAS No. 121 is effective
for fiscal years beginning after December 15, 1995. The Company will adopt SFAS
No. 121 for the year ended September 30, 1997 and its implementation is not
expected to have a material effect on the financial statements.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 encourages entities to adopt the
fair value method in place of the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), for all
arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to

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NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMEMENTS

employees in amounts based on the price of its stock. The Company does not
anticipate adopting the fair value method encouraged by SFAS No. 123 and will
continue to account for such transactions in accordance with APB No. 25.
However, the Company will be required to provide additional disclosures
beginning in the year ending September 30, 1997 providing pro forma effects as
if the Company had elected to adopt SFAS No. 123.

RECLASSIFICATIONS

Certain reclassifications were made to the 1995 and 1994 accounts to
conform to the 1996 financial statement presentation. These reclassifications
had no impact on net income as previously reported.

NOTE 2 - COMMON STOCK

On May 10, 1995, the Company's Board of Directors authorized a three-for-
five stock split, which the Company's shareholders approved on June 30, 1995.
In addition, par value was adjusted from $.001 per share to $.01 per share. On
November 6, 1995, the Company's Board of Directors authorized a two-for-one
stock split, effected in the form of a stock dividend for shareholders of record
on December 8, 1995. Stockholders' equity has been restated to give retroactive
recognition to the stock split in prior periods by reclassifying from additional
paid-in capital to common stock the par value of the additional shares arising
from the split. In addition, all share, per share and stock option data have
been restated to reflect these splits, including the public offering of
securities discussed below.

On July 10, 1995, the Company completed the issuance of an additional
1,840,000 shares of common stock, after giving effect to the stock splits noted
above, and 920,000 warrants through a public offering at prices of $2.6875 and
$0.125, respectively, resulting in net proceeds (after deducting issuance costs)
of $4,108,000. In connection with the offering, the holder of the convertible
long-term debt converted $130,500 of debt from one of the convertible notes into
360,000 shares of the Company's common stock. The remaining principal balance
of the notes were repaid from the proceeds of the offering.

The terms of the warrants currently provide that one warrant entitles the
holder to purchase one share of common stock at a price of $3.75 during a three-
year period ending on July 10, 1998. The Company has the right to call all of
the warrants for redemption on 30 days' prior written notice at a redemption
price of $0.05 per warrant, subject to certain defined criteria. For the years
ended September 30, 1996 and 1995, 484,584 and 1,000 warrants were exercised for
the issuance of 484,584 and 1,000 shares of the Company's common stock,
resulting in proceeds of $1,817,190 and $3,750. As of September 30, 1996, there
are 434,416 warrants outstanding.

On September 16, 1996 the Company's Board of Directors authorized a stock
repurchase program, whereby the Company shall have the discretion to purchase up
to 200,000 shares of common stock. The repurchase program terminates on June
30, 1997, unless extended by the Board of Directors.

On September 30, 1996 the Board of Directors of NFLI declared a cash
dividend of $.02 per share of common stock outstanding. The cash dividends of
$111,371 were paid on October 15, 1996.

NOTE 3 - THE MERGER

Effective June 27, 1994, the shareholders of NEC-Colorado, NEC-Utah and
NFLI approved the merger of the companies (the Merger). The former holders of
NEC-Utah common stock and NEC-Colorado Common Stock received a total of
1,383,544 and 1,441,190 shares of NFLI Common Stock, respectively, in connection
with the Merger.

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NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

This reorganization was accounted for as a combination of entities under
common control, accounted for similar to a "pooling-of-interests". Accordingly,
the Company's financial statements were restated for all periods prior to the
merger to reflect the financial position, results of operations, and cash flows
of the companies combined in the Merger on a historical cost basis.

