ENDOREX CORP, S-2/A, 1998-07-15

ENDOREX CORP
S-2/A, 1998-07-15
PHARMACEUTICAL PREPARATIONS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1998
Registration No. 333-44383

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 3 to
FORM S-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ENDOREX CORP.
(Exact name of small business issuer as specified in its charter)
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DELAWARE 41-1505029
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

900 NORTH SHORE DRIVE
LAKE BLUFF, ILLINOIS 60044
(847) 604-7555
(Address, including zip code, and telephone number,
including area code, of small business issuer's principal executive offices)
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DAVID G. FRANCKOWIAK
VICE PRESIDENT, FINANCE AND ADMINISTRATION
ENDOREX CORP.
900 North Shore Drive
Lake Bluff, Illinois 60044
(847) 604-7555
(Name, address, including zip code, and
telephone number, including area code,
of agent for service of process)
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COPIES TO:
RICHARD R. PLUMRIDGE, ESQ.
BRIAN B. MARGOLIS, ESQ.
BROBECK, PHLEGER & HARRISON LLP
1633 Broadway
New York, New York 10019

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

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 the registrant elects to deliver its latest annual report to
security holders or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, 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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The Small Business Issuer hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Small
Business Issuer 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.

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PROSPECTUS
10,655,202 Shares
ENDOREX CORP.
Common Stock
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This Prospectus relates to the public offering (the "Offering") by
certain Selling Shareholders (as hereinafter defined), which is not being
underwritten, of up to 10,655,202 shares of Common Stock, par value $.001 per
share (the "Common Stock"), of Endorex Corp. ("Endorex Corp." or the "Company").
Of the shares being registered for resale by the Selling Stockholders, 8,648,716
shares of Common Stock (the "Private Placement Shares") have been issued to
certain Selling Stockholders under an exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"), and 2,006,486 shares
of Common Stock (the "Warrant Shares") are issuable by the Company to certain
Selling Stockholders under an exemption from registration under the Securities
Act upon the exercise of outstanding warrants (each, a "Warrant"). The Private
Placement Shares and the Warrant Shares (collectively, the "Shares") may be
offered by the holders of the Private Placement Shares and by current holders of
the Warrants who subsequently exercise such warrants (collectively, the "Selling
Stockholders").

Sales of the Shares by the Selling Stockholders may be made from time
to time, pursuant to this Prospectus or Rule 144 under the Securities Act (or
any other applicable exemption from registration under the Securities Act), in
one or more transactions, including block transactions, in the over-the-counter
market, on any exchange or quotation system on which the Common Stock may be
admitted for trading (collectively, "Exchanges"), pursuant to and in accordance
with the applicable rules of the Exchanges, in negotiated transactions or in a
combination of any such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Shares may be offered
directly, to or though agents designated from time to time, or to or through
brokers or dealers, or through any combination of such methods of sale. Such
agents, brokers or dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders 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). A member firm of an Exchange may
be engaged to act as a Selling Stockholder's agent in the sale of Shares by such
Selling Stockholder. To the extent required, specific information regarding the
Shares will be set forth in an accompanying Prospectus Supplement. See "Selling
Stockholders" and "Plan of Distribution."

None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company. Upon the issuance to the Selling
Stockholders under an exemption from registration under the Securities Act of
all of the Warrant Shares being registered hereunder, the Company could receive
aggregate proceeds of up to $5.1 million (assuming an exercise price of
$2.54375, which is subject to adjustment under certain circumstances). See
"Issuance of the Warrant Shares and Use of Proceeds." The Company has agreed to
bear the expenses (other than selling commissions and fees and expenses of
certain advisors to the Selling Stockholders) in connection with the
registration of the Shares. The Company has agreed to indemnify certain of the
Selling Stockholders and their affiliates against certain liabilities, including
liabilities under the Securities Act. Certain of the Selling Stockholders have
agreed to indemnify the Company and its affiliates against certain liabilities,
including liabilities under the Securities Act under certain circumstances.

AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.

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The Common Stock of the Company is traded on the OTC Bulletin Board
under the symbol "ENDR." The last reported bid and asked prices of the
Company's Common Stock on the OTC Bulletin Board on July 14, 1998 were
$3.8125 and $4.375 per share, respectively. The Company has applied to have
its Common Stock listed on the American Stock Exchange.

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The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Plan of Distribution"
herein for a description of indemnification arrangements.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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The date of this Prospectus is July 15, 1998

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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Stockholder or by any other person. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Shares to any person or by anyone
in any jurisdiction in which such offer or solicitation may not lawfully be
made.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 under the Securities Act (the
"Registration Statement") with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and the schedules thereto. For further information
with respect to the Company and such Common Stock, reference is made to the
Registration Statement and exhibits and schedules thereto. Statements contained
in this Prospectus as to the contents of any contract or other document referred
to are not necessarily complete, and, with respect to any contract or other
document filed as an exhibit to the Registration Statement, each such statement
is qualified in all respects by reference to such exhibit. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the Commission
described below.

The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files annual and quarterly reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected, and copies of such material may be obtained upon
payment of the prescribed fees, at the Commission's Public Reference Section,
Room 1024, 450 Fifth Street, N.W., Washington D.C. 20549, as well as at the
Commission's Regional Offices at Seven World Trade Center, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained in person from the
Public Reference Section of the Commission at its principal office located at
450 Fifth Avenue, N.W., Washington, D.C. 20549, upon payment of the prescribed
fees. In addition, the Commission has a Web site on the World Wide Web at
http://www.sec.gov, containing registration statements, reports, proxy and
information statements, and other information that registrants, such as the
Company, file electronically with the Commission.

The Common Stock of the Company is traded on the OTC Bulletin Board.
Reports, proxy statements and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.

INFORMATION INCORPORATED BY REFERENCE

The following documents filed with the Commission are incorporated
by reference in their entirety in this Prospectus and shall be deemed to be
part hereof: the Annual Report of the Company on Form 10-KSB for the fiscal
year ended December 31, 1997, as amended (the "1997 Form 10-KSB"), the
Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended
March 31, 1998, the Preliminary Proxy Statement filed on April 7, 1998, the
Definitive Proxy Statement filed on April 17, 1998, the Current Report of the
Company on Form 8-K as filed on January 6, 1998, the Current Report of the
Company on Form 8-K filed on January 30, 1998 and the Current Report of the
Company on Form 8-K filed on February 20, 1998. No other report has been
filed by the Company since the end of the fiscal year ended December 31, 1997.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated herein by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such document). Requests for such documents
should be submitted in writing to the Secretary, Endorex Corp., 900 North Shore
Drive, Lake Bluff, Illinois 60044.

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This Prospectus is accompanied by a copy of the Company's 1997 Form
10-KSB. This Prospectus shall be accompanied by a copy of the Company's Form
10-KSB, together with any amendments thereto, filed with the Commission for each
subsequent fiscal year of the Company during the duration of this Offering and
by a copy of the Company's Proxy Statement used for the solicitation of
stockholders for each subsequent annual meeting of stockholders held during the
duration of this Offering.

The Company shall deliver without charge to each person to whom this
Prospectus is delivered a copy of the Company's latest Form 10-QSB filed with
the Commission with respect to the most recent fiscal quarter which ends after
the end of the latest fiscal year of the Company for which the Company has
delivered the 1997 Form 10-KSB as described above. The Company shall also
provide without charge a copy of each Form 8-K, if any, filed with the
Commission since the end of the latest fiscal year of the Company for which the
audited financial statements were included in the latest Form 10-KSB filed with
the Commission.

THE COMPANY

The Company was incorporated in Delaware in 1987 and originally named
ImmunoTherapeutics, Inc.; its predecessor, Biological Therapeutics, Inc., was
founded in 1984. The Company's principal offices are located at 900 North Shore
Drive, Lake Bluff, Illinois 60044 and its telephone number is (847) 604-7555.

DESCRIPTION OF PRIVATE PLACEMENT

Pursuant to a private placement (the "Private Placement") of Common
Stock, the Company issued and sold an aggregate of 8,648,716 shares of Common
Stock to certain accredited investors on July 16, October 10 and October 16,
1997, in consideration of an aggregate amount of $20.0 million. The net proceeds
to the Company after deducting commissions and expenses of Paramount Capital,
Inc., which acted as the placement agent for the Private Placement (the
"Placement Agent"), were $17.4 million.

Pursuant to the Placement Agency Agreement (the "Placement Agency
Agreement"), dated July 1, 1997, between the Company and the Placement Agent,
the Company and the Placement Agent entered into a financial advisory agreement
(the "Financial Advisory Agreement"), dated October 16, 1997, whereby the
Placement Agent will act as the Company's non-exclusive financial advisor for a
minimum period of 24 months in return for a monthly retainer of $4,000,
out-of-pocket expenses and cash and certain equity success fees in the event the
Placement Agent assists the Company in connection with certain financing,
acquisition and strategic transactions.

