REXALL SUNDOWN INC, 424B1, 1996-11-05

REXALL SUNDOWN INC
424B1, 1996-11-05
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-13379

4,000,000 SHARES
[REXALL LOGO]
COMMON STOCK

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

Of the 4,000,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby, 2,000,000 shares are being issued and sold by
Rexall Sundown, Inc. (the "Company") and 2,000,000 shares are being sold by
certain shareholders of the Company (the "Selling Shareholders"). The Company
will not receive any of the proceeds from the sale of Common Stock by the
Selling Shareholders. See "Principal and Selling Shareholders." The Common Stock
is listed on the Nasdaq National Market under the symbol "RXSD." On November 4,
1996, the last reported sale price of the Common Stock on the Nasdaq National
Market was $27.25 per share.
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------

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

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $27.25 $1.16 $26.09 $26.09
- -------------------------------------------------------------------------------------------------
Total(3)..................... $109,000,000 $4,640,000 $52,180,000 $52,180,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses payable by the Company and the Selling
Shareholders of $350,000 and $40,000, respectively.
(3) The Company and the Selling Shareholders have granted the Underwriters a
30-day option to purchase up to 600,000 additional shares of Common Stock on
the same terms and conditions as the securities offered hereby, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholders will be $125,350,000,
$5,336,000, $62,616,000 and $57,398,000, respectively. See "Underwriting."

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

The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
them, and subject to certain other conditions including the right of the
Underwriters to withdraw, cancel, modify or reject any order in whole or in
part. It is expected that delivery of the shares will be made on or about
November 8, 1996, at the offices of Raymond James & Associates, Inc., St.
Petersburg, Florida.

RAYMOND JAMES & ASSOCIATES, INC.

ADAMS, HARKNESS & HILL, INC.
MONTGOMERY SECURITIES

The date of this Prospectus is November 5, 1996
<PAGE> 2

[INSIDE FRONT COVER -- PICTURES OF SUNDOWN PRODUCTS.

CAPTION -- SUNDOWN VITAMINS AND NUTRITIONAL SUPPLEMENTS ARE SOLD TO FOOD, DRUG
AND MASS MERCHANDISER RETAIL OUTLETS.

GATEFOLD - PART 1 -- PICTURES OF REXALL SHOWCASE PRODUCTS, A REXALL SHOWCASE
CONVENTION AND A REXALL SHOWCASE IN-HOME PRESENTATION.

CAPTION: REXALL SHOWCASE, THE COMPANY'S NETWORK MARKETING SUBSIDIARY, SELLS ITS
HEALTH AND WELLNESS PRODUCTS THROUGH A SALES FORCE OF INDEPENDENT
DISTRIBUTORS.

GATEFOLD - PART 2 -- PICTURES OF REXALL, THOMPSON, REXALL MANAGED CARE AND SDV
PRODUCTS.

CAPTIONS: REXALL OVER-THE-COUNTER DRUGS, VITAMINS AND NUTRITIONAL SUPPLEMENTS
ARE SOLD PRIMARILY TO WHOLESALERS, CONVENIENCE STORES AND INDEPENDENT
DRUG STORES.

THOMPSON VITAMINS AND NUTRITIONAL SUPPLEMENTS ARE SOLD THROUGH HEALTH
FOOD STORES.

REXALL MANAGED CARE MARKETS AND SELLS VITAMINS, NUTRITIONAL SUPPLEMENTS
AND OVER-THE-COUNTER DRUGS TO HMOS, HOSPITALS AND LONG-TERM CARE
FACILITIES.

SDV MARKETS AND SELLS VITAMINS AND NUTRITIONAL SUPPLEMENTS DIRECTLY TO
CONSUMERS THROUGH CATALOGS AND DIRECT MAILINGS.]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements, including notes thereto
(the "Consolidated Financial Statements"), appearing elsewhere in this
Prospectus. Unless otherwise indicated, all share, per share and financial
information set forth herein assumes no exercise of the Underwriters'
over-allotment option, and reflects the two-for-one stock split effected in
October 1993 and the three-for-two stock split effected in April 1996. Investors
should carefully consider the information set forth under the heading "Risk
Factors." As used herein, the "Company" means Rexall Sundown, Inc. and its
subsidiaries, except where the context indicates otherwise.

THE COMPANY

Rexall Sundown, Inc. (the "Company") develops, manufactures, markets and
sells vitamins, nutritional supplements and consumer health products through
three channels of distribution: sales to retailers; direct sales through
independent distributors; and mail order. The Company offers a broad line of
approximately 1,500 products consisting of approximately 1,900 stock keeping
units ("SKUs"), including vitamins in both multivitamin and single-entity
formulas, minerals, herbals, homeopathic remedies, weight management products,
skin care products and over-the-counter ("OTC") pharmaceuticals. The Company has
experienced significant growth in recent years as net sales have grown from
$74.2 million in fiscal 1992 to $187.8 million in fiscal 1996, representing a
compound annual growth rate ("CAGR") of 26%.

The Company's recent growth has been driven significantly by sales of its
Sundown(R) brand of vitamins and nutritional supplements, which currently
represent approximately 76% of the Company's sales to retailers. The Sundown
brand offers a broad selection of approximately 290 high quality products at
prices lower than comparable-quality branded vitamins, thereby creating value
for consumers as well as higher rates of shelf inventory turnover for retailers.
According to data from Information Resources, Inc. ("IRI"), a retail information
gathering service, in the broadline vitamin category, Sundown is currently the
number two brand in dollar and unit sales across all food, drug and mass
merchandiser retail outlets and generates the highest rate of dollar and unit
sales per share of all commodity volume ("ACV") distribution. The Company
believes that Sundown's high sales velocity is a result of its value pricing
strategy and its high quality products, most of which are unique. The Company
also believes that there are significant opportunities for continued growth
because Sundown products are currently available in outlets representing only
35% of ACV sales. In fiscal 1995, the Company commenced nationwide distribution
of Sundown products to all Kmart stores. Since May 1996, the Company has begun
nationwide distribution of Sundown products to all Wal*Mart stores and
Thrifty-Payless and Eckerd drug stores. The Company's net sales of Sundown
products have increased from $42.1 million in fiscal 1992 to $71.4 million in
fiscal 1996.

Another important factor contributing to the Company's recent growth has
been the Company's network marketing subsidiary, Rexall Showcase International,
Inc. ("Rexall Showcase"). Rexall Showcase develops, markets and sells health and
wellness products through a sales force of independent distributors. Rexall
Showcase products include weight management products, homeopathic medicines,
personal care products, health and nutritional supplements and water filtration
systems. Rexall Showcase products are specially formulated and packaged only for
this distribution channel and are not available through retailers. The Company
believes that Rexall Showcase has several competitive advantages over other
direct sales organizations including: (i) the Rexall(R) brand name under which
health products have been marketed since 1903; (ii) Rexall Showcase's commission
plan which the Company believes is financially attractive to its independent
distributors; (iii) its broad product mix which includes approximately 40
innovative products that are unique to Rexall Showcase; and (iv) Rexall
Showcase's ability to attract, support and motivate distributors. The Company
intends to further expand its direct sales business by continuing to develop and
offer innovative products, add independent distributors and provide sales
support. In addition, the Company seeks to educate and motivate its existing and
prospective distributors through comprehensive sales aids and regularly
scheduled regional and national conventions and local meetings. Rexall
Showcase's independent distributors are not required to make any inventory
purchases and, to become a distributor, must only purchase a $49.50 distributor
kit. Rexall Showcase recently initiated its international expansion by
commencing operations in Mexico in February 1996 and South Korea in April 1996
and intends to commence

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<PAGE> 4

operations in selected other countries in the future. Rexall Showcase's net
sales have increased from $10.4 million in fiscal 1992 to $76.5 million in
fiscal 1996.

The Company believes that it is well-positioned to capitalize on the
expected growth and consolidation in the highly fragmented vitamin and
nutritional supplement industry. The Company believes that no company controls
more than 10% of this market. As reported by industry sources, the annual
domestic retail market for vitamins and nutritional supplements grew from $3.3
billion in 1991 to $4.9 billion in 1995, representing a CAGR of 10%. The Company
believes that growth in the vitamin and nutritional supplement market is being
driven by several factors, including: (i) the general public's heightened
awareness and understanding of the connection between diet and health; (ii) the
increase in baby-boomer and senior-aged population groups, which are more likely
to consume vitamins; (iii) product introductions in response to new scientific
research; and (iv) the nationwide trend toward preventative medicine. Based on a
national survey indicating that only 33% of Americans consumed vitamins and
nutritional supplements on a regular basis in 1995, the Company believes that
there is a large untapped domestic market for vitamins and nutritional
supplements.

The Company's objective is to achieve profitable sales growth and maximize
market share in its targeted domestic and international markets. To achieve its
growth objectives, the Company intends to employ the following strategies: (i)
leverage the success of the Sundown brand to increase its market share in mass
merchandisers, chain drug stores and supermarkets; (ii) continue the growth of
Rexall Showcase by further developing its product line and increasing the number
and productivity of its independent distributors that market and sell its
products; and (iii) supplement the Company's internal growth through strategic
acquisitions in health and wellness-related markets that leverage existing or
add new distribution channels. The Company intends to actively pursue
acquisition opportunities that are compatible with its business philosophy, have
a level of critical mass and infrastructure necessary to generate rates of
growth expected by the Company and have a positive financial impact on the
Company's operations. The Company expects that such acquisitions may include
products, product lines or businesses.

The Company was incorporated in the State of Florida in 1976. The Company's
executive offices are located at 851 Broken Sound Parkway, NW, Boca Raton,
Florida 33487, and its telephone number is (561) 241-9400.
------------------------------

As used herein, the term "all commodity volume" ("ACV") means the
volume of all goods sold in all food, drug and mass merchandiser retail outlets
in the United States. "Rate of sales per share of ACV distribution" refers to a
ratio calculated by dividing a particular brand's total sales by the total
sales of the retail outlets which carry such brand. "Broadline vitamin brands"
encompass a complete range of multi- vitamins, single-entity vitamins, minerals
and nutritional supplements, as compared to "national brands" which primarily
consist of a narrow assortment of multivitamins and mineral products marketed
under nationally advertised names such as Centrum(R), One-A-Day(R) and
Theragran(R).

THE OFFERING

Common Stock Offered by the Company......... 2,000,000 shares
Common Stock Offered by the Selling
Shareholders................................ 2,000,000 shares
Common Stock to be Outstanding after the
Offering.................................... 32,741,571 shares(1)
Use of Proceeds............................. To acquire complementary
products, product lines or
businesses; to provide working
capital; and for general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol............... RXSD
- ---------------

(1) Does not include (i) an aggregate of 2,656,548 shares of Common Stock
underlying currently outstanding options and (ii) 1,355,024 additional
shares available for issuance under the Company's 1993 Stock Incentive
Plan, 1993 Non-Employee Director Stock Option Plan and 1994 Non-Employee
Director Stock Option Plan.

4
<PAGE> 5

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING DATA:
Net sales.................................................. $114,119 $149,473 $187,844
Gross profit............................................... 59,644 84,441 116,162
Operating income........................................... 12,639 18,616 29,489
Income from continuing operations(1)....................... 8,572 12,338 20,293
Net income................................................. 6,195 4,362 20,293
Income per share from continuing operations(1)............. $0.29 $0.42 $0.66
Weighted average shares outstanding........................ 29,269 29,497 30,726
</TABLE>

<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
AS
ACTUAL ADJUSTED(2)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 13,450 $ 65,284
Working capital......................................................... 54,133 105,967
Total assets............................................................ 103,095 154,929
Long-term debt, net of current portion.................................. 105 105
Total shareholders' equity.............................................. 86,692 138,526
</TABLE>

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

(1) Does not reflect discontinued operations. See "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Discontinued Operations" and Note 14
to the Consolidated Financial Statements.
(2) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company at an offering price of $27.25 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."

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<PAGE> 6

RISK FACTORS

The shares offered hereby involve a high degree of risk, including the
risks described below. Prospective investors should carefully consider the
specific factors set forth below, as well as the other information contained in
this Prospectus, before deciding to invest in the Common Stock offered hereby.

This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), which represent the Company's expectations or beliefs,
including, but not limited to, statements concerning industry performance, the
Company's operations, performance, financial condition, growth and acquisition
strategies, margins and growth in sales of the Company's products. For this
purpose, any statements contained in this Prospectus that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate" or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's
control, and actual results may differ materially depending on a variety of
important factors, including those described below under this "Risk Factors"
section and elsewhere in this Prospectus.

UNCERTAINTY RELATED TO ACQUISITIONS; BROAD DISCRETION IN USE OF PROCEEDS

The Company intends to use a significant portion of the net proceeds from
this offering to pursue the acquisition of complementary products, product lines
or businesses. Acquisitions involve a number of risks that could adversely
affect the Company's operating results, including the diversion of management's
attention, the assimilation of operations and personnel of the acquired
companies, the amortization of acquired intangible assets and the potential loss
of key employees of the acquired companies. There can be no assurance that the
Company will consummate future acquisitions on satisfactory terms, if at all,
that adequate financing will be available on terms acceptable to the Company, if
at all, that any acquired products, product lines or businesses will be
successfully integrated or that such products, product lines or businesses will
ultimately have a positive impact on the Company, its financial condition or
results of operations.

At the present time, the Company has not entered into binding contracts or
other agreements and the Company will continue to have broad discretion in
identifying potential acquisitions. Accordingly, the Company will have broad
discretion in using the net proceeds of this offering. An investor will not have
the opportunity to evaluate the economic, financial and other relevant
information which will be utilized by the Company in determining the application
of such proceeds. See "Use of Proceeds" and "Business -- Growth Strategy."

GOVERNMENT REGULATION

The manufacturing, processing, formulation, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the United States Food and Drug Administration
("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety
Commission, the United States Department of Agriculture, the United States
Postal Service, the United States Environmental Protection Agency and the
Occupational Safety and Health Administration. These activities are also
regulated by various agencies of the states, localities and foreign countries in
which the Company's products are sold. In particular, the FDA regulates the
safety, manufacturing, labeling and distribution of dietary supplements,
including vitamins, minerals and herbs, food additives, over-the-counter ("OTC")
and prescription drugs and cosmetics. The regulations that are promulgated by
the FDA relating to the manufacturing process are known as Current Good
Manufacturing Practices ("CGMPs"), and are different for drug and food products.
In addition, the FTC has overlapping jurisdiction with the FDA to regulate the
promotion and advertising of dietary supplements, OTC drugs, cosmetics and
foods.

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<PAGE> 7

from conventional food. DSHEA provides a regulatory framework to ensure safe,
quality dietary supplements and to foster the dissemination of accurate
information about such products. Under DSHEA, the FDA is generally prohibited
from regulating dietary supplements as food additives or as drugs unless product
claims, such as claims that a product may diagnose, mitigate, cure or prevent an
illness, disease or malady, trigger drug status.

DSHEA provides for specific nutritional labeling requirements for dietary
supplements effective January 1, 1997, although final regulations have not been
published and the FDA has indicated that implementation will be delayed. DSHEA
permits substantiated, truthful and non-misleading statements of nutritional
support to be made in labeling, such as statements describing general well-being
resulting from consumption of a dietary ingredient or the role of a nutrient or
dietary ingredient in affecting or maintaining a structure or function of the
body. The Company anticipates that the FDA will promulgate CGMPs which are
specific to dietary supplements and require at least some of the quality control
provisions contained in the CGMPs for drugs, which are more rigorous than the
CGMPs for foods. The Company currently manufactures its vitamins and nutritional
supplement products in compliance with the applicable food CGMPs.

The FDA has proposed but not finalized regulations to implement DSHEA,
including those relating to nutritional labeling requirements. The Company
cannot determine what effect such regulations, when promulgated, will have on
its business in the future. Such regulations are likely to require expanded or
different labeling for the Company's vitamin and nutritional supplement products
and could, among other things, require the recall, reformulation or
discontinuance of certain products, additional recordkeeping, warnings,
notification procedures and expanded documentation of the properties of certain
products and scientific substantiation regarding ingredients, product claims,
safety or efficacy. Failure to comply with applicable FDA requirements can
result in sanctions being imposed on the Company or the manufacturers of its
products, including warning letters, product recalls and seizures, injunctions
or criminal prosecution.

Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into a market or prevent or
delay the introduction, or require the reformulation, of certain of the
Company's products.

Rexall Showcase is subject to regulation under various international, state
and local laws which include provisions regulating, among other things, the
operation of direct sales programs. In addition, many countries currently have
laws that would restrict or prohibit direct sales companies, such as Rexall
Showcase, from conducting business therein.

In addition, the Company cannot predict whether new domestic or foreign
legislation regulating its activities will be enacted. Such new legislation
could have a material adverse effect on the Company. See "Business -- Government
Regulation."

MANAGING AND MAINTAINING GROWTH

The Company is currently experiencing a period of rapid growth and
expansion which has placed, and could continue to place, a significant strain on
the Company's management, customer service and support, operations, sales and
administrative personnel and other resources. In order to serve the needs of its
existing and future customers, the Company has substantially increased and will
continue to increase its workforce, which requires the Company to attract,
train, motivate and manage qualified employees. The Company's ability to manage
its planned growth requires the Company to continue to expand its operating,
management, information and financial systems, all of which may significantly
increase its operating expenses. If the Company fails to achieve its growth as
planned or is unsuccessful in managing its anticipated growth, there could be a
material adverse effect on the Company. In addition, the Company's retail
customers are not generally bound to purchase products from the Company for any
significant length of time. Although the Company has entered into agreements
with certain of its retail customers, these agreements can generally be
cancelled on short notice without cause and with minimal or no liability to such
customers. The loss of a large customer or a number of customers, or a
significant reduction in purchase volume by or financial difficulty of such
customers, for any reason, could have a material adverse effect on the Company.
See "Business -- Growth Strategy."