Shermfin Corporation (Shermfin) the largest shareholder of NEC-Utah Common
Stock, was the sole holder of the 500,000 shares of the NEC-Utah Series A
Preferred Stock. Shermfin agreed to convert its Series A Preferred Stock, in
connection with the Merger, if the conversion price was reduced from the set
rate of $.0724 per share to a reduced rate of $.04 per share. As a result,
Shermfin received 12,500,000 shares of NEC-Utah Common Stock, whereas under the
existing conversion rate, Shermfin would have been entitled to receive 6,906,077
shares. For accounting purposes, the reduced conversion rate meets the criteria
of a "sweetened" conversion; therefore, net income applicable to common shares
has been reduced by $181,243 (the estimated fair value of the shares in excess
of the fair value of shares which would have been issued pursuant to the
original conversion terms) in the calculation of earnings per common share for
the year ended September 30, 1994.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment and their useful lives are summarized as follows:
SEPTEMBER 30,
----------------------
LIVES 1996 1995
----- ---------- ----------
Equipment........................ 7 $2,398,666 $1,219,966
Furniture and fixtures........... 5-10 585,056 183,241
Leasehold improvements........... 5 700,417 108,194
---------- ----------
3,684,139 1,511,401
Less: Accumulated depreciation
and amortization.......... 1,190,380 890,583
---------- ----------
$2,493,759 $ 620,818
========== ==========

NOTE 5 - INCOME TAXES

Deferred income taxes are determined based on the temporary
differences between the financial statement and income tax basis of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse.

The provision for income taxes for the years ended September 30,
1996, 1995 and 1994 consisted of the following:

[Download Table]

1996 1995 1994
------------ --------- ----------

Federal tax - current................ $ 5,860,655 $659,015 $ -
Federal tax - deferred benefit, net.. (1,420,858) (79,142) -
State tax............................ 850,000 184,722 -
----------- -------- ---------
$ 5,289,797 $764,595 $ -
=========== ======== ==========

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NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following reconciles federal income taxes computed at the
statutory rate with income taxes as reported for the years ended September 30:

[Enlarge/Download Table]

1996 1995 1994
----------- ----------- ---------

Expected income tax expense at 34%................................... $4,758,287 $1,023,010 $ 146,643
Graduated tax rate effect............................................ 140,000 - -
State taxes.......................................................... 560,155 121,916 -
Nondeductible amortization of intangible assets...................... 30,694 30,694 30,694
Nondeductible expenses associated with the Merger.................... - - 17,250
Utilization of loss carryforwards.................................... (150,335) (422,701) (197,409)
Other items, net..................................................... (49,004) 11,676 2,822
---------- ---------- ---------
Income tax expense............................................... $5,289,797 $ 764,595 $ -
========== ========== =========

Deferred tax assets at September 30, 1996 and 1995 were as follows:
1996 1995
---------- ---------
Deferred income recognized for tax purposes.......................... $1,341,000 $ 76,168
Additional capitalized inventory costs............................... 162,000 -
Loss carryforwards................................................... 45,000 187,956
Allowance for doubtful accounts...................................... 13,000 -
Differences between financial reporting and tax depreciation......... (61,000) 2,974
---------- ---------
1,500,000 267,098
Less valuation allowance............................................. - (187,956)
---------- ---------
Net deferred tax assets.......................................... $1,500,000 $ 79,142
========== =========

The Company has approximately $130,000 of net operating loss available
to carryforward subject to limitations imposed by Section 382 of the Internal
Revenue Code expiring through 2008.

It is managements opinion, based on past operating results and
expected future operating results, that it will be more likely than not that the
Company will utilize its entire net operating loss carryforward before
expiration.

NOTE 6 - STOCK OPTION PLANS

In planning the Merger, NEC-Utah and NEC-Colorado determined that a
stock option plan to provide incentives for employees and consultants of NFLI
would promote the interests of NFLI and its stockholders. The Board of Directors
of NFLI approved the 1993 Stock Option Plan (the 1993 Plan) in connection with
the approval of the Merger. Pursuant to the 1993 Plan, the Board of Directors of
NFLI reserved a total of 282,000 shares of its common stock for the grant of
options to purchase the Company's common stock. Options to purchase 55,844
shares have been issued in exchange for previously existing options to acquire
NEC-Utah and NEC-Colorado common stock. During 1995 the Company issued 30,790
shares to a director of NFLI from the exercise of options, resulting in proceeds
of $24,375. The remaining options to purchase 25,054 shares were exercised
during 1996, resulting in proceeds of $35,000. No other options are reserved for
issuance. The issuance of options is at the discretion of the Company's Board of
Directors.