In connection with the Private Placement, the Company issued and
sold to the Placement Agent and/or its designees warrants (the "Placement
Warrants") to purchase up to an aggregate of 864,865 shares of Common Stock
and, in connection with the execution of the Financial Advisory Agreement,
the Company issued and sold to the Placement Agent warrants (the "Advisory
Warrants") to purchase up to an aggregate of 1,297,297 shares of Common
Stock. The Placement Warrants and the Advisory Warrants are exercisable
beginning on April 16, 1998 until April 16, 2003, at an exercise price of
$2.54375 per share, subject to adjustment under certain circumstances. The
Placement Warrants and the Advisory Warrants constitute the Warrants and the
shares of Common Stock issuable upon exercise of the Warrants, and which are
being registered, constitute the Warrant Shares. Of the Warrant Shares, an
aggregate of 2,006,482 shares of Common Stock issuable upon exercise of such
warrants are being registered pursuant to this Registration Statement.

The estimated fair value of the Placement Warrants on the date such
warrants were granted was $2.1 million, which has been recorded as a
reclassification of additional paid-in capital. The estimated fair value of the
Advisory Warrants on the date such warrants were granted was $3.16 million,
which has been recorded as a deferred cost and is being amortized to expense
over two years, the term of the agreement.

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SUBSEQUENT EVENT

Joint Venture with Elan Corporation. On January 21, 1998, the Company
announced that it had established a joint venture with Elan Corporation ("Elan")
for the exclusive research, development and commercialization of oral and
mucosal prophylactic and therapeutic vaccines. The joint venture will initially
be 80.1% owned by the Company and 19.9% owned by Elan. The new entity has
licensed on an exclusive basis Elan's drug delivery inventions, intellectual
property and existing and future patents relating to oral and mucosal delivery
technologies for the therapeutic and prophylactic vaccines for humans and
animals. The entity will pay an initial license fee to Elan, plus future
milestones and royalties.

In connection with the license agreement and joint venture, the Company
issued $8.01 million of convertible preferred stock to Elan.

As part of the transaction, Elan made a $2.0 million initial
investment in the Company through purchasing 307,692 shares of Common Stock
and warrants to acquire 230,770 shares of Common Stock at an exercise price
of $10.00 per share with a term of 6 years. In addition, the Company and Elan
are each funding an additional $1.5 million of research and development
activities during the first year of the joint venture and will continue to
fund activities of the joint venture thereafter in proportion to their
respective ownership interests.

The Joint Development and Operating Agreement between the Company
and Elan (the "Joint Development and Operating Agreement") provides for equal
control of the joint venture including representation on the joint venture's
Board of Directors and agreement of both parties for budgets and material
transactions. Therefore, the Company records the joint venture's activities
using the equity method of accounting.

Pursuant to the provisions of the Joint Development and Operating
Agreement, if a Listed Company (as defined in the Joint Development and
Operating Agreement) acquires more than a specified minimum percentage of
Endorex, Orasomal or the joint venture comapny, Elan will have the right to
terminate the Joint Development and Operating Agreement on relatively short
notice.

Pursuant to the provisions of the license agreement between the
joint venture company and Elan, the joint venture company agreed to pay to
Elan the aggregate sum of $15.0 million, upon the achievement of certain
milestones.

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RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a
high degree of risk and should not be made by any investors who cannot afford
the loss of their entire investment. In addition, this Prospectus contains
certain statements of a forward-looking nature relating to future events or the
future financial performance of the Company. Prospective investors are cautioned
that such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements and in making any investment
decisions, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth in this
"Risk Factors" section, which could cause actual results to differ materially
from those indicated by such forward-looking statements.

Need for Substantial Additional Funds, Risk of Insolvency. The
Company had approximately $16.6 million of cash, cash equivalents and
marketable securities at March 31, 1998. The Company may be required to seek
additional financing in the future to continue operations during such period
in the event of cost overruns, unanticipated expenses, a determination to
pursue additional research projects, or the failure to receive funds
anticipated from other sources. In addition to the net proceeds from the
Private Placement, the Company will require substantial additional funds to
finance its business activities on an ongoing basis. The Company's actual
future capital requirements will depend on numerous factors, including, but
not limited to, costs associated with technologies and products which it may
license from third parties, progress in its research and development
programs, including preclinical and clinical trials, costs of filing and
prosecuting patent applications and, if necessary, enforcing issued patents
or obtaining additional licenses to patents, competing technological and
market developments, the cost and timing of regulatory approvals, the ability
of the Company to establish collaborative relationships, and the cost of
establishing manufacturing, sales and marketing capabilities. The Company has
no current commitment to obtain other additional funds and is unable to state
the amount or potential source of any other additional funds.

Because of the Company's potential long-term capital requirements, it
may undertake additional equity offerings whenever conditions are favorable,
even if it does not have an immediate need for additional capital at that time.
There can be no assurance that the Company will be able to obtain additional
funding when needed, or that such funding, if available, will be obtainable on
reasonable terms. Any such additional funding may result in significant dilution
to existing stockholders. If adequate funds are not available, the Company may
be required to accept unfavorable alternatives, including (i) the delay,
reduction or elimination of research and development programs, capital
expenditures, and marketing and other operating expenses, (ii) arrangements with
collaborative partners that may require the Company to relinquish material
rights to its products that it would not otherwise relinquish, or (iii) a merger
of the Company or a sale of the Company or its assets.

Early Stage of Development. The Company is a development state
enterprise and expects no significant revenue from the sale of products in the
near future. The Company's proprietary immunomodulator, ImmTher, has completed
some Phase II clinical trials for cancer with limited response in gross
metastatic disease and its immuno-adjuvant, Theramide, has completed a Phase I
clinical trial for cancer. The Company has initiated new Phase II clinical
trials for ImmTher in treating micro-metastasis in pediatric sarcomas with a
major cancer center and plans to expand this trial to another major cancer
center. For Theramide, the Company is completing preclinical data for new phase
I trials as an adjuvant for a vaccine program. Additionally, perillyl alcohol
has completed several Phase I trials as an anti-cancer drug and has started
three Phase II trials in breast, ovarian and prostate cancers. The Company's
oral delivery technology is in the preclinical evaluation stage. As a result,
the Company must be evaluated in light of the problems, delays, uncertainties
and complications encountered in connection with early-stage biopharmaceutical
development. The risks include, but are not limited to, the possibilities that
any or all of the Company's potential products will be found to be ineffective
or toxic, or fail to receive necessary regulatory clearances in the United
States or abroad. To achieve profitable operations, the Company must
successfully develop, obtain regulatory approval for, introduce and successfully
market through a larger pharmaceutical partner, at a profit, products that are
currently in the research and development phase. The Company is currently not
profitable, and no assurance can be given that the Company's research and
development efforts will be successful, that required regulatory approvals will
be obtained, that any of the Company's proposed

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products will be safe and effective, that any such products, if developed and
introduced, will be successfully marketed or achieve market acceptance, or that
such products can be marketed at prices that will allow profitability to be
achieved or sustained. Failure of the Company to successfully develop, obtain
regulatory approval for, introduce and market its products under development
would have a material adverse effect on the business, financial condition and
results of operations of the Company.

History of Losses; Uncertainty of Future Financial Results. The
Company has experienced significant operating losses since its inception, and
expects to incur losses for the next several years. As of March 31, 1998, the
Company's accumulated deficit was $22.7 million. The amount of net losses may
vary significantly from year-to-year and quarter-to-quarter and depend on,
among other factors, the success of the Company in securing collaborative
partners and the progress of research and preclinical and clinical
development programs. The Company's ability to attain profitability will
depend, among other things, on its successfully completing development of its
product candidates, obtaining regulatory approvals, establishing
manufacturing, sales and marketing capabilities and obtaining sufficient
funds to finance its activities. There can be no assurance that the Company
will be able to achieve profitability or that profitability, if achieved, can
be sustained.

Dependence on Elan Joint Venture. As described more fully under
"Subsequent Event -- Joint Venture with Elan Corporation," the Company
recently established a joint venture with Elan in January 1998 for the
exclusive research, development and commercialization of oral and mucosal
prophylactic and therapeutic vaccines. As part of the joint venture, the
Company will be obligated to fund the Elan joint venture's research and
development activities, in an amount of approximately $1.5 million during the
first year of the joint venture and in proportion to its ownership interest
in the joint venture thereafter. In the event that the Company is unable to
have sufficient resources to meet its obligations under the Elan joint
venture, or if by meeting those funding obligations, the Company is therefore
unable to have sufficient resources to fund its other research and
development activities, such funding obligations could have a material
adverse effect on the Company's business, financial condition or results of
operations.

