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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549

                                   -----------
                                   FORM 10-KSB
                                   -----------

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     For fiscal year ended December 31, 2002

                        COMMISSION FILE NUMBER: 333-51628

                           HEALTH SCIENCES GROUP, INC.
        (Exact name of Small Business Issuer as specified in its Charter)

           COLORADO                                              91-2079221
(State or other jurisdiction of                                (IRS Employer
incorporation or organization)                               Identification No.)


                              Howard Hughes Center
                          6080 Center Drive, 6th Floor
                          Los Angeles, California 90045
                                 (310) 242-6700
                    (Address, and telephone number, including
               area code, of issuer's principal executive offices)

      SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
                         COMMON STOCK, $0.001 PAR VALUE
                                (Title of Class)

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Check  whether  the  issuer  (1)  has  filed all reports required to be filed by
Section  13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12  months (or for such shorter period that the issuer was required to file such
reports),  and  (2) has been subject to such filing requirements for the past 90
days.  Yes  [X]  No  [ ]

Check  if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is  not  contained  herein,  and  will not be contained, to the best of issuer's
knowledge,  in  definitive  proxy  or  information  statements  incorporated  by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB
[ ]

Revenues for the fiscal year ended December 31, 2002: $5,537,991

The  aggregate  market  value  of the voting stock held by non-affiliates of the
issuer  on  March  31,  2003 was approximately $5,358,380 based upon the average
reported  closing  bid  and  asked  price of such shares.  As of March 31, 2003,
there  were  11,164,175  shares  outstanding.  The  issuer  does  not  have  any
outstanding  non-voting  equity.


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<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS


PART I
<S>              <C>                                                             <C>
     Item 1.     Description  of  Business . . . . . . . . . . . . . . . . . . . . .4

     Item 2.     Description  of  Property . . . . . . . . . . . . . . . . . . . . 17

     Item 3.     Legal  Proceedings . . . . . . . . . . . . . . . . . . . . . . . .17

     Item 4.     Submission of Matters to a Vote of Security Holders . . . . . . . 17


PART II

     Item 5.     Market for Issuer's Common Equity
                     and Related Shareholder Matters . . . . . . . . . . . . . . . 17

     Item 6.     Management's Discussion and Analysis of Financial Condition . . . 18

     Item 7.     Financial  Statements. . . . . . . . . . . . . . . . . . . . . . .24

     Item 8.     Changes In and Disagreements with Accountants
                     on Accounting and Financial Disclosure . . . . . . . . . . . .24


PART III

     Item 9.     Directors, Executive Officers, Promoters, and Control Persons;
                     Compliance with Section 16(a) of the Exchange Act . . . . . . 25

     Item 10.    Executive  Compensation . . . . . . . . . . . . . . . . . . . . . 27

     Item 11.    Security Ownership of Certain Beneficial Owners and Management . .28

     Item 12.    Certain  Relationships and Related Transactions . . . . . . . . . 30

     Item 13.    Exhibits  and  Reports  on  Form  8-K . . . . . . . . . . . . . . 30
</TABLE>


                                      - 2 -
<PAGE>








                                      - 3 -
<PAGE>
                                     PART I


ITEM  1.    DESCRIPTION  OF  BUSINESS

GENERAL

     Health  Sciences Group, Inc. (the "Company'), a Colorado corporation, is an
integrated  provider  of  innovative products and services to the nutraceutical,
pharmaceutical,  and  cosmeceutical industries offering value-added ingredients,
bioactive  formulations,  and  proprietary  technologies  used  in  nutritional
supplements,  functional  foods  and  beverages,  and  skin  care products.  Its
subsidiaries  include  Quality  Botanical  Ingredients  ("QBI"),  a  leading
manufacturer  and contract processor of bulk botanical materials and nutritional
ingredients  for the nutraceutical, pharmaceutical and cosmetic industries; XCEL
Healthcare,  a  fully  licensed,  specialty  compounding  pharmacy  focused  on
delivering  full  service  pharmacology  solutions  to  customers  with  chronic
ailments  that  require  long-term  therapy;  and  BioSelect  Innovations, which
develops  and  sells  products based on proprietary technologies in the areas of
topical  and  topical  and  transdermal  drug  delivery,  cosmeceuticals,  and
integrative  medicine  to  a  global  network  of  customers who manufacture and
distribute  compounded pharmaceuticals, functional foods, skin care products and
cosmetics.

     We  plan  to  leverage the benefits of our public status and the collective
knowledge  and  capital  resources  of  our  executive management team, advisory
board, and strategic resources to internally expand our current operations while
developing  the  business strategies, operations and management of the companies
we  acquire.  We expect to provide strategic guidance and operational support in
areas  such  as  finance,  sales,  distribution, production and manufacturing in
order to maximize earnings potential. We envision creating a collaborative forum
where  the  promotion  of  opportunities  for synergistic business relationships
occur  between  and  among  our  family  of  companies.

     Our  goal  is to become a significant operator in the supply-side sector of
the  nutritional  supplement  market  by  expanding  our  current operations and
acquiring,  integrating  and  operating other profitable, companies operating in
the  fields  of  pharmaceuticals,  nutraceuticals,  and  cosmeceuticals.

CORPORATE  BACKGROUND

     The Company was originally founded on June 13, 1996 as Centurion Properties
Development  Corporation  and  remained  dormant until October 16, 2000 when its
name  was  changed  to iGoHealthy.com and it began developing its health-related
online  shopping  mall.  On  September 10, 2001, the Company changed its name to
Health  Sciences  Group,  Inc.  to  reflect  its  current business strategy.  In
December  2001,  Health Sciences successfully acquired XCEL Healthcare, Inc. and
its  affiliate  BioSelect  Innovations,  Inc.,  two  specialty  pharmaceutical
companies  located in Woodland Hills, California.  In February 2003, the Company
closed  on  its  acquisition  of  Quality Botanical Ingredients, Inc., a leading
manufacturer  and contract processor of bulk botanical materials and nutritional
ingredients  located  in  South  Plainfield,  New  Jersey.

BUSINESS  STRATEGY

Growth  by  Internal  Expansion
-------------------------------

     We  expect  to  the  increase  revenues  of  our  current  operations  by
capitalizing  on  key  customer relationships through new product introductions,
developing  new  customer  relationships  in  our  core  business, expanding our
business-to-business  marketing  program  by  increasing existing product lines,
marketing through new media outlets and securing new distribution relationships.
We  also intend to strengthen our financial position by effectively managing our
cost  structure.  We  believe  we  can  successfully  implement  our strategy by
continuing  to  capitalize on our (i) core product development and manufacturing
strengths;  (ii)  ability  to  develop  innovative science-based products; (iii)
adherence to stringent quality control and assurance standards; (iv) utilization
of  fully  integrated  manufacturing and distribution; and (v) the leadership of
our  experienced  management  team.

Growth  by  Synergistic  Acquisitions
-------------------------------------


                                      - 4 -
<PAGE>
     The  consistent  growth  in  the  fragmented  nutraceutical  market creates
tremendous  market  opportunities  to  acquire  companies  at  favorable prices.
Within  this  market,  there  exist  companies  which  have  significant  market
potential  for  their  products  but  lack  the  strategic guidance, operational
support,  and  capital  resources  in  order to maximize scales of efficiency in
production  and  distribution channels to yield higher margins.  These companies
offer  quality  products  and/or  services  and  often  well positioned in their
respective  markets,  but  lack these elements necessary to catapult them to the
next  level  of growth.  The recent economic down-turn and reduced accessibility
to  capital  markets,  further  constraining growth, further presents us with an
opportunity  to  make  accretive  acquisitions.

     Through  an  expansive  network and long-standing relationships, management
has  access  to a steady supply of such quality acquisition candidates.  We plan
to  leverage  the  core  competency  of  our  management team and advisory board
members,  having  experience  in  mergers and acquisitions, financings, business
valuations,  and operations, to effectuate such transactions.  We expect to take
an  active  role  in  providing  strategic guidance and operational support.  By
applying  operational  improvements,  introducing  synergistic efficiencies, and
leveraging  economies  of  scale,  management  expects  to  further  enhance the
Company's  earnings  potential.

     Our  acquisition  strategy  is  to:

     -    identify undervalued companies with opportunity for operational
          improvements;
     -    acquire significant interests and incorporate into a collaborative
          network;
     -    provide strategic guidance and operational support to our subsidiary
          companies; and
     -    promote synergistic collaboration among and between our subsidiary
          companies.

IDENTIFY  UNDERVALUED  COMPANIES  WITH  OPPORTUNITY FOR OPERATIONAL IMPROVEMENTS

     Our expertise in business valuations and operations management allows us to
identify  companies  that  are under-valued and candidates for improvements.  To
determine  if  a  candidate  company  is  under-valued,  we  apply a disciplined
analysis  using  key  financial  metrics  to  measure  relative enterprise value
compared  to the purchase price.  We then structure an acquisition strategy that
capitalizes  on  this  approach.

     To  determine  whether  to  enter  a  market by acquiring an interest in an
existing  company,  we  will  weigh  the  following  industry and target company
criteria:

     Target  Company  Criteria
     -------------------------

     Undervalued  Assets.  We  will  acquire a target company only if we believe
     that it has an enterprise valuation that is higher than its purchase price.

     Management Quality. We assess the overall quality and industry expertise of
     the  target  company's  management.

     Significant  Ownership.  We  consider  whether  we will be able to obtain a
     significant  position  in  the  target company and exert influence over its
     strategic  direction.

     Network  Synergy. We consider the degree to which the target may contribute
     to  the  Company's  network,  and  benefit  from  the Company's network and
     operational resources.

ACQUIRE SIGNIFICANT INTERESTS AND INCORPORATE INTO A COLLABORATIVE NETWORK

     After  a  potential  target  company  is  identified, we will negotiate the
acquisition of a significant interest in the company.  Ideally, we strive to own
100% of our subsidiaries, but believe that we can have a positive influence with
lower  ownership  levels.  As  a  condition  to  an  acquisition,  we  require
representation  on  the  company's  board  of directors to ensure our ability to
provide  active  participation  in  the  company.  We  strive  to  structure the
acquisition  to permit the subsidiary companies' management and key personnel to
obtain an equity stake in the Company.  As a result of our extensive experience,
we  believe  that  we  have  the  ability  to  complete acquisitions quickly and
efficiently.

     During  negotiations  with potential target company, we emphasize the value
of  our seasoned management team and advisory board, collaborative network where
economies  of  scale  and  synergies can be realized, and access to capital from


                                      - 5 -
<PAGE>
either  private  sources  or  the  public  markets,  which we believe gives us a
competitive  advantage  over  other  acquirers  in  successfully  consummating
transactions.  Our  executive  management  team, advisory board members, and key
consultants  assist  in  these  discussions  and other stages of the acquisition
process, including the initial evaluation of the target companies as well as due
diligence.

PROVIDE STRATEGIC GUIDANCE AND OPERATIONAL SUPPORT

     After  we make an acquisition, we may take an active role in its affairs by
providing both strategic guidance and operational support.  However, the goal is
to  seek  companies with a capable management team that require little oversight
by  us  on  day-to-day  operations:

     Strategic  Guidance.  We  provide  strategic  guidance  to  our  subsidiary
     -------------------
     companies  regarding  market  positioning,  business  model development and
     market  trends.  In  addition,  we  will  advise  our subsidiary companies'
     management  on  strategic  management  and operational issues. An exclusive
     focus  on  the  specialty  pharmaceutical/nutraceutical  market  and  the
     knowledge  base  of  our  strategic  investors,  executive  management  and
     advisory board members provides us with valuable information that is shared
     with  all  of  our  subsidiary  companies.

     Operational  Support.  Companies  often  have  difficulty  obtaining senior
     --------------------
     executive level guidance in the many areas of expertise that companies need
     to  be  successful.  We  will  assist our subsidiary companies by providing
     access  to  skilled  managers  who  guide  them in the following functional
     areas:

          Sales  and  Marketing.  Several  members  of  the  advisory  board and
          management  team  provide guidance to the subsidiary companies' sales,
          marketing,  product  positioning  and  advertising  efforts.

          Manufacturing.  Our  operating  officer and advisory board members are
          dedicated to helping our subsidiary companies with their manufacturing
          systems  strategies  and  optimizing  their  current production lines.

          Finance.  Our  finance  executive  is dedicated to providing financial
          guidance  to  our  subsidiary  companies  in  areas  such as corporate
          finance,  financial  reporting, accounting and treasury operations. In
          providing these services, we leverage the skills and experience of our
          internal  finance  and  accounting group, our subsidiary companies and
          outside  consultants.

          Business  Development.  Companies  may  be  involved  in  evaluating,
          structuring and negotiating joint ventures, strategic alliances, joint
          marketing  agreements,  acquisitions or other transactions. We provide
          assistance  to  our  subsidiary  companies  in  all  these  areas. Our
          management  team,  advisory  board, strategic investors and subsidiary
          companies  all  assist  in  this  function.

PROMOTE  SYNERGISTIC  COLLABORATION  BETWEEN  SUBSIDIARY  COMPANIES

     One  of  the  principal  goals  of  the  Company's  network  is  to promote
innovation and collaboration among its subsidiary companies, which should result
in  shared  knowledge  and  business  contacts  among  them and the formation of
strategic  alliances.  Throughout  the  network  we  expect identify prospective
alliances,  make  introductions,  and  assist  in  strategic  planning.


QUALITY  BOTANICAL  INGREDIENTS,  INC.  (QBI)

BUSINESS

     QBI is engaged in the manufacture and contract processing of bulk botanical
materials  and  nutritional  ingredients  for  personal  care and health product
companies  engaged  in marketing and distributing products to the nutraceutical,
pharmaceutical  and  cosmetic  industries.  QBI offers a wide variety of quality
product  selections  including  more  than  five hundred herbs, dried fruits and
vegetables,  an  extensive  selection  of  concentrated  and standardized herbal
extracts,  and  a  wide  array  of  guaranteed  potency  herbs,  bioflavonoids,
antioxidants  and  beehive  products.


                                      - 6 -
<PAGE>
Raw  Materials
--------------

     QBI  purchases  its raw materials from a variety of growers, collectors and
brokers.  Generally,  it  has not experienced any shortage of raw materials that
has  affected  its business other than an occasional increase in price. Although
many  botanicals  are currently in over supply, if demand for botanical products
grows  in  the  future  the demand pressure for some products could outstrip the
capacity  of the suppliers. QBI's standardized products have guaranteed potency,
meaning  that  the  products  contain a stipulated amount of active ingredients.
Management  believes that for the most part, it can acquire sufficient materials
for  its standardized line and its inventory can be replaced without significant
cost  increase,  however botanicals are subject to substantial variations due to
weather, unexpected increase in demand, ground conditions and political problems
in the source country and therefore supply will always be somewhat unpredictable
and  an  occasional  short  fall  can  be  expected.  QBI  has in place, in most
instances,  multiple  geographic  sources  of  raw  material  to  minimize  this
potential  problem. Also, the quality of botanicals varies from season to season
and  year  to  year,  which  can  impose  a limitation on the ability to produce
standardized  products  and  which  can  result  in  substantial  price changes.

Quality  Control
----------------

     QBI's  facility  contains  two  laboratories:  a quality control laboratory
devoted to the physical and chemical analysis of products measured against QBI's
customer  and  compendial  specifications;  and  a microbiology laboratory which
evaluates  finished products for microbiological purity.  These laboratories are
equipped  with  state-of-the-art  equipment  including  a  Multi-state  Mass
Spectrometer  (LC/Ms/Ms)  on  line  with  numerous  High  Performance  Liquid
Chromatographs (HPLC), Gas Chromatographs (GC), Thin Layer Chromatography (TLC),
Infrared  Spectroscopy  (IR)  and  Ultra-violet  Spectrophotometer  (UV).  QBI
provides  complete  Certificates  of Analysis and Material Safety Data Sheets on
all  of  its  products.  In  order  to assure product quality and stability, lot
samples  are  retained  for  three  years.

Manufacturing
-------------

     The  manufacturing  process  begins  and  ends in the laboratory.  Incoming
botanical  materials  are  evaluated  to  verify  species,  variety and quality.
Technicians  then  sift  through  the  material  to  ensure there are no foreign
objects.  A powerful rare-earth magnet is also used to ensure there are no metal
fragments.  The  material  is then moved by conveyor belt into the cutter, which
reduces it to a manageable particle size.  Moved to a special cryogenic chamber,
the  material  is  subjected to an air-swept pulverizer which pounds the chilled
material  against  a  hard  surface reducing it to a fine powder.  This patented
cryogenic  processing  technology  preserves  volatile  herbal  oils  and active
compounds  in  the materials and allows fine particle milling of hydroscopic and
aromatic  botanicals.

     Throughout  the  manufacturing  process the processed botanical material is
subjected  to  a  series of tests which examine physical and chemical properties
such  as  active  constituents,  color,  flavor and purity. The material is then
either stored in a finished state available for further processing when an order
is received or further processed blending, densifying, or granulating the powder
making  it ready for delivery to the customer who will then use it in a finished
product. Prior to delivery, each item undergoes final testing to assure quality.

     The  QBI  facility  is  Kosher  certified  and  operates under current Good
Manufacturing  Practices  ("GMPs")  to  assure  consistent  high  quality in the
manufacture  of  its  products.  The  facility  and  manufacturing  process also
routinely  undergo  audits  by customers, which include pharmaceutical and large
consumer  product  firms.

CUSTOMERS

     QBI  services  over  300  customers  worldwide, primarily manufacturers and
brokers  of  natural  and  functional  food  products. These customers represent
several industry sectors, including vitamin & minerals, food & beverages, herbal
tea, pharmaceuticals, diet & sports supplements, health & beauty care, and pet &
equine.

NUTRACEUTICAL  INDUSTRY  OVERVIEW

     The  global nutraceutical industry reached a market volume of $50.6 billion
in  2001.  The  largest market for nutraceuticals is North America, with a sales
volume  of  $16.3  billion,  followed  by  Europe ($15.0 billion) and Asia ($7.8
billion). Japan is only the fourth-largest market in total sales ($7.2 billion),
however,  it  has  the  highest  sales per capita. The fastest growing market is
Asia,  followed  by  South  America  and  the  Middle  East.  Looking  at


                                      - 7 -
<PAGE>
product  categories,  the  Vitamin,  Mineral  &  Supplements (VMS) market is the
largest segment, accounting for $20.6 billion or 40% or of the total sales.  The
herbals/botanicals  market is almost as large as the VMS segment, accounting for
US$19.6  billion  (39%  of  total sales).  Sports and specialty has the smallest
share  with  $10.4 billion but is the fastest growing segment, especially in the
US.  Internationally, vitamin supplement sales have dropped by between 3% and 5%
since  2000,  due  to  lost consumer confidence in herbal supplements, which has
also  affected  vitamin  products.

COMPETITION

     In  the  United  States,  companies  selling  bulk natural products include
domestic  natural  product manufacturers such as PureWorld, U.S. Nutraceuticals,
Hauser  and  Triarco,  foreign  manufacturers such as Indena, Euromed and Martin
Bauer,  and a large number of brokers and distributors selling products that are
manufactured worldwide.  QBI competes with these companies for both the purchase
of  natural  products  and  sales  of  natural  product  extracts.

     Management  believes  competition  among  manufacturers  of  vitamin  and
supplement  products  is  based,  among other things, on price, timely delivery,
product  quality, safety, availability, product innovation, marketing assistance
and  customer  service.  The competitive position of QBI will likely depend upon
continued  acceptance  of  its  products,  its  ability  to  attract  and retain
qualified  personnel,  future  governmental  regulations  affecting vitamins and
nutritional  supplements, and publication of vitamin product safety and efficacy
studies  by  the  government  and  authoritative health and medical authorities.
Management  believes  that its focus on quality and expertise in the production,
marketing  and  sale  of  bulk  natural  products will permit QBI to effectively
compete in the sale of these products to manufacturers and marketers of consumer
products.

GOVERNMENT  REGULATION

     QBI's business is subject to comprehensive regulation throughout the world.
In  the  United  States, QBI's business is regulated by federal agencies such as
the  Food  and  Drug  Administration  ("FDA"), the U.S. Environmental Protection
Agency  ("EPA"), the U.S. Bureau of Alcohol, Tobacco and Firearms, the U.S. Drug
Enforcement Agency ("DEA"), the U.S. Departments of Interior and Agriculture and
various  state and local government agencies.  QBI is also subject to regulation
under  the Occupational Safety and Health Act, the Toxic Substances Control Act,
the  Resource Conservation and Recovery Act, the Federal Water Pollution Control
Act,  and  other  federal,  state  and  local  statutes  and  regulations.

     Products  manufactured or sold by QBI are defined as "Dietary Supplements,"
as defined by the Dietary Supplement Health and Education Act ("DSHEA"), and are
governed  by  DSHEA.  DSHEA governs claims and statements of nutritional support
regarding  dietary  supplements.  DSHEA establishes labeling practices regarding
quality  standards  for  supplements,  including requirements concerning purity,
disintegration  and  compositional  specifications  and  also  amends  nutrition
labeling  and  nutrient content claim requirements for dietary supplements under
the  Nutrition  Labeling  and  Education  Act  of  1990.

     Failure  to comply with applicable laws, regulations and permits can result
in  injunctive  actions,  product  seizures,  damages  and  civil  and  criminal
penalties.  Although  QBI  believes it is in substantial compliance with current
applicable  federal,  state  and  local  regulations,  the  FDA,  the  EPA,  the
Departments  of the Interior and Agriculture and other governmental agencies may
in  the  future change existing regulations or adopt additional regulations that
may affect QBI's ability to acquire necessary raw materials, manufacture natural
product  extracts  or  develop  or  manufacture  new  products.

     The  United  States  FDA has proposed detailed Good Manufacturing Practices
("GMP")  for  nutritional supplements but has not yet adopted final regulations.
Management  of  QBI  believes  it  complies  with  GMP  as  proposed by the FDA.


XCEL  HEALTHCARE,  INC.

BUSINESS

     XCEL  Healthcare  is  fully-licensed  specialty  pharmacy  which  provides
prescription  drugs and other supplies and services to chronically ill consumers
who  suffer  from  diseases  such  as  cystic  fibrosis,  cancer,  quadra-  and
paraplegias,  multiple  sclerosis  and  liver  disease.  This  specialized,
under-served  customer  niche  is characterized by low churn, steady growth, and
high  revenue per individual customer - historically between $20,000 and $50,000
per  individual  per year.  These attractive customer characteristics are driven


                                      - 8 -
<PAGE>
by  changes within the healthcare industry, and more specifically, the manner in
which  pharmacies  care for chronically ill patients.  Chronically ill patients,
who  traditionally  have  been cared for in a hospital setting, are increasingly
reliant  on  physician  office-based and home-based therapy.  Yet, the expansive
needs  of  these  chronically  ill patients typically outstrip the product line,
operational,  financial,  and  logistical capabilities of traditional providers.

     XCEL specializes in compounding prescription medications for the customized
needs of its patients.  It operates in niche illness segments that are generally
insulated  from  the  competition  of  the national discount pharmacy chains and
large  independent  pharmacies.

STRATEGY

     XCEL's  objective  is  to  continue  to grow rapidly and enhance its market
position  as  a  leading  specialty  pharmacy  provider  by  capitalizing on its
business  strengths  and  pursuing  the  following  strategy:

  -  Continue  to  focus  on and further penetrate the alternate site market. By
     focusing on the alternate site market, XCEL has targeted growth segments of
     the  health care industry. It intends to increase its alternate site market
     presence  by  expanding  its  product and service offerings, increasing its
     sales  and  marketing  personnel  and  focusing  on  group  accounts.

  -  Accelerate  growth of its higher margin, patient-specific pharmacy business
     by  leveraging  relationships  with existing customers. Management believes
     that  a  number  of physicians that order pharmaceuticals and supplies from
     XCEL  also  treat patients who require patient-specific biopharmaceuticals.
     XCEL's  information  database identifies these cross-selling opportunities,
     and  management  believes  it  is  well-positioned  to  capture incremental
     revenue  from  these  customers.

  -  Pursue  acquisitions  to  complement existing product offerings and further
     penetrate markets. Management believes that the highly fragmented specialty
     pharmacy  industry  affords  it  an  opportunity  to grow through selective
     acquisitions.  By acquiring complementary businesses, XCEL can increase its
     customer  base,  expand  its  product and geographic scope and leverage its
     existing  infrastructure.

  -  Continue  to  develop  physician  and  payor  networks  that enhance XCEL's
     alliance  capabilities  with  manufacturers.  Management believes that with
     strong  physician  and  payor  networks,  the  relationships  with  its
     manufacturers  will  be  enhanced,  thereby  increasing  the  potential for
     alliances,  which  could expand its products, service and geographic scope.
     In addition, contracts with payors generate significant new patient volumes
     and,  therefore,  revenue  growth.

  -  Maintain  cost control while investing in infrastructure. XCEL's goal is to
     remain  a low cost provider of specialty products and services yet increase
     the  value-added  services it provides to customers such as 24-hour on-call
     support,  patient  counseling  and  specialized  shipping.

SALES  &  MARKETING

     XCEL  strives  to  generate  new  customers  and solidify existing customer
relationships  through  frequent  direct  marketing  contact that emphasizes its
broad  product  lines  in  specialty markets, competitive prices, and responsive
service.  XCEL  targets larger customers with customized approaches developed by
management  and  its  key  account  team.  XCEL's  sales  personnel service both
in-bound  and  out-bound  calls  and  are responsible for assisting customers in
purchasing  decisions,  answering questions and placing orders.  Sales personnel
also  initiate  out-bound  calls  to  market  XCEL's  services to those customer
accounts identified as being high volume accounts, high order frequency accounts
or  cross-  selling opportunity accounts.  All sales personnel work to establish
long-term  relationships with XCEL's customers through regularly scheduled phone
contact and personalized service, including direct sales calls on key customers.

SPECIALTY  PHARMACEUTICAL  MARKET  OVERVIEW

     The  specialty  pharmacy  market is fragmented with several public and many
small  private  companies focusing on different product or customer niches.  Few
companies offer a wide range of pharmaceuticals and related supplies targeted to
multiple  customer  groups,  specifically  office-based  physicians and patients
self-injecting  at  home.  Historically, cancer therapy, renal dialysis and most


                                      - 9 -
<PAGE>
other  treatments  for  chronic  and  life-threatening  medical  conditions were
administered  almost  exclusively  in  a  hospital inpatient setting.  In recent
years,  the frequency with which these treatments have been administered outside
the  hospital  has  increased  dramatically.

     The  service  needs  of  office-based  physicians  and  patients
self-administering  at  home  differ markedly from those of the hospital market,
creating  logistical  challenges  and  increasing administrative costs for those
offices.  Office-based  physicians  and clinics generally order relatively small
quantities  of drugs at irregular intervals and do not have inventory management
systems  or  sufficient  pharmacy  staffing.  Challenges facing these caregivers
include  having  necessary  administrative  and  financial  resources,  managing
relationships  with  multiple  suppliers, managing inventories, billing patients
and third-party payors, and monitoring new clinical developments.  XCEL believes
that  the  shift  from  hospital-based  to  office-based  or  home-based therapy
administration  has  created  a  significant  opportunity,  particularly  in the
quadra-  and  paraplegias,  cystic  fibrosis, renal dialysis, oncology, Multiple
Sclerosis  as  well  as  other  chronic  diseases

COMPETITION

     The  specialty  pharmaceutical  and  medical  supply  industry  is  highly
competitive and is experiencing both horizontal and vertical consolidation.  The
industry  is  fragmented,  with  several public and many small private companies
focusing  on  different  product or customer niches.  Some of XCEL's current and
potential  competitors  include  independent  specialty  distributors;  national
full-line,  full-service  wholesale  drug  distributors  that  operate their own
specialty  distribution  businesses;  retail  pharmacies;  specialty  pharmacy
divisions  of  prescription  benefit  managers;  institutional  pharmacies;
hospital-based  pharmacies;  home  healthcare  agencies; mail order distributors
that  distribute  medical  supplies on a regional or national basis; and certain
manufacturers  that  own  distributors  or  that  sell  their  products  both to
distributors  and  directly  to  users, including clinics and physician offices.
Some  of  XCEL's  competitors  have  greater financial, technical, marketing and
managerial  resources  than  XCEL.  While  competition  is  primarily  price and
service  oriented,  it  can also be affected by depth of product line, technical
support  systems, specific patient requirements and reputation.  There can be no
assurance  that competitive pressures will not have a material adverse effect on
XCEL.

GOVERNMENT  REGULATION

     XCEL is subject to extensive government regulation, including numerous laws
directed  at  preventing fraud and abuse and laws regulating reimbursement under
various  governmental  programs,  as  more  fully  described  below.

     Medicare  and  Medicaid  Reimbursement.  As  part  of  the  Social Security
     --------------------------------------
Amendments  of  1965,  Congress  enacted the Medicare program which provides for
hospital,  physician and other statutorily-defined health benefits for qualified
individuals  such  as  persons  over 65 and the disabled.  The Medicaid program,
also  established by Congress in 1965, is a joint federal and state program that
provides  certain  statutorily-defined  health  benefits  to  financially  needy
individuals who are blind, disabled, aged, or members of families with dependent
children.  In  addition,  Medicaid  generally covers financially needy children,
refugees  and  pregnant  women.  A  substantial  portion  of  XCEL's  revenue is
attributable  to  payments  received  from  third-party  payors,  including  the
Medicare  and  Medicaid  programs.

     MEDICARE  LEGISLATION.  In  December  2000, federal legislators enacted the
Medicare,  Medicaid  and  SCHIP Benefits Improvement and Protection Act of 2000.
Among  other  items, this legislation provides the home healthcare industry with
some relief from the effects of the Balanced Budget Act of 1997, which contained
a  number  of provisions that are affecting, or could potentially affect, XCEL's
Medicare  reimbursement  levels.  The Medicare Balanced Budget Refinement Act of
1999  also  mitigated  some  of  the effects of the Balanced Budget Act of 1997.

     The Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of
2000 provided reinstatement in 2001 of the full annual cost of living adjustment
for durable medical equipment and provides minimal increases in 2002 for durable
medical  equipment  and oxygen.  The Balanced Budget Act of 1997 had frozen such
adjustments  for  each  of  the  years  1998  through  2002.

     During  2000,  the  Secretary  of  the  U.S. Department of Health and Human
Services  ("HHS")  wrote  to the durable medical equipment regional carriers and
recommended,  but  did  not  mandate, that Medicare claims processors base their
payments for covered outpatient drugs and biologicals on pricing schedules other
than  the  Average  Wholesale  Price  listing,  which  historically has been the
industry's  basis  for  drug  reimbursement.  The  suggested alternative pricing
methodology  was offered in an effort to reduce reimbursement levels for certain
drugs  to  more  closely approximate a provider's acquisition cost, but it would
not have covered the costs that homecare pharmacies incur to prepare, deliver or


                                     - 10 -
<PAGE>
administer  the drugs to patients.  Billing, collection and other overhead costs
also  would  have  been  excluded.  Under  current  government  reimbursement
schedules, these costs are not clearly defined but are implicitly covered in the
reimbursement  for  the  drug cost. The healthcare industry has taken issue with
the  HHS's  approach for several reasons, primarily because it fails to consider
the  accompanying  costs  of  delivering  and  administering these types of drug
therapies  to  patients  in  their  homes.  Further,  if  providers  choose  to
discontinue  providing  these  drugs  due  to  inadequate reimbursement, patient
access  may  be  jeopardized.  The  Medicare,  Medicaid  and  SCHIP  Benefits
Improvement  and  Protection  Act  of 2000 delayed the adoption of proposed drug
price  changes  and directed the General Accounting Office to conduct a thorough
study,  by  September  2001,  to examine the adequacy of current payments and to
recommend  revised  payment  methodologies.  The  study  was  completed  but the
authors  acknowledged that 1) the limited scope and deadline associated with the
study  did  not allow for a thorough analysis of the homecare pharmacy aspect of
covered  services,  2) legitimate service components and related costs do exist,
and  3)  different  methods  of  determining  drug  delivery  and administration
payments  may  be  necessary for different types of drugs. Currently, the timing
and  impact  of  such  pricing  methodology  revisions  are  not  known.

     In  addition, some states have adopted, or are contemplating adopting, some
form  of  the  proposed  alternate  pricing  methodology  for  certain drugs and
biologicals  under  the  Medicaid program. In several states, these changes have
reduced  the  level  of  reimbursement received by XCEL to an unacceptable level
without  a  corresponding offset or increase to compensate for the service costs
incurred.  In  those  states,  XCEL  has  elected to stop accepting new Medicaid
patient  referrals  for the affected drugs. The company is continuing to provide
services  to  patients  already  on  service,  and  for  those who receive other
Medicaid-covered  respiratory,  home  medical  equipment  or infusion therapies.

     The  Balanced  Budget Act of 1997 granted authority to the Secretary of HHS
to  increase  or  reduce the reimbursement for home medical equipment, including
oxygen,  by  15%  each year under an inherent reasonableness procedure. However,
under  the  provisions  of  the Medicare Balanced Budget Refinement Act of 1999,
reimbursement  reductions  proposed  under the inherent reasonableness procedure
have  been  delayed  pending  (1)  a  study  by the General Accounting Office to
examine  the  use  of  the  authority  granted  under  this  procedure,  and (2)
promulgation  by  the  Centers  for  Medicare  & Medicaid Services (formerly the
Health Care Financing Administration), of a final rule implementing the inherent
reasonableness  authority.  This  regulation  has  not  yet  been  issued.

     Further,  the  Balanced  Budget  Act  of 1997 mandated that the Centers for
Medicare  &  Medicaid  Services  conduct  competitive bidding demonstrations for
Medicare  Part  B  items  and  services. The competitive bidding demonstrations,
currently  in  progress,  could  provide  the  Centers  for  Medicare & Medicaid
Services  and  Congress with a model for implementing competitive pricing in all
Medicare  programs.  If  such  a competitive bidding system were implemented, it
could  result  in  lower reimbursement rates, exclude certain items and services
from  coverage  or  impose  limits  on  increases  in  reimbursement  rates. The
administration  is seeking authority to implement nationwide competitive bidding
for all Part B products and services (except physician's services). Congress has
rejected  similar  proposals  in the past. It is not clear whether Congress will
adopt  this  latest  proposal.

     CLAIMS  AUDITS.  Durable  medical  equipment  regional carriers are private
organizations  that contract to serve as the federal government's agents for the
processing  of  claims  for  items  and  services  provided  under Part B of the
Medicare  program.  These  carriers  and  Medicaid  agencies  also  periodically
conduct  pre-payment  and  post-payment  reviews  and  other  audits  of  claims
submitted.  Medicare  and  Medicaid  agents  are  under  increasing  pressure to
scrutinize  healthcare  claims  more  closely.  In addition, the home healthcare
industry  is  generally  characterized  by  long  collection cycles for accounts
receivable  due  to  complex  and  time-consuming  requirements  for  obtaining
reimbursement  from  private  and  governmental  third-party  payors.  Such long
collection  cycles  or reviews and/or similar audits or investigations of XCEL's
claims  and  related documentation could result in denials of claims for payment
submitted  by XCEL.  Further, the government could demand significant refunds or
recoupments  of amounts paid by the government for claims which, upon subsequent
investigation,  are determined by the government to be inadequately supported by
the  required  documentation.

     HIPAA.  The  Health  Insurance  Portability and Accountability Act mandates
the  adoption  of standards for the exchange of electronic health information in
an  effort to encourage overall administrative simplification and to enhance the
effectiveness  and  efficiency  of the healthcare industry. Ensuring privacy and
security  of  patient information - "accountability" - is one of the key factors
driving  the  legislation.  The  other  major factor - "portability" - refers to
Congress'  intention  to  ensure  that  individuals  can  take their medical and
insurance  records  with  them  when  they  change  employers.

     In  December  2000,  HHS issued final regulations concerning the privacy of
healthcare  information.  These  regulations  regulate the use and disclosure of
individuals'  healthcare  information,  whether  communicated electronically, on


                                     - 11 -
<PAGE>
paper  or  orally. All affected entities, including XCEL, are required to comply
with  these regulations by April 14, 2003. The regulations also provide patients
with  significant  new rights related to understanding and controlling how their
health  information  is  used  or disclosed.  In March 2002, HHS issued proposed
amendments  to  the  final  regulations which, if ultimately adopted, would make
XCEL's  compliance  with  certain  of  the  requirements  less  burdensome.

     In addition, in the Spring of 2002, HHS issued final regulations concerning
the security of healthcare information maintained or transmitted electronically.
Security  regulations  proposed  by  HHS in August 1998 would require healthcare
providers  to  implement  organizational  and technical practices to protect the
security  of  such information. Once the security regulations are finalized, the
company  will  have  approximately  two  years  to comply with such regulations.

     Although  the  enforcement provisions of HIPAA have not yet been finalized,
sanctions  are  expected  to  include criminal penalties and civil sanctions. At
this time, the company anticipates that it will be fully able to comply with the
HIPAA regulations that have been issued by their respective mandatory compliance
dates.  Based  on  the  existing  and  proposed  HIPAA  regulations, the company
believes  that  the  cost  of its compliance with HIPAA will not have a material
adverse  effect  on  its business, financial condition or results of operations.

     The  Anti  Kickback  Statute.  As a provider of services under the Medicare
     ----------------------------
and  Medicaid  programs,  XCEL is subject to the Medicare and Medicaid fraud and
abuse  laws  (sometimes  referred  to  as  the "anti-kickback statute").  At the
federal level, the anti-kickback statute prohibits any bribe, kickback or rebate
in  return for the referral of patients, products or services covered by federal
healthcare  programs.  Federal  healthcare programs have been defined to include
plans  and  programs  that  provide  health benefits funded by the United States
Government,  including  Medicare,  Medicaid,  and TRICARE (formerly known as the
Civilian  Health  and  Medical Program of the Uniformed Services), among others.
Violations  of  the  anti-kickback  statute  may  result  in  civil and criminal
penalties  and  exclusion from participation in the federal healthcare programs.
In  addition,  a number of states in which XCEL operates have laws that prohibit
certain  direct  or  indirect payments (similar to the anti-kickback statute) or
fee-splitting  arrangements  between  healthcare providers, if such arrangements
are  designed  to  induce  or encourage the referral of patients to a particular
provider.  Possible  sanctions  for  violation  of  these  restrictions  include
exclusion from state-funded healthcare programs, loss of licensure and civil and
criminal  penalties. Such statutes vary from state to state, are often vague and
have  seldom  been  interpreted  by  the  courts  or  regulatory  agencies.

     Physician  Self-Referrals.  Certain  provisions  of  the  Omnibus  Budget
     -------------------------
Reconciliation Act of 1993, commonly known as "Stark II", prohibit XCEL, subject
to  certain  exceptions,  from  submitting  claims  to the Medicare and Medicaid
programs  for  "designated health services" if XCEL has a financial relationship
with  the  physician  making  the referral for such services or with a member of
such  physician's  immediate  family.  The  term  "designated  health  services"
includes  several  services  commonly  performed  or supplied by XCEL, including
durable  medical  equipment  and  home  health services. In addition, "financial
relationship" is broadly defined to include any ownership or investment interest
or  compensation arrangement pursuant to which a physician receives remuneration
from  the  provider  at  issue.  Violations  of  Stark  II may result in loss of
Medicare  and  Medicaid  reimbursement,  civil  penalties  and  exclusion  from
participation  in  the  Medicare  and  Medicaid  programs.  In January 2001, the
Centers for Medicare & Medicaid Services issued the first of two phases of final
regulations  to  clarify  the meaning and application of Stark II.  Phase II was
issued  in  August,  2002,  however,  Phase  I addresses the primary substantive
aspects of the prohibition and several key exceptions.  Significantly, the final
regulations  define  previously  undefined key terms, clarify prior definitions,
and  create  several  new  exceptions  for  certain  "indirect  compensation
arrangements",  "fair  market  value"  transactions,  arrangements  involving
non-monetary  compensation  up  to  $300,  and  risk-sharing arrangements, among
others.  The  regulations  also  create a new "knowledge" exception that permits
providers  to bill for items provided in connection with an otherwise prohibited
referral,  if the provider does not know, and does not act in reckless disregard
or  deliberate  ignorance  of,  the  identity  of  the referring physician.  The
effective  date  for the bulk of Phase I of the final regulations was January 4,
2002.  In  addition,  a number of the states in which XCEL operates have similar
prohibitions  on physician self-referrals.  Finally, recent enforcement activity
and  resulting case law developments have increased the legal risks of physician
compensation arrangements that do not satisfy the terms of an exception to Stark
II,  especially  in  the  area  of  joint  venture arrangements with physicians.

     False Claims.  The False Claims Act imposes civil and criminal liability on
     ------------
individuals  or  entities  that submit false or fraudulent claims for payment to
the  government.  Violations  of  the  False  Claims  Act  may  result in treble
damages,  civil  monetary penalties and exclusion from the Medicare and Medicaid
programs.


                                     - 12 -
<PAGE>
     The  False  Claims  Act also allows a private individual to bring a qui tam
suit on behalf of the government against a healthcare provider for violations of
the  False  Claims  Act.  A  qui  tam  suit  may  be brought by, with only a few
exceptions,  any  private  citizen who has material information of a false claim
that  has  not  yet  been  previously disclosed. Even if disclosed, the original
source of the information leading to the public disclosure may still pursue such
a  suit. Although a corporate insider is often the plaintiff in such actions, an
increasing  number  of  outsiders  are  pursuing  such  suits.

     In  a  qui  tam suit, the private plaintiff is responsible for initiating a
lawsuit  that may eventually lead to the government recovering money of which it
was  defrauded.  After  the  private  plaintiff  has  initiated the lawsuit, the
government  must  decide  whether  to  intervene  in  the lawsuit and become the
primary  prosecutor.  In  the event the government declines to join the lawsuit,
the  private  plaintiff  may  choose to pursue the case alone, in which case the
private  plaintiff's  counsel  will  have  primary  control over the prosecution
(although  the  government  must be kept apprised of the progress of the lawsuit
and  will  still  receive at least 70% of any recovered amounts).  In return for
bringing  the  suit  on  the  government's behalf, the statute provides that the
private  plaintiff is entitled to receive up to 30% of the recovered amount from
the litigation proceeds if the litigation is successful. Recently, the number of
qui  tam  suits brought against healthcare providers has increased dramatically.
In addition, at least five states - California, Illinois, Florida, Tennessee and
Texas  -  have  enacted laws modeled after the False Claims Act that allow those
states to recover money which was fraudulently obtained by a healthcare provider
from  the  state  (e.g.,  Medicaid  funds  provided  by  the  state).

     Other  Fraud  and  Abuse  Laws.  The  Health  Insurance  Portability  and
     ------------------------------
Accountability Act of 1996 created in part, two new federal crimes: "Health Care
Fraud"  and "False Statements Relating to Health Care Matters".  The Health Care
Fraud  statute  prohibits knowingly and willfully executing a scheme or artifice
to  defraud  any  healthcare  benefit program.  A violation of this statute is a
felony  and  may  result  in  fines  and/or  imprisonment.  The False Statements
statute  prohibits knowingly and willfully falsifying, concealing or covering up
a  material  fact by any trick, scheme or device or making any materially false,
fictitious or fraudulent statement in connection with the delivery of or payment
for  healthcare  benefits,  items or services.  A violation of this statute is a
felony  and  may  result  in  fines  and/or  imprisonment.

     Recently,  the  federal  government  has  made  a  policy  decision  to
significantly  increase  the  financial  resources  allocated  to  enforcing the
healthcare  fraud  and  abuse  laws.  In  addition, private insurers and various
state  enforcement agencies have increased their level of scrutiny of healthcare
claims  in  an effort to identify and prosecute fraudulent and abusive practices
in  the  healthcare  area.

     Internal  Controls.  XCEL  maintains  several programs designed to minimize
     ------------------
the  likelihood  that  it  would  engage  in  conduct or enter into contracts in
violation  of  the fraud and abuse laws. Contracts of the types subject to these
laws  are  reviewed and approved by the corporate contract services and/or legal
departments.  XCEL  also maintains various educational programs designed to keep
its  managers updated and informed on developments with respect to the fraud and
abuse  laws and to remind all employees of XCEL's policy of strict compliance in
this  area.  While  XCEL believes its discount agreements, billing contracts and
various fee-for-service arrangements with other healthcare providers comply with
applicable  laws and regulations, XCEL cannot provide any assurance that further
administrative  or  judicial  interpretations  of  existing  laws or legislative
enactment  of  new  laws  will  not  have  a  material  adverse effect on XCEL's
business.

     Healthcare  Reform  Legislation.  Economic,  political  and  regulatory
     -------------------------------
influences  are  subjecting  the  healthcare  industry  in  the United States to
fundamental  change.  Healthcare  reform  proposals  have been formulated by the
legislative  and administrative branches of the federal government. In addition,
some  of  the  states  in  which  XCEL  operates  periodically  consider various
healthcare  reform  proposals.  XCEL  anticipates  that  federal  and  state
governmental  bodies  will  continue to review and assess alternative healthcare
delivery  systems  and  payment  methodologies and public debate of these issues
will  continue  in  the  future.  Due  to  uncertainties  regarding the ultimate
features  of  reform  initiatives  and  their enactment and implementation, XCEL
cannot  predict  which, if any, of such reform proposals will be adopted or when
they  may  be  adopted or that any such reforms will not have a material adverse
effect  on  XCEL's  business  and  results  of  operations.

     Healthcare  is  an area of extensive and dynamic regulatory change. Changes
in the law or new interpretations of existing laws can have a dramatic effect on
permissible  activities,  the  relative costs associated with doing business and
the  amount  of  reimbursement  by  government  and  other  third-party  payors.
Recommendations  for  changes may result from an ongoing study of patient access
by the General Accounting Office and from the potential findings of the National
Bipartisan  Commission  on  the  Future  of  Medicare.


BIOSELECT  INNOVATIONS,  INC.


                                     - 13 -
<PAGE>
BUSINESS

     BioSelect  Innovations produces a line of topical and transdermal bases for
drug  delivery  and  functional  skin  care  products that are marketed by other
pharmacies.  As  an  outgrowth  of  its  expertise and experience in compounding
prescriptions, BioSelect has developed a number of proprietary formulations that
have  patents pending. These patents address the unique integration of selective
traditional  over-the-counter  generic  drugs  with  complementary  alternative
medications such as vitamins, herbs and other natural nutraceutical supplements.
BioSelect  expects  to  become  a  pioneer  in this nascent field of integrative
medicine.  Slated  to  be  marketed and distributed through alliances with major
pharmaceutical  companies,  this  breakthrough in integrative medicine addresses
heart  disease,  cold  & flu, arthritis, migraine, allergy and other conditions.

STRATEGY

     BioSelect  intends to become a leader in the field of integrative medicine,
topical  and  transdermal  drug delivery and in the development and marketing of
specialty  pharmaceutical  and  cosmeceutical  products  that are applied to the
skin.  Key  elements  of its business and commercialization strategy include the
following:

     Lower  Risk  Strategy  for  Selecting  Product  Candidates for Development.
BioSelect  does  not  intend  to  focus  its  product  development  efforts  on
development  of  new  chemical entities.  Instead, it will focus on applying its
proprietary  technologies  in  the  following  three  areas:

     (1)  development  of  topical  and transdermal formulations of new chemical
          entities  in  partnership  with  innovative  pharmaceutical  or
          biotechnology  companies;

     (2)  development  of  new,  high  performance  cosmeceutical  products that
          address  the  skin  care  needs  of  the increasing number of affluent
          middle-aged  and  older  people;  and

     (3)  development  and  launch  of  a  new  family  of  proprietary
          pharmaceutical/nutraceutical  products  through  alliances  with major
          pharmaceutical  companies.

     Leveraging of Corporate Alliances.  BioSelect plans to enter into strategic
alliances  with  established pharmaceutical companies for the development of its
drug  delivery  products.  These  alliances  generally  will provide research or
clinical  funding and other support during the product development process.  Its
partners  generally  will  provide  established  and trained marketing and sales
forces  to  sell  the  products.