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<PAGE> 8

EFFECT OF ADVERSE PUBLICITY

The Company's products contain vitamins, minerals, herbs and other
ingredients that the Company regards as safe when taken as directed by the
Company and that various scientific studies have suggested may offer health
benefits. While the Company conducts extensive quality control testing on its
products, the Company generally does not conduct or sponsor clinical studies
relating to the benefits of its products. The Company is highly dependent upon
consumers' perception of the overall integrity of its business, as well as the
safety and quality of its products and similar products distributed by other
companies which may not adhere to the same quality standards as the Company. The
Company could be materially adversely affected if any of the Company's products
or any similar products distributed by other companies should prove or be
asserted to be harmful to consumers or if scientific studies provide unfavorable
findings regarding the effectiveness of the Company's products. Further, Rexall
Showcase's ability to attract and retain independent distributors could be
adversely affected by negative publicity relating to it or to other direct sales
organizations, or by the announcement by any governmental agency of
investigatory proceedings regarding the business practices of Rexall Showcase or
other direct sales organizations. See "Business -- Industry Overview" and
"-- Product Liability Insurance."

RELIANCE ON INDEPENDENT DISTRIBUTORS OF REXALL SHOWCASE

Rexall Showcase's sales are directly dependent upon the efforts of its
independent distributors, and any growth in sales volume will require an
increase in the productivity or the number of such distributors. As is typical
in the direct sales industry, there is turnover in distributors from year to
year, which requires the sponsoring and training of new distributors by existing
distributors in order to maintain the size of the distributor network. The
Company experiences seasonal decreases in distributor sponsoring and product
sales due to summer and winter holiday periods. Other factors such as general
economic conditions and negative publicity relating to Rexall Showcase or other
direct sales organizations could also adversely affect the ability of Rexall
Showcase to maintain or expand its distributor network. The loss of a key
distributor or group of distributors could adversely affect sales of Rexall
Showcase products and impair Rexall Showcase's ability to attract new
distributors. See "Business -- Sales by Distribution Channel."

CENTRALIZED LOCATION OF MANUFACTURING OPERATIONS; AVAILABILITY OF RAW MATERIALS

The Company currently manufactures approximately 60%, and packages
approximately 90%, of its products at its manufacturing facility in Boca Raton,
Florida, and, until the recent opening of its distribution facility in Sparks,
Nevada, distributed all of its products from its two distribution facilities in
Boca Raton. Accordingly, any event resulting in the slowdown or stoppage of the
Company's manufacturing operations or distribution facilities in Boca Raton
could have a material adverse effect on the Company. The Company maintains
business interruption insurance. There can be no assurance, however, that such
insurance will continue to be available at a reasonable cost or, if available,
will be adequate to cover any losses that may be incurred from an interruption
in the Company's manufacturing or distribution operations.

Most of the raw materials used in the Company's products are obtained from
third-party suppliers. Although the Company believes that all of its sources for
raw materials are reliable, any interruption of such supply could have a
material adverse effect on the Company. See "Business -- Manufacturing and
Quality Control."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

An element of the Company's growth strategy is to increase the distribution
and sale of the Company's products into international markets. The Company's
existing and planned international operations are subject to political and
economic uncertainties, including, among others, inflation, risk of
renegotiation or modification of existing agreements or arrangements with
governmental authorities, transportation, tariffs, export controls, government
regulation, trademark availability and registration issues, currency exchange
rate fluctuations, foreign exchange restrictions which limit the repatriation of
investments and earnings therefrom, changes in taxation, hostilities or
confiscation of property. Changes related to these matters could have a material
adverse effect on the Company. See "Business -- Sales By Distribution Channel."

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<PAGE> 9

COMPETITION

The market for the sale of vitamins and nutritional supplements is highly
competitive. Competition is based principally upon price, quality of products,
customer service and marketing support. There are numerous companies in the
vitamin and nutritional supplement industry selling products to retailers such
as mass merchandisers, drug store chains, independent drug stores, supermarkets
and health food stores. Most of these companies are privately held and the
Company is unable to precisely assess the size of such competitors. No company
is believed to control more than 10% of this market.

The market for OTC pharmaceuticals and health and beauty care products is
also highly competitive. Competition is based principally upon price, quality of
products, customer service and marketing support. The Rexall brand competes with
nationally advertised brand name products and private label products.

Although Rexall Showcase competes with other health and nutritional food
companies, the Company believes its primary competition stems from other direct
sales companies. The Company competes in the recruitment of independent sales
people with other direct sales organizations whose product lines may or may not
compete with the Company's products.

Certain of the Company's competitors are substantially larger than the
Company and have greater financial resources. See "Business -- Competition."

PRODUCT LIABILITY CLAIMS

As a marketer of vitamin and nutritional supplements and other products
that are ingested by consumers or applied to their bodies, the Company may be
subjected to various product liability claims, including, among others, that its
products contain contaminants or include inadequate instructions as to use or
inadequate warnings concerning side effects and interactions with other
substances. While such claims to date have not been material to the Company and
the Company maintains product liability insurance, there can be no assurance
that product liability claims and the resulting adverse publicity will not have
a material adverse effect on the Company. See "Business -- Product Liability
Insurance" and "Business -- Legal Proceedings."

CONCENTRATION OF OWNERSHIP; CERTAIN ANTI-TAKEOVER CONSIDERATIONS

Following this offering, the Company's directors and executive officers and
certain of their affiliates will beneficially own approximately 54% of the
outstanding Common Stock, substantially all of which will be beneficially owned
or controlled by Carl DeSantis, Dean DeSantis and Damon DeSantis. Accordingly,
these shareholders will continue to have the ability to elect all of the
directors of the Company and to thereby direct or substantially influence the
management, policies and business operations of the Company and will have the
power to control the outcome of any matters submitted to a vote of the Company's
shareholders. The Company's Board of Directors has the authority to approve the
issuance of 5,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the Company's shareholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that may be issued in
the future. Certain provisions of Florida law, as well as the issuance of
preferred stock, could delay or inhibit the removal of incumbent directors and
could delay, defer, make more difficult or prevent a merger, tender offer or
proxy contest, or any change in control involving the Company, as well as the
removal of management, even if such events would be beneficial to the interests
of the Company's shareholders, and may limit the price certain investors may be
willing to pay in the future for shares of Common Stock. See "Principal and
Selling Shareholders" and "Description of Common Stock."

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SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of shares of Common Stock in the public market
after this offering, including sales pursuant to Rule 144 promulgated under the
Securities Act, or the perception that such sales could occur, may adversely
affect the market price of the Common Stock. Upon completion of this offering,
the Company will have 32,741,571 shares of Common Stock outstanding. All
4,000,000 shares offered hereby will be freely tradeable. The Company, certain
shareholders of the Company selling shares of Common Stock hereunder (the
"Selling Shareholders") and the Company's executive officers and directors have
agreed not to sell, contract to sell or otherwise dispose of any of such shares
for a period of 180 days after the closing of this offering without the prior
written consent of Raymond James & Associates, Inc. Notwithstanding the
foregoing, at any time on or after the date of this Prospectus, the Company may
issue shares pursuant to the exercise of employee stock options outstanding on
the date of this Prospectus, which issuances or sales may be effected any time
after the date of this Prospectus. See "Principal and Selling Shareholders" and
"Underwriting."

VOLATILITY OF STOCK PRICE

The price of the Common Stock has experienced significant volatility since
the Company's initial public offering in 1993. Moreover, the stock market has
from time to time experienced extreme price and volume fluctuations which may be
unrelated to the operating performance of particular companies. Market
conditions in the vitamin and nutritional supplement industry and factors such
as announcements of new products by the Company, its competitors or third
parties, and changes in earnings estimates by analysts may have a significant
effect on the price of the Common Stock. See "Price Range of Common Stock."

10
<PAGE> 11

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be $51.8 million
(approximately $62.3 million if the Underwriters' over-allotment option is
exercised in full). The net proceeds from the sale of shares of Common Stock
offered by the Company will be used primarily to acquire complementary products,
product lines or businesses, to provide working capital and for general
corporate purposes. The Company currently has no specific agreements with
respect to particular acquisitions and no assurance can be given that any
acquisitions will be consummated. See "Business -- Growth Strategy." Pending
such applications, the net proceeds will be invested in investment grade, short-
term, interest-bearing securities. The Company will not receive any of the
proceeds from the sale of Common Stock by the Selling Shareholders. See
"Principal and Selling Shareholders."

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
August 31, 1996, and as adjusted to reflect the net proceeds from the sale by
the Company of 2,000,000 shares of Common Stock offered hereby and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements.

<TABLE>
<CAPTION>
AUGUST 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current portion............................... $ 105 $ 105
------- -------
Shareholders' equity:
Preferred stock, $0.01 par value; authorized 5,000,000 shares, no
shares outstanding.............................................. -- --
Common stock, $0.01 par value; authorized 100,000,000 shares,
30,660,128 shares outstanding; 32,660,128 shares outstanding as
adjusted(1)..................................................... 307 327
Capital in excess of par value..................................... 53,563 105,377
Retained earnings.................................................. 32,943 32,943
Cumulative translation adjustment.................................. (121) (121)
------- -------
Total shareholders' equity................................. 86,692 138,526
------- -------
Total capitalization.................................. $86,797 $ 138,631
======= =======
</TABLE>

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

(1) Does not include (i) an aggregate of 2,656,548 shares of Common Stock
underlying currently outstanding stock options and (ii) 1,355,024
additional shares available for issuance under the Company's 1993 Stock
Incentive Plan, 1993 Non-Employee Director Stock Option Plan and 1994
Non-Employee Director Stock Option Plan.

11
<PAGE> 12

PRICE RANGE OF COMMON STOCK

The Common Stock was first quoted and began trading on the Nasdaq National
Market on June 18, 1993 under the symbol RXSD.

Set forth below are the high and low sales prices of the Common Stock as
reported on the Nasdaq National Market for the periods indicated, retroactively
adjusted to reflect the two-for-one stock split effected on October 28, 1993 and
the three-for-two stock split effected on April 4, 1996.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED AUGUST 31, 1994:
First Quarter............................................................ $13.50 $ 7.25
Second Quarter........................................................... 14.50 6.83
Third Quarter............................................................ 14.67 5.50
Fourth Quarter........................................................... 7.33 4.83
FISCAL YEAR ENDED AUGUST 31, 1995:
First Quarter............................................................ 8.50 5.83
Second Quarter........................................................... 8.67 6.25
Third Quarter............................................................ 7.33 5.50
Fourth Quarter........................................................... 10.75 5.50
FISCAL YEAR ENDED AUGUST 31, 1996:
First Quarter............................................................ 13.00 9.08
Second Quarter........................................................... 19.00 11.67
Third Quarter............................................................ 37.00 16.75
Fourth Quarter........................................................... 36.25 21.25
FISCAL YEAR ENDED AUGUST 31, 1997:
First Quarter (through November 4, 1996)................................. 39.75 23.63
</TABLE>

On November 4, 1996, the last sale price of the Common Stock as reported by
the Nasdaq National Market was $27.25 per share. The approximate number of
record holders of the Common Stock as of November 4, 1996 was 700.

DIVIDEND POLICY

The Company presently intends to retain all earnings for the operation and
development of its business and does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future. Any future determination as to the
payment of cash dividends will depend on a number of factors, including future
earnings, capital requirements, the financial condition and prospects of the
Company and any restrictions under credit agreements existing from time to time,
as well as such other factors as the Company's Board of Directors may deem
relevant. The Company's current line of credit prohibits the payment of any
dividends on the Common Stock.

12
<PAGE> 13

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected consolidated financial data presented below is derived from
the Consolidated Financial Statements. The Consolidated Financial Statements as
of and for the years ended August 31, 1992, 1993, 1994, 1995 and 1996 have been
audited by Coopers & Lybrand L.L.P., independent accountants. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and other consolidated financial information included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales..................................... $74,240 $93,147 $114,119 $149,473 $187,844
Cost of sales................................. 40,238 45,447 54,475 65,032 71,682
------- ------- -------- -------- --------
Gross profit................................ 34,002 47,700 59,644 84,441 116,162
Selling, general and administrative
expenses.................................... 29,301 37,390 47,005 65,825 86,673
------- ------- -------- -------- --------
Operating income............................ 4,701 10,310 12,639 18,616 29,489
Other income, net............................. 50 810 1,080 588 2,602
------- ------- -------- -------- --------
Income before income tax provision............ 4,751 11,120 13,719 19,204 32,091
------- ------- -------- -------- --------
Income from continuing operations (pro
forma)(1)................................... 2,905 7,104 8,572 12,338 20,293
Loss from discontinued operations(2).......... -- -- (2,377) (7,976) --
------- ------- -------- -------- --------
Net income (pro forma)(1)..................... $ 2,905 $ 7,104 $ 6,195 $ 4,362 $ 20,293
======= ======= ======== ======== ========
Income (loss) per share (pro forma)(1):
Continuing operations....................... $0.13 $0.31 $0.29 $0.42 $0.66
Discontinued operations..................... -- -- (0.08) (0.27) --
------- ------- -------- -------- --------
Net income per share................ $0.13 $0.31 $0.21 $0.15 $0.66
======= ======= ======== ======== ========
Weighted average shares outstanding........... 21,942 23,168 29,269 29,497 30,726
</TABLE>

<TABLE>
<CAPTION>
AUGUST 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 5,289 $28,771 $ 21,027 $ 29,292 $ 54,133
Total assets.................................. 22,194 53,126 61,633 67,351 103,095
Long-term debt, net of current portion........ 4,938 1,151 776 448 105
Shareholders' equity.......................... 8,273 41,714 48,962 55,038 86,692
</TABLE>

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

(1) The Company was an S Corporation until June 1993 and accordingly was not
subject to corporate income taxes until the termination of its S
Corporation status. For fiscal years 1992 and 1993, income from continuing
operations, net income, income per share from continuing operations and net
income per share have been computed as if the Company was subject to
corporate income taxes, based on tax laws in effect during such periods.
(2) Net of tax benefit.

13
<PAGE> 14

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

OVERVIEW

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements. Additionally, certain divisional data of
the Company is set forth in "Business -- Sales by Distribution Channel."

Revenue from the sale of the Company's products is recognized at the time
products are shipped. Net sales are net of all discounts, allowances, returns
and credits, and sales to Rexall Showcase's independent distributors are
recorded at wholesale prices. Initial costs associated with acquiring sales
agreements with certain retail customers are amortized over the term of the
relevant agreement and the amortization of such costs is recorded as a reduction
in net sales. Approximately 96.2% of the Company's net sales for fiscal 1996 are
of products sold under one of the following brand names: Sundown, Rexall
Showcase, Rexall, Thompson(R), SDV(R) and Rexall Managed Care(R). Sales of
private label products accounted for approximately 3.8% of net sales for fiscal
1996.

Cost of goods sold includes the cost of raw materials and all labor and
overhead associated with the manufacturing and packaging of the products. The
majority of the Company's products are in tablet, softgel or two-piece capsule
forms. In 1994, the Company initiated manufacturing, beginning with vitamins in
tablet form, which resulted in lower costs than outsourcing such manufacturing.
Presently, the Company manufactures approximately 90% of its tablet formulations
and recently began manufacturing two-piece capsules. The Company does not
presently intend to manufacture softgel formulations or other products. The
Company's manufacturing facility as currently configured is estimated to be
operating at approximately 70% of capacity. However, the Company believes
capacity could be doubled by adding additional equipment, personnel and shifts.

Gross margins are impacted by changes in the relative sales mix among the
Company's channels of distribution. In particular, gross margin is positively
impacted if sales of Rexall Showcase increase as a percentage of net sales
because such products command a higher gross margin. In a related manner,
selling, general and administrative expenses as a percentage of net sales are
typically higher if sales of Rexall Showcase increase as a percentage of net
sales because of the commissions paid to Rexall Showcase's independent
distributors. Historically, operating margins from sales to retailers and mail
order have been higher than operating margins from Rexall Showcase sales.

On August 31, 1995, the Company approved a plan to divest Pennex
Laboratories, Inc. ("Pennex"), its subsidiary which manufactured and sold OTC
pharmaceuticals. The fiscal 1994 and 1995 results of Pennex have been presented
as discontinued operations in the Consolidated Financial Statements. See
"-- Discontinued Operations."

RESULTS OF CONTINUING OPERATIONS

The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
-----------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0%
Cost of sales........................................... 47.7 43.5 38.2
---- ---- ----
Gross profit.......................................... 52.3 56.5 61.8
Selling, general and administrative expenses............ 41.2 44.0 46.1
---- ---- ----
Operating income...................................... 11.1 12.5 15.7
Other income, net....................................... 0.9 0.4 1.4
---- ---- ----
Income before income tax provision...................... 12.0 12.9 17.1
Income from continuing operations....................... 7.5% 8.3% 10.8%
</TABLE>

14
<PAGE> 15

FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31,
1995

Net sales for fiscal 1996 were $187.8 million, an increase of $38.4 million
or 25.7% over fiscal 1995. Of the $38.4 million increase, sales to retailers
accounted for $14.0 million, an increase of 17.4% over fiscal 1995. The increase
in sales to retailers was partially attributable to approximately $7.0 million
of initial shipments of Sundown products to Wal*Mart and Thrifty-Payless in the
second half of fiscal 1996. Net sales of the Company's direct sales subsidiary,
Rexall Showcase, increased by $23.9 million, an increase of 45.4% over fiscal
1995. The increase in direct sales was partially due to the commencement of
Rexall Showcase's operations in Mexico in February 1996 and South Korea in April
1996. Net sales of the Company's mail order division, SDV, increased by $528,000
or 3.2% over fiscal 1995. The increase in net sales in each division was
primarily due to increased unit sales.

Gross profit for fiscal 1996 was $116.2 million, an increase of $31.7
million or 37.6% over fiscal 1995. As a percentage of net sales, gross margin
increased from 56.5% for fiscal 1995 to 61.8% for fiscal 1996. The increase in
gross margin was due primarily to an increase in net sales of products with
higher margins, related principally to the increased net sales of Rexall
Showcase as a percentage of the Company's net sales. The increase was also due,
in part, to improved margins as a result of manufacturing efficiencies achieved
from higher volume at the Company's vitamin manufacturing facility. The average
number of tablets manufactured per month increased from approximately 85 million
tablets for fiscal 1995 to approximately 170 million tablets for fiscal 1996.