Limited Experience and Dependence on Third Parties for Completion of
Clinical Trials, Manufacturing and Marketing. The Company has no experience with
receipt of government approvals or marketing pharmaceutical products and has
limited experience with clinical testing and manufacturing. The Company may seek
to form alliances with established pharmaceutical companies for the testing,
manufacturing and marketing of, and pursuit of regulatory approval for, its
products. There can be no assurance that the Company will be successful in
forming such alliances or that the Company's partners would devote adequate
resources to, and successfully market, the Company's products. If the Company
instead performs such tasks itself, it will be required to develop expertise
internally or contract with third parties to perform these tasks. This will
place increased demands on the Company's resources, requiring the addition of
new management personnel and the development of additional expertise by existing
management personnel. The failure to acquire such services or to develop such
expertise could materially adversely affect prospects for the Company's success.
All of the Company's scientific and clinical advisors are employed by others and
may have commitments to or consulting or advisory contracts with other entities
that may limit their availability to the Company.

Reliance on Patents and Other Proprietary Rights. The pharmaceutical
industry places considerable importance on obtaining patent and trade secret
protection for new technologies, products and processes. The Company's success
will depend, in part, on its ability to obtain protection for its products and
technologies under United States and foreign patent laws and other intellectual
property laws, to preserve its trade secrets and to operate without infringing
the proprietary rights of third parties. There can be no assurance that the
research conducted by or on behalf of the Company will result in any patentable
technology or products. Even if patents are obtainable, the procedure for
obtaining patents is expensive, time consuming and can be subject to lengthy
litigation. No assurance can be given that patents issued to or licensed by the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company. There can
be no assurance that the Company's patent applications will be approved, that
the Company will develop additional products that are patentable, that any
issued patent will provide the Company with any competitive advantage or
adequate protection for its inventions or will not be challenged by others, or
that the patents of others will not have an adverse effect on the ability of the
Company to do business. Competitors may have filed

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applications, may have been issued patents or may obtain additional patents and
proprietary rights relating to products or processes competitive with those of
the Company. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate any of the Company's products
or design around any patented products developed by the Company. Moreover, it is
possible, with respect to some patentable items, that the Company may conclude
that better protection would be afforded by not seeking patents. Although the
Company has endeavored, and will continue to endeavor, to prevent disclosure of
any confidential information by adopting a policy to bind its scientific
advisors and scientific and management employees and consultants by
confidentiality agreements. No assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets, or that the
Company can effectively protect its rights to its unpatented trade secrets. Any
such discovery or disclosure would likely have an adverse effect on the Company.
The Company currently has several patents issued and patent applications pending
in the United States and foreign countries. Although the Company intends to
apply for additional patents, there can be no assurance that the Company will
obtain patents either under the pending applications or any future applications
or that any of its existing or any future patent will provide effective
protection against competitive products. If patent or other proprietary rights
cannot be obtained and maintained by the Company, its products may face
significantly increased competition.

The application of patent law to the area of biotechnology is
relatively new and has resulted in considerable litigation. The ability of the
Company to obtain patents, licenses and similar rights and the nature, extent
and enforceability of the intellectual property rights, if any, that are
obtained as a result of its research programs involve complex legal and factual
issues. For example, the Company is dependent upon its license of oral delivery
technology from M.I.T. and its license of perillyl alcohol from the Wisconsin
Alumni Research Foundation. No assurance can be given that the technology
underlying such license will be profitable, or that the Company will retain its
license for such technology or that the Company will obtain patent protection
outside the United States. The issues are more significant with respect to any
product based upon natural substances, for which available patent protection may
be limited due to the prior use or reported utility of such products (or their
natural sources) to treat various disorders or diseases. There can be no
assurance as to the degree of protection that proprietary rights, when and if
established, will afford the Company. To the extent that the Company relies on
trade secret protection and confidentiality agreements to protect technology,
there can be no assurance that others will not independently develop similar
technology, or otherwise obtain access to the Company's findings or research
materials embodying those findings.

There is also a substantial risk in the rapidly developing
biotechnology industry that patents and other intellectual property rights held
by the Company could be infringed by others or that products developed by the
Company or their method of manufacture could be covered by patents owned by
other companies. To the extent that any infringement should occur with respect
to any patents issued to the Company or licenses granted to the Company, or if
the Company is alleged to have infringed on patents or licenses held by others,
the Company could be faced with the expensive prospect of litigating such
claims; if the Company were to have insufficient funds on hand to finance its
litigation, it might be forced to negotiate a license with such other parties or
to otherwise resolve such a dispute on terms less favorable to the Company than
could result from successful litigation.

Uncertainty of Clinical Trials and Results. The results of clinical
trial and preclinical testing for the Company's products are subject to varying
interpretations. Furthermore, studies conducted with alternative designs or on
alternative populations could produce results that vary from those expected.
Therefore, there can be no assurance that the results or the Company's
interpretation of them will be accepted by governmental regulators or the
medical community. Even if the development of the Company's products in the
preclinical phase advances to the clinical stage, there can be no assurance that
they will prove to be safe and effective. The products that are successfully
developed, if any, will be subject to requisite regulatory approval prior to
their commercial sale, and the approval, if obtainable, may take several years.
Generally, only a very small percentage of the number of new pharmaceutical
products initially developed is approved for sale. Even if new products are
approved for sale, there can be no assurance that they will be commercially
successful. The Company may encounter unanticipated problems relating to
development, manufacturing, distribution and marketing, some of which may be
beyond the Company's financial and technical capacity to solve. The failure to
address such problems adequately could have a material

7
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adverse effect on the Company's business, financial condition or results of
operations. No assurance can be given that the Company will succeed in the
development and marketing of any new drug products, or that they will not be
rendered obsolete by products of competitors.

Uncertainty of Health Care Reform Measures. Federal, state and local
officials and legislators (and certain foreign government officials and
legislators) have proposed or are reportedly considering proposing a variety of
reforms to the health care systems in the United States and abroad. The Company
cannot predict what health care reform legislation, if any, will be enacted in
the United States or elsewhere. Significant changes in the health care system in
the United States or elsewhere are likely to have a substantial impact over time
on the manner in which the Company conducts its business. Such proposals and
changes could have a material adverse effect on the Company's ability to raise
capital. Furthermore, the Company's ability to commercialize its potential
products may be adversely affected to the extent that such proposals have a
material adverse effect on the business, financial condition and profitability
of other companies that are prospective corporate partners with respect to
certain of the Company's proposed products.

Uncertain Extent of Price Flexibility and Third-Party Reimbursement.
The Company's ability to commercialize its products successfully will depend in
part on the extent to which appropriate reimbursement levels for the cost of
such products and related treatment are obtained from government authorities,
private health insurers and other organizations, such as health maintenance
organizations ("HMOs"). Third party payers are increasingly challenging the
prices charged for medical products and services. Also, the trend towards
managed health care in the United States and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the
purchase of health care services and products, as well as legislative proposals
to reduce government insurance programs, may all result in lower prices for the
Company's products. The cost containment measures that health care providers are
instituting could affect the Company's ability to sell its products and may have
a material adverse effect on the Company.

Government Regulation; Need for FDA and Other Regulatory Approval.
Prior to marketing, each of the Company's products must undergo an extensive
regulatory approval process conducted by the U.S. Food and Drug Administration
(the "FDA") and applicable agencies in other countries. The process, which
focuses on safety and efficacy and includes a review by the FDA of preclinical
testing and clinical trials and investigating as to whether good laboratory and
clinical practices were maintained during testing, takes many years and requires
the expenditure of substantial resources. The Company is, and will be dependent
on the external laboratories and medical institutions conducting its preclinical
testing and clinical trials to maintain both good laboratory practices
established by the FDA and good clinical practices. Data obtained from
preclinical and clinical testing are subject to varying interpretations which
could delay, limit or prevent regulatory approval. In addition, delays or
rejection may be encountered based upon changes in FDA policy for drug approval
during the period of development and by the requirement for regulatory review of
each submitted Product License Approval or New Drug Application. There can be no
assurance that, even after such time and expenditures, regulatory approval will
be obtained for any of the Company's product candidates. Moreover, such approval
may entail significant limitations on the indicated uses for which a drug may be
marketed. Even if such regulatory approval is obtained, a marketed therapeutic
product and its manufacturer are subject to continual regulatory review, and
later discovery of previously unknown problems with a product or manufacturer
may result in restrictions on such product or manufacturing, including
withdrawal of such product from the market. Change in the manufacturing
procedures used by the Company for any of the Company's approved drugs are
subject to FDA review, which could have an adverse effect upon the Company's
ability to continue the commercialization or sale of a drug. The process of
obtaining FDA and foreign regulatory approval is costly and time consuming, and
there can be no assurance that any product that the Company may develop will be
deemed to be safe and effective by the FDA. The Company will not be permitted to
market any product it may develop in any jurisdiction in which the product does
not receive regulatory approval.