     Internal  Focus  on  the  Dermatology  Market.  BioSelect  plans  to retain
exclusive  or  co-marketing/co-promotion  rights  in  the  United  States  to
dermatological and related uses of the products it develops, while out-licensing
rights  for other uses.  Similarly, whenever possible, it will attempt to retain
commercial  rights  to dermatological and other specialty pharmaceutical uses of
products  developed  under partner sponsored research collaborations.  BioSelect
ultimately  plans  to  market  the  dermatological and cosmeceutical products it
develops,  either  through  the utilization of contract sales representatives or
through  the  establishment  of  its  own  sales  force.

     Acquisition  of  Complementary  Products,  Technologies  or  Businesses.
Although  BioSelect  is  focusing  on the in-house development of its innovative
pharmaceutical/nutraceutical products and technologies, it may opportunistically
acquire  products,  technologies  or  companies with products, manufacturing and
distribution  capabilities  consistent  with  its  commercial  objectives.

DRUG  DELIVERY  MARKET  OVERVIEW

     Drug  delivery companies develop technologies to improve the administration
of  therapeutic  compounds.  These  technologies are designed to enhance safety,
efficacy,  ease-of-use  and  patient  compliance  with prescribed therapy.  Drug
delivery technologies provide opportunities for pharmaceutical and biotechnology
companies  to extend their drug franchises as well as develop new and innovative
products.  The  worldwide  market  for drug delivery systems was estimated to be
$35  billion  in  2000  and  is  projected  to  increase to $75 billion by 2005.


                                     - 14 -
<PAGE>
     The  vast majority of drugs currently on the market are taken orally or are
administered  by  injection.  Oral  drug  delivery methods, while simple to use,
typically  subject  drugs to first-pass metabolism in the body, which results in
drug  degradation  in the stomach and further neutralization in the liver before
reaching  the bloodstream. In order to achieve efficacy, higher drug dosages are
often  used,  with  increased  risks  of  side  effects.  The  injection  of
pharmaceuticals,  while  avoiding  first-pass  metabolism  in the body, also has
major  limitations,  including  pain,  which  can  lead  to  decreased  patient
acceptance  and  compliance  with  prescribed  therapy.  A  decline  in  patient
compliance  can  increase  the  risk of medical complications and lead to higher
healthcare  costs. Also, the costs of injectable drugs typically are higher as a
result  of  the additional costs associated with medical personnel to administer
the  injections  and  the  costs  associated  with  the purchase and disposal of
syringes.

     Pharmaceutical  and  biotechnology  companies  look  to  drug  delivery
enhancements  as  a  way  of  gaining a competitive advantage.  Alternative drug
delivery  technologies, which avoid first-pass metabolism and are less invasive,
are  often  sought  by  pharmaceutical and biotechnology companies to extend the
period  of  market  exclusivity for a branded drug and thus postpone competition
from  generic  drugs.  In  order  to  maintain  the  competitiveness  of  their
proprietary  drug  candidates,  large  pharmaceutical  companies  seek  delivery
enhancements  that  will  increase  safety and efficacy, reduce side effects and
make administration more convenient.  Further, drug delivery companies can apply
their  technologies  to  off-patent  products to formulate their own proprietary
products,  which  they  often  commercialize by seeking marketing collaborations
with  larger  pharmaceutical  companies  that  have  greater  capabilities  and
resources.

     We  believe  that  developing safer and more efficacious ways of delivering
existing  drugs  generally  is less risky than attempting to discover new drugs,
because  of  the  lower product development cost.  On average, it takes 15 years
for  an  experimental  new  drug  to  progress  from  the  laboratory  to
commercialization  in  the  U.S.,  with  an  average  cost of approximately $500
million.  Typically,  only  one in 5,000 compounds entering pre-clinical testing
advances  into  human testing and only one in five tested in humans is approved.
By  contrast,  drug  delivery companies typically target drugs that already have
been  approved,  have a track record of safety and efficacy and have established
markets for which there is a proven medical need.  Consequently, clinical trials
related  to  drug  delivery  technologies  applied  to  previously-approved
pharmaceuticals  need  only  show  that  carrier  technologies  deliver the drug
without  harming  the  patient  or changing the clinical attributes of the drug.

SKIN  HEALTH  AND  RESTORATION  MARKET  OVERVIEW

     In  the  United States, skin health and restoration is managed primarily by
dermatologists  and  plastic  surgeons.  There  are  approximately  10,000
dermatologists  and  6,000  plastic surgeons whose practice includes skin health
and  restoration.  Skin  conditions  are typically treated with products such as
prescription  drugs,  over-the-counter  drugs  and  cosmetics,  as  well  as
office-based  procedures  such  as  chemical-based  skin peels. In recent years,
physicians  have  taken on an increasingly active role in the management of skin
restoration.  This  trend  reflects both the increased use of existing in-office
procedures  and  the  introduction  of  new  procedures  such  as  laser  skin
resurfacing,  laser  hair  removal  and microdermabrasion, a procedure where the
surface layer of the skin is physically removed. We believe that the growth also
represents  efforts  of  skin  care  physicians  to  broaden their practices and
sources  of  revenue to include more cosmetically-based products and procedures.
Third-party reimbursement policies have limited patient access to dermatologists
and imposed limits on the level of reimbursement for physician procedures, which
has  resulted  in  a  loss  of  revenue  to physicians. Physicians have tried to
compensate  for  this  lost revenue by focusing on cosmetic procedures which are
typically  elective and paid for directly by the patients and not subject to the
reimbursement  restrictions  imposed  by  third-party  payors.  Furthermore, the
aggregate  number  of physician-mediated cosmetic procedures, including non-skin
based  procedures  such as facelifts, hair transplants and breast augmentations,
have  grown  significantly in recent years, resulting in increased office visits
and opportunities for the sale of physician-mediated skin health and restoration
products.

     We  believe  that  the  skin health and restoration market will continue to
experience  strong  growth  as  a  result  of  several  factors,  including  the
development  of  new  products  and  procedures  for  a  wider range of cosmetic
treatments  and the gradual aging of the U.S. population.  Older segments of the
population  tend  to  control  large amounts of disposable income and are highly
motivated  to  improve  their  personal  appearance.

INTEGRATIVE  MEDICINE  MARKET  OPPORTUNITY

     BioSelect  plans  to  launch  a  new  proprietary  family  of  innovative
combination  of  OTC  drugs  with  natural  remedies  such as herbs, botanicals,
vitamins, and other supplements. BioSelect is targeting the nexus of traditional
medications  and  homeopathic  remedies.  Consumers  in  the  mass  market  have
demonstrated  increased  interest  in natural health products, including dietary


                                     - 15 -
<PAGE>
supplements,  vitamins  and botanical nutraceuticals, over the past decade. This
interest  level  is  being  met  with  the  increasing  availability  of  highly
efficacious pharmacological agents that were previously prescription-restricted.
This  growing  OTC  market  provides  a strong sales, marketing and distribution
channel  mechanism through which BioSelect's combined OTC-nutraceutical products
can  provide  customers  with  unique  ailment  solutions  while  simultaneously
providing  significant  financial opportunities for the many makers of OTC drugs
that are continually seeking new sources of growth. Management believes that its
proposed  OTC-nutraceutical  combination  products  have  the  potential  to:

     -    Enhance  the  health of consumers by combining the advances of science
          with  natural  remedies;
     -    Provide  consumers with a source of nutraceutical supplements promoted
          by  an  established,  trusted  OTC  companies;
     -    Enable  BioSelect  and  its  partners  to  expand  the  reach  of
          nutraceuticals  into the mass market by combining them with ubiquitous
          OTC  drugs;
     -    Establish intellectual property protection
          availed  through the combination of nutraceuticals with OTC drugs; and
     -    Provide  a  pharmaceutical  company  with  a  high-growth, high-margin
          product  line.

     We  believe  that  products  that combine OTC medications and nutraceutical
supplements  provide  a  unique  growth  opportunity.  For  the  pharmaceutical
industry,  which  has  traditionally  been reliant on medications switching from
prescription  status  to  OTC  status to spur growth, new products which combine
"traditional"  medications  and  homeopathic  remedies  are  expected  to  offer
substantial  new industry growth opportunities.  For the nutraceutical industry,
it  is  anticipated  that  the  successful  introduction  of  OTC-nutraceutical
combination  products  supported  by  one  or  more  established,  respected
pharmaceutical  companies  would  lend  the  industry  much  needed credibility.

RESEARCH  AND  DEVELOPMENT

     Research  and  development  efforts are generally devoted to four principal
areas:  (1)  development  of  new  technologies; (2) application of our existing
technologies  to  new  products;  (3) improvement of existing processes; and (4)
formulation  of  existing  and new biologically active compounds.  We have spent
approximately  $54,000 and $20,000 on Company-sponsored research and development
in  fiscal  years  ended  December  31,  2002  and  2001,  respectively.

PATENTS  AND  TRADEMARKS

     BioSelect  has  developed  a  number  of proprietary formulations that have
patents  pending.  These  patent  claims  address  the  unique  integration  of
selective  traditional  over-the-counter  generic  drugs  with  complementary
alternative  medications such as vitamins, herbs and other natural nutraceutical
supplements.  The  product  development effort focuses on developing proprietary
formulations  for  existing  products  and  on  the creation of formulations for
product  line  extensions.  The  preservation  and improvement of the quality of
BioSelect's  products  are  also  integral  parts  of  its  overall  strategy.

     BioSelect  maintains  and  has  applied for patent, trademark and copyright
protection in the United States relating to certain of its existing and proposed
products  and processes, including CONASE, COPROFEN, EPIGEST ESSENTIALS, FEMDERM
ESSENTIALS,  FEMGEST  ESSENTIALS,  and TRANSLIPOBASE.  There can be no assurance
that  BioSelect  will be able to successfully protect its intellectual property.

EMPLOYEES

     During  fiscal  year  2002,  we employed 22 persons on a full-time basis at
XCEL,  BioSelect  and  the  corporate  offices.  With  the  acquisition  of QBI,
effective  January 1, 2003, the number of employees increased by 88 persons to a
total  of 110 persons, including pharmacists, technicians, accounting, sales and
marketing, administrative, delivery and executive personnel.  A standard package
of  employee  benefits  is  provided  to  all full-time employees in addition to
on-the-job  training  and  advancement  opportunities.  None  of  the  Company's
employees  are  covered  by  a  collective  bargaining  agreement  and  none are
represented  by  labor  unions.

     Our subsidiaries have entered into Employment Agreements, Nondisclosure and
Non-Competition  Agreements  with each of their respective key employees.  These
Agreements  include  provisions  for salary increases and stock options based on
revenue and earnings growth that the respective operations may achieve.


                                     - 16 -
<PAGE>
ITEM  2.     DESCRIPTION  OF  PROPERTY

     Our  executive  offices  are  located  at Howard Hughes Center, 6080 Center
Drive,  6th  Floor,  Los  Angeles,  California.   We  also  lease  facilities in
Woodland  Hills,  California for the operations of XCEL and BioSelect.  With the
recent  acquisition  of QBI on February 25, 2003, effective January 1, 2003, the
Company  assumed  the lease on QBI's 53,000 square foot warehouse and processing
facility  located  in  South  Plainfield,  New Jersey.  The term of the lease is
twenty five years starting on May 1, 1997.  The lessor is MRA Associates, LLC, a
New  Jersey limited liability company, a third of which is beneficially owned by
Joseph  R.  Schortz,  the  President  and  Chief  Executive Officer of QBI.  The
Company  holds  an  option  to purchase the property from MRA Associates for $2,
250,000.  The  option  expires  in  five  years.

ITEM  3.     LEGAL  PROCEEDINGS

     FIRST  MIRAGE,  INC.  V. HEALTH SCIENCES GROUP, INC., ET. AL.  On March 24,
2003,  First  Mirage,  Inc. filed an action against the Company, Bill Glaser and
Transfer  Online,  Inc., in the United States District Court, District of Oregon
(CV  03 382 KI).  The complaint contains claims for declaratory judgment, breach
of  state  statutory  obligations,  conversion,  intentional  interference  with
economic  relations,  breach  of  fiduciary duty, and negligence.  The complaint
alleges  that  the  defendants wrongfully prevented First Mirage from completing
its  sale  of  66,337 shares of the Company's common stock on the open market by
refusing  to  reissue  the stock certificate representing those shares without a
restrictive  legend.  The  complaint seeks damages in an amount subject to proof
at  trial,  but  not  less  than  $90,000.  The  complaint  also  seeks  pre and
post-judgment  interest,  punitive  damages,  and  injunctive  relief.

     The  Company  believes  that  because  the shares at issue had been sold to
First  Mirage  by an affiliate of the Company, they were subject to the one-year
holding  period  set  forth in Rule 144 (promulgated under the Securities Act of
1933), which had not expired at the time of the proposed sale.  The Company thus
believes  that  the complaint is without merit and intends to defend the lawsuit
vigorously.  The  Company,  moreover,  has  agreed  to provide a defense for Mr.
Glaser  and  Transfer  Online,  Inc.

     This  litigation  is  in  its early stages and discovery has not commenced.
Therefore,  the  Company  is  unable to opine as to the probable outcome of this
matter  at  this  time.

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

     None.


                                     PART II


ITEM  5.     MARKET  FOR  ISSUER'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     Our  common stock began trading in the OTC Bulletin Board on August 3, 2001
and currently trades under the symbol "HESG". The following table sets forth the
high  and  low  bid  price  per share quotations as reported on the OTC Bulletin
Board  of  the  common stock for the periods indicated. These quotations reflect
inter-dealer prices, without retail mark up, mark down or commission and may not
necessarily  represent  actual  transactions.  Actual  prices  may  vary.

<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31, 2002:

                                       High   Low
                                       -----  -----
<S>                                    <C>    <C>
First Quarter . . . . . . . . . . . .  $4.20  $2.70
Second Quarter. . . . . . . . . . . .  $3.35  $1.30
Third Quarter . . . . . . . . . . . .  $2.00  $0.80
Fourth Quarter. . . . . . . . . . . .  $1.05  $0.55


                                     - 17 -
<PAGE>
FISCAL YEAR ENDING DECEMBER 31, 2001:

  High                                 Low
-------------------------------------  -----
First Quarter . . . . . . . . . . . .  $ n/a  $ n/a
Second Quarter. . . . . . . . . . . .  $ n/a  $ n/a
Third Quarter . . . . . . . . . . . .  $1.62  $0.07
Fourth Quarter. . . . . . . . . . . .  $4.90  $1.45
</TABLE>


     At March 31, 2003, we had approximately 100 holders of record of our voting
common  stock;  we  estimate  that  the Company has approximately 235 additional
beneficial  holders  of our common stock held in names of brokers and securities
depositories,  amounting  to  335  shareholders.  Of  the current holders of its
common stock, Messrs. Tannous and Glaser together beneficially own approximately
36%  of  the  Company.

     We  have not paid or declared cash distributions or dividends on our common
stock  and do not intend to pay cash dividends in the foreseeable future. Future
payment  of cash dividends rests within the discretion of the Board of Directors
and  is  based  on  our earnings, financial condition, capital requirements, and
other  factors.

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

     This  report  contains  forward-looking  statements  within  the meaning of
Section  27A  of  the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange  Act  of 1934, as amended.  Our actual results could differ
materially  from  those set forth as a result of general economic conditions and
changes  in the assumptions used in making such forward-looking statements.  The
following  discussion  and  analysis  of  our financial condition and results of
operations  should  be read in conjunction with the audited financial statements
and  accompanying notes and the other financial information appearing else where
in  this  Annual  Report on Form 10-KSB.  The financial information presented is
for the period January 1, 2001 to our fiscal year end, December 31, 2002.

CRITICAL  ACCOUNTING  POLICIES

     Our  discussion  and  analysis  of  results  of  operations  and  financial
condition  are based upon our consolidated financial statements, which have been
prepared  in  accordance  with  accounting  principles generally accepted in the
United  States  of  America  (GAAP).  The  preparation  of  these  consolidated
financial statements requires us to make estimates and judgments that affect the
reported  amounts  of  assets,  liabilities,  revenues and expenses, and related
disclosure  of  contingent assets and liabilities.  We evaluate our estimates on
an on-going basis, including those related to contractual allowance for accounts
receivable,  inventories,  goodwill,  intangible  assets,  and contingencies and
litigation.  We base our estimates on historical experience and on various other
assumptions  that  are  believed  to  be reasonable under the circumstances, the
results  of  which form the basis for making judgments about the carrying values
of  assets  and  liabilities  that  are not readily apparent from other sources.
Actual  results  may  differ from these estimates under different assumptions or
conditions.

     Note  1  of  the  "Notes  to  Consolidated Financial Statements" includes a
summary  of  the  significant  accounting  policies  and  methods  used  in  the
preparation  of our consolidated financial statements.  The following is a brief
description  of  the  more  significant  accounting policies and methods we use.

     Impairment  of  intangible  long-lived  assets.  Intangible  assets such as
     ----------------------------------------------
goodwill, patents and formulas could become impaired and require a write-down if
circumstances  warrant.  Conditions that could cause an asset to become impaired
include  lower-than-forecasted  revenues,  changes  in  our  business plans or a
significant adverse change in the business climate.  The amount of an impairment
charge would be based on estimates of an asset's fair value as compared with its
book  value.  In  accordance  with GAAP, we perform a valuation of our assets to
determine  if  any  impairment  exists.

     Contractual  Allowance.  The  difference between XCEL's established billing
     ----------------------
rates  and  the  amount  estimated  by  us as reimbursable from health insurance
companies  is the contractual allowance. The contractual allowance could vary if
there  is  a  change  in  the  health  insurance  company's established policies
relating  to  covered  services  or  billing rates. We review and, if warranted,
adjust  our  contractual  allowance  on  a  quarterly  basis.

OVERVIEW

     Health  Sciences  Group,  Inc.,  a  Colorado  corporation, is an integrated
provider  of  innovative  products  and  services  to  the  nutraceutical,
pharmaceutical,  and  cosmeceutical industries offering value-added ingredients,
bioactive  formulations,  and  proprietary  technologies  used  in  nutritional
supplements,  functional  foods  and beverages, and skin care products.  Through
fiscal  year  2002,  its  subsidiaries  consisted  of  XCEL  Healthcare, a fully
licensed,  specialty  compounding  pharmacy  focused  on delivering full service
pharmacology solutions to customers with chronic ailments that require long-term
therapy;  and  BioSelect Innovations, which develops and sells products based on


                                     - 18 -
<PAGE>
proprietary  technologies  in  the  areas of topical and topical and transdermal
drug  delivery,  cosmeceuticals, and integrative medicine to a global network of
customers  who manufacture and distribute compounded pharmaceuticals, functional
foods  and  beverages,  skin  care  products  and  cosmetics.

ACQUISITION  OF  QUALITY  BOTANICAL  INGREDIENTS,  INC.

     On  February 25, 2003, effective January 1, 2003, the Company completed its
acquisition  of  Quality  Botanical  Ingredients  pursuant  to an Asset Purchase
Agreement.  QBI  is  a  leading  manufacturer  and  contract  processor  of bulk
botanical  materials  and  nutritional ingredients supplied to buyers in various
industries  including  pharmaceutical,  nutraceutical,  and  cosmetics.

RESULTS  OF  OPERATIONS

     The  results  described  herein  reflect the consolidated operations of the
Company  and  its  two  wholly-owned  subsidiaries,  XCEL  Healthcare,  Inc. and
BioSelect  Innovations,  Inc.  As  the  Company  purchased  XCEL  and  BioSelect
effective  December  31,  2001,  the  results of operations include one month of
operations  for  the  fiscal  year  ended December 31, 2001 and twelve months of
operations  for  the  fiscal  year  ended  December  31,  2002.

<TABLE>
<CAPTION>
SELECTED STATEMENT OF OPERATIONS INFORMATION

                      Fiscal Year Ended December 31,
                      ------------------------------
                           2002           2001
                      --------------  --------------
<S>                   <C>             <C>
  Net sales           $   5,537,991   $     341,813
  Gross profit        $   1,488,865   $      82,989
  Net Loss            $  (4,283,936)  $    (735,096)
  Net loss per share  $       (0.73)  $       (0.22)
</TABLE>


Fiscal  year  ended December 31, 2002 compared to fiscal year ended December 31,
--------------------------------------------------------------------------------
2001
----

     NET  SALES  AND  COST  OF  GOODS  SOLD.  Our consolidated net sales for the
fiscal  years  ended December 31, 2002 and 2001 totaled $5,537,991 and $341,813,
respectively.  Net  sales  for 2001 were derived from one month of operations of
XCEL  and BioSelect.  Cost of goods sold for the same periods totaled $4,049,126
and $258,824, respectively.  As a percentage of net sales, cost of good sold was
73.1%  and  75.7%  for the years ended December 31, 2002 and 2001, respectively.
Included  in  cost  of  goods  sold  for  the  year  ended December 31, 2001, is
approximately  $50,000  of non-recurring expense related to the stepped-up basis
in  inventory  at  December  1, 2001 due to the purchase of XCEL and pursuant to
SFAS No. 141.  Without this one-time charge, our cost of goods sold was $209,321
for  2001  or  61.2%  of  net  sales.

     The  increase  in  cost  of  goods sold is primarily due to higher costs of
certain  medications  for some of our patients, which have a lower reimbursement
rate from the insurance payor and fees paid for additional contract pharmacists.
In  an effort to reduce our cost of goods sold, we are improving our procurement
efficiencies  and  inventory management and streamlining our labor force.  We do
not  expect to reduce our labor force but reallocate certain duties to allow for
a  more  efficient  operation.  We  hope  to  reduce  cost  of  goods  sold as a
percentage  of  net  sales  through  increased  purchasing power and operational
efficiencies.  We  have  signed  a  new contract with a purchasing group and has
implemented  procedures  to  consolidate  our  purchasing  to  a select group of
vendors  which  will  allow  for  increased  purchasing  power.

     OPERATING AND INTEREST EXPENSES.  Total consolidated operating expenses for
the  fiscal years ended December 31, 2002 and 2001 totaled $5,568,983, or 100.6%
of  net  sales,  and  $908,455, or 265.8% of net sales, respectively.  Operating
expenses include selling expenses which consist primarily of commissions paid to
an  outside consultant totaling approximately $32,000 and $17,000 for the fiscal
years  ended  December  31, 2002 and 2001, respectively.  Operating expenses for
the  fiscal  years ended December 31, 2002 and 2001 for the portfolio companies,
XCEL  and  BioSelect, totaled $1,703,959, or 30.8% of net sales and $125,860, or
36.8%  of  net  sales.  Total consolidated interest expense for the fiscal years
ended  December  31,  2002  and  2001 totaled $203,818, or 3.7% of net sales and
$4,446,  or  1.3%  of  net sales, respectively.  Interest expense for the fiscal
years  ended  December  31,  2002 and 2001 for our subsidiary companies, totaled
$38,371,  or  0.7% of net sales and $4,446, or 1.3% of net sales.  Our operating
expenses  primarily  include  the  following:


                                     - 19 -
<PAGE>
<TABLE>
<CAPTION>
                                       Fiscal Year Ended December 31
                                 ----------------------------------------
                                          2002               2001
                                 --------------------  ------------------
Expense                           $Amount    % Sales   $Amount   % Sales
-------------------------------  ----------  --------  --------  --------
<S>                              <C>         <C>       <C>       <C>
  Consulting expenses            $2,644,000     47.7%  $385,000    112.6%
  Salary expenses                $1,326,000     23.9%  $215,000     62.9%
  Professional fees              $  587,000     10.6%  $131,595     38.5%
  Depreciation and amortization  $  292,000      5.3%  $ 33,000      9.7%
</TABLE>

     Consulting expenses include fees paid to consultants for investor relations
services  including  providing  financial  communication  programs,  increasing
general  market  awareness, educating retail brokers and institutional networks,
assisting  management  with the development of strategic approaches to accessing
the equity and debt markets, and identifying and reviewing potential acquisition
candidates.  Consulting  expenses also include fees paid to consultants relating
to  the  business  development  of  Health  Sciences  Group  and  its subsidiary
companies,  XCEL  and  BioSelect.  These  services  include developing corporate
strategies,  planning  for  the  Company's  anticipated commercialization of new
products,  formulating and evaluating potential corporate options, and expanding
subsidiary  company  operations  through  an  integrated  process  of  analysis.

     We expect to continue to increase market awareness, continue to develop our
strategic  approaches,  perform  due  diligence  on  acquisition  candidates and
acquire  them  accordingly.  Therefore,  costs  related  to  these activities to
remain  constant  in  the  near  term.

     Salary expenses include amounts paid to pharmacists and office personnel as
well  as  $409,000  of  compensation  deferred  by  Messrs.  Tannous and Glaser,
officers  and  major  shareholders  of the Company.  We expect salary expense to
decrease  as  a  percentage  of  sales  as  additional  companies  are added and
operational  efficiencies  are  achieved.

     Professional  fees  include  accounting  and  legal  services  performed.
Depreciation  and  amortization  increased  as  a  result of the amortization of
intangible assets established with the purchase of XCEL and BioSelect.  Interest
expense  includes  interest  on  lines  of  credit  and notes payable as well as
non-recurring  financing costs totaling approximately $128,000 expensed in 2002.

     NET  LOSS.  Net  loss for the fiscal years ended December 31, 2002 and 2001
totaled  $(4,283,936) or (77.4)% of net sales, and $(735,096) or (215.1)% of net
sales, respectively.  Net loss per share of common stock was $(0.73) and $(0.22)
for  the  fiscal years ended December 31, 2002 and 2001, respectively.  Net loss
for the fiscal years ended December 31, 2002 and 2001 for the subsidiary company
operations  totaled $(253,465) and $(46,171) or (4.6)% and (13.5%) of net sales,
respectively.

     Earnings  before  interest, taxes, depreciation and amortization ("EBITDA")
for the fiscal years ended December 31, 2002 and 2001 for our subsidiary company
operations  totaled  $58,698  and  $(20,529)  or  1.1% and (6.0%), respectively.
There  can  be  no  assurance  that we will ever achieve profitability or that a
stream  of  revenue  can  be  generated  and  sustained  in  the  future.

CAPITAL  RESOURCES  AND  LIQUIDITY

     ASSETS.  Our current assets totaled $1,267,831 and $518,933 at December 31,
2002  and  2001,  respectively.  Total  assets were $5,971,410 and $6,269,196 at
December  31,  2002  and  2001, respectively.  The increase in current assets is
primarily  due  to  increases  in  cash  of approximately $169,000, net accounts
receivable  of $167,000 and other current assets of $328,000.  Substantially all
other  current  assets  represent  due diligence fees and fees paid to attorneys
relating  to  the  purchase  of  QBI.  The  decrease  in  total assets is due to
amortization of intangible assets and the rescission of the Company's investment
in  Biofarm  S.A.  At  December  31, 2002, assets consisted primarily of patents
totaling  $3,300,000,  net  formula  costs  totaling  $630,889,  net  accounts
receivable  totaling  $567,047,  excess  of  cost  over fair value of net assets
acquired  totaling  $350,546,  net  agreements  not-to-compete  costs  totaling
$249,167,  and cash on hand of $169,024.  At December 31, 2001, assets consisted
primarily  patents totaling $3,300,000, net formula costs totaling $676,223, net
accounts  receivable  totaling  $399,913,  and  net  agreements  not-to-compete
totaling  $379,167.

     LIABILITIES  AND  WORKING  CAPITAL.  Our  current  liabilities  totaled
$1,262,520  and  $1,242,746  at  December 31, 2002 and 2001, respectively.  This
resulted  in  working capital totaling $5,311 at December 31, 2002 and a working
capital  deficit  of  $(723,813)  at  December 31, 2001.  Total liabilities were
$1,501,442  and  $1,284,887  at  December  31, 2002 and 2001, respectively.  The
increase  in  liabilities  is  primarily  due to increases in notes payable.  At
December 31, 2002 and 2001, liabilities consisted primarily of accounts payable,
accrued  expenses  and  notes  payable.

CASH  REQUIREMENTS  AND  ADDITIONAL  FUNDING


                                     - 20 -
<PAGE>
     We have generated financial growth primarily through cash flows provided by
financing  activities.  In  2002,  financing  activities  generated  net cash of
approximately  $784,000  compared  to  approximately $460,000 in 2001.  Cash and
cash equivalents increased to approximately $169,000 in 2002.  We had no cash or
cash  equivalents  in  2001.

     As  of  March  31,  2003, our principal commitments consisted of agreements
with  various  consultants who will provide us with business development, public
and  financial  relations,  and  raising  additional debt or equity financing in
exchange  for  stock  of  the  Company or a portion of proceeds from the sale of
stock.

     We  believe  that cash on hand will be insufficient to meet our anticipated
needs for working capital, capital expenditures and business development for the
next  twelve  months.  We are currently in the process of negotiating $1,000,000
to  $3,000,000  from  the  sale of equity securities.  If we are unable to raise
additional  funds,  we  may  be  forced  to  curtail  or  cease  operations.

     Even  if we are able to continue our operations, the failure to obtain debt
or  equity financing could have a substantial adverse effect on our business and
financial  results,  and we may need to delay purchases of additional companies.
Although we have historically relied upon financing provided by our officers and
directors  to  supplement  operations, they are not legally obligated to provide
the  Company  with  any  additional  funding  in  the  future.

     In  the  future,  we  may be required to seek additional capital by selling
debt  or  equity  securities,  selling assets, or otherwise be required to bring
cash flows in balance when it approaches a condition of cash insufficiency.  The
sale of additional equity securities, if accomplished, may result in dilution to
our  shareholders.  We  cannot assure shareholders, however, that financing will
be  available  in  amounts  or  on  terms  acceptable  to  us,  or  at  all.

SUBSEQUENT  EVENTS

Business  Acquisition
---------------------

     Effective  January  1,  2003, we formed a new subsidiary, Quality Botanical
Ingredients  Inc.,  a  Delaware  corporation,  that  purchased substantially all
assets and assumed certain liabilities of Quality Botanical Ingredients, Inc., a
New  Jersey  corporation (now known as AAA Health Products, Inc.) pursuant to an
Asset  Purchase  Agreement  for  1,206,033 shares of the Company's common stock,
which  includes 433,333 shares placed in an escrow account through July 25, 2003
and  200,000  shares  issued to consultants for services provided to the Company
relating  to  the  acquisition. The value of the shares totaled $976,887 and was
determined  based  on  the  average closing market price of the Company's common
stock over the two-day period before and after the terms of the acquisition were
agreed to and announced. Shares placed in escrow totaling 333,333 are subject to
set-off  of  any  accounts  receivable remaining after 150 days from the closing
date.  The  remaining  100,000 shares are subject to settlement of any indemnity
claims.  Additional  shares,  not  to  exceed 1,250,000, of the Company's common
stock  will  be  issued  to the seller should the closing price of the Company's
common stock not achieve certain levels after one year from the closing date. An
additional  200,000  shares  shall be issued to the seller upon reaching certain
levels  of  gross  revenues  and gross operating margins as compared to its 2001
financial  results.  Pursuant  to the Agreement, we contributed $200,000 to QBI,
which  was  used  as payment to QBI's creditors. We also contributed $400,000 to
QBI,  of  which,  $350,000  was  used  to  pay down QBI's line of credit and the
remaining  $50,000  was  paid to QBI's lender as a loan fee. Within 90 days from
the date of close, we are required to contribute and additional $100,000 to QBI,
which  shall  be  used  to  pay  down  debt  assumed  during  the  acquisition.

     In  February  2003,  QBI  (Delaware),  entered into a loan agreement with a
financial institution for a maximum line of credit totaling $4 million. Interest
is due monthly on the outstanding balance at a rate of 1.5% above the prime rate
as  published in the Wall Street Journal. The loan agreement expires in February
2004  and is secured by substantially all assets of the newly formed subsidiary.
The  financial institution will make advances on the loan agreement up to 80% of
accounts receivable to a maximum of $4 million and 55% of inventory to a maximum
$1.8  million.  The  borrowings  are  guaranteed  by  the Company and personally
guaranteed  by  the  shareholders  of  the purchased company. The credit line is
limited  as  to  use  by  the  new  QBI  subsidiary  company.

     Additionally,  the  newly  formed  QBI  subsidiary assumed notes payable of
$387,481  and  $63,194 with a financial institution.  The notes earn interest at
2.5%  above  the  prime  rate  as published in the Wall Street Journal.  Monthly
payments of principal and interest total $24,921 and $5,228 are due through July
2004  and  March 2004, respectively. The notes are guaranteed by the Company and
personally  guaranteed  by  the  shareholders  of  the  purchased  company.

     In  keeping  with  our  focus  to  be  an integrated provider of innovative
products  and  services  to the nutraceutical, pharmaceutical, and cosmeceutical
industries,  the  assets  and  business  purchased from QBI allows us to process
domestic and imported botanical and nutraceutical raw materials into nutritional
supplement  components which are sold to manufactures throughout the world.  The


                                     - 21 -
<PAGE>
acquisition  has  been accounted for as a purchase pursuant to SFAS No. 141 and,
accordingly,  the  acquired  assets  and liabilities assumed will be recorded at
their  estimated  fair  values  at  the  date  of  acquisition.

Consulting  Agreements
----------------------

     In  January 2003, we entered into an agreement with a consultant to provide
financial  relations  services  through December 31, 2003.  The agreement grants
the  consultant options to purchase 250,000 shares of the Company's common stock
at  an  exercise price of $0.55 per share.  The options vest equally every three
months  and  expire  three years from the date of grant.  The estimated value of
the  options  total  approximately  $118,000.  The  value  of  the  options  was
estimated  using  the  Black-Scholes  option  pricing  model  with the following
assumptions:  average  risk-free  interest  of  2.00%;  dividend  yield  of  0%;
volatility  factor of the expected market price of the Company's common stock of
167%;  and  a  term  of  three  years.

     In  February  2003,  we issued 8,761 shares of common stock to a consultant
for  business  development  services.  The  value  of  the  shares  totaled
approximately  $3,500  at  the  date of issuance and was determined based on the
fair  market  value  of  the  Company's  common  stock  at the date of issuance.

     In  March  2003, we entered into agreements with two consultants to provide
investor  relations  services through September 11, 2003 and March 24, 2004.  We
issued  a  total  of  190,000  shares  of  the  restricted  common  stock to the
consultants  as consideration for the services to be provided.  The value of the
shares  issued  totaled  approximately  $146,000 at the date of issuance and was
determined  based  on the fair market value of the Company's common stock at the
date  of  issuance.

Convertible  Debentures
-----------------------

     In  February 2003, we sold $300,000 of convertible debentures pursuant to a
Securities  Purchase Agreement.  Additionally, we issued 571,428 of common stock
purchase warrants to the debenture holders.  Each warrant entitles the holder to
purchase  one share of common stock at an exercise price of $0.60.  The warrants
expire  in February 2008.  The debentures accrue interest at 12% per annum.  The
unpaid  principal  and  accrued interest is due on February 24, 2004.  The notes
are  collateralized  by  a  second  position  in substantially all assets of the
Company  and shares owned by the officers and major shareholders of the Company.
Commencing  July  24,  2003,  the  debentures  can  be converted at $0.525.  The
estimated  value  of  the warrants totaled approximately $462,000 at the date of
issuance.  The  value  of  the  warrants  was  estimated using the Black-Scholes
option pricing model with the following assumptions:  average risk-free interest
of  2.82%;  dividend yield of 0%; volatility factor of the expected market price
of  the  Company's  common  stock  of  167%;  and  a  term  of  five  years.

     The  discount attributable to the value of the warrants as calculated using
the  Black-Scholes pricing model and the value of the equity conversion features
exceeded  the  face value of the convertible notes.  As a result, the notes were
fully  discounted  and  the discount was recorded as additional paid-in capital.
The  discount will be amortized on a straight-line basis over one year giving an
effective  interest  rate  in  excess  of  100%.

     Additionally,  we granted 85,712 stock purchase warrants to two consultants
as  consulting  services  relating  to  the  convertible  debentures sold by the
Company.  Each warrant entitles the holder to purchase one share of common stock
at  an  exercise  price  of  $0.60.  The  warrants expire in February 2008.  The
estimated  value  of  the  warrants totaled approximately $69,000 at the date of
issuance.  The  value  of  the  warrants  was  estimated using the Black-Scholes
option pricing model with the following assumptions:  average risk-free interest
of  2.82%;  dividend yield of 0%; volatility factor of the expected market price
of  the  Company's  common  stock  of  167%;  and  a  term  of  five  years.

Line  of  Credit
----------------

     In  February  2003,  XCEL Healthcare, Inc. entered into a Loan and Security
Agreement with a finance company for a maximum line of credit totaling $750,000.
Interest  is  due  monthly  on  the outstanding balance at a rate of 3.75% above
company's  reference  rate.  The  Loan Agreement expires in February 2006 and is
secured  by  substantially  all  assets  of XCEL.  The finance company will make
advances  on  the loan agreement up to 75% of eligible accounts receivable.  The
borrowings  are guaranteed by Health Sciences Group and personally guaranteed by
the  majority stockholders of Health Sciences Group.  The credit line is limited
as  to  use  by  XCEL.

     XCEL  must  maintain  the  following  financial  ratio  and  covenant:


                                     - 22 -
<PAGE>
     -    Minimum working capital ratio = .75 to 1
     -    XCEL must be profitable

     Additionally,  we  agreed  to  pay  $37,500 and issue 30,000 stock purchase
warrants  to  a  consultant  for  services relating to the line of credit.  Each
warrant entitles the holder to purchase one share of common stock at an exercise
price  of $0.95.  The warrants expire February 2008.  The estimated value of the
warrants  totaled  approximately  $25,000 at the date of issuance.  The value of
the warrants was estimated using the Black-Scholes option pricing model with the
following  assumptions:  average  risk-free interest of 2.75%; dividend yield of
0%; volatility factor of the expected market price of the Company's common stock
of  167%;  and  a  term  of  five  years.

Securities  Purchase  Agreements
--------------------------------

     In March 2003, we entered into Securities Purchase Agreements providing for
the  sale  of 247,273 units, comprised of 247,273 shares of the Company's common
stock  and 247,273 common stock purchase warrants at $0.55 per unit.  The shares
are restricted pursuant to Rule 144 of the Securities Act of 1933.  Each warrant
entitles  the  holder to purchase one share of common stock at an exercise price
of  $1.00.  The  warrants  expire  three years from the date of grant.  Proceeds
from  the  sale  of  shares  and  warrants  totaled  $136,000.

     In April 2003, we entered into Securities Purchase Agreements providing for
the  sale  of 110,000 units, comprised of 110,000 shares of the Company's common
stock  and 110,000 common stock purchase warrants at $0.90 per unit.  The shares
are restricted pursuant to Rule 144 of the Securities Act of 1933.  Each warrant
entitles  the  holder to purchase one share of common stock at an exercise price
of  $1.25.  The  warrants  expire  three years from the date of grant.  Proceeds
from  the  sale  of  shares  and warrants through April 8, 2003 totaled $99,000.

Settlement  Agreement
---------------------

     In  March  2003,  we entered into a Settlement Agreement and Mutual General
Release  with  a  consulting  firm  who  filed  a  complaint against the Company
alleging  breach  of  contract  related  to  consulting  services  for corporate
development  and  operations expansion. Pursuant to the settlement agreement, we
converted  $126,000  of  accounts  payable into a note payable to the consulting
firm  for  the  principal  amount  of  $126,000 with monthly payments of $12,000
including  interest  at  10%  per  annum  through  February  2004.

Conversion  of  Note  Payable
-----------------------------

     In  March  2003,  we issued 40,000 shares of common stock in exchange for a
note  payable  due  an  individual  totaling  $27,000 including interest expense
totaling  $5,000.  The  shares  are  restricted  pursuant  to  Rule  144  of the
Securities  Act  of  1933.  The  value of the shares was determined based on the
fair  market  value  of  the  Company's  common  stock  at the date of issuance.

Other  Stock  Issuances
-----------------------

     In  January  2003,  we issued 19,250 to two employees as compensation.  The
value  of  the  shares totaled approximately $13,000 and was determined based on
the  fair  market  value  of the Company's common stock at the date of issuance.

     In  February 2003, we issued 162,201 shares of common stock to a consultant
for  legal services.  The value of the shares totaled approximately $127,000 and
was  determined  based on the fair market value of the Company's common stock at
the  date  of  issuance.

Loans  Payable - Officer/Stockholders
-------------------------------------

     Two  officers/stockholders loaned a total of $35,000 to the Company through
April 11, 2003.  These loans accrue interest at 8% per annum.  The principal and
any  unpaid  interest  are  due  on  demand.


                                     - 23 -
<PAGE>
                           FORWARD-LOOKING STATEMENTS

     In  connection  with  the  safe harbor provisions of the Private Securities
Litigation  Reform  Act  of  1995  (the  "Reform  Act"),  the  Company is hereby
providing  cautionary  statements identifying important factors that could cause
the  Company's  actual  results  to  differ  materially  from those projected in
forward-looking  statements  (as such term is defined in the Reform Act) made by
or  on  behalf  of  the  Company  herein or orally, whether in presentations, in
response  to  questions  or  otherwise.  Any statements that express, or involve
discussions  as  to,  expectations,  beliefs,  plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases  such  as  "intends,"  "plans,"  "will result," "are expected to," "will
continue,"  "is  anticipated,"  "estimated," "projection" and "outlook") are not
historical  facts  and  may be forward-looking and, accordingly, such statements
involve  estimates,  assumptions,  and  uncertainties  which  could cause actual
results  to  differ  materially  from  those  expressed  in  the forward-looking
statements.  The  Company  cautions that actual results or outcomes could differ
materially  from those expressed in any forward-looking statements made by or on
behalf of the Company.  Any forward-looking statement speaks only as of the date
on  which  such  statement  is made, and the Company undertakes no obligation to
update  any  forward-looking  statement  or  statements  to  reflect  events  or
circumstances  after  the date on which such statement is made or to reflect the
occurrence  of  unanticipated events.  New factors emerge from time to time, and
it  is  not  possible  for  management to predict all of such factors.  Further,
management  cannot  assess the impact of each such factor on the business or the
extent  to which any factor, or combination of factors, may cause actual results
to  differ  materially  from  those contained in any forward-looking statements.

ITEM 7.   FINANCIAL  STATEMENTS

     Our audited financial statements required by Item 310(a) of Regulation S-B,
together  with  the  independent auditors' reports of Stonefield Josephson, Inc.
for  fiscal  years  ended  2002  and  2001,  begin  on  page  F-1  hereof.

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

     None.


                                     - 24 -
<PAGE>
                                    PART III

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

     The  following table sets forth the name, age and position of each director
and  executive  officer  of  Health  Sciences  Group, Inc. and its subsidiaries.
There  are  no  other persons who can be classified as a promoter or controlling
person  of  the  Company.

<TABLE>
<CAPTION>
=============================================================================================================
Name                          Age                                    Title
-------------------------------------------------------------------------------------------------------------
<S>                           <C>  <C>
  Fred E. Tannous              36  Co-chairman of the Board, Chief Executive Officer, and Treasurer
  Bill Glaser                  36  Co-chairman of the Board, President, and Secretary
  Joseph R. Schortz, CPA       54  President and Chief Executive Officer, Quality Botanical Ingredients, Inc.
  Ronald A. Gustilo            38  Director of Operations, XCEL Healthcare, Inc.
  Dr. Richard L. Kleinberger   39  Director of Pharmacy, XCEL Healthcare, Inc.
  Jeff Simon                   43  Vice President Sales & Marketing, XCEL Healthcare, Inc.
  Dr. Daniel I. Gelber         51  Director of Research & Development, BioSelect Innovations, Inc.
=============================================================================================================
</TABLE>


Health  Sciences  Group,  Inc.
------------------------------

     FRED  E. TANNOUS is Co-chairman, Chief Executive Officer, and Treasurer, of
Health  Sciences  Group.  Previously,  Mr. Tannous was employed at DIRECTV, Inc.
where  he was involved in various capacities including valuing, structuring, and
executing  strategic  investments.  Prior  to  joining  DIRECTV,  a wholly owned
subsidiary of Hughes Electronics Corporation, Mr. Tannous was with the corporate
treasury  organization  of Hughes where he assisted in conducting valuations and
effectuating  financing  transactions  for  the  company's satellite and network
communication  units.  From  February  1996  to  May 1999, Mr. Tannous served as
Treasurer and Chief Financial Officer of Colorado Casino Resorts, Inc., a gaming
and  lodging concern with operations in Colorado.  In addition to overseeing the
company's  finance  and  accounting  operations,  he  was  accountable  for  all
corporate  finance and treasury activities.  Previously, as principal of his own
consulting  firm,  Mr. Tannous consulted to several start-up ventures in various
industries  where  he was instrumental in developing business plans, advising on
business  strategy and capital structure, and arranging venture financings.  Mr.
Tannous received an MBA in finance and accounting from the University of Chicago
Graduate  School  of  Business.  He also holds a Masters and Bachelors degree in
Electrical  Engineering  from  the  University  of  Southern  California.

     BILL  GLASER  is  Co-chairman,  President, and Secretary of Health Sciences
Group.  Mr. Glaser was founder and Chief Executive Officer of a start-up venture
established  in  July  1999  for the purpose of operating an online resource for
health-conscious  living.  From  July  1994  to May 2000, Mr. Glaser founded and
served  as  the  Chief  Executive  Officer of Zenterprise, Inc., a comprehensive
strategic  and  management-consulting  firm, which focused primarily on business
strategy,  marketing,  and management consulting services for public and private
companies.  From  September  1991  to  July  1994,  Mr.  Glaser was a registered
principal  of a regional stock brokerage firm where he gained diverse experience
in  finance,  management,  marketing,  sales,  and  public  company  relations.
Previously,  he  was a registered representative at Drexel, Burnham, Lambert and
Smith Barney.  Mr. Glaser holds a Bachelors degree in finance and economics from
the  Ithaca  College  -  School  of  Business.


Quality  Botanical  Ingredients,  Inc.
--------------------------------------

     JOE  R.  SCHORTZ,  CPA  is President and Chief Executive Officer of Quality
Botanical Ingredients (QBI), which was acquired by the Company in February 2003.
For  over  five  years  at  QBI,  Mr. Schortz has been instrumental in providing
strategic  guidance  and  operational  oversight  in all aspects of the business
resulting  in streamlined operations, expanded customer base, increased revenues
and  profitability.  From  1988  through  1995,  as  principal of his accounting
practice,  Mr.  Schortz  provided financial statement and tax return preparation
services  and  provided  consulting  services on various aspects of the business
including  capital  formation,  management  information  systems,  and financial
planning.  Mr.  Schortz  earned  a Certified Public Accountants license in 1975,
and practiced public accountancy from 1971 through 1996.  He is currently active
with the American Institute of Certified Public Accountants (AICPA), where he is
a  member  of  the  Group  of  100,  the  New Jersey Society of Certified Public
Accountant's  (NJSCPA)  and  the LCM Foundation International, Inc.  Mr. Schortz
also  holds  a  Bachelor  of Science degree in Accounting from Pfeiffer College.


                                     - 25 -
<PAGE>
XCEL  Healthcare,  Inc.
-----------------------

     RONALD  A.  GUSTILO  serves as the Director of Operations where he oversees
the  day-to-day  operations  of  XCEL  Healthcare.  Ron  is  responsible  for
implementing  the  operations  plan  and  long-term growth strategy.  Prior, Mr.
Gustilo  was Manager and Certified Pharmacy Technician at NMC Homecare, Inc.  In
1992, Ron started his career as a certified pharmacy technician with the Medical
Center  of  North  Hollywood  in  California.  Mr.  Gustilo  holds a Bachelor of
Science  degree  in  Business  Administration  from  the  University of Phoenix.

     DR.  RICHARD  L.  KLEINBERGER  serves  as the Director of Pharmacy for XCEL
Healthcare  where  his  primary  focus  is  developing  and  monitoring  patient
services,  promoting  customer  relations, and guiding the pharmacy staff on all
pharmacological policies and procedures including regulatory compliance and cost
management.  Prior,  Dr.  Kleinberger  was  a  Pharmacy Manager at NMC Homecare,
Inc.,  an  alternate  site  company specializing in intravenous therapies, Total
Parenteral  Nutrition  (TPN),  aminoglycosides,  and  pharmaceutical monitoring.
Previously, he was a Clinical Pharmacist for Children's Hospital of Los Angeles.
Dr.  Kleinberger  earned  a  Doctor  of Pharmacy from the University of Southern
California.  He  also  holds  a  Bachelor  of  Science  in  Psychobiology  from
University  of  California,  Los  Angeles.