In October 1994, the Company granted options to key employees and
directors to purchase an aggregate of 154,800 shares of the Company's common
stock at $1.67 per share. One-third of the shares underlying the options became
exercisable in cumulative installments of 12 months, 24 months and 36 months
after the date

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NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of grant. Options terminate 5 years from the date of grant, except that if an
employee leaves the Company, the options will terminate 30 days thereafter.
During 1996, the Company issued 2,400 shares to an employee from the exercise of
options, resulting in proceeds of $1,998. In addition, 3,600 options were
terminated upon an employee leaving the Company.

The Board of Directors of NFLI approved the 1995 Stock Option Plan
(the 1995 Plan) in March 1995. Pursuant to the 1995 Plan, as amended in June
1996, the Board of Directors of NFLI reserved a total of 640,000 shares of
common stock for the grant of options to purchase the Company's stock. In March
1995, the Company granted options to key employees and directors to purchase an
aggregate of 102,000 shares of the Company's common stock at prices ranging from
$1.88 to $2.25 per share. The terms of the options are similar to those granted
in the 1993 Plan. In July 1995, the Company granted options to an officer of
the Company to purchase 50,000 shares of the Company's common stock at $2.69 per
share. During the year ended September 1996, the Company granted options to two
officers of the Company to purchase an aggregate of 35,000 shares of Company's
common stock at prices ranging from $11.50 to $14.25. As of September 30, 1996,
no options were exercised.

In November 1995, the Board of Directors of NFLI adopted the 1995 Non-
Discretionary Stock Option Plan for directors of the Company who are not
eligible to participate in the other Plans (the "Non-Discretionary Plan.") The
Non-Discretionary Plan provides that the Company grant options to purchase 5,000
shares of the Company's Common Stock to each eligible director on the date of
adoption of the Non-Discretionary Plan (November 28, 1995), to each person who
thereafter becomes a director of the Company and, as of December 1 of each year
(commencing in 1996), options to purchase an additional 5,000 shares of common
stock will be granted to each eligible director. The exercise price of the
options is the fair market value of the common stock on the date the options are
granted. The options were exercisable in full as of the date of grant, except
that the options which have been granted were not exercisable until the
shareholders of the Company approved the Non-Discretionary Plan. The
shareholders approved the non-discretionary plan in May 1996. The shares
acquired upon exercise of these options cannot be sold for six months following
the later of the date of grant or shareholder approval of the Non-Discretionary
Plan. The Company granted options to purchase 5,000 shares of common stock at a
price of $19.75 per share to three directors. Each option granted pursuant to
the Non-Discretionary Plan will expire five years from the date of grant, except
that an option will expire, if not exercised, 30 days after the optionee ceases
to be a director of the Company.

All options have been issued with exercise prices in excess of
the market value of the common shares at the date of grant.

[Download Table]

Details of stock options are as follows:
Number Option
of Shares Price
--------- -------------

Outstanding at September 30, 1993 - -
Granted.......................... 55,844 $ 0.79 - 1.40
---------

Outstanding at September 30, 1994.. 55,844 0.79 - 1.40
Granted.......................... 306,800 1.67 - 2.69
Exercised........................ (30,790) .79
---------
Outstanding at September 30, 1995.. 331,854
Granted.......................... 50,000 11.50 - 19.75
Exercised........................ (27,454) 1.40 - 1.67
Expired.......................... (3,600) 1.67
---------

Outstanding at September 30, 1996.. 350,800
=========

Under the 1993 Plan and the 1995 Plan, the Company may issue options to
purchase up to an additional 516,556 shares of common stock.

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NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - DEFERRED INCOME