The Company is also subject to various foreign, federal, state and
local laws, regulations and recommendations (collectively "Governmental
Regulations") relating to safe working conditions, laboratory and manufacturing
practices, the experimental use of animals and the use, manufacture, storage,
handling and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents,

8
<PAGE>

used in connection with the Company's research and development work and
manufacturing processes. Included in this area is Good Manufacturing Practices
("GMP") compliance and its European equivalent, ISO 9000. Currently, the
Company's manufacturing activities for preclinical and clinical supplies are not
fully in GMP compliance, although the Company expects to reach full compliance
in the near future. There can be no assurance that the Company will achieve such
compliance. Although the Company believes it is in compliance with all other
Governmental Regulations in all material respects there can be no assurance that
the Company will not be required to incur significant costs to comply with
Governmental Regulations in the future.

Competition; Technological Change. There is substantial competition in
the pharmaceutical field in general and in vaccine development and lyposomal
formulation in particular. The Company's competitors include companies with
financial resources, and licensing, research and development staffs and
facilities substantially greater than those of the Company. Competitors in the
vaccine development field include major pharmaceutical companies, specialized
biotechnology firms, universities and governmental agencies, including American
Home Products, the Merck Company, SmithKline Beecham, MedImmune, Aviron and
Chiron. Competitors in the liposomal formulation field include The Liposome
Company, NexStar and Sequus. Competitors in the field of the oral delivery of
drugs include Emisphere, which is currently in Phase I trials for oral heparin
and in preclinical development with an oral human growth hormone, and Cortecs,
which has several products in clinical development. Many competitors have
greater experience than the Company in undertaking preclinical testing and
clinical trials and obtaining FDA and other regulatory approvals. There can be
no assurance that the Company's competitors will not succeed in developing
similar technologies and products more rapidly than the Company and that these
technologies and products will not be more effective than any of those that are
being or will be developed by the Company, or that such competitors'
technologies and products will not render the Company's technologies and
products obsolete or noncompetitive.

Manufacturing and Marketing Capabilities. The Company does not now
have, and probably will not have in the foreseeable future, the resources to
manufacture or directly market on a large commercial scale any products which it
may develop. In connection with the Company's research and development
activities, it will seek to enter into collaborative arrangements with
pharmaceutical companies to assist in funding development costs, including the
costs of clinical testing necessary to obtain regulatory approvals. It is
expected that these entities will also be responsible for commercial scale
manufacturing which must be in compliance with applicable FDA regulations. The
Company anticipates that such arrangements may involve the grant by the Company
of the exclusive or semi-exclusive right to sell specific products to specified
market segments in particular geographic territories in exchange for a royalty,
joint venture, future co-marketing or other financial interest. The Company
believes that these arrangements will be more effective in promoting and
distributing therapeutic products in the United States in view of the Company's
limited resources and the extensive marketing networks and large advertising
budgets of large pharmaceutical companies. To date, the Company has not entered
into any collaborative marketing agreements or distributorship arrangements for
any of its proposed products and there can be no assurance that the Company will
be able to enter into any such arrangements on favorable terms or at all. The
Company may ultimately determine to establish its own manufacturing and/or
marketing capability, at least for certain products, in which case it will
require substantial additional funds and personnel.

Use of Hazardous Materials; Environmental Matters. The Company's
research and development involves the controlled use of small quantities of
hazardous materials, chemicals and various radioactive compounds. Although the
Company believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by federal, state and local
regulations, the risk of accidental contamination or injury from these materials
cannot be eliminated. In the event of such an accident, the Company could be
held liable for any resulting damages, and any such liability could exceed the
resources of the Company. There can be no assurance that the Company will not be
required to incur significant costs to comply with environmental laws and
regulations in the future, nor that the operations, business or assets of the
Company will not be materially adversely affected by current or future
environmental laws or regulations.

Product Liability Exposure; Limited Insurance Coverage. The testing and
marketing of pharmaceutical products entails an inherent risk of exposure to
product liability claims from adverse effects of products. The

9
<PAGE>

Company has obtained liability insurance with limits of liability of $1.0
million for each claim and $3.0 million in the aggregate. There is no assurance
that current or future policy limits will be sufficient to cover all possible
liabilities. Further, there can be no assurance that adequate product liability
insurance will continue to be available in the future or that it can be
maintained at reasonable costs to the Company. In the event of a successful
product liability claim against the Company, lack or insufficiency of insurance
coverage could have an adverse effect on the Company.

Dependence on Key Personnel and Scientific Advisors; Evolution of
Management. The Company is dependent on the principal members of its management
and scientific staff, the loss of whose services could impede the achievement of
development objectives. Furthermore, as the Company's focus evolves, the
Company's need for certain skills may diminish and the need for other skills may
arise. Thus, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to the
Company's success and may lead to further evolution of the Company's management.
Although the Company believes it will be successful in attracting and retaining
skilled and experienced scientific personnel, there can be no assurance that the
Company will be able to attract and retain such personnel on acceptable terms
given the competition among numerous pharmaceutical and health care companies,
universities and non-profit research institutions for experienced scientists and
managers.

The Company's scientific advisors are employed on a full-time basis by
unrelated employers and some have one or more consulting or other advisory
arrangements with other entities which at times may conflict with their
obligations to the Company. Inventions or processes discovered by such persons,
other than those to which the Company's licenses relate, or those for which the
Company is able to acquire licenses or those which were invented while
performing consulting services under contract to the Company, will most likely
not become the property of the Company, but will remain the property of such
persons or such persons' full-time employers. Failure to obtain needed patents,
licenses or proprietary information held by others could have a material adverse
effect on the Company's business, financial condition or results of operations.

Limited Personnel; Dependence on Contractors. As of the date of
this Prospectus, the Company has 17 full-time employees. With these
exceptions, the Company relies, and for the foreseeable future will rely, on
certain independent organizations, advisors and consultants to provide
certain services with regard to clinical research. There can be no assurance
that their services will continue to be available to the Company on a timely
basis when needed, or that the Company could find qualified replacements. The
Company's advisors and consultants generally sign agreements that provide for
confidentiality of the Company's proprietary information. However, there can
be no assurance that the Company will be able to maintain the confidentiality
of the Company's technology, the dissemination of which could have a material
adverse effect on the Company's business, financial condition or results of
operations.

Conducting Business Abroad. Although the Company currently does not
conduct business outside the United States, it is in discussions with potential
strategic partners for the in-licensing and out-licensing of technology and the
development and marketing of its products. No assurance can be given that the
Company will be able to establish arrangements covering foreign countries, that
the necessary foreign regulatory approvals for its product candidates will be
obtained, that foreign patent coverage will be available or that the development
and marketing of its products through such licenses, joint ventures or other
arrangements will be commercially successful. The Company may also have greater
difficulty obtaining proprietary protection for its products and technologies
outside the United States rather than in it, and enforcing its rights in foreign
courts rather than in United States courts.

Limited Availability of Net Operating Loss Carry Forwards. For Federal
income tax purposes, net operating loss and tax credit carryforwards as of
December 31, 1997 are approximately $5.2 million and $322,000, respectively.
These carryforwards will expire beginning in 2004 through 2011. The Tax Reform
Act of 1986 provided for a limitation on the use of net operating loss and tax
credit carryforwards following certain ownership changes. The Company believes
that the Private Placement, together with certain prior issuances of Common
Stock, is likely to restrict severely the Company's ability to utilize its net
operating losses and tax credits. Additionally, because U.S. tax laws limit the
time during which net operating loss and tax credit carryforwards may be applied

10
<PAGE>

against future taxable income tax liabilities, the Company may not be able to
fully utilize its net operating loss and tax credits for federal income tax
purposes.

Potential Volatility of Price; Low Trading Volume. The market price of
the Common Stock, like that of many other development-stage public
pharmaceutical or biotechnology companies, has been highly volatile and may
continue to be in the future. Factors such as announcements of technological
innovations or new commercial products by the Company or its competitors,
disclosure of results of preclinical and clinical testing, adverse reactions to
products, governmental regulation and approvals, developments in patent or other
proprietary rights, public or regulatory agency concerns as to the safety of
products developed by the Company and general market conditions may have a
significant effect on the market price of the Common Stock and its other equity
securities. In addition, in general, the Common Stock has been thinly traded on
the OTC Bulletin Board, which may affect the ability of the Company's
stockholders to sell shares of the Common Stock in the public market. There can
be no assurance that a more active trading market will develop in the future.

Risks of Low-Priced Stock; Possible Effect of "Penny Stock" Rules on
Liquidity for the Company's Securities. Since the Company's securities are not
listed on a national securities exchange nor listed on a qualified automated
quotation system, they are, under certain circumstances, subject to Rule 15g-9
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which imposes additional sales practice requirements on broker-dealers that sell
such securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1.0 million or
annual incomes exceeding $200,000 or $300,000 together with their spouses). For
transactions covered by this Rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
affect the ability of broker-dealers to sell the Company's securities and may
materially adversely affect the ability of purchasers in this Offering to sell
any of the securities acquired hereby, after subsequent registration, in the
secondary market.

The SEC has adopted regulations that define a "penny stock" to be any
equity security that has a market price (as therein defined) of less than $5.00
per share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the SEC relating to the penny stock market.
Disclosure is also required to be made about sales commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock.