     JEFF  SIMON  serves  as  Vice  President  of  sales  and marketing for XCEL
Healthcare where he is responsible for customer development and lead generation,
new  product  sales,  and  product  launch  and promotion.  Working closely with
wholesalers  and  distributors,  Mr.  Simon  is  active  in structuring creative
marketing  campaigns  for  new  product  introductions.  Prior,  Jeff  served as
President  of  Rx-Assist/Traction  Plus,  a  medical  staffing  company  that
specialized  in  serving  the  emergency  staffing  needs  of specialty homecare
pharmacies  and  hospitals.  During  his  career,  he  was  involved  in several
successful  start-up  pharmacies,  including  Clinishare, which was purchased by
Catholic  Healthcare West, and Community Alimentation Services, now operating as
Lifecare  Solutions.  Mr.  Simon  is  a  Certified  Pharmacy  Technician.


BioSelect  Innovations,  Inc.
-----------------------------

     DR.  DANIEL  I.  GELBER  serves as Director of Research and Development for
BioSelect  Innovations  where he manages the product development initiatives and
oversees  the  company's  specialty  compounding efforts.  Prior, Dr. Gelber was
Pharmacist  Specialist  at  NMC  Homecare, Inc.  Previously, he has held several
management positions in other segments of the industry, including radiopharmacy,
nutritional  support, manufacturing, operations and TPN.  Dr. Gelber is a member
of  several  industry  associations  including  the  American  Pharmaceutical
Association,  American  Nutraceutical  Association, and International Academy of
Integrated  Medicine.  As  a  recognized  leader  in  his  field,  Dr. Gelber is
frequently  asked  to  participate  in  educational  endeavors  for  prominent
institutions.  Dr.  Gelber  earned  a  Doctor of Pharmacy from the University of
Southern California.  He also holds a Bachelor of Science degree in Bacteriology
from  University  of  California,  Los  Angeles.


     Directors  are elected annually and hold office until the annual meeting of
the  shareholders  of  Health  Sciences and until the successors are elected and
qualified.  There  are  no  family relationships among Health Sciences' officers
and  directors.  Directors  of  Health  Sciences  may  receive  compensation  as
determined  by  Health  Sciences  from  time  to  time  by  vote of the Board of
Directors.  Such  compensation  might  be  in the form of stock options.  Health
Sciences  may reimburse directors for expenses incurred in attending meetings of
the  Board  of  Directors.

     While  we  have not established an Audit Committee at the present time, the
entire  Board  of  Directors acts as the Audit Committee until such time that an
Audit  Committee  is  formed and financial expert is elected.  Also, we have not
adopted  a  Code  of  Ethics at the present time, however expect to do so in the
near  term.


                                     - 26 -
<PAGE>
ITEM  10.     EXECUTIVE  COMPENSATION

          The  following  table  sets forth, for the fiscal years ended December
31,  2002 and 2001, the compensation paid or accrued by the Company to its below
named  officers:

<TABLE>
<CAPTION>
                                                 SUMMARY COMPENSATION TABLE

============================================================================================================================
                                                    Annual Compensation                                  Awards
                              ----------------------------------------------------------------------------------------------
                                                                                      Restricted  Securities
     Name and                                                           Other Annual    Stock      Underlying     All Other
Principal Position                Year       Salary($)      Bonus($)    Compensation  Awards($)   Options/SARs  Compensation
----------------------------  ------------  ------------  ------------  ------------  ----------  ------------  ------------
<S>                           <C>           <C>           <C>           <C>           <C>         <C>           <C>
Fred E. Tannous                   12/31/02  $   190,000            --             --          --       350,000            --
CEO, Treasurer                    12/31/01  $    11,538            --             --  $  125,000       250,000            --
Health Sciences Group, Inc.

----------------------------  ------------  ------------  ------------  ------------  ----------  ------------  ------------
Bill Glaser                       12/31/02  $   190,000            --             --          --       350,000            --
President, Secretary              12/31/01  $    11,538            --             --  $  125,000       250,000            --
Health Sciences Group, Inc.

----------------------------  ------------  ------------  ------------  ------------  ----------  ------------  ------------
Ronald A. Gustilo                 12/31/02  $    84,756   $    12,552             --  $   95,760            --            --
Director of Operations            12/31/01  $   7,063(1)           --             --          --            --            --
XCEL Healthcare, Inc.

----------------------------  ------------  ------------  ------------  ------------  ----------  ------------  ------------
Richard L. Kleinberger            12/31/02  $   125,000   $    18,511             --  $   95,760            --            --
Director of Pharmacy              12/31/01  $  10,416(1)           --             --          --            --            --
XCEL Healthcare, Inc.

----------------------------  ------------  ------------  ------------  ------------  ----------  ------------  ------------
Jeffrey Simon                     12/31/02  $    75,566   $    37,495             --          --            --            --
VP Sales & Marketing              12/31/01  $   6,297(1)  $   1,500(1)            --          --            --            --
XCEL Healthcare, Inc.

----------------------------  ------------  ------------  ------------  ------------  ----------  ------------  ------------
Daniel Gelber                     12/31/02  $   125,000   $    18,511             --  $   95,760            --            --
Director of R&D                   12/31/01  $  10,416(1)           --             --          --            --            --
BioSelect Innovations, Inc.

----------------------------  ------------  ------------  ------------  ------------  ----------  ------------  ------------
Joe R. Schortz (2)                12/31/02           --            --             --          --            --            --
President & CEO
Quality Botanical Ingredients, Inc.

============================================================================================================================
</TABLE>

     (1)  The  Company  acquired XCEL Healthcare, Inc and BioSelect Innovations,
          Inc.  on  December  14,  2001.
     (2)  Although  the  definitive  Asset  Purchase  Agreement  was  signed  on
          November  30,  2002, the acquisition of Quality Botanical Ingredients,
          Inc.  did  not  closed  until  February 25, 2003, effective January 1,
          2003.  For  fiscal  year  2003,  Mr.  Schortz  is  expected to receive
          $150,000  per  year  in salary, $150,000 pursuant to a Non-Competition
          and  Confidentiality  Agreement,  and  a bonus equal to two percent of
          QBI's  net  pre-tax  operating income. Mr. Schortz is also entitled to
          receive  options  to  purchase  132,509 shares of the Company's common
          stock  under  the  Company's  Employee  Stock  Option  Plan.

          The  table  below  sets  forth  information concerning the exercise of
options  during  2002  along with the aggregate 2002 year-end option holdings of
the  below  named  officers  of  the  Company:


                                     - 27 -
<PAGE>
<TABLE>
<CAPTION>
         AGGREGATED OPTION EXERCISES IN 2002 AND YEAR-END OPTION VALUES
                                  COMMON STOCK

=======================================================================================================
                                                         Number of securities     Value of unexercised
                                                         underlying options at        in-the-money
                    Shares Acquired         Value          December 31, 2002           options at
Name                  on Exercise         Realized     Exercisable/Unexercisable    December 31, 2002
---------------  ---------------------  -------------  -------------------------  ---------------------
<S>              <C>                    <C>            <C>                        <C>
Fred E. Tannous                250,000  $      62,500                  350,000/0  $             115,500
Bill Glaser                    250,000  $      62,500                  350,000/0  $             115,500

=======================================================================================================
</TABLE>

ITEM 11.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets  forth  information  concerning  common  stock
ownership  by  beneficial owners of five percent or more of our common stock and
each  of  our  officers and directors and our officers and directors as a group:

<TABLE>
<CAPTION>
==============================================================================================
                  Name and Address                                Amount of         Percent of
Title of Class    of Beneficial Owner                      Beneficial Ownership(1)     Class
----------------  ---------------------------------------  -----------------------  ----------
<S>               <C>                                      <C>                      <C>
Common            Fred E. Tannous
0.001 par value   6080 Center Drive, 6th Floor                     2,147,611  (2)        18.1%
                  Los Angeles, CA 90045
----------------  ---------------------------------------  -----------------------  ----------
Common            Bill Glaser
0.001 par value   6080 Center Drive, 6th Floor                     2,145,430  (2)        18.1%
                  Los Angeles, CA 90045
----------------  ---------------------------------------  -----------------------  ----------
Common            Joseph R. Schortz (3)
0.001 par value   6080 Center Drive, 6th Floor                         1,007,276          8.5%
                  Los Angeles, CA 90045
----------------  ---------------------------------------  -----------------------  ----------
Common            John Liviakis (4)
0.001 par value   655 Redwood Highway, Suite 255                         661,725          5.6%
                  Mill Valley, CA 94941
----------------  ---------------------------------------  -----------------------  ----------
Common            William J. Ritger (5)
0.001 par value   623 Ocean Avenue                                       610,133          5.1%
                  Sea Girt, NJ 08750
----------------  ---------------------------------------  -----------------------  ----------
Common            Daniel I Gelber
0.001 par value   6080 Center Drive, 6th Floor                           318,500          2.7%
                  Los Angeles, CA 90045
----------------  ---------------------------------------  -----------------------  ----------
Common            Richard L. Kleinberger
0.001 par value   6080 Center Drive, 6th Floor                           272,500          2.3%
                  Los Angeles, CA 90045
----------------  ---------------------------------------  -----------------------  ----------
Common            Ronald A. Gustilo
0.001 par value   6080 Center Drive, 6th Floor                           160,000          1.3%
                  Los Angeles, CA 90045
----------------  ---------------------------------------  -----------------------  ----------
Common            All officers and directors                           6,051,317         51.0%
0.001 par value   as a group (six persons)
----------------  ---------------------------------------  -----------------------  ----------
Common            Total shares issued and outstanding (6)              11,164,175
==============================================================================================
</TABLE>

     (1)  Unless  otherwise  indicated,  the  Company  believes that all persons
          named  in the table have sole voting and investment power with respect
          to  all  shares  beneficially  owned  by them. Each beneficial owner's
          percentage  ownership  is  determined  by  assuming  that  options  or
          warrants that are held by such person and which are exercisable within
          60  days  of the date of this report have been exercised. However, the
          options or warrants are not treated as outstanding for the purposes of
          computing  the  percentage  of  any  other  person.  Calculation  of
          percentage  ownership  was  based on 11,864,175 shares of common stock
          assuming  700,000  additional  shares from the exercise of exercisable
          options  of  March  31,  2003.
     (2)  Includes  options  to  purchase  350,000  shares exercisable within 60
          days.
     (3)  Joe  Schortz  is  President  and CEO of Quality Botanical Ingredients,
          Inc.,  which  was  acquired  by  the  Company  on  February  25, 2003,
          effective January 1, 2003. Of the 1,007,276 shares, a total of 433,333
          are  held in an escrow account for a period of one year and subject to
          set-off  conditions  pursuant  to the QBI Asset Purchase Agreement. Of
          the  433,333  shares held in escrow, 216,667 are issued to Mr. Schortz
          and  216,666  are  issued to The Botanical Trust. Mr. Schortz has sole
          voting  and  dispositive  powers  with  respect  to a total of 437,383
          shares  held  by  The Botanical Trust, a New Jersey Grantor Trust. The
          sole  beneficially  of  the Trust is Nathan Belkowitz. Pursuant to the
          QBI  Asset  Purchase  Agreement, Mr. Schortz is entitled to receive an
          additional  200,000 restricted shares of Company's common stock if QBI
          achieves  the  following  performance  goals  during  the twelve month
          period beginning on the day after the closing date, February 25, 2003:
          (i)  gross  revenues of at least 120% of the gross revenues of QBI for
          the  fiscal  year  ended  December  31, 2001; and (ii) gross operating
          margins  of  at least 25.3%. Mr. Schortz may receive additional shares
          equivalent  to  43.7%  of  the additional shares, if any, which may be
          issued  subject  to  the  conditions  described in Footnote (6) below.
          Shares  held  by  Mr.  Schortz  are  subject  to  a Lock-Up Agreement.
     (4)  Mr.  Liviakis'  beneficial ownership presented includes 315,000 shares
          held  in  the  name  of Liviakis Financial Communications, Inc. Shares
          held  by  Mr. Liviakis and Liviakis Financial Communications, Inc. are
          subject  to  lock-up/leak-out  provisions  as outlined in a Settlement
          Agreement  and  Mutual  General  Release  entered  into in March 2002.


                                     - 28 -
<PAGE>
     (5)  Mr.  Ritger's  beneficial  ownership presented includes 122,760 shares
          held  in  the  name  of  The  Research  Works.
     (6)  In  the  event  that  the  average  closing bid price per share of the
          Company's  common  stock  is not $2.75 or more during any fifteen (15)
          consecutive  trading  days  during  the  period  from  the  nine month
          anniversary of the QBI closing date to the twelve month anniversary of
          the  QBI  closing date ("Measurement Period"), additional shares shall
          be  issued  to  the  sellers at the lesser of (i) 1,250,000 shares and
          (ii)  the  amount  determined  by  subtracting  from $2.75 the highest
          average  closing  bid  price  per  share of the Company's common stock
          achieved over a fifteen (15) day moving average during the Measurement
          Period  (the "Highest Price"), multiplying the resulting dollar amount
          by  1,000,000  and  then  dividing  the  result  by the Highest Price.

EXECUTIVE  COMPENSATION

     The  Company  has  employment  agreements,  nondisclosure/non-competition
agreements  and  severance  agreements  with  the  following executive officers:

Health  Sciences  Group,  Inc.
------------------------------

     FRED  E.  TANNOUS.  Pursuant  to  an  Employment  Agreement,  which  became
effective January 1, 2002, and is scheduled for expiration on December 31, 2005,
Mr.  Tannous  has  served  and  continues  to  serve  as  Health Sciences' Chief
Executive  Officer and Treasurer.  The Agreement provides that Mr. Tannous is to
receive  an annual salary of not less than $190,000, subject to increases at the
discretion  of  the  company's Board of Directors.  During fiscal year 2002, Mr.
Tannous has accepted deferred payment of such compensation.  Mr. Tannous is also
entitled  to  participate in the Health Sciences' annual bonus, incentive, stock
and  other  benefit  programs  generally  available to executive officers of the
Company.  The agreement also provides for (i) reasonable access to the Company's
accountants for personal financial planning, (ii) an automobile allowance, (iii)
reimbursement  of  certain  other  expenses  and  (iv) an indemnification of Mr.
Tannous on an after-tax basis in the event he incurs an excise tax under Section
4999  of  the  Internal  Revenue  Code.

     BILL  GLASER.  Pursuant  to an Employment Agreement, which became effective
January  1,  2002,  and  is  scheduled  for expiration on December 31, 2005, Mr.
Glaser  has  served  and  continues  to  serve as Health Sciences' President and
Secretary.   The  Agreement  provides  that  Mr.  Glaser is to receive an annual
salary  of not less than $190,000, subject to increases at the discretion of the
company's  Board of Directors.  During fiscal year 2002, Mr. Glaser has accepted
deferred  payment  of  such  compensation.  Mr.  Glaser  is  also  entitled  to
participate  in  the  Health  Sciences' annual bonus, incentive, stock and other
benefit  programs generally available to executive officers of the Company.  The
agreement  also  provides for (i) reasonable access to the Company's accountants
for  personal  financial  planning,  (ii)  an  automobile  allowance,  (iii)
reimbursement  of  certain  other  expenses  and  (iv) an indemnification of Mr.
Glaser  on an after-tax basis in the event he incurs an excise tax under Section
4999  of  the  Internal  Revenue  Code.

Quality  Botanical  Ingredients,  Inc.
--------------------------------------

     JOE  R.  SCHORTZ,  CPA.  Pursuant  to an Employment Agreement, which became
effective January 1, 2003, and is scheduled for expiration on December 31, 2005.
Mr.  Schortz  has served and continues to serve as President and Chief Executive
Officer  for  Quality  Botanical  Ingredients.  The  Agreement provides that Mr.
Schortz  is to receive an annual salary of not less than $150,000 plus incentive
compensation  equal  to  two  percent (2%) of QBI's net pre-tax operating income
during  the  fiscal  year.  Mr.  Schortz  is also party to a Non-Competition and
Confidentiality  Agreement  with  QBI.  Mr.  Schortz is also entitled to receive
other  benefit  programs  generally  available  to  executive  officers.

XCEL  Healthcare,  Inc.
-----------------------

     RONALD  A.  GUSTILO.  Pursuant  to  an  Employment  Agreement, which became
effective  December  14,  2001,  and is scheduled for expiration on December 31,
2004,  Mr.  Gustilo  has served and continues to serve as Director of Operations
for XCEL Healthcare, Inc.  The Agreement provides that Mr. Gustilo is to receive
an annual salary of not less than $85,000, subject to increases by 10% per annum
based  on  the  combined gross revenues earned by XCEL and BioSelect in a fiscal
year increasing by at least 30% over the prior fiscal year.  Mr. Gustilo is also
entitled to receive an annual bonus, incentive, stock and other benefit programs
subject  to  achievement  of key pre-determined milestones tied to annual growth
rates  in  revenues and net income.  Mr. Gustilo is party to Confidentiality and
Non-Competition  Agreement  and  with  XCEL  and  BioSelect.


                                     - 29 -
<PAGE>
     DR.  RICHARD  L.  KLEINBERGER.  Pursuant  to an Employment Agreement, which
became  effective December 14, 2001, and is scheduled for expiration on December
31,  2004,  Dr.  Kleinberger  has  served  and continues to serve as Director of
Pharmacy  for XCEL Healthcare, Inc.  The Agreement provides that Dr. Kleinberger
is  to  receive an annual salary of not less than $125,000, subject to increases
by  10%  per  annum  based  on  the  combined  gross revenues earned by XCEL and
BioSelect  in  a  fiscal  year  increasing by at least 30% over the prior fiscal
year.  Dr.  Kleinberger  is also entitled to receive an annual bonus, incentive,
stock  and  other  benefit programs subject to achievement of key pre-determined
milestones  tied  to  annual  growth  rates  in  revenues  and  net income.  Dr.
Kleinberger  is  party to Confidentiality and Non-Competition Agreement and with
XCEL  and  BioSelect.

BioSelect  Innovations,  Inc.
-----------------------------

     DR.  DANIEL  I.  GELBER.  Pursuant to an Employment Agreement, which became
effective  December  14,  2001,  and is scheduled for expiration on December 31,
2004,  Dr.  Gelber has served and continues to serve as Director of Research and
Development  for  BioSelect  Innovations,  Inc.  The Agreement provides that Dr.
Gelber  is  to  receive  an  annual salary of not less than $125,000, subject to
increases  by  10% per annum based on the combined gross revenues earned by XCEL
and  BioSelect in a fiscal year increasing by at least 30% over the prior fiscal
year.  Dr.  Gelber is also entitled to receive an annual bonus, incentive, stock
and  other  benefit  programs  subject  to  achievement  of  key  pre-determined
milestones  tied  to annual growth rates in revenues and net income.  Dr. Gelber
is  party  to  Confidentiality  and  Non-Competition Agreement and with XCEL and
BioSelect.

ITEM 12.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     With  the recent acquisition of QBI on February 25, 2003, effective January
1, 2003, the Company assumed the lease on QBI's 53,000 square foot warehouse and
processing  facility  located  in South Plainfield, New Jersey.  The term of the
lease  is  twenty  five  years  starting  on  May  1,  1997.  The  lessor is MRA
Associates,  LLC,  a  New  Jersey limited liability company, a third of which is
beneficially  owned  by  Joseph  R.  Schortz,  the President and Chief Executive
Officer  of  QBI.  The Company holds an option to purchase the property from MRA
Associates  for  $2,  250,000.  The  option  expires  in  five  years.

ITEM 13.  EXHIBITS  AND  REPORTS  ON  FORM  8-K

a.   Reports  on  Form  8-K  Filed  During  the  Company's Fourth Fiscal Quarter

     On  March  15 2002, the Company filed a current report on Form 8-K with the
     Commission  dated  December  31,  2001, reporting information under Item 7,
     Financial  Statements  and  Exhibits.

     On  May  13,  2002, the Company filed a current report on Form 8-K with the
     Commission  dated  May  13,  2002,  reporting  information  under  Item  2,
     Disposition  of  Assets  and  Item  5,  Other  Events.

b.   Exhibits

     The  exhibits  required  to  be  filed  by  Item  601 of Regulation S-B are
     incorporated  herein  by  reference  to  the  Exhibit Index of this report.

ITEM 14.  CONTROLS  AND  PROCEDURES

     Our  Chief  Executive  Officer, President, and Chief Financial Officer (the
"Certifying  Officers")  are  responsible  for  establishing  and  maintaining
disclosure  controls  and  procedures  for the Company.  The Certifying Officers
have  designed  such  disclosure controls and procedures to ensure that material
information  is made known to them, particularly during the period in which this
report  was  prepared.  The Certifying Officers have evaluated the effectiveness
of  the  Company's disclosure controls and procedures within 90 days of the date
of this report and believe that the Company's disclosure controls and procedures
are  effective based on the required evaluation.  There have been no significant
changes in internal controls or in other factors that could significantly affect
internal  controls  subsequent  to  the  date of their evaluation, including any
corrective  actions  with  regard  to  significant  deficiencies  and  material
weaknesses.


                                     - 30 -
<PAGE>
<TABLE>
<CAPTION>
                                                    EXHIBIT INDEX


Exhibit
   No.     Description of Exhibit
---------  ----------------------
<C>        <S>
  2.1(10)  Asset Purchase Agreement between QBI Delaware, the Company, QBI New Jersey, Corrola and
           Schortz dated November 30, 2002
  2.2(10)  First Amendment to the Asset Purchase Agreement dated December 30, 2002
  2.3(10)  Second Amendment to the Asset Purchase Agreement dated January 31, 2003
  2.4(10)  Third Amendment to the Asset Purchase Agreement dated February 20, 2003
   3.1(1)  Articles of Incorporation
   3.2(1)  By-laws
   3.3(1)  Amendment to the Articles of Incorporation of iGoHealthy.com
   4.1(1)  Specimen of Common Stock Certificate
   4.2(1)  Form of Stock Subscription Agreement
   4.2(2)  Form of Stock Subscription Agreement
   4.3(1)  Form of Private Placement Subscription Agreement
 4.3.1(1)  Private Placement Subscription Agreement signature page for Harbinder Singh Branch
 4.3.2(1)  Private Placement Subscription Agreement signature page for Kenneth Arthur Butterfield
 4.3.3(1)  Private Placement Subscription Agreement signature page for Patrick Moriarity
 4.3.4(1)  Private Placement Subscription Agreement signature page for Patrick Moriarity, Jr.
 4.3.5(1)  Private Placement Subscription Agreement signature page for Eilish Levene
   5.1(1)  Opinion Letter issued by Vanderkam & Sanders
   5.1(2)  Opinion Letter issued by Vanderkam & Sanders
   5.1(3)  Opinion and consent of Vanderkam & Sanders re: the legality of the shares being registered
  10.1(1)  Contract for Services Agreement between Stephen Davis and iGoHealthy.com, Inc.
  10.1(5)  Stock Purchase Agreement by and between International Pharmaceutical Group, LLC and
           iGoHealthy.com, Inc. dated as of September 7, 2001
 10.1(10)  Continuing Unconditional Corporate Guaranty of the Company dated February 25, 2003.
  10.2(1)  Domain Name Sale and Assignment Agreement between HealthyUSA, Inc. and iGoHealthy.com, Inc.
  10.3(1)  Promissory Note between HealthyUSA, Inc. and iGoHealthy.com, Inc.
  10.4(1)  Web Site Development and Services Agreement between Fluidesign and iGoHealthy.com, Inc.
   10.6*   Settlement Agreement and Mutual General Release between Founding Advisors, Inc. and Health
           Sciences group, Inc. dated February 27, 2003
 10.7.1*   Securities Purchase Agreement by and between Health Sciences Group, Inc. and Brivis Investments,
           Ltd. and Stranco Investments, Ltd. dated February 22, 2003
 10.7.2*   Convertible Debenture Agreement issued to Brivis Investment, Ltd.
 10.7.3*   Convertible Debenture Agreement issued to Stranco Investment, Ltd.
 10.7.4*   Stock Purchase Warrant issued to Brivis Investment, Ltd.
 10.7.5*   Stock Purchase Warrant issued to Stranco Investment, Ltd.
 10.7.6*   Stock Purchase Warrant issued to FCIM Corporation
 10.7.7*   Stock Purchase Warrant issued to George Matin
 10.7.8*   Registration Rights Agreement
 10.7.9*   Security Agreement made by and between Health Sciences Group, Inc., XCEL Healthcare, Inc.,
           BioSelect Innovations, Inc. and Brivis Investments, Ltd., Stranco Investments, Ltd.
10.7.10*   Pledge and Security Agreement by and Between Fred E. Tannous, Bill Glaser and Brivis Investments,
           Ltd., Stanco Investments, Ltd.
10.7.11*   Escrow Agreement Between Health Sciences Group, Inc. and Brivis Investments, Ltd. and Stranco
           Investments, Ltd.
 10.8.1*   Loan and Security Agreement between XCEL Healthcare, Inc. and Meridian Commercial Healthcare
           Finance, LLC.
 10.8.2*   Indemnification Agreement by Fred E. Tannous
 10.8.3*   Indemnification Agreement by Bill Glaser
 10.8.4*   Corporate Guaranty made by Health Sciences Group, Inc. in favor of Meridian Commercial Healthcare
           Finance, LLC.


                                     - 31 -
<PAGE>
 10.8.5*   Subordination Agreement among XCEL Healthcare, Inc., Mac Rosenstein and Meridian Commercial
           Healthcare Finance, LLC.
 10.8.6*   Subordination Agreement among XCEL Healthcare, Inc., Moe Gelber and Meridian Commercial
           Healthcare Finance, LLC.
 10.8.7*   HIPAA Business Associate Addendum by and between XCEL Healthcare, Inc. and Meridian
           Commercial Healthcare Finance, LLC.
  16.1(6)  Letter from Singer Lewak Greenbaum and Goldstein, LLP, dated October 31, 2001, to the Securities
           and Exchange Commission
  16.1(8)  Recession Agreement between Health Sciences Group and International Pharmaceutical Group, LLC,
           dated April 6, 2002
  16.2(8)  Letter of Resignation from the Board of Directors of Health Sciences Group, Inc. by Harbinder Singh
           Brach dated April 6, 2002
    21.1   XCEL Healthcare, Inc., a California corporation
    21.2   BioSelect Innovations, Inc., a Nevada corporation
    21.3   Quality Botanical Ingredients, Inc., a Delaware corporation
  23.1(1)  Consent of Singer Lewak Greenbaum & Goldstein LLP, Certified Public Accountants
  23.1(2)  Consent of Singer Lewak Greenbaum & Goldstein LLP, Certified Public Accountants
  23.1(3)  Consent of Singer Lewak Greenbaum & Goldstein, LLP
  23.1(9)  Consent of Stonefield Josephson, Inc., Certified Public Accountants
  23.2(1)  Consent of Counsel (See Exhibit 5.1)
  23.2(2)  Consent of Counsel (See Exhibit 5.1)
  23.2(3)  Consent of Vanderkam & Sanders  (included in Exhibit 5.1)
  99.1(3)  2001 Employee Stock Option Plan for iGoHealthy.com, Inc.
  99.1(4)  Amendment and Restatement of the 2001 Employee Stock Option Plan for iGoHealthy.com, Inc.
  99.1(5)  Press release dated October 24, 2001
 99.1(10)  Press Release dated February 26, 2003.
  99.1(7)  Stock Purchase and Share Exchange Agreement by and among Health Sciences Group, Inc., Fred E.
           Tannous and Bill Glaser on one hand and XCEL Healthcare, Inc., BioSelect Innovations, Inc. and
           respective shareholders dated December 14, 2001.
   99.1*   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
           Section 906 of the Sarbanes-Oxley Act of 2002.
  99.2(7)  Employment Agreement by and between XCEL Healthcare, Inc. and Daniel I. Gelber, dated December
           14, 2001.
   99.2*   Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002.
  99.3(7)  Employment Agreement by and between XCEL Healthcare, Inc. and Ron A. Gustilo, dated December
           14, 2001.
  99.4(7)  Employment Agreement by and between XCEL Healthcare, Inc. and Richard L. Kleinberger, dated
           December 14, 2001.
  99.5(7)  Confidentiality and Non-Competition Agreement by and between XCEL Healthcare, Inc. and Daniel I.
           Gelber, dated December 14, 2001.
  99.6(7)  Confidentiality and Non-Competition Agreement by and between XCEL Healthcare, Inc. and Ron A.
           Gustilo, dated December 14, 2001.
  99.7(7)  Confidentiality and Non-Competition Agreement by and between XCEL Healthcare, Inc. and Richard
           L. Kleinberger, dated December 14, 2001.
  99.8(7)  Escrow Agreement by and among Health Sciences Group, Inc., XCEL Healthcare, Inc., BioSelect
           Innovations, Inc., the respective shareholders, and Pollet & Richardson, dated December 14, 2001.
  99.9(7)  Press release dated December 17, 2001.
</TABLE>


-----------------------
(1)  Filed  as  an  exhibit  to our registration statement on Form SB-2 filed on
     December  11,  2000  (File  No.  333-51628)  and  herein  incorporated  by
     reference.
(2)  Filed  as  an  exhibit  to our registration statement on Form SB-2 filed on
     January 22, 2001 (File No. 333-51628) and herein incorporated by reference.
(3)  Filed  as  an exhibit to our registration statement filed on Form S-8 filed
     on  July  16,  2001and  herein  incorporated  by  reference.


                                     - 32 -
<PAGE>
(4)  Filed  as  an  exhibit  to  our  Post-Effective Amendment No. 1 to Form S-8
     Registration Statement filed on December 14, 2001and herein incorporated by
     reference.
(5)  Filed  as an exhibit to our current report on Form 8-K filed on October 24,
     2001  and  herein  incorporated  by  reference.
(6)  Filed  as an exhibit to our current report on Form 8-K filed on November 1,
     2001  and  herein  incorporated  by  reference.
(7)  Filed as an exhibit to our current report on Form 8-K filed on December 31,
     2001  and  herein  incorporated  by  reference.
(8)  Filed as an exhibit to our current report on Form 8-K filed on May 13, 2002
     and  herein  incorporated  by  reference.
(9)  Filed  as  an  exhibit  to  our  Post-Effective Amendment No. 2 to Form S-8
     Registration  Statement  filed  on  May 24, 2002 and herein incorporated by
     reference.
(10) Filed  as  an  exhibit to our current report on Form 8-K filed on March 11,
     2003  and  herein  incorporated  by  reference.
  *  Filed  herewith.


                                     - 33 -
<PAGE>
                                   SIGNATURES


     Pursuant  to the requirements of Section 13 or 15 (d) of the Securities Act
of  1934, as amended, the issuer has duly caused this report to be signed on our
behalf  by  the  undersigned,  thereunto duly authorized this 14th day of April,
2003.

                                    HEALTH  SCIENCES  GROUP,  INC.


                             By:      /s/  Fred  E.  Tannous
                                    --------------------------------------------
                                    Fred  E.  Tannous
                                    Chief  Executive  Officer,
                                    Principal Financial Officer, and Co-chairman


     Pursuant  to  the  requirements  of the Securities Exchange Act of 1934, as
amended,  this  report has been signed by the following persons on behalf of the
issuer  in  the  capacities  and  on  the  dates  indicated.


April 14, 2003               By:      /s/  Fred  E.  Tannous
                                    --------------------------------------------
                                    Fred  E.  Tannous
                                    Chief  Executive  Officer,
                                    Principal Financial Officer, and Co-chairman


April 14, 2003               By:      /s/  Bill  Glaser
                                    --------------------------------------------
                                    Bill  Glaser
                                    President,  Secretary,  and  Co-chairman


April 14, 2003               By:      /s/  David  Johnson
                                    --------------------------------------------
                                    David  Johnson
                                    Controller



                                     - 34 -
<PAGE>
                                                     HEALTH SCIENCES GROUP, INC.
                                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 2002

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

                                                                        Page
                                                                        ----

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                       F-2

CONSOLIDATED FINANCIAL STATEMENTS

     Consolidated Balance Sheet                                          F-3

     Consolidated Statements of Operations                               F-4

     Statements of Stockholders' Equity                                  F-5

     Consolidated Statements of Cash Flows                               F-8

     Notes to Consolidated Financial Statements                      F-10 - F-32



                                                                            F -1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT



Board of Directors
Health Sciences Group, Inc. and Subsidiaries
Los Angeles, California


We  have  audited the accompanying consolidated balance sheet of Health Sciences
Group,  Inc.  and  Subsidiaries  as  of  December  31,  2002,  and  the  related
consolidated  statements  of operations, stockholders' equity and cash flows for
the  two  year  period  ended  December  31, 2002.  These consolidated financial
statements  are  the  responsibility  of  the  Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements  based  on  our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the audit to obtain reasonable assurance about whether the consolidated
financial  statements  are  free  of  material  misstatement.  An audit includes
examining,  on  a test basis, evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An  audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe that our
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 Health
Sciences  Group,  Inc. and Subsidiaries as of December 31, 2002, and the results
of  their  consolidated operations and their consolidated cash flows for the two
year  period  then  ended  December  31,  2002,  in  conformity  with accounting
principles  generally  accepted  in  the  United  States  of  America.

The  accompanying  consolidated financial statements have been prepared assuming
that  the  Company  will continue as a going concern.  As discussed in Note 1 to
the  consolidated  financial  statements,  the  Company's  net  loss and limited
working capital raise substantial doubt about its ability to continue as a going
concern.  Management's plans concerning these matters are also discussed in Note
1.  The  consolidated  financial  statements do not include any adjustments that
might  result  from  the  outcome  of  this  uncertainty.




CERTIFIED PUBLIC ACCOUNTANTS

Santa Monica, California
March 13, 2003


                                                                            F -2
<PAGE>
<TABLE>
<CAPTION>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

                 CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2002


                                     ASSETS
<S>                                                                   <C>
CURRENT ASSETS:
  Cash and cash equivalents                                           $   169,024
  Accounts receivable, net of contractual allowance totaling $83,430      567,047
  Inventory                                                               156,953
  Prepaid expenses                                                         93,655
  Deferred acquisition cost                                               281,152
                                                                      ------------

       Total current assets                                             1,267,831

FURNITURE AND EQUIPMENT, net of accumulated depreciation
  and amortization                                                        131,796

OTHER ASSETS:
  Excess of cost over fair value of net assets acquired                   350,546
  Intangible assets, net of accumulated amortization                    4,221,237
                                                                      ------------

                                                                      $ 5,971,410
                                                                      ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued expenses                               $ 1,021,349
  Current maturities of notes payable                                     217,572
  Obligations under capitalized leases                                     21,799
  Loan payable, stockholders                                                1,800
                                                                      ------------

       Total current liabilities                                        1,262,520

LINE OF CREDIT                                                             73,150

NOTES PAYABLE, LESS CURRENT MATURITIES                                    165,772
                                                                      ------------

       Total liabilities                                                1,501,442
                                                                      ------------

STOCKHOLDERS' EQUITY:
  Preferred stock; $0.001 par value, 5,000,000 shares
    authorized, no shares issued and outstanding                                -
  Common stock; $0.001 par value, 50,000,000 shares
    authorized, 9,164,183 shares issued and outstanding                     9,164
  Additional paid-in capital                                            9,518,570
  Accumulated other comprehensive loss                                     (3,087)
  Accumulated deficit                                                  (5,054,679)
                                                                      ------------

       Total stockholders' equity                                       4,469,968
                                                                      ------------

                                                                      $ 5,971,410
                                                                      ============
</TABLE>


     The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                                                            F -3
<PAGE>
<TABLE>
<CAPTION>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                  Year ended           Year ended
                                               December 31, 2002    December 31, 2001
                                              -------------------  -------------------
<S>                                           <C>                  <C>
SALES, net                                    $        5,537,991   $          341,813

COST OF GOODS SOLD                                     4,049,126              258,824
                                              -------------------  -------------------

GROSS PROFIT                                           1,488,865               82,989
                                              -------------------  -------------------

RESEARCH AND DEVELOPMENT                                  54,050               20,286
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES           5,514,933              888,169
                                              -------------------  -------------------

TOTAL OPERATING EXPENSES                               5,568,983              908,455
                                              -------------------  -------------------

LOSS FROM OPERATIONS                                  (4,080,118)            (825,466)

INCOME FROM EQUITY INVESTMENT                                  -               94,816
INTEREST EXPENSE, net                                   (203,818)              (4,446)
                                              -------------------  -------------------

LOSS BEFORE INCOME TAXES                              (4,283,936)            (735,096)

PROVISION FOR INCOME TAXES                                     -                    -
                                              -------------------  -------------------

NET LOSS                                              (4,283,936)            (735,096)

OTHER COMPREHENSIVE LOSS -
  unrealized gain on marketable securities                (1,425)              (1,662)
                                              -------------------  -------------------

TOTAL COMPREHENSIVE LOSS                      $       (4,285,361)  $         (736,758)
                                              ===================  ===================


NET LOSS PER SHARE - basic and diluted        $             (.73)  $             (.22)
                                              ===================  ===================

WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING - basic and diluted                      5,835,319            3,292,278
                                              ===================  ===================
</TABLE>


     The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                                                            F -4
<PAGE>
<TABLE>
<CAPTION>
                                          HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

                                         CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                       Common stock     Additional    Prepaid          Other                          Total
                                   --------------------   paid-in   compensation   comprehensive    Accumulated    stockholders'
                                     Shares     Amount    capital      expense          loss          deficit         equity
                                   ----------  --------  ---------  -------------  --------------  -------------  --------------
<S>                                <C>         <C>       <C>        <C>            <C>             <C>            <C>
Balance at January 1, 2001         1,710,000   $ 1,710   $ 55,818   $           -  $            -  $    (35,647)  $       21,881

Issuance of common stock
  for cash                           749,450       750    186,613               -               -             -          187,363

Issuance of common stock
  for note payable                    20,000        20      4,980               -               -             -            5,000

Issuance of common stock
  for services                       487,000       487    173,091               -               -             -          173,578

Issuance of common stock to
  officers for services            1,000,000     1,000    249,000               -               -             -          250,000

Stock options issued in exchange
  for services                             -         -     74,824               -               -             -           74,824

Issuance of common stock for
  investment in equity securities  1,700,000     1,700    695,989               -               -             -          697,689

Stock options exercised on a
  "cashless" basis                   563,366       563       (563)              -               -             -                -

Return of Company's common stock    (385,132)     (385)       385               -               -             -                -

Services provided by officers
  of the Company                           -         -     56,805               -               -             -           56,805
</TABLE>


     The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                                                            F -5
<PAGE>
<TABLE>
<CAPTION>
                                     HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

                              CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)


                                            Common stock      Additional      Prepaid          Other
                                        --------------------    paid-in     compensation   comprehensive  Accumulated
                                          Shares     Amount     capital       expense          loss         deficit
                                        -----------  -------  -----------  -------------  --------------  ------------
<S>                                     <C>          <C>      <C>          <C>            <C>             <C>
Issuance of common stock for
  all issued and outstanding shares
  of XCEL Healthcare, Inc. and
  BioSelect Innovations, Inc.              964,000      964    4,398,796              -               -             -

Prepaid compensation expense
  issued as shares to stockholders               -        -            -       (145,833)              -             -

Unrealized loss on investment in
  marketable securities                          -        -            -              -          (1,662)            -

Net loss                                         -        -            -              -               -      (735,096)
                                        -----------  -------  -----------  -------------  --------------  ------------

Balance at December 31, 2001             6,808,684    6,809    5,895,738       (145,833)         (1,662)     (770,743)

Return of Company's common stock
  in exchange for investment in equity
  securities                            (1,700,000)  (1,700)    (843,277)             -               -             -

Issuance of common stock
  for services                             678,518      679    1,777,340              -               -             -

Prepaid compensation expense
  issued as shares to stockholders               -        -      145,833              -               -       145,833

Stock options exercised for cash           105,000      105      118,645              -               -             -


                                            Total
                                        stockholders'
                                            equity
                                        --------------
<S>                                     <C>
Issuance of common stock for
  all issued and outstanding shares
  of XCEL Healthcare, Inc. and
  BioSelect Innovations, Inc.               4,399,760

Prepaid compensation expense
  issued as shares to stockholders           (145,833)

Unrealized loss on investment in
  marketable securities                        (1,662)

Net loss                                     (735,096)
                                        --------------

Balance at December 31, 2001                4,984,309

Return of Company's common stock
  in exchange for investment in equity
  securities                                 (844,977)

Issuance of common stock
  for services                              1,778,019

Prepaid compensation expense
  issued as shares to stockholders

Stock options exercised for cash              118,750
</TABLE>


     The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                                                            F -6
<PAGE>
<TABLE>
<CAPTION>
                                      HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

                               CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)


                                        Common stock  Additional   Prepaid         Other                       Total
                                      ---------------  paid-in   compensation  comprehensive  Accumulated  stockholders'
                                      Shares   Amount  capital     expense         loss         deficit       equity
                                      -------  ------  --------  ------------  -------------  -----------  -------------
<S>                                   <C>      <C>     <C>       <C>           <C>            <C>          <C>
Stock options exercised on a
  "cashless" basis                     91,962      92      (92)             -              -            -              -

Issuance of common stock
  for cash                            392,929     393  374,607              -              -            -        375,000

Issuance of common stock pursuant
  to price adjustment provision        94,444      94   92,461              -              -            -         92,555

Stock options issued in exchange
  for services                              -       -  614,077              -              -            -        614,077

Stock options exercised by officers
  of the Company in exchange for
  notes payable                       400,000     400   99,600              -              -            -        100,000

Issuance of common stock to officers
  of the Company in exchange for
  note payable and accrued interest   707,229     707  388,270              -              -            -        388,977

Issuance of common stock to officers
  of the Company as compensation      744,056     744  408,487              -              -            -        409,231

Issuance of common stock in exchange
   for note payable                   193,066     193  163,913              -              -            -        164,106
</TABLE>


     The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                                                            F -7
<PAGE>
<TABLE>
<CAPTION>
                                           HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)


                                       Common stock    Additional      Prepaid         Other                           Total
                                    ------------------   paid-in    compensation   comprehensive    Accumulated    stockholders'
                                     Shares    Amount    capital       expense          loss           deficit         equity
                                    ---------  -------  ----------  -------------  ---------------  -------------  ---------------
<S>                                 <C>        <C>      <C>         <C>            <C>              <C>            <C>
Issuance of common stock pursuant
  to a settlement agreement           648,295      648     400,101              -               -              -          400,749

Issuance of warrants in connection
  with notes payable                        -        -      28,700              -               -              -           28,700

Unrealized loss on investment in
  marketable securities                     -        -           -              -          (1,425)             -           (1,425)

Net loss                                    -        -           -              -               -     (4,283,936)      (4,283,936)
                                    ---------  -------  ----------  -------------  ---------------  -------------  ---------------

Balance at December 31, 2002        9,164,183  $ 9,164  $9,518,570  $           -  $       (3,087)  $ (5,054,679)  $    4,469,968
                                    =========  =======  ==========  =============  ===============  =============  ===============
</TABLE>


     The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                                                            F -8
<PAGE>
<TABLE>
<CAPTION>
                          HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

                              CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                 Year ended           Year ended
                                                              December 31, 2002    December 31, 2001
                                                             -------------------  -------------------
<S>                                                          <C>                  <C>
CASH FLOWS USED FOR OPERATING ACTIVITIES:
  Net loss                                                   $       (4,283,936)  $         (735,096)

  ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
    USED FOR OPERATING ACTIVITIES:
      Issuance of common stock for services rendered                  1,778,019              173,578
      Stock options issued for services                                 614,077               74,824
      Issuance of common stock to officers as compensation              409,231                    -
      Issuance of common stock as settlement expense                    400,749                    -
      Depreciation and amortization                                     292,061               32,893
      Prepaid compensation expense                                      145,833              104,167
      Issuance of common stock pursuant to price adjustment              92,555                    -
      Provision for contractual allowance                                29,641                2,568
      Issuance of common stock to officers as interest                   50,977                    -
      Amortization of note payable discount                              12,983                    -
      Income from equity investment                                           -              (94,816)
      Services provided by officers                                           -               56,805

  CHANGES IN ASSETS AND LIABILITIES:
    (INCREASE) DECREASE IN ASSETS:
      Accounts receivable                                              (226,775)             (14,100)
      Inventory                                                         (39,884)              40,714
      Prepaid expenses and other current assets                        (374,281)               2,473

    INCREASE IN LIABILITIES -
      accounts payable and accrued expenses                             502,938                6,180
                                                             -------------------  -------------------

          Net cash used for operating activities                       (595,812)            (349,810)
                                                             -------------------  -------------------

CASH FLOWS USED FOR INVESTING ACTIVITIES:
  Purchase of furniture and equipment                                   (19,353)             (20,398)
  Investment in equity securities                                             -              (52,472)
  Purchase of subsidiaries net of cash acquired                               -              (40,674)
  Website development                                                         -               (1,663)
                                                             -------------------  -------------------

          Net cash used for investing activities                        (19,353)            (115,207)
                                                             -------------------  -------------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
  Issuance of common stock                                              493,750              187,363
  Payments to stockholders                                              420,606              (13,736)
  Proceeds from notes payable                                           277,106              165,000
  Proceeds from line of credit                                              150                9,415
  Payments on capital lease obligations                                 (18,571)              (1,456)
  Book overdraft                                                       (113,516)             113,516
  Payments on notes payable                                            (275,336)                (396)
                                                             -------------------  -------------------

          Net cash provided by financing activities                     784,189              459,706
                                                             -------------------  -------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    169,024               (5,311)
CASH AND CASH EQUIVALENTS, beginning of year                                  -                5,311
                                                             -------------------  -------------------

CASH AND CASH EQUIVALENTS, end of year                       $          169,024   $                -
                                                             ===================  ===================
</TABLE>


     The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                                                            F -9
<PAGE>
<TABLE>
<CAPTION>
                          HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


                                                                             Year ended          Year ended
                                                                         December 31, 2002   December 31, 2001
                                                                         ------------------  ------------------
<S>                                                                      <C>                 <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid                                                          $          155,027  $            4,539
                                                                         ==================  ==================

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Common stock issued in exchange for outstanding stock of
    XCEL Healthcare, Inc. and BioSelect Innovations, Inc.                $                -  $        4,399,760
                                                                         ==================  ==================
  Common stock issued for services                                       $        1,778,019  $          173,578
                                                                         ==================  ==================
  Stock options issued in exchange for services                          $          614,077  $           74,824
                                                                         ==================  ==================
  Exchange of investment in equity securities for common stock           $          844,977  $                -
                                                                         ==================  ==================
  Common stock issued for investment in equity securities                $                -  $          697,689
                                                                         ==================  ==================
  Note payable to officers of the Company converted
    to common stock                                                      $          488,977  $                -
                                                                         ==================  ==================
  Common stock issued to officers of the Company as
     compensation                                                        $          409,231  $                -
                                                                         ==================  ==================
  Common stock issued pursuant to Settlement Agreement                   $          400,749  $                -
                                                                         ==================  ==================
  Common stock issued to officers for services                           $                -  $          250,000
                                                                         ==================  ==================
  Note payable converted to common stock                                 $          164,106  $            5,000
                                                                         ==================  ==================
  Accounts payable converted to note payable                             $          126,000  $                -
                                                                         ==================  ==================
  Common stock issued as price adjustment                                $           92,555  $                -
                                                                         ==================  ==================
  Issuance of warrants in connection with notes payable                  $           28,700  $                -
                                                                         ==================  ==================
  Services provided by officers of the Company                           $                -  $           56,805
                                                                         ==================  ==================
</TABLE>


     The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                                                           F -10
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


     ORGANIZATION  AND  BASIS  OF  PRESENTATION:

          Health  Sciences  Group,  Inc. (the "Company") was incorporated in the
          state of Colorado on June 13, 1996 as Centurion Properties Development
          Corporation.  The Company remained dormant until October 16, 2000 when
          its  name  was  changed to iGoHealthy.com, Inc. On September 10, 2001,
          the  Company  changed  its  name  to  Health  Sciences Group, Inc. The
          Company  acquires  and  integrates  into  a  collaborative  network,
          companies  operating  in the fields of pharmaceuticals, nutraceuticals
          and  biotechnology.

          Effective  December  14,  2001,  the  Company  acquired  100%  of  the
          outstanding  stock of XCEL Healthcare, Inc., a California corporation,
          and  the  outstanding  shares of BioSelect Innovations, Inc., a Nevada
          corporation,  for  approximately  $4.4  million  pursuant  to  a Stock
          Purchase  and  Sale  Agreement.