NFLI distributors earn monthly commissions based on their achieving a
pre-determined monthly minimum sales volume. To assist distributors in meeting
their monthly minimum sales volume, the Company has developed an Order Assurance
Program (OAP), which allows a distributor to purchase a product redemption
certificate, subject to certain restrictions, for the difference between the
distributor's actual monthly order and the predetermined monthly minimum sales
goal. The purchase of such a certificate by a distributor qualifies the
distributor to receive a commission in a given month even though actual product
purchases were below the required level. The Company recognizes revenues on
these certificates when they are redeemed for product or on a ratable basis over
a 150 day period after the expiration of the certificate. The Company recognized
revenues from the redemption of certificates of $7,647,000, $1,090,000 and
$733,000 for the years ended September 30, 1996, 1995 and 1994. The Company
recognized revenue from unredeemed, expired certificates of $3,025,000, $876,000
and $430,000 for the years ended September 30, 1996, 1995 and 1994. At September
30, 1996 and 1995 the Company had a liability for unredeemed certificates, net
of applicable commissions, of $3,893,570 and $347,795 which is included in
deferred income in the accompanying consolidated balance sheets.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company has noncancelable operating leases, primarily for office
and warehouse space. Rental expense under operating leases for the years ended
September 30, 1996, 1995 and 1994 amounted to approximately $365,000, $161,000
and $161,000, respectively.

Future minimum rental payments required under operating leases that
have an initial or remaining noncancellable lease term in excess of one year are
as follows:

YEAR ENDED SEPTEMBER 30, AMOUNT
----------
1997....................... $ 682,000
1998....................... 684,000
1999....................... 677,000
2000....................... 669,000
2001....................... 496,000
2002 and thereafter................ 1,185,000
----------
$4,393,000
==========

Government Regulations

The Company's activities are subject to regulations by various federal
and state agencies, including the Food and Drug Administration. However, the
Company cannot predict whether new legislation regulating its activities will be
enacted, which could have a material adverse effect on the Company.

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NUTRITION FOR LIFE INTERNATIONAL, INC.
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Employment Agreements

During 1995, the Company entered into employment agreements with the
chief executive officer and executive vice president of the Company which
expired September 30, 1996. In addition to their annual salary, both individuals
were entitled to 5% of the first $2,000,000 of pre-tax income, 4% of the next
$500,000 of pre-tax income and 3% of pre-tax income over $2,500,000. In
addition, certain key individuals are to receive bonuses in total ranging
between 2% and 4% of pre-tax income over $2,000,000. The Company intends to
enter into new employment agreements with these two individuals for the year
ending September 30, 1997. The Company incurred expenses of $1,554,996 and
$334,317 relating to these employment agreements for the years ended September
31, 1996 and 1995.

Legal Proceedings

During April 1996, the Attorney General of the State of Illinois filed
suit against a significant distributor of NFLI concerning the distributors'
practices in the sale of products and in the recruiting of other distributors.
On July 16, 1996, NFLI entered into an "Assurance of Voluntary Compliance" (AVC)
with the state of Illinois in order to assure that NFLI and its distributors'
policies and practices conform to Illinois law and fairly protect the interests
of consumers. In accordance with the agreement as it relates to the OAP
program, among other things, NFLI has agreed to enforce the following guidelines
and policies; (1) distributors may not make purchases or receive certificates
merely to earn bonuses; (2) NFLI will continue to encourage distributors to
redeem their certificates for products; (3) the Company's OAP shall remain a
wholly optional program; (4) a distributor shall not receive additional
certificates if the distributor has four unredeemed certificates or the
distributor has unredeemed certificates totalling six times the distributor's
designated OAP amount, unless the distributor is accumulating certificates for a
big ticket item; and (5) upon cancellation of a distributorship, unexpired
certificates and products purchased with certificates will be treated as any
other product for refund purposes. The Company is required to implement the
above procedures prior to January 1997. The Company has entered into a similar
agreements with several other states.

During August 1996, an action was brought against the Company in the
United States District Court (the "Federal Action") for damages relating to an
alleged illegal pyramid scheme by; (1) NFLI distributors who enrolled in the
"Instant Executive Program" or the "Instant Executive Pack" and allegedly
incurred net economic loss; and (2) all individuals who purchased common stock
and warrants during the period ended July 11, 1995 through July 16, 1996.

In addition during August 1996, a suit was also filed against the
Company and the same defendants named in the Federal Action in the District
Court of Harris County, Texas (the "State Action"). The State Action was
brought as a class action on behalf of persons who purchased Common Stock and
Warrants of the Company during the period from July 11, 1995 through July 16,
1996.

The principal allegations of the complaint in the State Action are
that certain aspects of the executive distributor compensation program
constituted an illegal pyramid scheme and that the Company failed to disclose
that its outstanding financial results were directly attributable to the
questioned aspects of its marketing practices and failed to adequately disclose
a certain distributor's past.