Selling, general and administrative expenses for fiscal 1996 were $86.7
million, an increase of $20.8 million or 31.7% over fiscal 1995. As a percentage
of net sales, such expenses increased from 44.0% for fiscal 1995 to 46.1% for
fiscal 1996, primarily as a result of increased sales of Rexall Showcase as a
percentage of the Company's net sales. In addition, selling, general and
administrative expenses associated with Rexall Showcase increased due to the
commencement of international operations. This increase was partially offset by
reductions of other divisions' selling, general and administrative expenses as a
percentage of net sales. The reduction in other divisions' selling, general and
administrative expenses was due in part to new incentive and cost control
programs initiated by management in fiscal 1996.

Other income, net, increased from $588,000 in fiscal 1995 to $2.6 million
in fiscal 1996 as a result of increased interest income, decreased interest
expense and increased amounts included in other income. Interest income for
fiscal 1996 was $1.3 million, as compared to $119,000 for fiscal 1995. Such
increase was primarily a result of investment of the Company's available cash
balances, which were higher in fiscal 1996 than fiscal 1995, and interest
received in fiscal 1996 from the note receivable related to the sale of Pennex's
assets, which interest is at a higher rate than the Company's average rate of
return on available cash balances. Interest expense for fiscal 1996 was $40,000
as compared to $424,000 for fiscal 1995 as there were no borrowings under the
Company's line of credit in fiscal 1996.

Income from continuing operations before income tax provision was $32.1
million for fiscal 1996, an increase of $12.9 million or 67.1% over fiscal 1995.
As a percentage of net sales, income from continuing operations before income
tax provision increased from 12.9% for fiscal 1995 to 17.1% for fiscal 1996.

Income from continuing operations was $20.3 million for fiscal 1996, an
increase of $8.0 million or 64.5% over fiscal 1995. As a percentage of net
sales, income from continuing operations increased from 8.3% for fiscal 1995 to
10.8% for fiscal 1996 due to the reasons described above.

FISCAL YEAR ENDED AUGUST 31, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31,
1994

Net sales for fiscal 1995 were $149.5 million, an increase of $35.4 million
or 31.0% over fiscal 1994. Of the $35.4 million increase, sales to retailers
accounted for $11.9 million, an increase of 17.4% over fiscal 1994. Included in
sales to retailers is $1.7 million of net sales of the Company's Rexall Managed
Care division for which there were minimal sales in fiscal 1994. Net sales of
Rexall Showcase increased by $23.1 million, an increase of 78.3% over fiscal
1994. Net sales of SDV increased by $375,000 or 2.3% over fiscal 1994. The
increase in net sales in each division was primarily due to increased unit
sales.

15
<PAGE> 16

Gross profit for fiscal 1995 was $84.4 million, an increase of $24.8
million or 41.6% over fiscal 1994. As a percentage of net sales, gross margin
increased from 52.3% for the fiscal year ended August 31, 1994 to 56.5% for
fiscal 1995. The increase in gross margin was due primarily to an increase in
net sales of products with higher margins, related principally to the increased
net sales of Rexall Showcase as a percentage of the Company's net sales. In
fiscal 1995, the Company achieved a modest increase in gross margin of its other
divisions.

Selling, general and administrative expenses for fiscal 1995 were $65.8
million, an increase of $18.8 million or 40.0% over fiscal 1994. As a percentage
of net sales, such expenses increased from 41.2% for the fiscal year ended
August 31, 1994 to 44.0% for fiscal 1995, primarily as a result of increased net
sales of Rexall Showcase as a percentage of the Company's net sales. While
selling, general and administrative expenses in the Company's other business
divisions increased in absolute dollars, such expenses declined as a percentage
of net sales.

Other income, net, decreased from $1.1 million in fiscal 1994 to $588,000
in fiscal 1995, primarily as a result of reduced interest income and increased
interest expense. Interest income for fiscal 1995 was $119,000, as compared to
$361,000 for fiscal 1994. This decrease is a result of the reduction of
marketable securities. Interest expense for fiscal 1995 was $424,000 as compared
to $109,000 for fiscal 1994. This increase resulted from borrowings under the
Company's line of credit.

Income from continuing operations before income tax provision was $19.2
million for fiscal 1995, an increase of $5.5 million or 40.0% over fiscal 1994.
As a percentage of net sales, income from continuing operations before income
tax provision increased from 12.0% for fiscal 1994 to 12.9% for fiscal 1995.

Income from continuing operations was $12.3 million for fiscal 1995, an
increase of $3.8 million or 43.9% from fiscal 1994. As a percentage of net
sales, income from continuing operations increased from 7.5% for fiscal 1994 to
8.3% for fiscal 1995 due to the reasons described above.

DISCONTINUED OPERATIONS

On September 30, 1993, Pennex acquired substantially all the assets of
Pennex Products Co., Inc., a manufacturer of OTC pharmaceuticals. The assets
primarily consisted of a 300,000 square foot manufacturing and distribution
facility along with all manufacturing equipment and inventory located on
approximately 22 acres in Verona, Pennsylvania. The purchase price was $5.1
million in cash. On August 31, 1995, the Company approved a plan to divest
Pennex and the Company's Consolidated Financial Statements for fiscal 1994 and
1995 have been presented to include Pennex's results as discontinued operations.
In the fourth quarter of fiscal 1995, the Company recorded an estimated loss on
the disposition of Pennex in the amount of $3.7 million, net of the related tax
benefit of $2.1 million, for the loss on disposition of the related assets and
liabilities of Pennex and other expenses related to the closing of Pennex. This
amount included $964,000 for the estimated operating losses of Pennex during the
phase-out period. On November 17, 1995, Pennex ceased operations and on February
1, 1996, substantially all the remaining assets of Pennex were sold for
$6,495,000. The Company received a $500,000 deposit and a collateralized note
for the balance. The terms of such note provide for interest at 12%, payable
monthly through March 1996. The rate of interest increased to 18% on April 1,
1996, although interest is currently being paid at 12% with the balance accruing
until February 28, 1997, when the entire balance under such note is due in full.
The note was assigned from Pennex to the Company as partial consideration for
amounts owed to the Company by Pennex. The Company has been recording interest
income on the 12% interest paid to the Company.

As of August 31, 1996, the Company had recorded net assets of discontinued
operations of $3.9 million. Assuming full collection of the balance of the
collateralized note, the Company expects to record a reduction to the estimated
loss on disposition of approximately $1.4 million (net of tax) or $0.04 per
share, which would be reflected as an adjustment to discontinued operations.

16
<PAGE> 17

QUARTERLY RESULTS OF OPERATIONS; SEASONALITY

The following table sets forth certain quarterly financial data for fiscal
1995 and 1996. This quarterly information is unaudited, has been prepared on the
same basis as the annual financial statements and, in the opinion of the
Company's management, reflects all normally recurring adjustments necessary for
fair presentation of the information for the periods presented. Operating
results for any quarter are not necessarily indicative of results of any future
period.

<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $32,105 $37,868 $38,291 $41,209 $40,867 $40,560 $54,781 $51,636
Operating income.................. 4,371 5,245 4,133 4,867 5,314 5,932 8,801 9,442
Income from continuing
operations(1)................... 2,750 3,488 2,965 3,135 3,556 4,074 6,134 6,529
Income per share from continuing
operations(1)................... $0.09 $0.12 $0.10 $0.11 $0.12 $0.13 $0.20 $0.21
</TABLE>

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

(1) Does not reflect discontinued operations. See "Selected Consolidated
Financial Data," "-- Discontinued Operations" and Notes to the Consolidated
Financial Statements.

The Company believes that its business is not subject to significant
seasonality based on historical trends, with the exception of Rexall Showcase
which typically experiences lower revenues in the second and fourth fiscal
quarters due to winter and summer holiday seasons, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of $54.1 million as of August 31, 1996,
compared to $29.3 million as of August 31, 1995. This increase was principally
the result of increased cash and cash equivalents, marketable securities,
inventory and trade accounts receivable due to higher sales in fiscal 1996
compared to fiscal 1995.

Net cash provided by operating activities for fiscal 1996 was $19.6 million
compared to $4.3 million for fiscal 1995. Net cash provided by operating
activities increased primarily due to increased net income, decreases in net
assets of discontinued operations and recognition of deferred income taxes,
partially offset by increases in accounts receivable and inventory. Net cash
used in investing activities was $13.5 million for fiscal 1996 compared to $5.1
million for fiscal 1995. Net cash used in investing activities, including $5.4
million used for capital expenditures, increased primarily due to the purchase
of marketable securities in fiscal 1996. Net cash provided by financing
activities was $6.2 million for fiscal 1996 compared to $123,000 for fiscal
1995. The Company's cash flow from financing activities for fiscal 1996 of $6.2
million reflects $6.5 million received for the exercise of options to purchase
Common Stock partially offset by debt payments.

The Company presently has a line of credit with a financial institution in
the amount of $10 million, under which there were no borrowings in fiscal 1996.
The Company expects to increase its line of credit following completion of this
offering. The Company believes that the net proceeds to the Company from this
offering, its existing cash balances, internally generated funds from operations
and its available bank line of credit will provide the liquidity necessary to
satisfy the Company's working capital needs, including the purchase and
maintenance of inventory and the financing of the Company's accounts receivable,
and anticipated capital expenditures for the next fiscal year. Capital
expenditures for fiscal 1997 are anticipated to be approximately $11 million,
including approximately $6 million for upgrades to the Company's information
systems and the majority of the balance for manufacturing equipment.

17
<PAGE> 18

INFLATION

Inflation has not had a significant impact on the Company in the past three
years nor is it expected to have a significant impact in the foreseeable future.

RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS

Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted by the Company until fiscal 1997, include
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
and SFAS No. 123, "Accounting for Stock Based Compensation."

SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This pronouncement is not expected to have a material impact on the
financial statements of the Company.

SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. It encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options
and other equity instruments to employees based on new fair value accounting
rules. Companies that choose not to adopt the new fair value accounting rules
will be required to disclose pro forma net income and earnings per share under
the new method. The Company anticipates adopting the disclosure provisions of
SFAS No. 123, although the impact of such disclosure has not been determined.

18
<PAGE> 19

BUSINESS

GENERAL

The Company develops, manufactures, markets and sells vitamins, nutritional
supplements and consumer health products through three channels of distribution:
sales to retailers; direct sales through independent distributors; and mail
order. The Company offers a broad line of approximately 1,500 products
consisting of approximately 1,900 stock keeping units ("SKUs"), including
vitamins in both multivitamin and single-entity formulas, minerals, herbals,
homeopathic remedies, weight management products, skin care products and
over-the-counter ("OTC") pharmaceuticals. The Company has experienced
significant growth in recent years as net sales have grown from $74.2 million in
fiscal 1992 to $187.8 million in fiscal 1996, representing a compound annual
growth rate ("CAGR") of 26%.

Another important factor contributing to the Company's recent growth has
been the Company's network marketing subsidiary, Rexall Showcase International,
Inc. ("Rexall Showcase"). Rexall Showcase develops, markets and sells health and
wellness products through a sales force of independent distributors. Rexall
Showcase products include weight management products, homeopathic medicines,
personal care products, health and nutritional supplements and water filtration
systems. Rexall Showcase products are specially formulated and packaged only for
this distribution channel and are not available through retailers. The Company
believes that Rexall Showcase has several competitive advantages over other
direct sales organizations including: (i) the Rexall brand name under which
health products have been marketed since 1903; (ii) Rexall Showcase's commission
plan which the Company believes is financially attractive to its independent
distributors; (iii) its broad product mix which includes approximately 40
innovative products that are unique to Rexall Showcase; and (iv) Rexall
Showcase's ability to attract, support and motivate distributors. The Company
intends to further expand its direct sales business by continuing to develop and
offer innovative products, add independent distributors and provide sales
support. In addition, the Company seeks to educate and motivate its existing and
prospective distributors through comprehensive sales aids and regularly
scheduled regional and national conventions and local meetings. Rexall
Showcase's independent distributors are not required to make any inventory
purchases and, to become a distributor, must only purchase a $49.50 distributor
kit. Rexall Showcase recently initiated its international expansion by
commencing operations in Mexico in February 1996 and South Korea in April 1996
and intends to commence operations in selected other countries in the future.
Rexall Showcase's net sales have increased from $10.4 million in fiscal 1992 to
$76.5 million in fiscal 1996.

19
<PAGE> 20

INDUSTRY OVERVIEW

The Company believes that it is well-positioned to capitalize on the
expected growth and consolidation in the highly fragmented vitamin and
nutritional supplement industry. As reported by industry sources, the annual
domestic retail market for vitamins and nutritional supplements grew from $3.3
billion in 1991 to $4.9 billion in 1995, representing a CAGR of 10%. The Company
believes that growth in the vitamin and nutritional supplement market is being
driven by several factors, including: (i) the general public's heightened
awareness and understanding of the connection between diet and health; (ii) the
increase in baby-boomer and senior-aged population groups, which are more likely
to consume vitamins; (iii) product introductions in response to new scientific
research; and (iv) the nationwide trend toward preventative medicine.

In the last several years, public awareness of the positive effects of
vitamins and nutritional supplements on health has been heightened by widely
publicized reports of scientific findings. Recent studies have indicated a
correlation between the regular consumption of selected vitamins and nutritional
supplements and reduced incidences of conditions such as heart disease, cancer,
stroke, osteoporosis and neural tube birth defects. The rise of alternative
medicine and the holistic health movement has also contributed to increased
sales of nutritional supplements.

The Company expects that the aging of the United States population,
together with a corresponding increased focus on preventative health measures,
will result in increased demand for vitamins and nutritional supplement
products. According to the United States Census Bureau, through 2010, the
35-and-older age group of consumers, which the Company believes represents a
substantial majority of regular users of vitamin and nutritional supplements, is
expected to grow significantly faster than the general United States population.
Based on a national survey indicating that only 33% of Americans consumed
vitamins and nutritional supplements on a regular basis in 1995, the Company
believes that there is a large untapped domestic market for vitamins and
nutritional supplements. Industry sources also report that vitamin consumers are
taking more vitamins and nutritional supplements per day than in the past.

The primary channels of distribution in the vitamin and nutritional
supplement industry are: (i) mass market retailers which include mass
merchandisers, drug stores, supermarkets and discount stores; (ii) health food
stores; (iii) direct sales organizations; and (iv) mail order. Within the mass
market retailer channel, there are three primary vitamin product categories:
national brands, broadline and other brands, and private label brands. According
to industry sources, during 1994 and 1995, the market for national brands and
broadline and other brands of vitamins in the mass market was approximately 60%
of total domestic vitamin sales and the market for private label vitamins was
approximately 40% of such sales. For the first six months of calendar 1996,
industry sources indicate that the market for national brands and broadline and
other brands of vitamins in the mass market was approximately 63% of total
domestic vitamin sales and the market for private label vitamins was
approximately 37% of such sales. The national brand category primarily consists
of multivitamins and mineral products marketed under nationally advertised names
such as Centrum(R), One-A-Day(R) and Theragran(R). Broadline brands, such as the
Company's Sundown brand, offer a complete range of products under one brand
name, including multivitamins, single-entity vitamins, minerals and nutritional
supplements, including herbal products. Private label products marketed under
the retailer's store brand name also offer a wide product assortment, albeit
somewhat narrower in scope than broadline brands, including national brand
equivalent formulas positioned as lower-priced "compare and save" products. The
Company believes that broadline brands have gained market share primarily at the
expense of national brands as consumers have increased their consumption of
single-entity vitamins and nutritional supplements while the market for
multivitamins has remained essentially flat.

While the retail channel of distribution for vitamins and nutritional
supplements has been consolidating, there has not yet been any significant
consolidation among the companies that manufacture and sell these products. The
vitamin and nutritional supplement industry remains fragmented, and the Company
believes that no company controls more than 10% of the market. The Company
believes that the larger retailers will align themselves with those companies
that offer a wide variety of high quality products at competitive prices, have a
loyal customer base, support their brands with strong marketing and provide
consistently high levels of customer service. The Company believes that
increasing standards for manufacturing and product quality,

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<PAGE> 21

resulting in part from a changing regulatory environment, could also result in
consolidation among vitamin and nutritional supplement companies as it becomes
more difficult for smaller companies to compete effectively. See "-- Government
Regulation." The Company believes it is well-positioned to capitalize on these
industry trends.

GROWTH STRATEGY

LEVERAGE SUCCESS OF SUNDOWN BRAND. The Company intends to leverage
the success of its Sundown brand by increasing its penetration of select
mass merchandisers, chain drug stores and supermarkets, while continuing to
maintain high sales velocity. The Sundown brand strategy is to offer a
broad selection of high quality products at prices lower than
comparable-quality branded vitamins, thereby creating value for consumers
as well as higher rates of shelf inventory turnover for retailers. In
addition, the Company intends to build upon its existing customer
relationships by continuing to provide responsive service through timely
and innovative product introductions, value-added operating information,
training support and marketing programs that are tailored to its customers'
needs. Sales of the Sundown brand of products have grown from $42.1 million
in fiscal 1992 to $71.4 million in fiscal 1996. According to data from IRI,
in the broadline vitamin category, Sundown generates the highest rate of
dollar and unit sales per share of ACV distribution and is currently the
number two brand in dollar and unit sales, despite its availability in
outlets representing only 35% of ACV sales.

CONTINUE GROWTH OF REXALL SHOWCASE. The Company has experienced
significant growth in the sales of Rexall Showcase, with sales increasing
from $10.4 million in fiscal 1992 to $76.5 million in fiscal 1996. The
Company intends to further expand its direct sales business by continuing
to develop and offer innovative products, add independent distributors and
provide sales support. In addition, the Company seeks to educate and
motivate its existing and prospective distributors through comprehensive
sales aids and regularly scheduled regional and national conventions and
local meetings. In addition, Rexall Showcase intends to build on its recent
international expansion into Mexico and South Korea by commencing
operations in selected other countries in the future.

PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue
strategic acquisitions in the health and wellness-related markets, which
opportunities it believes are available because of the highly-fragmented
nature of the industry. The Company intends to actively pursue acquisition
opportunities that are compatible with its business philosophy, have a
level of critical mass and infrastructure necessary to generate rates of
growth expected by the Company and have a positive financial impact on the
Company's operations. The Company expects that such acquisitions may
include products, product lines or businesses.