     PRINCIPLES  OF  CONSOLIDATION:

          These financial statements include the accounts of the Company and its
          wholly  owned  subsidiaries,  XCEL  Healthcare,  Inc.  ("XCEL")  and
          BioSelect  Innovations, Inc. ("BioSelect"). All material inter-company
          accounts  have  been  eliminated  in  consolidation.

     CLASSES OF STOCK:

          The  Company's  Articles  of Incorporation, as amended, authorized the
          issuance  of up to 55,000,000 shares of stock, consisting of 5,000,000
          shares of Convertible Preferred Non-voting Equity stock and 50,000,000
          shares  of  common  stock,  which  have  a  par  value  of  $0.001.

     CONVERTIBLE PREFERRED STOCK:

          Convertible  Preferred  Non-voting  Equity  stock will have par terms,
          preferences  and  conversion  features  as  determined by the Board of
          Directors  at  the  time  of  the  issuance  of any such shares. As of
          December 31, 2002, the Company's Board of Directors has not issued any
          preferred  stock.

     BASIS  OF  PRESENTATION:

          As  reflected  in  the accompanying consolidated financial statements,
          the  Company  has  losses  and negative cash flows from operations and
          limited  working  capital. These matters raise substantial doubt about
          the  Company's  ability  to  continue  as  a  going  concern.

          In  view  of  the  matters  described  in  the  preceding  paragraph,
          recoverability  of a major portion of the recorded asset amounts shown
          in  the  accompanying  consolidated  balance  sheet  is dependent upon
          continued operations of the Company, which, in turn, is dependent upon
          the  Company's  ability  to  continue  to  raise  capital and generate
          positive  cash  flows  from  operations.  The  consolidated  financial
          statements  do  not  include  any  adjustments  relating  to  the
          recoverability and classification of recorded asset amounts or amounts
          and  classifications of liabilities that might be necessary should the
          Company  be  unable  to  continue  its  existence.


                                                                           F -11
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:


     BASIS  OF  PRESENTATION,  CONTINUED:

          Management  plans  to  take, or has taken, the following steps that it
          believes will be sufficient to provide the Company with the ability to
          continue  in  existence.  See  Note  14  for  further  details.

               -    The Company is seeking to raise additional equity funds that
                    will  be  used  to  fund  any  capital  shortfalls.

               -    Subsequent  to  year  end,  the  Company  has  negotiated  a
                    $750,000  line  of credit with a finance company. The credit
                    line  is  limited  as  to  use  by  XCEL.

               -    Effective  January  1,  2003,  the  Company  completed  the
                    acquisition of substantially all assets of Quality Botanical
                    Ingredients  ("QBI").  QBI  is  a  leading  manufacturer and
                    processor  of  bulk  botanical  materials  and  nutritional
                    ingredients  with  annual  revenues  of  approximately $14.5
                    million.

               -    Subsequent  to  year-end,  the  Company  raised equity funds
                    totaling  $222,500, which was primarily used to acquire QBI.

               -    Subsequent  to  year-end,  the  Company  sold  $300,000  of
                    convertible  debentures  pursuant  to  a Securities Purchase
                    Agreement  dated  February  24, 2003. The funds were used to
                    acquire  QBI.

               -    Management  plans  to  decrease  expenses  by using internal
                    resources  to  perform  due  diligence and other acquisition
                    related  duties  on  future  acquisitions.

     USE OF ESTIMATES:

          The  preparation of financial statements in conformity with accounting
          principles generally accepted in the United States of America 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.
          The  Company's significant estimates include the contractual allowance
          for  accounts  receivable  and  life and estimated value of intangible
          assets  for  recoverability.  Actual  results  could differ from those
          estimates.

     FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS:

          For certain of the Company's financial instruments, including accounts
          receivable,  accounts  payable  and  accrued  expenses,  the  carrying
          amounts  approximate  fair  value  due  to  their  relatively  short
          maturities.  The  amounts owed on its notes payable and capital leases
          also  approximate  fair value because current interest rates and terms
          offered  to  the  Company  at  current  market  rates.


                                                                           F -12
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     CASH:

          Equivalents
          -----------

          Cash  equivalents  are  comprised of certain highly liquid investments
          with  maturity  of  three  months  or  less  when  purchased.

          Concentration
          -------------

          The  Company  maintains  its  cash  in bank deposit accounts, which at
          times,  may  exceed  federally  insured  limits.  The  Company has not
          experienced  any  losses  in  such  account.

     CONCENTRATION  OF  CREDIT  RISK:

          At December 31, 2002, accounts receivable consist of $400,000 due from
          two  government  agencies.

     INVESTMENT  IN  EQUITY  SECURITIES:

          The  Company  accounts  for its investments in equity securities under
          the  provisions  of  Financial  Accounting  Standards  Board  ("FASB")
          Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  115,
          "Accounting for Certain Investments in Debt and Equity Securities". In
          accordance  with  SFAS  No.  115,  equity securities that have readily
          determinable  fair  values  are  classified  as  either  trading  or
          available-for-sale  securities.  Securities  that  are bought and held
          principally for the purpose of selling in the near term (thus held for
          only  a short period of time) are classified as trading securities and
          all other securities are classified as available-for-sale. Trading and
          available-for-sale  securities  are  measured  at  fair  value  in the
          balance sheet. For trading securities any realized gains or losses and
          any  unrealized holding gains and losses are reported in the statement
          of  operations.  For  available-for-sale securities any realized gains
          and  losses  are  reported  in  the  statement  of  operations and any
          unrealized  holding  gains  and  losses  are  reported  as  a separate
          component  of  stockholders' equity until realized. As of December 31,
          2002, the Company's investments in marketable securities totaled $386,
          are classified as available-for-sale and are included in other current
          assets.

          The Company accounts for its investments in equity securities in which
          it  has significant influence over operating and financial policies of
          the  company,  typically  greater  than  20%  ownership,  under  the
          provisions of Accounting Principles Board Opinion No. 18 (APB No. 18),
          "The  Equity Method of Accounting for Investments in Common Stock". In
          accordance with APB No. 18, the Company records the initial investment
          at cost, reduces the investment by dividends received and increases or
          decreases  the  investment by the Company's proportionate share of the
          investee's  net  earnings  or  loss.

     INVENTORY:

          Inventory  consists of purchased goods that are stated at the lower of
          cost  or  market, cost generally being determined on a first in, first
          out  basis.


                                                                           F -13
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     FURNITURE  AND  EQUIPMENT:

          Furniture  and  equipment are stated at cost. Depreciation is provided
          on  a  straight-line  basis  over  the  estimated  useful lives of the
          assets,  which  range  from  5-7  years.

          Leasehold  improvements are amortized on the straight-line method over
          the  term of the lease or estimated useful life, whichever is shorter.
          Expenditures  for maintenance and repairs are charged to operations as
          incurred,  while  renewals  and  betterments  are  capitalized.

     EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED:

          Excess of cost over fair value of net tangible assets acquired arising
          from  the  acquisition  of  XCEL and BioSelect was first attributed to
          patents,  formulas,  agreements not-to-compete and website development
          based  upon  their  estimated  fair  value at the date of acquisition.
          These  intangible  assets  are  being  amortized  over their estimated
          useful  lives,  which  range from 3-19 years. Excess of cost over fair
          value  of net assets acquired will be reviewed for impairment pursuant
          to  SFAS  No.  142.

          The Company accounts for its intangible assets under the provisions of
          SFAS  No.  142,  "Goodwill and Other Intangible Assets". In accordance
          with  SFAS  No.  142,  intangible  assets  with  a  definite  life are
          accounted for impairment under SFAS No. 144 and intangible assets with
          indefinite  life  are  accounted for impairment under SFAS No. 142. In
          accordance  with  SFAS  No.  142, goodwill, or the excess of cost over
          fair  value  of  net  assets  acquired,  is no longer amortized but is
          tested  for  impairment  using a fair value approach at the "reporting
          unit"  level. A reporting unit is the operating segment, or a business
          one level below that operating segment (referred to as a component) if
          discrete  financial  information is prepared and regularly reviewed by
          management  at  the  component  level.  The  Company  recognizes  an
          impairment  charge  for  any  amount by which the carrying amount of a
          reporting  unit's  goodwill  exceeds  its fair value. The Company uses
          discounted  cash flows to establish fair values. When available and as
          appropriate,  comparative  market  multiples to corroborate discounted
          cash  flow results is used. When a business within a reporting unit is
          disposed  of, goodwill is allocated to the gain or loss on disposition
          using  the  relative  fair  value  methodology.

     INTANGIBLE AND LONG-LIVED ASSETS:

          In  October  2001,  the  FASB  issued  SFAS  No.  144, "Accounting for
          Impairment  of  Disposal  of Long-Lived Assets", which supercedes SFAS
          No.  121,  "Accounting for the Impairment of Long-Lived Assets and for
          Long-Lived Assets to Be Disposed Of", and the accounting and reporting
          provision  of  APB  Opinion  No.  30,  "Reporting  the  Results  of
          Operations-Reporting  the  Effects  of  Disposal  of  a  Segment  of a
          Business, and Extraordinary, Unusual and Infrequently Occurring Events
          and  Transactions",  for the disposal of a segment of a business. This
          statement also amends ARB No. 51, "Consolidated Financial Statements",
          to eliminate the exception to consolidation for a subsidiary for which
          control  is  likely  to  be  impaired.  SFAS  No.  144  requires  that
          long-lived  assets  to  be  disposed  of  by  sale, including those of
          discontinued  operations,  be measured at the lower of carrying amount
          or  fair  value  less  cost  to  sell,  whether reported in continuing
          operations  or  in  discontinued operations. SFAS No. 144 broadens the
          reporting  of  discontinued operations to include all components of an
          entity  with operations that can be distinguished from the rest of the
          entity  and that will be eliminated from the ongoing operations of the
          entity  in  a  disposal  transaction.  SFAS No. 144 also establishes a
          "primary-asset"  approach to determine the cash flow estimation period
          for  a  group  of  assets  and liabilities that represents the unit of
          accounting  for a long-lived asset to be held and used. This statement
          is  effective  for fiscal years beginning after December 15, 2001. The
          Company's  adoption  did  not  have a material impact to the Company's
          financial  position  or  results  of  operations.


                                                                           F -14
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     REVENUE  RECOGNITION:

          Net  sales  are  recorded  at  the  Company's  established rates on an
          accrual  basis,  net  of the provision for contractual allowances when
          pharmaceutical  products  are  shipped. Contractual allowances include
          differences between established billing rates and amounts estimated by
          management  as  reimbursable  from  third-party  payors and others for
          products  shipped.

     RESEARCH AND DEVELOPMENT COSTS:

          Research  and  development  costs  consist  of  expenditures  for  the
          research  and  development  of  patents,  which cannot be capitalized.

     ADVERTISING  COSTS:

          The  Company expenses advertising costs as incurred. Advertising costs
          totaled approximately $2,800 for the year ended December 31, 2002. The
          Company had no advertising costs for the year ended December 31, 2001.

     SHIPPING AND HANDLING COSTS:

          The  Company  expenses  shipping  and  handling  costs as incurred and
          includes  the expense in selling, general and administrative expenses.
          Shipping  and handling costs totaled approximately $58,000 and $45,000
          for  the  years  ended  December  31,  2002  and  2001,  respectively.

     INCOME  TAXES:

          Deferred  income  taxes  result  primarily  from temporary differences
          between  financial  and  tax  reporting.  Deferred  tax  assets  and
          liabilities  are  determined  based  on  the  difference  between  the
          financial  statement  bases  and  tax  bases of assets and liabilities
          using enacted tax rates. A valuation allowance is recorded to reduce a
          deferred  tax  asset  to  that portion that is expected to more likely
          than  not  be  realized.

     NET LOSS PER SHARE:

          The  Company  uses  SFAS No. 128, "Earnings Per Share" for calculating
          the basic and diluted loss per share. Basic loss per share is computed
          by  dividing  net  loss  attributable  to  common  stockholders by the
          weighted average number of common shares outstanding. Diluted loss per
          share  is  computed  similar  to  basic loss per share except that the
          denominator  is  increased  to include the number of additional common
          shares that would have been outstanding if the potential common shares
          had  been issued and if the additional common shares were dilutive. At
          December  31,  2002,  the  outstanding  number of potentially dilutive
          common  shares totaled approximately 1,605,596 shares. However, as the
          Company  has  a  loss,  their effect is anti-dilutive and has not been
          included  in  the diluted weighted average earnings per share as shown
          on the Consolidated Statement of Operations. At December 31, 2001, the
          Company  had  no  potentially  dilutive  common  shares.


                                                                           F -15
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:


          RECENT  ACCOUNTING  PRONOUNCEMENTS:

          In  April 2002, the FASB issued Statement No. 145, "Rescission of FASB
          Statements  No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
          Technical  Corrections." This Statement rescinds FASB Statement No. 4,
          "Reporting  Gains  and  Losses  from  Extinguishment  of Debt", and an
          amendment  of  that Statement, FASB Statement No. 64, "Extinguishments
          of  Debt Made to Satisfy Sinking-Fund Requirements" and FASB Statement
          No.  44,  "Accounting  for  Intangible Assets of Motor Carriers". This
          Statement  amends  FASB  Statement No. 13, "Accounting for Leases", to
          eliminate  an  inconsistency  between  the  required  accounting  for
          sale-leaseback  transactions  and  the required accounting for certain
          lease  modifications  that  have  economic effects that are similar to
          sale-leaseback  transactions. The Company does not expect the adoption
          to  have  a  material  impact  to  the Company's financial position or
          results  of  operations.

          In  July  2002,  the  FASB  issued SFAS No. 146, "Accounting for Costs
          Associated  with  Exit  or  Disposal  Activities",  which  addresses
          financial  accounting  and reporting for costs associated with exit or
          disposal  activities  and  supersedes  EITF  Issue  94-3,  "Liability
          Recognition  for Certain Employee Termination Benefits and Other Costs
          to  Exit  an  Activity  (including  Certain  Costs  Incurred  in  a
          Restructuring)."  SFAS  No.  146  requires that a liability for a cost
          associated  with  an  exit or disposal activity be recognized when the
          liability  is incurred. Under Issue 94-3, a liability for an exit cost
          as  defined  in  EITF  94-3  was recognized at the date of an entity's
          commitment  to  an  exit  plan. SFAS No. 146 also establishes that the
          liability should initially be measured and recorded at fair value. The
          Company will adopt the provisions of SFAS No. 146 for exit or disposal
          activities  that  are  initiated  after December 31, 2002. The Company
          does  not  expect  the  adoption  to  have  a  material  impact to the
          Company's  financial  position  or  results  of  operations.

          In  October  2002,  the  FASB  issued  SFAS  No. 147, "Acquisitions of
          Certain  Financial  Institutions"  which  provides  guidance  on  the
          accounting  for  the  acquisition of a financial institution. SFAS No.
          147  removes  acquisitions  of  financial  institutions  between  one
          enterprise  from  the scope of both FASB Statement No. 72, "Accounting
          for  Certain  Acquisitions of Banking or Thrift Institutions, and FASB
          Interpretation  No.  9,  "Apply  APB  Opinion  No.  16 and 17, "When a
          Savings and Loan Association or a Similar Institution is Acquired in a
          Business  Combination  Accounted  for  by  the  Purchase  Method"  and
          requires  that  those  transactions  be account for in accordance with
          FASB  Statements  No.  141  and 142. Additionally, SFAS No. 147 amends
          FASB  Statement No. 144, "Accounting for the Impairment or Disposal of
          Long-Lived  Assets,  to  include  in  its  scope  long-term
          customer-relationship intangible assets of financial institutions. The
          Company  does  not expect the adoption of this pronouncement to have a
          material  impact  to  the  Company's  financial position or results of
          operations.


                                                                           F -16
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:


          RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:

          In  November  2002,  the  FASB  issued  Interpretation  No.  (FIN) 45,
          "Guarantor's  Accounting  and  Disclosure requirements for Guarantees,
          Including  Indirect Guarantees of Indebtedness of Others." Among other
          things,  the  Interpretation requires guarantors to recognize, at fair
          value,  their  obligations  to  stand  ready  to perform under certain
          guarantees.  FIN  45 is effective for guarantees issued or modified on
          or  after January 1, 2003. The Company does not expect the adoption of
          this  pronouncement  to  have  a  material  impact  to  the  Company's
          financial  position  or  results  of  operations.

          In  December  2002,  the  FASB  issued  SFAS  No. 148, "Accounting for
          Stock-Based  Compensation  -  Transition and Disclosure", which amends
          SFAS  No.  123,  "Accounting for Stock-Based Compensation", to provide
          alternative  methods  of transition for a voluntary change to the fair
          value  based  method  of  accounting  for  stock-based  employee
          compensation.  Additionally,  SFAS  No.  148  amends  the  disclosure
          requirements of SFAS No. 123, regardless of which method of accounting
          is chosen, to require prominent disclosures in both annual and interim
          financial  statements  about  the method of accounting for stock-based
          employee  compensation  and  the effect of the method used on reported
          results.  The  statement is effective for fiscal years beginning after
          December  15,  2002,  with  earlier  application  permitted in certain
          circumstances.  The  interim  disclosure  provisions are effective for
          financial  reports containing financial statements for interim periods
          beginning  after  December  15,  2002.  Management  is determining the
          impact  of  this  pronouncement to the Company's financial statements.

          In  January  2003,  the FASB issued FIN 46, "Consolidation of Variable
          Interest  Entities."  FIN  46's  consolidation  criteria  are based on
          analysis  of  risks  and  rewards,  not  control,  and  represent  a
          significant  and  complex  modification  of  previous  accounting
          principles.  FIN  46  represents an accounting change, not a change in
          the  underlying  economics of asset sales. The Company does not expect
          the  adoption  of  this pronouncement to have a material impact to the
          Company's  financial  position  or  results  of  operations.


(2)  FURNITURE AND EQUIPMENT:

     A summary at December 31, 2002 is as follows:

<TABLE>
<CAPTION>
<S>                                                 <C>
  Furniture and equipment                           $ 48,612
  Computer equipment                                  47,095
  Vehicles held under capital leases                  50,000
  Leasehold improvements                              79,505
                                                    --------

                                                     225,212
  Less accumulated depreciation, including $18,056
    for vehicles held under capital leases            93,416
                                                    --------

                                                    $131,796
                                                    ========
</TABLE>


     Depreciation  expense  charged  to  operations  totaled $85,298 and $8,028,
     including  $16,667  and  $1,389  for  vehicles  held  under  capital  lease
     obligations,  for the years ended December 31, 2002 and 2001, respectively.


                                                                           F -17
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(3)  INVESTMENT IN EQUITY SECURITIES:

     In  September 2001 and October 2001, the Company purchased 8,753,797 shares
     (approximately  24.34%)  of  common  stock  of  Biofarm S.A. ("Biofarm"), a
     listed  pharmaceutical  company on the Romanian Stock Exchange, in exchange
     for  1,700,000  shares of the Company's common stock. Subsequently, Biofarm
     issued  new  shares  by  incorporating  revaluation  reserves,  which  were
     calculated  in  accordance  with  Romanian accounting law. As a result, the
     total number of shares owned by the Company increased from 8,753,797 shares
     to  14,432,064  shares.

     The  purchase  of the stock was accomplished by an exchange of common stock
     between  the Company and its major shareholder. Therefore, the value of the
     transaction  was  recorded  at the historical cost of the major shareholder
     pursuant  to  accounting principles generally accepted in the United States
     of  America.

     On January 1, 2002, the Company and International Pharmaceutical Group, LLC
     ("IPG")  agreed to rescind the Stock Purchase Agreement previously executed
     on September 7, 2001. Pursuant to the Rescission Agreement, the Company and
     IPG determined that Mr. Harry S. Branch, the Managing Member of IPG, either
     individually  or through an affiliate, could not facilitate the acquisition
     of  the  remaining outstanding shares of Biofarm by the Company. Also, with
     respect  to the deployment of the Company's new strategic direction, Branch
     was  unable to provide operational or advisory services. On April 26, 2002,
     the Company retired 1,700,000 shares of its common stock, previously issued
     to  Harry  S.  Branch  as  part  of  the  Stock  Purchase  Agreement.


(4)  INTANGIBLE ASSETS:

     A summary at December 31, 2002 is as follows:

<TABLE>
<CAPTION>
<S>                              <C>
  Patents                        $3,300,000
  Formulas                          680,000
  Agreements not-to-compete         390,000
  Website development                77,288
  Loan fees                           7,000
                                 ----------

                                  4,454,288
  Less accumulated amortization     233,051
                                 ----------

                                 $4,221,237
                                 ==========
</TABLE>

     Amortization  expense  totaled  $206,763  and  $24,865  for the years ended
     December  31,  2002  and 2001, respectively. Estimated amortization expense
     for  the  years  ending  December  31,  2003,  2004, 2005, 2006 and 2007 is
     $194,000,  $179,777,  $45,333,  $45,333  and  45,333,  respectively.


                                                                           F -18
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(4)  INTANGIBLE ASSETS, CONTINUED:

     Patents
     -------

     Patents  consist  of  the  assigned  fair  market  value  at  the  date  of
     acquisition  arising  from  the  purchase  of  BioSelect.  Patent costs are
     amortized  on  a  straight-line  basis  over  their  economic  lives  of
     approximately  19  years and are reviewed for impairment whenever the facts
     and circumstances indicate that the carrying amount may not be recoverable.

     Formulas
     --------

     Formulas  consist  of  the  assigned  fair  market  value  at  the  date of
     acquisition  arising from the purchase of XCEL. Formulas are amortized on a
     straight-line basis over their estimated economic lives of 15 years and are
     reviewed  for impairment whenever the facts and circumstances indicate that
     the  carrying  amount  may  not  be  recoverable.

     Agreements  Not-to-Compete
     --------------------------

     Certain  stockholders  of  the  Company  entered  into  non-competition
     agreements. The agreements have been recorded at their fair market value at
     the  date  of  purchase  of  XCEL.  The  agreements  are  amortized  on  a
     straight-line  basis  over  their  estimated  economic  lives  of  3 years.

     Website Development
     --------------------

     The  Company  capitalizes  certain  software  development  costs, which are
     amortized using the straight-line method over the estimated useful lives of
     the  software,  not  to  exceed  three  years.

     Loan  Fees
     ----------

     Loan  fees are being amortized using the straight-line method over the life
     of  the  loan.


(5)  LINE  OF  CREDIT:

     The  Company  may  borrow  up  to  $75,000 under a revolving line of credit
     agreement  expiring  in  March 2004. Interest only is payable at 2.5% above
     the  prime interest rate. At December 31, 2002, the interest rate was 7.5%.
     Certain  stockholders  of  the  Company  guarantee  the agreement. Interest
     expense  totaled  $5,283 and $491 for the years ended December 31, 2002 and
     2001,  respectively.


                                                                           F -19
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(6)  NOTES PAYABLE:

     A  summary  is  as  follows:

<TABLE>
<CAPTION>
<S>                                                         <C>
Note payable, consulting firm, interest at 10% per
  annum, unsecured, due in monthly installments of
  $12,000 through February 2004 (Note 14)                   $126,000
Note payable, individual, interest at 11% per annum,
  unsecured, subordinated to a $750,000 line of credit
  agreement (Note 14)                                        116,146
Note payable, individual, interest at 13% per annum,
  unsecured, due May 2002, the note holder has not
  demanded payment as of December 31, 2002                    55,000
Note payable with stock purchase warrants (Note 12),
  less discount of $20,500, individual, stated interest
  at 12% per annum, unsecured, due February 2003,
  guaranteed by the officers and major stockholders
  of the Company                                              44,750
Note payable with stock purchase warrants (Note 12),
  less discount of $8,200, individual, stated interest at
  12% per annum, unsecured, due March 2003,
  guaranteed by the officers and major stockholders
  of the Company (Note 14)                                    16,533
Note payable, individual, interest at 12% per annum,
  unsecured, due September 2003                               15,000
Note payable, individual, interest at 10% per annum,
  unsecured, subordinated to a $750,000 line of credit
  agreement (Note 14)                                          9,915
                                                            --------

                                                             383,344
Less current maturities                                      217,572
                                                            --------

                                                            $165,772
                                                            ========
</TABLE>


     Interest  expense  totaled  $53,797 and $3,565 for the years ended December
     31,  2002  and  2001,  respectively.


(7)  OBLIGATIONS UNDER CAPITALIZED LEASES:

     In  December  2001,  the  Company  incurred  capital  lease obligations for
     vehicles.  Aggregate monthly payments of $1,845, including average interest
     at  11.2%  per  annum, are due through various dates expiring December 2003
     through  March  2004,  and  are  secured  by  the  related  vehicles.


                                                                           F -20
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(7)  OBLIGATIONS UNDER CAPITALIZED LEASES, CONTINUED:

     The  following  is a summary of the principal amounts payable over the next
     two  years:

<TABLE>
<CAPTION>
<S>                                                       <C>
  Total minimum lease payments through December 31, 2003   23,204
  Less amount representing interest                         1,405
                                                          -------

Present value of net minimum lease payments                21,799
  Less current maturities                                  21,799
                                                          -------

                                                          $     -
                                                          =======
</TABLE>

     Interest  expense  totaled $3,838 and $390 for the years ended December 31,
     2002  and  2001,  respectively.


(8)  EMPLOYEE BENEFIT PLANS:

     XCEL,  a  wholly  owned  subsidiary  of  the  Company, sponsors an employee
     benefit  plan,  pursuant  to  Section  401(k) of the Internal Revenue Code,
     whereby  participants  may contribute a percentage of compensation, but not
     in  excess  of  the  maximum  allowed  under  the Code. The plan allows the
     Company  to  make  matching  contribution at the discretion of the Board of
     Directors.  Matching  contributions  totaled  $25,300  for  the  year ended
     December  31,  2002. The Company did not provide matching contributions for
     2001.


(9)  STOCKHOLDERS' EQUITY:

     Common Stock
     -------------

     In  February  2001,  the Company sold 499,450 shares of its common stock at
     $0.25  per  share  from an initial public offering, raising net proceeds of
     approximately  $125,000.

     In  February  2001, the Company issued 20,000 shares of its common stock in
     exchange for a note payable in the amount of $5,000 or $0.25 per share. The
     note  holder  agreed  to  waive  any  interest  earned  thereon.

     In  July  2001,  the Company issued 475,000 shares of its common stock to a
     consultant in exchange for public and financial relation services valued at
     $118,750  or  $0.25  per  share.

     In  July  2001,  the  Company  issued 1,000,000 shares of its common stock,
     valued  at  $250,000 or $0.25 per share, to its officers as compensation in
     exchange  for  services rendered for the period from August 1, 2001 through
     July  31, 2002. At December 2001, approximately $146,000 of this amount was
     unearned  and  has  been  included  in  stockholders'  equity.

     In  August  2001, the Company granted options to purchase 880,000 shares of
     the  Company's  common  stock  at  an  exercise  price  of $0.25 per share,
     exercisable  for  a period of one year. The options were issued in exchange
     for  consulting  services  to  be  provided  to the Company over a one-year
     period. The value of the options totaled $74,824 at the date of grant using
     the  Black-Scholes  option  pricing  model  with the following assumptions:
     risk-free  interest  rate of 3.57%; dividend yield of 0%; volatility factor
     of  the expected market price of the Company's common stock of 194%; and an
     expected  life  of the options of 1 year. All of the options were exercised
     in  September  2001.


                                                                           F -21
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(9)  STOCKHOLDERS' EQUITY, CONTINUED:

     Common Stock, Continued
     -------------------------

     In  September 2001 and October 2001, the Company issued 1,700,000 shares of
     its  common  stock  in  exchange  for  shares  of  Biofarm,  SA  valued  at
     approximately  $698,000  or  $2.44  per  share  (Note  3).

     In September 2001, a consultant exercised 250,000 stock options to purchase
     common  stock  at  an  exercise  price  of  $0.25  per  share. The exercise
     generated  proceeds  of  $62,500.

     In  September 2001, consultants exercised 630,000 stock options to purchase
     common  stock.  The consultants exercised the options on a "cashless" basis
     and  as  a result were issued 563,366 shares of the Company's common stock.
     Subsequently,  385,132 shares of the Company's common stock was returned by
     the  consultants  and  cancelled.

     In  December 2001, the Company issued 964,000 shares of its common stock in
     exchange  for 100% of the issued and outstanding shares of XCEL Healthcare,
     Inc.  and BioSelect Innovations, Inc. valued at approximately $4,400,000 or
     $4.56  per  share.

     In  December  2001, the Company issued 12,000 shares of its common stock in
     exchange  for  services  provided  to  the  Company valued at approximately
     $55,000  or  $4.56  per  share.

     In  February  and  March  2002, the Company issued 101,500 shares of common
     stock  to consultants in exchange for business development, acquisition and
     administrative  services  valued  at $369,500. Of this amount, $234,500 was
     expensed in the current year, $101,000 is assigned to the acquisition costs
     of  QBI and is included in other current assets, and $34,000 is assigned to
     the  acquisition  costs  of  XCEL  and  BSI as they represents payment to a
     consultant for the valuation of XCEL and BSI. The shares have been recorded
     based  on  the  Company's  closing  market  price  on the date of issuance.

     On  April  9, 2002, the Company granted three consultants each an option to
     purchase  25,000  shares  of its common stock at an exercise price of $1.25
     per  share  in  consideration  of  services  rendered as consultants to the
     Company  through  April 8, 2003. The estimated value of the options totaled
     approximately  $120,000 at the date of grant. Of this amount, approximately
     $90,000  has been expensed to date and approximately $30,000 is included in
     prepaid  expenses  as this amount relates to services to be provided in the
     near  term.  The value of the options was estimated using the Black-Scholes
     option  pricing model with the following assumptions: risk-free interest of
     2.55%; dividend yield of 0%; volatility factor of the expected market price
     of  the  Company's common stock of 116%; and a term of 1 month. The options
     were  exercised  in April 2002, which generated net proceeds to the Company
     totaling  $93,750.

     In April and May 2002, the Company issued 406,000 shares of common stock to
     consultants  in exchange for business development, acquisition and investor
     relation  services  valued  at  approximately  $1,280,000.  Of this amount,
     approximately  $1,190,000  has  been  expensed  in  the  current  year  and
     approximately  $90,000  is  included  in  other current assets as this cost
     relates  to  the  acquisition of QBI. The shares were recorded based on the
     Company's  closing  market  price  on  the  date  of  issuance.

     In  May  2002,  Messrs.  Tannous  and  Glaser,  officer/shareholders of the
     Company,  exercised  100,000  options to purchase common stock. The options
     were  exercised  on  a "cashless" basis and as a result, the Company issued
     91,962  shares  of  its  common  stock.


                                                                           F -22
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(9)  STOCKHOLDERS' EQUITY, CONTINUED:

     Common Stock, Continued
     -----------------------

     In June 2002, the Company entered into a Securities Purchase Agreement with
     an  unrelated  party  providing for the sale of 100,000 units, comprised of
     100,000  shares  of  the  Company's  common  stock and 100,000 common stock
     purchase  warrants at $1.75 per unit. The shares are restricted pursuant to
     Rule 144 of the Securities Act of 1933. Each warrant entitles the holder to
     purchase  one  share  of  common  stock  at an exercise price of $3.00. The
     warrants  expire  on  June  9,  2004.  Proceeds from the sale of shares and
     warrants  totaled  $175,000.  The  purchase  agreement calls for additional
     issuances  of  shares  if  at any time through December 2002 if the Company
     issues  additional  shares of common stock in a capital raising transaction
     at  a  price  less  than $1.75 per unit. Consequently, an additional 94,444
     shares  of  common stock was issued. The value of the additional shares was
     determined  based  on the Company's closing market price on the date of the
     transaction,  which  totaled  $92,555  and is included in interest expense.

     In  July  2002,  the  Company  granted  two consultants options to purchase
     255,000 shares of its common stock at exercise prices ranging between $0.83
     and  $6.17,  in  consideration  of  services rendered as consultants to the
     Company  through  April  2003.  The  estimated value of the options totaled
     approximately  $429,000  at the date of grant. The value of the options was
     estimated  using  the Black-Scholes option pricing model with the following
     assumptions:  average  risk-free  interest  of 3.06%; dividend yield of 0%;
     volatility  factor  of  the  expected  market price of the Company's common
     stock  of  143%; and a term of 2 years. Approximately $244,000 was expensed
     in  the  current  year.

     In December 2002, the Company terminated the agreement with one consultant.
     As  a result, 100,000 options, originally valued at approximately $185,000,
     were  cancelled.  In  July 2002, a consultant exercised options in exchange
     for  30,000  shares  of  the  Company's  common  stock, which generated net
     proceeds  totaling  $25,000.

     In  July  2002,  the  Company  issued  5,000  shares  of common stock to an
     employee  for services rendered. The shares were valued at $6,500, based on
     the  Company's  closing  market  price  on  the  date  of  issuance.

     In August 2002, the Company granted a consultant options to purchase 66,666
     shares  of its common stock at an exercise price of $0.96, in consideration
     of services rendered as a consultant to the Company. The estimated value of
     the  options  totaled approximately $59,000 at the date of grant. The value
     of  the  options was estimated using the Black-Scholes option pricing model
     with the following assumptions: risk-free interest of 2.19%; dividend yield
     of  0%;  volatility  factor  of  the expected market price of the Company's
     common  stock  of  143%;  and  a  term  of  2  years.

     In  September  2002,  the  Company commenced a Private Placement of 100,000
     units  of  the  Company's  common stock and warrants at a purchase price of
     $0.90  per  unit.  The  Private  Placement  is exempt from the registration
     provisions of the Securities Act of 1933 and is being offered and sold only
     to  accredited  investors. To date, the Company issued 111,111 units, which
     generated  net proceeds totaling $100,000. Each warrant entitles the holder
     to  purchase  one  share of common stock at an exercise price of $1.30. The
     warrants  expire  three  years  from  the  date  of  grant.


                                                                           F -23
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(9)  STOCKHOLDERS' EQUITY, CONTINUED:

     Common Stock, Continued
     -----------------------

     In  October  2002,  the  Company issued 500,000 shares of common stock to a
     former  consultant  for  public  and  financial  relations  pursuant  to  a
     Settlement  and  Release Agreement entered into in September 2002. Pursuant
     to  the  agreement,  the  former  consultant  is  entitled to receive up to
     200,000  additional  shares  of  the  Company's common stock based on 8% of
     shares  issued  subsequent  to  the  date of the agreement. As a result, an
     additional 148,295 shares of common stock was issued to the consultant. The
     shares  are  restricted pursuant to Rule 144 of the Securities Act of 1933.
     Moreover,  the settlement agreement limits the number of shares that can be
     sold  in  any  calendar  month  to  0.33%  of the outstanding shares of the
     Company  at the date of sale. The value of the shares totaled approximately
     $401,000  and  was estimated based on the Company's closing market price on
     the  date  of  issuance.

     In  November  2002,  the Company issued 125,000 shares of common stock to a
     consultant  for  public  and financial relations. The shares are restricted
     pursuant to Rule 144 of the Securities Act of 1933. The value of the shares
     totaled  approximately  $89,000  and  was determined based on the Company's
     fair  market  value  on  the  date  of  issuance.

     In  November  2002,  the  Company  issued  2,600  shares of common stock to
     employees  for  services  rendered. The shares were valued at approximately
     $2,000 based on the Company's closing market price on the date of issuance.

     In  November  2002, Messrs. Tannous and Glaser, officer/shareholders of the
     Company,  exercised 400,000 options to purchase common stock at an exercise
     price  of  $0.25  in  exchange  for  a  reduction  of  obligation  due  the
     officer/shareholders  totaling  $100,000.

     In  December  2002, the Company issued 38,418 shares of its common stock to
     two  consultants  for legal and consulting services. The shares were valued
     at approximately $32,000 based on the Company's closing market price on the
     date  of  issuance.

     In December 2002, the Company issued 181,818 shares of its common stock and
     warrants  at  a  purchase  price of $0.55 per share. The issuance is exempt
     from the registration provisions of the Securities Act of 1933 and is being
     offered  and  sold  only to accredited investors. The shares are restricted
     pursuant  to Rule 144 of the Securities Act of 1933. The sale generated net
     proceeds  of  $100,000.  Each  warrant  entitles the holder to purchase one
     share  of  common  stock at an exercise price of $1.00. The warrants expire
     three  years  from  the  date  of  grant.

     In  December 2002, the Company issued 707,229 shares of its common stock to
     Messrs.  Tannous  and  Glaser  in  exchange  for  notes  payable  due  the
     officer/shareholders  totaling  $338,000  plus  interest  expense  totaling
     approximately  $51,000.  The  shares are restricted pursuant to Rule 144 of
     the Securities Act of 1933. The value of the shares was determined based on
     the  price  of  the  most  recent private placement for similar instruments
     issued  by  the  Company  to  non-employees, which approximates the closing
     price  of  the  Company's  common  stock  on  the  date of issuance, less a
     discount  for  the  restrictive  nature  of  the  common  stock.


                                                                           F -24
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(9)  STOCKHOLDERS' EQUITY, CONTINUED:

     Common Stock, Continued
     -----------------------

     In  December 2002, the Company issued 744,056 shares of its common stock to
     Messrs.  Tannous  and  Glaser  in lieu of cash as compensation and benefits
     earned,  which  totaled  approximately  $409,000  at December 31, 2002. The
     shares  are  restricted pursuant to Rule 144 of the Securities Act of 1933.
     The  value  of  the  shares  was  determined based on the price of the most
     recent  private  placement for similar instruments issued by the Company to
     non-employees, which approximates the closing price of the Company's common
     stock  on  the date of issuance, less a discount for the restrictive nature
     of  the  stock.

     In  December  31,  2002,  the  Company  entered  into an agreement to issue
     193,066  shares  of  common  stock  in exchange for a note payable totaling
     $164,106. The value of the shares was determined based on the closing price
     of  the  Company's  common  stock  on  the  date  of  issuance.

     Options and Warrants Issued to Consultants
     ------------------------------------------

     In  September  2002,  the  Company granted a consultant options to purchase
     500,000  shares  of  its  common  stock  at  an exercise price of $1.00, in
     consideration  of  services  rendered to the Company through February 2004.
     The  estimated  value  of the options totaled approximately $424,000 at the
     date  of  grant.  The  value  of  the  options  was  estimated  using  the
     Black-Scholes  option  pricing  model  with  the  following  assumptions:
     risk-free interest of 2.14%; dividend yield of 0%; volatility factor of the
     expected  market price of the Company's common stock of 143%; and a term of
     5  years.  In  December  2002,  the  Company terminated the agreement. As a
     result,  300,000 options, valued at approximately $233,000, were cancelled.
     Approximately  $191,000  was expensed in the current year, which represents
     200,000  options  that  remain  outstanding.

     In  December 2002, the Company issued 70,000 stock purchase warrants to two
     note  holders (Note 6). The warrants entitle the holders to purchase 70,000
     shares  of  the  Company's  common stock at an exercise price of $1.00. The
     warrants  are  exercisable  immediately  and  expire  in December 2005. The
     estimated  value  of the warrants totaled approximately $49,000 at the date
     of issuance and is included in additional paid-in capital. The value of the
     warrants  was  estimated  using the Black-Scholes option pricing model with
     the  following  assumptions:  average risk-free interest of 2.39%; dividend
     yield  of  0%;  volatility  factor  of  the  expected  market  price of the
     Company's  common  stock  of  167%; and a term of 3 years. The value of the
     warrants was allocated to the notes based on the relative fair value of the
     proceeds  received,  which  totaled  $28,700.  This amount is recorded as a
     discount  on  notes  payable  and  is  being  amortized over the period the
     obligation  is  outstanding, using a method that approximates the effective
     interest method. Amortization of bond discount totaled $12,983 for the year
     ended  December  31,  2002  and  is  included  in  interest  expense.

     The number and weighted average exercise prices of the options and warrants
     issued  to  consultants  are  as  follows:

<TABLE>
<CAPTION>
                                        December 31, 2002   December 31, 2001
                                      --------------------  -----------------
                                                  Average             Average
                                                 Exercise            Exercise
                                       Number      Price    Number     Price
                                      ---------  ---------  --------  -------
<S>                                   <C>        <C>        <C>      <C>
Outstanding at beginning of the year          -  $       -         -  $     -
Granted during the year               1,492,929       1.71   880,000     0.25
Exercised during the year               105,000       1.13   880,000     0.25
Terminated during the year              533,333       1.89         -        -
Exercisable at end of the year          854,596       1.66         -        -
Outstanding at end of the year          854,596       1.66         -        -
</TABLE>


                                                                           F -25
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(9)  STOCKHOLDERS' EQUITY, CONTINUED:

     Options and Warrants Issued to Consultants, Continued
     -----------------------------------------------------


     The  following  table  summarizes information on stock options and warrants
     outstanding  and  exercisable  issued  to consultants at December 31, 2002:

<TABLE>
<CAPTION>
            Weighted-
             Average     Weighted-    Weighted-
Range of    Remaining     Average      Average
Exercise     Number     Contractual      Fair     Exercise
Prices     Outstanding  Life (Years)    Value       Price
---------  -----------  ------------  ----------  ---------
<S>        <C>          <C>           <C>         <C>
0 to $1         66,667            .7  $     0.67  $    0.96
1 to 2         587,929           3.5        0.52       0.86
2 to 3               -             -           -          -
3 to 4         150,000           1.5        1.19       3.29
4 to 5          50,000           1.6        1.97       4.63
</TABLE>

(10) INCOME TAXES:


     For  federal  income  tax  return  purposes,  the Company has available net
     operating  loss  carryforwards  of  approximately  $5,100,000, which expire
     through  2023  and  are  available to offset future income tax liabilities.

     Temporary  differences  which  give  rise  to  deferred  tax  assets  and
     liabilities  at  December  31,  2002  are  as  follows:

<TABLE>
<CAPTION>
<S>                                  <C>
Deferred tax asset arising from net
  operating loss carry forwards      $ 2,040,000
Valuation allowance                   (2,040,000)
                                     ------------

          Net deferred tax asset     $         -
                                     ============
</TABLE>

     The  reconciliation  of  the  effective  income  tax  rate  to  the Federal
     statutory  rate  is  as  follows:

<TABLE>
<CAPTION>
                                             December 31,   December 31,
                                                 2002           2001
                                             -------------  -------------
<S>                                          <C>            <C>
    Federal and state income tax rate              (34.0)%        (34.0)%
    State income taxes, net federal benefit         (6.0)%         (6.0)%
    Effect of valuation allowance                   40.0 %         40.0 %
                                             -------------  -------------

    Effective income tax rate                        0.0 %          0.0 %
                                             =============  =============
</TABLE>


                                                                           F -26
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(11) STOCK  OPTIONS  ISSUED  TO  EMPLOYEES:

     The  Company  has adopted the 2001 Employee Stock Option Plan (the "Plan").
     The Plan authorizes the issuance of up to 2,000,000 shares of the Company's
     common  stock  pursuant to the exercise of options granted there under. The
     Board of Directors administers the Plan, selects recipients to whom options
     are  granted  and  determines  the  number of shares to be awarded. Options
     granted  under  the Plan are exercisable at a price determined by the Board
     of  Directors  at  the time of grant, but in no event less than fair market
     value.

     The  number  and weighted average exercise prices of options granted are as
     follows:

<TABLE>
<CAPTION>
                                       December 31, 2002  December 31, 2001
                                      ------------------  ------------------
                                                Average             Average
                                               Exercise            Exercise
                                      Number     Price    Number     Price
                                      -------  ---------  -------  ---------
<S>                                   <C>      <C>        <C>      <C>
Outstanding at beginning of the year  500,000  $    0.25        -  $       -
Granted during the year               766,000       0.69  500,000       0.25
Exercised during the year             500,000       0.25        -       0.25
Terminated during the year             15,000       1.40        -          -
Exercisable at end of the year        731,000       0.61  500,000       0.25
Outstanding at end of the year        751,000       0.68  500,000       0.25
</TABLE>


<TABLE>
<CAPTION>
            Weighted-
             Average     Weighted-    Weighted-
Range of    Remaining     Average      Average
Exercise     Number     Contractual      Fair       Number     Exercise
Prices     Outstanding  Life (Years)    Value     Exercisable    Price
---------  -----------  ------------  ----------  -----------  ---------
<S>        <C>          <C>           <C>         <C>          <C>
0 to $1        700,000           3.0  $     0.47      700,000  $    0.55
1 to 2          21,000           9.7        1.14       21,000       1.33
2 to 3               -             -           -            -          -
3 to 4          30,000           2.3        2.67       10,000       3.10
</TABLE>

     As  allowed  under the guidance of SFAS No. 123, the Company has elected to
     follow  Accounting  Principles  Board Opinion No. 25, "Accounting for Stock
     Issued to Employees" (APB No. 25) and related interpretations in accounting
     for  its  employee  stock  options.  Under APB No. 25, because the exercise
     price  of  the  Company's employee stock options equals the market price of
     the  underlying  stock  on  the  date  of grant, no compensation expense is
     recognized.

     Pro  forma  information  regarding  the effect on operations is required by
     SFAS  No.  123, and has been determined as if the Company had accounted for
     its  employee  stock options under the fair value method of that statement.
     Pro  forma  information using the Black-Scholes method at the date of grant
     based  on  the  following assumptions: risk free interest rate of 3.34% for
     2002  and  3.57%  for 2001; dividend yield of 0% for each of the years 2002
     and  2001;  volatility factor of the expected market price of the Company's
     common  stock  of  167% for 2002 and 194% for 2001; and an expected life of
     the  options  of  3  years  for  2002  and  1  year  for  2001.


                                                                           F -27
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(11) STOCK OPTIONS ISSUED TO EMPLOYEES, CONTINUED:

     This  option  valuation  model  requires  input  of  highly  subjective
     assumptions.  Because  the  Company's  employee  stock  options  have
     characteristics  significantly  different from those of traded options, and
     because  changes  in the subjective input assumptions can materially affect
     the  fair  value  of  estimate, in management's opinion, the existing model
     does not necessarily provide a reliable single measure of fair value of its
     employee  stock  options.

     For  purposes  of  SFAS  No.  123 pro forma disclosures, the estimated fair
     value  of  the  options  is  amortized to expense over the option's vesting
     period.  The  Company's  pro  forma  information  is  as  follows:

<TABLE>
<CAPTION>
                                                  December 31, 2002    December 31, 2001
                                                 -------------------  -------------------
<S>                                              <C>                  <C>
    Net loss, as reported                        $       (4,283,936)  $         (735,096)
    Pro forma net loss                           $       (4,701,593)  $         (819,415)

    Basic and diluted historical loss per share  $             (.73)  $             (.22)
    Pro forma basic and diluted loss per share   $             (.81)  $             (.25)
</TABLE>


(12) COMMITMENTS  AND  CONTINGENCIES:

     Leases
     ------

     The  Company  leases  its  office facilities under various lease agreements
     expiring  through  July 2004. Rental expense under operating leases totaled
     $50,079  and  $15,751  for  the  years  ended  December  31, 2002 and 2001,
     respectively.  As  of  December  31,  2002,  future minimum rental payments
     required  under  operating  leases  are  as  follows:

         Year ending December 31,
              2003                                    $    48,845
              2004                                         20,772
                                                      -----------

                                                      $    69,617
                                                      ===========


     Employment Agreements
     ---------------------

     In  December  2001,  XCEL  entered  into  employment  agreements  with  3
     stockholders  of  the  Company  to  pay  an annual base salary of $125,000,
     $125,000  and  $85,000  through  December  2004.  The  agreements  include
     provisions  for salary increases and stock options based on earnings growth
     the  XCEL  and  BSI  may  achieve. Under these agreements, salaries totaled
     approximately  $385,000  and  $28,000 for the years ended December 31, 2002
     and  2001,  respectively.

     Effective  January  1, 2002, the Company entered into employment agreements
     with  its  corporate  officers/stockholders of the Company to pay an annual
     base  salary  of $190,000 plus a bonus based on key milestone's the Company
     may  achieve.  The  agreements  expire  December  31,  2005.  The
     officers/stockholders  converted  the  amount  due  at December 31, 2002 to
     744,056  shares  of  common  stock  (Note  9).