Although no assurances can be given, the Company and its independent
legal counsel believe the Company has meritorious defenses to both the Federal
Action and State Action and the Company intends to defend itself vigorously.
While the ultimate results cannot be reasonably estimated, a judgment against
the Company could have a significant negative impact on the operations and
financial position of the Company.

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NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Securities and Exchange Commission (SEC) had initiated an
investigation into possible violations by NFLI of the federal securities laws
pursuant to a formal order of investigation. On December 4, 1996, the SEC
terminated its investigation, resulting in no enforcement action against the
Company.

On or about March 1, 1991, a lawsuit was filed in the Superior Court
of California, Los Angeles County, by James M. Jordan, former President of NEC-
Utah, against the Partnership and its general partners. A counterclaim
against Mr. Jordan was made by the Partnership. The court found in favor of the
Partnership on all counts and awarded damages and costs of $541,291 (the
Judgment). The Judgment was affirmed October 21, 1994 by the Court of Appeal of
the State of California, Second Appellate District, Division Three.

In 1993, the Partnership collected NEC-Utah common stock valued at
$114,458 ($.03 per share) from Mr. Jordan, which was presented as a reduction to
administrative expenses for recovery of costs incurred to litigate this case.
Upon combination of the entities in the Merger, this stock was retired and the
recognition of the $114,458 was reversed as these shares were effectively
treasury shares of NFLI. In September 1995, the Company collected $160,680 from
the sale of Mr. Jordan's house which is recorded as other income in the
accompanying financial statements. On October 4, 1995, the Bankruptcy Court for
the Central District of California declared Mr. Jordan's debt to the Company
nondischargeable. Mr. Jordan did not file a notice of appeal. The Company has
only received partial collection on the Judgment and due to Mr. Jordan's
financial circumstances, it is presently unknown whether additional amounts will
be collected and, therefore, no additional amounts have been recorded in the
accompanying financial statements.

Product Liability

The Company does not engage in the manufacturing of any of the
products it markets and distributes; however, the Company could be exposed to
product liability claims. The Company has not had any such claims to date.
Although the Company maintains product liability insurance which it believes to
be adequate for its needs, there can be no assurance that the Company will not
be subject to claims in the future or that its insurance coverage will be
adequate.

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company purchases a significant portion of their inventory from
one vendor. The president of this vendor is a director of the Company, and
until June 1995, the vendor was owned by a major stockholder of the Company.
The items purchased are readily available from other vendors. During the years
ended September 30, 1996, 1995 and 1994, the Company purchased $5,234,000,
$2,258,000 and $1,440,000 of goods, respectively, from this vendor.

NOTE 10 - FOREIGN SALES

For the years ended September 30, 1996, 1995, and 1994 the Company's net
sales from foreign operations were $7,982,000, $6,482,000 and $2,860,000,
respectively. During the years ended September 30, 1996 and 1995 total foreign
sales to customers in Canada totalled $6,422,000 and $4,157,000, respectively.
The gross profit percentages on all foreign sales are consistent with the
overall gross profit percentages.

F-22

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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

Page
Available Information.........................................................
Information Incorporated by Reference.........................................
Disclosure Regarding Forward-Looking
Statements...................................................................
The Company................................................................... 1
Summary Financial Data........................................................ 2
Risk Factors.................................................................. 3
Use of Proceeds............................................................... 9
Dividend Policy............................................................... 9
Price Range of Securities.....................................................10
Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................13
Business......................................................................22
Legal Proceedings.............................................................34
Management....................................................................35
Principal Shareholders........................................................41
Certain Transactions..........................................................43
Selling Shareholders..........................................................44
Plan of Distribution..........................................................45
Description of Securities.....................................................46
Legal Matters.................................................................48
Experts.......................................................................48
Index to Financial Statements................................................F-1

480,000 Shares of Common Stock

NUTRITION FOR LIFE
INTERNATIONAL, INC.

