PDK LABS INC, DEF 14A, 1996-06-06

PDK LABS INC
DEF 14A, 1996-06-06
PHARMACEUTICAL PREPARATIONS

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant /x/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/x/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

PDK LABS INC.
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(Name of Registrant as Specified in its Charter)

[INSERT NAME OF FILER WHEN APPLICABLE]
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/x/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.

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

(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party: PDK LABS INC.
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(4) Date Filed: 6/6/96
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PDK LABS INC.
145 RICEFIELD LANE
HAUPPAUGE, NEW YORK 11788
------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 19, 1996
------------------------

TO THE STOCKHOLDERS:

Notice is hereby given that the annual meeting of stockholders (the 'Annual
Meeting') of PDK Labs Inc. (the 'Company') has been called for and will be held
at 3:00 P.M., Eastern Daylight Savings Time, on July 19, 1996, at Sheraton
Smithtown, 110 Vanderbilt Motor Parkway, Smithtown, N.Y. 11788 for the following
purposes:

1. To elect a Board of Directors consisting of five (5) directors to
hold office until the next Annual Meeting and until their successors shall
have been elected and qualified;

2. To ratify the appointment by the Board of Directors of Holtz
Rubenstein & Co., LLP to serve as the independent certified public
accountants for the current fiscal year; and

3. To consider and transact such other business as may properly come
before the Special Meeting or any adjournments thereof.

The Board of Directors has fixed the close of business on June 3, 1996 as
the record date for the determination of the stockholders entitled to notice of,
and to vote at, the Annual Meeting or any adjournments thereof. The list of
stockholders entitled to vote at the Annual Meeting will be available for the
examination of any stockholder at the Company's offices at 145 Ricefield Lane,
Hauppauge, New York 11788, for ten days prior to July 19, 1996.

By Order of the Board of Directors

Michael B. Krasnoff
President
Dated: June 3, 1996

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE FILL IN, SIGN, AND
DATE THE PROXY SUBMITTED HEREWITH AND RETURN IT IN THE ENCLOSED STAMPED
ENVELOPE. THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH
PROXY IN PERSON SHOULD YOU LATER DECIDE TO ATTEND THE MEETING. THE ENCLOSED
PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS.

<PAGE>
PDK LABS INC.
PROXY STATEMENT
GENERAL

This proxy statement is furnished by the Board of Directors of PDK Labs
Inc., a New York corporation (the 'Company'), with offices located at 145
Ricefield Lane, Hauppauge, New York 11788, in connection with the solicitation
of proxies to be used at the annual meeting of stockholders of the Company (the
'Annual Meeting') to be held on July 19, 1996, and at any adjournments thereof.
This proxy statement will be mailed to stockholders beginning approximately June
4, 1996. If a proxy in the accompanying form is properly executed and returned,
the shares represented thereby will be voted as instructed on the proxy. Any
proxy may be revoked by a stockholder prior to its exercise upon written notice
to the President of the Company, or by a stockholder voting in person at the
Annual Meeting.

All properly executed proxies received prior to the Annual Meeting will be
voted at the Annual Meeting in accordance with the instructions marked thereon
or otherwise as provided therein.

At the Annual Meeting, Stockholders will be asked to approve and consent
to:

1. To elect a Board of Directors consisting of five (5) directors to
hold office until the next Annual Meeting and until their successors shall
have been elected and qualified;

2. To ratify the appointment by the Board of Directors of Holtz
Rubenstein & Co., LLP, to serve as the independent certified public
accountants for the current fiscal year; and

3. To consider and transact such other business as may properly come
before the Special Meeting or any adjournments thereof.

Under the Certificate of Incorporation of the Company and under the New
York Business Corporation Law the affirmative vote of a majority of the votes
represented by shares of Common Stock present or represented at the Annual
Meeting is required for the election of the directors and the ratification of
Holtz Rubenstein & Co., LLP. Unless instructions to the contrary are indicated,
proxies will be voted 'FOR' the election of five (5) directors and; 'FOR' the

ratification of the selection by the Board of Directors of Holtz Rubenstein &
Co., LLP as the independent certified public accountants of the Company.

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR FISCAL YEAR ENDED
NOVEMBER 30, 1995 (THE 'FORM 10-KSB'), WHICH CONTAINS FINANCIAL STATEMENTS
AUDITED BY THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, ACCOMPANIES
THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE.

The Board of Directors does not know of any matter to be proposed for
action at the Annual Meeting other than those described in this proxy statement.
If other matters properly come before the Annual Meeting, the persons named in
the accompanying proxy will act in accordance with their best judgment.

The cost of preparing, assembling and mailing this notice of Annual
Meeting, proxy statement, the enclosed Form 10-KSB and proxy will be borne by
the Company. In addition to solicitation of the proxies by use of the mails,
some of the officers and regular employees of the Company, for no additional
renumeration, may solicit proxies personally or by telephone, telegraph, or
cable. The Company may also request brokerage houses, nominees, custodians and
fiduciaries to forward soliciting material to the beneficial owners of Common
Stock held of record. The Company will reimburse such persons for their expenses
in forwarding soliciting material.
<PAGE>
VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF

The Board of Directors has fixed the close of business on June 3, 1996 as
the record date (the 'Record Date') for the determination of stockholders
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
thereof. Only stockholders on the Record Date will be able to vote at the Annual
Meeting, and each holder of record will be entitled to one vote for each share
held, with no shares having cumulative voting rights.

As of the Record Date, there were 3,191,986 shares of Common Stock issued
and outstanding, all of which (except for 300,000 shares held in the Company's
treasury) are entitled to one (1) vote per share at the Annual Meeting. As of
the Record Date, there were 739,555 shares of Series A Preferred Stock
outstanding, none of which are entitled to vote at the Annual Meeting. Holders
of the Common Stock are entitled to vote on all matters. Unless otherwise
indicated herein, a majority of the votes represented by shares of Common Stock
present or represented at the Annual Meeting is required for approval of each
matter which will be submitted to stockholders.

Management of the Company knows of no business other than those matters
specified in Items 1 and 2 of the Notice of Annual Meeting which will be
presented for consideration at the Annual Meeting. If any other matter is
properly presented, it is the intention of the persons named in the enclosed
proxy to vote in accordance with their best judgment.

The following table sets forth certain information, as of the Record Date
with respect to the beneficial ownership of the outstanding Common Stock by (i)
any holder of more than five (5%) percent; (ii) each of the Company's officers
and directors; and (iii) the directors and officers of the Company as a group:

<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
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<S> <C> <C>
Perry D. Krape................................................... 205,488(1) 6.4%
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788

Michael B. Krasnoff.............................................. 1,155,488(2) 36.2
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788

Ira Helman....................................................... -0- -0-
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788

Hartley T. Bernstein, Esq........................................ 100,000(3) 3.1
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788

Stanley K. Krasnoff.............................................. -0- -0-
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
</TABLE>

2
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<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ----------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Robin Marks-Kaufman.............................................. -0- -0-
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
<S> <C> <C>

Reginald Spinello................................................ 200,000 6.3
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788

Dune Holdings, Inc............................................... 200,000 6.3

132 Dune Road
Westhampton Beach, NY 11978

All officers and directors as a group (5 persons)................ 1,255,488(4) 39.3%
</TABLE>

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(1) All of Mr. Krape's shares of common stock are subject to a five (5) year
voting trust dated as of July 31, 1991, of which Mr. Krasnoff, the president
of the Company, is the sole voting trustee. Mr. Krasnoff disclaims
beneficial ownership with respect to all such 205,488 shares of common
stock.

(2) Includes (i) 400,000 shares of common stock issued in accordance with the
October 1995 Employment Agreement, (ii) 205,488 shares of common stock owned
by Perry Krape which are subject to a five (5) year voting trust agreement
of which Mr. Krasnoff is the sole voting trustee, (iii) 200,000 shares of
common stock owned by Reginald Spinello, (iv) 200,000 shares of common stock
owned by Dune Holdings, Inc., (v) 50,000 shares of common stock owned by
Karine Hollander and (vi) 100,000 shares of common stock owned by Michael
Lulkin. All of the Spinello, Dune, Hollander and Lulkin shares of common
stock are subject to a ten (10) year voting trust held by the Company's
Chief Executive Officer, Mr. Krasnoff.

(3) Includes 100,000 shares of common stock owned by Bernstein & Wasserman, a
law firm which Mr. Bernstein is a partner.

(4) Includes shares beneficially owned by Michael Krasnoff, Ira Helman, Stanley
Krasnoff, Reginald Spinello, Hartley Bernstein, and Robin Marks-Kaufman.
Neither Hollander, Lulkin or Dune are officers or directors of the Company.

PROPOSAL NO.1:
ELECTION OF DIRECTORS

GENERAL

The Board of Directors consisted of five (5) persons as of the fiscal year
ended November 30, 1995 ('Fiscal 1995'). The directors are elected for a
one-year term or until their successors are elected and qualify with a plurality
of votes cast in favor of their election. Messrs. Michael B. Krasnoff, Ira
Helman, Stanley Krasnoff, Hartley T. Bernstein and Ms. Robin Marks-Kaufman who
are all members of the existing Board, are the nominees for election to the
Board of Directors.

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Unless otherwise directed by the stockholder giving the proxy, the proxies
in the accompanying form will be voted 'FOR' the election of the nominees named
above as directors. If any nominee should subsequently become unavailable for
election, the persons voting the accompanying proxy may in their discretion vote
for a substitute.

BOARD OF DIRECTORS

The Board of Directors has the responsibility for managing the operations
of the Company but are not involved in day-to-day operating details. Members of
the Board are kept informed of the Company's business by various reports and
documents sent to them as well as by operating and financial presentations made
at Board meetings. The Board of Directors held twelve (12) meetings (or executed
consents in lieu thereof) in Fiscal 1995, and all of the directors attended all
of the meetings of the Board. The Board of Directors has no standing committees.

The following table sets forth certain information regarding the director
nominees.

Stanley Krasnoff(1).................................. 68 Director

Ira Helman........................................... 64 Director

Hartley T. Bernstein................................. 44 Director and Assistant Secretary

Robin Marks-Kaufman.................................. 42 Director
</TABLE>

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(1) Stanley Krasnoff is the father of Michael Krasnoff, President, Chief
Executive Officer, Chief Financial Officer and Secretary of the Company.

All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected
annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board.

Outside directors shall receive Ten Thousand Dollars ($10,000) per year as
compensation for their services. Directors who are also officers of the Company
do not receive any compensation for serving on the Board of Directors. All
Directors are reimbursed by the Company for any expenses incurred in attending
Director's meetings.

BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS

Michael B. Krasnoff has been the President, Chief Executive Officer and
Chief Financial Officer of the Company since July 31, 1991. Mr. Krasnoff had
been Executive Vice President of the Company since July 1989, and has been a
director since August 1, 1989. Mr. Krasnoff has been the Secretary of the
Company since April 1, 1990. Prior to joining the Company in 1988, Mr. Krasnoff
was an independent financial and marketing consultant to the Company. From
September 1982 to September 1988, Mr. Krasnoff was President and Chairman of the
Board of M-D Natural Vitamins, Inc., a company which was engaged in the mail
order and retail distribution of natural vitamins and food supplements. Mr.

Krasnoff received a B.A. degree from State University of New York

4
<PAGE>
at Buffalo and an M.B.A. degree in Accounting and Finance from New York
University Graduate School of Business Administration. Mr. Krasnoff will
continue to devote substantially all of his business time to the Company.

Stanley Krasnoff has served as a director of the Company since January
1991. He was a founder and Executive Vice President of Nature's Bounty, Inc.
from 1961 through 1982. Since 1982, Mr. Krasnoff has been a private investor.
Mr. Krasnoff is a graduate of the New York University School of Business
Administration. Mr. Krasnoff is the father of Michael Krasnoff, who is a
director of the Company and President, Chief Executive Officer and Secretary of
PDK.

Ira Helman has served as a director of the Company since August 1989. For
the past 22 years, Mr. Helman has been an independent investor and financial
consultant as well as a breeder and owner of harness horses. Mr. Helman
currently serves as a financial consultant to National Raceline, Inc., a
corporation which provides race results information. From 1967 to 1970 Mr.
Helman was President and Chief Executive Officer of Cryplex Industries, Inc., a
publicly traded company which manufactured electronic components. Mr. Helman was
from 1957 to 1967 engaged in the practice of law in New York City specializing
in real estate and professional sports related matters. Mr. Helman received his
B.A. degree from Princeton University and his law degree from Brooklyn Law
School.

Hartley T. Bernstein has been a Director since September 1991 and is a
member of the law firm of Bernstein & Wasserman specializing in corporate and
securities law. He was associated with the firm of Parker Chapin Flattau &
Klimpl from 1976-1977, served as an Assistant District Attorney for New York
County from 1977-1979 and was associated with the law firm of Guggenheimer &
Untermyer from 1979-1982. In 1982, Mr. Bernstein formed his own law practice
which subsequently merged with his present firm. Mr. Bernstein also serves as a
director of New Day Beverage, Inc. Mr. Bernstein is a member of the adjunct
faculty of Yale Law School where he teaches a course in corporate negotiations
and has served previously on the adjunct faculties of New York Law School and
Mercy College. He is also an instructor at the National Institute of Trial
Advocacy and a member of the Boards of Arbitration of the National Association
of Securities Dealers and the New York Stock Exchange. Mr. Bernstein serves as a
commentator on securities law matters on the nationally syndicated Business
Radio Network and Money Radio. Mr. Bernstein graduated from Columbia University
with a B.A. and received his J.D. from New York University School of Law.

Ms. Marks-Kaufman is an assistant professor of psychology at Tufts
University. Ms. Marks-Kaufman has a degree in biology from Cornell University
and received her Ph.D. in psychology from Tufts University. She is on the
faculty at the Institute of Human Nutrition at Columbia University where she
conducted research on diet and metabolism, diet selection, and drug addition.
She has published numerous scientific articles, and is co-editor of The Columbia
University Encyclopedia of Nutrition.