The foregoing required penny stock restrictions will not apply to the
Company's securities so long as the Company meets certain minimum net tangible
assets or average revenue criteria. Even while the Company's securities are
exempt from such restrictions, the Company would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any
person from participating in a distribution of penny stock, if the SEC finds
that such a restriction would be in the public interest.

Dividends. The Company has never paid cash dividends on its Common
Stock and does not anticipate paying any such dividends in the foreseeable
future. The Company currently intends to retain its earnings, if any, for the
development of its business.

Certain Interlocking Relationships; Potential Conflicts of Interest.
Steve H. Kanzer, C.P.A., Esq., a director of the Company, is a Senior Managing
Director of the Placement Agent. See "Description of Private Placement."
Paramount Capital Asset Management, Inc. ("PCAM") is the investment manager and
general partner of The Aries Fund, a Cayman Island Trust, and the Aries Domestic
Fund, L.P., respectively. Lindsay A. Rosenwald, M.D., the President and sole
stockholder of PCAM, is also the President and sole stockholder of the Placement
Agent. Dr. Rosenwald is also President and sole stockholder of Paramount Capital
Investment LLC, a merchant banking and venture capital firm specializing in
biotechnology companies ("PCI"). In addition, certain officers, employees and/or
associates of the Placement Agent and/or its affiliates own securities in the
Company's

11
<PAGE>

subsidiaries. In the regular course of its business, PCI identifies, evaluates
and pursues investment opportunities in biomedical and pharmaceutical products,
technologies and companies. Generally, Delaware corporate law requires that any
transactions between the Company and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to the Company as those
then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither such affiliates nor PCI is
obligated pursuant to any agreement or understanding with the Company to make
any additional products or technologies available to the Company, nor can there
be any assurance, and the Company does not expect and purchasers of the
securities offered hereby should not expect, that any biomedical or
pharmaceutical product or technology identified by such affiliates or PCI in the
future will be made available to the Company. In addition, certain of the
current officers and directors of the Company or certain of any officers or
directors of the company hereafter appointed may from time to time serve as
officers or directors of other biopharmaceutical or biotechnology companies.
There can be no assurance that such other companies will not have interests in
conflict with those of the Company.

Concentration of Ownership and Control. The Company's directors,
executive officers and principal stockholders and certain of their affiliates
have the ability to influence the election of the Company's directors and most
other stockholder actions. In particular, pursuant to the Placement Agency
Agreement, so long as 50% of the Private Placement Shares remain outstanding and
subject contractual rights described in the subscription agreement between the
Company and each signatory thereto (the "Subscription Agreements"), the Company
may not do any of the following without the Placement Agent's prior approval:
(i) issue or increase the authorized amount or alter the terms of any securities
of the Company senior to, or on parity with, the Private Placement Shares with
respect to voting, liquidation or dividends, (ii) alter the Company's charter
documents in any manner that would adversely affect the relative rights,
preferences, qualifications, limitations or restrictions of the Private
Placement Shares or of certain contractual rights described in the Subscription
Agreements, (iii) incur indebtedness in excess of $1.0 million, (iv) incorporate
or acquire any subsidiaries and (v) enter any transactions with affiliates of
the Company. In addition, the Company's Board of Directors cannot exceed seven
persons without the prior written consent of the Placement Agent. These
arrangements may discourage or prevent any proposed takeover of the Company,
including transactions in which stockholders might otherwise receive a premium
for their shares over the then current market prices. Such stockholders may
influence corporate actions, including influencing elections of directors and
significant corporate events. See also, "--Certain Interlocking Relationships;
Potential Conflicts of Interest."

12
<PAGE>

ISSUANCE OF THE WARRANT SHARES AND USE OF PROCEEDS

The Warrant Shares are issuable by the Company to certain Selling
Stockholders pursuant to an exemption from registration under the Securities Act
upon the exercise of outstanding Warrants. The aggregate gross proceeds that the
Company could receive on the exercise of all of the outstanding Warrants being
registered hereunder is $5.1 million (assuming an exercise price of $2.54375,
the current exercise price of the Warrants). The exercise price of the Warrants
is subject to adjustment under certain circumstances including if the Company
issues shares of its Common Stock below the average closing bid price of the
Common Stock on the OTC Bulletin Board, or such other exchange on which the
Common Stock is traded, for the 20 consecutive trading days ending on the
trading day immediately prior to the date on which such price is being
determined. No adjustment to the Warrants' exercise price is required if, among
other events, the Company issues shares of its Common Stock pursuant to a stock
option plan approved by the Company's Board of Directors.

The Company intends to use net proceeds, if any, from the exercise of
the Warrants for general corporate purposes, including working capital. None of
the proceeds from the sale of the Shares will be received by the Company.

SELLING STOCKHOLDERS

The following table sets forth the names of the Selling Stockholders
and the number of shares being registered for sale hereby as of the date of the
Prospectus and sets forth the number of shares of Common Stock known by the
Company to be beneficially owned by each of the Selling Stockholders as of
December 31, 1997. Except as indicated, none of the Selling Stockholders has had
a material relationship with the Company within the past three years other than
as a result of the ownership of the Shares or other securities of the Company.
The Shares offered by this Prospectus may be offered from time to time by the
Selling Stockholders. See "Plan of Distribution."

</TABLE>

13
<PAGE>

Beneficial Ownership
After Offering(1)
Number of Shares Number of Shares
Beneficially Owned Registered Number
Name of Selling Shareholder Prior to Offering for Sale Hereby of Shares Percent
- --------------------------- --------------------- --------------------- --------------- ----------
<S> <C> <C> <C> <C>
Biren-Fetz Family Rev. Trust............... 10,811 10,811 0 *
Braver, David.............................. 10,811 10,811 0 *
Broidy, Elliott............................ 21,622 21,622 0 *
BRT Partnership Solomon A. Weisgal
Trustee/Partner.......................... 43,244 43,244 0 *
Burgess, Helene............................ 21,622 21,622 0 *
Cambrian Investments Limited
Partnership.............................. 10,811 10,811 0 *
Cass and Co.-Magnum Capital Growth
Fund..................................... 43,244 43,244 0 *
Cass, Rosemary............................. 8,649 8,649 0 *
CHI Trust.................................. 10,811 10,811 0 *
Conrads, Robert J.......................... 21,622 21,622 0 *
Cox, Archibald, Jr......................... 64,865 64,865 0 *
Curran, John P............................. 10,811 10,811 0 *
Dale and Kim Sefarian...................... 10,811 10,811 0 *
David Wilstein and Susan Wilstein, Ttee
of The Century Trust dated 12/18/94...... 43,244 43,244 0 *
Donald E. and Virginia V. Vinson Trust..... 10,811 10,811 0 *
Doyle, J. William.......................... 21,622 21,622 0 *
Drapkin, Donald G.......................... 43,244 43,244 0 *
Drax Holdings, LP.......................... 216,217 216,217 0 *
Edelman, Joseph (4)........................ 8,702 8,702 0 *
Elkon, Sheila J............................ 8,649 8,649 0 *
Evans, T. Cartter.......................... 17,298 17,298 0 *
Evans, Todd................................ 25,946 25,946 0 *
Everett, Willis M. III..................... 17,298 17,298 0 *
Faisal Finance (Switzerland) S.A........... 129,730 129,730 0 *
Falk, Robert I............................. 43,244 43,244 0 *
Fischer, Lauren (5)........................ 1,000 1,000 0 *
Florin, Marc (6)........................... 9,081 9,081 0 *
Frese Family Trust dated 4/1/96............ 10,811 10,811 0 *
Fried, Albert, Jr.......................... 86,487 86,487 0 *
Frolich, Craig S........................... 10,811 10,811 0 *
Frolich, David J. and Terri A.............. 10,811 10,811 0 *
Gerald and Gloria Frolich, JT Tenants...... 10,811 10,811 0 *
Fukui, Kenichi............................. 394 394 0 *
Giamanco, Joseph........................... 21,622 21,622 0 *
Giant Trading, Inc......................... 43,244 43,244 0 *
Gilbert Goldstein, Paul Shapiro Trustees
UIT Howard Gittis, dated 12/23/88........ 54,055 54,055 0 *
Gittis, Howard............................. 54,055 54,055 0 *
Gordon, Michael J.......................... 5,406 5,406 0 *
Greenberg, Alan Neil and Joy M. JT......... 21,622 21,622 0 *
Grody, Rachel K............................ 12,973 12,973 0 *
Gross, Bernhard (7)........................ 4,865 4,865 0 *
Harold Grossman, Ttee, The Grossman
Family Trust............................. 10,811 10,811 0 *
Harrigan Family Trust...................... 10,811 10,811 0 *
Henry, Steven T. and Frances M............. 10,811 10,811 0 *
Heritage Finance and Trust Co.............. 216,217 216,217 0 *
Hikari Power............................... 43,244 43,244 0 *