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SALES BY DISTRIBUTION CHANNEL

Set forth below for the periods indicated are the net sales and percent of
net sales of the Company's products through the Company's three current
distribution channels.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
----------------------------------------------------------------------------------------------
DISTRIBUTION CHANNEL 1992 1993 1994 1995 1996
- -------------------------------- --------------- --------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to retailers:
Sundown....................... $42,112 56.7% $46,571 50.0% $ 54,216 47.5% $ 62,427 41.8% $ 71,387 38.0%
Other(1)...................... 10,293 13.9 12,231 13.2 14,050 12.3 17,722 11.8 22,728 12.1
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Total net sales to 52,405 70.6 58,802 63.2 68,266 59.8 80,149 53.6 94,115 50.1
retailers.............
Direct sales -- Rexall 10,418 14.0 20,535 22.0 29,510 25.9 52,606 35.2 76,483 40.7
Showcase......................
Mail order -- SDV............... 11,417 15.4 13,810 14.8 16,343 14.3 16,718 11.2 17,246 9.2
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Total net sales......... $74,240 100.0% $93,147 100.0% $114,119 100.0% $149,473 100.0% $187,844 100.0%
======= ===== ======= ===== ======== ===== ======== ===== ======== =====
</TABLE>

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

(1) Rexall, Thompson, private label and Rexall Managed Care sales.

SALES TO RETAILERS

For its sales of vitamins and nutritional supplements to retailers, the
Company employs a marketing strategy directed at the end-user, with an emphasis
on educating these consumers. The Company provides a wide product selection with
many unique formulations, value pricing, clear and informative labeling, timely
and innovative product introductions, and specially designed shelf organization
systems. Net sales to retailers have grown from $52.4 million in fiscal 1992 to
$94.1 million in fiscal 1996.

Sundown. The Company has been selling vitamins and nutritional supplements
under the Sundown tradename since 1976. The Sundown brand offers a broad
selection of high quality products at prices lower than comparable-quality
branded vitamins, thereby creating value for consumers as well as higher rates
of shelf inventory turnover for retailers. The Company believes that its retail
customers experience increased profits per linear shelf foot due to the high
sales velocity of the Sundown brand. According to data from IRI, in the
broadline vitamin category, Sundown generates the highest rate of dollar and
unit sales per share of ACV distribution and is currently the number two brand
in dollar and unit sales, despite its availability in outlets representing only
35% of ACV sales.

Historically, a majority of the Sundown brand sales were to regional deep
discount retailers. The success of the Company's value pricing strategy and high
sales velocity has enabled the Company to increase its sales to mass
merchandisers, chain drug stores and supermarkets. In fiscal 1995, the Company
gained nationwide distribution of Sundown products to all Kmart stores. Since
May 1996, the Company has begun nationwide distribution of Sundown products to
all Wal*Mart stores and Thrifty-Payless and Eckerd drug stores. Sundown's net
sales have increased from $42.1 million in fiscal 1992 to $71.4 million in
fiscal 1996.

The Company sells approximately 290 vitamins and nutritional supplements
under the Sundown tradename, including among others, vitamin C, vitamin E,
multivitamins, folic acid, calcium, lecithin, selenium, magnesium, iron,
potassium, herbals and food supplements. Because the Company offers most of its
products in varying quantities, the Sundown line consists of approximately 750
SKUs. Vitamins and minerals are sold as single-entity supplements, multivitamin
combinations and in varying potency levels, and are offered in tablet, softgel,
two-piece capsule, chewable, liquid and powder forms to accommodate various
consumer preferences. The Company also offers national brand comparisons under
the Sundown brand which have multivitamin formulas comparable to such products
as Centrum(R), One-A-Day(R) and Theragran(R).

The Company monitors new and developing health and nutrition trends in
order to anticipate consumer demand and to introduce new products and
reformulate existing products. Examples of the Company's anticipation of and
response to consumer demand in the past two years include the introduction of
(i) three new herbal and food supplements (Saw Palmetto, Hawthorn Berry and
Bilberry) to complement the early 1995 introduction of 13 herbal products; (ii)
Fortified Pycnogenol(R), which includes additional key antioxi-

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<PAGE> 23

dants Coenzyme Q-10, Selenium and Grape Seed Extract (the Pycnogenol(R)
trademark is owned by a third party); (iii) Grape Seed Extract, an antioxidant
that provides abundant amounts of proanthocyanidins; (iv) Melatonin at the lower
300 mcg level to allow consumers to better regulate their dosage; (v)
Intelligent Multiple(R), a multivitamin that excludes vitamins C and E, which
consumers often take separately; and (vi) E-400/Folic Acid, fortified with
vitamins B(6) and B(12), which, when combined, play an important role in energy
production and the formation of red blood cells. The Company has not incurred
material research and development expenses with respect to vitamins and
nutritional supplements. Product concepts are internally developed by the
Company's product development team, which consists of representatives of the
Company's research and development, sales and marketing and purchasing
departments and members of senior management. See "-- Product Development."

The Company markets its Sundown vitamin and nutritional supplements
internationally through a network of distributors. The Company has exclusive and
non-exclusive distribution agreements in foreign countries throughout the world,
with the majority of international revenues presently being generated from South
America. The Company believes that certain markets in South America, the Middle
East and the Far East represent the most attractive international outlets for
its products. All international sales are settled in United States currency.

Other Sales to Retailers. In addition to sales of Sundown products, the
Company's other sales to retailers include sales under the Rexall brand to
wholesalers, convenience stores and independent drug stores, the Thompson brand
to health food stores, private label products to selected mass merchandisers and
drug stores and the Rexall Managed Care brand to HMOs, hospitals and long-term
care facilities.

In 1989, the Company purchased the Rexall tradename, under which health
products have been marketed since 1903. An independent study has shown that the
Rexall tradename is widely recognized by households in the United States. The
Company's marketing strategy with respect to both its Rexall vitamin and OTC
drug lines is to emphasize a national branded product at generic prices. The
Company markets a full line of approximately 100 moderately-priced vitamins and
nutritional supplements under the Rexall tradename, primarily to independent
drug stores, wholesalers and convenience stores. In addition, approximately 75
OTC pharmaceutical products, including aspirin, cold remedies and analgesic
formulas, are offered under the Rexall tradename in formulas comparable to
nationally advertised products such as Bayer(R), Advil(R), Nuprin(R),
Tylenol(R), Contac(R), Robitussin(R), Sudafed(R), Benadryl(R) and Mylanta(R).
Recently, the Company has begun to license the Rexall name in various
international markets for vitamins and OTC pharmaceuticals.

In 1990, the Company acquired the operating assets of Wm. T. Thompson Co.,
Inc., which was founded in 1935, including the Thompson trademark. The "Rainbow"
line of Thompson vitamins is sold through health food stores and consists of
approximately 135 products in approximately 160 SKUs, many of which have high
potencies and are unique to Thompson. The Rainbow line represents the Company's
premium line, and is priced competitively with other similar vitamin products
sold in health food stores. Because the Company's targeted customer for Thompson
products is the sophisticated vitamin consumer, the Company's strategy includes
constantly monitoring new and developing trends in health and nutrition and
adapting its product offerings accordingly.

While the Company does not emphasize private label manufacturing, in select
instances the Company offers these products to accommodate specific customer
requests. For fiscal 1996, approximately 3.8% of the Company's net sales were
from private label products.

The Rexall Managed Care Division was formed in 1995 to market and sell
vitamins, nutritional supplements and OTC pharmaceuticals to the managed care
marketplace with a focus on HMOs, hospitals and long-term care facilities. The
Rexall Managed Care line currently consists of approximately 70 OTC
pharmaceuticals, 55 vitamin products and three prescription products.

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<PAGE> 24

DIRECT SALES THROUGH INDEPENDENT DISTRIBUTORS

In 1990, the Company formed Rexall Showcase, its network marketing
subsidiary, to market and sell unique health and wellness products through a
sales force of independent distributors. Rexall Showcase products include weight
management products, homeopathic medicines, personal care products, health and
nutritional supplements and water filtration systems. Rexall Showcase products
are specially formulated and packaged only for this distribution channel and are
not available through retailers. The Company believes that Rexall Showcase has
several competitive advantages over other direct sales organizations including:
(i) the Rexall brand name under which health products have been marketed since
1903; (ii) Rexall Showcase's commission plan which the Company believes is
financially attractive to its independent distributors; (iii) its broad product
mix which includes approximately 40 innovative products that are unique to
Rexall Showcase; and (iv) Rexall Showcase's ability to attract, support and
motivate distributors. The Company intends to further expand its direct sales
business by continuing to develop and offer innovative products, add independent
distributors and provide sales support. In addition, the Company seeks to
educate and motivate its existing and prospective distributors through
comprehensive sales aids and regularly scheduled regional and national
conventions and local meetings. Rexall Showcase's independent distributors are
not required to make any inventory purchases and, to become a distributor, must
only purchase a $49.50 distributor kit. Rexall Showcase recently initiated its
international expansion by commencing operations in Mexico in February 1996 and
South Korea in April 1996 and intends to commence operations in selected other
countries in the future. Rexall Showcase's net sales have increased from $10.4
million in fiscal 1992 to $76.5 million in fiscal 1996.

The Rexall Showcase distributor kit includes product brochures and
information, sales aids, order forms and other business information. Such
distributor kits are sold at approximately Rexall Showcase's cost. Rexall
Showcase processes, fills and ships orders from the Company's distribution
center, usually within a 24 hour period after the order is placed by the
distributor. Rexall Showcase guarantees the quality of its products and
customers may return any product to the selling distributor within 30 days for a
total refund or replacement. Prior to placing orders for additional products,
distributors are required to certify that they have sold at least 70% of their
prior order. In the event of termination of the relationship between Rexall
Showcase and a distributor, Rexall Showcase will repurchase from such
distributor all resaleable inventory purchased by such distributor within 12
months of such termination for 90% of the original net cost to the distributor.
To date, such returns have not been material.

Rexall Showcase's success is dependent upon continued sales of its products
to consumers by its distributors and the ongoing recruitment and maintenance of
a motivated, experienced network of distributors. Rexall Showcase sponsors and
conducts regional and national conventions in order to educate and recruit
distributors, and employs various technologies and innovations which allow for
fast and efficient communication and service between Rexall Showcase, its
distributors and their customers. These include such tools as (i) the Autoship
program, which allows products to be regularly shipped each month directly from
Rexall Showcase to the end-user; (ii) voice mail, which allows Rexall Showcase
or its distributors to send phone messages to large numbers of distributors at
once or communicate to specific distributors; and (iii) the private Rexnet(SM)
satellite network, which the Company uses to broadcast educational and training
programs describing Rexall Showcase products and business opportunities to
distributors, prospective distributors and customers. The Company also maintains
a dedicated department to provide information and assistance to distributors.
The Company publishes and distributes a bi-monthly newsletter to inform its
distributors of recent developments and other relevant information and to
recognize the accomplishments of certain distributors. Rexall Showcase also
offers participation in a stock option plan and stock purchase plan to
distributors who reach certain sales targets.

MAIL ORDER

The Company's mail order division markets and sells products primarily
under its SDV brand directly to consumers through catalogs and direct mailings.
This division targets approximately 200,000 of the most active customers out of
an approximate 565,000 household proprietary mailing list developed by the
Company since its inception in 1976. The Company's SDV division offers
approximately 420 products in approximately

24
<PAGE> 25

940 SKUs, including a full line of vitamins, minerals and other nutritional
supplements along with selected health-related products at prices which are
competitive with those of other mail order companies. Net sales for the
Company's SDV division have increased from $11.4 million in fiscal 1992 to $17.2
million in fiscal 1996. As the Company has focused primarily on its Sundown
brand and Rexall Showcase, the Company has not allocated significantly increased
resources to its mail order division.

SALES SUPPORT AND CUSTOMER SERVICES FOR RETAILERS

The Company utilizes its information systems and staff of sales and
customer support professionals to provide retailers with a comprehensive array
of services. The Company seeks to assist the retailer with sales initiatives,
sales data analyses and marketing and merchandising programs, all of which are
designed to maximize in-store awareness of the Company's products and improve
results in the retailer's vitamin and nutritional supplement category. For a
number of its retail customers, the Company serves as a category manager, at no
additional cost to the retailer, actively analyzing, monitoring and advising on
product selection, profitability, sales velocity and overall performance of the
retailer's entire vitamin and nutritional supplement category. To help optimize
the performance of its retailers' departments, as well as sales of the Company's
products, the Company develops computerized plan-o-grams designed to efficiently
utilize shelf space and direct consumers' attention to the Company's products.

In addition, the Company provides marketing support for its product lines
by developing customized marketing programs. The Company's graphic arts
department provides customer support by designing packaging displays and point
of purchase material for customers as well as informative, easy-to-read labels
and packages for the Company's products. The Company believes that its
double-sided label gives it a shelf-facing advantage appreciated by retailers.
Support for retail sales is further provided through various in-store
merchandising centers, including information pamphlets for consumers, displays,
featuring key and topical products, and "Nutrition News," a Company publication
directed to pharmacists. The Company employs and contracts with merchandisers
who periodically visit certain retailers to restock the shelves, place new
orders and monitor and update the presentation of the Company's product line
through floor displays, side wings, shelf-talkers, store signs, promotional
packs and other individualized promotions.

To further support sales, the Company has historically expended
approximately 2% of its net sales on advertising. To date, this spending has
primarily been in the form of cooperative support to retailers; however, the
Company has also conducted some brand advertising on a limited basis. In
addition, Dick Clark is the Company's national spokesperson, Sundown is the
official vitamin brand of the Miami Dolphins and the Company sponsors various
sports personalities and events. In the future, the Company expects to use
various forms of mass media advertisement to build the national reputation and
recognition of its brands, primarily Sundown.

At November 1, 1996, the Company had a total sales force of approximately
30 employees responsible for accounts located throughout the United States, who
are paid on a salary and commission basis. In addition, the Company utilizes a
national brokerage alliance of approximately 70 independent representative
organizations in the United States and internationally, substantially all of
which sell the Company's brands on an exclusive basis in their respective
product categories. The Company also had a total of approximately 80 employees
devoted to customer service and support for retailers.

PRODUCT DEVELOPMENT

The Company consistently and timely introduces new and innovative products.
New product ideas are generated from a variety of sources, including clinical
studies reported in scientific and medical periodicals such as the New England
Journal of Medicine and the Journal of the American Medical Association. The
Company also responds to suggestions from vendors and consumers. Such product
ideas are developed by the Company's product development team which consists of
representatives of the Company's research and development, sales and marketing
and purchasing departments and members of senior management. For select
products, the Company's product development team is assisted by independent
consultants. The ideas

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<PAGE> 26

are then submitted to the Company's operations department which determines the
overall feasibility of developing and producing the product. As part of this
overall feasibility analysis, the Company's regulatory department conducts a
thorough investigation of the safety and potential regulatory issues with
respect to the new product, and reviews any patent and trademark issues.
Following the regulatory department's review, the Company's purchasing
department obtains any raw materials necessary to produce the new product and,
after applicable testing, the Company begins production of an initial pilot
sample to study various characteristics of the products. The Company's technical
services department conducts tests on the pilot sample to ensure that the new
product meets all applicable regulatory and internal quality standards. Based on
these tests, final labels and product specifications, including any
substantiated statements of nutritional support, such as structure and function
claims for the new product, are developed, along with the final costs of
production which are reviewed by the financial and marketing teams to determine
that expected margins can be obtained based on the anticipated sales price. The
Company has typically been able to complete the cycle from product concept to
final production in a period ranging from several weeks to several months.

The Company believes that new product introductions have enabled it and its
retail customers to increase market share, and the Company intends to continue
developing new products in the future. During fiscal 1996, the Company
introduced 15 new products for Sundown, 10 new products for Rexall Showcase and
24 new products for other divisions.

MANUFACTURING AND QUALITY CONTROL

In June 1994, the Company commenced manufacturing vitamin tablets at its
82,000 square foot plant located adjacent to the Company's administrative office
building in Boca Raton, Florida. The Company's vitamin manufacturing facility
enables the Company to better ensure continued sources of supply, reduce cost of
goods sold and maintain high product quality. The Company recently began
manufacturing two-piece capsules at this facility. Currently, the Company
manufactures approximately 60% of its products and, with the addition of
two-piece capsules, anticipates increasing that percentage to 75% by the end of
fiscal 1997. The balance of the Company's vitamins and nutritional products are
purchased from independent third parties that manufacture such products to the
Company's specifications and standards. At this time, the Company does not
believe it is cost-effective to manufacture softgels and, accordingly, it will
continue to purchase these products from independent suppliers. In the future,
the Company will continue to monitor the cost of manufacturing other products in
order to determine whether in-house manufacturing of such products would be
cost-effective. The Company purchases all of its OTC pharmaceuticals from
various independent suppliers. The Company's manufacturing and distribution
operations employ over 350 persons and have recently been enhanced by the
opening of its western distribution facility in Sparks, Nevada.

The Company emphasizes quality control. All of the Company's products are
manufactured in accordance with the applicable CGMPs of the FDA and other
applicable regulatory and compendial standards, such as the United States
Pharmacopeia ("USP"). All raw materials and finished products undergo various
testing procedures, including sample testing, weight testing, purity testing
and, where required, microbiological testing. In November 1995, H.V. Shuster,
Inc., an independent quality assurance and testing service, awarded the Company
its highest rating for vitamin manufacturing companies for its vitamin
manufacturing facility and operations, including its manufacturing, testing and
quality control procedures.

Upon receipt by the Company of raw materials or finished products such as
tablets or softgels at its manufacturing facilities, such raw materials or
products are placed in quarantine and tested by the Company's technical services
department. When the raw materials released from quality control are ready for
production, they are blended and produced into tablets or two-piece capsules.
The principal raw materials used in the manufacturing process are natural and
synthetic vitamins, which are purchased by the Company from bulk manufacturers
in the United States and internationally and are believed to be readily
available from numerous sources. Although the Company believes that all of its
sources of raw materials and products are reliable, the Company's results of
operations could be adversely impacted should it be forced to find replacement
sources of supply on short notice.