_____________________

PROSPECTUS

____________________

July 16, 1997

S-3 77th Page of 82 TOC 1st Previous Next ↓Bottom Just 77th
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.
-------------------------------------------

The estimated expenses of the offering described in this Registration
Statement are as follows:

[Download Table]

Registration Fee.............. $ 1,304.28
Printing Expenses............. 7,000.00
Accounting Fees and Expenses.. 10,000.00
Legal Fees and Expenses....... 10,000.00
Miscellaneous................. 6,000.00
----------
TOTAL......................... $34,304.28
==========

Item 15. Indemnification of Directors and Officers.
-----------------------------------------

Section 2.02-1 of the Texas Business Corporation Act authorizes the
indemnification of directors and officers under certain conditions that may
include the possibility of indemnification against liabilities that may be
incurred under the Securities Act of 1933, as amended.

It is provided in Article SIXTEENTH of the Articles of Incorporation
of Nutrition For Life International, Inc. that:

SIXTEENTH: The corporation shall indemnify any and all of its
directors or officers or former directors or officers or any person
who may have served at its request as a director or officer of any
other corporation in which it owns shares of capital stock or of which
it is a creditor, against expenses actually and necessarily incurred
by them, in connection with the defense of any action, suit or
proceeding in which they, or any of them, are made parties, or a
party, by reason of being or having been directors or officers of the
corporation, or for such other corporation, except in relation to
matters to which any such director or officer or former director or
person shall be adjudged in such action, suit or proceeding to be
liable for gross negligence or willful misconduct in the performance
of duty. Such indemnification shall not be deemed exclusive of any
other rights to which those indemnified may be entitled, under any
bylaw, agreement, vote of shareholders, or otherwise.

The general effect of the foregoing provisions of Nutrition For Life
International, Inc.'s Articles of Incorporation is to provide for mandatory
indemnification of Nutrition For Life International, Inc.'s directors, officers
and employees against liabilities arising from the situations described above to
the full extent permitted by the common law, the Texas Business Corporation Act,
and any other statutory provisions.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed 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.

Item 16. Exhibits.
--------

Exhibit 2.1 Agreement and Plan of Reorganization, filed as a Exhibit
to the Registration Statement on Form S-4 (file no. 33-
70312), which Exhibit is incorporated herein by this
reference.

Exhibit 3.1 Articles of Incorporation, as amended*

Exhibit 3.2 Bylaws, filed as an Exhibit to the Registration Statement
on Form S-4 (file no. 33-70312), which Exhibit is
incorporated herein by this reference.

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Exhibit 4.1 Specimen Certificate of Nutrition for Life
International, Inc.'s Common Stock*

Exhibit 4.2 Specimen Warrant*

Exhibit 4.3 Warrant Agreement with Corporate Stock Transfer, Inc.*

Exhibit 10.1 1993 Stock Option Plan, filed as an Exhibit to the
Registration Statement on Form S-4 (file no. 33-70312),
which Exhibit is incorporated herein by this reference*

Exhibit 10.2 1995 Stock Option Plan*

Exhibit 10.3 Second Amended and Restated Convertible Debenture in the
principal amount of $275,000, dated June 29, 1992 made by
Nutrition Express Corporation of Utah, Inc. in favor of
Shermfin Corp., filed as an Exhibit to the Registration
Statement on Form S-4 (file no. 33-70312), which Exhibit
is incorporated herein by this reference.

Exhibit 10.4 Agreement, dated August 12, 1991 between Nutrition Express
Corporation of Colorado, Inc. and Shermfin Corp., filed as
an Exhibit to the Registration Statement on Form S-4 (file
no. 33-70312), which Exhibit is incorporated herein by
this reference.

Exhibit 10.5 Agreement, dated August 12, 1991 between Nutrition Express
Corporation of Utah, Inc. and Shermfin Corp., filed as an
Exhibit to the Registration Statement on Form S-4 (file
no. 33-70312), which Exhibit is incorporated herein by
this reference.

Exhibit 10.6 Convertible Promissory Note, dated October 12, 1989, the
principal amount of $250,000 made by Nutrition Express
Corporation of Colorado, Inc. in favor of Shermfin Corp.,
filed as an Exhibit to the Registration Statement on Form
S-4 (file no. 33-70312), which Exhibit is incorporated
herein by this reference.