                                                                           F -28
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(13) SEGMENT INFORMATION:

     The  Company  has  three  business  units that have separate management and
     reporting  infrastructures  that offer different products and services. The
     business  units  have  been  aggregated  into  three  reportable  segments:
     Corporate,  Pharmaceutical,  and  Research  and  Development. The Corporate
     group  is  the  holding  company  and  oversees the operations of the other
     business  units.  The Corporate group also arranges financing and strategic
     guidance  for  the  entire  organization. The Pharmaceutical group provides
     in-home  pharmaceutical  products,  primarily  in  Southern California. The
     Research  and Development group develops future and present products in the
     fields  of  drug  delivery,  vitamins  and  minerals,  and  cosmetic
     pharmaceuticals.

     The  accounting policies of the segments are the same as those described in
     the  summary  of  significant  accounting  policies (Note 1). The Company's
     reportable  segments  are  strategic  business  units  that offer different
     products  and  services.  They are managed separately because each business
     requires  different  technology  and  marketing  strategies.  The  Company
     evaluates  the  performance  of its operating segments based on income from
     operations,  before  income  taxes, accounting changes, non-recurring items
     and  interest  income  and  expense.

     Summarized  financial  information  concerning  the  Company's  reportable
     segments  is  shown  in the following table for the year ended December 31,
     2002:

<TABLE>
<CAPTION>
                                               Research and
                                 Corporate    Pharmaceutical   Development   Consolidated
                               -------------  ---------------  ------------  -------------
<S>                            <C>            <C>              <C>           <C>
Revenue                        $           -  $     5,537,991  $          -  $   5,537,991
Operating Loss                 $   3,865,024  $       187,253  $     27,841  $   4,080,118
Depreciation and amortization  $      18,269  $       273,792  $          -  $     292,061
Interest expense, net          $     165,447  $        38,371  $          -  $     203,818
Identifiable Assets            $     459,910  $     2,211,500  $  3,300,000  $   5,971,410
</TABLE>


     Summarized  financial  information  concerning  the  Company's  reportable
     segments  is  shown  in the following table for the year ended December 31,
     2001:

<TABLE>
<CAPTION>
                                               Research and
                                 Corporate    Pharmaceutical   Development   Consolidated
                               -------------  ---------------  ------------  -------------
<S>                            <C>            <C>              <C>           <C>
Revenue                        $           -  $       341,813  $          -  $     341,813
Operating Loss                 $     782,595  $        22,585  $     20,286  $     825,466
Depreciation and amortization  $      10,550  $        22,343  $          -  $      32,893
Interest expense, net          $       1,146  $         3,300  $          -  $       4,446
Identifiable Assets            $   1,125,791  $     1,843,405  $  3,300,000  $   6,269,196
</TABLE>


                                                                           F -29
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(14) SUBSEQUENT EVENTS:

     Business Acquisition
     --------------------

     Effective  January  1,  2003,  the Company formed a new Subsidiary, Quality
     Botanical  Ingredients,  Inc.,  a  Delaware  corporation,  that  purchased
     substantially  all  assets  and  assumed  certain  liabilities  of  Quality
     Botanical Ingredients, Inc., a New Jersey corporation,("QBI") (now known as
     AAA  Health  Products,  Inc.)  pursuant to an Asset Purchase Agreement (the
     "Agreement")  for  1,206,033  shares  of  the Company's common stock, which
     includes  433,333  shares placed in an escrow account through July 25, 2003
     and  200,000  shares  issued  to  consultants  for services provided to the
     Company  relating  to  the  acquisition.  The  value  of the shares totaled
     $976,887  and  was  determined based on the average closing market price of
     the  Company's  common  stock  over the two-day period before and after the
     terms  of  the  acquisition  were agreed to and announced. Shares placed in
     escrow  totaling  333,333 are subject to set-off of any accounts receivable
     remaining  after  150  days  from  the  closing date. The remaining 100,000
     shares  are  subject  to  settlement  of  any  indemnity claims. Additional
     shares,  not  to  exceed  1,250,000,  of the Company's common stock will be
     issued to the seller should the closing price of the Company's common stock
     not  achieve  certain  levels  after  1  year  from  the  closing  date. An
     additional  200,000  shares  shall  be  issued  to the seller upon reaching
     certain levels of gross revenues and gross operating margins as compared to
     its  2001  financial  results.  Pursuant  to  the  Agreement,  the  Company
     contributed  $200,000 to QBI, which was used as payment to QBI's creditors.
     The  Company  also contributed $400,000 to QBI, of which, $350,000 was used
     to  pay  down  QBI's  line  of credit and the remaining $50,000 was paid to
     QBI's  lender  as  a  loan  fee. Within 90 days from the date of close, the
     Company  is  required  to  contribute and additional $100,000 to QBI, which
     shall  be  used  to  pay  down  debt  assumed  during  the  acquisition.

     In February 2003, the newly formed subsidiary entered into a loan agreement
     with  a  financial  institution  for  a  maximum line of credit totaling $4
     million.  Interest  is  due monthly on the outstanding balance at a rate of
     1.5% above the prime rate as published in the Wall Street Journal. The loan
     agreement  expires  in  February  2004  and is secured by substantially all
     assets  of the newly formed subsidiary. The financial institution will make
     advances  on  the  loan  agreement  up  to  80% of accounts receivable to a
     maximum  of  $4 million and 55% of inventory to a maximum $1.8 million. The
     borrowings  are  guaranteed by Health Sciences and personally guaranteed by
     the shareholders of the purchased company. The credit line is limited as to
     use  by  the  new  subsidiary.

     Additionally, the newly formed subsidiary assumed notes payable of $387,481
     and  $63,194  with a financial institution. The notes earn interest at 2.5%
     above  the  prime  rate  as  published  in the Wall Street Journal. Monthly
     payments of principal and interest total $24,921 and $5,228 are due through
     July  2004 and March 2004, respectively. The notes are guaranteed by Health
     Sciences  and  personally  guaranteed  by the shareholders of the purchased
     company.

     In  keeping  with  our  focus  to  be  an integrated provider of innovative
     products  and  services  to  the  nutraceutical,  pharmaceutical,  and
     cosmeceutical industries, the assets and business purchased from QBI allows
     us  to  process  domestic  and  imported  botanical  and  nutraceutical raw
     materials  into  nutritional  supplement  components  which  are  sold  to
     manufactures  throughout  the world. The acquisition has been accounted for
     as  a  purchase  pursuant  to  SFAS  No. 141 and, accordingly, the acquired
     assets  and  liabilities  assumed  will be recorded at their estimated fair
     values  at  the  date  of  acquisition.


                                                                           F -30
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(14) SUBSEQUENT EVENTS, CONTINUED:

     Consulting Agreements
     ---------------------

     In January 2003, the Company entered into an agreement with a consultant to
     provide  financial  relations  services  through  December  31,  2003.  The
     agreement  grants  the consultant options to purchase 250,000 shares of the
     Company's common stock at an exercise price of $0.55 per share. The options
     vest  equally  every  three  months and expire three years from the date of
     grant. The estimated value of the options total approximately $118,000. The
     value  of  the options was estimated using the Black-Scholes option pricing
     model  with the following assumptions: average risk-free interest of 2.00%;
     dividend yield of 0%; volatility factor of the expected market price of the
     Company's  common  stock  of  167%;  and  a  term  of  3  years.

     In  February  2003,  the  Company  issued 8,761 shares of common stock to a
     consultant  for  business  development  services.  The  value of the shares
     totaled  approximately  $3,500  at  the date of issuance and was determined
     based on the fair market value of the Company's common stock at the date of
     issuance.

     In  March 2003, the Company entered into agreements with two consultants to
     provide investor relation services through September 11, 2003 and March 24,
     2004.  The  Company issued 190,000 shares of the restricted common stock to
     the consultants as consideration for the services to be provided. The value
     of the shares issued totaled approximately $146,000 at the date of issuance
     and  was  determined based on the fair market value of the Company's common
     stock  at  the  date  of  issuance.

     Convertible Debentures
     ----------------------

     In  February  2003,  the  Company  sold  $300,000 of convertible debentures
     pursuant  to  a  Securities  Purchase  Agreement. Additionally, the Company
     issued  571,428 of common stock purchase warrants to the debenture holders.
     Each  warrant  entitles the holder to purchase one share of common stock at
     an  exercise  price  of  $0.60.  The  warrants expire in February 2008. The
     debentures  accrue  interest  at  12%  per  annum. The unpaid principal and
     accrued  interest is due on February 24, 2004. The notes are collateralized
     by  a second position in substantially all assets of the Company and shares
     owned  by  the  officers  and major shareholders of the Company. Commencing
     July  24,  2003,  the  debentures can be converted at $0.525. The estimated
     value  of  the  warrants  totaled  approximately  $462,000  at  the date of
     issuance.  The  value of the warrants was estimated using the Black-Scholes
     option  pricing  model  with  the  following assumptions: average risk-free
     interest  of 2.82%; dividend yield of 0%; volatility factor of the expected
     market  price of the Company's common stock of 167%; and a term of 5 years.

     The  discount attributable to the value of the warrants as calculated using
     the  Black-Scholes  pricing  model  and  the value of the equity conversion
     features exceeded the face value of the convertible notes. As a result, the
     notes  were  fully  discounted  and the discount was recorded as additional
     paid-in  capital.  The  discount will be amortized on a straight-line basis
     over  one  year  giving  an  effective  interest  rate  in  excess of 100%.

     Additionally,  the  Company  granted  85,712 stock purchase warrants to two
     consultants  as  consulting services relating to the convertible debentures
     sold by the Company. Each warrant entitles the holder to purchase one share
     of  common  stock  at  an  exercise  price of $0.60. The warrants expire in
     February  2008.  The  estimated value of the warrants totaled approximately
     $69,000  at  the  date of issuance. The value of the warrants was estimated
     using  the  Black-Scholes  option  pricing  model  with  the  following
     assumptions:  average  risk-free  interest  of 2.82%; dividend yield of 0%;
     volatility  factor  of  the  expected  market price of the Company's common
     stock  of  167%;  and  a  term  of  5  years.


                                                                           F -31
<PAGE>
                  HEALTH SCIENCES GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


(14) SUBSEQUENT EVENTS, CONTINUED:

     Line of Credit
     --------------

     In  February  2003,  XCEL Healthcare, Inc. ("XCEL") entered into a Loan and
     Security  Agreement  (the  "Loan  Agreement")  with a finance company for a
     maximum  line  of  credit totaling $750,000. Interest is due monthly on the
     outstanding  balance at a rate of 3.75% above company's reference rate. The
     Loan Agreement expires in February 2006 and is secured by substantially all
     assets  of  XCEL.  The  finance  company  will  make  advances  on the loan
     agreement  up  to  75%  of eligible accounts receivable. The borrowings are
     guaranteed  by  Health  Sciences  and personally guaranteed by the majority
     stockholders  of  Health  Sciences. The credit line is limited as to use by
     XCEL.

     The Company must maintain the following financial ratio and covenant:

     -    Minimum working capital ratio .75 to 1
     -    XCEL must be profitable

     Additionally,  the  Company  agreed  to  pay $37,500 and issue 30,000 stock
     purchase  warrants  to  a  consultant  for services relating to the line of
     credit.  Each  warrant  entitles the holder to purchase one share of common
     stock at an exercise price of $0.95. The warrants expire February 2008. The
     estimated  value  of the warrants totaled approximately $25,000 at the date
     of  issuance.  The  value  of  the  warrants  was  estimated  using  the
     Black-Scholes  option pricing model with the following assumptions: average
     risk-free interest of 2.75%; dividend yield of 0%; volatility factor of the
     expected  market price of the Company's common stock of 167%; and a term of
     5  years.

     Securities  Purchase  Agreements
     --------------------------------

     In  March  2003,  the  Company  entered into Securities Purchase Agreements
     providing for the sale of 247,273 units, comprised of 247,273 shares of the
     Company's  common stock and 247,273 common stock purchase warrants at $0.55
     per  unit. The shares are restricted pursuant to Rule 144 of the Securities
     Act  of  1933.  Each  warrant  entitles the holder to purchase one share of
     common stock at an exercise price of $1.00. The warrants expire three years
     from  the  date  of  grant.  Proceeds  from the sale of shares and warrants
     totaled  $136,000.

     In  April  2003,  the  Company  entered into Securities Purchase Agreements
     providing for the sale of 110,000 units, comprised of 110,000 shares of the
     Company's  common stock and 110,000 common stock purchase warrants at $0.90
     per  unit. The shares are restricted pursuant to Rule 144 of the Securities
     Act  of  1933.  Each  warrant  entitles the holder to purchase one share of
     common stock at an exercise price of $1.25. The warrants expire three years
     from  the  date  of  grant.  Proceeds  from the sale of shares and warrants
     through  April  8,  2003  totaled  $99,000.

     Settlement  Agreement
     ---------------------

     In  March  2003, the Company entered into a Settlement Agreement and Mutual
     General  Release  with  a consulting firm who filed a complaint against the
     Company  alleging  breach  of  contract  related to consulting services for
     corporate  development and operations expansion. Pursuant to the settlement
     agreement,  the  Company converted $126,000 of accounts payable into a note
     payable  to  the  consulting firm for the principal amount of $126,000 with
     monthly  payments  of  $12,000  including interest at 10% per annum through
     February  2004.

     Conversion  of  Note  Payable
     -----------------------------

     In March 2003, the Company issued 40,000 shares of common stock in exchange
     for  a  note  payable due an individual totaling $27,000 including interest
     expense  totaling $5,000. The shares are restricted pursuant to Rule 144 of
     the Securities Act of 1933. The value of the shares was determined based on
     the fair market value of the Company's common stock at the date of issuance
     (Note  6).

     Other Stock Issuances
     ---------------------

     In  January  2003,  the  Company  issued  19,250 shares to two employees as
     compensation.Of  the  total  amount  of  shares  issued,  6,250  shares are
     restricted pursuant to Rule 144 of the Securities Act of 1933. The value of
     the  shares  totaled  approximately $13,000 and was determined based on the
     fair  market  value  of the Company's common stock at the date of issuance.

     In  February  2003,  the Company issued 162,201 shares of common stock to a
     consultant  for  legal  services.  The  value  of  the  shares  totaled
     approximately $127,000 and was determined based on the fair market value of
     the  Company's  common  stock  at  the  date  of  issuance.

     Loans Payable - Officer/Stockholders
     ------------------------------------

     Two  officers/stockholders loaned a total of $35,000 to the Company through
     April  11, 2003. These loans accrue interest at 8% per annum. The principal
     and  any  unpaid  interest  are  due  on  demand.


                                                                           F -32
<PAGE>
                                                                   EXHIBIT 10.6


                 SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE



                  This Settlement Agreement and Mutual General Release (the
"Agreement") is entered into this 27th day of March, 2003 by and between
Founding Advisors, Inc. ("Founding Advisors") and Health Sciences Group, Inc.
("HESG").

                  WHEREAS Founding Advisors and HESG are parties to three
written consulting agreements, the most recent of which is a Business Consulting
Agreement dated March 14, 2002 (the "Consulting Agreement"); and

                  WHEREAS disputes have arisen between the parties; and

                  WHEREAS Founding Advisors filed suit in the Circuit Court for
Anne Arundel County (Case No. C-2002-82731) to recover monies it claims is owed
under the Consulting Agreement (the "Lawsuit"); and

                  WHEREAS the parties wish to resolve and settle their disputes
without either party admitting any liability to the other.

                  NOW, THEREFORE, in consideration of the mutual covenants,
promises and agreements herein, and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:


<PAGE>

                  1. HESG agrees to pay Founding Advisors $126,000, as follows:
HESG shall execute a Confessed Judgment Promissory Note in the principal amount
of $126,000 payable to Founding Advisors (the "Promissory Note"). The first
payment due under the Promissory Note shall be paid in cash via wire transfer
prior to 5:00 p.m. (EST) on Thursday, March 27, 2003. All subsequent payments
shall be made in accordance with the terms of the Promissory Note.

                  2. In the event HESG obtains debt or equity funding, other
than for purposes of an acquisition, exceeding a sum total of $2 million during
the period any amounts are outstanding under the Promissory Note, the entire
outstanding balance of the Promissory Note (principal and interest) shall be due
and payable within 10 days of the closing of such funding.

                  3. The Consulting Agreement shall be deemed terminated as of
June 21, 2002.

                  4. Within 5 days after the execution of this Agreement,
Founding Advisors shall execute a stipulation of dismissal, with prejudice, in
the Lawsuit; failure of Founding Advisors to do so in a timely manner shall
result in the following: (i) no interest shall accrue or be payable for the
period of any such delay; and (ii) should such delay extend beyond 10 days, all
amounts payable under the Promissory Note

                                       2
<PAGE>

shall be deemed to have been paid in full by HESG and its obligations  hereunder
and thereunder deemed extinguished.

                  5. Except as set forth in this Agreement, HESG, on behalf of
itself and its former, present and future directors, officers, and employees,
parents, subsidiaries, shareholders, affiliates, agents, attorneys, investment
and financial advisors, accountants, auditors, representatives, trustees, heirs,
successors or predecessors in interest, and assigns (collectively "the HESG
Releasors") hereby forever releases, acquits and discharges Founding Advisors,
and any and all of its agents, servants, attorneys, former, present and future
directors, officers, and employees, subsidiaries, parents, affiliates,
associates, shareholders, financial advisors, accountants, auditors,
representatives, trustees, heirs, successors or predecessors in interest, and
assigns (collectively, "the Founding Advisors Releasees") of and from any and
all contracts, agreements, promises, covenants, actions, causes of action,
suits, proceedings, claims, counterclaims, debts, obligations, duties, demands,
damages, liabilities, losses, costs and expenses, of each and every kind,
nature, and description whatsoever, whether at law or in equity, known or
unknown, foreseen or unforeseen, which any of the HESG Releasors ever had, now
has, or hereinafter may have, against any of the

                                       3
<PAGE>

Founding  Advisors  Releasees  arising out of or in connection  with any matter,
cause or thing  whatsoever,  arising from the beginning of the world through the
date  hereof,  including,  but not  limited  to, any and all claims and  matters
related to the Consulting Agreement.

                  6. Except as set forth in this Agreement, and except for the
obligations contained in the Promissory Note, Founding Advisors, on behalf of
itself and its former, present and future directors, officers, and employees,
parents, subsidiaries, shareholders, affiliates, agents, attorneys, investment
and financial advisors, accountants, auditors, representatives, trustees, heirs,
successors or predecessors in interest, and assigns (collectively "the Founding
Advisors Releasors") hereby forever releases, acquits and discharges HESG, and
any and all of its agents, servants, attorneys, former, present and future
directors, officers, and employees, subsidiaries, parents, affiliates,
associates, shareholders, financial advisors, accountants, auditors,
representatives, trustees, heirs, successors or predecessors in interest, and
assigns (collectively, "the HESG Releasees") of and from any and all contracts,
agreements, promises, covenants, actions, causes of action, suits, proceedings,
claims, counterclaims, debts, obligations, duties, demands, damages,
liabilities, losses,

                                       4
<PAGE>

costs and expenses, of each and every kind, nature, and description  whatsoever,
whether at law or in equity, known or unknown, foreseen or unforeseen, which any
of the Founding  Advisors  Releasors ever had, now has, or hereinafter may have,
against  any of the HESG  Releasees  arising  out of or in  connection  with any
matter,  cause or thing  whatsoever,  arising  from the  beginning  of the world
through the date hereof,  including,  but not limited to, any and all claims and
matters related to the Consulting Agreement.

                  7. This Agreement shall become effective only upon the
execution of the Promissory Note and the wire transfer referred to in Paragraph
1 of this Agreement.

                  8. This Agreement may be executed in one or more counterparts,
all of which take in the other, shall constitute a single binding Agreement. Any
counterpart or other signature delivered by facsimile shall be deemed valid and
binding to the same extent as an original.

                  9. This Agreement shall inure to the benefit of, and shall be
binding upon the parties hereto, and their respective heirs, personal or legal
representatives, successors and assigns.

                  10. This Agreement shall be governed by Maryland law, without
regard to conflict of law principles.

                                       5
<PAGE>


                  IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the date set forth above. HEALTH SCIENCES GROUP, INC.

                  /s/ Fred E. Tannous
              By: ________________________
                  Name:  Fred E. Tannous
                  Title: Chief Executive Officer



              FOUNDING ADVISORS, INC.

                  /s/ Keith Dunleavy
              By: _________________________
                  Name:  Keith Dunleavy
                  Title: President


                                       6
<PAGE>

                                                                  EXHIBIT 10.7.1
                          SECURITIES PURCHASE AGREEMENT


         THIS SECURITIES PURCHASE AGREEMENT,  dated as of the date of acceptance
set forth below, is entered into by and between HEALTH  SCIENCES GROUP,  INC., a
Colorado corporation, with headquarters located at 6080 Center Drive, 6th Floor,
Los  Angeles  California  90045  (the  "Company"),  and each  entity  named on a
signature page hereto (each,  a "Lender",  collectively,  the  "Lenders")  (each
agreement  with a Lender  being  deemed a  separate  and  independent  agreement
between the Company and such Lender,  except that each Lender  acknowledges  and
consents to the rights granted to each other Lender under such agreement and the
Transaction Agreements, as defined below, referred to therein).

                              W I T N E S S E T H:

         WHEREAS,  the Company and the Lender are executing and delivering  this
Agreement in accordance  with and in reliance upon the exemption from securities
registration for offers and sales to accredited investors afforded,  inter alia,
by Rule 506 under  Regulation D  ("Regulation  D") as  promulgated by the United
States  Securities and Exchange  Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"),  and/or Sections 4(2) and 4(6) of the 1933
Act; and

         WHEREAS, subject to the terms and conditions of this Agreement, each of
the  Lender's  wishes to purchase a 12%  Secured  Convertible  Debenture  of the
Company in the principal amount set forth on such Lender's signature page hereto
(each, a "Debenture",  collectively, the "Debentures"), which Debentures will be
convertible  into  shares of common  stock,  $.001 par value per  share,  of the
Company (the "Common  Stock"),  upon the terms and subject to the  conditions of
such  Debentures,  together with the Warrants (as defined in Section 4(e) below)
exercisable  for the  purchase  of  shares  of  Common  Stock,  and  subject  to
acceptance of this Agreement by the Company;

         NOW  THEREFORE,  in  consideration  of  the  premises  and  the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and sufficiency of which are hereby  acknowledged,  the parties agree as
follows:

         1. AGREEMENT TO PURCHASE; PURCHASE PRICE.

                  a. Purchase of Debentures; Certain Definitions.

                  (i) Subject to the terms and  conditions of this Agreement and
         the other Transaction Agreements, each Lender hereby agrees to purchase
         a Debenture in the principal  amount in U.S.  dollars set forth on such
         Lender's  signature  page hereto (the "Purchase  Price")Each  Debenture
         shall have the terms and  conditions  of, and be  substantially  in the
         form attached hereto as, Annex I.

                  (ii) The  Purchase  Price  shall  be paid as set  forth on the
         Lender's  signature  page of this  Agreement  and shall be  payable  in
         United States Dollars.
<page>
                  b. Certain Definitions.  As used herein, each of the following
         terms has the meaning  set forth  below,  unless the context  otherwise
         requires:

                  (i)  "Affiliate"  means,  with  respect to a  specific  Person
         referred  to in the  relevant  provision,  another  Person who or which
         controls  or is  controlled  by or is under  common  control  with such
         specified Person.

                  (ii)  "Closing  Date"  means  the date of the  closing  of the
         purchase and sale of the  Debentures  and Warrants  upon the release of
         the Purchase Price from escrow, as provided herein.

                  (iii) "Company Control Person" means each director,  executive
         officer,  promoter,  and such other Persons as may be deemed in control
         of the Company pursuant to Rule 405 under the 1933 Act or Section 20 of
         the 1934 Act (as defined below).

                  (iv)  "Conversion  Date"  means  the date on which  notice  is
         received of conversion with respect to any Debenture, provided however,
         that the Conversion  Date shall not precede the earlier of (A) 150 days
         after the Closing Date, (B) the Effective Date or (C) the date that any
         shareholder of the Company who became the beneficial owner of shares of
         Common Stock of the Company within the 12 months  preceding the date of
         the Debenture  issued  pursuant to this Agreement  sells such shares of
         Common Stock in a public sale pursuant to Rule 144 under the 1933 Act.

                  (v)  "Conversion  Shares"  means the  shares  of Common  Stock
         issuable upon  conversion of the  Debentures  (including,  if relevant,
         accrued interest on the Debentures so converted).

                  (vi)  "Conversion  Price" means the lower of (A) 30% below the
         average VWAP per share of Common Stock during the seven  trading  dates
         prior to the  Conversion  Date,  but in no event  lower  than the Floor
         Price, or (B) $0.525 per Conversion Share.

                  (vii)  "Effective  Date"  means  the  effective  date  of  the
         Registration  Statement  covering the Registrable  Securities (as those
         terms are defined in the Registration Rights Agreement) relating to the
         Securities.

                  (viii) "Escrow Agent" means McLaughlin & Stern LLP.

                  (ix) "Escrow Agreement" means the escrow agreement amongst the
         Lenders,  the Company and  McLaughlin & Stern,  LLP attached  hereto as
         Annex V.

                  (x) "Floor Price" means $0.525 per share.

                  (xi)  "Holder"  means the Lender and any other Person  holding
         the relevant Securities.

                                       2
<PAGE>

                  (xii) "Last Audited Date" means December 31, 2001.

                  (xiii) "Lender Control Person" means each director,  executive
         officer,  promoter,  and such other Persons as may be deemed in control
         of the Lender  pursuant to Rule 405 under the 1933 Act or Section 20 of
         the 1934 Act.

                  (xiv) "Material  Adverse Effect" means an event or combination
         of events, which individually or in the aggregate,  would reasonably be
         expected to (w) materially  adversely affect the legality,  validity or
         enforceability of the Securities or any of the Transaction  Agreements,
         (x) have or result in a  material  adverse  effect  on the  results  of
         operations,  assets,  or  condition  (financial  or  otherwise)  of the
         Company  and  its  subsidiaries,  taken  as  a  whole,  (y)  materially
         adversely  impair the  Company's  ability to perform  fully on a timely
         basis its obligations under any of the Transaction  Agreements,  or (z)
         materially and adversely  affect the value of the rights granted to the
         Lender in the Transaction Agreements.

                  (xv) "Person" means any living person or any entity,  such as,
         but not necessarily limited to, a corporation, partnership or trust.

                  (xvi)  "Pledge  Agreement"  means the pledge  agreement  which
         provides  for a pledge  of  shares  of the  company's  Common  Stock by
         Frederick Tannous and William Glaser.

                  (xvii)  "Principal   Trading  Market"  means  The  NASDAQ  OTC
         Bulletin Board.

                  (xvii)  "Registration Rights Agreement" means the Registration
         Rights Agreement in the form annexed hereto as Annex II, as executed by
         the Lender and the Company  simultaneously  with the  execution of this
         Agreement.

                  (xix)  "Securities"  means the Debentures,  the Warrants,  the
         Conversion Shares and the Warrant Shares (as defined below).

                  (xx) "Security Agreement" means the security agreement,  which
         provides for a subordinate security interest in the accounts receivable
         and proceeds  therefrom of the Company and its Subsidiaries in the form
         attached hereto as Annex IV.

                  (xxi) "Shares"  means the shares of Common Stock  representing
         any or all of the  Conversion  Shares  and the  Warrant  Shares and the
         shares issuable pursuant to Section 2(k).

                  (xxii) "Transaction  Agreements" means the Securities Purchase
         Agreement,  the Debentures,  the  Registration  Rights  Agreement,  the
         Warrants,  the  Security  Agreement,  UCC-1  Financing  Statements  and
         includes all ancillary documents referred to in those agreements.

                  (xxiii) "VWAP" means the daily volume  weighted  average price
         of the  Company's  Common  Stock on the  Principal  Trading  Market  as
         reported by Bloomberg  Financial L.P. (Based on a trading day from 9:30
         a.m. Eastern Time to 4:00 p.m. Eastern Time) using the VWAP function on
         the date in question.

                  (xxiv) "Warrants" has the meaning set forth in Section 4(e) of
         this Agreement.

                                       3
<PAGE>

                  (xxv)  "Warrant  Exercise  Price"  shall  be $.60  per  share,
         subject to adjustment as set forth in the Warrants.

                  (xxvi)  "Warrant  Shares"  means the  shares  of Common  Stock
         issuable upon exercise of the Warrants.

                  c. Form of Payment; Delivery of Certificates.

                  (i) The  Lender  shall pay the  Purchase  Price by  delivering
         immediately available good funds in United States Dollars to the Escrow
         Agent  to be held in  escrow  upon  execution  of this  Agreement.  The
         Purchase  Price  shall be held in escrow  pursuant  to the terms of the
         Escrow  Agreement  until the  earlier  of (A) the  consummation  of the
         acquisition  by the  Company  of  substantially  all of the  assets  of
         Quality  Botanical  Ingredients Inc. ("QBI") and (B) February 28, 2003.
         In the event that the  acquisition  of QBI is  consummated on or before
         February 28, 2003, the Escrow Agent will release (A) the Purchase Price
         (less the fees and  expenses  payable  pursuant  to  Sections  2(k) and
         10(b)),  and (B) such fees and  expenses  to the  parties  set forth in
         Sections  2(k).  In  the  event  that  the  acquisition  of  QBI is not
         consummated on or before February 28, the Escrow Agent will release (A)
         the  Purchase  Price  (less the  expenses  payable  pursuant to Section
         10(b)) to the Lender and (B) the  expenses  to the parties set forth in
         Section  10(b).  In  the  event  that  the  acquisition  of  QBI is not
         consummated  on or  before  February  28,  ,  then  the  Company  shall
         reimburse the Lender for its expenses pursuant to Section 10(b).

                  (ii) As a condition  precedent  to the release of the Purchase
         Price to the Company by the Escrow Agent, (A) the Company shall deliver
         the  Debentures  and the Warrants,  each duly executed on behalf of the
         Company and issued in the name of the Lender and (B) the Company,  XCEL
         Healthcare Inc. ("XCEL") and Bio-Select Innovations Inc. ("Bio-Select")
         shall  execute and deliver or cause to be  delivered  (A) the  Security
         Agreement  and the UCC-1  Financing  Statement  with  respect  to their
         accounts  receivable,  (B) the  Pledge  Agreement  and  the  collateral
         thereunder,  and such other  documents as may be required by the Escrow
         Agreement to the Escrow Agent.

                  d. Method of Payment.  Payment of the Purchase  Price shall be
         made by wire  transfer of funds on the Closing  Date as directed by the
         Company.

                  e. Redemption Right. Until at such time that a Lender does not
         directly or indirectly  own any Debentures and provided that either (A)
         the VWAP per  share of a share of Common  Stock is less than  $0.68 per
         share on the  trading  date  prior to the date that would have been the
         Conversion Date but for the Lender's  exercise of its redemption right,
         or (B) if there is no  effective  registration  statement in effect for
         the  Registrable  Securities  on or before  the 150th day from the date
         hereof, then the Lender shall have the following redemption right. Each
         Lender  shall  have the right,  by  delivery  of written  notice to the
         Company (the "Put Notice"), to require the Company to purchase from the
         Lender the Debenture,  or portion thereof being  converted,  at the Put
         Price (as defined  below).  The Lender shall have the right to have the
         Company  redeem the  Debenture on any date even if the Lender could not
         convert the  Debenture  because the VWAP per share on the prior trading
         date is less than $0.68 per share.  The Company shall pay the Put Price
         and interest thereon until payment at the rate of 12% per annum in cash
         no later than 45 business  days after the date of the Put  Notice.  The
         "Put  Price"  shall
<PAGE>

         equal  130%  of the  sum of the  Purchase  Price  with  respect  to the
         Debenture or portion  thereof being redeemed and all accrued and unpaid
         interest thereon through the date of the Put Notice.  In the event that
         the Company fails to pay the Put Price within such 45 day period,  then
         the Put Price shall  accrue  interest at the rate of 18% per annum from
         the date of the Debenture until paid and Lender shall have the right to
         declare  an  event  of  default  under  any   Debentures   that  remain
         outstanding after delivery of the Put Notice.

         2. LENDER  REPRESENTATIONS,  WARRANTIES,  ETC.;  ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.

         Each Lender  represents  and  warrants  to, and  covenants  and agrees,
severally and not jointly, with the Company as follows:

         a. Without limiting  Lender's right to sell the Securities  pursuant to
the  Registration  Statement or otherwise in  compliance  with the 1933 Act, the
Lender is  purchasing  the  Debentures  and Warrants  and will be acquiring  the
Shares for its own account for  investment  only and not with a view towards the
public  sale  or  distribution  thereof  and not  with a view to or for  sale in
connection with any distribution thereof.

         b. The Lender resides in the state,  province, or country identified in
the address of the Lender set forth on the signature page hereof.

         c.  If  the  Lender  is not a  United  States  person  (as  defined  in
Regulation  S under the 1933 Act),  the  Lender  hereby  represents  that it has
satisfied itself as to the full observance of the laws of its jurisdiction  (the
"Lender's  Jurisdiction") in connection with any invitation to subscribe for the
Securities or any use of this  Agreement,  including (i) the legal  requirements
within the Lender's  Jurisdiction  for the purchase of the Securities,  (ii) any
foreign exchange  restrictions of the Lender's  Jurisdiction  applicable to such
purchase, (iii) any of Lender's Jurisdiction's government or other consents that
may need to be obtained in connection with Lender's  execution of this Agreement
and the other  Transaction  Agreements to which the Lender is a party,  (iv) the
income  tax and other tax  consequences,  if any,  that may be  relevant  to the
purchase, holding,  redemption, sale or transfer of the Securities. The Lender's
subscription and payment for, and the Lender's  continued  beneficial  ownership
of, the Securities  will not violate any applicable  securities or other laws of
the Lender's Jurisdiction.

         d. The Lender is (i) an  "accredited  investor" as that term is defined
in Rule 501 of the  General  Rules and  Regulations  under  the 1933  Act,  (ii)
experienced  in making  investments  of the kind described in this Agreement and
the related  documents,  (iii) able,  by reason of the  business  and  financial
experience of its officers (if an entity) and professional advisors (who are not
affiliated  with  or  compensated  in  any  way  by  the  Company  or any of its
Affiliates or selling  agents),  to protect its own interests in connection with
the transactions  described in this Agreement,  and the related  documents,  and
(iv) able to afford the entire loss of its investment in the Securities.

         e. All  subsequent  offers  and sales of the  Securities  by the Lender
shall be made  pursuant  to  registration  of the  Shares  under the 1933 Act or
pursuant to an exemption from registration.
<PAGE>

         f. The Lender  understands  that the  Securities  are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of the 1933 Act and state  securities  laws and that the Company is relying upon
the  truth  and   accuracy   of,  and  the   Lender's   compliance   with,   the
representations,  warranties, agreements,  acknowledgments and understandings of
the Lender  set forth  herein in order to  determine  the  availability  of such
exemptions and the eligibility of the Lender to acquire the Securities.

         g. The Lender and its advisors,  if any, have been  furnished  with all
materials  relating to the business,  finances and operations of the Company and
materials  relating to the offer and sale of the Debentures and the offer of the
Shares which have been requested by the Lender. The Lender and its advisors,  if
any, have been afforded the opportunity to ask questions of the Company and have
received  complete  and  satisfactory  answers  to any such  inquiries.  Without
limiting  the  generality  of  the  foregoing,  the  Lender  has  also  had  the
opportunity  to obtain and to review  the  Company's  (1) Annual  Report on Form
10-KSB for the fiscal year ended December 31, 2001, (2) Quarterly Report on Form
10-QSB for the fiscal  quarter ended  September  30, 2002,  and (3) any Periodic
Report on Form 8-K filed by the Company since January 1, 2002 and up and through
the Closing Date (collectively, the "Company's SEC Documents").

         h.  The  Lender  understands  that  its  investment  in the  Securities
involves a high degree of risk.

         i. The Lender understands that no United States federal or state agency
or any  other  government  or  governmental  agency  has  passed  on or made any
recommendation or endorsement of the Securities.

         j. This  Agreement  and the other  Transaction  Agreements to which the
Lender is a party, and the transactions contemplated thereby, have been duly and
validly authorized, executed and delivered on behalf of the Lender and are valid
and  binding  agreements  of the Lender  enforceable  in  accordance  with their
respective terms,  subject as to enforceability to general  principles of equity
and to bankruptcy,  insolvency,  moratorium and other similar laws affecting the
enforcement of creditors' rights generally.

         k. Lender is not aware of any action by Lender which would give rise to
any claim by any  Person  for  brokerage  commission,  finder's  fees or similar
payments by the Company or any Company Control Person relating to this Agreement
or the  transactions  contemplated  hereby,  except  for the  payment  of a cash
consulting  fee of 5% percent of the Purchase  Price to each of George Matin and
FCIM Corp. and Warrants to FCIM Corp.  and George Matin with terms  identical to
the  Warrants  for a number of shares  equal to 12.5%  (71,426  shares) and 2.5%
(14,286  shares),  respectively,  of the shares  issueable  upon exercise of the
Warrants.  The shares underlying the Warrants issued to the consultants shall be
registered by the Company pursuant to the Registration Rights Agreement.

         l. The  Lenders  have not  acted  and do not  intend  to act as a group
within the meaning of the Securities Exchange Act of 1934 (the "1934 Act").

         m. The Lender (a) is subscribing  for Securities of the Company for the
Lender's own account, own risk and own beneficial interest, (b) is not acting as
an agent,
<Page>
representative,  intermediary,  nominee or in a similar  capacity  for any other
person or entity,  nominee account or beneficial owner, whether a natural person
or entity (each such natural person or entity, an "Underlying Beneficial Owner")
and no Underlying  Beneficial Owner will have a beneficial or economic  interest
in the Securities being purchased by the Lender (whether directly or indirectly,
including without  limitation,  through any option,  swap,  forward or any other
hedging or derivative transaction),  (c) if it is an entity, including,  without
limitation, a fund-of-funds, trust, pension plan or any other entity that is not
a natural person (each, an "Entity"),  has carried out thorough due diligence as
to and established the identities of such Entity's Lenders, directors, officers,
trustees,  beneficiaries and grantors (to the extent applicable, each a "Related
Person" of such Entity),  holds the evidence of such  identities,  will maintain
all such evidence for at least five years from the date of the Lender's complete
redemption  from the Company,  will request such  additional  information as the
Company may require to verify such  identities  as may be required by applicable
law, and will make such  information  available to the Company upon its request,
and (d) does not have the intention or obligation to sell,  pledge,  distribute,
assign  or  transfer  all or a  portion  of  the  securities  to any  Underlying
Beneficial Owner or any other person.



         (n) The  proposed  investment  in the Company that is being made on the
Lender's own behalf or, if applicable,  on behalf of any  Underlying  Beneficial
Owners does not directly or indirectly contravene United States federal,  state,
local or international laws or regulations  applicable to the Lender,  including
anti-money laundering laws (a "Prohibited Investment").

         (o) Federal  regulations and Executive Orders  administered by the U.S.
Treasury Department's Office of Foreign Assets Control ("OFAC") prohibit,  among
other things, the engagement in transactions with, and the provision of services
to, certain foreign countries,  territories, entities and individuals. The lists
of OFAC prohibited countries,  territories, persons and entities can be found on
the OFAC  website  at  www.treas.gov/ofac.  The  Lender  hereby  represents  and
warrants that neither the Lender nor, if applicable,  any Underlying  Beneficial
Owner or Related Person, is a country,  territory,  person or entity named on an
OFAC list, nor is the Lender nor, if applicable, any Underlying Beneficial Owner
or Related Person,  a natural person or entity with whom dealings are prohibited
under any OFAC regulations.

         (p) Neither the Lender nor, if applicable,  any  Underlying  Beneficial
Owner or Related Person,  is a senior foreign political figure, or any immediate
family member or close associate of a senior foreign political figure within the
meaning of, and  applicable  guidance  issued by the  Department of the Treasury
concerning,  the U.S. Bank Secrecy Act (31 U.S.C.  ss.5311 et seq.), as amended,
and any regulations promulgated thereunder.

         (q) The Lender agrees to indemnify  and hold harmless the Company,  its
affiliates,   their  respective   directors,   officers,   managers,   partners,
shareholders, employees, agents and representatives (each, an "Indemnitee") from
and against any and all losses, liabilities, damages, penalties, costs, fees and
expenses  (including  legal fees and  disbursements)  (collectively,  "Damages")
which may result, directly or indirectly, from te Lender's misrepresentations or
misstatements  contained  herein or breaches  hereof  relating to paragraphs (m)
through (p).

         (r) The Lender understands and agrees that, notwithstanding anything to
the contrary  contained in any document  (including  any side letters or similar
agreements),  if,  following  the  Lender's  investment  in the  Company,  it is
discovered  that the investment is or has become a Prohibited  Investment,  such
investment  may  immediately  be redeemed by the Company at cost or otherwise be
subject to the  remedies  required  by law,  and the Lender  shall have no claim
against  any  Indemnitee  for any form of  Damages  as a result  of such  forced
redemption or other action.

         (s) Upon the written  request  from the Company,  the Lender  agrees to
provide all  information to the Company to enable the Company to comply with all
applicable  anti-money  laundering  statutes,  rules,  regulations and policies,
including any policies applicable to a portfolio  investment held or proposed to
be held by the Company.  The Lender  understands and agrees that the Company may
release  confidential  information  about the Lender  and,  if  applicable,  any
Underlying  Beneficial  Owner(s)  or Related  Person(s)  to any  person,  if the
Company, in its sole discretion, determines that such disclosure is necessary to
comply with applicable statutes, rules, regulations and policies.

         3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to
each Lender as of the date hereof and as of the Closing Date that:

         a. Rights of Others Affecting the Transactions. There are no preemptive
rights of any  shareholder of the Company,  as such, to acquire the  Debentures,
the Warrants or the Shares. No party has a currently  exercisable right of first
refusal,  which  would  be  applicable  to  any,  or  all  of  the  transactions
contemplated by the Transaction Agreements.

         b.  Status.  The Company and its  subsidiaries  are  corporations  duly
organized,  validly existing and in good standing under the laws of their states
of incorporation and have the requisite  corporate power to own their properties
and to carry on their  business  as now being  conducted.  The  Company  and its
subsidiaries  are duly qualified as foreign  corporations to do business and are
in good standing in each jurisdiction where the nature of the business conducted
or property owned by each makes such qualification  necessary,  other than those
jurisdictions  in which the failure to so qualify  would not have or result in a
Material  Adverse Effect.  The Company has registered its stock and is obligated
to file  reports  pursuant to Section 13 or Section  15(d) of the 1934 Act.  The
Common Stock is listed and quoted on the Principal  Trading Market.  The Company
has received no notice,  either oral or written,  with respect to the  continued
eligibility  of the Common Stock for such listing and quotation on the Principal
Trading  Market  and  the  Company  has  maintained  all  requirements  for  the
continuation  of such listing.  The Company is the sole  shareholder of XCEL and
Bio-Select.

         c.  Authorized  Shares.  The  authorized  capital  stock of the Company
consists of (i) 50,000,000 shares of Common Stock, $.001 par value per share, of
which, as of January 24, 2003, there were 7,909,948 shares  outstanding and (ii)
5,000,000  shares of Preferred  Stock,  $.001 par value per share, of which none
are  outstanding.  All issued and  outstanding  shares of Common Stock have been
duly  authorized and validly issued and are fully paid and  non-assessable.  The
Company has sufficient  authorized and unissued shares of Common Stock as may be
necessary  to effect the  issuance  of the  Shares.  The  Shares  have been duly
authorized  and,  when  issued  upon  conversion  of,  or as  interest  on,  the
Debentures  or upon  exercise  of the  Warrants,  each in  accordance  with  its
respective terms, will be duly and validly issued, fully paid and non-assessable
and will not subject the Holder thereof to personal liability by reason of being
such Holder.

         d.  Transaction  Agreements  and Stock.  This Agreement and each of the
other Transaction  Agreements,  and the transactions  contemplated thereby, have
been duly and validly  authorized by the Company and the Security  Agreement and
the transactions  contemplated thereby, have been duly and validly authorized by
XCEL and Bio-Select.  This Agreement has been duly executed and delivered by the
Company and this Agreement is, and the Transaction Agreements, when executed and
delivered  by the  Company,  XCEL and  Bio-Select,  will be,  valid and  binding
agreements of the Company,  XCEL and Bio-Select,  enforceable in accordance with
their respective terms,  subject as to  enforceability to general  principles of
equity  and to  bankruptcy,  insolvency,  moratorium,  and  other  similar  laws
affecting the enforcement of creditors' rights generally.

         e. Non-contravention.  The execution and delivery of this Agreement and
each of the other Transaction Agreements by the Company, XCEL and Bio-Select, do
not and will not  conflict  with or result in a breach by the  Company,  XCEL or
Bio-Select of any of the terms or  provisions  of, or constitute a default under
(i) the  certificate  of  incorporation  or  by-laws  of the  Company,  XCEL and
Bio-Select,  each as currently in effect, (ii) any indenture,  mortgage, deed of
trust, or other material  agreement or instrument to which the Company,  XCEL or
Bio-Select is a party or by which their or any of their properties or assets are
bound,  or (iii)  to its  knowledge,  any  existing  applicable  law,  rule,  or
regulation or any applicable  decree,  judgment,  or order of any court,  United
States  federal  or  state  regulatory  body,  administrative  agency,  or other
governmental body having  jurisdiction  over the Company,  XCEL or Bio-Select or
any of their  properties or assets,  except if such conflict,  breach or default
would not have or result in a Material Adverse Effect.

         f. Approvals. To the Company's knowledge, no authorization, approval or
consent of any court,  governmental  body,  regulatory  agency,  self-regulatory
organization,  or stock  exchange  is required to be obtained by the Company for
the issuance and sale of the  Securities to the Lender as  contemplated  by this
Agreement,  except such  authorizations,  approvals  and consents that have been
obtained or for which the failure to obtain such would not,  individually  or in
the aggregate, have a Material Adverse Effect.

         g.  Filings.  To the  Company's  knowledge,  none of the  Company's SEC
Documents  contained,  at the time they were filed,  any untrue  statement  of a
material  fact or  omitted  to state any  material  fact  required  to be stated
therein  or  necessary  to make  the  statements  made  therein  in light of the
circumstances under which they were made, not misleading. Except as set forth in
Schedule  3(g),  the Company  has,  since  September  1, 2001,  timely filed all
requisite forms, reports and exhibits with the SEC.

         h. Absence of Certain Changes. Since September 30, 2002, there has been
no material  adverse  change in the Company's  business and no Material  Adverse
Effect, except as disclosed in the Company's SEC Documents.  Since September 30,
2002, except as provided in the Company's SEC Documents, the Company has not (i)
incurred or become subject to any material liabilities  (absolute or contingent)
except liabilities  incurred in the ordinary course of business  consistent with
past practices; (ii) discharged or satisfied any material lien or encumbrance or
paid any material obligation or liability  (absolute or contingent),  other than
current liabilities paid in the ordinary course of business consistent with past
practices;  (iii) declared or made any payment or  distribution of cash or other
property to  shareholders  with  respect to its capital  stock,  or purchased or
redeemed,  or made any  agreements  to  purchase  or  redeem,  any shares of its
capital stock; (iv) sold,  assigned or transferred any other tangible assets, or
canceled  any  debts or  claims,  except  in the  ordinary  course  of  business
consistent  with past practices;  (v) suffered any substantial  losses or waived
any rights of material value, whether or not in the ordinary course of business,
or suffered the loss of any material amount of existing business;  (vi) made any
changes in  employee  compensation,  except in the  ordinary  course of business
consistent with past practices,  or (vii) experienced any material problems with
labor or  management  in  connection  with the  terms  and  conditions  of their
employment or received any notice of termination from any executive officer.

         i.  Absence  of  Litigation.   There  is  no  material  action,   suit,
proceeding,  inquiry or  investigation  before or by any court,  public board or
body pending against or affecting the Company,  XCEL or Bio-Select  before or by
any governmental  authority or nongovernmental  department,  commission,  board,
bureau,  agency or instrumentality  or any other Person,  wherein an unfavorable
decision,  ruling or finding would have a Material Adverse Effect or which would
adversely affect the validity or enforceability  of, or the authority or ability
of the Company,  XCEL or Bio-Select to perform their  obligations  under, any of
the Transaction  Agreements.  There are no outstanding or unsatisfied judgments,
orders, decrees,  writs,  injunctions or stipulations to which the Company, XCEL
or Bio-Select is a party or by which it or any of its properties is bound,  that
involve the transaction  contemplated herein or that, alone or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.

         j. No Undisclosed Liabilities or Events. The Company has no liabilities
or obligations  other than those disclosed in the Transaction  Agreements or the
Company's  SEC  Documents  or  those  incurred  in the  ordinary  course  of the
Company's  business since  September 30, 2002, or which  individually  or in the
aggregate,  does not or would not have a Material  Adverse  Effect.  No event or
circumstances  has  occurred  or  exists  with  respect  to the  Company  or its
properties,   business,  condition  (financial  or  otherwise),  or  results  of
operations,  which,  under  applicable law, rule or regulation,  requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly  announced or disclosed.  There are no proposals  currently
under  consideration or currently  anticipated to be under  consideration by the
Board of Directors or the executive officers of the Company which proposal would
(x) change the certificate of incorporation or other charter document or by-laws
of the  Company,  each as  currently  in  effect,  with or  without  shareholder
approval, which change would reduce or otherwise adversely affect the rights and
powers  of  the   shareholders   of  the  Common  Stock  or  (y)  materially  or
substantially change the business,  assets or capital of the Company,  including
its interests in subsidiaries.

         k. Full  Disclosure.  There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC  Documents)  that has not been  disclosed in writing to the Lender
that (i) would  reasonably be expected to have a Material  Adverse Effect,  (ii)
would  reasonably be expected to materially and adversely  affect the ability of
the Company to perform its obligations  pursuant to the Transaction  Agreements,
or (iii) would  reasonably  be expected to materially  and adversely  affect the
value of the rights granted to the Lender in the Transaction Agreements.

         l. Prior Issues.  Except as provided in the  Company's  SEC  Documents,
during the twelve (12) months  preceding  the date  hereof,  the Company has not
issued any convertible securities (which are convertible into Common Stock for a
consideration below the Floor Price).

         m. No Default. To the Company's knowledge,  no Event of Default (or its
equivalent  term), as defined in the respective  agreement to which the Company,
XCEL or Bio-Select is a party, and no event which,  with the giving of notice or
the passage of time or both, would become an Event of Default (or its equivalent
term) (as so defined in such agreement),  has occurred and is continuing,  which
would  have a  Material  Adverse  Effect  on  the  business,  operations  or the
condition  (financial  or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole.

         n.  No  Integrated  Offering.  Neither  the  Company  nor  any  of  its
affiliates  nor any  person  acting  on its or their  behalf  has,  directly  or
indirectly,  at any time in the six months  prior to the date  hereof,  made any
offer or sales of any security or solicited any offers to buy any security under
circumstances  that would  eliminate  the  availability  of the  exemption  from
registration  under Rule 506 of  Regulation D in  connection  with the offer and
sale of the Securities as contemplated hereby.

         o. Dilution The Company's  executive officers and directors  understand
and  acknowledge  that the  number of Shares  issuable  upon  conversion  of the
Debentures   and  the   exercise  of  the   Warrants  may  increase  in  certain
circumstances,  including,  the  circumstance  wherein the trading  price of the
Common Stock declines prior to the conversion of the  Debentures.  The Company's
executive officers and directors have studied and fully understand the nature of
the  Securities  being sold  hereby  and  recognize  that they have a  potential
dilutive  effect.  The board of directors of the Company has  concluded,  in its
good faith business  judgment that such issuance is in the best interests of the
Company. The Company specifically  acknowledges that its obligation to issue the
Shares upon  conversion of the  Debentures  and upon exercise of the Warrants is
binding  upon the  Company  and  enforceable  regardless  of the  dilution  such
issuance  may  have on the  ownership  interests  of other  shareholders  of the
Company.

         p.  Internal  Accounting   Controls.   The  Company  and  each  of  its
subsidiaries  maintain a system of internal accounting controls  sufficient,  in
the  judgment  of  the  Company,  to  provide  reasonable   assurance  that  (i)
transactions  are executed in accordance with  management's  general or specific
authorizations,   (ii)   transactions   are  recorded  as  necessary  to  permit
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting  principles  and to maintain  asset  accountability,  (iii) access to
assets is permitted  only in accordance  with  management's  general or specific
authorization and (iv) the recorded  accountability  for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

         q. Tax Status. To the Company's knowledge,  the Company and each of its
subsidiaries  has made or filed all  federal,  state and foreign  income and all
other tax returns,  reports and  declarations  required by any  jurisdiction  to
which it is subject  (unless and only to the extent that the Company and each of
its subsidiaries has set aside on its books provisions  reasonably  adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental  assessments  and charges  that are  material  in amount,  shown or
determined to be due on such  returns,  reports and  declarations,  except those
being  contested  in good  faith  and  has set  aside  on its  books  provisions
reasonably  adequate for the payment of all taxes for periods  subsequent to the
periods  to which such  returns,  reports or  declarations  apply.  There are no
unpaid  taxes in any  material  amount  claimed to be  delinquent  by the taxing
authority of any jurisdiction,  and the officers of the Company know of no basis
for any such claim.  The Company has not  executed a waiver with  respect to the
statute of limitations  relating to the assessment or collection of any foreign,
federal,  state or local tax.  None of the  Company's  tax returns is  presently
being audited by any taxing authority.

         r. Title to Property and Assets.  Except as set forth on Schedule 3(r),
the Company and its subsidiaries own their property and assets free and clear of
all mortgages, liens, loans and encumbrances, except such encumbrances and liens
that arise in the ordinary  course of business and do not materially  impair the
Company's ownership or use of such property or assets.  Notwithstanding anything
contained herein to the contrary,  the accounts receivable of XCEL and BioSelect
are owned free and clear of all mortgages,  liens, loans and encumbrances.  With
respect to the property and assets it leases,  the Company is in compliance with
such leases and, to the best of its knowledge,  holds a valid leasehold interest
free of any liens, claims or encumbrances.

         s. Fees.  The Company is not aware of any action by the  Company  which
would give rise to any claim by any Person for  brokerage  commission,  finder's
fees or similar  payments by the Company or any Company  Control Person relating
to this  Agreement  or the  transactions  contemplated  hereby,  except  for the
payment of a cash  consulting  fee of 5% of the Purchase Price to each of George
Matin and FCIM Corp.  and  Warrants  to FCIM Corp.  and George  Matin with terms
identical to the Warrants for a number of shares equal to 12.5% (71,426  shares)
and 2.5% (14,286 shares), respectively, of the shares issueable upon exercise of
the Warrants. The shares underlying the Warrants issued to the consultants shall
be registered by the Company pursuant to the Registration Rights Agreement.