<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ---------- -------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER RESTRICTED ALL
ANNUAL STOCK OPTIONS/ LTIP OTHER
NAME AND PRINCIPAL SALARY COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
POSITION YEAR ($) BONUS ($) ($) (#) ($) ($)
- ------------------------ ---- -------- -------- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Krasnoff, CEO... 1995 $400,000 $250,000 $125,000(1) $650,000(3) -0- $ -0- $ -0-
1994 300,000 200,000 445,000(1) -0- -0- -0- -0-
1993 300,000 150,000 213,788(2) 682,500(4) 70,000 (5) -0- -0-
Reginald Spinello, V.P.
of Operations........... 1995 $200,000(6) $125,000 $ 75,000(1) $325,000(8) -0- $ -0- $ -0-
1994 150,000(7) 75,000 -0- -0- -0- -0- -0-
1993 147,115 50,000 -0- 318,500(9) -0- -0- -0-
</TABLE>

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(1) Represents reimbursements to pay taxes resulting from stock grants.

(2) Represents reimbursements to pay taxes resulting from stock and option
grants.

(3) Represents issuance of 400,000 shares in accordance with October 1995
employment agreement. Shares were valued at $1.625 per share.

(4) Represents issuance of 105,000 shares in accordance with October 1993
employment agreement. Shares were valued at $6.50 per share.

(5) Options issued in 1993 were rescinded in 1994.

(6) Represents salary of $150,000 paid by the Company and $50,000 paid by its
subsidiary.

(7) Represents salary of $100,000 paid by the Company and $50,000 paid by its
subsidiary.

(8) Represents issuance of 200,000 shares in accordance with October 1995
employment agreement. Shares were valued at $1.625 per share.

(9) Represents issuance of 49,000 shares in accordance with October 1993
employment agreement. Shares were valued at $6.50 per share.

EMPLOYMENT AGREEMENTS

On October 6, 1995, the Company entered into an amended employment
agreement with Michael Krasnoff, the Company's Chief Executive Officer, in
recognition of Mr. Krasnoff's leadership and services which have constituted a
major factor in the growth and development of the Company (the 'Krasnoff
Agreement'). The Krasnoff Agreement provides for Mr. Krasnoff's employment by
the Company through December 31, 2005 at a minimum salary of $400,000 per year
with cost of living increases. The Krasnoff Agreement also provides for a
discretionary bonus as the Board of Directors may determine from time to time
and the issuance of 400,000 shares of the Company's Common Stock. The Krasnoff
Agreement also provides for the issuance to Mr. Krasnoff of options to purchase
250,000 shares of Common Stock at $2.63 per share. As of November 30, 1995, Mr.
Krasnoff owed the Company the sum of $610,000.00 pursuant to the loan provisions
of his employment agreement. The loan bears interest at the prime rate plus 1/2
of 1% per annum. In the event any sums are outstanding upon termination or
expiration of the employment agreement, such sums shall be automatically
converted to a five (5) year loan which shall be fully amortized over sixty (60)
months.

6
<PAGE>
2002. The Spinello Agreement may be terminated by the Company, at its sole
discretion, on ninety days notice at any time after October 5, 1996.

LEGAL FEES

For the year ended November 30, 1995, legal fees of approximately
$178,000.00 were incurred for services from the law firm of Bernstein and
Wasserman. For the year ended November 30, 1994, legal fees of approximately
$140,000 were incurred for services from the same firm. The Company also issued
300,000 shares of its Common Stock (pre-reverse stock split) to the law firm in
January 1994, and 100,000 shares of its Common Stock in October 1995, in
consideration for legal services. Hartley T. Bernstein, a partner in the firm,
is a Director of the Company hereunder.

For the years ended November 30, 1994, legal fees of approximately $53,000
were incurred for legal services from Michael Lulkin. The Company also issued
80,000 shares of its Common Stock (pre-reverse stock split) to Mr. Lulkin in
April 1994, in consideration for legal services.

In October 1995, the Company entered into a five (5) year employment
agreement with Mr. Lulkin which provides for Mr. Lulkin to act as Vice
President-Legal. The agreement provides for Mr. Lulkin to be paid a minimum
salary of $100,000 per annum and for Mr. Lulkin to receive 100,000 shares of the
Company's Common Stock.

PROPOSAL NO. 2:

RATIFICATION OF SELECTION
OF HOLTZ RUBENSTEIN & CO., LLP
AS INDEPENDENT AUDITORS

The Board of Directors has selected the firm of Holtz Rubenstein & Co.,
LLP, independent certified public accountants, to audit the accounts for the
Company for Fiscal 1996. The firm of Holtz Rubenstein & Co., LLP has previously
audited the Company's financial statements. The Company is advised that neither
that firm nor any of its partners has any material direct or indirect
relationship with the Company. The Board of Directors considers Holtz Rubenstein
& Co., LLP to be well qualified for the function of serving as the Company's
auditors. The New York Business Corporation Law does not require the approval of
the selection of auditors by the Company's stockholders, but in view of the
importance of the financial statement to stockholders, the Board of Directors
deems it desirable that they pass upon its selection of auditors. In the event
the stockholders disapprove of the selection, the Board of Directors will
consider the selection of other auditors. The Board of Directors recommends that
you vote in favor of the above proposal in view of the familiarity of Holtz
Rubenstein & Co., LLP with the Company's financial and other affairs due to its
previous service as auditors for the Company.

A representative of Holtz Rubenstein & Co., LLP is expected to be present
at the Annual Meeting with the opportunity to make a statement if he desires to
do so, and is expected to be available to respond to appropriate questions.

Unless otherwise directed by the stockholder giving the proxy, the proxy
will be voted 'FOR' the ratification of the selection by the Board of Directors
of Holtz Rubenstein & Co., LLP as the Company's independent certified public
accountants for Fiscal 1996.

7
<PAGE>
MISCELLANEOUS

REVOCATION OF PROXIES

If the Annual Meeting is adjourned, for whatever reason, the matters shall
be considered and voted upon by shareholders at the subsequent 'adjourned or
postponed meeting', if any.

You may revoke your proxy at any time prior to its exercise by attending
the Annual Meeting and voting in person, although attendance at the Annual
Meeting will not in and of itself constitute revocation of a proxy, by giving
notice of revocation of your proxy at the Annual Meeting, or by delivering a
written notice of revocation or a duly executed proxy relating to the matters to
be considered at the Annual Meeting and bearing a later date to the Secretary of
the Company at 145 Ricefield Lane, Hauppauge, New York 11788. Unless revoked in
the manner set forth above, proxies on the form enclosed will be voted at the
Annual Meeting in accordance with your instructions.

INCORPORATED BY REFERENCE

The Company's Annual Report on Form 10-KSB for the year ended November 30,
1995 is attached hereto and is incorporated herein by reference.

ADDITIONAL AVAILABLE INFORMATION

The Company is subject to the informational filing requirements of the
Securities and Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith, the Company files periodic reports, proxy statements and
other information with the Commission under the Exchange Act relating to its
business, financial condition and other matters. The Company is required to
disclose in such proxy statements certain information as of particular dates,
concerning the Company's directors and officers, their remuneration, options
granted to them, the principal holders of the Company's securities and any
material interests of such persons in transactions with the Company. Such
reports, proxy statements and other information may be inspected at the
Commission's office at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
may be obtained on payment of the Commission's customary fees by writing to its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.

OTHER MATTERS

The Board of Directors of the Company does not intend to bring any other
matters before the Annual Meeting and does not know of any other matter that may
be brought before the Annual Meeting.

STOCKHOLDERS' PROPOSALS

Proposals of stockholders intended to be presented at the next annual
meeting must be received in writing, by the President of the Company at its
offices by January 31, 1997, in order to be considered for inclusion in the
Company's proxy statement relating to that meeting.

By Order of the Board of Directors

Michael B. Krasnoff,
President

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1995.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ..................... TO .....................
COMMISSION FILE NUMBER 0-19121
................................................
PDK LABS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
NEW YORK 11-2590436
(STATE OF OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

145 RICEFIELD LANE
HAUPPAUGE, NEW YORK 11788
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS) (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 273-2630
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)

UNITS CONSISTING OF ONE (1) SHARE OF SERIES A CONVERTIBLE PREFERRED STOCK,
ONE REDEEMABLE CLASS B WARRANT AND ONE (1) REDEEMABLE CLASS C WARRANT
(TITLE OF CLASS)

SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE PER SHARE
(TITLE OF CLASS)

REDEEMABLE CLASS B WARRANT
(TITLE OF CLASS)

REDEEMABLE CLASS C WARRANT
(TITLE OF CLASS)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of

1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

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

Issuer's revenues for its most recent fiscal year were $31,904,000.

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock as of
February 26, 1996, was approximately $8,230,116.

Number of shares outstanding of the issuer's common stock, as of February
26, 1996, was 3,191,986.

DOCUMENTS INCORPORATED BY REFERENCE:
None.

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

<PAGE>
PART I

ITEM 1. BUSINESS.

GENERAL

PDK Labs Inc. ('PDK' or 'Company') manufactures and distributes
over-the-counter nonprescription pharmaceutical products and vitamins. The
Company's line of products primarily consists of nonprescription caffeine
products, pain relievers, decongestants, diet aids, and a broad line of
vitamins, nutritional supplements and cosmetics. The Company markets its
products through direct mail, regional distributors, and private label
manufacturing.

PRODUCTS

The Company markets its nonprescription products under its
MaxAlert(Trademark), HeadsUp(Trademark), Reach(Trademark), PDK(Registered),
Compare Generiks, Inc.(Registered), and Energex Plus brand names. On October 31,
1995, the Company sold to Compare Generiks, Inc., an unaffiliated third party,
the Energex Plus and Compare Generiks(Registered) product lines. The Company has
retained the rights relating to the sale by direct mail of the Compare Generiks
products. On October 16, 1995, the Company licensed its MaxAlert(Trademark) and
HeadsUp(Trademark) brand names to an unaffiliated third party. (See Item 12.
Certain Relationships and Related Transactions.) The Company's nonprescription
pharmaceutical products contain active ingredients which are identical to those
contained in nonprescription products sold under national and regional brand
names, private label brands, local or regional products, and products sold by

other national and regional direct mail marketers. For instance, the Company's
acetaminophen tablets and capsules are similar to Tylenol(Registered); its
sleeping aids are similar to Sominex 2(Registered); the Company's antihistamine
tablets are similar to Benadryl; its antihistamine-decongestant products are
similar to Actifed(Registered) and Sudafed(Registered); and its caffeine based
tablets are similar to Vivarin(Registered) and NO-DOZ(Registered).

The Company also sells products to its majority owned subsidiary,
Futurebiotics, Inc. ('Futurebiotics'). Futurebiotics' primary product line
consists of more than 125 items, including multi-vitamin/mineral formulas, green
superfood powders, herbal/mineral tonics and herbal complexes, and specific
specialty supplements. All of Futurebiotics' products are supplied by the
Company. Futurbiotics' principal products are Vital K and Hair, Skin and Nails
('HSN'), which account for 10.8% and 12.4% of Futurebiotics' revenues,
respectively. Vital K is a potassium based liquid supplement which contains
potassium and iron with sixteen herbs. HSN is Futurebiotics' special formulation
of vitamins, minerals, and herbs. Futurebiotics currently sells products in 32
international markets, including South America, Central Europe, Hong Kong,
Malaysia, Japan, and Scandinavia.

The Company only sells over-the-counter products, which have been proven to
be generally recognized to be safe and effective for the intended uses. Proposed
rules by the Food and Drug Administration have established, after an expanded
review of all over-the counter products, those over-the-counter drugs that will
be generally recognized as safe and effective and non-misbranded. See
'Business--Government Regulations.'

The Company was incorporated under the laws of the State of New York on
July 6, 1982.

MARKETING

The Company markets its products to retail and wholesale customers through
direct mail marketing, direct salespersons, and manufacturers representatives.
Approximately 33.4% of the Company's total revenue for the fiscal year ended
November 30, 1995 was from sales by its Futurebiotics, Inc. subsidiary. Sales to
convenience stores under the brand names MaxAlert(Registered) and
HeadsUp(Registered) accounted for 20.3% of the Company's total revenue for the
fiscal year ended November 30, 1995. Private label sales accounted for 40.2% of
the Company's total revenue for the fiscal year ended November 30, 1995. The
Company sells a complete line of over-the-counter pharmaceutical products under
its Compare Generiks brand name through mail order. All promotional mailings are
free of charge to all customers. Direct mail sales accounted for approximately
4.3% of total revenue in fiscal 1995.

1
<PAGE>
vitamins, non-prescription pharmaceutical products and health and fitness
products manufactured in tablet, capsule, caplet, liquid or equivalent form
commencing on the date of the agreement. The term of the agreement is for five
years, renewable for successive one year periods thereafter. Sales to this
customer accounted for 16.8% of total revenue for the fiscal year ended
November 30, 1995.

In addition, the Company granted the same customer an exclusive license to
use the trademarks 'MaxAlert' and 'Heads Up', and its trademarks for its ginseng
products, and the exclusive right to distribute products bearing such names,
using the components listed in the agreement. The Company recognized license
fees of $500,000 for the fiscal year ended November 30, 1995 in connection with
this agreement.

The Company markets its various over-the-counter and vitamin products under
various brand names to various stores including drug store chains, health food
stores, health food store wholesalers, convenience stores, and other retailers.

On July 24, 1995, the Company sold a customer list, trademarks, and
inventory related to its mail order vitamin line of products. The Company is no
longer engaged in the marketing of its vitamin product through mail order.

MANUFACTURING

The Company's manufacturing facility is located in Hauppauge, New York.
Approximately 85% to 90% of the sales volume of the Company's products are
manufactured and/or packaged by the Company. Manufacturing and packaging
equipment has been dramatically increased in fiscal 1995. The Company believes
that the expanded capacity of its manufacturing facility is adequate to meet the
requirements of its current and future business.

The Company's manufacturing process is specifically designed to insure the
strictest quality control. All raw materials used in production are initially
held in quarantine. Prior to being placed into production, the manufacturer's
certificate of analysis is compared with an assay performed by the Company in
its own in-house laboratory. The Company's FDA approved laboratory continues its
testing to insure quality control throughout the manufacturing and packaging
process.

The manufacture of all of the Company's products is subject to current Good
Manufacturing Practices prescribed by the FDA and by the Company's own quality
control procedures. See 'BUSINESS--Government Regulation' below. The Company
uses tamper resistant caps on all of its over-the-counter products with an inner
seal that indicates whether the container has been opened prior to sale. In
addition, the Company seal wraps each container for added protection.