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<PAGE> 27

GOVERNMENT REGULATION

The manufacturing, processing, formulating, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the FDA, the Federal Trade Commission (the "FTC"),
the Consumer Products Safety Commission, the United States Department of
Agriculture, the United States Postal Service, the United States Environmental
Protection Agency and the Occupational Safety and Health Administration. These
activities are also regulated by various agencies of the states, localities and
foreign countries, in which the Company's products are sold. In particular, the
FDA regulates the safety, manufacturing, labeling and distribution of dietary
supplements, including vitamins, minerals and herbs, food additives, OTC and
prescription drugs and cosmetics. In addition, the FTC has overlapping
jurisdiction with the FDA to regulate the promotion and advertising of dietary
supplements, OTC drugs, cosmetics and foods.

The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was
enacted on October 25, 1994. DSHEA amends the Federal Food, Drug and Cosmetic
Act by defining dietary supplements, which include vitamins, minerals,
nutritional supplements, herbs and botanicals as a new category of food separate
from conventional food. DSHEA provides a regulatory framework to ensure safe,
quality dietary supplements and to foster the dissemination of accurate
information about such products. Under DSHEA, the FDA is generally prohibited
from regulating dietary supplements as food additives or as drugs unless product
claims, such as claims that a product may diagnose, mitigate, cure or prevent an
illness, disease or malady, trigger drug status.

DSHEA provides for specific nutritional labeling requirements for dietary
supplements effective January 1, 1997, although final regulations have not been
published and the FDA has indicated that implementation will be delayed. DSHEA
permits substantiated, truthful and non-misleading statements of nutritional
support to be made in labeling, such as statements describing general well-being
resulting from consumption of a dietary ingredient or the role of a nutrient or
dietary ingredient in affecting or maintaining structure or function of the
body. Any statement of nutritional support beyond traditional claims must be
accompanied by disclosure that the FDA has not evaluated such statement and that
the product is not intended to cure or prevent any disease. The Company
anticipates that the FDA will promulgate CGMPs which are specific to dietary
supplements and require at least some of the quality control provisions
contained in the CGMPs for drugs, which are more rigorous than the CGMPs for
foods. The Company currently manufactures its vitamins and nutritional
supplement products in compliance with the applicable food CGMPs.

The FDA has proposed but not finalized regulations to implement DSHEA. The
Company cannot determine what effect such regulations, when promulgated, will
have on its business in the future. Such regulations are likely to require
expanded or different labeling for the Company's vitamins and nutritional
supplement products and could, among other things, require the recall,
reformulation or discontinuance of certain products, additional recordkeeping,
warnings, notification procedures and expanded documentation of the properties
of certain products and scientific substantiation regarding ingredients, product
claims, safety or efficacy. The Company believes that it is in material
compliance with all applicable laws.

DSHEA created two new governmental bodies. The Commission on Dietary
Supplements was established for two years to provide recommendations to the
President and Congress for the regulation of supplement labeling and health
claims, including procedures for making disease-related claims. Such
recommendations could lead to legislative or regulatory changes. The Office of
Dietary Supplements, established within the National Institute of Health, is
charged with coordinating research on dietary supplements and disease
prevention, compiling research results, and advising the Secretary of Health and
Human Services on supplement regulation, safety and health claims.

Although the vitamin and nutritional supplement industry is subject to
regulation by the FDA and local authorities, dietary supplements, including
vitamins, minerals, herbs and nutritional supplements, now have been statutorily
affirmed as foods and not as drugs or food additives. Therefore, the regulation
of dietary supplements is less restrictive than that imposed upon manufacturers
and distributors of drugs or food additives. Unlike food additives and new
drugs, which require regulatory approval of formulation, safety and labeling and
for drugs, efficacy prior to marketing, dietary supplement companies are
authorized to make substantiated statements of nutritional support and to market
manufacturer-substantiated-as-safe dietary

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<PAGE> 28

supplement products without such FDA preclearances. Failure to comply with
applicable FDA requirements can result in sanctions being imposed on the Company
or the manufacturers of its products, including warning letters, product recalls
and seizures, injunctions and criminal prosecutions.

The OTC pharmaceutical products distributed by the Company's Rexall, Rexall
Showcase and Rexall Managed Care divisions are subject to regulation by a number
of federal and state governmental agencies. In particular, the FDA regulates the
formulation, manufacture, packaging and labeling of all OTC pharmaceutical
products. The Company believes that its OTC pharmaceutical products distributed
by the Company's Rexall, Rexall Showcase and Rexall Managed Care divisions
comply in all material respects with existing regulations.

Rexall Showcase is subject to regulation under various international, state
and local laws which include provisions regulating, among other things, the
operations of direct sales programs. The Company believes that it is in material
compliance with such provisions and has, in certain cases, established
procedures providing greater protection for its distributors than is required by
law.

COMPETITION

The market for the sale of vitamins and nutritional supplements is highly
competitive. Competition is based principally upon price, quality of products,
customer service and marketing support. There are numerous companies in the
vitamin and nutritional supplement industry selling products to retailers such
as mass merchandisers, drug store chains, independent drug stores, supermarkets
and health food stores. Most companies are privately held and the Company is
unable to precisely assess the size of such competitors. No company is believed
to control more than 10% of this market.

The market for OTC pharmaceuticals and health and beauty care products is
highly competitive. Competition is based principally upon price, quality of
products, customer service and marketing support. The Rexall brand competes with
nationally advertised brand name products and private label products.

Although Rexall Showcase competes with other health and nutritional food
companies, the Company believes its primary competition stems from direct sales
companies. The Company competes in the recruitment of independent sales people
with other direct sales organizations whose product lines may or may not compete
with the Company's products.

Although certain of the Company's competitors are substantially larger than
the Company and have greater financial resources, the Company believes that it
competes favorably with other vitamin and nutritional supplement companies and
other OTC pharmaceutical companies because of its competitive pricing, marketing
strategies, sales support and the quality, uniqueness and breadth of its of
product line.

TRADEMARKS AND PATENTS

The Company owns trademarks registered with the United States Patent and
Trademark Office or certain other countries for its Sundown(R), Thompson(R),
Rexall Showcase International(R) and Rexall(R) trademarks, and has rights to use
other names material to its business. In addition, the Company has obtained
trademarks for certain of its products including Plenamins(R), Super
Plenamins(R), SunVite(R), Ultra Max(R), Perfect Iron(R), Perfect Antioxidant(R),
Ginstamina(R), Circus Chews(R), Digest-It(R), Bios Life 2(R), In-Vigor-ol(R),
Calmplex(R), Metaba-trol(R), Nature Force(R), Human Nature(R), Mature
Choices(R), Memory Plus(R), Advanced Release Technology(R), Cardio Basics(R),
Defend-ol(R), Intern-ol(R) and Traum-ex(R). The Company has trademark and
service mark applications pending for Cellular Essentials(TM), Vascular
Complete(TM), Rexnet(SM), Rexweb(SM) and Rextel(SM). Federally registered
trademarks have perpetual life, as long as they are renewed on a timely basis
and used properly as trademarks, subject to the rights of third parties to seek
cancellation of the marks. The Company regards its trademarks and other
proprietary rights as valuable assets and believes they have significant value
in the marketing of its products. The Company vigorously protects its trademarks
against infringement. The Company owns certain patents in the United States
relating to its Bios Life 2 and Bios Life 2 Natural weight management products
and a patent for double-sided labels in the vitamin industry. Although the
Company owns the Rexall(R) trademark, none of the operating Rexall Drug Stores
are owned by the Company or have any obligation to purchase products from the
Company.

28
<PAGE> 29

PRODUCT LIABILITY INSURANCE

The Company, like other manufacturers, wholesalers, distributors and
retailers of products that are ingested, faces an inherent risk of exposure to
product liability claims if, among other things, the use of its products results
in injury. The Company currently has product liability insurance for its
operations in amounts the Company believes is adequate for its operations. There
can be no assurance, however, that such insurance will continue to be available
at a reasonable cost, or if available, will be adequate to cover liabilities.
The Company requires that each of its suppliers certify that it carries adequate
product liability insurance covering the Company.

EMPLOYEES

At November 1, 1996, the Company employed approximately 740 full-time
persons. None of the Company's employees is represented by a collective
bargaining unit. The Company believes that its relationship with its employees
is good.

PROPERTIES

As of November 1, 1996, the Company owned or leased the following
facilities:

<TABLE>
<CAPTION>
APPROXIMATE LEASED OR EXPIRATION DATE
LOCATION TYPE OF FACILITY SQUARE FEET OWNED OF LEASE
- ------------------- ----------------------------- ----------- ---------- ------------------
<S> <C> <C> <C> <C>
Boca Raton, Florida Administrative Offices 58,000 Owned --
Boca Raton, Florida Manufacturing and Production 82,000 Owned --
Boca Raton, Florida Warehouse and Distribution 100,000 Owned --
Boca Raton, Florida Warehouse and Distribution 90,000 Leased (1)
Boca Raton, Florida Administrative Offices 10,000 Leased November 1998
Sparks, Nevada Warehouse and Distribution 65,000 Leased September 1999
Seoul, South Korea Administrative Offices 4,700 Leased December 1996
Seoul, South Korea Distribution Service Center 5,000 Leased March 1997
Seoul, South Korea Warehouse 3,500 Leased April 1997
Mexico City, Mexico Administrative Offices, 5,600 Leased December 1997
Warehouse and Distribution
</TABLE>

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

(1) This facility is subject to two leases. The lease for 60,000 square feet of
the facility expires in March 1998 and the lease for 30,000 square feet of
the facility expires in April 1997.

LEGAL PROCEEDINGS

L-Tryptophan Litigation. Numerous unrelated manufacturers, distributors,
suppliers, importers and retailers of manufactured L-tryptophan are or were
defendants in an estimated 2,000 lawsuits brought in federal and state courts
seeking compensatory and punitive damages for alleged personal injury from
ingestion of products containing manufactured L-tryptophan. The Company has been
named in 27 lawsuits, of which 25 have been settled or discontinued through
November 1, 1996 and additional suits may be filed. Prior to a request from the
FDA in November 1989 for a national, industry-wide recall, the Company halted
sales and distribution of, and also ordered a recall of, L-tryptophan products.
Subsequently, the FDA indicated that there is a strong epidemiological link
between the ingestion of the allegedly contaminated L-tryptophan and a blood
disorder known as eosinophilia myalgia syndrome ("EMS"). Investigators at the
United States Center for Disease Control suspect that a contaminant was
introduced during the manufacture of the product in Japan. While intensive
independent investigations are continuing, there has been no indication that EMS
was caused by any formulation or manufacturing fault of the Company's supplier
or any of the other companies that manufactured tablets or capsules containing
L-tryptophan.

29
<PAGE> 30

The Company and certain companies in the vitamin industry, including
distributors, wholesalers and retailers, have entered into an agreement (the
"Indemnification Agreement") with Showa Denko America, Inc. ("SDA"), under which
SDA, a United States subsidiary of a Japanese corporation, Showa Denko K.K.
("SDK"), which appears to be the supplier of the apparently contaminated
product, has assumed the defense of all claims against the Company arising out
of the ingestion of L-tryptophan products and has agreed to pay the legal fees
and expenses in that defense. SDA has agreed to indemnify the Company against
any judgments and to fund settlements arising out of those actions and claims if
it is determined that a cause of the injuries sustained by the plaintiffs was a
constituent in the bulk material sold by SDA to the Company or its suppliers,
except to the extent that the Company is found to have any part of the
responsibility for those injuries and except for certain claims relating to
punitive damages. While the Indemnification Agreement remains in effect, the
Company and SDA have agreed not to institute litigation against each other
relating to claims based upon products containing L-tryptophan. In March 1993,
SDK entered into an agreement with the Company to guarantee the payment by its
subsidiary, SDA, pursuant to the Indemnification Agreement. However, it should
be noted, in attempting to prosecute claims against foreign nationals, complex
legal problems arise, such as jurisdiction, service of process, conflict of
laws, enforceability of judgments and cultural differences, among others.

It is the intention of the Company to hold SDA, and if necessary, SDK,
responsible for any liabilities and expenses incurred in connection with this
litigation, even if the Indemnification Agreement is terminated. SDA has posted
a revolving irrevocable letter of credit of $20 million to be used for the
benefit of the Company and other indemnified parties if SDA is unable or
unwilling to satisfy any claims or judgments. Although the parties have agreed
that the letter of credit will be replenished as needed, there can be no
assurance that such replenishment will occur or that there will be sufficient
funds available for the satisfaction of any and all claims or judgments. The
Company has product liability insurance, as does its supplier of L-tryptophan
products, which the Company believes provides coverage for all of its
L-tryptophan products subject to these claims, including legal defense costs.
Due to the multitude of defendants, the probability that some or all of the
total liability will be assessed against other defendants and the fact that
discovery in these actions is not complete, it is impossible to predict the
outcome of these actions or to assess the ultimate financial exposure of the
Company. The Company does not believe the outcome of these actions will have a
material adverse effect on the Company, and, accordingly, no provision has been
made in the Consolidated Financial Statements for any loss that may be incurred
by the Company as a result of these actions.

Hines Litigation. In April 1992, an action was commenced by Patrick J.
Hines, on behalf of himself and others similarly situated, against the Company,
Rexall Showcase and certain of its officers in the United States District Court
for the Southern District of Florida (Civ. Action 92-6387). The complaint
alleges, among other things, violation of the United States securities laws,
RICO and unfair advertising with respect to the operations of Rexall Showcase.
Virtually identical lawsuits on behalf of various plaintiffs were filed at
approximately the same time against various other direct sales companies by two
law firms, including the law firm representing Mr. Hines. The Company and Rexall
Showcase filed a motion to dismiss the complaint on numerous grounds, including
failure to state a cause of action and violations of the federal civil
procedural rules. Such motion was granted in June 1994 and the plaintiff was
given leave to file a new complaint, which he did. The allegations in the new
complaint are similar to those in the original complaint and include additional
claims of violations of various Florida statutes, including those relating to
deceptive advertising, business opportunities, franchises and securities. The
Company and Rexall Showcase have filed a motion to dismiss the new complaint on
numerous grounds, including failure to state a cause of action and violations of
the federal rules of civil procedure. Although the Company believes that such
lawsuit is without merit, no assurances can be given in this regard. The Company
will vigorously defend itself and believes any adverse decision will not have a
material adverse impact on the Company or Rexall Showcase.

Other Litigation. The Company is also involved in litigation relating to
claims arising out of its operations in the normal course of business, none of
which are expected, individually or in the aggregate, to have a material adverse
effect on the Company.

30
<PAGE> 31

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the directors
and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Carl DeSantis.......................... 57 Chairman of the Board and Chief
Executive Officer
Christian Nast......................... 65 President, Chief Operating Officer and
Director
Dean DeSantis.......................... 34 Senior Vice President - Operations and
Director
Damon DeSantis......................... 32 Executive Vice President, President of
Rexall Showcase and Director
Nickolas Palin......................... 49 Senior Vice President - Sales and
Marketing and Director
Geary Cotton........................... 44 Vice President - Finance, Chief
Financial Officer and Treasurer
Richard Werber......................... 44 Vice President - Legal Affairs, General
Counsel and Secretary
Stanley Leedy.......................... 62 Director
Raymond Monteleone..................... 48 Director
Howard Yenke........................... 60 Director
</TABLE>

CARL DESANTIS founded the Company in 1976, has served as its Chairman of
the Board and Chief Executive Officer since its inception, and served as its
President from 1976 to April 1995. Mr. DeSantis has had over 17 years of
experience with retail drugstore companies, including Super-X Drug Stores and
Walgreen Drug Stores. He is the father of Dean DeSantis and Damon DeSantis.

CHRISTIAN NAST has been President and Chief Operating Officer of the
Company since April 1995 and a Director of the Company since October 1993. From
December 1989 to April 1995, Mr. Nast was employed by Colgate Palmolive Co. as
its executive vice president - North America. Mr. Nast has over 40 years of
experience in the consumer products industry with companies such as
Bristol-Myers Company, Chesebrough-Ponds, Inc. and the Procter & Gamble Company.

DEAN DESANTIS has been Senior Vice President - Operations of the Company
since June 1989, a Director of the Company since March 1990 and joined the
Company in 1985. He is the son of Carl DeSantis and the brother of Damon
DeSantis.

DAMON DESANTIS has been President of Rexall Showcase since January 1993,
Executive Vice President and a Director of the Company since July 1988, and was
a Vice President of the Company from September 1983, when he joined the Company,
until July 1988. He is the son of Carl DeSantis and the brother of Dean
DeSantis.

NICKOLAS PALIN has been Senior Vice President - Sales and Marketing of the
Company since August 1989, a Director of the Company since December 1995 and
joined the Company in 1984. Prior to 1989, he served as the Company's General
Manager - Sales and Administration.

GEARY COTTON has been Vice President - Finance and Treasurer of the Company
since March 1993, Chief Financial Officer of the Company since August 1989 and
joined the Company in 1986. Mr. Cotton is a Certified Public Accountant.

31
<PAGE> 32

RICHARD WERBER has been Vice President - Legal Affairs and General Counsel
of the Company since August 1991 and Secretary of the Company since March 1993.
Prior to that, Mr. Werber was a partner in the law firm of Holland & Knight.

STANLEY LEEDY has been a Director of the Company since March 1993. Since
January 1985, Mr. Leedy has been the president and chief executive officer of
VanSan Corporation, a consulting firm for the pharmaceutical and vitamin
industry. From July 1989 through September 1992, Mr. Leedy served as president
of I. Wolfmark, Inc., which was an affiliate of the Company. Mr. Leedy has over
30 years of experience in the pharmaceutical and vitamin industry and has
previously served as president and chief executive officer of the Rexall Drug &
Chemical Company, a division of Dart Industries, Inc.

RAYMOND MONTELEONE has been a Director of the Company since April 1995.
Since July 1996, Mr. Monteleone has been the president and chief operating
officer of First American Railways, Inc. From May 1988 until January 1996, Mr.
Monteleone was employed by Sensormatic Electronics Corporation in various
capacities, including vice president - corporate development, planning and
administration and acting chief financial officer. Prior to that, Mr. Monteleone
was a partner with the accounting firm of Arthur Young & Company. Mr. Monteleone
is a Certified Public Accountant.