         4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

         a.  Transfer  Restrictions.   The  Lender  acknowledges  that  (1)  the
Securities  have not been and are not being  registered  under the provisions of
the 1933 Act and,  except as provided in the  Registration  Rights  Agreement or
otherwise included in an effective registration  statement,  the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A)  subsequently  registered  thereunder  or (B) the  Lender  shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to be sold
or  transferred  may be sold or  transferred  pursuant to an exemption from such
registration;  (2) any  sale of the  Securities  made in  reliance  on Rule  144
promulgated  under the 1933 Act may be made only in accordance with the terms of
said  rule and  further,  if said  rule is not  applicable,  any  resale of such
Securities under  circumstances in which the seller,  or the Person through whom
the sale is made,  may be deemed to be an  underwriter,  as that term is used in
the 1933 Act, may require  compliance  with some other  exemption under the 1933
Act or the rules and  regulations  of the SEC  thereunder;  and (3)  neither the
Company nor any other Person is under any  obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.

         b.  Restrictive  Legend.  The Lender  acknowledges  and agrees that the
Securities  and, until such time as the Common Stock has been  registered  under
the 1933 Act as contemplated by the  Registration  Rights  Agreement and sold in
accordance with an effective  Registration  Statement or otherwise in accordance
with  another   effective   registration   statement,   certificates  and  other
instruments  representing any of the Securities shall bear a restrictive  legend
in  substantially  the following form (and a  stop-transfer  order may be placed
against transfer of any such Securities):

         THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF
         1933, AS AMENDED,  OR THE  SECURITIES  LAWS OF ANY STATE AND MAY NOT BE
         SOLD OR OFFERED  FOR SALE IN THE ABSENCE OF AN  EFFECTIVE  REGISTRATION
         STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
         ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

         c.  Filings.  The Company  undertakes  and agrees to make all necessary
filings in  connection  with the sale of the  Securities to the Lender under any
United States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market.

         d. Reporting Status. So long as the Lender beneficially owns any of the
Securities,  the Company shall use commercially  reasonably  efforts to file all
reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the
1934 Act and not  terminate  its status as an issuer  required  to file  reports
under the 1934 Act even if the 1934 Act or the rules and regulations  thereunder
would permit such termination. The Company will take all reasonable action under
its control to maintain the  continued  listing and quotation and trading of its
Common Stock (including,  without limitation, all Registrable Securities) on the
Principal  Trading  Market and will  comply in all  material  respects  with the
Company's reporting,  filing and other obligations under the by-laws or rules of
the National  Association of Securities Dealers,  Inc. applicable to it at least
so long as the Lender beneficially owns any of the Securities.

         e. Warrants.  The Company  agrees to issue to the Lenders  transferable
warrants (the  "Warrants") for the purchase of an aggregate of 571,428 shares (a
number of shares equal to one hundred  percent (100%) of the Conversion  Shares)
at the Warrant Exercise Price. The Warrants will be exercisable  commencing upon
the date of issuance and shall  expire on the last day of the calendar  month in
which the fifth anniversary of the date of issuance occurs regardless of whether
the  Debentures  have been  converted by the Lenders or redeemed by the Company.
Each of the  Warrants  will be issued on the Closing  Date Each of the  Warrants
shall be in the form annexed  hereto as Annex III,  and shall have  registration
rights as provided in the Registration Rights Agreement.

         f. Available Shares. The Company shall have at all times authorized and
reserved for  issuance,  free from  preemptive  rights,  a number of shares (the
"Minimum  Available  Shares") at least  equal to the sum of one hundred  percent
(100%) of the (x) number of shares of Common  Stock  issuable as may be required
to satisfy the conversion  rights of the Holders of all outstanding  Debentures,
plus (y) the number of shares issuable upon exercise of all outstanding Warrants
held by all Holders (in each case,  whether  such  Debentures  or Warrants  were
originally  issued to the Lender or to any other  Lender).  For the  purposes of
such calculations,  the Company should assume that all such Debentures were then
convertible  and all  Warrants  were  then  exercisable  without  regard  to any
restrictions  which  might  limit  any  Lender's  right  to  convert  any of the
Debentures or exercise any of the Warrants held by any Lender.

         g. Favored  Nation  Clause.  (i)If,  during the time any Debentures are
outstanding  that  have  not  been  converted  or  redeemed  (the   "Unconverted
Debentures"),  the Company issues (i) debentures or other debt  obligations with
terms more  favourable  to the holder than the  Debentures  issued to the Lender
hereunder (whether in terms of a more favorable interest rate, conversion price,
warrant  coverage or otherwise),  the Lender shall have the right to require the
Company to issue the Lender new Debentures (including additional Warrants in the
event of more favorable warrant  coverage)  containing such "favored" terms in a
principal amount equal to the Unconverted Debenture,  and (ii) warrants or other
rights to purchase equity securities in connection with such debt issuance which
warrants  or rights  contain  terms  more  favorable  than the  Warrants  issued
herewith,  the Lender  shall have the right to require  the Company to issue the
Lender new Warrants  containing  such  "favored"  terms.  The  provisions of the
foregoing  sentence  shall  not apply to the  issuance  by the  Company  of debt
obligations  that are not  convertible  into equity  securities or for which the
holder of the debt obligations does not receive equity securities. Additionally,
if, during the time the  Unconverted  Debentures  are  outstanding,  the Company
issues  equity  securities  in  conjunction  with  warrants  or other  rights to
purchase equity securities with rights or terms more "favored" than the terms of
the Warrants  issued  hereunder,  the Lender shall have the right to require the
Company to issue the Lender new Warrants  containing such "favored" terms.  (ii)
Upon the  issuance  by the  Company of Common  Stock,  or any right,  warrant or
option to purchase Common Stock or any security convertible into or exchangeable
for Common Stock,  or any obligation or any share of stock  convertible  into or
exchangeable for Common Stock for a "consideration  per share actually received"
less than the Floor Price in effect  immediately prior to the time of such issue
or sale,  other than (i) the issuance of shares of Common Stock upon exercise of
options  and  warrants  granted  prior  to the  date of this  Agreement  or (ii)
issuances  of shares of Common  Stock upon  conversion  of debt  instruments  or
preferred stock issued prior to the date of this Agreement;  then forthwith upon
such issue or sale, the Conversion Price shall be reduced to a price (calculated
to the nearest cent) equal to the  consideration  per share actually received by
the  Company  even if such  price is lower  than the Floor  Price.  The  Warrant
Exercise  Price  shall be  adjusted  to the lower of (a) 115% of the  Conversion
Price under this Section  4(g)(ii) or (b) the exercise price or conversion price
of any  warrants  or other  rights  to  purchase  equity  securities  with  more
"favored" terms in accordance with section 4(g)(i).

         For  purposes  of this  paragraph,  the  following  provisions  will be
applicable:

                  (A) In the case of an issue  or sale  for  cash of  shares  of
         Common Stock, the  "consideration  per share actually  received" by the
         Company  shall be deemed  to be the  amount  of cash  received,  before
         deducting  therefrom any  commissions  or expenses paid by the Company.
         Where  such  consideration  consists  of  securities,   the  amount  of
         consideration actually received by the Company will be the market price
         thereof as of the date of receipt.  In case any Common Stock are issued
         in connection with any  acquisition,  merger or  consolidation in which
         the Company is the surviving  corporation,  the amount of consideration
         therefor will be deemed to be the fair value of such portion of the net
         assets of the  non-surviving  corporation  as is  attributable  to such
         Common Stock.

                  (B) In case of the issuance (otherwise than upon conversion or
         exchange  of  obligations  or  shares  of  stock  of  the  Company)  of
         additional  shares of Common Stock for a consideration  other than cash
         or securities or a consideration  partly other than cash or securities,
         the amount of the consideration other than cash received by the Company
         for  such  shares  shall  be  deemed  to be  the  fair  value  of  such
         consideration as determined in good faith by the Board of Directors.

         h. Restrictions on Filing  Registration  Statements.  The Company shall
not register any shares of Common Stock pursuant to the  registration  statement
for the  Registrable  Securities  other than the  Registrable  Securities and an
additional 100,000 shares, the Common Stock designated as "Collateral"  pursuant
to that certain Pledge and Security Agreement entered into by William Glaser and
Frederick E. Tannous of even date herewith, and the Common Stock to be issued to
Pollet,  Richardson & Patel in  consideration  for the preparation and filing of
the  registration  statement.  The  Company  shall  not  file  any  registration
statements  with  respect to any other  shares of Common Stock until 90 calendar
days after the Effective Date.

         i. Leakage.  Each of the Lenders  covenants and agrees with the Company
that, in the event of a conversion  or  redemption  (pursuant to Section 1(e) of
the  Debentures),  the Lender  will not convert or redeem an amount of more than
the greater of (i) an aggregate of $50,000  principal  amount of Debentures  per
week or (ii) an aggregate amount equal to 15% of the average daily dollar volume
of shares of Common Stock traded on the Principal Market for the five days prior
to conversion or redemption.

         k. No  Shorting.  Each  Lender  agrees  that it will not enter into any
Short Sales (as hereinafter defined) from the period commencing on the execution
of this  Agreement  and  ending  on the  date  on  which  no  Lender  holds  any
outstanding Debentures. For purposes of this section, a "Short Sale" by a Lender
shall mean a sale of Common  Stock by such Lender that is marked as a short sale
and that is made at a time when there is no equivalent  offsetting long position
in Common Stock held by the Lender. For purposes of determining whether there is
an equivalent  offsetting  long  position in Common Stock held by a Lender,  (i)
Conversion Shares and Warrant Shares that have not yet been issued on conversion
of the Debentures or exercise of the Warrants but which the Company is obligated
to issue  as a result  of  receipt  of a notice  of  Conversion  or  receipt  of
documents and payment  required for exercise of the Warrants  shall be deemed to
be held long by such Lender but (ii)  Conversion  Shares and Warrant Shares that
have not yet been  issued on  conversion  of the  Debentures  or exercise of the
Warrants  and which are not  subject  to receipt  of a notice of  conversion  or
receipt of documents and payment required for exercise of the Warrants shall not
be deemed to be held long by such Lender.


         5. TRANSFER AGENT INSTRUCTIONS.

         a. The Company  warrants that,  with respect to the  Securities,  other
than the stop  transfer  instructions  to give effect to Section 4(a) hereof and
except to the extent  necessary or appropriate to exercise the Company's  lawful
remedies under the  Transaction  Agreements,  it will give its transfer agent no
instructions  inconsistent  with instructions to issue Common Stock from time to
time upon conversion of the Debentures in such amounts as specified from time to
time by the  Company to the  transfer  agent,  bearing  the  restrictive  legend
specified in Section 4(b) of this  Agreement  prior to the  registration  of the
shares of Common Stock under the 1933 Act,  registered in the name of the Lender
or its  nominee  and in such  denominations  to be  specified  by the  Lender in
connection with each conversion of the Debentures.  The Company warrants that no
instruction other than such instructions  referred to in this Section 5 and stop
transfer   instructions   to  give  effect  to  Section  4(a)  hereof  prior  to
registration  and  sale of the  Shares  under  the 1933 Act will be given by the
Company to the transfer agent and that the Shares shall otherwise  (except under
federal  and  state  securities  laws) be freely  transferable  on the books and
records of the  Company as and to the extent  provided  in this  Agreement,  the
Registration Rights Agreement, and applicable law. Nothing in this Section shall
affect in any way the  Lender's  obligations  and  agreement  to comply with all
applicable securities laws upon resale of the Securities. If the Lender provides
the Company with an opinion of counsel  reasonably  satisfactory  to the Company
that  registration  of a  resale  by the  Lender  of any  of the  Securities  in
accordance  with clause (1)(B) of Section 4(a) of this Agreement is not required
under the 1933 Act,  the  Company  shall  (except as  provided  in clause (2) of
Section 4(a) of this  Agreement)  permit the transfer of the Securities  and, in
the case of the  Conversion  Shares,  promptly  instruct the Company's  transfer
agent to issue one or more  certificates  for  Common  Stock in such name and in
such denominations as specified by the Lender.

         b. Subject to the provisions of this Agreement, the Company will permit
the  Lender to  exercise  its right to  convert  the  Debentures  in the  manner
contemplated by the Debentures

         c. The Company will  authorize its transfer  agent to give  information
relating to the Company  directly to the Lender or the Lender's  representatives
upon the  request of the Lender or any such  representative,  to the extent such
information relates to the status of shares of Common Stock issued or claimed to
be issued to the Lender in connection with a Notice of Conversion or exercise of
a Warrant.

         d. The Company  will permit the Lender to exercise its right to convert
the Debentures by telecopying or delivering an executed and completed  Notice of
Conversion to the Company and  delivering,  if the conversion  would convert the
entire  remaining  principal of the  Debenture,  within five (5)  business  days
thereafter,  the original  Debenture  being  converted to the Company by express
courier, with a copy to the transfer agent.

         The Company will transmit the  certificates  representing the converted
shares issuable upon conversion of any Debentures  (together,  unless  otherwise
instructed by the Lender,  with Debentures not being so converted) to the Lender
at the address  specified in the Notice of Conversion (which may be the Lender's
address for notices as contemplated by Section 10 hereof or a different address)
via express  courier,  by  electronic  transfer or  otherwise,  within three (3)
business  days (the  "Delivery  Date")  after (A) the  business day on which the
Company has received the Notice of Conversion  (by facsimile or other  delivery)
and the original  Debentures  being converted (and if the same are not delivered
to the Company on the same date, the date of delivery of the last of such items)
or (B) the date an  interest  payment on the  Debenture,  which the  Company has
elected  to pay  by  the  issuance  of  Common  Stock,  as  contemplated  by the
Debentures, was due.

         e. The Company  understands  that a delay in the issuance of the shares
of Common Stock beyond the  Delivery  Date could result in economic  loss to the
Lender.  As  compensation to the Lender for such loss, the Company agrees to pay
late payments to the Lender for late issuance of Common Stock upon Conversion in
accordance  with the  following  schedule  (where  "No.  Business  Days Late" is
defined as the number of  business  days beyond two (2)  business  days from the
Delivery Date):

                                    Late Payment For Each $10,000
                                    of Debenture Principal or Interest
  No. Business Days Late             Amount Being Converted

           1                                 $100
           2                                 $200
           3                                 $300
           4                                 $400
           5                                 $500
           6                                 $600
           7                                 $700
           8                                 $800
           9                                 $900
           10                                $1,000
           >10                               $1,000 +$200 for each  Business Day
                                             Late beyond 10 days

         The  Company  shall pay any  payments  incurred  under this  Section in
         immediately available funds upon demand. Nothing herein shall limit the
         Lender's  right to pursue actual  damages for the Company's  failure to
         issue and  deliver  the Common  Stock to the  Lender.  Furthermore,  in
         addition to any other remedies which may be available to the Lender, in
         the event that the Company  fails for any reason to effect  delivery of
         such  shares of Common  Stock  within two (2)  business  days after the
         Delivery  Date,  the Lender  will be  entitled  to revoke the  relevant
         Notice of  Conversion  by  delivering  a notice  to such  effect to the
         Company  whereupon the Company and the Lender shall each be restored to
         their respective positions immediately prior to delivery of such Notice
         of Conversion.

         f. If, by the relevant  Delivery Date, the Company fails for any reason
to deliver the Common  Stock to be issued  upon  conversion  of a Debenture  and
after such  Delivery  Date,  the holder of the  Debentures  being  converted  (a
"Converting  Holder")  purchases,  in an open market  transaction  or otherwise,
shares of Common  Stock (the  "Covering  Shares")  in order to make  delivery in
satisfaction  of a sale of Common  Stock by the  Converting  Holder  (the  "Sold
Shares"),  which delivery such Converting  Holder  anticipated to make using the
Common Stock to be issued upon such  conversion (a "Buy-In"),  the Company shall
pay to the Converting  Holder, in addition to all other amounts  contemplated in
other  provisions of the Transaction  Agreements,  and not in lieu thereof,  the
Buy-In Adjustment Amount (as defined below).  The "Buy-In  Adjustment Amount" is
the amount equal to the excess,  if any, of (x) the  Converting  Holder's  total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions,  if any) received by the
Converting  Holder from the sale of the Sold Shares.  The Company  shall pay the
Buy-In Adjustment Amount to the Converting Holder in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing,  if the Converting  Holder  purchases  shares of
Common Stock having a total purchase price (including brokerage  commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.

         g. In lieu of delivering physical certificates  representing the Common
Stock  issuable  upon  conversion,  provided  the  Company's  transfer  agent is
participating in the Depository Trust Company ("DTC") Fast Automated  Securities
Transfer  program,  upon  request  of the  Lender  and its  compliance  with the
provisions contained in this paragraph, so long as the certificates therefore do
not bear a legend  and the  Lender  thereof  is not  obligated  to  return  such
certificate  for the  placement of a legend  thereon,  the Company shall use its
best efforts to cause its transfer agent to  electronically  transmit the Common
Stock  issuable  upon  conversion  to the  Lender by  crediting  the  account of
Lender's Prime Broker with DTC through its Deposit  Withdrawal  Agent Commission
system.

         h. The holder of any  Debentures  shall be  entitled  to  exercise  its
conversion  privilege  with  respect  to  the  Debentures   notwithstanding  the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the  Company is a debtor  under the  Bankruptcy  Code,  the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C.  ss.362 in respect of such holder's  conversion  privilege.  The
Company hereby waives, to the fullest extent permitted,  any rights to relief it
may have under 11 U.S.C.  ss.362 in respect of the conversion of the Debentures.
The  Company  agrees,  without  cost or  expense to such  holder,  to take or to
consent to any and all action  necessary  to  effectuate  relief under 11 U.S.C.
ss.362.

         6. CLOSING DATE.

         a. The Closing Date shall occur on the date which is the first business
day after each of the conditions  contemplated  by Sections 7 and 8 hereof shall
have  either  been  satisfied  or been  waived by the party in whose  favor such
conditions run.

         b. The closing of the  purchase and  issuance of the  Debentures  shall
occur on the Closing  Date at the offices of the Company at 2:00 P.M.,  New York
time,  on such day or such other time as is mutually  agreed upon by the Company
and the Lender.

         7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

         The  Lender  understands  that  the  Company's  obligation  to sell the
Debentures  to the Lender  pursuant to this  Agreement  on the  Closing  Date is
conditioned upon:

         a. The  execution  and delivery of the  Transaction  Agreements  by the
Lender;

         b.  Delivery by the Lender to the Escrow Agent of good funds as payment
in  full of an  amount  equal  to the  Purchase  Price  for  the  Securities  in
accordance with this Agreement;

         c.  Delivery by  Frederick  Tannous  and  William  Glaser of the Pledge
Agreement and the documents contemplated by the Pledge Agreement;

         d.  The  accuracy  on  each  Closing  Date of the  representations  and
warranties of the Lender  contained in this  Agreement,  each as if made on such
date, and the  performance by the Lender on or before such date of all covenants
and agreements of the Lender required to be performed on or before such date;

         d. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval, which shall not have been obtained, and

         e. The consummation of the acquisition of QB1.

         8. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.

         The Company  understands  that the Lender's  obligation to purchase the
Debentures on the Closing Date is conditioned upon:

         a.  The  execution  and  delivery  of  this  Agreement  and  the  other
Transaction Agreements by the Company, XCEL and Bio-Select, as the case may be;

         b. The  accuracy in all  material  respects on each Closing Date of the
representations and warranties of the Company contained in this Agreement,  each
as if made on such date, and the performance by the Company, XCEL and Bio-Select
on or before such date of all covenants and  agreements of the Company  required
to be performed on or before such date;

         c. On each Closing  Date,  the  Registration  Rights  Agreement and the
Security  Agreement shall be in full force and effect and the Company,  XCEL and
Bio-Select shall not be in default thereunder;

         d. On or before the Closing Date,  the Company  shall have  consummated
the  acquisition of QB1 in accordance  with the terms of its agreement with QBI;
e.  There  shall not be in effect any law,  rule or  regulation  prohibiting  or
restricting the transactions  contemplated  hereby,  or requiring any consent or
approval, which shall not have been obtained;

         f. From and after the date hereof to and  including  each Closing Date,
each of the preceding conditions will have remained in effect and the trading of
the Common Stock shall not have been  suspended  by the SEC or on the  Principal
Trading Market.

         9. INDEMNIFICATION.

         a. (i) The Company agrees to indemnify and hold harmless Lender and its
officers, directors,  employees, and agents, and each Lender Control Person from
and  against any  losses,  claims,  damages,  liabilities  or expenses  incurred
(collectively,  "Damages"),  joint or several, and any action in respect thereof
to which Lender, its partners,  Affiliates,  officers, directors,  employees, or
duly  authorized  agents,  or any such Lender Control Person becomes subject to,
resulting from, arising out of or relating to any  misrepresentation,  breach of
warranty or nonfulfillment of or failure to perform any covenant or agreement on
the part of Company  contained  in this  Agreement,  except to the  extent  such
Damages  result  from  Lender's  failure to perform any  covenant  or  agreement
contained in this Agreement or Lender's or its officers,  directors,  employees,
agents  or  Lender  Control  Persons  negligence,  recklessness  or bad faith in
performing its obligations under this Agreement.

         (ii) Each Lender,  severally  and not jointly,  agrees to indemnify and
hold harmless the Company and its officers,  directors,  employees,  and agents,
and each Company  Control Person from and against any losses,  claims,  damages,
liabilities or expenses incurred  (collectively,  "Damages"),  joint or several,
and  any  action  in  respect  thereof  to  which  the  Company,  its  partners,
Affiliates,  officers,  directors,  employees, or duly authorized agents, or any
such Company Control Person becomes subject to,  resulting from,  arising out of
or relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure  to  perform  any  covenant  or  agreement  on the  part of such  Lender
contained in this Agreement,  except to the extent such Damages result primarily
from the  Company's  failure to perform any covenant or  agreement  contained in
this Agreement or the Company's or its officers, directors, employees, agents or
Company Control Persons negligence,  recklessness or bad faith in performing its
obligations under this Agreement.

         b. All claims for  indemnification by any Indemnified Party (as defined
below) under this Section 9 shall be asserted and resolved as follows:

         (i) In the event any claim or  demand in  respect  of which any  Person
claiming  indemnification under any provision of this Section 9 (an "Indemnified
Party") might seek indemnity under Section 9(a) is asserted against or sought to
be collected from such  Indemnified  Party by a Person other than a party hereto
or an Affiliate  thereof (a "Third Party Claim"),  the  Indemnified  Party shall
deliver a written  notification,  enclosing a copy of all papers served, if any,
and  specifying  the nature of and basis for such Third  Party Claim and for the
Indemnified Party's claim for  indemnification  that is being asserted under any
provision  of this  Section 9 against  any Person  (the  "Indemnifying  Party"),
together with the amount or, if not then reasonably ascertainable, the estimated
amount,  determined in good faith,  of such Third Party Claim (a "Claim Notice")
with reasonable  promptness to the Indemnifying  Party. If the Indemnified Party
fails  to  provide  the  Claim  Notice  with  reasonable  promptness  after  the
Indemnified  Party receives notice of such Third Party Claim,  the  Indemnifying
Party shall not be obligated to indemnify the Indemnified  Party with respect to
such Third Party Claim to the extent that the  Indemnifying  Party's  ability to
defend  has been  prejudiced  by such  failure  of the  Indemnified  Party.  The
Indemnifying  Party shall notify the  Indemnified  Party as soon as  practicable
within the period  ending thirty (30)  calendar  days  following  receipt by the
Indemnifying  Party of either a Claim Notice or an Indemnity  Notice (as defined
below) (the  "Dispute  Period")  whether the  Indemnifying  Party  disputes  its
liability  or the amount of its  liability to the  Indemnified  Party under this
Section 9 and  whether  the  Indemnifying  Party  desires,  at its sole cost and
expense,  to defend the  Indemnified  Party against such Third Party Claim.  The
following provisions shall also apply:

         (x) If the Indemnifying Party notifies the Indemnified Party within the
Dispute  Period that the  Indemnifying  Party desires to defend the  Indemnified
Party with respect to the Third Party Claim pursuant to this Section 9(b),  then
the Indemnifying  Party shall have the right to defend,  with counsel reasonably
satisfactory  to the  Indemnified  Party,  at the sole cost and  expense  of the
Indemnifying Party, such Third Party Claim by all appropriate proceedings, which
proceedings  shall be vigorously and diligently  prosecuted by the  Indemnifying
Party  to a final  conclusion  or  will  be  settled  at the  discretion  of the
Indemnifying  Party (but only with the consent of the  Indemnified  Party in the
case of any  settlement  that  provides for any relief other than the payment of
monetary  damages or that  provides  for the payment of  monetary  damages as to
which the Indemnified Party shall not be indemnified in full pursuant to Section
9(a)).  The  Indemnifying  Party  shall have full  control of such  defense  and
proceedings,  including any compromise or settlement thereof; provided, however,
that the Indemnified  Party may, at the sole cost and expense of the Indemnified
Party,  at any time prior to the  Indemnifying  Party's  delivery  of the notice
referred to in the first  sentence of this  subparagraph  (x),  file any motion,
answer or other  pleadings or take any other action that the  Indemnified  Party
reasonably  believes to be necessary or appropriate  protect its interests;  and
provided further,  that if requested by the Indemnifying  Party, the Indemnified
Party will,  at the sole cost and  expense of the  Indemnifying  Party,  provide
reasonable  cooperation to the Indemnifying  Party in contesting any Third Party
Claim that the Indemnifying  Party elects to contest.  The Indemnified Party may
participate  in, but not control,  any defense or  settlement of any Third Party
Claim controlled by the Indemnifying  Party pursuant to this  subparagraph  (x),
and except as provided in the preceding  sentence,  the Indemnified  Party shall
bear  its  own  costs  and  expenses   with   respect  to  such   participation.
Notwithstanding  the foregoing,  the Indemnified Party may take over the control
of  the  defense  or  settlement  of a  Third  Party  Claim  at any  time  if it
irrevocably  waives its right to  indemnity  under  Section 9(a) with respect to
such Third Party Claim.

         (y) If the  Indemnifying  Party fails to notify the  Indemnified  Party
within the Dispute  Period  that the  Indemnifying  Party  desires to defend the
Third Party Claim pursuant to Section 9(b), or if the  Indemnifying  Party gives
such notice but fails to prosecute vigorously and diligently or settle the Third
Party Claim, or if the  Indemnifying  Party fails to give any notice  whatsoever
within the Dispute Period,  then the  Indemnified  Party shall have the right to
defend, at the sole cost and expense of the Indemnifying  Party, the Third Party
Claim by all appropriate  proceedings,  which proceedings shall be prosecuted by
the  Indemnified  Party  in a  reasonable  manner  and in good  faith or will be
settled at the  discretion  of the  Indemnified  Party  (with the consent of the
Indemnifying  Party,  which  consent  will not be  unreasonably  withheld).  The
Indemnified  Party  will have full  control  of such  defense  and  proceedings,
including any  compromise  or settlement  thereof;  provided,  however,  that if
requested by the Indemnified  Party,  the  Indemnifying  Party will, at the sole
cost and expense of the Indemnifying  Party,  provide reasonable  cooperation to
the Indemnified  Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions of
this  subparagraph  (y), if the Indemnifying  Party has notified the Indemnified
Party  within the  Dispute  Period  that the  Indemnifying  Party  disputes  its
liability or the amount of its liability hereunder to the Indemnified Party with
respect to such Third  Party  Claim and if such  dispute is resolved in favor of
the  Indemnifying  Party in the manner provided in  subparagraph(z)  below,  the
Indemnifying  Party will not be required  to bear the costs and  expenses of the
Indemnified  Party's  defense  pursuant  to  this  subparagraph  (y)  or of  the
Indemnifying Party's  participation  therein at the Indemnified Party's request,
and the Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses  incurred by the Indemnifying  Party in connection
with such  litigation.  The  Indemnifying  Party  may  participate  in,  but not
control, any defense or settlement  controlled by the Indemnified Party pursuant
to this  subparagraph  (y), and the Indemnifying  Party shall bear its own costs
and expenses with respect to such participation.

         (z) If the  Indemnifying  Party notifies the Indemnified  Party that it
does not dispute its liability or the amount of its liability to the Indemnified
Party with  respect to the Third  Party  Claim  under  Section  9(a) or fails to
notify the Indemnified  Party within the Dispute Period whether the Indemnifying
Party  disputes its liability or the amount of its liability to the  Indemnified
Party with respect to such Third Party Claim, the amount of Damages specified in
the Claim Notice shall be  conclusively  deemed a liability of the  Indemnifying
Party under Section 9(a) and the Indemnifying Party shall pay the amount of such
Damages to the Indemnified Party on demand. If the Indemnifying Party has timely
disputed  its  liability  or the amount of its  liability  with  respect to such
claim,  the Indemnifying  Party and the Indemnified  Party shall proceed in good
faith to negotiate a resolution of such dispute; provided,  however, that it the
dispute is not  resolved  within  thirty (30) days after the Claim  Notice,  the
Indemnifying  Party shall be entitled to institute such legal action as it deems
appropriate.

         c. The indemnity  agreements  contained  herein shall be in addition to
(i) any cause of action or similar rights of the  indemnified  party against the
indemnifying  party or others,  and (ii) any liabilities the indemnifying  party
may be subject to. The indemnification  required by this Section 9 shall be made
by  periodic   payments  of  the  amount   thereof  during  the  course  of  the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable

         10. GOVERNING LAW: MISCELLANEOUS.

         a. This  Agreement  shall be governed by and  interpreted in accordance
with the laws of the State of Colorado for  contracts to be wholly  performed in
such state and without  giving effect to the  principles  thereof  regarding the
conflict of laws. Each of the parties consents to the exclusive  jurisdiction of
the federal courts whose  districts  encompass any part of the City of New York,
New York or the state courts of the State of New York sitting in the City of New
York in  connection  with any dispute  arising  under this  Agreement and hereby
waives,  to the maximum extent  permitted by law, any  objection,  including any
objection based on forum non conveniens,  to the bringing of any such proceeding
in such jurisdictions. To the extent determined by such court, the Company shall
reimburse the Lenders for any reasonable legal fees and  disbursements  incurred
by the Lenders in  enforcement  of or protection of any of its rights under this
Agreement

         b. At the Closing  Date,  the Company  shall  reimburse the Lenders for
their legal fees and expenses  incurred in connection  with the  preparation and
negotiation  of the  Transaction  Agreements  by paying to up to an aggregate of
$10,000 for the preparation and negotiation of the Transaction Agreements. Other
than the amounts contemplated in the immediately preceding sentence,  each party
shall pay the fees and expenses of its advisers, counsel, accountants, and other
experts,  if any, and all other expenses  incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.

         c.  Failure  of any party to  exercise  any right or remedy  under this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

         d. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.

         e. All  pronouns and any  variations  thereof  refer to the  masculine,
feminine or neuter, singular or plural, as the context may require.

         f. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.

         g. This  Agreement may be signed in one or more  counterparts,  each of
which shall be deemed an original.

         h. The headings of this Agreement are for  convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.

         i. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction,  such invalidity or  unenforceability  shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.

         j. This  Agreement  may be  amended  only by an  instrument  in writing
signed by the party to be charged with enforcement thereof.

         k. This Agreement  supersedes all prior  agreements and  understandings
among the parties hereto with respect to the subject matter hereof.

         11. NOTICES.  Any notice required or permitted hereunder shall be given
in writing (unless otherwise  specified herein) and shall be deemed  effectively
given on the earliest of

         (a) the date  delivered,  if delivered by personal  delivery as against
written receipt therefor or by confirmed facsimile transmission,

         (b) the third  business  day after  deposit,  postage  prepaid,  in the
United States Postal Service by registered or certified mail, or

         (c) the date  delivered  after  mailing by  domestic  or  international
express courier, with delivery costs and fees prepaid,

         in each case, addressed to each of the other parties thereunto entitled
         at the following  addresses  (or at such other  addresses as such party
         may designate to each of the other parties hereto):

COMPANY:          Health Sciences Group, Inc.

                           at its address at the head of this Agreement
                           Attn:   Frederick Tannous, President
                           Telephone No.: (310) 242-6700
                           Telecopier No.:


                           with a copy to:

                           Pollet, Richardson & Patel, a law corporation
                           10900 Wilshire Blvd., Suite 500
                           Los Angeles, CA 90024
                           Attention:  Kevin Friedmann, Esq.

                                    Pollet & Richardson, a Law corporation

Lender:           At the address set forth on the signature page of this
                  Agreement.

                           with a copy to:

                           McLaughlin & Stern LLP
                           260 Madison Avenue
                           New York, NY 10016
                           Attn: Steven Schuster, Esq.
                           Telephone No: (212) 448-1100
                           Telecopier No:  (212)448-0066

         12.  SURVIVAL  OF  REPRESENTATIONS  AND  WARRANTIES.  Anything  in this
Agreement or the other Transaction  Agreements to the contrary  notwithstanding,
the  Company's  and the Lender's  representations  and  warranties  herein shall
survive the  execution  and delivery of this  Agreement for a period of one year
from the date hereof,  except the Lenders'  representations  and  warranties  in
Section 2(m),  which shall survive until the applicable  statute of limitations,
and  shall  inure  to the  benefit  of the  Lender  and the  Company  and  their
respective successors and assigns.

                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]


         IN  WITNESS  WHEREOF,  this  Agreement  has been duly  executed  by the
Lenders as of February __, 2003.


___________________________________________


Signature:  ____________________            Purchase Price: $

Printed Name:     __________________        Office:________________________

                                                  _________________________

                                            Telephone No._____________________

                                           Telecopier No.______________________


___________________________________________

Signature:  ____________________            Purchase Price: $

Printed Name:     __________________        Office:________________________

                                                   ________________________

                                            Telephone No:__________________

                                            Telecopier No: __________________



HEALTH SCIENCES GROUP, INC.



By: _____________________________

_____________________________Date: February __, 2003



ANNEX I           FORM OF DEBENTURE

ANNEX II          FORM OF REGISTRATION RIGHTS AGREEMENT

ANNEX III         FORM OF WARRANT

ANNEX IV          FORM OF SECURITY AGREEMENT

ANNEX V           FORM OF ESCROW AGREEMENT

ANNEX VI          FORM OF PLEDGE AGREEMENT

SCHEDULE 3(g)

SCHEDULE 3(r)




                                  SCHEDULE 3(g)


         1. On September  25, 2001 the Company  filed a Form 8-K  reporting  the
change of the Company's name that was approved by the  shareholders on September
4, 2001.

         2. On  December  31, 2001 the Company  filed a Form 8-K  reporting  the
acquisition of XCEL Healthcare, Inc. that was completed on December 14, 2001.

         3. On March 5,  2001 the  Company  filed a Form  8-K/A  disclosing  the
financial  information related to the Company's  acquisition of XCEL Healthcare,
Inc.

         4. On April 16, 2002 the Company filed its Form 10-KSB. This filing was
required to be made on April 15, 2002.

         5.  On May  13,  2002  the  Company  filed  a Form  8-K  reporting  the
rescission  of a  Stock  Purchase  Agreement  entered  into  with  International
Pharmaceutical Group LLC which occurred on April 26, 2002.

         6. On August 20, 2002 the Company filed a Form 10-QSB.  This filing was
required to be made on August 19, 2002.

                                  SCHEDULE 3(r)
                                   Prior Liens


         1. A lien granted by Health Sciences  Group,  Inc. in favor of Whitmire
Distribution  Corporation  in all its  fixtures,  goods,  machinery,  equipment,
vehicles,  inventory,  leasehold  improvements,  accounts,  accounts receivable,
deposit accounts,  including without  limitation those maintained with a bank or
other financial  institution,  and all money, letter of credit rights and letter
of credit proceeds and assignments thereof,  chattel paper, including electronic
chattel paper, documents,  notes receivable,  instruments,  investment property,
contract  rights,  general  intangibles,   including,  without  limitation,  all
intellectual property,  trade names, trade marks, trade secrets,  service marks,
patents,  patent  applications,  copyrights,  literary rights,  royalties,  data
bases,  software and software  systems,  licenses,  franchises,  customer lists,
goodwill and tax refunds, books and records,  prescription files, patient lists,
computer  programs  and records  and all other  personal  property,  tangible or
intangible  (including,   without  limitation,   all  signs,  appliances,   cash
registers,   computers,   computer  software,   shelving,   check-out  counters,
compressors,  freezers,  coolers,  display cases,  customer  records,  sundries,
tobacco products,  prescription and  over-the-counter  pharmaceutical  products,
health and beauty aids,  home  healthcare  products and general  merchandise and
supplies);  all accessions and additions to,  substitutions for and replacements
of any of the foregoing;  all proceeds or products of any of the foregoing;  and
all rights to payments under any insurance or warranty,  guaranty,  or indemnity
payable  with respect to any of the  foregoing.  Said lien is evidenced by a UCC
Financing  Statement  filed with the Secretary of State of Colorado on April 11,
2002 as number 2002F037925.

         A lien granted by XCEL  Healthcare,  Inc. in favor of Barnes  Wholesale
(description  unreadable).  Said lien is evidenced by a UCC Financing  Statement
filed with the  Secretary of State of  California on November 26, 2001 as number
0133260568.

         Alien   granted  by  XCEL   Healthcare,   Inc.  in  favor  of  Cardinal
Distribution (description unreadable). Said lien is evidenced by a UCC Financing
Statement  filed with the  Secretary  of State of  California  on May 2, 2002 as
number 0212360059.


<PAGE>



                                                                  EXHIBIT 10.7.2


                                    DEBENTURE

THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED,  OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER  EVIDENCE  ACCEPTABLE  TO THE  COMPANY  THAT SUCH
REGISTRATION IS NOT REQUIRED. US $150,000.00

                           HEALTHSCIENCES GROUP, INC.

                   CONVERTIBLE DEBENTURE DUE FEBRUAY 24, 2004

        THIS  DEBENTURE is one of a duly  authorized  issue of up to $300,000 in
Debentures of HEALTHSCIENCES  GROUP, INC., a corporation  organized and existing
under  the laws of the  State of  Colorado  (the  "Company")  designated  as its
Convertible  Debentures Series. Such Debentures may be issued in series, each of
which may have a different maturity date, but which otherwise have substantially
similar terms.

         FOR VALUE RECEIVED,  the Company promises to pay to BRIVIS INVESTMENTS,
LTD.,  the  registered  holder  hereof  (the  "Holder"),  the  principal  sum of
$150,000.00  on February 24, 2004 (one year from the date hereof) (the "Maturity
Date") and to pay interest at the Maturity Date on the principal sum outstanding
from  time to time in  arrears  at the  rate  of 12% per  annum,  accruing  from
February 24, 2003,  the date of  execution of that certain  securities  purchase
agreement  (the  "Securities  Purchase  Agreement")  between  the Holder and the
Company dated as of February 24, 2003 (the "Commencement  Date"). The accrual of
interest shall commence on the Commencement Date and shall continue to accrue on
a daily basis until  payment in full of the  principal sum has been made or duly
provided  for.  Additional  provisions  regarding  the payment of  interest  are
provided  in Section  4(C) below  (the  terms of which  shall  govern as if this
sentence were not included in this Debenture).  The Debenture may not be prepaid
without the prior written consent of the Holder.

         This Debenture is being issued  pursuant to the terms of the Securities
Purchase  Agreement  to  which  the  Company  and the  Holder  (or the  Holder's
predecessor  in  interest)  are  parties.  This  Debenture is one of a series of
Debentures in the aggregate principal amount of $300,000.  Capitalized terms not
otherwise  defined  herein  shall  have  the  meanings  ascribed  to them in the
Securities Purchase Agreement.

         This Debenture is subject to the following additional provisions:

         1. The Debentures will initially be issued in denominations  determined
by the Company,  but are exchangeable for an equal aggregate principal amount of
Debentures of

                                       1
<PAGE>

different  denominations,  as requested by the Holder  surrendering the same. No
service charge will be made for such registration or transfer or exchange.

         2.  Unless  the Holder is a  non-United  States  person or entity,  the
Company  shall be entitled to withhold  from all payments of  principal  of, and
interest  on,  this  Debenture  any amounts  required  to be withheld  under the
applicable  provisions of the United States income tax laws or other  applicable
laws at the time of such  payments,  and Holder  shall  execute  and deliver all
required documentation in connection therewith. This Debenture is intended to be
in registered  form to qualify for the exemption  from  withholding  any amounts
with  respect to  interest  payments  payable to  non-United  States  persons or
entities in accordance with Regulation 1.871-14c of the Internal Revenue Code.

         3. This Debenture has been issued subject to investment representations
of the original  purchaser  hereof and may be  transferred  or exchanged only in
compliance  with the Securities  Act of 1933, as amended (the "Act"),  and other
applicable  state and foreign  securities  laws and the terms of the  Securities
Purchase  Agreement . In the event of any proposed  transfer of this  Debenture,
the Company may  require,  prior to issuance of a new  Debenture  in the name of
such  other  person,  that it receive  reasonable  transfer  documentation.  The
Company  shall  maintain a book entry  system (the  "Debenture  Register")  with
respect to principal and interest. Prior to due presentment for transfer of this
Debenture,  the Company  and any agent of the Company  shall treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving  payment as herein provided and
for all other  purposes,  whether or not this Debenture be overdue,  and neither
the Company nor any such agent shall be affected by notice to the contrary.  The
Debenture  can be  transferred  through  both  surrender  and  issuance of a new
Debenture (or reissuance of this Debenture) or the book entry system.