The Company's manufacturing facility contains equipment which in one
operation can produce the tablets, package the products, and label the
containers. The Company also has equipment for filling capsules and wrapping
each container with heat sealed plastic wrap.

MATERIAL SUPPLIERS

Substantially all of the Company's products are manufactured from readily
available raw material. In addition to manufacturing many of its own products,
the Company purchases finished goods from suppliers in the United States. The
Company has not encountered any significant difficulties in purchasing supplies
of principal raw material or finished goods. The Company believes that if any

source of a product's ingredients becomes unavailable, alternative sources of
supply are available at comparable prices and delivery schedules. In the event
the Company were unable to find such alternate sources at a competitive price
and on a timely basis for its principal products, the Company could be
materially adversely affected.

Although raw materials are available from numerous sources, one supplier
currently provides approximately 12% of the Company's purchases, and no other
supplier accounts for more than 10% of the Company's raw material purchases.

2
<PAGE>
ACQUISITIONS/DISPOSAL

In December 1992, the Company acquired certain of the assets (the 'Acquired
Assets') of Futurebiotics, Ltd., a Vermont corporation ('FBL'). The Acquired
Assets included all of FBL's interest in its health supplement business, all
leaseholds, customer lists, trademarks, tradenames, licenses, trade secrets,
know-how, and use of the name 'Futurebiotics.' Simultaneously, PDK entered into
a non-competition agreement with FBL's principal, Donald Zinman. The aggregate
consideration for this transaction approximated $1,529,000, of which
approximately $684,000 was attributable to the 'Acquired Assets'. PDK also
purchased FBL's inventory at cost, approximating $119,000.

On March 16, 1994, Futurebiotics, Inc. was formed in the State of Delaware
and all of the Acquired Assets were transferred from the Company to
Futurebiotics, Inc. In addition, all other assets and liabilities attributable
to the operations were transferred to Futurebiotics, Inc. In exchange, PDK was
issued 4,000,000 common shares (pre-reverse stock split) and 8,335,000 preferred
shares of the Company, representing 100% of the outstanding shares.

On August 19, 1994, Futurebiotic's registration statement on Form SB-2,
relating to Futurebiotic's initial public offering, was declared effective by
the Securities and Exchange Commission. Pursuant to such offering, which closed
on August 26, 1994, Futurebiotics, Inc. sold 1,000,000 units at $6.25 per unit
for gross proceeds of $6,250,000. A unit consists of two shares of common stock
and two class A warrants. On September 16, 1994, the underwriter exercised its
overallotment option for 150,000 units resulting in additional gross proceeds of
$937,500 in the fourth quarter. As a result of the initial public offering, PDK
recorded a pre-tax gain of approximately $2,554,000 in recognition of the net
increase in value of its investment in Futurebiotics, Inc.

In January 1994, the Company entered into an amendment to a consulting
agreement with the former president of Futurebiotics, Donald Zinman. As a result
of its multi-media marketing campaign, sales of the Futurebiotics product line
for which the consultant received a percentage override greatly exceeded
original expectations. The Company estimated that it would potentially realize a
significant savings, both in present-value dollars and in absolute dollars, if
it were able to restructure the consideration payable to the consultant under
the terms of the original consulting agreement. Under the terms of the
Amendment, the Consultant will provide consulting services to the Company
through December 2001 for consideration of 5,000,000 shares of the Company's
restricted common stock (pre-reverse stock split). The value of these shares
($3,000,000) is being charged to operations over the term of the amendment. The

amendment provides that in the event the consultant's services are terminated,
the prepaid compensation shall be forfeited on a pro rata basis. The consultant
will also receive expense reimbursement payments ranging from $50,000 to $62,500
through 1998, and an annual bonus equal to 2.75% of annual net sales of
Futurebiotics products in excess of $7,000,000. The Company also agreed to lend
to the consultant $1,600,000 in January 1994, $800,000 in January 1995, and
$600,000 in July 1995. The loans to Mr. Zinman were inducement to have Mr.
Zinman enter into the Amendment. The Company also issued to the Consultant
warrants to purchase an additional 200,000 shares of the Company's common stock
(pre-reverse stock split) at $2.00 per share exercisable through January 1999.
As further consideration for the Amendment, the Company agreed that, from July
1, 1995 to July 31, 1995 the Consultant would have an option to sell his shares
to the Company and that the Company shall have an option to purchase the shares
from him at a price of $.60 per share from the date of the Amendment through
January 1, 1997.

In April 1994, the Company sold the option it held on the Zinman shares to
a non-affiliate. The Company has been advised that in June 1994, the
non-affiliate exercised the option to purchase the Zinman shares. All loans to
the Consultant have been repaid to the Company.

On March 1, 1995, PDK Labs Inc. acquired all assets and rights relating to
the 'Energex Plus' product line ('Energex') from Nu-Tek Laboratories, Inc.
('Nu-Tek') pursuant to a sale of assets agreement (the 'Nu-Tek Agreement'). The
Energex Assets included all of Nu-Tek's interest in its Energex business, all
customer lists, trademarks, tradenames, licenses, trade secrets, know-how, and
use of the name 'Energex Plus.' The aggregate consideration for this
consideration approximated $300,000, satisfied by the delivery at the closing of
(i) a check in the sum of $200,000, and (ii) a promissory note in the aggregate
principal amount of $100,000, payable to the order of Nu-Tek (the 'Nu-Tek
Note'), of which approximately $50,000 remains outstanding. PDK also agreed to
pay Nu-Tek a thirteen percent (13%) royalty on all 'net sales' (as defined in
the agreement between Nu-Tek and PDK) for the period from March 1, 1995 through
February 28, 1997.

3
<PAGE>
On April 3, 1995, PDK entered into a binding agreement with International
Sales Association, Inc. ('ISA') appointing ISA as the exclusive sales agent for
sales of Energex Plus to grocery, drug, discount department stores, department
stores, variety stores, and U.S. government/military sales (the 'ISA
Agreement'). PDK agreed to pay ISA (i) a commission of ten percent (10%) of the
net amount of goods shipped pursuant to the ISA Agreement, and (ii) an
additional two percent (2%) for marketing services through February 28, 1997.
PDK agreed not to hire any of ISA's employees or sales associates for the term
of the ISA Agreement and for a further two (2) year period thereafter. ISA and
ISA's founder and controlling shareholder, Patrick Higgins, agreed not to
represent any competing product for the term of the ISA Agreement and for a
further one (1) year period thereafter.

On October 31, 1995, all of the Energex Assets and the Compare Generiks
Assets were transferred from PDK to Compare Generiks, Inc. ('CGI') for a
purchase price of approximately $1,700,000. In exchange (i) PDK was issued
500,000 shares of CGI common stock, representing $1,200,000 of the purchase

price ($2.40 per share), (ii) CGI delivered to PDK a promissory note in the
aggregate principal amount of $500,000 together with interest at the rate of
eight percent (8%) per annum, payable to PDK on October 31, 1996, and (iii) CGI
agreed to purchase PDK's Energex Plus inventory at the cost specified in the
Supply Agreement (defined and referred to below). CGI agreed to assume certain
liabilities associated with the Energex Assets, including PDK's obligations to
(a) Nu-Tek pursuant to the Nu-Tek Note in the aggregate principal amount of
$100,000, of which $50,000 remains outstanding, and (b) ISA, pursuant to the ISA
Agreement. In addition, the Company agreed to pay to Nu-Tek a thirteen percent
(13%) royalty on all 'net sales' (as defined in the agreement between Nu-Tek and
PDK) for the period from March 1, 1995 through February 28, 1997. Since October
31, 1995, CGI has purchased all of its products and materials from PDK at PDK's
cost, plus one hundred (100%) percent, pursuant to a supply agreement between
PDK and CGI (the 'Supply Agreement') and, in addition, has paid the royalty
described above to Nu-Tek. The term of the Supply Agreement is for a period of
five (5) years, automatically renewable for successive one (1) year terms.

In January 1996, the $500,000 promissory note payable to PDK was converted
to 500,000 shares of Series B Preferred Stock. The Series B Preferred Stock
earns cumulative annual dividends of 12% or $.12 per share and is redeemable by
CGI after one year from the date of issuance.

On July 24, 1995, the Company sold a customer list, trademarks, and
inventory related to a mail order vitamin line of products for approximately
$50,000. The Company recognized a loss of approximately $612,000 in connection
with this disposition.

PRODUCT LIABILITY

The Company may potentially be exposed to product liability claims by
consumers. Such claims arise as the result of, among other things, the misuse of
a Company product or the tampering of a product. In an event, such as a
successful suit against the Company, insufficiency of insurance coverage or
inadequacy of indemnification, the results could have a material adverse effect
on the Company. The Company increased its product liability coverage from
$3,000,000 to $8,000,000 effective January 8, 1995.

COMPETITION

The industry in which the Company is engaged is characterized by intense
competition. The Company competes against established pharmaceutical and
consumer product companies that currently market products which have identical
active ingredients or are equivalent or functionally similar to or in
competition with those the Company markets. Moreover, many of the Company's
competitors and their products have national and regional name brand
recognition. In addition, numerous companies are developing or may, in the
future, engage in the development of products competitive with the Company's
products. Examples of the many products which have achieved significant brand
name recognition which are competitive with the Company's products include
Tylenol(Registered), Advil(Registered), Nuprin(Registered),
Benadryl(Registered), Actifed(Registered), Sudafed(Registered),
No-Doz(Registered), Vivarin(Registered), and Dexatrim(Registered). The Company
believes it competes effectively against its competitors on the basis of price
and service.

4
<PAGE>
TRADEMARKS

The Company owns numerous trademarks that have been registered with the
United States Patent and Trademark Office ('PTO'). To the Company's knowledge,
the Company has the common law right to use such service marks on its products
and in the marketing of its services. The Company has retained trademark counsel
and presently intends to make appropriate filings and registrations and take all
other actions necessary, to protect all of its intellectual property rights. The
Company views its trademarks and other proprietary rights as valuable assets and
believes they have significant value in the marketing of its products.

GOVERNMENT REGULATION

The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the Food and Drug Administration ('FDA'), the Federal Trade Commission
('FTC'), the Consumer Products Safety Commission, the United States Department
of Agriculture and the Environmental Protection Agency ('EPA'). These activities
may also be regulated by various agencies of the states and localities in which
the Company's products are sold.

Nutritional Supplements

The FDA, in particular, regulates the advertising, labeling and sales of
those vitamin and mineral supplements which the FDA determines are unapproved
drugs or food additives rather than food supplements.

Partially in response to the enactment of the Nutrition Labeling and
Education Act of 1990 (the 'NLBA'), the FDA, in November 1991, issued proposed
regulations designed to amend its food labeling regulations, establish specific
regulations for the nutrition labeling of vitamins and mineral supplements,
establish up-to-date reference standards for nutrients and food components and
establish procedures of FDA approval of health claim messages. The legislation
required that final regulations be published by November 8, 1992. The proposed
regulations met with substantial opposition from a number of sources, including
the dietary supplement industry. Principally through the efforts of that
industry, the Dietary Supplement Act was passed in October 1992 which prohibited
the issuance of final regulations, as they applied to nutrition supplements,
until December 15, 1993 and, further, required that certain studies be conducted
in the interim concerning the manner in which supplements are regulated in this
country and in foreign countries.

The FDA issued on June 18, 1993 proposed regulations and adopted on
December 30, 1993 final regulations concerning the nutrition labeling of and use
of health claims on dietary supplements. The regulations require, effective July
1, 1995, nutrition labeling on all dietary supplements and, effective July 5,
1994, prohibit the use of any health claim on a dietary supplement unless the
supplement is consumed as a food, its components have been demonstrated to be
safe, and the health claim is supported by significant scientific agreement and
approved by the FDA. Presently, the FDA has approved only the use health claims
for calcium in connection with osteoporosis, dietary fat in connection with

cancer and folic acid in connection with certain birth defects. Accordingly,
most dietary supplements will be precluded from bearing most health claims. The
Company cannot determine at this time the effect of the new regulations on its
future operation although it believes they will not have a material adverse
effect.

On June 18, 1993, the FDA published an Advance Notice of Proposed
Rulemaking ('ANPR') soliciting comments on the concept of the overall regulatory
strategy to assure the safety of vitamins, minerals, herbs, amino acids and
other supplements. This follows a study by an internal FDA committee of the
current regulatory framework for dietary supplements and an FDA commissioned
study by the Federation of American Societies for Experimental Biology ('FASEB')
on the safety of amino acids. Although the internal FDA report has not yet been
issued, agency representatives have indicated that it will include a
recommendation that certain manufactured amino acids be available by
prescription only. The FASEB report, published in September 1992, concluded that
there was insufficient research and information on amino acids to allow them to
assert that single or incomplete mixtures of amino acids were safe and,
therefore, recommended that further research be conducted. The internal FDA
report, issued in conjunction with the publication of the ANPR, contains
recommendations concerning the possible regulation of dietary supplements by
category including the regulation of single and incomplete mixtures of amino
acids either as drugs, 'food additives' or 'generally recognized as safe'

5
<PAGE>
substances with potencies low enough to ensure safety. The ANPR has requested
input and comments from interested parties. Sales by the Company of such
products did not constitute more than 5% of the Company's sales during 1994.
Whether regulations will or will not be recommended and adopted and, if adopted,
on what dietary supplements, is presently unclear. Implementation of ANPRs
normally involves longer time periods than those cited above in connection with
the proposed NLEA regulations. The legislation sponsored by the dietary
supplement industry would impact the FDA's ability to issue and implement any
such regulations.

The Company cannot determine what effect the proposed rule making referred
to above, or other governmental regulations or administrative orders, when and
if promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products to meet new standards, require the
recall or discontinuance of certain products not capable of reformulation, or
impose additional record keeping, expanded or different labeling, and scientific
substantiation. Any or all of such requirements could adversely affect the
Company's operations and its financial conditions.

Over-the-Counter Pharmaceuticals

On December 17, 1993, Congress enacted the Domestic Chemical Diversion
Control Act ('DCDCA'). The DCDCA, which became effective April 16, 1994, amended
a provision of the Chemical Diversion and Trafficking Act of 1988, which
permitted drugs that were marketed or distributed lawfully in the United States
in accordance with the Federal Food, Drug, and Cosmetic Act ('FDCA') and which
contained a list chemical to be sold without the record keeping or reporting
otherwise required for transactions involving list chemicals in amounts over

specified quantitative thresholds.