HOWARD YENKE has been a Director of the Company since April 1995. Since
July 1996, Mr. Yenke has been the president and chief operating officer of
LANart Corp., a private local area network company. From November 1995 to June
1996, Mr. Yenke was the president of The Yenke Group, a business consulting
firm. From November 1994 to October 1995, Mr. Yenke was the president and chief
executive officer of Enterprise Development Corporation of Palm Beach County, an
economic development consulting firm. From June 1994 to October 1994, Mr. Yenke
was president and chief executive officer of Arco Computer Products. From May
1989 to March 1994, Mr. Yenke was employed by Boca Research, Inc. in several
capacities, including its president and chief executive officer from September
1991 through March 1994. Prior thereto, Mr. Yenke was employed by IBM
Corporation in various executive management positions. Mr. Yenke is a director
of Checkmate Electronics, Inc.

32
<PAGE> 33

EXECUTIVE COMPENSATION

The following table sets forth the compensation of the Company's Chief
Executive Officer and the other four most highly paid executive officers who
were serving as executive officers at the end of fiscal 1996 (collectively, the
"Named Executive Officers"), for the fiscal years indicated.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(1)
ANNUAL COMPENSATION ---------------
---------------------------------------------- NUMBER
FISCAL OTHER ANNUAL OF OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) GRANTED
- -------------------------------------- ------ -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Carl DeSantis(3)...................... 1996 $415,383 $125,625 $16,098 52,500
Chairman of the Board and Chief 1995 321,205 10,000 9,958 37,500
Executive Officer 1994 305,037 160,000 8,862 82,500
Christian Nast(3)(4).................. 1996 308,158 113,500 8,269 52,500
President and Chief Operating 1995 113,077 -- 3,950 322,500
Officer 1994 -- -- -- --
Nickolas Palin(3)..................... 1996 234,635 114,401 4,890 112,500
Senior Vice President -- Sales and 1995 190,359 35,000 3,845 60,000
Marketing 1994 178,374 10,000 6,851 45,000
Dean DeSantis(3)...................... 1996 187,038 51,206 9,196 37,500
Senior Vice President -- Operations 1995 173,524 35,000 7,687 75,000
1994 158,105 10,000 7,749 45,000
Geary Cotton(3)....................... 1996 184,500 48,706 11,502 37,500
Vice President -- Finance, Chief 1995 176,593 10,000 8,400 60,000
Financial Officer and Treasurer 1994 163,189 10,000 8,975 45,000
</TABLE>

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

(1) The columns for "Restricted Stock Awards," "LTIP Payouts" and "All Other
Compensation" have been omitted because there is no compensation required
to be reported in such columns.
(2) Represents that portion of the Company's automobile expense allowance
attributable to non-business utilization of such officer's automobile and
the Company's contributions to its 401(k) Plan for the benefit of such
officer.
(3) See "-- Employment Agreements" for information regarding current and future
compensation arrangements.
(4) Mr. Nast's employment with the Company commenced on April 24, 1995.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Carl DeSantis,
Nickolas Palin, Dean DeSantis and Geary Cotton for three-year terms commencing
April 1, 1995, pursuant to which they currently receive base annual salaries of
$435,000, $275,000, $195,000 and $190,000, respectively, and the Company entered
into an employment agreement with Christian Nast for a three-year, four-month
term commencing April 24, 1995, pursuant to which he currently receives a base
annual salary of $315,000. Each of such employment agreements provides for
annual increases of base salary of the greater of 5% or the percentage increase
in the consumer price index published by the United States Department of Labor.
In addition, each of such officers is entitled to receive incentive bonuses upon
the attainment by the Company of certain net sales and net income targets. Such
bonuses may not exceed 100% of base salary for Carl DeSantis; 75% of base salary
for Christian Nast; and 50% of base salary for Nickolas Palin, Dean DeSantis and
Geary Cotton.

The employment agreements each provide that, if the employee terminates his
employment without good reason or is terminated for cause, such employee is
subject to a non-competition provision for a period of 18 months. In the event
of a change of control of the Company, the employee is entitled to terminate his
employment and receive a lump sum distribution of compensation in an amount
equal to three times such employee's then current effective yearly compensation,
including, but not limited to, salary and bonuses. If the employee elects to so
terminate, the non-competition provisions contained in the employment agreement
will

33
<PAGE> 34

terminate. Similar provisions apply in the event an employee is terminated
without cause upon a change of control of the Company. Payments under the
agreements by the Company after a change of control are, however, limited to the
amount which would be deductible by the Company under the Internal Revenue Code
of 1986, as amended. A "change of control" is deemed to occur upon (i) the
acquisition of 30% or more of the Company's voting power by anyone other than a
current director of the Company, executive officer of the Company or an
affiliate thereof, without approval of a majority of the Board of Directors or
(ii) the Incumbent Directors, as defined, becoming less than a majority of the
Board of Directors of the Company or its successor. A change of control, as to
any employee, may not result from a voluntary action of such employee.

34
<PAGE> 35

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information concerning the
beneficial ownership of the Common Stock as of November 1, 1996 and as adjusted
to reflect the sale of 2,000,000 shares of Common Stock by the Company and the
sale of 2,000,000 shares of Common Stock by the Selling Shareholders, by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each of the Selling Shareholders, (iii) each
director of the Company, (iv) each of the Named Executive Officers and (v) all
executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
COMMON STOCK OWNED COMMON STOCK OWNED
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- NUMBER OF SHARES --------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------------------ ---------- ------- ---------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Carl DeSantis(1).................... 13,444,831(2)(3) 43.6% 1,500,000 11,944,831(2)(3) 36.4%
Dean DeSantis(1).................... 2,737,981(3)(4) 8.9 500,000 2,237,981(3)(4) 6.8
Damon DeSantis(1)................... 3,145,731(3)(5) 10.2 -- 3,145,731(3)(5) 9.5
Christian Nast...................... 35,850(3) * -- 35,850(3) *
Nickolas Palin...................... 68,081(3) * -- 68,081(3) *
Geary Cotton........................ 331,426(3)(6) 1.1 -- 331,426(3)(6) 1.0
Stanley Leedy....................... 12,500(3) * -- 12,500(3) *
Raymond Monteleone.................. 1,500(3) * -- 1,500(3) *
Howard Yenke........................ 1,500(3) * -- 1,500(3) *
CDD Partners, Ltd.(1)............... 12,098,736 39.4 -- 12,098,736 37.0
Sylvia DeSantis..................... 6,915,932(7) 22.5 -- 6,915,932(7) 21.1
All Executive Officers and Directors
as a group (10 persons)........... 19,897,650(8) 63.6 2,000,000 17,897,650(8) 53.8
</TABLE>

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

* Less than 1%.

(1) The shares of Common Stock being offered by Carl DeSantis and Dean DeSantis
(the "Borrowing Shareholders") will be borrowed from CDD Partners, Ltd.
("CDD"), a Texas limited partnership of which Carl DeSantis, Dean DeSantis
and Damon DeSantis are limited partners and share control of CDD Management,
Inc. ("CDDM"), a Texas corporation and the general partner of CDD. In each
case, the Borrowing Shareholders will be obligated to repay the borrowing by
delivering to CDD shares equal in number to the borrowed shares ("Identical
Shares") five days after demand by CDD; and, upon demand, CDD will receive
from the Borrowing Shareholders amounts equal to dividends and other
distributions on the Identical Shares. CDD may from time to time demand a
pledge of collateral by the Borrowing Shareholders to secure the Borrowing
Shareholders' obligations to repay Identical Shares to CDD. CDD's address is
324 Harbor Landing Drive, Rockwall, Texas 75087. In June 1993, each of Carl
DeSantis, Dean DeSantis and Damon DeSantis contributed all shares of Common
Stock then owned by them to CDD and CDDM. See "Management" for information
regarding the positions of the Borrowing Shareholders with the Company. Each
of Carl DeSantis, Dean DeSantis and Damon DeSantis has shared beneficial
ownership and voting power with respect to all such shares held by CDD and
CDDM.
(2) As of November 1, 1996, includes 6,915,932 shares owned by Sylvia DeSantis,
as to which Carl DeSantis has sole voting power. Also includes 6,441,524
shares held by CDD which represent Mr. DeSantis' percentage interest in CDD.
Does not include 5,657,212 shares beneficially owned by Carl DeSantis that
are held by CDD, which represent the percentage interest of Dean DeSantis
and Damon DeSantis in CDD.
(3) For each person, includes the following numbers of shares beneficially owned
pursuant to currently exercisable stock options or options which will become
exercisable within 60 days: Carl DeSantis -- 87,375 shares; Dean
DeSantis -- 95,625 shares; Damon DeSantis -- 95,625 shares; Christian
Nast -- 18,185 shares; Nickolas Palin -- 48,000 shares; Geary
Cotton -- 96,000 shares; Stanley Leedy -- 12,500 shares; Raymond
Monteleone -- 1,500 shares; and Howard Yenke -- 1,500 shares.
(4) As of November 1, 1996, includes 2,642,356 shares held by CDD which
represent Mr. DeSantis' percentage interest in CDD. Does not include
9,456,380 shares beneficially owned by Dean DeSantis that are held by CDD,
which represent the percentage interest of Carl DeSantis and Damon DeSantis
in CDD, and 8,000 shares beneficially owned by the wife of Dean DeSantis.
Mr. DeSantis disclaims beneficial ownership of his wife's shares.
(5) As of November 1, 1996, includes 3,014,856 shares held by CDD which
represent Mr. DeSantis' percentage interest in CDD. Does not include
9,083,880 shares beneficially owned by Damon DeSantis that are held by CDD,
which represent the percentage interest of Carl DeSantis and Dean DeSantis
in CDD, and 4,500 shares owned by the wife of Damon DeSantis. Mr. DeSantis
disclaims beneficial ownership of his wife's shares.
(6) Does not include 4,500 shares owned by the wife of Geary Cotton, as to which
shares Mr. Cotton disclaims beneficial ownership.
(7) Ms. DeSantis' address is 851 Broken Sound Parkway, NW, Boca Raton, Florida
33487. All of such shares are subject to an irrevocable proxy granted to
Carl DeSantis, and 6,579,021 of such shares are further subject to a stock
purchase agreement with an irrevocable life insurance trust for the benefit
of her children. Such stock purchase agreement provides for significant
restrictions on sales or transfers of such shares during her life, and
requires the sale of such shares to such trust upon her death.
(8) Includes 553,560 shares beneficially owned by directors and executive
officers as a group pursuant to stock options under which such persons have
the right to acquire such shares within 60 days.

35
<PAGE> 36

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares
of common stock, par value $0.01 per share (the "Common Stock"), and 5,000,000
shares of preferred stock, par value $0.01 per share (the "Preferred Stock").

COMMON STOCK

The Common Stock possesses ordinary voting rights, and the holders thereof
vote together as a single class for the election of directors and in respect of
other corporate matters. Holders of shares of Common Stock are entitled to one
vote per share. In the event of the voluntary or involuntary liquidation,
distribution or sale of assets, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive and share ratably in all net
assets available for distribution to shareholders after distribution in full of
the preferential amount, if any, to be distributed to the holders of the
Preferred Stock. Cumulative voting of shares is not permitted. The Common Stock
carries no preemptive rights and is not convertible, redeemable or assessable,
or entitled to the benefits of any sinking fund. After the requirements with
respect to preferential dividends on Preferred Stock, if any, have been met, the
holders of Common Stock are entitled to such dividends as may be declared by the
Company's Board of Directors and paid out of funds legally available therefor.

PREFERRED STOCK

The Board of Directors of the Company, without further action by the
shareholders, is authorized to issue Preferred Stock in one or more series and
to fix and determine as to any series all the relative rights and preferences of
shares in such series, including, without limitation, preferences, limitations
or relative rights with respect to redemption rights, conversion rights, if any,
voting rights, if any, dividend rights and preferences on liquidation. Although
the Company has no present intention to issue shares of Preferred Stock, the
issuance of shares of Preferred Stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition proposal
that some, or a majority, of the shareholders might believe to be in the best
interests of the Company or in which shareholders might receive a premium for
their stock over the then market price of such stock. In addition, under certain
circumstances, the issuance of Preferred Stock could adversely affect the voting
power of the holders of the Common Stock.

CERTAIN PROVISIONS OF FLORIDA LAW

The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law unless the
corporation has elected to opt out of such provisions in the Articles of
Incorporation or, depending on the provision in question, its By-Laws. The
Company has not elected to opt out of these provisions. The Common Stock is
subject to the "affiliated transaction" and "control-share acquisition"
provisions of the Florida Business Corporation Act, Sections 607.0901 and
607.0902, Florida Statutes, respectively. These provide that, subject to certain
exceptions, an "affiliated transaction" must be approved by the holders of
two-thirds of the voting shares other than those beneficially owned by an
"interested shareholder" and that "control shares" acquired in specified
control-share acquisitions have voting rights only to the extent conferred by
resolution approved by shareholders, excluding holders of shares defined as
"interested shares."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.

36
<PAGE> 37

UNDERWRITING

The Underwriters named below, acting through their representatives, Raymond
James & Associates, Inc., Adams, Harkness & Hill, Inc. and Montgomery Securities
(the "Representatives"), have severally agreed, subject to the terms and
conditions of the underwriting agreement (the "Underwriting Agreement") by and
among the Company, the Selling Shareholders and the Underwriters, to purchase
from the Company and the Selling Shareholders the number of shares of Common
Stock set forth below opposite their respective names, at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Raymond James & Associates, Inc. ......................................... 960,000
Adams, Harkness & Hill, Inc. ............................................. 960,000
Montgomery Securities..................................................... 960,000
Allen & Company Incorporated.............................................. 80,000
Bear, Stearns & Co. Inc................................................... 80,000
Cowen & Company........................................................... 80,000
Donaldson, Lufkin & Jenrette Securities Corporation....................... 80,000
Hambrecht & Quist LLC..................................................... 80,000
Lehman Brothers Inc....................................................... 80,000
Morgan Stanley & Co. Incorporated......................................... 80,000
Salomon Brothers Inc...................................................... 80,000
Smith Barney Inc.......................................................... 80,000
Everen Securities, Inc.................................................... 40,000
Fahnestock & Co. Inc...................................................... 40,000
Furman Selz LLC........................................................... 40,000
Legg Mason Wood Walker, Incorporated...................................... 40,000
Needham & Company, Inc.................................................... 40,000
Piper Jaffray Inc......................................................... 40,000
Rauscher Pierce Refsnes, Inc.............................................. 40,000
Tucker Anthony Incorporated............................................... 40,000
Laidlaw Equities, Inc..................................................... 20,000
Ragen Mackenzie Incorporated.............................................. 20,000
Southcoast Capital Corp................................................... 20,000
Southwest Securities, Inc................................................. 20,000
---------
Total........................................................... 4,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are purchased.

The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers, including the Underwriters, at
such price less a concession not in excess of $0.65 per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $0.10 per
share to certain other dealers. The Representatives have informed the Company
and the Selling Shareholders that the Underwriters do not intend to confirm
sales to any accounts over which they exercise discretionary authority.

Certain of the Underwriters and the selling group members that currently
act as market makers for the Common Stock may engage in "passive market making"
in the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Securities Exchange Act of 1934, as amended (the

37
<PAGE> 38

"Exchange Act"). Rule 10b-6A permits, upon satisfaction of certain conditions,
underwriters and selling group members participating in a distribution that are
also Nasdaq market makers in the security being distributed to engage in limited
market making activity when Rule 10b-6A would otherwise prohibit such activity.
Rule 10b-6A prohibits underwriters and selling group members engaged in passive
market making generally from entering a bid or affecting a purchase at a price
that exceeds the highest bid for those securities displayed on the Nasdaq
National Market by a market maker that is not participating in the distribution
of the Common Stock. Each underwriter or selling group member engaged in passive
market making is subject to a daily net purchase limitation equal to 30% of such
entity's average daily trading volume during the two full consecutive calendar
months immediately preceding the date of the filing of the Registration
Statement of which this Prospectus forms a part.

The Company and the Selling Shareholders have granted to the Underwriters
an option, exercisable not later than 30 days after the date of this Prospectus,
to purchase up to an aggregate of 600,000 additional shares of Common Stock, at
the public offering price, less the underwriting discounts and commissions, set
forth on the cover page of this Prospectus. Of the shares subject to such
option, the Selling Shareholders will, at their sole discretion, sell a maximum
of 200,000 shares and the Company will sell at least 400,000 shares plus any
shares that the Selling Shareholders elect not to sell. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above table
bears to the total shown, and the Company will be obligated, pursuant to the
option, to sell such shares to the Underwriters. The Underwriter may exercise
this option only to cover such over-allotments, if any, made in connection with
the sale of the shares of Common Stock offered hereby. If purchased, the
Underwriters will sell such additional shares on the same terms as those on
which the shares are being offered.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against, and to contribute to losses arising out of, certain civil
liabilities in connection with this offering, including liabilities under the
Securities Act.

The Company, its officers and directors and the Selling Shareholders have
agreed that for a period of 180 days following the date of this Prospectus, they
will not, except with the prior written consent of Raymond James & Associates,
Inc., acting for the Underwriters, sell, contract to sell or otherwise dispose
of any shares of Common Stock. This restriction does not apply to shares sold by
Selling Shareholders hereunder or certain issuances of Common Stock by the
Company pursuant to its stock option plans. See "Risk Factors -- Shares Eligible
for Future Sale."

The foregoing includes a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus forms a part.

LEGAL MATTERS

Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company and for the Selling Shareholders by Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, Florida, for the Selling
Shareholders by Tescher Chaves Rubin Forman & Muller, P.A., Miami, Florida, and
for the Underwriters by King & Spalding, Atlanta, Georgia.

EXPERTS

The consolidated financial statements and financial statement schedule of
the Company as of August 31, 1995 and 1996, and for each of the years in the
period ended August 31, 1996, included herein and incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended August 31, 1996 have
been included herein and incorporated by reference in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.