Exhibit 10.7 Employment Agreement dated May 10, 1995, between Nutrition
for Life International, Inc. and David P. Bertrand*

Exhibit 10.8 Employment Agreement dated May 10, 1995, between Nutrition
for Life International, Inc. and Jana Mitcham*

Exhibit 10.9 Consulting Agreement, dated February 22, 1995, between
Nutrition for Life International, Inc. and Cohig &
Associates, Inc.*

Exhibit 10.10 Form of Consulting Agreement with Cohig & Associates,
Inc.*

Exhibit 10.11 Agreement, dated March 3, 1995, between Nutrition for
Life International, Inc. and Shermfin Corp.*

Exhibit 10.13 Agreement, dated July 15, 1994 between Nutrition for Life
International, Inc. and Dr. David Santiago (N.F.P. Group,
Inc.), as amended by letter dated June 2, 1995*

Exhibit 10.14 Warrant Agreement, dated October 15, 1995 with Kevin
Trudeau, filed as an Exhibit to the Report on Form 10-KSB
for the fiscal year ended September 30, 1995 of the
Registrant, which Exhibit is incorporated herein by this
reference.

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Exhibit 10.15 Lease Agreements for office and warehouse facilities
with non-affiliates, filed as an Exhibit to the Report
on Form 10-KSB for the fiscal year ended September 30,
1995 of the Registrant, which Exhibit is incorporated
herein by this reference.

Exhibit 10.16 1995 Non-Discretionary Stock Option Plan, filed as an
Exhibit to the Report on Form 10-KSB for the fiscal year
ended September 30, 1995 of the Registrant, which
Exhibit is incorporated herein by this reference.

Exhibit 10.17 Assurance of Voluntary Compliance for the State of
Illinois, dated July 16, 1996, filed on July 31, 1996 as
an Exhibit to the Report on Form 8-K, which Exhibit is
incorporated herein by this reference.

Exhibit 10.18 Administrative and Consulting Services Agreement, dated
July 29, 1996, between Distributor Services, L.L.C. and
Nutrition For Life International, Inc.*

Exhibit 10.19 Form of Distributor Agreements of Nutrition For Life
International, Inc.*

Exhibit 10.20 Employment Agreement, effective October 1, 1996, between
Nutrition For Life International, Inc. and David P.
Bertrand, filed as an Exhibit to the Report on Form 10-
KSB for the fiscal year ended September 30, 1996 of the
Registrant which Exhibit is incorporated herein by this
reference.

Exhibit 10.21 Employment Agreement, effective October 1, 1996, between
Nutrition For Life International, Inc. and Jana Mitcham,
field as an Exhibit to the Report on Form 10-KSB for the
fiscal year ended September 30, 1996 of the Registrant
which Exhibit is incorporated herein by this reference.

Exhibit 21 Subsidiaries, filed as an Exhibit to the Report on Form
10-KSB for the fiscal year ended September 30, 1996 of
the Registrant, which Exhibit is incorporated herein by
this reference.

Exhibit 23.1 Consent of KPMG Peat Marwick LLP, Certified Public
Accountants

Exhibit 23.2 Consent of Bearman Talesnick & Clowdus Professional
Corporation

Exhibit 23.3 Consent of BDO Seidman LLP, Certified Public Accountants
__________________________________________

*These exhibits were previously filed as exhibits to Registration
Statement File No. 33-92274 and are incorporated herein by this
reference.

Item 17. Undertakings.
------------

1. The undersigned Registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933 (the "Act");

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the

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Registration Statement (or the most recent post-effective
amendment thereto) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;

(b) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

2. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the SEC, 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 Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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 Registrant 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.

3. The undersigned Registrant hereby undertakes that:

(1) For determining any liability under the Act, 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 Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.

(2) For determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

4. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on July 14, 1997.

NUTRITION FOR LIFE INTERNATIONAL, INC., a
Texas Corporation

By: /s/ David P. Bertrand
-------------------------
David P. Bertrand, President

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors of
the Registrant by virtue of their signatures to this Registration Statement
appearing below hereby constitutes and appoints David P. Bertrand and Jana
Mitcham, and each of them, with full power of substitution, as attorney-in-fact,
in his name place and stead to execute any and all amendments to this
Registration Statement in the capacity set forth opposite their names and hereby
ratifies that said attorneys-in-fact may do by virtue hereof.