In terms of list chemicals contained in drugs marketed or distributed
lawfully in accordance with the FDCA, the DCDCA removed all the exemption for
drug products which contain ephedrine as the only active medicinal ingredient,
or with only therapeutically insignificant quantities of another active
medicinal ingredient ('single-entity ephedrine'). The DCDCA also allows the
Attorney General to remove exemptions for other list chemicals contained in
drugs marketed or distributed lawfully in accordance with the FDCA, upon a
showing that such products are being diverted.

On March 17, 1994, the Drug Enforcement Administration ('DEA') issued a
proposal to eliminate the threshold for bulk ephedrine and single-entity
ephedrine drug products, thereby requiring reporting and record keeping for all
transactions involving single-entity ephedrine products in any amount. This
regulation became effective in final form on November 10, 1994.

The Company has complied with the record keeping and reporting requirements
in the above mentioned regulations.

On October 12, 1995, the DEA issued final regulations requiring all
companies engaged in transactions involving single-entity ephedrine drug
products to file an application for registration with the DEA on or before
November 13, 1995. Any Company which did not file for registration with the DEA
on or before the deadline can no longer import, export, manufacture, or
distribute single-entity ephedrine products. Companies which timely filed an
application may continue in transactions unless the DEA ultimately denies the
application, at which time the applicant would have the opportunity for a
hearing on the issue.

Although the Company filed a timely application for registration with the
DEA for the manufacture and distribution of single-entity ephedrine, the Company
may not sell to customers who have not complied with the requirement to file. As
a result of the above, the Company has realized a significant decline in its
single-entity ephedrine customer base and has recognized an inventory write off
of approximately $2,374,000 on single-entity ephedrine products. Sales of
single-entity ephedrine drug products were approximately $1,733,000 or 5% and
$5,052,000 or 24% of total sales for fiscal year end 1995 and 1994,
respectively. These sales have been replaced by sales of other approved multiple
ingredient over-the-counter ephedrine drug products.

The Company believes that it is in compliance with all environmental
regulations affecting the Company.

6
<PAGE>
Employees

As of February 26, 1996, the Company employed 150 full-time persons,
including 11 persons in sales, marketing and related activities, 122 persons in
manufacturing and production and 17 persons in general administration and
finance. The Company has experienced no work stoppages and considers its
employee relations to be satisfactory. The Company's employees are not
represented by a labor union.

ITEM 2. PROPERTIES.

The Company leases a 44,000 square foot facility in Hauppauge, New York.
This facility serves as the Company's corporate headquarters and
manufacturing/production center. The annual rent is $232,000 and increases
$11,000/ year. The current lease has four years remaining.

In 1995, the Company leased a second property in Hauppauge, New York. This
30,000 square foot property serves as the Company's distribution center. This
lease is for a term of five years with an annual rental of $172,500.

The Company also leases additional space in Hauppauge, New York on a
month-to-month basis which is being utilized for storage.

ITEM 3. LEGAL PROCEEDINGS.

Except as set forth below, management is not aware of any material legal
proceeds pending against the Company.

On February 4, 1994 the Company was named as a defendant in a litigation
entitled Hillary L. Dufficy v. PDK Labs Inc in the Superior Court of the State
of Connecticut, alleging a product liability claim pursuant to Section 52-572m
of the Connecticut General Statutes. The action seeks unspecified monetary
damages. The Company intends to vigorously defend the lawsuit and has referred
the action to its product liability insurer. See 'Business--Product Liability.'

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to the Company's shareholders for vote during the
last quarter of its fiscal year.

7
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's securities commenced trading in the over-the-counter market
on the effectiveness of the Company's Initial Public Offering on May 8, 1990 in
the form of Units each consisting of one (1) share of Common Stock and one (1)
Old Warrant. Effective July 12, 1990 the Common Stock and Old Warrant component
parts of the Units were separated and began trading under the symbols PDKL and
PDKLW. The Common Stock is regularly quoted and traded on the NASDAQ system and
the Old Warrants are regularly quoted and sporadically traded on the NASDAQ
system.

On April 14, 1992 the Company Units each consisting of one (1) share of
Preferred Stock, one (1) Class B warrant and one (1) Class C Warrant commenced
trading on the NASDAQ System as Units and separately under the symbols PDKLP,
PDKLZ and PDKLM.

The following table indicates the high and low bid prices for the Company's
Common Stock, Preferred Stock, Old Warrants, Class B Warrants and Class C

Warrants for the period up to November 30, 1995 based upon information supplied
by the NASDAQ system. Prices represent quotations between dealers without
adjustments for retail markups, markdowns or commissions, and may not represent
actual transactions. All of the prices have been adjusted to reflect the
Company's 1 for 10 reverse stock split which became effective in the Third
Quarter of 1995.

<TABLE>
<CAPTION>
QUOTED BID PRICE
------------------------------------
HIGH LOW
---------------- ----------------
<S> <C> <C>
COMMON STOCK
1993 CALENDAR YEAR
First Quarter.......................................................... 18 3/4 12 1/2
Second Quarter......................................................... 15 5/8 10
Third Quarter.......................................................... 12 1/2 9 3/8
Fourth Quarter......................................................... 12 1/2 9 3/8
1994 CALENDAR YEAR
First Quarter.......................................................... 11 1/4 9 1/16
Second Quarter......................................................... 16 1/4 10
Third Quarter.......................................................... 18 3/4 10
Fourth Quarter......................................................... 13 3/4 9 3/8
1995 CALENDAR YEAR
First Quarter.......................................................... 7 1/2 5
Second Quarter......................................................... 6 9/16 3 3/4
Third Quarter.......................................................... 6 9/16 3 3/4
Fourth Quarter......................................................... 5 1/8 2 3/8
PREFERRED STOCK
1993 CALENDAR YEAR
First Quarter.......................................................... 6 1/4 4 1/2
Second Quarter......................................................... 5 3 1/4
Third Quarter.......................................................... 4 1/4 3
Fourth Quarter......................................................... 3 1/2 2 13/16
1994 CALENDAR YEAR
First Quarter.......................................................... 3 1/2 2 7/8
Second Quarter......................................................... 4 3/4 3 1/4
Third Quarter.......................................................... 5 3/8 3 1/2
Fourth Quarter......................................................... 4 3 1/8
1995 CALENDAR YEAR
First Quarter.......................................................... 3 1/4 3 1/8
Second Quarter......................................................... 3 3/4 3 1/8
Third Quarter.......................................................... 4 3 1/4
Fourth Quarter......................................................... 4 3/4 3 1/4
</TABLE>

8
<PAGE>
<TABLE>
<CAPTION>
QUOTED BID PRICE
------------------------------------

HIGH LOW
---------------- ----------------
OLD WARRANTS
<S> <C> <C>
1993 CALENDAR YEAR
First Quarter.......................................................... 5/8 1/2
Second Quarter......................................................... 1/4 3/16
Third Quarter.......................................................... 1/4 3/16
Fourth Quarter......................................................... 1/4 3/16
1994 CALENDAR YEAR
First Quarter.......................................................... 1/8 1/8
Second Quarter......................................................... 1/8 1/8
Third Quarter.......................................................... 1/8 1/8
Fourth Quarter......................................................... 1/8 1/8
1995 CALENDAR YEAR
First Quarter.......................................................... 1/18 1/8
Second Quarter......................................................... 1/8 1/32

Third Quarter.......................................................... DID NOT TRADE

Fourth Quarter......................................................... DID NOT TRADE

CLASS B WARRANTS
1993 CALENDAR YEAR
First Quarter.......................................................... 1 1/4 1/4
Second Quarter......................................................... 3/4 3/8
Third Quarter.......................................................... 3/4 1/16
Fourth Quarter......................................................... 9/32 1/16
1994 CALENDAR YEAR
First Quarter.......................................................... 15/32 5/6
Second Quarter......................................................... N/A N/A
Third Quarter.......................................................... 3/16 5/32
Fourth Quarter......................................................... 3/16 1/8
1995 CALENDAR YEAR
First Quarter.......................................................... 3/32 1/16
April.................................................................. 1/16 1/32

Third Quarter.......................................................... DID NOT TRADE

Fourth Quarter......................................................... DID NOT TRADE

CLASS C WARRANTS
1993 CALENDAR YEAR
First Quarter.......................................................... 3/4 3/8
Second Quarter......................................................... 3/8 3/16
Third Quarter.......................................................... 1/2 3/16
Fourth Quarter......................................................... 1/16 1/16
1994 CALENDAR YEAR
First Quarter.......................................................... 1/4 3/16
Second Quarter......................................................... 1/4 1/8
Third Quarter.......................................................... 3/32 1/16

Fourth Quarter......................................................... DID NOT TRADE
1995 CALENDAR YEAR

First Quarter.......................................................... 1/16 1/16
Second Quarter......................................................... 1/16 1/32
Third Quarter.......................................................... 3/32 1/32
Fourth Quarter......................................................... 1/32 1/32
</TABLE>

On February 21, 1996, the closing price of the Common Stock as reported on
the NASDAQ System was $4.3125. On February 21, 1996, the closing price of the
Preferred Stock reported on the NASDAQ was $4.625. On February 23, 1996, there
were 859 holders of records of Common Stock.

9
<PAGE>
On April 15, 1995, the Company paid $.25 per share of Preferred Stock
dividend to holders of record on April 1, 1995 payable in shares of Common
Stock. On October 15, 1995, the Company paid $.24 per share of Preferred Stock
dividend to holders of record on October 1, 1995 payable in cash.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

RESULTS OF OPERATIONS

Fiscal Year 1995 compared to Fiscal 1994

Net sales for fiscal year ended 1995 were approximately $31,904,000 as
compared to net sales in 1994 of $21,152,000. This represents a 51% increase
over sales for 1994. The increase is principally attributable to increased sales
volume resulting from continued expansion of advertising and marketing efforts,
increased wholesale sales, and the introduction of new products.

Gross profits amounted to approximately $14,796,000 in 1995 compared with
$9,802,000 in 1994. Gross profit as a percentage of sales was 46% in 1995 and
1994.

In December 1994, the Company entered into an 'Amended Sales and Management
Agreement' with its subsidiary, Futurebiotics, Inc. The Company manufactured
Futurebiotics entire product line at a price equal to PDK's cost and provided
certain administrative services on behalf of Futurebiotics.

Selling, general and administrative expenses were $13,115,000 in 1995 and
$8,366,000 in 1994. As a percentage of sales, selling, general and
administrative expenses were 41% in 1995 and 40% in 1994. The increase is
attributable to expanded advertising and promotion of the Futurebiotics product
line, including increased cooperative advertising with large distributors and
greater attendance at trade shows.

In October 1995, the Company entered into an agreement to transfer certain
assets, liabilities, and the on-going business of its Energex/Compare division
product lines to Compare Generiks, Inc. ('CGI'). The transfer consisted of
certain assets and rights relating to the 'Energex Plus' and 'Compare Generiks'
product lines, including customer lists, trade secrets, trademarks and trade
names, and the assumption of a $50,000 obligation under a promissory note.
Consideration consisted of 500,000 shares of CGI common stock (valued at

$1,200,000) and a $500,000 promissory note. CGI also agreed to pay the
obligation under royalty and commission agreements relating to the Energex
product lines. The Company realized a gain of approximately $1,170,000 on this
transaction.

In addition, CGI entered a five year 'Supply Agreement' with the Company
under which CGI will purchase all of its products from PDK at a price equal to
PDK's material cost plus 100%.

In July 1995, the Company sold a customer list, trademarks, and inventory
related to a mail order vitamin line of products for approximately $50,000. The
Company is no longer engaged in the marketing of its vitamin products through
mail order. A loss of approximately $612,000 was recognized in connection with
this disposal.

In October 1995, the Company entered into an Exclusive Supply and Licensing
Agreement with a non-affiliated customer pursuant to which the Company agreed to
supply the customer with all of its requirements for vitamins, non-prescription
pharmaceutical products and health and fitness products manufactured in tablet,
capsule, caplet, liquid or equivalent form commencing on the date of the
agreement. The term of the agreement is for five years, renewable for successive
one year periods thereafter. Sales to this customer accounted for 16.8% of total
revenue for the fiscal year ended November 30, 1995.

On October 12, 1995, the Drug Enforcement Administration ('DEA') issued
final regulations requiring all companies engaged in transactions involving
single-entity ephedrine drug products to file an application for registration
with the DEA on or before November 13, 1995. Any company which did not file for
registration with the DEA on or before the deadline can no longer import,
export, manufacture, or distribute single-entity ephedrine products. Companies
which timely filed an application may continue in transactions unless DEA
ultimately denies the application, at which time the applicant would have the
opportunity for a hearing on the issue.

10
<PAGE>
ephedrine products. Sales of single-entity ephedrine drug products were
approximately $1,733,000 or 5% of total sales for fiscal year end 1995 and
$5,052,000 or 24% of total sales for fiscal year ended 1994. These sales have
been replaced by sales of other approved multiple ingredient over the counter
ephedrine drug products.

Interest expenses, net of interest income, was $27,000 in 1995, as compared
to $309,000 in 1994. The decrease in interest expense in 1995 is a result of
greater investment balances in 1995.

The provision for income taxes reflects an effective tax rate of 83% in

1995 and 46% for 1994. The rate for 1995 was higher as a result of the Company
recognizing a deferred tax liability on its proportionate share of
Futurebiotics' earnings and the effect of certain permanent differences.

Management believes that inflation did not have material effect on
operations or the financial condition in 1995 and 1994. Management also believes
that its business is not seasonal; however, significant promotional activities
have a direct impact on sales volume in any given quarter.

FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993

Net sales for fiscal year ended 1994 were approximately $21,152,000 as
compared to net sales in 1993 of $18,748,000. This represents a 13% increase
over sales for 1993. The increase is principally attributable to increased sales
volume of the Futurebiotics line of products.

Gross profit amounted to approximately $9,802,000 in 1994 compared with
$9,655,000 in 1993. Gross profit as a percentage of sales was 46% in 1994 and
51% in 1993. The overall decrease in the gross profit percentage is principally
attributable to a change in the mix of sales and the introduction of new product
lines which are priced competitively.

Selling, general and administrative expenses were $8,366,000 in 1994 and
$8,237,000 in 1993. As a percentage of sales, selling, general administrative
expenses were 40% in 1994 and 44% in 1993. The overall percentage decrease is
attributable to the growth in sales, resulting from management's expanded
advertising and marketing efforts, exceeding the costs associated with these
efforts.