         4. A. (i) At any time  commencing on the Conversion  Date, and prior to
the time this Debenture is paid in full in accordance with its terms  (including
without  limitation after the Maturity Date and after the occurrence of an Event
of Default, as defined below), the Holder of this Debenture is entitled,  at its
option, subject to the following provisions of this Section 4, to convert all or
a portion of this Debenture at any time into shares of Common Stock,  $0.001 par
value  ("Common  Stock"),  of the  Company at the  Conversion  Price (as defined
below).

(ii) The term  "Conversion  Date"  means  the date on which  notice  is given of
conversion with respect to any Debenture,  provided however, that the Conversion
Date shall not precede the earlier of (A) 150 days after the  Commencement  Date
or (B) the date a  registration  statement  (the  "Registration  Statement")  is
declared effective by the SEC with respect to the Registrable Securities.

                           (iii) The term "Conversion Price" means the lesser of
(A)30% below the average VWAP
per share of Common Stock for the seven days prior to the  Conversion  Date, but
in no event lower than the Floor Price, or (B) $0.525 per share.


                           (iv) The term "VWAP" means the daily volume  weighted
average price of the Company's
Common Stock on the Principal Trading Market as reported by Bloomberg  Financial
L.P.  (Based on a trading day from 9:30 a.m.  Eastern Time to 4:00 p.m.  Eastern
Time) using the VWAP function on the date in question.

                                       2
<PAGE>

                           (v) The term  "Floor  Price"  shall mean the lower of
(A) $0.525 per share and (B) such
other price as may be determined under the Securities Purchase Agreement.

                  B.  Conversion  shall be effectuated by delivering a Notice of
Conversion  to the  Company  as  provided  in  this  paragraph.  The  Notice  of
Conversion  shall be executed by the Holder of this Debenture and shall evidence
such Holder's  intention to convert this Debenture or a specified portion hereof
in the form annexed hereto as Exhibit A. If paid in Common Stock as contemplated
hereby,  interest  accrued or  accruing  from the Closing  Date to the  relevant
Conversion Date shall be paid in Common Stock at the Conversion Price applicable
as of such  Conversion  Date.  No  fractional  shares of  Common  Stock or scrip
representing fractions of shares will be issued on conversion, but the number of
shares  issuable shall be rounded to the nearest whole share.  The date on which
notice of conversion is given (the "Conversion  Date") shall be deemed to be the
date on which the Holder  faxes or  otherwise  delivers  the  conversion  notice
("Notice of Conversion") to the Company so that it is received by the Company on
or before such specified date,  provided that, if such conversion  would convert
the entire  remaining  principal of this Debenture,  the Holder shall deliver to
the Company  the  original  Debentures  being  converted  no later than five (5)
business  days  thereafter  (and  if not so  delivered  within  such  time,  the
Conversion Date shall be the date on which the later of the Notice of Conversion
and  the  original  Debenture  being  converted  is  received  by the  Company).
Facsimile  delivery of the Notice of Conversion shall be accepted by the Company
at facsimile number ____________;  Attn:  _______________________.  Certificates
representing  Common Stock upon conversion  ("Conversion  Certificates") will be
delivered  to the Holder at the address  specified  in the Notice of  Conversion
(which may be the Holder's address for notices as contemplated by the Securities
Purchase Agreement or a different  address),  via express courier, by electronic
transfer or otherwise,  within  three(3)  business days (such  business day, the
"Delivery  Date") after the date on which the Notice of  Conversion is delivered
to the Company as contemplated  in this paragraph.  In the event that the shares
represented  by  the  Conversion   Certificates  are  subject  to  an  effective
Registration Statement on the Conversion Date, the Conversion Certificates shall
be  delivered  without any legend  restricting  transfer and without any pending
"stop transfer" restrictions. In the event that the Company fails to deliver the
Conversion  Certificates  within two  business  days of the Delivery  Date,  the
Holder shall be entitled to the issuance of additional shares of Common Stock as
set forth in Section 5(e) of the  Securities  Purchase  Agreement.  In the event
that the Company fails to deliver the Conversion  Certificates  on or before the
Delivery  Date,  the Holder shall also be entitled to its remedies under Section
5(f) of the Securities Purchase Agreement.

                  C. (i) Subject to the other terms of this Section C,  interest
on the  principal  amount of this  Debenture  converted  pursuant to a Notice of
Conversion  shall be due and  payable,  at the  option  of the  Holder,  in cash
quarterly in arrears or Common Stock on the Conversion Date.

                           (ii) The  number  of  shares  of  Common  Stock to be
issued in payment of such interest
shall be  determined by dividing the dollar amount of the interest to be so paid
by the Conversion Price on the relevant Conversion Date. Such Common Stock shall
be delivered to the Holder, or per Holder's  instructions,  on the Delivery Date
for the related Conversion Certificates pursuant to Section 4(B) hereof.

                                       3
<PAGE>

                           (iii) If the Holder  elects to have the interest paid
in cash, the Company shall make
such payment quarterly commencing March 31, 2003

                  D.  Notwithstanding  any other provision  hereof, or of any of
the other  Transaction  Agreements (as those terms are defined in the Securities
Purchase  Agreement),  in no event (except (i) as specifically  provided in this
Debenture as an exception to this provision,  or (ii) while there is outstanding
a tender offer for any or all of the shares of the Company's Common Stock),  the
Holder of this  Debenture may not convert any Debenture to the extent that after
such  conversion,  the number of shares of Common  Stock owned by the Holder and
its  affiliates  (other  than  shares  of  Common  Stock  which  may  be  deemed
beneficially  owned  through the  ownership  of the  unconverted  portion of the
Debentures and any unexercised  warrants issued to the Holder and its affiliates
as of such date (the  "Warrants")),  would result in ownership by the  Purchaser
and its  affiliates  of 4.99% or more of the  Company's  issued and  outstanding
shares of Common Stock following such conversion and exercise. In the event that
the Holder owns both  Debentures  and Warrants which would  otherwise  result in
ownership of 4.99% or more of the  Company's  issued and  outstanding  shares of
Common Stock but for the prior  sentence,  then the Warrants  shall be deemed to
not be exercisable to the extent necessary to allow conversion of the Debentures
to the maximum extent possible and still permit the Holder's ownership to remain
below  4.99%.  This  restriction  shall be binding  upon any  transferee  of the
Debenture from any Holder.  The preceding  shall not interfere with the Holder's
right to convert this  Debenture  over time which in the  aggregate  totals more
than 4.99% of the then outstanding shares of Common Stock so long as such Holder
and  its  affiliates  do not  beneficially  own  more  than  4.99%  of the  then
outstanding Common Stock at any given time.

                  E. In lieu of delivering  physical  certificates  representing
the Common Stock issuable upon conversion, provided the Company's transfer agent
is  participating  in  the  Depository  Trust  Company  ("DTC")  Fast  Automated
Securities Transfer program,  upon request of the Lender and its compliance with
the  provisions  contained  in  this  paragraph,  so  long  as the  certificates
therefore do not bear a legend and the Lender thereof is not obligated to return
such  certificate for the placement of a legend  thereon,  the Company shall use
its best  efforts to cause its  transfer  agent to  electronically  transmit the
Common Stock issuable upon  conversion to the Lender by crediting the account of
Lender's Prime Broker with DTC through its Deposit  Withdrawal  Agent Commission
system.

         5. A. Until at such time as the Holder does not directly or  indirectly
own any Debentures, the Holder will have the absolute and unconditional right to
redeem all, or a portion,  of the then Unconverted  Debenture (as defined below)
in cash for the Put Price (as  defined  below) in  accordance  with the terms of
this Section 5 (such put, a "Put ").

                  B. (i) The term "Put Price" means the amount, payable in cash,
equal to (x) one hundred thirty percent (130.00%) of the aggregate  principal of
the  Unconverted  Debentures  and  all  accrued  interest  thereon  through  and
including the date of the Put Notice.

                           (ii)  The  term  "Unconverted  Debenture"  means  the
principal amount of this Debenture has
not been converted as of the relevant date.

                  C. The  Holder  shall give  written  notice of such Put to the
Company (the "Put Notice").  Notwithstanding  anything  contained  herein to the
contrary,  the Holder shall have the right to redeem the Debenture,  in whole or
in part,  after either (A) the VWAP per share of a

                                       4
<PAGE>

share of Common  Stock is less than $0.68 per share on the trading date prior to
the date that would have been the Conversion Date but for the Lender's  exercise
of its redemption right, or (B) if there is no effective  registration statement
in effect  for the  Registrable  Securities  on or before the 150th day from the
Commencement  Date, then the Lender shall have the following  redemption  right.
The Company  shall pay the Put Price  within 45 days of the Put Notice (the "Put
Payment Date").  The Put Price shall bear interest at the rate of 12% per annum;
provided  however,  that in the event  that the Put Price is not paid  within 45
days,  the Put Price  shall bear  interest at the rate of 18% per annum from the
date of the Debenture.  The parties  acknowledge that the 30% premium in the Put
Price to the aggregate  principal of the Unconverted  Debentures and all accrued
and unpaid  interest  thereon are in  consideration  for the Holder  waiving its
right to receive Common Stock of the Company upon conversion of the Debenture.

         6.  Notwithstanding  anything  contained  herein to the  contrary,  the
Holder  covenants and agrees with the Company that, in the event of a conversion
or redemption,  the Holder (together with the other holders of Debentures in the
aggregate  principal amount of $300,000) will not convert or redeem an amount of
more  than the  greater  of (i) an  aggregate  of  $50,000  principal  amount of
Debentures  per week or (ii) an  aggregate  amount  equal to 15% of the  average
daily dollar volume of shares of Common Stock traded on the Principal Market for
the five days prior to conversion or redemption.

         7.  Subject  to the  terms of the  Securities  Purchase  Agreement,  no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and  unconditional,  to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed.  This Debenture and all other  Debentures now or hereafter issued of
similar terms are direct obligations of the Company.

         8. No recourse shall be had for the payment of the principal of, or the
interest  on, this  Debenture,  or for any claim based  hereon,  or otherwise in
respect hereof, against any incorporator,  shareholder,  officer or director, as
such,  past,  present or future,  of the Company or any  successor  corporation,
whether  by  virtue  of any  constitution,  statute  or rule  of law,  or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance  hereof and as part of the consideration for the issue hereof,
expressly waived and released.

         9. All payments  contemplated hereby to be made "in cash" shall be made
in immediately available good funds of United States of America currency by wire
transfer to an account designated in writing by the Holder to the Company (which
account may be changed by notice similarly given). All payments of cash and each
delivery of shares of Common Stock issuable to the Holder as contemplated hereby
shall be made to the  Holder at the  address  last  appearing  on the  Debenture
Register  of the  Company as  designated  in writing by the Holder  from time to
time;  except  that the  Holder  can  designate,  by  notice to the  Company,  a
different delivery address for any one or more specific payments or deliveries.

         10. If, for as long as this Debenture remains outstanding,  the Company
enters into a merger (other than where the Company is the  surviving  entity) or
consolidation with another  corporation or other entity or a sale or transfer of
all or  substantially  all of  the  assets  of the  Company  to  another  person
(collectively, a "Sale"), the Company will require, in the agreements reflecting
such transaction,  that the surviving entity expressly assume the obligations of
the Company hereunder. Notwithstanding the foregoing, if the Company enters into
a Sale and the  holders  of the Common  Stock are  entitled  to  receive  stock,
securities or property in respect of or

                                       5
<PAGE>

in exchange for Common Stock,  then as a condition of such Sale, the Company and
any such  successor,  purchaser or transferee  will agree that the Debenture may
thereafter  be  converted on the terms and subject to the  conditions  set forth
above into the kind and amount of stock,  securities or property receivable upon
such merger, consolidation, sale or transfer by a holder of the number of shares
of Common Stock into which this Debenture might have been converted  immediately
before such  merger,  consolidation,  sale or transfer,  subject to  adjustments
which shall be as nearly equivalent as may be practicable.


         11. A. If,  for any  reason,  prior to the  Conversion  Date or the Put
Payment Date, the Company spins off or otherwise divests itself of a part of its
business  or  operations  or  disposes  all or of a  part  of  its  assets  in a
transaction (the "Spin Off") in which the Company does not receive  compensation
for such business, operations or assets, but causes securities of another entity
(the "Spin Off  Securities")  to be issued to security  holders of the  Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number  thereof  which  would  have  been  issued to the  Holder  had all of the
Holder's  Debentures  outstanding  on the record  date (the  "Record  Date") for
determining  the  amount  and  number  of Spin Off  Securities  to be  issued to
security holders of the Company (the "Outstanding Debentures") been converted as
of the close of business on the trading day  immediately  before the Record Date
(the  "Reserved  Spin Off  Shares"),  and (ii) to be issued to the Holder on the
conversion  of all or any of the  Outstanding  Debentures,  such  amount  of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by
(y) a  fraction,  of which  (I) the  numerator  is the  principal  amount of the
Outstanding  Debentures  then being  converted,  and (II) the denominator is the
principal amount of the Outstanding Debentures.

                  B. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common  Stock or issues a dividend on its Common Stock  consisting  of shares of
Common  Stock,  or engages in a  transaction  specified in Section 4(g) "Favored
Nation Clause" of the Securities Purchase  Agreement,  the Conversion Price, the
Floor Price and any other amounts calculated as contemplated hereby or by any of
the other  Transaction  Agreements  shall be equitably  adjusted to reflect such
action.

         12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being  acquired for investment and that such Holder will not offer,
sell or  otherwise  dispose  of this  Debenture  or the  shares of Common  Stock
issuable  upon  conversion  thereof  except under  circumstances  which will not
result in a  violation  of the Act or any  applicable  state Blue Sky or foreign
laws or similar laws relating to the sale of securities.

                  13. The Holder  recognizes  that the Company may be limited in
the  number  of  shares  of  Common  Stock  it may  issue by (i)  reason  of its
authorized shares, or (ii) the applicable rules and regulations of the principal
securities  market on which the Common Stock is listed or traded  (collectively,
the "Cap  Regulations").  Without limiting the other provisions  hereof, (i) the
Company  will take all steps  reasonably  necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without violating the Cap
Regulations  and (ii) if, despite  taking such steps,  the Company still can not
issue such shares of Common Stock  without  violating the Cap  Regulations,  the
Holder  of this  Debenture  (to the  extent  the  same can not be  converted  in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall have the

                                       6
<PAGE>

option,  exercisable in the Holder's sole and absolute discretion,  to elect any
one of the following remedies:

                  (x)  require the  Company to issue  shares of Common  Stock in
         accordance  with such  Holder's  Notice of  Conversion  relating to the
         Unconverted Debenture at the Conversion Price; or

                  (y) require the Company to redeem each  Unconverted  Debenture
         for an amount (the "Cap Redemption Amount"), payable in cash, equal to:

                                  V      x  M
                                ----
                                CP

         where:

                  "V" means the  outstanding  principal  plus  accrued  interest
         through the Cap  Redemption  Date (as defined  below) of an Unconverted
         Debenture;

                  "CP"  means  the  Conversion  Rate in  effect  on the  date of
         redemption (the "Cap Redemption Date") specified in the notice from the
         Holder electing this remedy; and

                  "M" means the  highest  closing  ask price  during  the period
         beginning on the Cap Redemption  Date and ending on the date of payment
         of the Cap Redemption Amount.

         The  holder  of an  Unconverted  Debenture  may  elect one of the above
         remedies  with respect to a portion of such  Unconverted  Debenture and
         the other  remedy with  respect to other  portions  of the  Unconverted
         Debenture.



         14. This  Debenture  shall be governed by and  construed in  accordance
with the laws of the State of Colorado  as applied to  agreements  executed  and
performed  in such  state.  The  Holder and the  Company  each  consents  to the
exclusive  jurisdiction of the federal courts whose districts encompass any part
of the City of New York or the state  courts of the State of New York sitting in
the City of New York in connection with any dispute arising under this Debenture
and hereby  waives,  to the maximum  extent  permitted  by law,  any  objection,
including any  objection  based on forum non  coveniens,  to the bringing of any
such  proceeding in such  jurisdictions.  The Company shall reimburse the Holder
for any  reasonable  legal  fees and  disbursements  incurred  by the  Holder in
enforcement of or protection of any of its rights under this Debenture.


         15. The following shall constitute an "Event of Default":

                  a. The Company  shall  default in the payment of  principal or
interest on this Debenture; or

                                       7
<PAGE>

                  b.       Any of the  representations or warranties made by the
                           Company  in  Section  3 of  the  Securities  Purchase
                           Agreement   shall  be  false  or  misleading  in  any
                           material respect at the time made; or

                  c.       The Company shall fail to perform or observe,  in any
                           material   respect,   any   other   covenant,   term,
                           provision,  condition, agreement or obligation of any
                           Debenture  in this  series  and  such  failure  shall
                           continue  uncured  for a period of  thirty  (30) days
                           after written notice from the Holder of such failure;
                           or

                  d.       The Company shall fail to perform or observe,  in any
                           material  respect,  any  covenant,  term,  provision,
                           condition,  agreement  or  obligation  of the Company
                           under  any of the  Transaction  Agreements  and  such
                           failure shall continue uncured for a period of thirty
                           (30) days  after  written  notice  from the Holder of
                           such failure; or

                  e.       The Company  shall (1) admit in writing its inability
                           to pay its debts  generally as they mature;  (2) make
                           an  assignment   for  the  benefit  of  creditors  or
                           commence  proceedings  for  its  dissolution;  or (3)
                           apply for or consent to the appointment of a trustee,
                           liquidator  or receiver for its or for a  substantial
                           part of its property or business; or

                  f.       A trustee,  liquidator or receiver shall be appointed
                           for  the  Company  or for a  substantial  part of its
                           property  or  business  without its consent and shall
                           not be  discharged  within sixty (60) days after such
                           appointment; or

                  g.       Any  governmental  agency or any  court of  competent
                           jurisdiction  at the  instance  of  any  governmental
                           agency shall  assume  custody or control of the whole
                           or  any  substantial  portion  of the  properties  or
                           assets of the  Company  and  shall  not be  dismissed
                           within sixty (60) days thereafter; or

                  h.       Bankruptcy, reorganization, insolvency or liquidation
                           proceedings or other proceedings for relief under any
                           bankruptcy  law or any law for the  relief of debtors
                           shall be instituted by or against the Company and, if
                           instituted   against  the   Company,   shall  not  be
                           dismissed   within   sixty   (60)  days   after  such
                           institution  or the  Company  shall by any  action or
                           answer  approve of,  consent to, or  acquiesce in any
                           such  proceedings  or admit the material  allegations
                           of, or default in  answering a petition  filed in any
                           such proceeding.

                  i.       The Company  fails to issue shares of Common Stock to
                           the  Holder or to cause its  Transfer  Agent to issue
                           shares of Common Stock upon exercise by the Holder of
                           the  conversion  rights of the  Holder in  accordance
                           with the terms of this  Debenture,  fails to transfer
                           or to  cause  its  Transfer  Agent  to  transfer  any
                           certificate for shares of Common

                                       8
<PAGE>

                           Stock  issued to the Holder upon  conversion  of this
                           Debenture and when required by this  Debenture or the
                           Registration  Rights Agreement,  and such transfer is
                           otherwise  lawful, or fails to remove any restrictive
                           legend or to cause its Transfer  Agent to transfer on
                           any  certificate or any shares of Common Stock issued
                           to the Holder upon  conversion  of this  Debenture as
                           and when required by this  Debenture,  the Securities
                           Purchase   Agreement  or  the   Registration   Rights
                           Agreement  and  such  legend   removal  is  otherwise
                           lawful,  and any such failure shall continue  uncured
                           for five (5) business  days after  written  notice of
                           such failure.

                  j.       Any money judgment, writ or warrant of attachment, or
                           similar  process  in excess of Two  Hundred  Thousand
                           ($200,000)  Dollars in the aggregate shall be entered
                           or filed against the Company or any of its properties
                           or other assets and shall remain  unpaid,  unvacated,
                           unbonded or unstayed  for a period of sixty (60) days
                           or in any event later than five (5) days prior to the
                           date of any  proposed  sale  thereunder  (unless such
                           judgment, writ or warrant of attachment is reasonably
                           believed   by  the  Company  to  be  90%  covered  by
                           insurance); or

                  k.       The Company shall have its Common Stock  suspended or
                           delisted from an exchange or over-the-counter  market
                           from trading or has  received  notice of final action
                           concerning  delisting  and the  Common  Stock  is not
                           relisted within five days thereafter.



If an Event of Default shall have occurred, then, or at any time thereafter, and
in each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent  default)  at the  option  of the  Holder  and in the  Holder's  sole
discretion,  the Holder may consider this Debenture  immediately due and payable
(and the Maturity Date shall be accelerated  accordingly),  without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
anything  herein or in any note or other  instruments  contained to the contrary
notwithstanding,  and the  Holder  may  immediately  enforce  any and all of the
Holder's  rights and  remedies  provided  herein or any other rights or remedies
afforded by law.  In the event of a Default,  the  interest  rate on any overdue
principal  amount shall be eighteen  percent  (18%) per annum  commencing on the
Commencement Date.


                  16. Nothing  contained in this Debenture shall be construed as
conferring  upon the  Holder  the right to vote or to  receive  dividends  or to
consent  or  receive  notice as a  shareholder  in  respect  of any  meeting  of
shareholders  or any rights  whatsoever as a shareholder of the Company,  unless
and to the extent converted in accordance with the terms hereof.

                  17. In the event for any reason,  any payment by or act of the
Company or the Holder shall result in payment of interest which would exceed the
limit authorized by or be in violation of the law of the jurisdiction applicable
to this Debenture, then ipso facto the obligation of the Company to pay interest
or perform  such act or  requirement  shall be  reduced to the limit  authorized
under such law, so that in no event shall the  Company be  obligated  to pay any
such interest,  perform any such act or be bound by any requirement  which would
result in the payment of interest in excess of the limit so  authorized.  In the
event any payment by or act of the Company  shall result in the  extraction of a
rate of interest in excess of a sum which is lawfully  collectible  as interest,
then such  amount (to the extent of such  excess not  returned  to the  Company)
shall,  without  further  agreement  or notice  between or by the Company or the
Holder,

                                       9
<PAGE>

be deemed  applied to the payment of principal,  if any,  hereunder  immediately
upon receipt of such excess funds by the Holder,  with the same force and effect
as though the Company had specifically  designated such sums to be so applied to
principal  and the  Holder had  agreed to accept  such sums as an  interest-free
prepayment  of this  Debenture.  If any part of such  excess  remains  after the
principal  has been paid in full,  whether by the  provisions  of the  preceding
sentences of this Section 17 or otherwise,  such excess shall be deemed to be an
interest- free loan from the Company to the Holder,  which loan shall be payable
immediately upon demand by the Company.  The provisions of this Section 17 shall
control every other provision of this Debenture.



         IN WITNESS  WHEREOF,  the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.

Dated: ________________
                                                     HEALTHSCIENCES GROUP, INC.

                                                     By:________________________
                                                     Name: ______________
                                                       Title:_





























                                       10
<PAGE>







                                    EXHIBIT A

                              NOTICE OF CONVERSION
                                       OF
               CONVERTIBLE DEBENTURE SERIES DUE DECEMBER 31, 2003
   (To be Executed by the Registered Holder in Order to Convert the Debenture)



FROM:

 ("Holder")

DATE:
(the "Conversion Date")

RE:               Conversion of $ principal  amount (the "Converted  Debenture")
                  of the Convertible  Debenture Due  _______________,  2004 (the
                  "Debenture") of HEALTHSCIENCES  GROUP INC.(the "Company") into
                  shares  (the  "Conversion  Shares") of Common  Stock  (defined
                  below)

CONVERSION DATE:

The  captioned  Holder  hereby  gives  notice to the  Company,  pursuant  to the
Debenture of  HEALTHSCIENCES  GROUP INC.  that the Holder  elects to convert the
Converted  Debenture into fully paid and non-assessable  shares of Common Stock,
$0.01 par value (the "Common  Stock"),  of the Company as of the Conversion Date
specified  above.  Said  conversion  shall be based on the following  Conversion
Price

Based on this Conversion  Price, the number of Conversion Shares indicated above
should be issued in the following name(s):

      Name and Record Address                   Conversion Shares








         As contemplated by the Debenture and the Securities Purchase Agreement,
this Notice of  Conversion is being sent by facsimile to the  telecopier  number
and officer indicated above.

         If this Notice of  Conversion  represents  the full  conversion  of the
outstanding  balance  of the  Debenture,  the Holder  either (1) has  previously
surrendered the Debenture,  duly endorsed,  to the Company or (2) will surrender
(or cause to be surrendered) the Debenture, duly endorsed, to

                                       11
<PAGE>

the Company at the address  indicated  above by express  courier within five (5)
business  days  after  delivery  or  facsimile  transmission  of this  Notice of
Conversion.

         The  certificates   representing   the  Conversion   Shares  should  be
transmitted  by the Company to the Holder via express  courier or by  electronic
transfer within the time  contemplated by the Debenture and Securities  Purchase
Agreement after receipt of this Notice of Conversion (by facsimile  transmission
or otherwise) to:







                  As contemplated by the Debenture,  the Company should also pay
all accrued but unpaid interest on the
Converted Debenture to the Holder.  The Holder

--                If the  Holder  elects  to have such  interest  paid in Common
                  Stock, as contemplated by the Debenture, such shares should be
                  issued in the name of the  Holder  and  delivered  in the same
                  manner as, and together with, the Conversion Shares.

--                If the Holder elects to have the interest  paid in cash,  such
                  payment should be made by wire transfer as follows:



                                       12
<PAGE>



(Print name of Holder)

                          By:

                             (Signature of Authorized Person)



                             (Printed Name and Title)



<PAGE>

                                                                  EXHIBIT 10.7.3


                                    DEBENTURE

THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED,  OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER  EVIDENCE  ACCEPTABLE  TO THE  COMPANY  THAT SUCH
REGISTRATION IS NOT REQUIRED. US $150,000.00

                           HEALTHSCIENCES GROUP, INC.

                   CONVERTIBLE DEBENTURE DUE FEBRUARY 24, 2004

        THIS  DEBENTURE is one of a duly  authorized  issue of up to $300,000 in
Debentures of HEALTHSCIENCES  GROUP, INC., a corporation  organized and existing
under  the laws of the  State of  Colorado  (the  "Company")  designated  as its
Convertible  Debentures Series. Such Debentures may be issued in series, each of
which may have a different maturity date, but which otherwise have substantially
similar terms.

         FOR VALUE RECEIVED, the Company promises to pay to STRANCO INVESTMENTS,
LTD.,  the  registered  holder  hereof  (the  "Holder"),  the  principal  sum of
$150,000.00  on February 24, 2004 (one year from the date hereof) (the "Maturity
Date") and to pay interest at the Maturity Date on the principal sum outstanding
from  time to time in  arrears  at the  rate  of 12% per  annum,  accruing  from
February 24, 2003,  the date of  execution of that certain  securities  purchase
agreement  (the  "Securities  Purchase  Agreement")  between  the Holder and the
Company dated as of February 24, 2003 (the "Commencement  Date"). The accrual of
interest shall commence on the Commencement Date and shall continue to accrue on
a daily basis until  payment in full of the  principal sum has been made or duly
provided  for.  Additional  provisions  regarding  the payment of  interest  are
provided  in Section  4(C) below  (the  terms of which  shall  govern as if this
sentence were not included in this Debenture).  The Debenture may not be prepaid
without the prior written consent of the Holder.

         This Debenture is being issued  pursuant to the terms of the Securities
Purchase  Agreement  to  which  the  Company  and the  Holder  (or the  Holder's
predecessor  in  interest)  are  parties.  This  Debenture is one of a series of
Debentures in the aggregate principal amount of $300,000.  Capitalized terms not
otherwise  defined  herein  shall  have  the  meanings  ascribed  to them in the
Securities Purchase Agreement.

         This Debenture is subject to the following additional provisions:

         1. The Debentures will initially be issued in denominations  determined
by the Company,  but are exchangeable for an equal aggregate principal amount of
Debentures of
<PAGE>

 different  denominations,  as requested by the Holder surrendering
the same. No service  charge will be made for such  registration  or transfer or
exchange.

         2.  Unless  the Holder is a  non-United  States  person or entity,  the
Company  shall be entitled to withhold  from all payments of  principal  of, and
interest  on,  this  Debenture  any amounts  required  to be withheld  under the
applicable  provisions of the United States income tax laws or other  applicable
laws at the time of such  payments,  and Holder  shall  execute  and deliver all
required documentation in connection therewith. This Debenture is intended to be
in registered  form to qualify for the exemption  from  withholding  any amounts
with  respect to  interest  payments  payable to  non-United  States  persons or
entities in accordance with Regulation 1.871-14c of the Internal Revenue Code.

         3. This Debenture has been issued subject to investment representations
of the original  purchaser  hereof and may be  transferred  or exchanged only in
compliance  with the Securities  Act of 1933, as amended (the "Act"),  and other
applicable  state and foreign  securities  laws and the terms of the  Securities
Purchase  Agreement . In the event of any proposed  transfer of this  Debenture,
the Company may  require,  prior to issuance of a new  Debenture  in the name of
such  other  person,  that it receive  reasonable  transfer  documentation.  The
Company  shall  maintain a book entry  system (the  "Debenture  Register")  with
respect to principal and interest. Prior to due presentment for transfer of this
Debenture,  the Company  and any agent of the Company  shall treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving  payment as herein provided and
for all other  purposes,  whether or not this Debenture be overdue,  and neither
the Company nor any such agent shall be affected by notice to the contrary.  The
Debenture  can be  transferred  through  both  surrender  and  issuance of a new
Debenture (or reissuance of this Debenture) or the book entry system.

         4. A. (i) At any time  commencing on the Conversion  Date, and prior to
the time this Debenture is paid in full in accordance with its terms  (including
without  limitation after the Maturity Date and after the occurrence of an Event
of Default, as defined below), the Holder of this Debenture is entitled,  at its
option, subject to the following provisions of this Section 4, to convert all or
a portion of this Debenture at any time into shares of Common Stock,  $0.001 par
value  ("Common  Stock"),  of the  Company at the  Conversion  Price (as defined
below).

(ii) The term  "Conversion  Date"  means  the date on which  notice  is given of
conversion with respect to any Debenture,  provided however, that the Conversion
Date shall not precede the earlier of (A) 150 days after the  Commencement  Date
or (B) the date a  registration  statement  (the  "Registration  Statement")  is
declared effective by the SEC with respect to the Registrable Securities.

                           (iii) The term "Conversion Price" means the lesser of
(A)30% below the average VWAP
per share of Common Stock for the seven days prior to the  Conversion  Date, but
in no event lower than the Floor Price, or (B) $0.525 per share.


                           (iv) The term "VWAP" means the daily volume  weighted
average price of the Company's
Common Stock on the Principal Trading Market as reported by Bloomberg  Financial
L.P.  (Based on a trading day from 9:30 a.m.  Eastern Time to 4:00 p.m.  Eastern
Time) using the VWAP function on the date in question.
<PAGE>

                           (v) The term  "Floor  Price"  shall mean the lower of
(A) $0.525 per share and (B) such
other price as may be determined under the Securities Purchase Agreement.

                  B.  Conversion  shall be effectuated by delivering a Notice of
Conversion  to the  Company  as  provided  in  this  paragraph.  The  Notice  of
Conversion  shall be executed by the Holder of this Debenture and shall evidence
such Holder's  intention to convert this Debenture or a specified portion hereof
in the form annexed hereto as Exhibit A. If paid in Common Stock as contemplated
hereby,  interest  accrued or  accruing  from the Closing  Date to the  relevant
Conversion Date shall be paid in Common Stock at the Conversion Price applicable
as of such  Conversion  Date.  No  fractional  shares of  Common  Stock or scrip
representing fractions of shares will be issued on conversion, but the number of
shares  issuable shall be rounded to the nearest whole share.  The date on which
notice of conversion is given (the "Conversion  Date") shall be deemed to be the
date on which the Holder  faxes or  otherwise  delivers  the  conversion  notice
("Notice of Conversion") to the Company so that it is received by the Company on
or before such specified date,  provided that, if such conversion  would convert
the entire  remaining  principal of this Debenture,  the Holder shall deliver to
the Company  the  original  Debentures  being  converted  no later than five (5)
business  days  thereafter  (and  if not so  delivered  within  such  time,  the
Conversion Date shall be the date on which the later of the Notice of Conversion
and  the  original  Debenture  being  converted  is  received  by the  Company).
Facsimile  delivery of the Notice of Conversion shall be accepted by the Company
at facsimile number ____________;  Attn:  _______________________.  Certificates
representing  Common Stock upon conversion  ("Conversion  Certificates") will be
delivered  to the Holder at the address  specified  in the Notice of  Conversion
(which may be the Holder's address for notices as contemplated by the Securities
Purchase Agreement or a different  address),  via express courier, by electronic
transfer or otherwise,  within  three(3)  business days (such  business day, the
"Delivery  Date") after the date on which the Notice of  Conversion is delivered
to the Company as contemplated  in this paragraph.  In the event that the shares
represented  by  the  Conversion   Certificates  are  subject  to  an  effective
Registration Statement on the Conversion Date, the Conversion Certificates shall
be  delivered  without any legend  restricting  transfer and without any pending
"stop transfer" restrictions. In the event that the Company fails to deliver the
Conversion  Certificates  within two  business  days of the Delivery  Date,  the
Holder shall be entitled to the issuance of additional shares of Common Stock as
set forth in Section 5(e) of the  Securities  Purchase  Agreement.  In the event
that the Company fails to deliver the Conversion  Certificates  on or before the
Delivery  Date,  the Holder shall also be entitled to its remedies under Section
5(f) of the Securities Purchase Agreement.

                  C. (i) Subject to the other terms of this Section C,  interest
on the  principal  amount of this  Debenture  converted  pursuant to a Notice of
Conversion  shall be due and  payable,  at the  option  of the  Holder,  in cash
quarterly in arrears or Common Stock on the Conversion Date.

                           (ii) The  number  of  shares  of  Common  Stock to be
issued in payment of such interest
shall be  determined by dividing the dollar amount of the interest to be so paid
by the Conversion Price on the relevant Conversion Date. Such Common Stock shall
be delivered to the Holder, or per Holder's  instructions,  on the Delivery Date
for the related Conversion Certificates pursuant to Section 4(B) hereof.
<PAGE>

                           (iii) If the Holder  elects to have the interest paid
in cash, the Company shall make
such payment quarterly commencing March 31, 2003

                  D.  Notwithstanding  any other provision  hereof, or of any of
the other  Transaction  Agreements (as those terms are defined in the Securities
Purchase  Agreement),  in no event (except (i) as specifically  provided in this
Debenture as an exception to this provision,  or (ii) while there is outstanding
a tender offer for any or all of the shares of the Company's Common Stock),  the
Holder of this  Debenture may not convert any Debenture to the extent that after
such  conversion,  the number of shares of Common  Stock owned by the Holder and
its  affiliates  (other  than  shares  of  Common  Stock  which  may  be  deemed
beneficially  owned  through the  ownership  of the  unconverted  portion of the
Debentures and any unexercised  warrants issued to the Holder and its affiliates
as of such date (the  "Warrants")),  would result in ownership by the  Purchaser
and its  affiliates  of 4.99% or more of the  Company's  issued and  outstanding
shares of Common Stock following such conversion and exercise. In the event that
the Holder owns both  Debentures  and Warrants which would  otherwise  result in
ownership of 4.99% or more of the  Company's  issued and  outstanding  shares of
Common Stock but for the prior  sentence,  then the Warrants  shall be deemed to
not be exercisable to the extent necessary to allow conversion of the Debentures
to the maximum extent possible and still permit the Holder's ownership to remain
below  4.99%.  This  restriction  shall be binding  upon any  transferee  of the
Debenture from any Holder.  The preceding  shall not interfere with the Holder's
right to convert this  Debenture  over time which in the  aggregate  totals more
than 4.99% of the then outstanding shares of Common Stock so long as such Holder
and  its  affiliates  do not  beneficially  own  more  than  4.99%  of the  then
outstanding Common Stock at any given time.

                  E. In lieu of delivering  physical  certificates  representing
the Common Stock issuable upon conversion, provided the Company's transfer agent
is  participating  in  the  Depository  Trust  Company  ("DTC")  Fast  Automated
Securities Transfer program,  upon request of the Lender and its compliance with
the  provisions  contained  in  this  paragraph,  so  long  as the  certificates
therefore do not bear a legend and the Lender thereof is not obligated to return
such  certificate for the placement of a legend  thereon,  the Company shall use
its best  efforts to cause its  transfer  agent to  electronically  transmit the
Common Stock issuable upon  conversion to the Lender by crediting the account of
Lender's Prime Broker with DTC through its Deposit  Withdrawal  Agent Commission
system.

         5. A. Until at such time as the Holder does not directly or  indirectly
own any Debentures, the Holder will have the absolute and unconditional right to
redeem all, or a portion,  of the then Unconverted  Debenture (as defined below)
in cash for the Put Price (as  defined  below) in  accordance  with the terms of
this Section 5 (such put, a "Put ").

                  B. (i) The term "Put Price" means the amount, payable in cash,
equal to (x) one hundred thirty percent (130.00%) of the aggregate  principal of
the  Unconverted  Debentures  and  all  accrued  interest  thereon  through  and
including the date of the Put Notice.

                           (ii)  The  term  "Unconverted  Debenture"  means  the
principal amount of this Debenture has
not been converted as of the relevant date.

                  C. The  Holder  shall give  written  notice of such Put to the
Company (the "Put Notice").  Notwithstanding  anything  contained  herein to the
contrary,  the Holder shall have the right to redeem the Debenture,  in whole or
in part,  after either (A) the VWAP per share of a
<PAGE>

share of Common  Stock is less than $0.68 per share on the trading date prior to
the date that would have been the Conversion Date but for the Lender's  exercise
of its redemption right, or (B) if there is no effective  registration statement
in effect  for the  Registrable  Securities  on or before the 150th day from the
Commencement  Date, then the Lender shall have the following  redemption  right.
The Company  shall pay the Put Price  within 45 days of the Put Notice (the "Put
Payment Date").  The Put Price shall bear interest at the rate of 12% per annum;
provided  however,  that in the event  that the Put Price is not paid  within 45
days,  the Put Price  shall bear  interest at the rate of 18% per annum from the
date of the Debenture.  The parties  acknowledge that the 30% premium in the Put
Price to the aggregate  principal of the Unconverted  Debentures and all accrued
and unpaid  interest  thereon are in  consideration  for the Holder  waiving its
right to receive Common Stock of the Company upon conversion of the Debenture.

         6.  Notwithstanding  anything  contained  herein to the  contrary,  the
Holder  covenants and agrees with the Company that, in the event of a conversion
or redemption,  the Holder (together with the other holders of Debentures in the
aggregate  principal amount of $300,000) will not convert or redeem an amount of
more  than the  greater  of (i) an  aggregate  of  $50,000  principal  amount of
Debentures  per week or (ii) an  aggregate  amount  equal to 15% of the  average
daily dollar volume of shares of Common Stock traded on the Principal Market for
the five days prior to conversion or redemption.

         7.  Subject  to the  terms of the  Securities  Purchase  Agreement,  no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and  unconditional,  to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed.  This Debenture and all other  Debentures now or hereafter issued of
similar terms are direct obligations of the Company.

         8. No recourse shall be had for the payment of the principal of, or the
interest  on, this  Debenture,  or for any claim based  hereon,  or otherwise in
respect hereof, against any incorporator,  shareholder,  officer or director, as
such,  past,  present or future,  of the Company or any  successor  corporation,
whether  by  virtue  of any  constitution,  statute  or rule  of law,  or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance  hereof and as part of the consideration for the issue hereof,
expressly waived and released.

         9. All payments  contemplated hereby to be made "in cash" shall be made
in immediately available good funds of United States of America currency by wire
transfer to an account designated in writing by the Holder to the Company (which
account may be changed by notice similarly given). All payments of cash and each
delivery of shares of Common Stock issuable to the Holder as contemplated hereby
shall be made to the  Holder at the  address  last  appearing  on the  Debenture
Register  of the  Company as  designated  in writing by the Holder  from time to
time;  except  that the  Holder  can  designate,  by  notice to the  Company,  a
different delivery address for any one or more specific payments or deliveries.

         10. If, for as long as this Debenture remains outstanding,  the Company
enters into a merger (other than where the Company is the  surviving  entity) or
consolidation with another  corporation or other entity or a sale or transfer of
all or  substantially  all of  the  assets  of the  Company  to  another  person
(collectively, a "Sale"), the Company will require, in the agreements reflecting
such transaction,  that the surviving entity expressly assume the obligations of
the Company hereunder. Notwithstanding the foregoing, if the Company enters into
a Sale and the  holders  of the Common  Stock are  entitled  to  receive  stock,
securities or property in respect of
<PAGE>

or in exchange for Common Stock,  then as a condition of such Sale,  the Company
and any such  successor,  purchaser or transferee  will agree that the Debenture
may thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock,  securities or property receivable upon
such merger, consolidation, sale or transfer by a holder of the number of shares
of Common Stock into which this Debenture might have been converted  immediately
before such  merger,  consolidation,  sale or transfer,  subject to  adjustments
which shall be as nearly equivalent as may be practicable.


         11. A. If,  for any  reason,  prior to the  Conversion  Date or the Put
Payment Date, the Company spins off or otherwise divests itself of a part of its
business  or  operations  or  disposes  all or of a  part  of  its  assets  in a
transaction (the "Spin Off") in which the Company does not receive  compensation
for such business, operations or assets, but causes securities of another entity
(the "Spin Off  Securities")  to be issued to security  holders of the  Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number  thereof  which  would  have  been  issued to the  Holder  had all of the
Holder's  Debentures  outstanding  on the record  date (the  "Record  Date") for
determining  the  amount  and  number  of Spin Off  Securities  to be  issued to
security holders of the Company (the "Outstanding Debentures") been converted as
of the close of business on the trading day  immediately  before the Record Date
(the  "Reserved  Spin Off  Shares"),  and (ii) to be issued to the Holder on the
conversion  of all or any of the  Outstanding  Debentures,  such  amount  of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by
(y) a  fraction,  of which  (I) the  numerator  is the  principal  amount of the
Outstanding  Debentures  then being  converted,  and (II) the denominator is the
principal amount of the Outstanding Debentures.

                  B. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common  Stock or issues a dividend on its Common Stock  consisting  of shares of
Common  Stock,  or engages in a  transaction  specified in Section 4(g) "Favored
Nation Clause" of the Securities Purchase  Agreement,  the Conversion Price, the
Floor Price and any other amounts calculated as contemplated hereby or by any of
the other  Transaction  Agreements  shall be equitably  adjusted to reflect such
action.

         12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being  acquired for investment and that such Holder will not offer,
sell or  otherwise  dispose  of this  Debenture  or the  shares of Common  Stock
issuable  upon  conversion  thereof  except under  circumstances  which will not
result in a  violation  of the Act or any  applicable  state Blue Sky or foreign
laws or similar laws relating to the sale of securities.

                  13. The Holder  recognizes  that the Company may be limited in
the  number  of  shares  of  Common  Stock  it may  issue by (i)  reason  of its
authorized shares, or (ii) the applicable rules and regulations of the principal
securities  market on which the Common Stock is listed or traded  (collectively,
the "Cap  Regulations").  Without limiting the other provisions  hereof, (i) the
Company  will take all steps  reasonably  necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without violating the Cap
Regulations  and (ii) if, despite  taking such steps,  the Company still can not
issue such shares of Common Stock  without  violating the Cap  Regulations,  the
Holder  of this  Debenture  (to the  extent  the  same can not be  converted  in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall have the
<PAGE>

option,  exercisable in the Holder's sole and absolute discretion,  to elect any
one of the following remedies:

                  (x)  require the  Company to issue  shares of Common  Stock in
         accordance  with such  Holder's  Notice of  Conversion  relating to the
         Unconverted Debenture at the Conversion Price; or

                  (y) require the Company to redeem each  Unconverted  Debenture
         for an amount (the "Cap Redemption Amount"), payable in cash, equal to:

                                  V    x   M
                               -----
                                 CP

         where:

                  "V" means the  outstanding  principal  plus  accrued  interest
         through the Cap  Redemption  Date (as defined  below) of an Unconverted
         Debenture;

                  "CP"  means  the  Conversion  Rate in  effect  on the  date of
         redemption (the "Cap Redemption Date") specified in the notice from the
         Holder electing this remedy; and

                  "M" means the  highest  closing  ask price  during  the period
         beginning on the Cap Redemption  Date and ending on the date of payment
         of the Cap Redemption Amount.

         The  holder  of an  Unconverted  Debenture  may  elect one of the above
         remedies  with respect to a portion of such  Unconverted  Debenture and
         the other  remedy with  respect to other  portions  of the  Unconverted
         Debenture.



         14. This  Debenture  shall be governed by and  construed in  accordance
with the laws of the State of Colorado  as applied to  agreements  executed  and
performed  in such  state.  The  Holder and the  Company  each  consents  to the
exclusive  jurisdiction of the federal courts whose districts encompass any part
of the City of New York or the state  courts of the State of New York sitting in
the City of New York in connection with any dispute arising under this Debenture
and hereby  waives,  to the maximum  extent  permitted  by law,  any  objection,
including any  objection  based on forum non  coveniens,  to the bringing of any
such  proceeding in such  jurisdictions.  The Company shall reimburse the Holder
for any  reasonable  legal  fees and  disbursements  incurred  by the  Holder in
enforcement of or protection of any of its rights under this Debenture.


         15. The following shall constitute an "Event of Default":

                  a.       The Company shall default in the payment of principal
                           or interest on this Debenture; or
<PAGE>

                  b.       Any of the  representations or warranties made by the
                           Company  in  Section  3 of  the  Securities  Purchase
                           Agreement   shall  be  false  or  misleading  in  any
                           material respect at the time made; or

                  c.       The Company shall fail to perform or observe,  in any
                           material   respect,   any   other   covenant,   term,
                           provision,  condition, agreement or obligation of any
                           Debenture  in this  series  and  such  failure  shall
                           continue  uncured  for a period of  thirty  (30) days
                           after written notice from the Holder of such failure;
                           or

                  d.       The Company shall fail to perform or observe,  in any
                           material  respect,  any  covenant,  term,  provision,
                           condition,  agreement  or  obligation  of the Company
                           under  any of the  Transaction  Agreements  and  such
                           failure shall continue uncured for a period of thirty
                           (30) days  after  written  notice  from the Holder of
                           such failure; or

                  e.       The Company  shall (1) admit in writing its inability
                           to pay its debts  generally as they mature;  (2) make
                           an  assignment   for  the  benefit  of  creditors  or
                           commence  proceedings  for  its  dissolution;  or (3)
                           apply for or consent to the appointment of a trustee,
                           liquidator  or receiver for its or for a  substantial
                           part of its property or business; or

                  f.       A trustee,  liquidator or receiver shall be appointed
                           for  the  Company  or for a  substantial  part of its
                           property  or  business  without its consent and shall
                           not be  discharged  within sixty (60) days after such
                           appointment; or

                  g.       Any  governmental  agency or any  court of  competent
                           jurisdiction  at the  instance  of  any  governmental
                           agency shall  assume  custody or control of the whole
                           or  any  substantial  portion  of the  properties  or
                           assets of the  Company  and  shall  not be  dismissed
                           within sixty (60) days thereafter; or

                  h.       Bankruptcy, reorganization, insolvency or liquidation
                           proceedings or other proceedings for relief under any
                           bankruptcy  law or any law for the  relief of debtors
                           shall be instituted by or against the Company and, if
                           instituted   against  the   Company,   shall  not  be
                           dismissed   within   sixty   (60)  days   after  such
                           institution  or the  Company  shall by any  action or
                           answer  approve of,  consent to, or  acquiesce in any
                           such  proceedings  or admit the material  allegations
                           of, or default in  answering a petition  filed in any
                           such proceeding.

                  i.       The Company  fails to issue shares of Common Stock to
                           the  Holder or to cause its  Transfer  Agent to issue
                           shares of Common Stock upon exercise by the Holder of
                           the  conversion  rights of the  Holder in  accordance
                           with the terms of this  Debenture,  fails to transfer
                           or to  cause  its  Transfer  Agent  to  transfer  any
                           certificate  for shares of Common Stock issued to the
                           Holder upon  conversion  of this  Debenture  and when
                           required by this Debenture or the Registration Rights
                           Agreement,  and such transfer is otherwise lawful, or
                           fails to remove  any  restrictive  legend or to cause
                           its Transfer Agent to transfer on any  certificate or
                           any shares of Common
<PAGE>

                           Stock  issued to the Holder upon  conversion  of this
                           Debenture as and when required by this Debenture, the
                           Securities  Purchase  Agreement  or the  Registration
                           Rights Agreement and such legend removal is otherwise
                           lawful,  and any such failure shall continue  uncured
                           for five (5) business  days after  written  notice of
                           such failure.

                  j.       Any money judgment, writ or warrant of attachment, or
                           similar  process  in excess of Two  Hundred  Thousand
                           ($200,000)  Dollars in the aggregate shall be entered
                           or filed against the Company or any of its properties
                           or other assets and shall remain  unpaid,  unvacated,
                           unbonded or unstayed  for a period of sixty (60) days
                           or in any event later than five (5) days prior to the
                           date of any  proposed  sale  thereunder  (unless such
                           judgment, writ or warrant of attachment is reasonably
                           believed   by  the  Company  to  be  90%  covered  by
                           insurance); or

                  k.       The Company shall have its Common Stock  suspended or
                           delisted from an exchange or over-the-counter  market
                           from trading or has  received  notice of final action
                           concerning  delisting  and the  Common  Stock  is not
                           relisted within five days thereafter.