Dated: July 14, 1997 /s/ David P. Bertrand
---------------------------------------------------
David P. Bertrand, President, Chief Executive
Officer, Director, and Chairman of the Board of
Directors

Dated: July 14, 1997 /s/ Jana Mitcham
---------------------------------------------------
Jana Mitcham, Executive Vice President, Secretary and
Director

Dated: July 14, 1997 /s/ Barry C. Loder
---------------------------------------------------
Barry C. Loder, Chief Operating Officer, Vice
President and Chief Financial Officer

Dated: July 14, 1997 /s/ John R. Brown, Jr.
---------------------------------------------------
John R. Brown, Jr., Vice President-Finance

Dated: July 14, 1997 /s/ Ronnie D. Meaux
---------------------------------------------------
Ronnie D. Meaux, Vice President, Treasurer, Assistant
Secretary and Principal Accounting Officer

Dated: July 14, 1997 /s/ F. Wayne Ballenger
---------------------------------------------------
F. Wayne Ballenger, Director

Dated: July 14, 1997 /s/ M.F. Florence
---------------------------------------------------
M.F. Florence, Director

Dated: July 14, 1997 /s/ Richard S. Kashenberg
---------------------------------------------------
Richard S. Kashenberg, Director

Dated: July 14, 1997 /s/ Greg Pusey
---------------------------------------------------
Greg Pusey, Director

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INDEX TO EXHIBITS

EXHIBIT NO. DESCRIPTION

23.1 Consent of KPMG Peat Marwick LLP, Certified Public Accountants

23.2 Consent of Bearman Talesnick & Clowdus Professional Corporation

23.3 Consent of BPO Seidman LLP, Certified Public Accountants

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘S-3’ Filing	Date	First	Last	Other Filings

	7/10/99	48
	10/14/98	48
	7/10/98	15	69
	4/9/98	47
	1/1/98	37
	11/20/97	47
	9/30/97	25	74	10-K, NT 10-K
	8/4/97	39
Filed on:	7/16/97	1	76
	7/14/97	1	81
	6/30/97	15	69	10-Q
	6/25/97	46
	5/12/97	4	39	DEF 14A
	4/11/97	39
	4/10/97	4
	4/2/97	39
	3/31/97	4	59	10-Q
	2/5/97	39
	12/31/96	4	25	10-Q
	12/4/96	60	75
	11/1/96	60
	10/15/96	69
	10/1/96	43	79
	9/30/96	4	79	10KSB, 10KSB/A
	9/16/96	69
	7/31/96	79		8-K
	7/29/96	79
	7/16/96	9	79	8-K
	7/15/96	20	39
	7/10/96	52
	6/30/96	15	21	10QSB
	4/15/96	20	48	8-K
	4/8/96	66
	3/31/96	8	59	10QSB
	1/19/96	10	39
	12/31/95	15
	12/15/95	25	68
	12/8/95	7	69
	11/28/95	44	72
	11/6/95	69
	11/2/95	61
	10/15/95	78
	10/4/95	75
	9/30/95	6	79	10KSB/A
	7/11/95	10	74
	7/10/95	7	69
	6/30/95	15	69
	6/2/95	78
	6/1/95	23
	5/10/95	69	78
	4/1/95	20	39
	3/31/95	15
	3/3/95	78
	2/22/95	78
	12/31/94	15
	10/21/94	75
	9/30/94	6	75
	7/15/94	78
	7/1/94	37
	6/27/94	69
	6/1/94	37
	10/1/93	64
	9/30/93	72
	9/15/93	66
	9/30/92	16
	6/29/92	78
				List all Filings

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Filing Submission 0000927356-97-000808 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Bactolac Pharmaceutical, Inc. – ‘S-3’ on 7/16/97

As of: Wednesday, 7/16/97 · Accession #: 927356-97-808 · File #: 333-31411

Registration Statement for Securities Offered Pursuant to a Transaction — Form S-3Filing Table of Contents

S-3 — Form S-3 for Nutrition for LifeDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Registration Statement for Securities Offered Pursuant to a Transaction — Form S-3
Filing Table of Contents

S-3 — Form S-3 for Nutrition for Life
Document Table of Contents