Interest expenses, net of interest income, was $309,000 in 1994, as
compared to $74,000 in 1993. The increase in interest expense in 1994 is a
result of greater borrowings and lower investment balances in 1994.

Pursuant to the terms of a 'Sales and Management Agreement' with its
subsidiary Futurebiotics, Inc., the Company manufactured Futurebiotics' entire
product line at a price equal to 115% of PDK's cost, and provided certain
administrative services on behalf of Futurebiotics.

Futurebiotics completed an initial public offering of its securities in
August, 1994. As a result of the offering, PDK recorded a $2,554,000 gain in
recognition of the net increase in value of its investment in Futurebiotics.

The provision for income taxes reflects an effective tax rate of 46% in
1994 and 42% for 1993. The rate for 1994 was higher because of the effect of
certain permanent differences. The Company has adopted Statement of Financial
Standards No. 109, effective December 1, 1993.

Management believes that inflation did not have a material effect on
operations or the financial condition in 1994 and 1993. Management also believes
that its business is not seasonal; however, significant promotional activities
have a direct impact on sale volume in any given quarter.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of approximately $23,084,000 and
$21,861,000 at the end of 1995 and 1994, respectively.

The Company's statement of cash flows for 1995 reflect cash used in
operating activities of approximately $4,299,000. This use of cash is primarily
attributable to a net change in inventory of approximately $4,164,000 resulting
from an increase in amounts expended on inventory during the year of $7,187,000
offset by a loss due to regulatory changes of $2,373,000 on the disposition of a
product line of $650,000. The net change in inventory is a direct result of
increased sales volume and anticipated future sales growth. In addition, there
was an increase in accounts receivable ($1,453,000), prepaid expenses and other
current assets ($389,000), other assets ($738,000) and accounts payable
($801,000) resulting from increased sales and operations.

11
<PAGE>
Net cash used in investing activities approximated $8,602,000 representing
an increase in investments in marketable securities ($7,472,000), the purchase
of property, plant, and equipment ($909,000) and the acquisition of intangible
assets ($2,414,000) offset by net proceeds from PDK's sale of Futurebiotics
stock ($2,155,000).

The statement also reflects net cash provided by financing activities of
approximately $4,510,000, represent bank borrowings net of repayments
($4,688,000), offset by payment of cash dividends ($178,000).

In December 1994, the Company and Futurebiotics amended their sales and
marketing agreement. The revised agreement is for a fixed ten year term under
which the Company, in exchange for 6,000,000 shares of unregistered common
stock, will provide Futurebiotics with its entire line of products at the
Company's cost.

In January 1995, the Company sold 3,000,000 shares of common stock of
Futurebiotics, Inc. for net proceeds of approximately $2,155,000.

In July 1995, the Company entered into a term loan agreement with its bank.
The term loan aggregating $4,000,000, is payable in quarterly principal
installments of $200,000 plus interest commencing November 1995. The proceeds of
the loan were used to partially refinance existing indebtedness of approximately
$3,000,000 on the revolving credit loan and to finance leasehold improvements
and equipment purchases for a new manufacturing facility.

In July 1995, the Company amended its revolving credit agreement with its
bank. The amended agreement provides for borrowings up to $7,000,000 and expires
on May 31, 1998.

The Company expects to meet its cash requirements from operations, current
cash reserves, and its existing financial arrangements.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See financial statements following Item 13 of this Annual Report on Form
10-KSB.

ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

12
<PAGE>
PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT.

The following persons are the current executive officers and directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael B. Krasnoff.................................. 41 Chairman of the Board, President, Chief Executive
Officer, Chief Financial Officer and Secretary
Stanley Krasnoff(1).................................. 68 Director
Ira Helman........................................... 64 Director
Hartley T. Bernstein................................. 44 Director, Assistant Secretary
Robin Marks-Kaufman.................................. 42 Director
</TABLE>

- ------------------
(1) Stanley Krasnoff is the father of Michael Krasnoff.

Outside directors shall receive $10,000 per year as compensation for their
services. Directors who are also officers of the Company do not receive any
compensation for serving on the Board of Directors. All Directors are reimbursed
by the Company for any expenses incurred in attending Director's meetings.

BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS

substantially all of his business time to the Company.

13
<PAGE>
School where he teaches a course in corporate negotiations and has served
previously on the adjunct faculties of New York Law School and Mercy College. He
is also an instructor at the National Institute of Trial Advocacy and a member
of the Boards of Arbitration of the National Association of Securities Dealers
and the New York Stock Exchange. Mr. Bernstein serves as a commentator on
securities law matters on the nationally syndicated Business Radio Network and
Money Radio. Mr. Bernstein graduated from Columbia University with a B.A. and
received his J.D. from New York University School of Law.

Ms. Marks-Kaufman is an assistant professor of psychology at Tufts
University. Ms. Marks-Kaufman has a degree in biology from Cornell University
and received her Ph.D. in psychology from Tufts University. She is on the
faculty at the Institute of Human Nutrition at Columbia University where she
conducted research on diet and metabolism, diet selection, and drug addiction.
She has published numerous scientific articles, and is co-editor of The Columbia
University Encyclopedia of Nutrition.

ITEM 10. EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------

AWARDS PAYOUTS
ANNUAL COMPENSATION --------- -----------------
----------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
RESTRICTED
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
SALARY COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) ($) (#) ($) ($)
- ----------------------------- ---- ---------- -------- ---------------- --------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Krasnoff, CEO........ 1995 $400,000 $250,000 $125,000(1) $650,000(3) -0- $ -0- $-0-
1994 300,000 200,000 445,000(1) -0- -0- -0- -0-
1993 300,000 150,000 213,788(2) 682,500(4) 70,000(5) -0- -0-
Reginald Spinello, V.P. of
Operations................. 1995 $200,000(6) $125,000 $ 75,000(1) $325,000(8) -0- $ -0- $-0-
1994 150,000(7) 75,000 -0- -0- -0- -0- -0-
1993 147,115 50,000 -0- 318,500(9) -0- -0- -0-
</TABLE>

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

(1) Represents reimbursements to pay taxes resulting from stock grants.

(2) Represents reimbursements to pay taxes resulting from stock and option
grants.

(3) Represents issuance of 400,000 shares in accordance with October 1995
employment agreement. Shares were valued at $1.625 per share.

(4) Represents issuance of 105,000 shares in accordance with October 1993
employment agreement. Shares were valued at $6.50 per share.

(5) Options issued in 1993 were rescinded in 1994.

(6) Represents salary of $150,000 paid by the Company and $50,000 paid by its
subsidiary.

(7) Represents salary of $100,000 paid by the Company and $50,000 paid by its
subsidiary.

(8) Represents issuance of 200,000 shares in accordance with October 1995
employment agreement. Shares were valued at $1.625 per share.

(9) Represents issuance of 49,000 shares in accordance with October 1993
employment agreement. Shares were valued at $6.50 per share.

EMPLOYMENT AGREEMENTS

On October 6, 1995, the Company entered into an amended employment

agreement with Michael Krasnoff, the Company's Chief Executive Officer, in
recognition of Mr. Krasnoff's leadership and services which have constituted a
major factor in the growth and development of the Company (the 'Krasnoff
Agreement'). The Krasnoff Agreement provides for Mr. Krasnoff's employment by
the Company through December 31, 2005 at a minimum salary of $400,000 per year
with cost of living increases. The Krasnoff Agreement also provides for a
discretionary bonus as the Board of Directors may determine from time to time
and the issuance of 400,000 shares of the Company's Common Stock. The Krasnoff
Agreement also provides for the issuance to Mr. Krasnoff of options to purchase
250,000 shares of Common Stock at $2.63 per share. As of November 30, 1995, Mr.
Krasnoff owed the Company the sum of $610,000.00 pursuant to the loan provisions
of his employment agreement. The loan bears interest at the prime rate plus 1/2
of 1% per annum. In the event any sums

14
<PAGE>
are outstanding upon termination or expiration of the employment agreement, such
sums shall be automatically converted to a five (5) year loan which shall be
fully amortized over sixty (60) months.

On October 6, 1995, the Company entered into an amended employment
agreement with Reginald Spinello, the Company's Executive Vice President, which
provides for a minimum salary of $200,000 per year and the issuance of 200,000
shares of Common Stock (the 'Spinello Agreement'). The agreement terminates in
October 2002. The Spinello Agreement may be terminated by the Company, at its
sole discretion, on ninety days notice at any time after October 5, 1996.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information, as of February 26, 1996
with respect to the beneficial ownership of the outstanding Common Stock by (i)
any holder of more than five (5%) percent; (ii) each of the Company's officers
and directors; and (iii) the directors and officers of the Company as a group:

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF APPROXIMATE
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS (3)
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Perry D. Krape .............................................. 205,488(1) 6.4%
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Michael B. Krasnoff ......................................... 1,155,488(2) 36.2
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Ira Helman .................................................. -0- -0-
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788

Hartley T. Bernstein, Esq. .................................. 100,000(3) 3.1
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Stanley K. Krasnoff ......................................... -0- -0-
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Robin Marks-Kaufman ......................................... -0- -0-
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Reginald Spinello ........................................... 200,000 6.3
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Dune Holdings, Inc. ......................................... 200,000 6.3
132 Dune Road
Westhampton Beach, NY 11978
All officers and
directors as a group (5 persons) .......................... 1,255,488(4) 39.3%
</TABLE>

(Footnotes on next page)

15
<PAGE>
(Footnotes from previous page)
- ------------------

(1) All of Mr. Krape's shares of common stock are subject to a five (5) year
voting trust dated as of July 31, 1991, of which Mr. Krasnoff, the president
of the Company, is the sole voting trustee. Mr. Krasnoff disclaims
beneficial ownership with respect to all such 205,488 shares of common
stock.

(2) Includes (i) 400,000 shares of common stock issued in accordance with the
October 1995 Employment Agreement, (ii) 205,488 shares of common stock owned
by Perry Krape which are subject to a five (5) year voting trust agreement
of which Mr. Krasnoff is the sole voting trustee, (iii) 200,000 shares of
common stock owned by Reginald Spinello, (iv) 200,000 shares of common stock
owned by Dune Holdings, Inc., (v) 50,000 shares of common stock owned by
Karine Hollander and (vi) 100,000 shares of Common Stock owned by Michael
Lulkin. All of the Spinello, Dune, Hollander and Lulkin shares of common
stock are subject to a ten (10) year voting trust held by the Company's
Chief Executive Officer, Mr. Krasnoff.

(3) Includes 100,000 shares of common stock owned by Bernstein & Wasserman, a
law firm which Mr. Bernstein is a partner.

(4) Includes shares beneficially owned by Michael Krasnoff, Ira Helman, Stanley
Krasnoff, Reginald Spinello, Hartley Bernstein, and Robin Marks-Kaufman.
Neither Hollander, Dune or Lulkin are officers or directors of the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

As of November 30, 1995, Mr. Krape owed the Company the sum of $61,000
pursuant to a promissory note dated as of May 1, 1994 (the 'Krape Note'). The
Krape Note bears interest at 9.0% per annum.

As of November 30, 1995, Mr. Krasnoff owed the Company the sum of $609,000,
pursuant to the loan provisions in his Employment Agreement. The Loan bears
interest at the prime rate plus 1/2 of 1% per annum. In the event any sums are
outstanding upon termination or expiration of the employment agreement, such
sums shall be automatically converted to a five (5) year loan which shall be
fully amortized over sixty (60) months.

In January 1994, the Company entered into a seven (7) year
amendment/extension of a certain consulting agreement dated February 15, 1991 by
and between the Company and K.A.M. Group, Inc. ('Consultant'). As consideration
for the amendment/extension, the Company paid to the Consultant 750,000 shares
of its restricted common stock (pre-reverse stock split), such shares to be
charged ratably over the term of the agreement. All of the terms of the
consulting agreement dated February 15, 1991 remain in full force and effect.

In January 1994, the Company entered into a two (2) year consulting
agreement with Bernstein & Wasserman ('BW') for legal services. As consideration
for the agreement, the Company paid BW 300,000 shares of its restricted common
stock (pre-reverse stock split).

In October 1995, the Company entered into a two (2) year consulting
agreement with Bernstein & Wasserman for legal services. As consideration for
the agreement, the Company paid Bernstein & Wasserman 100,000 shares of its
restricted common stock (pre-reverse stock split).

In April 1994, the Company entered into a seven (7) year consulting
agreement, by and between the Company and Carico, Inc. As consideration for the
agreement, the Company paid to Carico, Inc. 700,000 shares of its restricted
common stock (pre-reverse stock split) and $140,000. Such compensation is being
charged ratably over the term of the agreement.

In April 1994, the Company entered into a two (2) year consulting agreement
with Michael Lulkin ('Lulkin') for legal services. As consideration for the
agreement, the Company paid to Lulkin 80,000 shares of its restricted common
stock (pre-reverse stock split), such shares to be charged ratably over the term
of the agreement.

In April 1994, the Company entered into a Sales and Management Agreement
with Futurebiotics (the 'Original Agreement') pursuant to which the Company
agreed to provide certain sales and management services and Futurebiotics agreed
to pay the Company for certain products and services at the Company's cost plus
15%.

On December 8, 1994, the Company and Futurebiotics entered into an
amendment of the Original Agreement ('Amended Agreement'). As in the Original
Agreement, the Amended Agreement provides that the Company has agreed to (i)
provide Futurebiotics with certain management services, including bookkeeping,
order processing, computer services and shipping and to, (ii) provide all of the

products marketed by Futurebiotics.

16
<PAGE>
The Amended Agreement provides that in consideration for the services,
Futurebiotics shall pay to the Company its costs for the Products, which is
defined as actual material costs, plus an amount representing the Company's
actual direct labor costs plus factory overhead, as determined in accordance
with generally accepted accounting principles.

In addition, the Amended Agreement provides for Futurebiotics to sell to
the Company 6,000,000 shares of Futurebiotic's Common Stock at $.0001 par value
per share (the 'Stock'). The Stock is not transferrable for ten (10) years from
the date of issuance, except that the Company shall be permitted to demand the
registration under the Securities Act of 1933, as amended, of 600,000 shares of
the Stock per year.