</TABLE>

14
<PAGE>

Beneficial Ownership
After Offering(1)
Number of Shares Number of Shares
Beneficially Owned Registered Number
Name of Selling Shareholder Prior to Offering for Sale Hereby of Shares Percent
- --------------------------- --------------------- --------------------- --------------- ----------
<S> <C> <C> <C> <C>
Hilti Invest Limited (State Street Bank
GmbH).................................... 108,109 108,109 0 *
HJK, LLC................................... 86,487 86,487 0 *
Horowitz Family Trust, Richard M.
Horowitz, Trustee........................ 10,811 10,811 0 *
Hyman Lezell Rev. Trust.................... 21,622 21,622 0 *
IMS Global Investments X Ltd............... 345,946 345,946 0 *
Ivan Kaufman Grantor Retained Annuity
Trust.................................... 86,487 86,487 0 *
J.F. Shea Co., Inc. as Nominee 1997-50..... 216,217 216,217 0 *
Jackson Hole Investments Acquisitions LP... 21,622 21,622 0 *
John S. Osterweis, Ttee, The Osterweis
Revocable Trust UA dated 9/13/93......... 10,811 10,811 0 *
Joshua Black Trust......................... 10,811 10,811 0 *
Kapito, Robert S........................... 21,622 21,622 0 *
Karen Cook IRA............................. 8,649 8,649 0 *
Kash, Peter (8)............................ 108,822 108,822 0 *
Kash, Peter and Donna JTWROS (9)........... 10,811 10,811 0 *
Katzmann, Scott A. (10).................... 63,289 63,289 0 *
Keesee, Thomas W. III and Angela O.B.
de Mello................................. 10,811 10,811 0 *
Kehaya, Ery W.............................. 21,622 21,622 0 *
Keio University............................ 432,433 432,433 0 *
Kendall, Donald R. Jr...................... 21,622 21,622 0 *
Kessel, Shirley S.......................... 10,811 10,811 0 *
Keys Foundation Curacao, Netherland
Antilles................................. 129,730 129,730 0 *
Kimtar Investments LLC..................... 172,973 172,973 0 *
Kohut, Richard............................. 10,811 10,811 0 *
Kratchman, Martin S. (11).................. 32,649 32,649 0 *
L and D Partnership........................ 10,811 10,811 0 *
Lebovitz, Stephen H........................ 10,811 10,811 0 *
Lenz Family Trust.......................... 10,811 10,811 0 *
Leo A. Small and Shelle D. Small........... 10,811 10,811 0 *
Levine, Jeff (12).......................... 10,811 10,811 0 *
LGT Bank in Liechtenstein AG............... 43,244 43,244 0 *
Lisenby, S. Alan........................... 10,811 10,811 0 *
Loeb, John L., Jr.......................... 10,811 10,811 0 *
Lydecker, Richard A. and Gay C............. 2,163 2,163 0 *
Maeda, Susumu.............................. 43,244 43,244 0 *
Maidenhair NV.............................. 43,244 43,244 0 *
McInerney, Tim (13)........................ 1,946 1,946 0 *
MDBC Capital Corp.......................... 21,622 21,622 0 *
Mega International Corp.................... 21,622 21,622 0 *
Metzger, William and Katharine............. 10,811 10,811 0 *
Meyer, Maurice III......................... 10,811 10,811 0 *
MHR Capital Partners L.P................... 432,433 432,433 0 *
Michael G. Jesselson 12/18/80 Trust........ 86,487 86,487 0 *
Michael L. and Sherry R. Andrade,
Co-Ttees of MandS Andrade Rev. TR.
For Comm. and Sep. Property UA dtd
10-14-74, as amended..................... 10,811 10,811 0 *
Michael L. Metter, SEP-IRA................. 21,622 21,622 0 *

</TABLE>

15
<PAGE>

Beneficial Ownership
After Offering(1)
Number of Shares Number of Shares
Beneficially Owned Registered Number
Name of Selling Shareholder Prior to Offering for Sale Hereby of Shares Percent
- --------------------------- --------------------- --------------------- --------------- ----------
<S> <C> <C> <C> <C>
Moonlight International, Ltd............... 21,622 21,622 0 *
Moscati, Leonard F......................... 86,487 86,487 0 *
Mullen, Michael A.......................... 10,811 10,811 0 *
Nagle, Arthur J............................ 10,811 10,811 0 *
Negrin, Renato............................. 21,622 21,622 0 *
Nomura Bank (Switzerland) Ltd.............. 108,109 108,109 0 *
Oct 1983 Trust FBO Jesselson
Grandchildren............................ 216,217 216,217 0 *
Oretexga Ltd. Partnership.................. 15,136 15,136 0 *
Ostrovsky, Paul D. and Rebecca L........... 6,487 6,487 0 *
Ostrovsky, Steven N........................ 10,811 10,811 0 *
Oxcal Venture Fund LP...................... 43,244 43,244 0 *
Palmetto Partners, Ltd..................... 86,487 86,487 0 *
Pellizzon, Gregory P. and Christine K.,
JTWROS................................... 10,811 10,811 0 *
Pellizzon, Peter and Pamela................ 10,811 10,811 0 *
Pequot Scout Fund, L.P..................... 216,217 216,217 0 *
Prager, Tis................................ 21,622 21,622 0 *
Privat Kredit Bank......................... 172,973 172,973 0 *
Richard B. Chanin, IRA..................... 17,298 17,298 0 *
Rick Steiner Productions, Inc.............. 12,973 12,973 0 *
Robert and Evelyn Elliott Trust............ 10,811 10,811 0 *
Robert L. Spint, Ttee, Robert L. Spint TR
UD dated 10/19/89........................ 10,811 10,811 0 *
Robert, Stephen............................ 43,244 43,244 0 *
Rosenwald, Lindsay A. (14)................. 1,434,032 1,434,032 0 *
Rubin, Wayne, L. (15)...................... 44,758 44,758 0 *
Ruggeberg, Karl (16)....................... 11,875 11,875 0 *
Ruttenberg, David W........................ 10,811 10,811 0 *
Sagres Group Ltd. (17)..................... 152,216 152,216 0 *
Sanger Investments......................... 6,487 6,487 0 *
Schlotterbeck, Robert...................... 10,811 10,811 0 *
Schonzeit, Andrew.......................... 21,622 21,622 0 *
Schwinger, Scott E......................... 2,163 2,163 0 *
Shimoko, Michael J......................... 1,180 1,180 0 *
Silverman, Jeffrey S....................... 32,433 32,433 0 *
Slovin, Bruce.............................. 43,244 43,244 0 *
Solomon, Deborah (18)...................... 5,405 5,405 0 *
SPARX Overseas Ltd. (19)................... 19,949 19,949 0 *
Spear, Leeds and Kellogg................... 108,109 108,109 0 *
Steinhardt, Michael H...................... 43,244 43,244 0 *
Stern, James D............................. 10,811 10,811 0 *
Stern Joint Venture, L.P................... 43,244 43,244 0 *
Stern, Richard J........................... 43,244 43,244 0 *
Subbah, M.D................................ 43,244 43,244 0 *
Suppa, Enrico.............................. 10,811 10,811 0 *
Taub, Hindy................................ 21,622 21,622 0 *
Tauber, Herman............................. 21,622 21,622 0 *
Teitelbaum, Myron M., M.D.................. 10,811 10,811 0 *
The 1992 Houston Partnership, L.P.......... 43,244 43,244 0 *
The Aries Fund (20)........................ 1,742,980 1,233,746 509,234 5.2
Thomas L. Cassidy.......................... 21,622 21,622 0 *
Tokenhouse Trading Company Limited......... 43,244 43,244 0 *

</TABLE>

16
<PAGE>

</TABLE>

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

* Less than 1%.

(1) The figures for the number of shares and the percentage of shares
beneficially owned by the Selling Stockholders after the offering are
based on the assumption that all of the Selling Stockholders will sell
all of the shares registered for sale hereby. See "Plan of
Distribution."

(2) Consists of 1,297 shares issuable upon exercise of a Warrant held by
such person. Mr. Abeshouse is an employee of the Placement Agent.

(3) Includes 56,533 shares issuable upon exercise of a Warrant and 23,333
shares issuable upon a warrant exercisable until May 19, 2002 at a
price of $2.54375 each held by such entity. Lindsay A. Rosenwald, M.D.
is the president and sole shareholder of PCAM, the general partner of
the Aries Domestic Fund, L.P. Dr. Rosenwald and PCAM share the power to
vote and/or dispose of the shares of Common Stock held by the Aries
Domestic Fund, L.P., but disclaim beneficial ownership thereof except
to the extent of their pecuniary interest therein, if any. See "Risk
Factors -- Certain Interlocking Relationships; Potential Conflicts of
Interest" "Risk Factors -- Concentration of Ownership and Control" for
a description of certain material relationships between the Aries
Domestic Fund, L.P. and the Company. See also "Description of Private
Placement."

(4) Consists of 8,702 shares issuable upon exercise of a Warrant held by
such person. Mr. Edelman is an employee of the Placement Agent.