38
<PAGE> 39

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company may be
inspected and copied (at prescribed rates) at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, such reports, proxy statements and other information can be obtained
from the Commission's web site at http://www.sec.gov. Quotations relating to the
Common Stock appear on the Nasdaq National Market. Such reports, proxy
statements and other information concerning the Company can also be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus, which is a part of the
Registration Statement, does not contain all the information set forth in, or
annexed as exhibits to, such Registration Statement, certain portions of which
have been omitted pursuant to rules and regulations of the Commission. For
further information with respect to the Company and the shares of Common Stock
offered hereby, reference is hereby made to such Registration Statement,
including the exhibits thereto. Copies of such Registration Statement, including
exhibits, may be obtained from the aforementioned public reference facilities of
the Commission upon payment of the prescribed fees, or may be examined without
charge at such facilities. Statements contained herein concerning any document
filed as an exhibit are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission under the
Exchange Act are incorporated by reference in and made a part of this
Prospectus:

(a) the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996;

(b) the Company's Proxy Statement relating to its 1996 Annual Meeting
of Shareholders; and

(c) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated June 7, 1993 (Registration No.
0-21884).

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any other
subsequently filed documents, which also are incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company hereby undertakes to provide, without
charge, to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the information incorporated herein by reference. Exhibits to
any of such documents, however, will not be provided unless such exhibits are
specifically incorporated by reference into such documents. The requests should
be addressed to the Company's principal executive offices: Attn: Secretary, 851
Broken Sound Parkway, NW, Boca Raton, Florida 33487, telephone number (561)
241-9400.

39
<PAGE> 40

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 41

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Shareholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 42

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and
Board of Directors
Rexall Sundown, Inc.
Boca Raton, Florida

We have audited the accompanying consolidated balance sheets for the years ended
August 31, 1995 and 1996 of Rexall Sundown, Inc. and subsidiaries and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rexall
Sundown, Inc. and subsidiaries as of August 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1996 in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Fort Lauderdale, Florida
October 4, 1996

F-2
<PAGE> 43

REXALL SUNDOWN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
AUGUST 31,
--------------------
1995 1996
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 1,154 $ 13,450
Restricted cash....................................................... -- 278
Marketable securities................................................. -- 7,988
Trade accounts receivable, net of allowance for doubtful accounts of
$78 at August 31, 1995 and 1996.................................... 6,957 11,410
Inventory............................................................. 20,512 28,179
Prepaid expenses and other current assets............................. 4,526 5,018
Net current assets of discontinued operations......................... 8,008 3,855
------- --------
Total current assets.......................................... 41,157 70,178
Property, plant and equipment, net...................................... 21,489 24,078
Other assets............................................................ 4,705 8,839
------- --------
Total assets.................................................. $67,351 $103,095
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 5,592 $ 5,599
Accrued expenses and other current liabilities........................ 5,941 10,100
Current portion of long-term debt..................................... 332 346
------- --------
Total current liabilities..................................... 11,865 16,045
Long-term debt.......................................................... 448 105
Other liabilities....................................................... -- 253
------- --------
Total liabilities............................................. 12,313 16,403
------- --------
Commitments and contingencies (Note 15)
Shareholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares, no
shares outstanding................................................. -- --
Common stock, $.01 par value; authorized 100,000,000 shares, shares
issued: 29,416,050 and 30,660,128, respectively.................... 196 307
Capital in excess of par value........................................ 42,192 53,563
Retained earnings..................................................... 12,650 32,943
Cumulative translation adjustment..................................... -- (121)
------- --------
Total shareholders' equity.................................... 55,038 86,692
------- --------
Total liabilities and shareholders' equity.................... $67,351 $103,095
======= ========
</TABLE>

See accompanying notes

F-3
<PAGE> 44

REXALL SUNDOWN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................................. $ 114,119 $ 149,473 $ 187,844
Cost of sales.............................................. 54,475 65,032 71,682
---------- ---------- ----------
Gross profit..................................... 59,644 84,441 116,162
Selling, general and administrative expenses............... 47,005 65,825 86,673
---------- ---------- ----------
Operating income................................. 12,639 18,616 29,489
Other income (expense):
Interest income.......................................... 361 119 1,251
Interest expense......................................... (109) (424) (40)
Other income............................................. 849 938 1,391
Minority interests in income of consolidated
subsidiary............................................ (21) (45) --
---------- ---------- ----------
Income before income tax provision......................... 13,719 19,204 32,091
Income tax provision....................................... 5,147 6,866 11,798
---------- ---------- ----------
Income from continuing operations.......................... 8,572 12,338 20,293
Discontinued operations:
Loss from discontinued operations (net of tax benefit of
$1,302 and $2,425 in 1994 and 1995, respectively)..... (2,377) (4,278) --
Loss on disposal of discontinued operations including a
provision of $964 for operating losses during the
phase-out period (net of tax benefit of $2,057)....... -- (3,698) --
---------- ---------- ----------
Net income................................................. $ 6,195 $ 4,362 $ 20,293
========== ========== ==========
Income (loss) per share:
Continuing operations.................................... $ .29 $ .42 $ .66
Discontinued operations.................................. (.08) (.15) --
Disposal of discontinued operations...................... -- (.12) --
---------- ---------- ----------
Net income per share............................. $ .21 $ .15 $ .66
========== ========== ==========
Weighted average common shares outstanding................. 29,268,633 29,497,166 30,726,232
</TABLE>

See accompanying notes

F-4
<PAGE> 45

REXALL SUNDOWN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
CAPITAL
IN CUMULATIVE
NUMBER OF COMMON EXCESS OF RETAINED TRANSLATION
SHARES STOCK PAR VALUE EARNINGS ADJUSTMENT
---------- ------ --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1993............. 19,312,000 $193 $ 39,428 $ 2,093 $ --
Net income........................... -- -- -- 6,195 --
Exercise of stock options............ 118,000 1 653 -- --
Tax benefit from exercise of
options........................... -- -- 399 -- --
---------- ---- -------- -------
Balance at August 31, 1994............. 19,430,000 194 40,480 8,288 --
Net income........................... -- -- -- 4,362 --
Exercise of stock options............ 80,500 1 428 -- --
Tax benefit from exercise of
options........................... -- -- 285 -- --
Issuance of shares for non-compete
agreement......................... 100,200 1 999 -- --
---------- ---- -------- -------
Balance at August 31, 1995............. 19,610,700 196 42,192 12,650 --
Net income........................... -- -- -- 20,293 --
Exercise of stock options............ 1,244,078 13 6,469 -- --
Tax benefit from exercise of
options........................... -- -- 5,000 -- --
Three-for-two common stock split..... 9,805,350 98 (98 ) -- --
Cumulative translation adjustment.... -- -- -- -- (121)
---------- ---- -------- -------
Balance at August 31, 1996............. 30,660,128 $307 $ 53,563 $32,943 $ (121)
========== ==== ======== =======
</TABLE>

See accompanying notes

F-5
<PAGE> 46

REXALL SUNDOWN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income............................................................. $ 6,195 $ 4,362 $ 20,293
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation......................................................... 1,161 2,400 2,797
Amortization......................................................... 346 400 1,202
Loss (gain) on sale of property and equipment........................ 93 158 (18)
Minority interest.................................................... 21 45 --
Deferred income taxes................................................ (75) (1,789) 2,076
Foreign exchange translation adjustment.............................. -- -- (121)
Changes in assets and liabilities:
Trade accounts receivable.......................................... (307) (1,276) (4,453)
Inventory.......................................................... (5,641) (3,063) (7,667)
Prepaid expenses and other current assets.......................... (986) 102 (2,546)
Other assets....................................................... 1,043 85 (5,501)
Accounts payable................................................... 2,338 (2,523) 7
Accrued expenses and other current liabilities..................... (86) 2,493 9,137
Income taxes payable............................................... (918) -- --
Other liabilities.................................................. 22 (22) 253
Discontinued operations -- non cash charges and changes in assets
and liabilities................................................... (4,199) 2,923 4,153
-------- -------- --------
Net cash provided by (used in) operating activities............. (993) 4,295 19,612
-------- -------- --------
Cash flows provided by (used in) investing activities:
Acquisition of assets of Pennex Products Co., Inc...................... (4,324) -- --
Purchase of marketable securities...................................... (23,335) -- (5,988)
Proceeds from sale of marketable securities............................ 41,443 12 --
Acquisition of property, plant and equipment........................... (10,491) (3,590) (5,391)
Acquisition of computer software....................................... -- (409) (1,835)
Proceeds from sale of property, plant and equipment.................... 32 5 23
Investing activities of discontinued operations........................ (1,247) (1,160) --
Other.................................................................. -- -- (278)
-------- -------- --------
Net cash provided by (used in) investing activities............. 2,078 (5,142) (13,469)
-------- -------- --------
Cash flows provided by (used in) financing activities:
Proceeds from bank line of credit...................................... -- 10,500 --
Payments on bank line of credit........................................ -- (10,500) --
Principal payments on long-term debt................................... (380) (306) (329)
Principal payments under capital lease obligations..................... (95) -- --
Exercise of options to purchase common stock........................... 655 429 6,482
-------- -------- --------
Net cash provided by financing activities....................... 180 123 6,153
-------- -------- --------
Net increase (decrease) in cash and cash equivalents................... 1,265 (724) 12,296
Cash and cash equivalents at beginning of period....................... 613 1,878 1,154
-------- -------- --------
Cash and cash equivalents at end of period............................. $ 1,878 $ 1,154 $ 13,450
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................................... $ 109 $ 403 $ 42
======== ======== ========
Income taxes........................................................... $ 4,838 $ 3,495 $ 3,725
======== ======== ========
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY:

On September 30, 1993, the Company acquired substantially all of the assets and
assumed certain liabilities of Pennex Products Co., Inc. (see Note 14) as
follows:

<TABLE>
<S> <C>
Assets acquired........................................................ $ 7,372
Cash paid (including advances under debtor-in-possession financing in
fiscal 1993)......................................................... (5,115)
--------
Liabilities assumed.................................................... $ 2,257
========
</TABLE>

See accompanying notes

F-6
<PAGE> 47

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. DESCRIPTION OF BUSINESS

BUSINESS

The Company's wholly-owned operating subsidiary, Rexall Showcase
International, Inc. ("Rexall Showcase"), markets and distributes health and
wellness products under the Rexall Showcase tradename through a sales force of
independent distributors. On August 31, 1995, the Company purchased the 1%
minority interest of Rexall Showcase, which was owned by the Company's Chairman
of the Board and Chief Executive Officer. Rexall Showcase formed foreign
subsidiaries located in Mexico and South Korea in order to conduct business
operations in such foreign countries. The Company still owns the stock of Pennex
Laboratories, Inc., now known as RSL Holdings, Inc. ("Pennex"), for which
operations have been discontinued. Pennex manufactured and distributed
over-the-counter ("OTC") pharmaceuticals and health and beauty care products and
is presented as discontinued operations (see Note 14).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. Certain prior period amounts have been
reclassified to conform with the 1996 presentation.

MARKETABLE SECURITIES

As of August 31, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with SFAS No. 115, marketable
securities are classified in three categories and accounted for as follows: (1)
held-to-maturity securities are debt securities, which the Company has the
positive intent and ability to hold to maturity, and are reported at amortized
cost; (2) trading securities are debt and equity securities that are bought and
held principally for the purpose of selling them in the near term and are
reported at fair value, with unrealized gains and losses included in current
earnings; and (3) available-for-sale securities are debt and equity securities
not classified as either held-to-maturity securities or trading securities and
are reported at fair value, with unrealized gains and losses excluded from
current earnings and reported in a separate component of shareholders' equity.

Marketable securities consist primarily of government debt instruments and
are classified as available-for-sale securities. Gains and losses realized on
the sale of marketable securities are determined using the specific
identification method. At August 31, 1995 and 1996 the fair value of the
securities approximated cost.

INVENTORY

Inventories are stated at the lower of cost (first-in, first-out basis) or
market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is charged to expense over the estimated useful lives
of the assets and is computed principally using accelerated methods. Maintenance
and repairs are charged to expense when incurred and betterments are
capitalized. Upon

F-7
<PAGE> 48

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

retirement or sale, the cost and accumulated depreciation are eliminated from
the accounts and the gain or loss, if any, is included in the determination of
net income.

INTANGIBLE ASSETS

Intangible assets, which are included in other assets (non-current), are
stated at cost less accumulated amortization. Intangible assets are amortized on
a straight-line basis over their estimated useful lives which range from three
to fourteen years.

CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with a
maturity of three months or less at the date of purchase to be cash equivalents.

RESTRICTED CASH

Restricted cash consists of funds held in South Korea by the local
government to ensure that funds are available to satisfy customer demands for
refunds. Deposits of 10% of sales are made monthly and monies are refunded three
months after the date of deposit.

INCOME TAXES

The Company utilizes the liability method of accounting for deferred income
taxes. This method requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statement or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial and
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. Deferred tax assets are
also established for the future tax benefits of loss and credit carryovers.

REVENUE RECOGNITION

The Company recognizes revenue upon shipment, and such revenue is recorded
net of estimated sales returns, discounts and allowances.

PREPAID CUSTOMER ALLOWANCES

Costs associated with acquiring sales agreements with certain customers are
amortized over the terms of the agreements. These costs consist of the cost of
inventory provided at no charge and other allowances and are included in other
assets (both current and non-current). The amortization of these costs is
recorded as a reduction of net sales.

ADVERTISING AND CATALOG COSTS

Advertising and mail order catalog costs are expensed as incurred.

RESERVE FOR ESTIMATED CHARGEBACKS

The Company's Rexall Managed Care division, which began operations in
fiscal 1995, markets and distributes vitamins, nutritional supplements and OTC
pharmaceuticals to the managed care market. The Company enters into contracts to
provide such products to various managed care providers who purchase the

F-8
<PAGE> 49

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

products through wholesalers. The difference between the Company's price to the
wholesaler and the Company's contract price to the providers is charged back to
the Company by the wholesaler. Upon sale to the wholesaler, the Company provides
for a reserve of estimated future chargebacks.

FOREIGN CURRENCY TRANSLATION

The financial statements and transactions of the Company's foreign
operations (which began operations in February 1996) are maintained in their
functional currency and translated into United States dollars in accordance with
SFAS No. 52. Assets and liabilities are translated at current exchange rates in
effect at the balance sheet date. Revenues and expenses are translated at the
average exchange rate for each period. Translation adjustments, which result
from the process of translating financial statements into United States dollars,
are accumulated in a separate component of shareholders' equity.

USE OF ESTIMATES

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

NET INCOME PER SHARE

Net income per share of common stock (the "Common Stock"), $.01 par value,
of the Company is calculated by dividing net income by weighted average shares
of Common Stock outstanding, giving effect to Common Stock equivalents (Common
Stock options).

NEW ACCOUNTING STANDARDS

Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted by the Company until fiscal 1997, include SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of " and SFAS No. 123, "Accounting for Stock Based
Compensation."

F-9
<PAGE> 50

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

3. INVENTORY

The components of inventory are as follows:

<TABLE>
<CAPTION>
AUGUST 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Raw materials....................................... $ 8,376 $11,609
Work in process..................................... 1,117 1,732
Finished products................................... 11,019 14,838
------- -------
Total inventory........................... $20,512 $28,179
======= =======
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of:

<TABLE>
<CAPTION>
AUGUST 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Land................................................ $ 2,022 $ 2,022
Buildings and improvements.......................... 13,894 14,064
Machinery and equipment............................. 10,112 14,479
Leasehold improvements.............................. 251 506
Furniture and fixtures.............................. 1,128 1,508
Other assets........................................ 21 212
------- -------
27,428 32,791
Less accumulated depreciation and amortization.... (5,939) (8,713)
------- -------
Property, plant and equipment, net........ $21,489 $24,078
======= =======
</TABLE>

5. OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
AUGUST 31,
-------------------
1995 1996 USEFUL LIVES
------- ------- -------------
<S> <C> <C> <C>
Intangible assets:
Non-compete agreement............................. $ 1,000 $ 1,000 5 years
License and registration fees..................... 170 170 5 years
Organizational costs.............................. -- 450 3 years
Computer software................................. 622 2,457 5 years
Trademarks........................................ 224 224 10-14 years
Purchased technology.............................. 500 --
Patents........................................... -- 1,500 10.5 years
Other securities.................................... 2,000 150
Prepaid customer allowances......................... 573 3,121
Other............................................... 184 1,042
------ --------
5,273 10,114
Less accumulated amortization..................... (568) (1,275)
------ --------
Total other assets........................ $ 4,705 $ 8,839
====== ========
</TABLE>

F-10
<PAGE> 51

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities is comprised of the
following:

<TABLE>
<CAPTION>
AUGUST 31,
------------------
1995 1996
------ -------
<S> <C> <C>
Accrued customer rebates.......................................... $ 542 $ 2,166
Reserve for estimated chargebacks................................. 894 460
Accrued commissions............................................... 2,461 2,823
Accrued salaries and bonuses...................................... 844 2,099
Income taxes...................................................... -- 823
Other............................................................. 1,200 1,729
------ -------
Total accrued expenses and other current liabilities.... $5,941 $10,100
====== =======
</TABLE>

7. LONG-TERM DEBT AND BORROWING ARRANGEMENTS

Long-term debt consists of the following:

<TABLE>
<CAPTION>
AUGUST 31,
------------------
1995 1996
------ -------
<S> <C> <C>
Non-compete agreement, non-interest bearing net of discount
imputed at 8%, of $67 and $23 at August 31, 1995 and 1996,
respectively, maturing in January 1998, guaranteed by the
Company's Chief Executive Officer............................... $ 650 $ 403
$650 promissory note, interest at 9%, maturing in April 1997...... 130 48
---- ----
780 451
Less current portion......................................... 332 346
---- ----
Total long-term debt.................................... $ 448 $ 105
==== ====
</TABLE>

On September 7, 1994, the Company entered into a revolving line of credit
with a financial institution that provides for borrowings up to $10 million,
subject to annual extensions. The revolving line of credit was renewed on
September 7, 1995 and was extended for ninety days on September 7, 1996.
Borrowings under the line of credit bear interest at the prime rate. The line of
credit is collateralized by accounts receivable and inventory and is subject to
compliance with certain financial covenants and ratios, including a minimum
tangible net worth. There were no amounts outstanding under this revolving line
of credit at August 31, 1996.