In January 1995, the Company sold 3,000,000 common shares of Futurebiotics
to a non-affiliated third party for gross proceeds of $2,250,000. After the
sale, the Company owns 7,000,000 shares of Common Stock of Futurebiotics, Inc.
representing 52.4% of the outstanding shares of Futurebiotics. The Company owns
8,335,000 shares of Preferred Stock of Futurebiotics representing 100% of the
outstanding Preferred Stock. Each share of Preferred stock has one vote.

On November 7, 1995, the Company completed a binding Exclusive Supply and
Licensing Agreement with Body Dynamics, Inc. ('BDI') pursuant to which the
Company agreed to supply BDI with all of its requirements for vitamins,
non-prescription pharmaceutical products and health and fitness products
manufactured in tablet, capsule, caplet, liquid or equivalent form commencing on
the date of the agreement. The term of the agreement is for five (5) years,
renewable for successive one (1) year periods thereafter. In addition, the
Company granted BDI an exclusive license to use the trademarks 'Max Alert' and
'Heads Up', and its trademarks for its ginseng products, and the exclusive right
to distribute products bearing such names, using the components listed in the
agreement.

In October 1995, the Company signed a consulting agreement with Dune
Holdings, Inc. in consideration for the issuance of 200,000 shares of Common
Stock.

MISCELLANEOUS

is a Director of the Company hereunder.

GENERAL

The Company believes that material affiliated transactions and loans
between the Company and its directors, officers, principal shareholders or any
affiliates thereof have been and will be in the future on terms no less
favorable than could be obtained from unaffiliated third parties.

<PAGE>
PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)(1) FINANCIAL STATEMENTS.

The following financial statements are included in Part II, Item 8:

<TABLE>
<S> <C>
Index to Financial Statements and Schedules.......................................................... F-1

Report of Independent Certified Public Accountants................................................... F-2

Balance sheets as of November 30, 1995............................................................... F-3

Statements of operations for the years ended November 30, 1995 and 1994.............................. F-4

Statements of stockholders' equity for the years ended November 30, 1995 and 1994.................... F-5

Statements of cash flows for the years ended November 30, 1995 and 1994.............................. F-6

Notes to financial statements........................................................................ F-7 - F-15
</TABLE>

(a)(3) EXHIBITS.

<TABLE>
<S> <C> <C>
* 3.1 Restated Certificate of Incorporation...............................................................

* 3.2 Amended and Restated By-Laws of Registrant..........................................................

* 4.1 Warrant Agreement...................................................................................

** 10.1 Stock Option Plan and form of Stock Option Agreement................................................

** 10.2 Employment Agreement with Perry D. Krape dated August 1, 1989.......................................

** 10.3 Employment Agreement with Michael B. Krasnoff dated August 1, 1989..................................

** 10.4 Term Loan Agreement between Manufacturers Hanover Trust Company ('Bank') and the Company............

** 10.5 Mortgage between the Bank and the Company...........................................................

** 10.6 Securities Agreement and promissory notes between the Bank, Registrant and Perry Krape in connection
with a $500,000 loan from Bank......................................................................

** 10.7 Consulting Agreement between the Company and LIDCO..................................................

** 10.14 Promissory Note between Perry Krape and the Company.................................................

** 10.15 Letter Agreements between the Company and Perry Krape...............................................

** 10.16 Profit Sharing Plan.................................................................................

** 10.19 Form of Financial Consulting Agreement between Hibbard Brown & Co., Inc. and the Company............

+ 10.21 Unsigned purchase agreement dated as of November 8, 1990 by and among the Company, Sturdee Health
Products, Inc. and Sturdee Company, with all exhibits thereto.......................................

+ 10.22 Unsigned purchase agreement dated as of November 8, 1990 by and between the Company, and Bi Organic
Brands, Inc., with all exhibits thereto.............................................................

+ 10.23 Agreement dated as of November 5, 1990 by and among the Company, and Sturdee Health Products, Inc.
and Sturdee Company, Bi Organic Brands, Inc.........................................................

* 10.24 Conformed, execution copy of Asset Purchase Agreement dated as of October 1, 1990 by and among Reach
Pharmaceuticals, the Company and Robert A. Hardin...................................................
</TABLE>

18
<PAGE>
<TABLE>
<S> <C> <C>
* 10.25 Conformed, execution copy of Employment Agreement dated as of October 1, 1990 by and between the
Company and Robert A. Hardin........................................................................

* 10.26 Conformed, execution copy of Voting Trust Agreement dated as of October 1, 1990 by and among Robert
A. Hardin, the Company and Perry D. Krape...........................................................

* 10.27 Conformed, execution copy of Escrow Agreement dated as of October 1, 1990 by and among Robert A.
Hardin, the Company and Grant, Konvalinka & Grubbs..................................................

++ 10.28 Asset Purchase Agreement among the Company, Silver Streak Vitamin List Company, Inc. and Arthur

Fishbein dated February 25, 1991....................................................................

++ 10.29 Consulting Agreement between the Company and KAM Group, Inc. dated February 15, 1991................

++ 10.30 Amendment Agreement dated February 7, 1991 to employment agreement between Michael B. Krasnoff and
the Company.........................................................................................

+++ 10.31 Michael Krasnoff's Employment Agreement dated as of December 1, 1991................................

+++ 10.32 Perry Krape's Amendment to Employment Agreement dated as of July 31, 1991...........................

*** 10.33 Amendment dated as of March 6, 1992 to Consulting Agreement between Reginald Spinello and the
Company.............................................................................................

*** 10.34 Amendment dated March 11, 1992 to Consulting Agreement between KAM Group, Inc. and the Company......

*** 10.35 Asset Purchase Agreement dated as of March 12, 1992 between Gannon Lists, Inc. and the Company......

* 10.36 Revolving Credit Agreement by and between PDK Labs Inc. and Manufacturers Hanover Trust Company
dated as of February 25, 1992.......................................................................

o 10.37 Term Loan Agreement by and between PDK Labs Inc. and Manufacturers Hanover Trust Company dated as of
November 30, 1992...................................................................................

o 10.38 Promissory Notes and Security Agreement by and between PDK Labs Inc. and Coast to Coast Generics,
Inc. dated November 30, 1992........................................................................

o 10.39 Asset Purchase Agreement by and among Futurebiotics, the Company and Donald Zinman dated December
16, 1992............................................................................................

o 10.40 Consulting Agreement by and between Donald Zinman and the Company dated December 16, 1992...........

o 10.41 Non-Competition Agreement by and between the Company and Donald Zinman dated December 16, 1992......

oo 10.42 Amendment to Consulting Agreement dated December 16, 1992 by and between Donald Zinman and the
Company dated January 12, 1994......................................................................

oo 10.43 Voting Trust Agreement by and among Donald Zinman, Michael Krasnoff and the Company dated as of
January 12, 1994....................................................................................

oo 10.44 Stock Option Agreement by and between Donald Zinman and the Company dated January 12, 1994..........

oo 10.45 Promissory note from Donald Zinman to the Company dated January 1, 1994.............................

oo 10.46 Employment Agreement with Michael Krasnoff dated as of October 18, 1993.............................

oo 10.47 Employment Agreement with Reginald Spinello dated as of October 18, 1993............................

oo 10.48 Amendment of Consulting Agreement by and between KAM Group, Inc. and the Company dated January 19,
1994................................................................................................
</TABLE>

19
<PAGE>

<TABLE>
<S> <C> <C>
ooo 10.49 Sales and Management Agreement by and between the Company and Futurebiotics dated April 14, 1994....

ooo 10.50 Amendment of Sales and Management Agreement by and between the Company and Futurebiotics dated
December 8, 1994....................................................................................

ooo 10.51 Consulting Agreement by and between the Company and Carico, Inc. dated April 4, 1994................

10.52 Supply and Licensing Agreement with Body Dynamics, Inc. dated October 16, 1995......................

10.53 Asset Purchase Agreement with Compare Generiks, Inc. dated October 31, 1995.........................

10.54 Supply Agreement with Compare Generiks, Inc. dated October 31, 1995.................................
</TABLE>

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

<TABLE>
<C> <S>
* Incorporated by Reference to the Company's Registration Statement on Form S-1, No. 33-46454

** Incorporated by Reference to the Company's Registration Statement on Form S-18, No. 22-31006 NY.

+ Incorporated by Reference to the Company's Report on Form 8-K dated November 14, 1990.

++ Incorporated by Reference to the Company's Registration Statement on Form S-1, No. 33-39250

+++ Incorporated by Reference to the Company's Form 10-K for the year ended November 30, 1991.

o Incorporated by Reference to the Company's Form 10-KSB for the year ended November 30, 1992.

oo Incorporated by Reference to the Company's Form 10-KSB for the year ended November 30, 1993.

ooo Incorporated by Reference to the Company's Form 10-KSB for the year ended November 30, 1994.

(b) REPORTS ON FORM 8-K.

None.
</TABLE>

20
<PAGE>
SIGNATURE

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

Dated: New York, New York
February 28, 1996
PDK LABS INC.

By: /s/ MICHAEL B. KRASNOFF
-------------------------------

Michael B. Krasnoff, President
Chief Executive Officer
Chief Financial Officer and
Principal Accounting Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------ ------------------

<C> <S> <C>
/s/ MICHAEL B. KRASNOFF President, Chief Executive
- ------------------------------------------------------ Officer and Chief Financial
MICHAEL B. KRASNOFF Officer February 28, 1996

/s/ STANLEY KRASNOFF Director
- ------------------------------------------------------
STANLEY KRASNOFF February 28, 1996

/s/ IRA HELMAN Director
- ------------------------------------------------------
IRA HELMAN February 28, 1996

/s/ HARTLEY T. BERNSTEIN Director
- ------------------------------------------------------
HARTLEY T. BERNSTEIN February 28, 1996

/s/ ROBIN MARKS-KAUFMAN Director
- ------------------------------------------------------
ROBIN MARKS-KAUFMAN February 28, 1996
</TABLE>

<PAGE>
PDK LABS INC. AND SUBSIDIARY
REPORT ON AUDITS OF
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED NOVEMBER 30, 1995 AND 1994

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
PDK Labs Inc. and Subsidiary
Hauppauge, New York

We have audited the consolidated balance sheet of PDK Labs Inc. and Subsidiary
as of November 30, 1995 and the related consolidated statements of operations,

stockholders' equity and cash flows for each of the two years in the period
ended November 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PDK Labs Inc. and Subsidiary as
of November 30, 1995 and the results of its operations and its cash flows for
each of the two years in the period ended November 30, 1995, in conformity with
generally accepted accounting principles.

HOLTZ RUBENSTEIN & CO., LLP

Melville, New York
February 23, 1996

F-2

<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
NOVEMBER 30,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................................ $ 928,761
Investment in marketable securities, at fair value............................................... 5,105,199
Accounts receivable--less allowance for doubtful accounts of $42,000............................. 6,327,365
Inventories (Note 4)............................................................................. 13,247,145
Prepaid expenses and other current assets........................................................ 1,076,374
Deferred income taxes (Note 101)................................................................. 289,803
------------
Total current assets.......................................................................... 26,974,647
Investment in marketable securities................................................................ 2,367,119
Property, plant and equipment, net (Notes 5 and 8)................................................. 3,408,140
Intangible assets, net (Note 6).................................................................... 3,465,859
Investment in compare generiks (Note 15)........................................................... 1,700,000
Other assets....................................................................................... 4,027,366
------------
$ 41,943,131

------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................................ $ 2,554,161
Dividends payable (Note 9)....................................................................... 45,223
Income taxes payable (Note 10)................................................................... 117,820
Current portion of long-term debt (Note 8)....................................................... 1,173,302
------------
Total current liabilities..................................................................... 3,890,506
------------
Long-term debt (Note 8)............................................................................ 8,251,463
------------
Deferred income taxes (Note 10).................................................................... 1,248,995
------------
Interests of minority holders in subsidiary commitments and contingencies (Notes 11 and 12)........ 4,115,215
------------
Stockholders' equity: (Notes 9 and 12)
Common stock, $.01 par value; authorized 30,000,000 shares; 3,191,986 issued
and outstanding............................................................................... 31,919
Preferred stock, $.01 par value; authorized 5,000,000 shares; 739,555 issued
and outstanding............................................................................... 7,396
Additional paid-in capital....................................................................... 27,747,926
Unearned compensation............................................................................ (6,242,606)
Retained earnings................................................................................ 3,192,317
Treasury stock, at cost; 30,000 shares........................................................... (300,000)
------------
24,436,952
------------
$ 41,943,131
------------
------------
</TABLE>

See notes to consolidated financial statements

F-3

<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net Sales (Note 14)................................................................ $31,903,558 $21,151,667
----------- -----------
Costs and Expenses: (Notes 5, 6, 12 and 13)
Cost of sales.................................................................... 17,107,396 11,349,722

Selling, general and administrative.............................................. 13,114,980 8,366,151
----------- -----------
30,222,376 19,715,873
----------- -----------
Operating Income................................................................... 1,681,182 1,435,794
----------- -----------
Other Expenses (Income):
Interest income.................................................................. (565,544) (175,063)
Interest expense................................................................. 592,773 483,898
Gain on issuance of subsidiary stock (Note 2).................................... -- (2,554,337)
Gain on sale of subsidiary stock (Note 2)........................................ (219,531) --
Other (Note 15).................................................................. 1,812,991 333,982
----------- -----------
1,620,689 (1,911,520)
----------- -----------
Earnings Before Provision for Income Taxes and
Minority Interest................................................................ 60,493 3,347,314
Provision for Income Taxes (Note 10)............................................... 50,000 1,538,000
----------- -----------
Earnings Before Minority Interest.................................................. 10,493 1,809,314
Minority Interest in Net Earnings of Subsidiary.................................... 190,594 35,522
----------- -----------
Net (loss) earnings................................................................ $ (180,101) $ 1,773,792
----------- -----------
----------- -----------
(Loss) earnings per share (Note 9)................................................. $ (.24) $ .71
----------- -----------
----------- -----------
Weighted average number of common shares outstanding (Note 9)...................... 2,259,232 1,797,316
----------- -----------
----------- -----------
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE>
PDK LABS INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
---------------------- -------------------- PAID-IN
TOTAL SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- --------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1993..................... $19,294,966 1,121,751 $ 11,218 1,578,210 $ 15,782 $20,000,828
Issuance of stock for services
(Notes 9 and 12)............................... -- 683,000 6,830 -- -- 4,091,170
Conversion of preferred shares................... -- 251,597 2,516 (838,655) (8,386) 5,870
Amortization of unearned compensation............ 1,128,603 -- -- -- -- --
Dividends (Note 9)............................... 52,700 49,011 490 -- -- 544,632
Other (Note 12).................................. 190,000 -- -- -- -- 190,000
Net earnings..................................... 1,773,792 -- -- -- -- --