(5) Consists of 1,000 shares issuable upon exercise of a Warrant held by
such person. Ms. Fischer is an employee of the Placement Agent.

(6) Consists of 9,081 shares issuable upon exercise of a Warrant held by
such person. Mr. Florin is an employee of the Placement Agent.

(7) Consists of 4,865 shares issuable upon exercise of a Warrant held by
such person. Mr. Gross is an employee of the Placement Agent.

17
<PAGE>

(8) Consists of 108,822 shares issuable upon exercise of a Warrant held by
such person. Mr. Kash is a Senior Managing Director of the Placement
Agent.

(9) Peter Kash is a Senior Managing Director of the Placement Agent.

(10) Consists of 63,289 shares issuable upon exercise of a Warrant held by
such person. Mr. Katzmann is an employee of the Placement Agent.

(11) Consists of 32,649 shares issuable upon exercise of a Warrant held by
such person. Mr. Kratchman is an employee of the Placement Agent.

(12) Consists of 10,811 shares issuable upon exercise of a Warrant held by
such person. Mr. Levine is an employee of the Placement Agent.

(13) Consists of 1,946 shares issuable upon exercise of a Warrant held by
such person. Mr. McInerney is an employee of the Placement Agent.

(14) Consists of 1,434,032 shares issuable upon exercise of a Warrant held
by such person. See Note 7 to the consolidated financial statements,
"Risk Factors -- Certain Interlocking Relationships; Potential
Conflicts of Interest" and "Risk Factors -- Concentration of Ownership
and Control" for a description of certain material relationships
between Dr. Rosenwald and the Company.

(15) Consists of 44,758 shares issuable upon exercise of a Warrant held by
such person. Mr. Rubin is an employee of the Placement Agent.

(16) Consists of 11,875 shares issuable upon exercise of a Warrant held by
such person. Mr. Ruggeberg is an employee of the Placement Agent.

(17) Includes 22,486 shares issuable upon exercise of a Warrant held by
such entity.

(18) Consists of 5,405 shares issuable upon exercise of a Warrant held by
such person. Ms. Solomon is an employee of the Placement Agent.

(19) Consists of 19,949 shares issuable upon exercise of a Warrant held by
such entity.

(20) Includes 112,159 shares issuable upon exercise of a Warrant and 43,334
shares issuable upon exercise of a warrant exercisable until May 19,
2002 at $2.54375 each held by such entity. Lindsay A. Rosenwald, M.D.
is the president and sole shareholder of PCAM, the investment manager
of The Aries Fund, a Cayman Island trust. Dr. Rosenwald and PCAM share
the power to vote and/or dispose of the shares of Common Stock held by
The Aries Fund, but disclaim beneficial ownership thereof except to the
extent of their pecuniary interest therein, if any. See "Risk Factors
-- Certain Interlocking Relationships; Potential Conflicts of Interest"
and "Risk Factors -- Concentration of Ownership and Control" for a
description of certain material relationships between The Aries Fund
and the Company. See also "Description of Private Placement."

(21) Consists of 6,370 shares issuable upon exercise of a Warrant held by
such person. Mr. Walner is an employee of the Placement Agent.

(22) Consists of 47,704 shares issuable upon exercise of a Warrant held by
such person. Mr. Weiss is an employee of the Placement Agent.

18
<PAGE>

Of the Shares being offered hereby, the Private Placement Shares were
acquired by the Selling Stockholders from the Company in the Private Placement
and the Warrant Shares were acquired by the Placement Agent and/or its designees
in connection with the Private Placement and the execution of the Financial
Advisory Agreement. See "Description of Private Placement." Assuming the
exercise of all the outstanding Warrants, the Warrant Shares will be acquired by
the Selling Stockholders at a purchase price per share of $2.54375, subject to
adjustment under certain circumstances. The Shares are being included in this
offering as a result of certain contractual arrangements with the Selling
Stockholders. The Company has agreed to bear the expenses (other than selling
commissions and fees and expenses of certain advisors to the Selling
Stockholders) in connection with the registration of the Shares.

The sale of Shares by "affiliates" (as such term is defined in Rule
144(a) under the Securities Act) are subject to the volume and manner of sale
restrictions set forth in Rule 144. The Company has agreed to prepare and file
such amendments and supplements to the Registration Statement as may be
necessary to keep this Registration Statement effective until such date as the
holders of the Shares have completed the distribution described herein or until
such time that the Shares are no longer, by reason of Rule 144(k) under the
Securities Act, required to be registered.

The Private Placement Shares to which this Prospectus relates are
subject to a partial, diminishing lock-up for a period of up to nine months
after the effective date (the "Effective Date") of the Registration Statement
of which this Prospectus forms a part. Without the prior written consent of
the Placement Agent, the holders of such shares may not directly or
indirectly sell or otherwise dispose of such according to the following
schedule: 50% of such shares are subject to lock-up until three months after
the Effective Date; and 25% of such shares are subject to lock-up until six
months after the Effective Date. The remaining 50% of such shares are not
subject to any lock-up restriction.

19
<PAGE>

PLAN OF DISTRIBUTION

The Shares covered hereby may be offered and sold from time to time by
the Selling Stockholders, pursuant to this Prospectus or Rule 144 under the
Securities Act (or any other applicable exemption from registration under the
Securities Act). The Selling Stockholders will act independently of the Company
in making decisions with respect to the timing, manner and size of each sale.
The Selling Stockholders may sell the Shares being offered hereby in one or more
transactions, including block transactions, in the over-the-counter market, on
any Exchange pursuant to and in accordance with the applicable rules of such
Exchanges, in negotiated transactions or in a combination of any such methods of
sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices.

The Shares may be offered directly, to or through agents designated
from time to time or through brokers or dealers, or through any combination of
these methods of sale. Such agent, broker or dealer may receive compensation in
the form of discounts, concessions or commissions from the Selling Stockholders
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). A member
firm of an Exchange may be engaged to act as the Selling Stockholder's agent in
the sale of Shares by the Selling Stockholder. Brokerage fees will be paid by
the Selling Stockholders.

At the time a particular offer of Shares is made, to the extent
required, a supplemental Prospectus will be distributed which will set forth the
number of Shares being offered and the terms of the offering including the name
or names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the Shares purchased from Selling Stockholders, any discounts,
commissions and other items constituting compensation from the Selling
Stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to dealers.

In order to comply with the securities laws of the states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain of these
states the Shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by the Selling
Stockholders, the Company and the brokers or dealers.

The sale of Shares by affiliates are subject to the volume and manner
of sale restrictions set forth in Rule 144.

The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Selling Stockholder Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Company has
agreed to indemnify certain Selling Stockholders and their affiliates against
certain liabilities, including liabilities under the Securities Act. Certain
Selling Stockholders have agreed to indemnify the Company and its affiliates
against certain liabilities, including liabilities under the Securities Act.

Certain Selling Stockholders may from time to time purchase shares of
Common Stock in the open market. These Selling Shareholders will be notified
that they should not commence any distribution of Selling Stockholder Shares
unless they have terminated their purchasing and bidding for Common Stock in the
open market as provided in applicable securities regulations, including, without
limitation, Regulation M.

The Company has agreed to bear the expenses (other than selling
commissions and fees and expenses of certain advisors to the Selling
Stockholders) in connection with the registration of the Shares.

20
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.001 per share, and 500,000 shares of Preferred Stock,
par value $.05 per share.

Common Stock

As of May 13, 1998, there were 9,936,000 shares of Common Stock
outstanding, which were held of record by approximately 1,138 stockholders.

The Warrants are exercisable beginning on April 16, 1998 until April
16, 2003, at an exercise price of $2.54375 per share, subject to adjustment
under certain circumstances (as more fully described under "Issuance of the
Warrant Shares and Use of Proceeds"). The Warrants contain a cashless exercise
feature, pursuant to which the holder of the Warrant may exchange its Warrant
for that number of Warrant Shares subject to such cashless exercise multiplied
by a fraction, the numerator of which shall be the difference between the then
Current Market Price (as defined in the following sentence) and the per share
Warrant price, and the denominator of which shall be the then Current Market
Price. For purposes of the computation in the preceding sentence, the then
Current Market Price shall be the closing price on the trading day prior to such
cashless exercise.

The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock.

LEGAL MATTERS

The validity of the Shares offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, New York, New York.

EXPERTS

The consolidated balance sheet as of December 31, 1997 and the
consolidated statements of operations, stockholders' equity and cash flows
for the year then ended, the period from February 1, 1996 through December
31, 1996 and the period cumulative from inception (February 15, 1985) to
December 31, 1997 incorporated in this prospectus by reference, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

The statements of operations, stockholders' equity and cash flows for
the year ended January 31, 1996 and the period cumulative from inception
(February 15, 1985) to January 31, 1996, which are not incorporated by reference
in this prospectus, were audited by Moore Stephens, P.C., the Company's former
independent accountants.