8. LEASE OBLIGATIONS

The Company leases certain equipment, automobiles and warehouse and
distribution facilities under noncancelable operating leases. The leases provide
for monthly payments over terms of one to five years and certain of the leases
provide for renewal options. Total rent expense on all operating leases amounted
to approximately $651, $552 and $905 for the years ended August 31, 1994, 1995
and 1996, respectively.

The future minimum lease payments under noncancelable operating leases at
August 31, 1996 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------------
<S> <C>
1997.............................................................. $1,179
1998.............................................................. 677
1999.............................................................. 353
-----
Total................................................... $2,209
=====
</TABLE>

F-11
<PAGE> 52

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

9. BENEFIT PLANS

The Company offers a 401(k) employee benefit plan (the "Plan"), which
provides for voluntary contributions by employees of up to 20% of their base
compensation (as defined in the Plan), subject to a maximum annual contribution.
The Company may, at the discretion of the Board of Directors, make a
contribution to the Plan. The Company contributed approximately $128, $158 and
$159 during fiscal 1994, 1995 and 1996, respectively.

In March 1993, the Board of Directors and shareholders adopted the
Company's 1993 Employee Stock Purchase Plan (the "1993 Stock Purchase Plan").
The 1993 Stock Purchase Plan enables participants to contribute cash in an
amount not to exceed 10% of salary per relevant pay period. Such funds are used
to periodically purchase shares of Common Stock for the account of each of the
participants in the 1993 Stock Purchase Plan at 90% of the market price of the
Common Stock. The Company has reserved 750,000 shares of Common Stock for
issuance under the 1993 Stock Purchase Plan and may issue such shares or
purchase additional shares of Common Stock in the open market. For the years
ended August 31, 1995 and 1996, participants purchased 11,064 and 4,431 shares
in the open market at an average purchase price of $7.40 and $18.14 per share,
respectively.

In February 1996, the Board of Directors adopted the Company's 1996 Rexall
Showcase International Distributor Stock Purchase Plan (the "1996 Distributor
Stock Purchase Plan"). The 1996 Distributor Stock Purchase Plan enables
participants to contribute cash in an amount not to exceed 10% of a
participant's monthly commission check. Such funds are used to periodically
purchase shares of Common Stock for the account of each of the participants in
the 1996 Distributor Stock Purchase Plan at either 95% or 100% of the market
price of the Common Stock, depending on a participant's level of achievement in
Rexall Showcase. The Company has reserved 750,000 shares of Common Stock for
issuance under the 1996 Distributor Stock Purchase Plan and may issue such
shares or purchase additional shares of Common Stock in the open market for
participants. For the year ended August 31, 1996, participants purchased 1,157
shares of Common Stock in the open market at an average purchase price of $32.50
per share.

10. COMMON STOCK TRANSACTIONS

On October 5, 1993, the Board of Directors declared a 2-for-1 split of the
Common Stock which was effected in the form of a stock dividend. The stock
dividend was paid on October 28, 1993 to shareholders of record as of October
18, 1993.

On March 14, 1996, the Board of Directors declared a 3-for-2 split of the
Common Stock which was effected in the form of a stock dividend. The stock
dividend was paid on April 4, 1996 to shareholders of record as of March 25,
1996.

All references to the number of shares of Common Stock, except shares
authorized, and to per share data in the consolidated financial statements have
been adjusted to reflect the stock splits on a retroactive basis.

11. STOCK OPTIONS

In March 1993, the Board of Directors and shareholders adopted the
Company's 1993 Stock Incentive Plan (the "1993 Plan") for executives and other
key personnel. The 1993 Plan is administered by the Compensation/Stock Option
Committee of the Board of Directors of the Company. Under the 1993 Plan, all
options are to have an exercise price equal to the fair market value at the date
of grant. In February 1995, the Board of Directors amended the 1993 Plan to
increase the number of shares of Common Stock of the Company available
thereunder to a total of 4,500,000 shares, which amendment was approved by the
Company's shareholders in February 1996. Of the stock options granted,
substantially all are for a term of five

F-12
<PAGE> 53

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

11. STOCK OPTIONS, CONTINUED

to ten years. During fiscal 1995 and 1996, the Company realized a tax benefit of
$286 and $5,000, respectively, related to the exercise of stock options.

In March 1993, the Board of Directors and shareholders adopted the
Company's 1993 Non-Employee Director Stock Option Plan (the "1993 Director
Plan"). The maximum number of shares of Common Stock available for issuance
under the 1993 Director Plan is 60,000 shares.

In July 1994, the Board of Directors adopted the Company's 1994
Non-Employee Director Stock Option Plan (the "1994 Director Plan"), which was
approved by the Company's shareholders in February 1995. The maximum number of
shares of Common Stock available for issuance under the 1994 Director Plan is
150,000 shares.

As of August 31, 1996, stock options to purchase 927,900 shares of Common
Stock had been granted outside of any Company plan and have an exercise price
equal to fair market value at date of grant. Substantially all of these options
are for a term of five to seven years.

In February 1996, the Board of Directors adopted the Company's 1996 Rexall
Showcase International Distributor Stock Option Plan (the "1996 Distributor
Plan"). The 1996 Distributor Plan provides for the granting of stock options to
eligible distributors upon attainment of specified conditions at an exercise
price not less than the fair market value on the date of grant. The maximum
number of shares of Common Stock available under the 1996 Distributor Plan is
750,000 shares. Options granted under the 1996 Distributor Plan will be for a
term of five years. As of August 31, 1996, no options have been granted under
the 1996 Distributor Plan.

Information with regard to the stock options is as follows:

<TABLE>
<CAPTION>
SHARES
-----------------------------------------------------------
1993 1994
1993 DIRECTOR DIRECTOR OTHER OPTION PRICE
PLAN PLAN PLAN OPTIONS RANGE
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Outstanding at August 31,
1993.......................... 1,134,000 15,000 -- 441,000
Granted....................... 595,800 -- 15,000 419,400 $5.42-$14.17
Cancelled..................... (7,200) -- -- -- $3.17-$4.67
Exercised..................... (135,000) -- -- (42,000) $3.17-$4.67
--------- -------- ------ ------
Outstanding at August 31,
1994.......................... 1,587,600 15,000 15,000 818,400
Granted....................... 1,246,875 -- 22,500 101,250 $5.67-$8.25
Cancelled..................... (352,800) (7,500) (6,000) -- $3.17-$14.17
Exercised..................... (59,250) -- (1,500) (60,000) $3.17-$6.33
--------- -------- ------ ------
Outstanding at August 31,
1995.......................... 2,422,425 7,500 30,000 859,650
Granted....................... 936,451 -- 22,500 112,500 $9.50-$30.00
Cancelled..................... (262,650) -- -- (146,250) $3.17-$14.50
Exercised..................... (722,678) (1,000) -- (520,400) $3.17-$11.42
--------- -------- ------ ------
Outstanding at August 31,
1996.......................... 2,373,548 6,500 52,500 305,500 $3.17-$30.00
========= ======== ====== ======
Options currently exercisable... 678,318 3,500 9,000 184,300
========= ======== ====== ======
Options available for grant at
August 31, 1996............... 1,206,524 52,500 96,000 --
========= ======== ====== ======
</TABLE>

F-13
<PAGE> 54

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

12. SALES TO A MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK

The Company had sales to Phar-Mor, Inc., a national retailer, which
represented approximately 17%, 11% and 5% of net sales for the years ended
August 31, 1994, 1995 and 1996, respectively. Trade accounts receivable from
this customer amounted to approximately $63 and $975 at August 31, 1995 and
1996, respectively.

The Company sells products to a large number of customers, which are
primarily in the United States. The Company continuously evaluates the
creditworthiness of each customer's financial condition and generally does not
require collateral.

Financial instruments that potentially subject the Company to concentration
of credit risk are cash, marketable securities and trade accounts receivable.
The Company places its temporary cash investments with high credit quality
financial institutions.

Marketable securities consist primarily of United States Government
securities with high credit quality financial institutions.

13. INCOME TAXES

The Company files a consolidated United States income tax return with its
domestic subsidiaries. For state income tax purposes the Company and its
subsidiaries file on both a consolidated and separate return basis in the states
in which they do business. Rexall Showcase's subsidiaries in Mexico and South
Korea file income tax returns in their respective countries of incorporation.

Deferred income taxes as of August 31, 1996 relate primarily to the reserve
for loss on disposition of discontinued operations which is deductible when
realized, amortization of a non-compete agreement which is deductible when paid,
inventory and accounts receivable reserves and book depreciation versus tax
depreciation.

The following reflects the actual income tax provision (benefits) the
Company incurred for the fiscal years ended August 31, 1994, 1995 and 1996:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST
31,
--------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Current:
Federal.......................................................... $3,588 $ 3,866 $ 8,871
State............................................................ 332 307 776
Foreign.......................................................... -- -- 60
------ ------- -------
3,920 4,173 9,707
------ ------- -------
Deferred:
Federal.......................................................... (54) (1,657) 1,921
State............................................................ (21) (132) 153
Foreign.......................................................... -- -- 17
------ ------- -------
(75) (1,789) 2,091
------ ------- -------
Total income tax provision............................... $3,845 $ 2,384 $11,798
====== ======= =======
</TABLE>

F-14
<PAGE> 55

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

13. INCOME TAXES, CONTINUED

The following summarizes the total income tax provisions for each of the
years ended August 31, 1994, 1995 and 1996:

<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Continuing operations............................................. $ 5,147 $ 6,866 $11,798
Discontinued operations........................................... (1,302) (2,425) --
Loss on disposal of discontinued operations....................... -- (2,057) --
------ ------ -------
$ 3,845 $ 2,384 $11,798
====== ====== =======
</TABLE>

The following table summarizes the differences between the Company's
effective tax rate for financial statement purposes and the Federal statutory
rate as of August 31, 1994, 1995 and 1996:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Income tax provision, at 35%....................................... $3,514 $ 2,360 $11,288
Statutory federal surtax exemption................................. (100) (66) --
State income tax, net of federal benefit........................... 275 177 624
Non-deductible expenses............................................ 30 54 83
Other, net......................................................... 126 (141) (197)
------ ------ -------
Total income tax provision............................... $3,845 $ 2,384 $11,798
====== ====== =======
</TABLE>

The significant components of the deferred tax assets and liabilities at
August 31, 1994, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Deferred income tax assets:
Loss on disposition of discontinued operations................... $ -- $ 2,057 $ 185
Non-compete amortization......................................... 302 238 149
Accounts receivable reserves..................................... 112 135 66
Net operating losses............................................. -- -- 269
Other............................................................ 38 11 102
Valuation allowance.............................................. -- -- (269)
------ ------ -------
452 2,441 502
------ ------ -------
Deferred income tax liabilities:
Depreciation..................................................... -- 387 527
Foreign.......................................................... -- -- 17
------ ------ -------
-- 387 544
------ ------ -------
$ 452 $ 2,054 $ (42)
====== ====== =======
</TABLE>

The financial reporting bases of investments in certain foreign
subsidiaries is less than their tax bases. In accordance with SFAS No. 109, a
deferred tax liability is not recorded for the difference because the
investments are essentially permanent. A reversal of the Company's plans to
permanently invest in these operations would cause the excess to become
deductible. On August 31, 1996, these temporary differences were approximately
$161. A determination of the amount of unrecognized deferred tax asset related
to these investments is not practicable.

On August 31, 1996, the Company had state and foreign net operating losses
of $3,679 and $469, respectively, expiring in 1998 and 2006, respectively.

F-15
<PAGE> 56

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

14. DISCONTINUED OPERATIONS

On August 31, 1995, the Company's Board of Directors approved a plan to
divest Pennex. Accordingly, the Company recorded a reserve in its fiscal 1995
fourth quarter in the amount of $3,698, net of tax benefit of $2,057, to provide
for the loss on disposition of the related assets and liabilities of Pennex and
other expenses related to the closing of the business. The $3,698 reserve
included approximately $964 (net of tax benefit), for estimated operating losses
during the phase-out period subsequent to August 31, 1995. On November 17, 1995,
Pennex ceased operations.

The consolidated financial statements and related footnotes of the Company
have been reclassified to report separately the net assets and operating results
of Pennex as discontinued operations for all periods since the Company acquired
Pennex on September 30, 1993.

Net assets of Pennex, which are presented as net amounts in the Company's
consolidated balance sheets at August 31, 1995 and 1996, were as follows:

<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Current assets.................................................... $10,570 $ 76
Property, plant and equipment, net (under contract for sale in
1996)........................................................... 4,324 3,948
Other assets...................................................... 1,005 133
-------- -------
Total assets............................................ 15,899 4,157
-------- -------
Current liabilities............................................... 2,137 39
Reserve for loss on disposition................................... 5,754 263
Other liabilities................................................. -- --
-------- -------
Total liabilities....................................... 7,891 302
-------- -------
Net assets of discontinued operations............................. $ 8,008 $3,855
======== =======
</TABLE>

The results of discontinued operations for the fiscal year ended August 31,
1994 and 1995 were as follows:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Net sales........................................................ $12,307 $18,933
======= =======
Loss from discontinued operations before income tax.............. $(3,679) $(6,704)
Income tax benefit............................................... 1,302 2,425
------- -------
Net loss from discontinued operations............................ $(2,377) $(4,279)
======= =======
Loss on disposal, net of tax benefit of $2,057................... $ -- $(3,698)
======= =======
</TABLE>

On February 1, 1996, substantially all the remaining assets of Pennex were
sold for $6,495. The Company received a $500 deposit and a collateralized note
for the balance. The terms of such note provide for interest at 12%, payable
monthly through March 1996. The rate of interest increased to 18% on April 1,
1996, although interest is being paid at 12% with the balance accruing until
February 28, 1997, when the note is due in full. The note was assigned from
Pennex to the Company as partial consideration for amounts owed to the Company
by Pennex. The Company has been recording interest income on the 12% interest
paid to the Company.

Assuming full collection of the balance of the collateralized note, the
Company expects to record a reduction to the estimated loss on disposition of
approximately $1,400 (net of tax), or $.04 per share, which would be reflected
as an adjustment to discontinued operations.

F-16
<PAGE> 57

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

15. COMMITMENTS AND CONTINGENCIES

In fiscal 1995, the Company renewed employment contracts with certain
Company executives all of which are for three-year terms and entered into an
employment contract with its new President which has a three-year, four-month
term. The agreements provide for current minimum annual salaries in the
aggregate of $1.6 million, adjusted annually for cost-of-living changes.

The Company has been named in 27 lawsuits, of which 25 have been settled or
discontinued, relating to the manufacture of L-tryptophan. These lawsuits seek
or have sought compensation and damages for alleged personal injury from
ingestion of products containing allegedly contaminated L-tryptophan. The
Company has entered into an agreement with the apparent supplier of all the
alleged contaminated L-tryptophan products pursuant to which such supplier has
agreed to indemnify the Company against any judgment and to fund settlements
arising out of those claims in certain circumstances, as well as to pay the
legal fees and expenses of the defense. Based upon such indemnification
arrangements, the Company's product liability insurance and the product
liability insurance of the Company's supplier, the Company does not believe that
any adverse decision will have a material adverse effect on the Company and,
accordingly, no provision has been made in the financial statements for any loss
that may result to the Company as a result of these actions.

The Company is also involved in litigation relating to claims arising out
of its operations in the normal course of business. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.

16. SUBSEQUENT EVENT

On October 3, 1996, the Company filed a registration statement with the
Securities and Exchange Commission in connection with a proposed public offering
of 4,000,000 shares of Common Stock. Of those shares, 2,000,000 are being
offered by the Company and 2,000,000 are being offered by certain shareholders
of the Company. The Company intends to use the net proceeds received from the
offering primarily to acquire complementary products, product lines or
businesses, to provide working capital and for general corporate purposes.

F-17
<PAGE> 58

REXALL SUNDOWN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

17. CONDENSED INTERIM FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Net sales................................................. $32,105 $37,868 $38,291 $41,209
Gross profit.............................................. 17,776 20,554 22,725 23,387
Income before taxes and discontinued operations........... 4,466 5,533 4,303 4,902
Income from continuing operations......................... 2,750 3,488 2,965 3,135
Loss from discontinued operations......................... (770) (1,139) (1,032) (1,337)
Loss on disposal of discontinued operations............... -- -- -- (3,698)
Net income (loss)......................................... $ 1,980 $ 2,349 $ 1,933 $(1,900)
Income (loss) per common share:
Continuing operations................................... $ .09 $ .12 $ .10 $ .11
Discontinued operations................................. (.02) (.04) (.04) (.05)
Disposal of discontinued operations..................... -- -- -- (.12)
------- ------- ------- -------
Net income per common share.......................... $ .07 $ .08 $ .06 $ (.06)
======= ======= ======= =======
1996
Net sales................................................. $40,867 $40,560 $54,781 $51,636
Gross profit.............................................. 24,379 24,510 34,441 32,832
Income before taxes....................................... 5,639 6,437 9,691 10,324
Income from continuing operations......................... 3,556 4,074 6,134 6,529
Net income................................................ $ 3,556 $ 4,074 $ 6,134 $ 6,529
Net income per common share.......................... $ .12 $ .13 $ .20 $ .21
======= ======= ======= =======
</TABLE>

F-18
<PAGE> 59

[INSIDE BACK COVER -- THE COMPANY'S PRODUCTION, LABORATORY AND OTHER
FACILITIES.]
<PAGE> 60

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 11
Capitalization........................ 11
Price Range of Common Stock........... 12
Dividend Policy....................... 12
Selected Consolidated Financial
Data................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 19
Management............................ 31
Principal and Selling Shareholders.... 35
Description of Capital Stock.......... 36
Underwriting.......................... 37
Legal Matters......................... 38
Experts............................... 38
Available Information................. 39
Incorporation of Certain Documents by
Reference........................... 39
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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

4,000,000 SHARES

[REXALL LOGO]

COMMON STOCK

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

RAYMOND JAMES &
ASSOCIATES, INC.

ADAMS, HARKNESS & HILL, INC.

MONTGOMERY SECURITIES

NOVEMBER 5, 1996

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