----------- --------- ---------- --------- -------- -----------
Balance at November 30, 1994..................... 22,440,061 2,105,359 21,054 739,555 7,396 24,832,500
Issuance of stock for services
(Notes 9 and 12)............................... -- 1,050,000 10,500 -- -- 1,695,750
Amortization of unearned compensation............ 1,319,335 -- -- -- -- --
Unearned management fee from
issuance of subsidiary stock
for services (Note 2).......................... 1,427,500 -- -- -- -- 1,427,500
Amortization of unearned
management fee................................. (142,750) -- -- -- -- (142,750)
Dividends (Note 9)............................... (177,513) 36,627 365 -- -- 184,506
Issuance of stock by subsidiary
to minority holders (Note 2)................... (249,580) -- -- -- -- (249,580)
Net (loss)....................................... (180,101) -- -- -- -- --
----------- --------- ---------- --------- -------- -----------
Balance at November 30, 1995..................... $24,436,952 3,191,986 $ 31,919 739,555 $ 7,396 $27,747,926
----------- --------- ---------- --------- -------- -----------
----------- --------- ---------- --------- -------- -----------

<CAPTION>
TREASURY STOCK
UNEARNED RETAINED ------------------
COMPENSATION EARNINGS SHARES AMOUNT
------------ ---------- ------ ---------
<S> <C> <C> <C> <C>
Balance at November 30, 1993..................... $(2,886,294 ) $2,453,432 30,000 $(300,000)
Issuance of stock for services
(Notes 9 and 12)............................... (4,098,000 ) -- -- --
Conversion of preferred shares................... -- -- -- --
Amortization of unearned compensation............ 1,128,603 -- -- --
Dividends (Note 9)............................... -- (492,422) -- --
Other (Note 12).................................. -- -- -- --
Net earnings..................................... -- 1,773,792 -- --
------------ ---------- ------ ---------
Balance at November 30, 1994..................... (5,855,691 ) 3,734,802 30,000 (300,000)
Issuance of stock for services
(Notes 9 and 12)............................... (1,706,250 ) -- -- --
Amortization of unearned compensation............ 1,319,335 -- -- --
Unearned management fee from
issuance of subsidiary stock
for services (Note 2).......................... -- -- -- --
Amortization of unearned
management fee................................. -- -- -- --
Dividends (Note 9)............................... -- (362,384) -- --
Issuance of stock by subsidiary
to minority holders (Note 2)................... -- -- -- --
Net (loss)....................................... -- (180,101) -- --
------------ ---------- ------ ---------
Balance at November 30, 1995..................... $(6,242,606 ) $3,192,317 30,000 $(300,000)
------------ ---------- ------ ---------
------------ ---------- ------ ---------
</TABLE>

See notes to consolidated financial statements

F-5
<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) earnings............................................................... $ (180,101) $ 1,773,792
----------- -----------
Adjustments to reconcile net (loss) earnings to net cash used in operating
activities:
Depreciation and amortization.................................................. 3,381,776 2,723,886
Minority interest in earnings of subsidiary.................................... 190,594 35,522
Gain on issuance of subsidiary stock........................................... -- (2,554,337)
Loss on regulatory action...................................................... 2,373,516 --
Gain on sale of subsidiary stock............................................... (219,531) --
Gain on sale of assets......................................................... (560,525) --
Deferred income tax provision (benefit)........................................ (77,637) 836,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable....................................................... (1,453,086) (1,107,438)
Inventories............................................................... (7,187,396) (2,129,441)
Prepaid expenses and other current assets................................. (388,512) (128,160)
Other assets.............................................................. (738,490) (1,035,095)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses..................................... 801,001 10,255
Income taxes payable...................................................... (240,978) (191,688)
----------- -----------
Total adjustments.............................................................. (4,119,268) (3,540,496)
----------- -----------
Net cash used in operating activities.......................................... (4,299,369) (1,766,704)
----------- -----------
Cash flows from investing activities:
(Increase) decrease in marketable securities...................................... (7,472,318) 2,470,932
Purchase of property, plant and equipment......................................... (908,825) (873,585)
Acquisition of intangible assets.................................................. (2,413,719) (443,243)
Proceeds from sale of subsidiary stock............................................ 2,155,300 --
Net proceeds from sale of assets.................................................. 37,500 --
----------- -----------
Net cash (used in) provided by investing activities............................ (8,602,062) 1,154,104
----------- -----------
Cash flows from financing activities:
Increase in notes receivable...................................................... -- (1,600,000)
Repayment of note receivable...................................................... -- 1,600,000
Net proceeds of revolving credit line............................................. 1,250,000 1,500,000
Proceeds from term loan........................................................... 4,000,000 --
Repayment of debt................................................................. (562,495) (401,547)

Net proceeds on transfer of option................................................ -- 190,000
Net proceeds of stock offering.................................................... -- 5,415,509
Payment of cash dividends......................................................... (177,513) --
----------- -----------
Net cash provided by financing activities...................................... 4,509,992 6,703,962
----------- -----------
Net (decrease) increase in cash and cash equivalents................................ (8,391,439) 6,091,362
Cash and cash equivalents at beginning of year...................................... 9,320,200 3,228,838
----------- -----------
Cash and cash equivalents at end of year............................................ $ 928,761 $ 9,320,200
----------- -----------
----------- -----------
</TABLE>

See notes to consolidated financial statements

F-6
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Description of business

The Company manufactures and distributes non-prescription pharmaceutical
products, vitamins and food supplement products, and cosmetics and beauty aids.

Effective March 17, 1994, the Company spun off its Futurebiotics operations
into a newly formed, wholly owned subsidiary, Futurebiotics, Inc.
('Futurebiotics'). In connection with this reorganization, the Company was
issued 4,000,000 common shares and 8,335,000 preferred shares.

b. Principles of consolidation

The consolidated financial statements include the accounts of PDK Labs Inc.
and its subsidiary, Futurebiotics, Inc. Upon consolidation, all significant
intercompany accounts and transactions are eliminated.

c. Investment in marketable securities

The Company has adopted Financial Accounting Standards Board ('FASB')
Statement No. 115, 'Accounting for Certain Investments in Debt and Equity
Securities.' FASB No. 115 requires that investments in debt and equity
securities be designated as trading, held-to-maturity, or available for sale.
Management considers the Company's marketable securities, consisting principally
of government and government-backed debt securities, to be available-for-sale.
Available-for-sale securities are reported at amounts which approximate fair
value.

d. Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or

market.

e. Deferred catalog costs

Costs related to mail order catalogs and promotional material are amortized
over their estimated productive lives, based on historical results, generally
not exceeding one year.

f. Depreciation and amortization

Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Amortization of leasehold improvements is
computed using the straight-line method over the estimated useful lives of the
related assets or the remaining term of the lease, whichever is shorter.
Maintenance and repairs of property and equipment are charged to operations and
major improvements are capitalized. Upon retirement, sale or other disposition
of property and equipment, the cost and accumulated depreciation are eliminated
from the accounts and gain or loss is included in operations.

Intangible assets are amortized using the straight-line method over the
following periods:

<TABLE>
<S> <C>
Customer lists............................... 3-7 years
Trademarks................................... 7-10 years
Deferred loan costs.......................... Term of related debt
Goodwill..................................... 10 years
Distribution rights.......................... 1-5 years
</TABLE>

g. Income taxes

The Company filed a consolidated federal income tax return for the periods
through August 31, 1994. As a result of the initial public offering of
Futurebiotics, the Company's ownership was reduced below the requirements for
filing consolidated returns. Accordingly, the companies filed separate returns
for periods

F-7
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED NOVEMBER 30, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
subsequent to August 31, 1994. The provision for income taxes represents the
allocation of income taxes as determined on a 'separate return' basis.

Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

h. Statement of cash flows

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.

i. Reclassifications

Certain reclassifications have been made to the prior year financial
statements to conform with the classifications used in 1995.

2. FUTUREBIOTICS STOCK TRANSACTIONS

In August 1994, Futurebiotics completed an initial public offering. As a
result of the offering, PDK recorded a $2,554,000 pre-tax gain in recognition of
the net increase in value of its investment in Futurebiotics. Deferred taxes
have been provided on the gain recognized. As a result of this transaction,
PDK's ownership of Futurebiotics stock was reduced to 63.5% at November 30,
1994.

In December 1994, Futurebiotics issued 6,000,000 unregistered common stock
to PDK in connection with an amendment to their 'Sales and Management Agreement'
(see Note 13).

In January 1995, the Company sold 3,000,000 shares of common stock of
Futurebiotics for net proceeds of approximately $2,155,000. The Company realized
a gain of approximately $220,000.

In January 1995, Futurebiotics entered into two separate multi-year
consulting agreements. As consideration for these services, the Company issued
600,000 shares of common stock to each of the companies and a consulting fee of
$210,000 to one company. Consideration paid, including the value of the common
stock granted, is being charged to operations ratably over the lives of the
consulting agreements.

As a result of these transactions, PDK's ownership of Futurebiotics, Inc.
was reduced to 52%.

3. SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS

Cash paid during the years for:

<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Interest, net of capitalized interest................................. $593,000 $484,000
-------- --------
-------- --------
Income taxes.......................................................... $270,000 $690,000

-------- --------
-------- --------
</TABLE>

The Company reduced accounts receivable by approximately$87,000 in the year
ended November 30, 1994, in connection with the acquisition of certain assets
(see Note 6). Further, the Company and its majority-owned subsidiary issued
stock and options to various parties in consideration of certain assets acquired
(see Note 6) and services provided (see Note 12).

F-8
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED NOVEMBER 30, 1995 AND 1994

4. INVENTORIES

Inventories consist of the following at November 30, 1995:

<TABLE>
<S> <C>
Raw materials.................................................................. $ 4,041,070
Work-in-process................................................................ 2,314,049
Finished goods................................................................. 6,892,026
-----------
$13,247,145
-----------
-----------
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, consist of the following at
November 30, 1994:

<TABLE>
<S> <C>
Land............................................................................ $ 493,448
Manufacturing equipment......................................................... 3,654,579
Vehicles........................................................................ 179,521
Office equipment and fixtures................................................... 1,454,600
Leasehold improvements.......................................................... 1,101,981
----------
6,884,129
Less accumulated depreciation and amortization.................................. 3,475,989
$3,408,140
----------
----------
</TABLE>

Depreciation and amortization of property, plant and equipment for the
years ended November 30, 1995 and 1994 was $654,000 and $538,000, respectively.

6. INTANGIBLE ASSETS

Intangible assets acquired at various dates consist of the following at
November 30, 1995:

<TABLE>
<CAPTION>
AMORTIZATION
PERIOD
------------
<S> <C> <C>
Customer lists.................................................... 3-7 $4,110,103
Trademarks........................................................ 7-10 229,180
Covenants not to compete.......................................... 5-7 2,039,000
Deferred loan costs............................................... 4 156,195
Goodwill.......................................................... 10 300,000
Distribution rights............................................... 1-5 799,438
----------
7,633,916
Less accumulated amortization..................................... 4,168,057
----------
$3,465,859
----------
----------
</TABLE>

Amortization expense for the years ended November 30, 1995 and 1994 was
$1,527,000 and $1,058,000, respectively.

During the year ended November 30, 1995, the Company acquired customer
lists and covenants not to compete for an aggregate price of approximately
$908,000. Approximately $315,000 of these assets were subsequently disposed of
in the sale of a product line (see Note 15). The Company acquired a customer
list for approximately $322,000 during the year ended November 30, 1994.

Futurebiotics has implemented a marketing program with select retail stores
and distributors in order to obtain premium shelf space. Contracts with
retailers are for a fixed period of not less than one year. Costs associated
with these distribution rights are being charged to operation ratably over the
lives of the agreements.

F-9
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED NOVEMBER 30, 1995 AND 1994

7. OTHER ASSETS

Included in other assets is a loan to an officer approximating $610,000.
The employment agreement with this officer includes a provision under which the
officer may borrow from the Company under a credit line. Borrowings under the
line bear interest at prime plus 1/2%. In the event of the termination of
employment, any amounts outstanding shall be converted into a term loan payable

over a specified period.

8. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<S> <C>
Revolving lines of credit(a).......................................... $5,250,000
Term loan payable(b).................................................. 3,800,000
Term loan payable(c).................................................. 356,000
Other................................................................. 18,765
----------
9,424,765
Less current portion.................................................. 1,173,302
----------
$8,251,463
----------
----------
</TABLE>

The prime rate at November 30, 1995 was 8 1/2%.

(a) The Company has a secured revolving credit agreement with a bank
which provides for aggregate borrowings of up to $7,000,000. Borrowings
under the agreement are collateralized by the assets of the Company.

On December 13, 1994, Futurebiotics entered into a secured revolving
credit agreement with a bank. The agreement provides that Futurebiotics may
borrow an aggregate of (i) 80% of qualified accounts receivable and (ii)
the lesser of 50% of its inventory or $500,000, to a maximum of $2,000,000.
All borrowings are collateralized by Futurebiotic's assets.

All borrowings under these revolving credit agreements bear interest
at the bank's prime rate or 2% above the Eurodollar rate, at the Company's
option. These agreements expire on May 31, 1998 and require, among other
things, the maintenance of tangible net worth and limitations on
investments and additional borrowings.

(b) The term loan is payable in quarterly installments of $200,000,
plus interest at prime, through August 2000; collateralized by the
Company's assets.

(c) The term loan is payable in monthly installments of $29,000 plus
interest at prime plus 3/4%, with a final installment of $37,000;
collateralized by the Company's assets.

Maturities of long-term debt during the next five years are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
NOVEMBER 30,
- ----------------------------------------------------------------------

F-10
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED NOVEMBER 30, 1995 AND 1994

9. STOCKHOLDERS' EQUITY

a. Capitalization

The Company's authorized capital consists of 30,000,000 shares of common
stock and 5,000,000 shares of preferred stock. All stock has a $.01 par value.