The engagement of Moore Stephens, P.C. ended on January 20, 1997:

21
<PAGE>

(1) Moore Stephens, P.C.'s report on the financial statements for
either of the past two fiscal years and any subsequent interim period through
the date of such dismissal did not contain an adverse opinion or disclaimer of
opinion and was not modified as to uncertainty, audit scope or accounting
principles.

(2) The decision to change accountants was approved by the Company's
Board of Directors on January 7, 1997.

(3) There were no disagreements or reportable events with Moore
Stephens, P.C., whether or not resolved, on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to Moore Stephens, P.C.'s satisfaction, would have caused
it to make reference to the subject matter of the disagreements in connection
with its reports.

Coopers and Lybrand L.L.P. was engaged by the Company as its
independent accountants on January 20, 1997. Coopers and Lybrand L.L.P. was not
consulted by the Company with respect to the application of accounting
principles to a specific completed transaction or contemplated transaction, or
the type of audit opinion that might be rendered on the Company's financial
statement.

INDEMNIFICATION

Article Thirteenth of the Company's Certificate of Incorporation, as
amended, and Article VII of the Company's By-Laws provide that the Company may
indemnify each current and former director, officer, and any employee or agent
of the corporation, his or her heirs, executors, and administrators, against
expenses reasonably incurred or any amounts paid by him or her in connection
with any action, suit, or proceeding to which he or she may be made a party by
reason of being or having been a director, officer, employee or agent of the
corporation to the fullest extent permitted by the Delaware General Corporation
Law.

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 Act and is,
therefore, unenforceable.

Reference is made to Section 145 of the Delaware General Corporation
Law as such Sections pertain to indemnification matters.

22
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

The following table sets forth an estimate of the expenses to be
incurred by the Company in connection with the issuance and distribution of the
securities being registered:
<TABLE>
<CAPTION>

Amount to
Be Paid

<S> <C>
Registration Fee -- SEC............................. $20,132
Legal Fees and Expenses............................. 10,000
Accounting Fees and Expenses........................ 2,500
Miscellaneous....................................... 7,368
-------

Total............................................... $ 40,000
=========

</TABLE>

Item 15. Indemnification of Directors and Officers

Reference is made to Section 145 of the Delaware General Corporation
Law as such Sections pertain to indemnification matters.

Item 16. Exhibits

The following is a list of Exhibits filed as part of the Registration
Statement:

3.1 Certificate of Incorporation of Registrant. (1)
3.2 Certificate of Ownership and Merger filed March 30, 1987. (1)
3.3 Certificate of Amendment to Certificate of Incorporation filed
September 7, 1989. (2)
3.4 Certificate of Amendment to Certificate of Incorporation filed November
13, 1990. (3)
3.5 Certificate of Amendment to Certificate of Incorporation filed May 29,
1991. (3)
3.6 Certificate of Amendment to Certificate of Incorporation filed February
27, 1992. (3)
3.7 Certificate of Amendment to Certificate of Incorporation filed February
27, 1992. (3)
3.8 Certificate of Amendment to Certificate of Incorporation filed June 29,
1993. (7)
3.9 Certificate of Amendment to Certificate of Incorporation filed April
15, 1996. (7)
3.10 Certificate of Amendment to Certificate of Incorporation filed June 10,
1997. (9)
3.11 Series B Preferred Certificate of Designations, Preferences and Rights
filed January 21, 1998. (9)
3.12 By-laws of Registrant. (1)
4.1 Specimen Common Stock Certificate. (1)

II-1

<PAGE>

4.2 Warrant for the Purchase of 864,865 shares of Common Stock. (8)
4.3 Warrant for the Purchase of 1,297,297 shares of Common Stock. (8)
4.4 Warrant for the Purchase of 230,770 shares of Common Stock. (9)
5 Opinion of Brobeck, Phleger & Harrison LLP.*
10.1 Patent License Agreement dated December 16, 1996 between the Registrant
and Massachusetts Institute of Technology. (7)
10.2 Consultation Agreement dated as of September 1, 1996 between the
Registrant and Kenneth Tempero, Ph.D., M.D.. (7)
10.3 Employment Agreement dated July 25, 1996 between the Registrant and
Michael S. Rosen. (5)
10.4 Employment Agreement dated December 1, 1996 between the Registrant and
Robert N. Brey. (7)
10.5 Purchase Agreement dated March 1, 1996 between the Registrant and
Dominion Resources, Inc. (4)
10.6 Purchase Agreement dated as of June 13, 1996 between the Registrant,
Dominion Resources, Inc., The Aries Fund and The Aries Domestic Fund,
L.P. (7)
10.7 Purchase Agreement dated as of June 26, 1996 between the Registrant,
The Aries Fund and The Aries Domestic Fund, L.P. (7)
10.8 Incentive Stock Option Plan. (1)
10.9 Lease dated April 28, 1993 between the Registrant and Landmark
Investors. (7)
10.10 Office Lease dated September 18, 1996 between the Registrant and
American National Bank & Trust Company of Chicago, as amended. (7)
10.11 Placement Agency Agreement between the Registrant and Paramount
Capital, Inc. dated July 1, 1997. (8)
10.12 Side Letter #1 to Placement Agency Agreement. (8)
10.13 Form of Subscription Agreement for the purchase of Common Stock. (8)
10.14 Financial Advisory Agreement between the Registrant and Paramount
Capital, Inc. dated October 16, 1997. (8)
10.15 Lease dated December 19, 1997 between the Company and Howard M. Ruskin.
(9)
10.16+ Joint Development and Operating Agreement, dated as of January 21,
1998, between the Company, Elan Corporation, plc, Orasomal
Technologies, Inc. and Endorex Vaccine Delivery Technologies, Inc. (9)
10.17+ Securities Purchase Agreement, dated as of January 21, 1998, between
the Company and Elan International Services, Ltd. (9)
10.18 Registration Rights Agreement, dated as of January 21, 1998, between
the Company and Elan International Services, Ltd. (9)
10.19+ License Agreement, dated as of January 21, 1998, between Elan
Pharmaceuticals, plc and Endorex Vaccine Delivery Technologies, Inc.
(9)

10.20+ License Agreement, dated as of January 22, 1998, between Orasomal
Technologies, Inc., Endorex Vaccine Delivery Technologies, Inc. and
the Company. (10)

11 Statement re: computation of per share earnings. (7)
16 Letter on change in certifying accountants. (6)
21 Subsidiaries of the Registrant. (9)

23.1 Consent of PricewaterhouseCoopers LLP, independent certified public
accountants.

23.2 [Deleted]
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in the opinion
filed as Exhibit 5).*
24 Powers of Attorney.*

- -------------------
* Previously filed.
+ The Company has applied for Confidential Treatment of portions of this
exhibit pursuant to Rule 24b-2 under the Securities Act of 1934, as
amended.

(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 33-13492).
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1989.
(3) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1992.
(4) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended January 31, 1996.

II-2

<PAGE>

(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB for the fiscal quarter ended July 31, 1996.
(6) Incorporated by reference to the Registrant's Report on Form 8-K/A
dated February 10, 1997.
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB, as amended, for the transition period ended December 31, 1996.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB, as amended, for the fiscal quarter ended September 30, 1997.
(9) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997.

(10) Incorporated by reference to Amendment No. 2 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997.

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than 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.

The undersigned Registrant hereby undertakes:

(1) 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;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective 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;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.

(3) 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.

II-3

<PAGE>

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 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.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, 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 Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
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.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, the Small Business Issuer certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-2 and
has duly caused this Amendment No. 3 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Village of Lake Bluff, State of Illinois, on July 15, 1998.

ENDOREX CORP.

By: /s/ Michael S. Rosen
---------------------------------------------------
Michael S. Rosen
President and Chief Executive Officer, and Director

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on July 15, 1998.

<TABLE>

<S> <C>
By: /s/ Michael S. Rosen
- --------------------------
Michael S. Rosen President, Chief Executive Officer, and Director

By: /s/ David G. Franckowiak
- --------------------------
David G. Franckowiak Vice President, Finance and Administration
(Principal Financial and Accounting Officer)

By: *
- --------------------------
Richard Dunning Director

By:
- --------------------------
Steve H. Kanzer Director

By: *
- --------------------------
Paul D. Rubin Director

By: *
- --------------------------
H. Laurence Shaw Director

By: *
- --------------------------
Andrew Stein Director

By: *
- --------------------------
Kenneth Tempero Director

By: *
- --------------------------
Steven Thornton Director

*By: /s/ Michael S. Rosen
- --------------------------
Michael S. Rosen
Attorney-in-fact

</TABLE>

II-5

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in this registration
statement on Form S-2 of our report dated March 6, 1998, on our audits of the
consolidated financial statements of Endorex Corp. as of December 31, 1997
and for the year then ended and for the period from February 1, 1996 through
December 31, 1996 and the period cumulative from inception (February 15,
1985) to December 31, 1997. We also consent to the reference to our firm
under the caption "Experts."

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
July 14, 1998