The Board of Directors has the authority to issue preferred stock in one or
more series and to fix the rights, voting rights, and other terms. The preferred
shares issued and outstanding at November 30, 1995 have no voting rights and, in
the event of any liquidation of the Company, are entitled to $7.00 per share
plus accrued dividends before any distribution to other stockholders. Each share
of preferred stock may be converted into .3 shares of common stock. Preferred
shareholders are entitled to cumulative dividends of $.49 per share, payable at
the election of the Company in cash, common stock, or a combination thereof.
Dividends are payable semi-annually on or about April 15 and October 15 of each
year.

b. Reverse stock split

On July 19, 1995, the Company's Board of Directors authorized a one for ten
reverse stock split of common stock outstanding. All per share and weighted
average share amounts have been restated to reflect this stock split.

c. (Loss) earnings per share

(Loss) earnings per common share were computed by dividing net (loss)
income available to common shareholders by the weighted average number of shares
of common stock outstanding during the period. The effect of common stock
equivalents on the computation of (loss) earnings per share was not material in
1994 and was anti-dilutive in 1995. Treasury shares have been excluded from the
weighted average number of shares.

Net (loss) earnings available to common shareholders was computed as
follows:

<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,

-----------------------
1995 1994
--------- ----------
<S> <C> <C>
Net (loss) earnings................................................ $(180,101) $1,773,792
Dividends on preferred shares...................................... (362,382) (492,422)
--------- ----------
Net (loss) income available to common shareholders................. $(542,483) $1,281,380
--------- ----------
--------- ----------
</TABLE>

d. Stock option plan

The Company's Non-Qualified Stock Option Plan, provides for the granting of
options to purchase not more than 23,250 shares of common stock to employees,
directors, and consultants of the Company. Pursuant to the Plan, and at the
Board's discretion, the options expire up to ten years from the date of grant,
and the exercise price will be determined by the Board. At November 30, 1995, no
options have been granted under the Plan.

At November 30, 1995, the Company has approximately 974,000 shares of
common stock reserved for future issuances.

F-11
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED NOVEMBER 30, 1995 AND 1994

10. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
----------------------
1995 1994
-------- ----------
<S> <C> <C>
Current:
Federal........................................................... $ (4,500) $ 592,200
State............................................................. (19,500) 109,800
-------- ----------
(24,000) 702,000
-------- ----------
Deferred:
Federal........................................................... 85,000 642,900
State............................................................. (11,000) 193,100
-------- ----------
74,000 836,000
-------- ----------

$ 50,000 $1,538,000
-------- ----------
-------- ----------
</TABLE>

Net deferred income tax asset (liability) are comprised of the following at
November 30, 1995:

<TABLE>
<CAPTION>
NET DEFERRED NET DEFERRED
INCOME TAX INCOME TAX
ASSET (LIABILITY)
------------ ------------
<S> <C> <C>
Inventories...................................................... $176,091 $ --
Property, plant and equipment.................................... -- (84,615)
Intangible assets................................................ -- 514,053
Investment in subsidiary......................................... -- (542,853)
Unearned compensation............................................ -- (1,138,943)
Tax carryforwards................................................ 128,725 --
Income tax credits............................................... -- 121,344
Other............................................................ 15,013 (46,637)
Valuation allowance.............................................. -- (71,344)
------------ ------------
$289,803 $ (1,248,995)
------------ ------------
------------ ------------
</TABLE>

A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:

<TABLE>
<CAPTION>
% OF
PRE-TAX
EARNINGS
-------------
1995 1994
----- ----
<S> <C> <C>
U. S. Federal statutory income tax rate........................................ 34.0 34.0
State income tax, net of federal tax benefit................................... 4.0 4.0
Other.......................................................................... 10.5 0.5
Adjustment to prior year liability............................................. (51.3) --
Permanent differences.......................................................... 85.5 7.9
----- ----
82.7 46.4
----- ----
----- ----
</TABLE>

In accordance with the provisions of Financial Accounting Standards Board

Statement No. 109, 'Accounting for Income Taxes', the Company recognized a
deferred tax provision on its proportionate share of Futurebiotics' earnings.

F-12
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED NOVEMBER 30, 1995 AND 1994

11. RETIREMENT PLANS

a. The Company has a voluntary, non-contributory defined contribution
profit sharing plan which covers substantially all of its employees.
Contributions to the profit sharing plan are based on a percentage of eligible
compensation up to a maximum of 15%, at the discretion of the Board of
Directors. There was no contribution made in 1995 or 1994.

b. Qualified employees are eligible to participate in a salary reduction
plan under Section 401(k) of the Internal Revenue Code. Participation in the
plan is voluntary, and any participant may elect to contribute up to 17% of
earnings. The Company may, at its discretion, contribute up to 3% of an
employee's earnings. The Company contributed $47,000 and $44,000 to the Plan for
the years ended November 30, 1995 and 1994, respectively.

12. COMMITMENTS

a. Employment agreements

Pursuant to employment agreements with certain key executives, which expire
at various dates through October 2005, the Company has granted 1,002,000 shares
of common stock which are earned by the executives over the respective terms of
their employment. The shares have been valued at prices ranging from $1.625 to
$15.00 per share, dependent upon their date of grant (aggregating approximately
$3,349,000), which is being charged to operations ratably over the term of the
employment agreements. One of the employment agreements provides for
reimbursement of any tax liability arising from the officer's stock grant, and
also a payment of two times his aggregate unpaid compensation in the event of a
change in control of the Company (as defined). Further, during the year ended
November 30, 1995 the Company granted an executive option to purchase 250,000
shares of common stock at an exercise price of $2.63 per share.

The Company's remaining aggregate commitment at November 30, 1995 under
such contracts is approximately $6,620,000.

The Company is a party to a nine year consulting agreement with the former
president/stockholder of Futurebiotics, Ltd. ('Consultant'). Under the terms of
the Agreement, as amended, the Consultant will provide consulting services
through December 2001 for consideration consisting of 500,000 shares of the
Company's restricted common stock, fixed cash payments ranging from $50,000 to
$62,500 through 1998, and an annual bonus equal to 2.75% of annual net sales of
Futurebiotics' products in excess of $7,000,000. The Company also issued to the
Consultant warrants to purchase an additional 20,000 shares of the Company's
common stock at $20.00 per share, exercisable through January 1999. Through
January 1, 1997, the Company had an option to purchase the shares held by the

Consultant. In April 1994, the Company sold the option it held on the
Consultant's shares to a non-affiliate for net proceeds of $190,000.

During 1995, the Company entered into a two year consulting agreement with
a law firm and a seven year agreement with a third party. As consideration for
these services the Company issued an aggregate of 300,000 shares, valued at
$487,500.

During 1994, the Company entered into two year consulting agreements with
two separate law firms. As consideration for legal services, the Company issued
an aggregate of 38,000 shares of common stock, valued at $228,000, of which
approximately $53,000 was attributable to services provided in connection with
the initial public offering of Futurebiotics.

Also in 1994, the Company entered into two consulting agreements for seven
years. As consideration for these services, the Company issued an aggregate of
145,000 shares of common stock. The value of the common stock ($870,000) is
being charged to operations ratably over the life of the consulting agreements.

F-13
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED NOVEMBER 30, 1995 AND 1994

12. COMMITMENTS--(CONTINUED)
b. Lease commitment

The Company is obligated under two non-cancellable operating leases for its
manufacturing and office facilities. The leases require minimum future rental
payments of $385,000, $174,000 and $172,000 in 1996, 1997 and 1998, respectively
and provide for the payment of real estate taxes. Rent expense approximated
$279,000 and $223,000 for the years ended November 30, 1995 and 1994,
respectively.

13. RELATED PARTY TRANSACTIONS

Pursuant to the terms of a 'Sales and Management Agreement' with
Futurebiotics which was cancellable by either party on an annual basis, the
Company manufactured Futurebiotics' entire product line at a price equal to 115%
of the Company's cost, and provided certain administrative services.

In December 1994, the parties amended the Agreement. The revised Agreement
is for a fixed ten (10) year term under which the Company, in exchange for
6,000,000 shares of Futurebiotics' unregistered common stock, will provide
Futurebiotics' entire line of products at the Company's cost (as defined).

In the event that the Company is unable to supply products having a cost of
at least $2,000,000 during any fiscal year (such shortage being defined as the
'PDK Deficiency') then the Company shall forfeit to Futurebiotics either (i)
fifteen percent (15%) of the PDK Deficiency in cash, or (ii) a portion of the
600,000 shares of stock, determined by multiplying the 600,000 shares of stock
by a percentage which is arrived at by dividing the PDK Deficiency by
$2,000,000.

14. EXCLUSIVE SUPPLY AND LICENSING AGREEMENT

On October 16, 1995, the Company entered into an Exclusive Supply and
Licensing Agreement with a non-affiliated customer pursuant to which the Company
agreed to supply the customer with all of its requirements for vitamins,
non-prescription pharmaceutical products and health and fitness products
manufactured in tablet, capsule, caplet, liquid or equivalent form commencing on
the date of the agreement. The term of the agreement is for five years,
renewable for successive one year periods thereafter.

In addition, the Company granted the customer an exclusive license to use
the trademarks 'Max Alert' and 'Heads Up', and its trademarks for its ginseng
products, and the exclusive right to distribute products bearing such names,
using the components listed in the Agreement. The Company recognized license
fees of $500,000 for the fiscal year ended November 30, 1995 in connection with
this Agreement.

Revenues from this customer accounted for 18% of total revenue for the
fiscal year ended November 30, 1995.

15. OTHER EXPENSE

Other expense consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
----------------------
1995 1994
---------- --------
<S> <C> <C>
Loss on regulatory action(a)........................................ $2,373,516 $ --
Gain on sale of product lines(b).................................... (560,525) --
Other(c)............................................................ -- 333,982
---------- --------
$1,812,991 $333,982
---------- --------
---------- --------
</TABLE>

(a) On October 12, 1995, the Drug Enforcement Administration ('DEA') issued
final regulations requiring all companies engaged in transactions involving
single-entity ephedrine drug products to file an application for

F-14
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED NOVEMBER 30, 1995 AND 1994

15. OTHER EXPENSE--(CONTINUED)
registration with the DEA on or before November 13, 1995. Any company which did

not file for registration with the DEA on or before the deadline could no longer
import, export, manufacture, or distribute single-entity ephedrine products.

Although the Company filed a timely application for registration, it may
not sell to customers who have not complied with the requirement to file. As a
result of the above, the Company has realized a significant decline in its
single-entity ephedrine customer base and has recognized an inventory write off
of approximately $2,374,000 on single-entity ephedrine products during the
fourth quarter of the year ended November 30, 1995. Sales of single-entity
ephedrine drug product approximated $1,773,000 and $5,052,000 for 1995 and 1994,
respectively.

(b) On October 31, 1995, the Company entered into an agreement to transfer
certain assets, liabilities and the on-going business of its Energex/Compare
Division product lines to Compare Generiks, Inc. ('CGI'). The transfer consisted
of certain assets and rights relating to the 'Energex Plus' and 'Compare
Generiks' product lines, including customer lists, trade secrets, trademarks and
tradenames and the assumption of a $50,000 obligation under a promissory note.
Consideration consisted of 500,000 shares of CGI common stock (valued at
$1,200,000) and a $500,000 promissory note. CGI also agreed to pay the
obligation under royalty and commission agreements relating to the Energex
product lines.

In addition, CGI entered into a five-year 'Supply Agreement' with the
Company under which CGI will purchase certain of its products from PDK at a
price equal to PDK's material cost plus 100%.

In January 30, 1996, the $500,000 promissory note was converted to 500,000
shares of CGI's Series B Preferred Stock. The Series B Preferred Stock earns
cumulative annual dividends of 12% or $.12 per share, and is redeemable by CGI
after one year from the date of issuance.

On July 24, 1995, the Company sold a customer list, trademarks, and
inventory related to a mail order vitamin line of products. The Company
recognized a loss of approximately $610,000 in connection with this disposition.

(c) Other expense for the year ended November 30, l994 included
approximately $l74,000 related to the write off of costs incurred in connection
with a proposed acquisition. Management decided to abort this acquisition in the
fourth quarter of l994. The costs incurred consisted primarily of professional
fees. Other expense also includes approximately $l60,000 resulting from the
settlement of a lawsuit during the fourth quarter of l994. The $l60,000 includes
the Company's $l00,000 deductible under its insurance policy.

F-15

<PAGE>
<TABLE>
<S> <C>
P R O X Y THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PDK LABS INC.
The undersigned hereby appoints Michael B. Krasnoff and Ira Helman as proxies
(the 'Proxies'), each with power of substitution and resubstitution, to vote
all shares of Common Stock, $.01 par value per share, of PDK Labs Inc. (the
'Company') held of record by the undersigned on June 3, 1996 at the Annual
Meeting of Stockholders to be held at the Sheraton Smithtown, 110 Vanderbilt
Motor Parkway, Smithtown, N.Y. 11788 on July 19, 1996 at 3:00 P.M. Eastern
Daylight Savings Time, or at any adjournments thereof, as directed below, and
in their discretion on all other matters coming before the meeting or any
adjournments thereof.
</TABLE>
PLEASE MARK BOXES / / IN BLUE OR BLACK INK.

1. Election of five (5) directors: Michael B. Krasnoff, Stanley Krasnoff, Ira

Helman, Hartley T. Bernstein and Robin Marks-Kaufman.

(MARK ONLY ONE OF THE TWO BOXES FOR THIS ITEM.)
<TABLE>
<S> <C> <C>
/ / VOTE FOR all nominees named above except (OR) / / VOTE WITHHELD as to all nominees named above.
those who may be named on this line:

- ------------------------------------------------
</TABLE>

2. Proposal to ratify appointment of Holtz Rubenstein & Co., LLP as the
Company's independent certified public accountants:
FOR / / AGAINST / / ABSTAIN / /

3. To consider and transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.

(SEE REVERSE SIDE)
<PAGE>

In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.

WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED 'FOR' PROPOSALS 1 AND 2.

Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When
signing as attorney or executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation, please
sign in full corporate name by
president or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.

---------------------------------------------------
Signature

---------------------------------------------------
Print Name(s)

---------------------------------------------------
Signature, if held jointly
Dated: ----------- , 1996

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

(SEE REVERSE SIDE)