If an Event of Default shall have occurred, then, or at any time thereafter, and
in each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent  default)  at the  option  of the  Holder  and in the  Holder's  sole
discretion,  the Holder may consider this Debenture  immediately due and payable
(and the Maturity Date shall be accelerated  accordingly),  without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
anything  herein or in any note or other  instruments  contained to the contrary
notwithstanding,  and the  Holder  may  immediately  enforce  any and all of the
Holder's  rights and  remedies  provided  herein or any other rights or remedies
afforded by law.  In the event of a Default,  the  interest  rate on any overdue
principal  amount shall be eighteen  percent  (18%) per annum  commencing on the
Commencement Date.

16. Nothing  contained in this Debenture  shall be construed as conferring  upon
the Holder the right to vote or to  receive  dividends  or to consent or receive
notice as a shareholder in respect of any meeting of  shareholders or any rights
whatsoever as a shareholder of the Company,  unless and to the extent  converted
in accordance with the terms hereof.

                  17. In the event for any reason,  any payment by or act of the
Company or the Holder shall result in payment of interest which would exceed the
limit authorized by or be in violation of the law of the jurisdiction applicable
to this Debenture, then ipso facto the obligation of the Company to pay interest
or perform  such act or  requirement  shall be  reduced to the limit  authorized
under such law, so that in no event shall the  Company be  obligated  to pay any
such interest,  perform any such act or be bound by any requirement  which would
result in the payment of interest in excess of the limit so  authorized.  In the
event any payment by or act of the Company  shall result in the  extraction of a
rate of interest in excess of a sum which is lawfully  collectible  as interest,
then such  amount (to the extent of such  excess not  returned  to the  Company)
shall,  without  further  agreement  or notice  between or by the Company or the
Holder,
<PAGE>

be deemed  applied to the payment of principal,  if any,  hereunder  immediately
upon receipt of such excess funds by the Holder,  with the same force and effect
as though the Company had specifically  designated such sums to be so applied to
principal  and the  Holder had  agreed to accept  such sums as an  interest-free
prepayment  of this  Debenture.  If any part of such  excess  remains  after the
principal  has been paid in full,  whether by the  provisions  of the  preceding
sentences of this Section 17 or otherwise,  such excess shall be deemed to be an
interest- free loan from the Company to the Holder,  which loan shall be payable
immediately upon demand by the Company.  The provisions of this Section 17 shall
control every other provision of this Debenture.



         IN WITNESS  WHEREOF,  the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.

Dated: ________________
                               HEALTHSCIENCES GROUP, INC.

                               By:_______________________________________
                               Name: ______________
                                 Title:_




















<PAGE>















                                    EXHIBIT A

                              NOTICE OF CONVERSION
                                       OF
               CONVERTIBLE DEBENTURE SERIES DUE DECEMBER 31, 2003
   (To be Executed by the Registered Holder in Order to Convert the Debenture)



FROM:

 ("Holder")

DATE:
(the "Conversion Date")

RE:     Conversion  of $ principal  amount (the  "Converted  Debenture")  of the
        Convertible  Debenture Due  _______________,  2004 (the  "Debenture") of
        HEALTHSCIENCES  GROUP INC.(the  "Company") into shares (the  "Conversion
        Shares") of Common Stock (defined below)

CONVERSION DATE:

The  captioned  Holder  hereby  gives  notice to the  Company,  pursuant  to the
Debenture of  HEALTHSCIENCES  GROUP INC.  that the Holder  elects to convert the
Converted  Debenture into fully paid and non-assessable  shares of Common Stock,
$0.01 par value (the "Common  Stock"),  of the Company as of the Conversion Date
specified  above.  Said  conversion  shall be based on the following  Conversion
Price

Based on this Conversion  Price, the number of Conversion Shares indicated above
should be issued in the following name(s):

           Name and Record Address            Conversion Shares








         As contemplated by the Debenture and the Securities Purchase Agreement,
this Notice of  Conversion is being sent by facsimile to the  telecopier  number
and officer indicated above.

         If this Notice of  Conversion  represents  the full  conversion  of the
outstanding  balance  of the  Debenture,  the Holder  either (1) has  previously
surrendered the Debenture,  duly endorsed,  to the Company or (2) will surrender
(or cause to be surrendered) the Debenture, duly endorsed,
<PAGE>

to the Company at the address indicated above by express courier within five (5)
business  days  after  delivery  or  facsimile  transmission  of this  Notice of
Conversion.

         The  certificates   representing   the  Conversion   Shares  should  be
transmitted  by the Company to the Holder via express  courier or by  electronic
transfer within the time  contemplated by the Debenture and Securities  Purchase
Agreement after receipt of this Notice of Conversion (by facsimile  transmission
or otherwise) to:







        As  contemplated  by the  Debenture,  the  Company  should  also pay all
accrued but unpaid interest on the Converted Debenture to the Holder. The Holder

--      If the Holder  elects to have such  interest  paid in Common  Stock,  as
        contemplated by the Debenture,  such shares should be issued in the name
        of the Holder and  delivered in the same manner as, and  together  with,
        the Conversion Shares.

--      If the Holder  elects to have the  interest  paid in cash,  such payment
        should be made by wire transfer as follows:





(Print name of Holder)

                  By:

                     (Signature of Authorized Person)



                     (Printed Name and Title)






<PAGE>
                                                                  EXHIBIT 10.7.4


THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A  REGISTRATION  STATEMENT IN EFFECT WITH  RESPECT TO THE  SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL  SATISFACTORY  TO THE COMPANY  THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.

THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.


                               WARRANT TO PURCHASE
                                 285,714 SHARES
                               OF COMMON STOCK OF
                           HEALTHSCIENCES GROUP, INC.

                         (Void after February 24, 2008)

         This certifies that Brivis  Investments  Ltd., a corporation  organized
under  the  laws  of  the  British  Virgin  Islands  or  its  permitted  assigns
(collectively,  the "Holder"),  for value received, is entitled to purchase from
HEALTHSCIENCES  GROUP, INC., a Colorado corporation (the "Company"),  subject to
the terms set forth below,  285,714 fully paid and nonassessable shares (subject
to  adjustment as provided  herein) (the "Warrant  Shares") of the common stock,
par value $0.001 per share, of the Company  ("Common Stock") for cash at a price
per share of $0.60 (the  "Exercise  Price")  (subject to  adjustment as provided
herein),  subject to the provisions of Section 1.1 of this Warrant,  at any time
or from time to time up to and  including  5:00 p.m.  (Eastern  Time) on the 5TH
anniversary  from the date  hereof,  such day  being  referred  to herein as the
"Expiration  Date," upon surrender to the Company at its principal office (or at
such other  location  as the  Company  may advise the Holder in writing) of this
Warrant  properly  endorsed with the Form of  Subscription  attached hereto duly
filled in and signed and upon payment of the  aggregate  Exercise  Price for the
number of  shares  for which  this  Warrant  is being  exercised  determined  in
accordance with the provisions hereof. The Warrant Shares,  when issued, may not
be  registered  under  the  Securities  Act of  1933  (the  "Act"),  and  may be
restricted within the meaning of Regulation D of such Act. The Exercise Price is
subject to adjustment as provided in Section 3 of this Warrant.  This Warrant is
issued  pursuant to that  certain  Securities  Purchase  Agreement,  between the
Company and the Holder.  All capitalized terms not defined herein shall have the
meanings provided in the Securities Purchase  Agreement.  This Warrant is issued
subject to the following terms and conditions:


                                       1
<PAGE>


         1. Exercise; Issuance of Certificates.

                  1.1 General.  This Warrant is exercisable at the option of the
         Holder  of record on or prior to the  Expiration  Date,  at any time or
         from time to time for all or any part of the

                                       2
<PAGE>


         Warrant  Shares  (but not for a  fraction  of a  share),  which  may be
         purchased hereunder, as that number may be adjusted pursuant to Section
         3 of this Warrant. The Company agrees that the Warrant Shares purchased
         under this  Warrant  shall be and are deemed to be issued to the Holder
         as the record owner of such Warrant  Shares as of the close of business
         on the date on which this Warrant shall have been surrendered, properly
         endorsed,  the completed and executed Form of  Subscription  delivered,
         and payment made for such Warrant Shares.  Certificates for the Warrant
         Shares so purchased,  together with any other securities or property to
         which the Holder is entitled upon such exercise,  shall be delivered to
         the  Holder  by the  Company  at  the  Company's  expense  as  soon  as
         practicable  after the rights  represented by this Warrant have been so
         exercised.  In case of a purchase of less than all the  Warrant  Shares
         which may be purchased  under this  Warrant,  the Company  shall cancel
         this Warrant and execute and deliver to the Holder  within a reasonable
         time a new  Warrant or  Warrants  of like tenor for the  balance of the
         Warrant  Shares  purchasable  under the Warrant  surrendered  upon such
         purchase.  Each stock  certificate so delivered  shall be registered in
         the name of the Holder.

                  1.2  Consideration  The Exercise Price shall be payable at the
         time of exercise.  The Exercise Price may be paid in cash (by cashiers'
         check or wire  transfer) or by: (i) surrender of shares of Common Stock
         of the Company  already owned by the Holder,  having a Market Price (as
         defined  below)  equal to the  Exercise  Price per share;  or (ii) upon
         surrender  of  the  Warrant  at the  principal  office  of the  Company
         together with notice of election. In the event of exercise by surrender
         of shares of this  Warrant,  the Company shall issue Holder a number of
         Warrant Shares computed using the following formula:

                  X = Y (A-B)/A

         where:   X = the number of Warrant  Shares to be issued to Holder  (not
                  to exceed  the number of Shares set forth on the cover page of
                  this Warrant Agreement, as adjusted pursuant to the provisions
                  of Section 6 of this Warrant Agreement).

                  Y = the  number of  Warrant  Shares  for which the  Warrant is
                  being exercised.

                  A = the  Market  Price  of one  Share  (for  purposes  of this
                  Section  1.2),  the  "Market  Price"  shall be  defined as the
                  closing price on the exchange on which the Common Stock traded
                  for the  trading  day  prior to the date of  exercise  of this
                  Warrant Agreement; provided if the Common Stock does not trade
                  on any exchange,  the Market Price shall equal the closing bid
                  price in the over-the-counter market for the trading day prior
                  to the date of exercise of this Warrant Agreement, as reported
                  by the National  Association of Securities  Dealers  Automated
                  Quotation System;  and,  provided further,  that if the common
                  stock is not  quoted or listed by any  organization,  the fair
                  value of the  common  stock,  as  determined  by the  Board of
                  Directors  of  the  Company,   whose  determination  shall  be
                  conclusive, shall be used).

                  B = the Exercise Price.

                                       3
<PAGE>


                  1.3 Record  Ownership.  To the extent  permitted by applicable
         law,  the  person in whose  name any  certificate  for shares of Common
         Stock or other  evidence of ownership  of any other  security is issued
         upon  exercise of the Warrant  shall for all purposes be deemed to have
         become the  holder of record of such  shares or other  security  on the
         date of delivery of the subscription form,  irrespective of the date of
         delivery  of  such   certificate   or  other   evidence  of  ownership,
         notwithstanding  that the transfer  books of the Company  shall then be
         closed or that such  certificates  or other evidence of ownership shall
         not then actually have been delivered to such person.

                  1.4  Regulatory  Problem.  The Holder  shall not  exercise  or
         exchange the Warrant for shares of Common Stock if after giving  effect
         to such exercise or exchange the Holder reasonably determines that such
         exercise would violate any law or regulation or any  requirement of any
         governmental authority applicable to Holder or its affiliates.

         2. Shares to be Fully Paid.  The Company  covenants and agrees that all
Warrant  Shares,  will,  upon  issuance and payment of the  applicable  Exercise
Price, be duly authorized,  validly issued,  fully paid and  nonassessable,  and
free of all liens and encumbrances, except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.

         3. Adjustment of Exercise Price and Number of Shares.

                  3.1 Adjustment for Reorganization, Consolidation, Merger, etc.
         The  Exercise   Price  and  the  number  of  Warrant  Shares  shall  be
         proportionately  adjusted  from time to time upon the  occurrence of an
         increase in the number of shares of Common Stock outstanding by a stock
         dividend payable in shares of Common Stock or a subdivision or split-up
         of shares of Common Stock, a decrease in the number of shares of Common
         Stock  outstanding  by a combination  of  outstanding  shares of Common
         Stock, any capital  reorganization  or any  reclassification  of Common
         Stock, or the consolidation,  merger, combination or exchange of shares
         with another  entity,  or the divisive  reorganization  of the Company.
         Upon each adjustment of the Exercise Price,  the Holder of this Warrant
         shall  thereafter  be  entitled  to  purchase,  at the  Exercise  Price
         resulting  from such  adjustment,  the  number of  shares  obtained  by
         multiplying  the  Exercise  Price in effect  immediately  prior to such
         adjustment  by  the  number  of  shares  purchasable   pursuant  hereto
         immediately prior to such adjustment,  and dividing the product thereof
         by the Exercise  Price  resulting from such  adjustment.  The number of
         Shares  purchasable  upon the  exercise  of each  Warrant is subject to
         adjustment  from time to time upon the  occurrence of any of the events
         enumerated below:

                  In case the Company (i)  consolidates  with or merges into any
         other  entity and is not the  continuing  or  surviving  entity of such
         consolidation   or  merger,   or  (ii)  permits  any  other  entity  to
         consolidate  with or merge  into the  Company  and the  Company  is the
         continuing  or  surviving   Company  but,  in   connection   with  such
         consolidation or merger,  the Common Stock is changed into or exchanged
         for common stock or other securities of any other entity or cash or

                                       4
<PAGE>

         any other assets,  or (iii) transfers all or  substantially  all of its
         properties  and  assets  to  any  other  entity,   or  (iv)  effects  a
         reorganization or reclassification of the equity of the Company in such
         a way that holders of Common Stock shall be entitled to receive  stock,
         securities,  cash or assets with  respect to or in exchange  for Common
         Stock,  then, and in each such case,  proper provision shall be made so
         that,  upon  the  exercise  of  this  Warrant  at any  time  after  the
         consummation of such consolidation, merger, transfer, reorganization or
         reclassification,  the Holder  shall be  entitled  to  receive  (at the
         aggregate  Exercise Price in effect for Common Stock issuable upon such
         exercise of this Warrant  immediately prior to such  consummation),  in
         lieu of Common Stock  issuable upon such exercise of this Warrant prior
         to such consummation,  the stock and other securities,  cash and assets
         to which such Holder would have been entitled upon such consummation if
         such Holder had so exercised this Warrant immediately prior thereto.

                  3.2  Adjustments  for  Certain  Issuances  of  Securities  The
         Exercise  Price shall also be subject to adjustment in accordance  with
         Section 4(g) of the Securities Purchase Agreement.

         4. Registration. The Warrant Shares shall be subject to registration at
the expense of the Company pursuant to the Registration Rights Agreement between
the Company and the Holder dated as of the date hereof.

         5. Voting Rights.  Nothing contained in this Warrant shall be construed
as  conferring  upon the  Holder  the right to vote or to  consent to or receive
notice as a  shareholder  of the  Company  on any other  matters  or any  rights
whatsoever as a shareholder of the Company.

         6.  Compliance  with  Securities  Act:   Transferability   of  Warrant,
Disposition of Shares of Common Stock.

                  6.1 Compliance with Securities Act. The Holder,  by acceptance
         hereof,  agrees that this  Warrant and the Warrant  Shares to be issued
         upon exercise hereof are being acquired for investment and that it will
         not offer,  sell,  or otherwise  dispose of this Warrant or any Warrant
         Shares except under  circumstances which will not result in a violation
         of the Securities Act or any applicable  state  securities  laws.  This
         Warrant and all Warrant Shares (unless  registered under the Act) shall
         be stamped or imprinted  with a legend in  substantially  the following
         form:

         THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF
         1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE.  THEY
         MAY NOT BE SOLD,  OFFERED FOR SALE,  PLEDGED,  OR  HYPOTHECATED  IN THE
         ABSENCE  OF A  REGISTRATION  STATEMENT  IN EFFECT  WITH  RESPECT TO THE
         SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL  SATISFACTORY TO THE
         COMPANY

                                       5
<PAGE>

         THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE
         144 OF SUCH ACT.

                  6.2  Accredited  Investor;   Access  to  Information.   Holder
         represents  and  warrants  that  as of the  date  hereof  Holder  is an
         accredited  investor  within the  meaning of Rule 501 of  Regulation  D
         promulgated  under  the  Act.  Holder  has had the  opportunity  to ask
         questions  of,  and to  receive  answers  from,  appropriate  executive
         officers of the Company with respect to the terms and conditions of the
         transactions  contemplated  hereby and with  respect  to the  business,
         affairs,  financial condition and results of operations of the Company.
         Holder has had access to such  financial  and other  information  as is
         necessary in order for Holder to make a fully  informed  decision as to
         investment in the Company,  and has had the  opportunity  to obtain any
         additional  information  necessary to verify any of such information to
         which Holder has had access.

                  6.3  Warrant   Transferable.   Subject  to   compliance   with
         applicable  federal and state  securities laws under which this Warrant
         was issued, this Warrant and all rights hereunder are transferable,  in
         whole or in part,  without  charge to the Holder  (except for  transfer
         taxes),  upon surrender of this Warrant  properly  endorsed;  provided,
         however, that the Holder shall notify the Company in writing in advance
         of any proposed  transfer  and shall not  transfer  this Warrant or any
         rights hereunder to any person or entity which, in the sole judgment of
         the Company's board of directors, is then engaged in a business that is
         in competition with the Company,  or is otherwise  engaged in an effort
         to acquire  control of the Company.  As promptly as practicable  but in
         any event  within ten (10)  Business  Days of receipt of such  properly
         endorsed Warrant, the Company shall issue,  register and deliver to the
         Holder  thereof  a new  Warrant  or  Warrants  of like  kind and  tenor
         representing  in the aggregate the right to purchase the same number of
         Warrant  Shares that could be purchased  pursuant to the Warrant  being
         transferred.  Holder shall pay Company's  reasonable  costs incurred in
         effectuating such transfer.

                                       6
<PAGE>


                  6.4 Disposition of Warrant Shares.  With respect to any offer,
         sale, or other  disposition  of the Warrant,  or any Warrant  Shares if
         such shares are not registered  and freely  tradable under the Act when
         issued,  the Holder hereof and each  subsequent  Holder of this Warrant
         agrees to give written notice to the Company prior thereto,  describing
         briefly the manner  thereof,  together  with a written  opinion of such
         holder's counsel, if reasonably requested by the Company, to the effect
         that such offer,  sale or other  disposition  may be  effected  without
         registration or  qualification  (under the Act as then in effect or any
         federal or state law then in effect) of the Warrant or Warrant  Shares,
         as the  case  may be,  and  indicating  whether  or not  under  the Act
         certificates  for the Warrant or Warrant Shares to be sold or otherwise
         disposed  of  require   any   restrictive   legend  as  to   applicable
         restrictions on  transferability in order to insure compliance with the
         Act.  Promptly  upon  receiving  such written  notice and opinion,  the
         Company, as promptly as practicable,  shall notify the Holder that such
         Holder may sell or otherwise  dispose of the Warrant or Warrant Shares,
         all in  accordance  with  the  terms  of the  notice  delivered  to the
         Company. If a determination has been made pursuant to this subparagraph
         6.4 that the opinion of the  counsel  for the Holder is not  reasonably
         satisfactory  to the  Company,  the Company  shall so notify the Holder
         promptly after such  determination has been made.  Notwithstanding  the
         foregoing,  the  Warrant or  Warrant  Shares  may be  offered,  sold or
         otherwise  disposed  of in  accordance  with  Rule 144  under  the Act,
         provided  that  the  Company  shall  have  been   furnished  with  such
         information as the Company may request to provide reasonable  assurance
         that the provisions of Rule 144 have been satisfied.  Each  certificate
         representing the Warrant or Warrant Shares thus  transferred  (except a
         transfer pursuant to Rule 144) shall bear a legend as to the applicable
         restrictions on  transferability in order to insure compliance with the
         Act,  unless in the aforesaid  opinion of counsel for the Holder,  such
         legend is not required in order to insure  compliance with the Act. The
         Company may issue stop transfer  instructions  to its transfer agent in
         connection with such restrictions.

                  6.5 Limitation on Warrant Shares Notwithstanding anything else
         herein to the contrary, the Holder of this Warrant may not exercise any
         Warrant to the extent that after such conversion,  the number of shares
         of Common  Stock  owned by the Holder and its  affiliates  (other  than
         shares of Common Stock which may be deemed  beneficially  owned through
         the  ownership of the  unconverted  portion of the  Debentures  and any
         unexercised Warrants),  would result in ownership by the Holder and its
         affiliates  of 4.99% or more of the  Company's  issued and  outstanding
         shares of Common Stock  following such exercise.  In the event that the
         Holder owns both Debentures and Warrants which would  otherwise  result
         in ownership of 4.99% or more of the Company's  issued and  outstanding
         shares of Common  Stock but for the prior  sentence,  then the Warrants
         shall be deemed to not be exercisable to the extent  necessary to allow
         conversion of the Debentures to the maximum  extent  possible and still
         permit the Holder's  ownership to remain below 4.99%.  This restriction
         shall be binding  upon any  transferee  of the Warrant from any Holder.
         The preceding  shall not interfere  with the Holder's right to exercise
         this Warrant over time which in the aggregate totals more than 4.99% of
         the then outstanding  shares of Common Stock so long as such Holder and
         its  affiliates  do not own more  than  4.99%  of the then  outstanding
         Common Stock at any given time.

                                       7
<PAGE>


         7.  Modification and Waiver.  This Warrant and any provision hereof may
be changed, waived,  discharged,  or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.


         8.  Notices.  Any  notice,  request,  or  other  document  required  or
permitted to be given or delivered to the Holder  hereof or the Company shall be
delivered or shall be sent by certified mail,  postage prepaid,  or by facsimile
with confirmation of transmission to the parties at the address set forth in the
Securities Purchase Agreement,  or such other address as either may from time to
time provide to the other.

         9. Governing Law; Waiver of Jury Trial.

                  9.1  Governing  Law.  This  Warrant  shall be  governed by and
         construed  in  accordance  with the laws of the  State of  Colorado  as
         applied to agreements executed and performed in such state. Each of the
         parties  consents to the exclusive  jurisdiction  of the federal courts
         whose districts encompass any part of the City of New York or the state
         courts  of the  State  of New York  sitting  in the City of New York in
         connection  with any  dispute  arising  under this  Warrant  and hereby
         waives,  to  the  maximum  extent  permitted  by  law,  any  objection,
         including any objection  based on forum non coveniens,  to the bringing
         of any  such  proceeding  in  such  jurisdictions.  The  Company  shall
         reimburse the Holder for any  reasonable  legal fees and  disbursements
         incurred by the Holder in  enforcement  of or  protection of any of its
         rights under this Warrant.

                  9.2  Waiver  of  Jury  Trial.   BECAUSE  DISPUTES  ARISING  IN
         CONNECTION  WITH COMPLEX  FINANCIAL  TRANSACTIONS  ARE MOST QUICKLY AND
         ECONOMICALLY  RESOLVED  BY AN  EXPERIENCED  AND  EXPERT  PERSON AND THE
         PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN ARBITRATION  RULES),
         THE PARTIES  DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
         SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
         BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,  THE PARTIES HERETO
         WAIVE  ALL  RIGHT TO TRIAL BY JURY IN ANY  ACTION,  SUIT OR  PROCEEDING
         BROUGHT  TO  ENFORCE  OR DEFEND  ANY  RIGHTS  OR  REMEDIES  UNDER  THIS
         AGREEMENT OR ANY DOCUMENTS RELATED HERETO.


         10. Exchange of Warrant.

                  10.1 Lost Warrant.  The Company represents and warrants to the
         Holder hereof that upon receipt of evidence reasonably  satisfactory to
         the Company of the loss,  theft,  destruction,  or  mutilation  of this
         Warrant and, in the case of any such loss,  theft or destruction,  upon
         receipt of an indemnity  reasonably  satisfactory to the Company, or in
         the case of any such mutilation upon surrender and  cancellation of the
         Warrant, the Company will, at the Company's expense, make and deliver a
         new Warrant,  of like tenor, in lieu of the lost, stolen,  destroyed or
         mutilated Warrant.

                                       8
<PAGE>


                  10.2  Exchange.  The Holder may  exchange  this Warrant at its
         option, upon presentation and surrender of this Warrant to Company, for
         other  Warrants of  different  denominations,  entitling  the Holder to
         purchase in the aggregate the same number of Warrant Shares.  A Warrant
         may be divided or  combined  with  other  Warrants  that carry the same
         rights,  upon  presentation  thereof  at the  principal  office  of the
         Company,   together  with  written  notice  specifying  the  names  and
         denominations  in which new Warrants are to be issued and signed by the
         holder  thereof.  In order to  effect  an  exchange  permitted  by this
         Section  10.2,  the Holder  shall  deliver to the Company  this Warrant
         accompanied by a written  request  signed by the Holder  specifying the
         number and denominations of the Warrant or the Warrants to be issued in
         such  exchange and the names in which the Warrant or Warrants are to be
         issued.  As promptly as  practicable  but in any event  within ten (10)
         Business Days of receipt of such a request,  the Company shall, without
         charge,  issue,  register  and deliver to the Holder each Warrant to be
         issued in such exchange.


         11.  Fractional  Shares.  No  fractional  shares  shall be issued  upon
exercise of this Warrant.  The Company shall,  in lieu of issuing any fractional
share,  pay the  Holder  entitled  to such  fraction a sum in cash equal to such
fraction  (calculated to the nearest 1/100th of a share)  multiplied by the then
effective Exercise Price on the date the Form of Subscription is received by the
Company.


         12.  Successors  and  Assigns.  This  Warrant and the rights  evidenced
hereby  shall inure to the  benefit of and be binding  upon the  successors  and
assigns of the Company and successors and permitted  assigns of the Holder.  The
provisions  of this  Warrant  are  intended to be for the benefit of all Holders
from time to time of this Warrant, and shall be enforceable by any such Holder.


         13. Preparation of Warrant. The Company prepared this Warrant solely on
its behalf. Each party to this Warrant  acknowledges that: (i) the party had the
advice of, or  sufficient  opportunity  to obtain the advice of,  legal  counsel
separate and  independent of legal counsel for any other party hereto;  (ii) the
terms of the  transactions  contemplated by this Warrant are fair and reasonable
to  such  party;  and  (iii)  such  party  has  voluntarily   entered  into  the
transactions contemplated by this Warrant without duress or coercion. Each party
further acknowledges that such party was not represented by the legal counsel of
any other party hereto in connection with the transactions  contemplated by this
Warrant,  nor was he or it under any  belief or  understanding  that such  legal
counsel  was  representing  his or its  interests.  Each  party  agrees  that no
conflict,  omission or ambiguity in this Warrant, or the interpretation thereof,
shall be  presumed,  implied or otherwise  construed  against any other party to
this  Warrant on the basis that such party was  responsible  for  drafting  this
Warrant.

                                       9
<PAGE>


                            [SIGNATURE PAGE FOLLOWS]

                                       10
<PAGE>




         IN WITNESS  WHEREOF,  the Company  has caused  this  Warrant to be duly
executed by its officer, thereunto duly authorized as of February____, 2003.


                    COMPANY:



                    HEALTH SCIENCES GROUP, INC.,

                    a Colorado corporation



                    By:  _______________________________
                    Its:  _______________________________



(1) Insert here the number of shares  called for on the face of the Warrant (or,
in the case of a partial  exercise,  the portion thereof as to which the Warrant
is being exercised),  in either case without making any adjustment for any stock
or other  securities  or  property or cash  which,  pursuant  to the  adjustment
provisions of the Warrant, may be deliverable upon exercise.
                                       11
<PAGE>





                              FORM OF SUBSCRIPTION

(To be signed only upon exercise of Warrant)

To:      HEALTHSCIENCES GROUP, INC.

The  undersigned,  the  holder of the  attached  Common  Stock  Warrant,  hereby
irrevocably  elects to exercise the purchase  right  represented by such Warrant
for,  and  to  purchase  thereunder,  _____________shares  of  Common  Stock  of
HEALTHSCIENCES  GROUP,  INC.  (the  "Company")  and  herewith  makes  payment of
$_________ therefor.

The  undersigned  represents  that it is acquiring such Common Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof. The undersigned requests that certificates for such shares
be issued in the name of, and delivered to,  _____________________whose  address
is                                                                ______________
_____________________________________________________________________.



DATED:   _________________

           _________________________________________
           (Signature  must  conform  in all  respects  to name of  Holder as
           specified on the face of the Warrant)

           Name:        _________________________________

           Title:       _________________________________













                                       12
<PAGE>







                                                                  EXHIBIT 10.7.5


THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A  REGISTRATION  STATEMENT IN EFFECT WITH  RESPECT TO THE  SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL  SATISFACTORY  TO THE COMPANY  THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.

THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.


                               WARRANT TO PURCHASE
                                 285,714 SHARES
                               OF COMMON STOCK OF
                           HEALTHSCIENCES GROUP, INC.

                         (Void after February 24, 2008)

         This certifies that Stranco  Investments Ltd., a corporation  organized
under  the  laws  of  the  British  Virgin  Islands  or  its  permitted  assigns
(collectively,  the "HOLDER"),  for value received, is entitled to purchase from
HEALTHSCIENCES  GROUP, INC., a Colorado corporation (the "COMPANY"),  subject to
the terms set forth below,  285,714 fully paid and nonassessable shares (subject
to  adjustment as provided  herein) (the "WARRANT  SHARES") of the common stock,
par value $0.001 per share, of the Company  ("COMMON STOCK") for cash at a price
per share of $0.60 (the  "EXERCISE  PRICE")  (subject to  adjustment as provided
herein),  subject to the provisions of Section 1.1 of this Warrant,  at any time
or from time to time up to and  including  5:00 p.m.  (Eastern  Time) on the 5TH
anniversary  from the date  hereof,  such day  being  referred  to herein as the
"EXPIRATION  DATE," upon surrender to the Company at its principal office (or at
such other  location  as the  Company  may advise the Holder in writing) of this
Warrant  properly  endorsed with the Form of  Subscription  attached hereto duly
filled in and signed and upon payment of the  aggregate  Exercise  Price for the
number of  shares  for which  this  Warrant  is being  exercised  determined  in
accordance with the provisions hereof. The Warrant Shares,  when issued, may not
be  registered  under  the  Securities  Act of  1933  (the  "ACT"),  and  may be
restricted within the meaning of Regulation D of such Act. The Exercise Price is
subject to adjustment as provided in Section 3 of this Warrant.  This Warrant is
issued  pursuant to that  certain  Securities  Purchase  Agreement,  between the
Company and the Holder.  All capitalized terms not defined herein shall have the
meanings provided in the Securities Purchase  Agreement.  This Warrant is issued
subject to the following terms and conditions:



         1. EXERCISE; ISSUANCE OF CERTIFICATES.

<PAGE>
                  1.1 GENERAL.  This Warrant is exercisable at the option of the
Holder of record on or prior to the Expiration Date, at any time or from time to
time for all or any part of the  Warrant  Shares  (but not for a  fraction  of a
share),  which  may be  purchased  hereunder,  as that  number  may be  adjusted
pursuant  to Section 3 of this  Warrant.  The  Company  agrees  that the Warrant
Shares  purchased under this Warrant shall be and are deemed to be issued to the
Holder as the record owner of such Warrant Shares as of the close of business on
the date on which this Warrant shall have been surrendered,  properly  endorsed,
the completed and executed Form of Subscription delivered,  and payment made for
such Warrant Shares. Certificates for the Warrant Shares so purchased,  together
with any other  securities or property to which the Holder is entitled upon such
exercise,  shall be  delivered  to the Holder by the  Company  at the  Company's
expense as soon as practicable after the rights represented by this Warrant have
been so  exercised.  In case of a purchase of less than all the  Warrant  Shares
which may be purchased under this Warrant, the Company shall cancel this Warrant
and execute and deliver to the Holder within a reasonable  time a new Warrant or
Warrants of like tenor for the balance of the Warrant Shares  purchasable  under
the Warrant surrendered upon such purchase.  Each stock certificate so delivered
shall be registered in the name of the Holder.

                  1.2  CONSIDERATION  The Exercise Price shall be payable at the
time of exercise.  The Exercise Price may be paid in cash (by cashiers' check or
wire  transfer)  or by: (i)  surrender  of shares of Common Stock of the Company
already owned by the Holder,  having a Market Price (as defined  below) equal to
the  Exercise  Price per share;  or (ii) upon  surrender  of the  Warrant at the
principal office of the Company  together with notice of election.  In the event
of exercise by  surrender  of shares of this  Warrant,  the Company  shall issue
Holder a number of Warrant Shares computed using the following formula:

                  X = Y (A-B)/A

where:            X = the number of Warrant Shares to be issued to Holder (not
                  to exceed the number of Shares set forth on the cover page of
                  this Warrant Agreement, as adjusted pursuant to the provisions
                  of Section 6 of this Warrant Agreement).

                  Y = the  number of  Warrant  Shares  for which the  Warrant is
                  being exercised.

                  A = the  Market  Price  of one  Share  (for  purposes  of this
                  Section  1.2),  the  "Market  Price"  shall be  defined as the
                  closing price on the exchange on which the Common Stock traded
                  for the  trading  day  prior to the date of  exercise  of this
                  Warrant Agreement; provided if the Common Stock does not trade
                  on any exchange,  the Market Price shall equal the closing bid
                  price in the over-the-counter market for the trading day prior
                  to the date of exercise of this Warrant Agreement, as reported
                  by the National  Association of Securities  Dealers  Automated
                  Quotation System;  and,  provided further,  that if the common
                  stock is not  quoted or listed by any  organization,  the fair
                  value of the  common  stock,  as  determined  by the  Board of
                  Directors  of  the  Company,   whose  determination  shall  be
                  conclusive, shall be used).

                  B = the Exercise Price.
<PAGE>


                  1.3 RECORD  OWNERSHIP.  To the extent  permitted by applicable
law,  the person in whose  name any  certificate  for shares of Common  Stock or
other evidence of ownership of any other security is issued upon exercise of the
Warrant  shall for all purposes be deemed to have become the holder of record of
such shares or other security on the date of delivery of the subscription  form,
irrespective  of the date of delivery of such  certificate  or other evidence of
ownership,  notwithstanding that the transfer books of the Company shall then be
closed or that such  certificates  or other evidence of ownership shall not then
actually have been delivered to such person.

                  1.4  REGULATORY  PROBLEM.  The Holder  shall not  exercise  or
exchange the Warrant for shares of Common  Stock if after giving  effect to such
exercise or exchange the Holder  reasonably  determines that such exercise would
violate any law or regulation or any requirement of any  governmental  authority
applicable to Holder or its affiliates.

         2. SHARES TO BE FULLY PAID.  The Company  covenants and agrees that all
Warrant  Shares,  will,  upon  issuance and payment of the  applicable  Exercise
Price, be duly authorized,  validly issued,  fully paid and  nonassessable,  and
free of all liens and encumbrances, except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.

         3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES.

                  3.1 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
The Exercise  Price and the number of Warrant  Shares  shall be  proportionately
adjusted  from time to time upon the  occurrence of an increase in the number of
shares of Common  Stock  outstanding  by a stock  dividend  payable in shares of
Common Stock or a subdivision  or split-up of shares of Common Stock, a decrease
in the  number of  shares  of  Common  Stock  outstanding  by a  combination  of
outstanding   shares  of  Common  Stock,  any  capital   reorganization  or  any
reclassification of Common Stock, or the consolidation,  merger,  combination or
exchange of shares with another entity,  or the divisive  reorganization  of the
Company.  Upon each adjustment of the Exercise Price, the Holder of this Warrant
shall  thereafter be entitled to purchase,  at the Exercise Price resulting from
such adjustment, the number of shares obtained by multiplying the Exercise Price
in  effect  immediately  prior  to  such  adjustment  by the  number  of  shares
purchasable  pursuant hereto immediately prior to such adjustment,  and dividing
the product  thereof by the Exercise Price resulting from such  adjustment.  The
number of Shares  purchasable  upon the  exercise of each  Warrant is subject to
adjustment from time to time upon the occurrence of any of the events enumerated
below:

                  In case the Company (i)  consolidates  with or merges into any
other entity and is not the continuing or surviving entity of such consolidation
or merger,  or (ii) permits any other entity to  consolidate  with or merge into
the Company and the  Company is the  continuing  or  surviving  Company  but, in
connection with such  consolidation or merger,  the Common Stock is changed into
or exchanged for common stock or other securities of any other entity or cash or
any other assets,  or (iii) transfers all or substantially all of its properties
and  assets  to  any  other  entity,   or  (iv)  effects  a  reorganization   or
reclassification  of the  equity of the  Company  in such a way that  holders of
Common Stock shall be entitled to receive stock, securities, cash or assets
                                       3
<PAGE>


with respect to or in exchange for Common  Stock,  then,  and in each such case,
proper provision shall be made so that, upon the exercise of this Warrant at any
time  after  the   consummation  of  such   consolidation,   merger,   transfer,
reorganization or reclassification,  the Holder shall be entitled to receive (at
the  aggregate  Exercise  Price in effect for Common  Stock  issuable  upon such
exercise of this Warrant  immediately  prior to such  consummation),  in lieu of
Common  Stock  issuable  upon  such  exercise  of  this  Warrant  prior  to such
consummation,  the stock and other  securities,  cash and  assets to which  such
Holder would have been  entitled  upon such  consummation  if such Holder had so
exercised this Warrant immediately prior thereto.

                  3.2  ADJUSTMENTS  FOR  CERTAIN  ISSUANCES  OF  SECURITIES  The
Exercise  Price shall also be subject to adjustment  in accordance  with Section
4(g) of the Securities Purchase Agreement.

         4. REGISTRATION. The Warrant Shares shall be subject to registration at
the expense of the Company pursuant to the Registration Rights Agreement between
the Company and the Holder dated as of the date hereof.

         5. VOTING RIGHTS.  Nothing contained in this Warrant shall be construed
as  conferring  upon the  Holder  the right to vote or to  consent to or receive
notice as a  shareholder  of the  Company  on any other  matters  or any  rights
whatsoever as a shareholder of the Company.

         6.  COMPLIANCE  WITH  SECURITIES  ACT:   TRANSFERABILITY   OF  WARRANT,
DISPOSITION OF SHARES OF COMMON STOCK.

                  6.1 COMPLIANCE WITH SECURITIES ACT. The Holder,  by acceptance
hereof,  agrees  that this  Warrant  and the  Warrant  Shares to be issued  upon
exercise  hereof are being  acquired for  investment and that it will not offer,
sell,  or otherwise  dispose of this Warrant or any Warrant  Shares except under
circumstances  which will not result in a violation of the Securities Act or any
applicable  state  securities  laws. This Warrant and all Warrant Shares (unless
registered  under  the Act)  shall be  stamped  or  imprinted  with a legend  in
substantially the following form:

                  THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
                  ACT OF 1933, AS AMENDED OR THE  SECURITIES OR BLUE SKY LAWS OF
                  ANY STATE. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
                  HYPOTHECATED  IN THE ABSENCE OF A  REGISTRATION  STATEMENT  IN
                  EFFECT  WITH  RESPECT TO THE  SECURITIES  UNDER SUCH ACT OR AN
                  OPINION  OF  COUNSEL  SATISFACTORY  TO THE  COMPANY  THAT SUCH
                  REGISTRATION IS NOT REQUIRED,  OR UNLESS SOLD PURSUANT TO RULE
                  144 OF SUCH ACT.


                  6.2  ACCREDITED  INVESTOR;   ACCESS  TO  INFORMATION.   Holder
represents  and  warrants  that as of the date  hereof  Holder is an  accredited
investor  within the meaning of Rule 501 of Regulation D  promulgated  under the
Act.  Holder has had the opportunity to ask questions of, and to receive answers
from,  appropriate  executive  officers of the Company with respect to the terms
and conditions of the transactions  contemplated  hereby and with respect to

                                       4
<PAGE>

the  business,  affairs,  financial  condition  and results of operations of the
Company.  Holder has had access to such  financial and other  information  as is
necessary in order for Holder to make a fully informed decision as to investment
in the Company, and has had the opportunity to obtain any additional information
necessary to verify any of such information to which Holder has had access.

                  6.3  WARRANT   TRANSFERABLE.   Subject  to   compliance   with
applicable  federal  and state  securities  laws under  which this  Warrant  was
issued,  this Warrant and all rights hereunder are transferable,  in whole or in
part,  without charge to the Holder (except for transfer taxes),  upon surrender
of this Warrant  properly  endorsed;  provided,  however,  that the Holder shall
notify the Company in writing in advance of any proposed  transfer and shall not
transfer this Warrant or any rights  hereunder to any person or entity which, in
the sole  judgment of the  Company's  board of  directors,  is then engaged in a
business that is in competition with the Company,  or is otherwise engaged in an
effort to acquire control of the Company.  As promptly as practicable but in any
event  within  ten (10)  Business  Days of  receipt  of such  properly  endorsed
Warrant,  the Company shall issue,  register and deliver to the Holder thereof a
new Warrant or Warrants of like kind and tenor representing in the aggregate the
right to  purchase  the same number of Warrant  Shares  that could be  purchased
pursuant to the Warrant being transferred. Holder shall pay Company's reasonable
costs incurred in effectuating such transfer.


                  6.4 DISPOSITION OF WARRANT SHARES.  With respect to any offer,
sale, or other disposition of the Warrant,  or any Warrant Shares if such shares
are not  registered and freely  tradable  under the Act when issued,  the Holder
hereof and each subsequent  Holder of this Warrant agrees to give written notice
to the Company prior thereto,  describing  briefly the manner thereof,  together
with a written opinion of such holder's counsel, if reasonably  requested by the
Company,  to the  effect  that  such  offer,  sale or other  disposition  may be
effected without  registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of the Warrant or Warrant Shares, as
the case may be, and indicating  whether or not under the Act  certificates  for
the Warrant or Warrant  Shares to be sold or  otherwise  disposed of require any
restrictive legend as to applicable  restrictions on transferability in order to
insure  compliance with the Act. Promptly upon receiving such written notice and
opinion,  the Company, as promptly as practicable,  shall notify the Holder that
such Holder may sell or otherwise dispose of the Warrant or Warrant Shares,  all
in  accordance  with the terms of the  notice  delivered  to the  Company.  If a
determination  has been made pursuant to this  subparagraph 6.4 that the opinion
of the counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder  promptly after such  determination  has been
made.  Notwithstanding  the  foregoing,  the  Warrant or  Warrant  Shares may be
offered,  sold or otherwise  disposed of in  accordance  with Rule 144 under the
Act,  provided that the Company shall have been furnished with such  information
as the Company may request to provide  reasonable  assurance that the provisions
of Rule 144 have been satisfied.  Each  certificate  representing the Warrant or
Warrant Shares thus transferred  (except a transfer  pursuant to Rule 144) shall
bear a legend as to the applicable  restrictions on  transferability in order to
insure  compliance with the Act, unless in the aforesaid  opinion of counsel for
the Holder,  such legend is not required in order to insure  compliance with the
Act. The Company may issue stop transfer  instructions  to its transfer agent in
connection with such restrictions.

                                       5
<PAGE>

                  6.5 LIMITATION ON WARRANT SHARES Notwithstanding anything else
herein to the contrary,  the Holder of this Warrant may not exercise any Warrant
to the extent that after such  conversion,  the number of shares of Common Stock
owned by the Holder and its affiliates  (other than shares of Common Stock which
may be deemed  beneficially  owned  through  the  ownership  of the  unconverted
portion  of the  Debentures  and any  unexercised  Warrants),  would  result  in
ownership  by the Holder and its  affiliates  of 4.99% or more of the  Company's
issued and outstanding  shares of Common Stock  following such exercise.  In the
event that the Holder owns both  Debentures and Warrants  which would  otherwise
result in ownership  of 4.99% or more of the  Company's  issued and  outstanding
shares of Common Stock but for the prior  sentence,  then the Warrants  shall be
deemed to not be exercisable to the extent  necessary to allow conversion of the
Debentures  to the  maximum  extent  possible  and  still  permit  the  Holder's
ownership  to remain  below 4.99%.  This  restriction  shall be binding upon any
transferee  of the Warrant from any Holder.  The  preceding  shall not interfere
with  the  Holder's  right to  exercise  this  Warrant  over  time  which in the
aggregate totals more than 4.99% of the then outstanding  shares of Common Stock
so long as such Holder and its affiliates do not own more than 4.99% of the then
outstanding Common Stock at any given time.


         7.  MODIFICATION AND WAIVER.  This Warrant and any provision hereof may
be changed, waived,  discharged,  or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.


         8.  NOTICES.  Any  notice,  request,  or  other  document  required  or
permitted to be given or delivered to the Holder  hereof or the Company shall be
delivered or shall be sent by certified mail,  postage prepaid,  or by facsimile
with confirmation of transmission to the parties at the address set forth in the
Securities Purchase Agreement,  or such other address as either may from time to
time provide to the other.

         9. GOVERNING LAW; WAIVER OF JURY TRIAL.

                  9.1  GOVERNING  LAW.  This  Warrant  shall be  governed by and
construed  in  accordance  with the laws of the State of  Colorado as applied to
agreements executed and performed in such state. Each of the parties consents to
the exclusive  jurisdiction of the federal courts whose districts  encompass any
part of the  City of New  York or the  state  courts  of the  State  of New York
sitting in the City of New York in  connection  with any dispute  arising  under
this  Warrant and hereby  waives,  to the maximum  extent  permitted by law, any
objection, including any objection based on FORUM NON COVENIENS, to the bringing
of any such  proceeding in such  jurisdictions.  The Company shall reimburse the
Holder for any reasonable legal fees and disbursements incurred by the Holder in
enforcement of or protection of any of its rights under this Warrant.

                  9.2  WAIVER  OF  JURY  TRIAL.   BECAUSE  DISPUTES  ARISING  IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN  EXPERIENCED  AND EXPERT  PERSON AND THE PARTIES WISH  APPLICABLE
LAWS TO APPLY (RATHER THAN  ARBITRATION  RULES),  THE PARTIES  DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH  APPLICABLE  LAWS.  THEREFORE,  TO
ACHIEVE  THE BEST  COMBINATION  OF

                                       6
<PAGE>

THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,  SUIT OR PROCEEDING BROUGHT TO ENFORCE
OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS  AGREEMENT OR ANY DOCUMENTS  RELATED
HERETO.


         10. EXCHANGE OF WARRANT.

                  10.1 LOST WARRANT.  The Company represents and warrants to the
Holder  hereof that upon  receipt of  evidence  reasonably  satisfactory  to the
Company of the loss, theft,  destruction,  or mutilation of this Warrant and, in
the case of any such loss,  theft or  destruction,  upon receipt of an indemnity
reasonably  satisfactory  to the Company,  or in the case of any such mutilation
upon  surrender  and  cancellation  of the  Warrant,  the Company  will,  at the
Company's expense, make and deliver a new Warrant, of like tenor, in lieu of the
lost, stolen, destroyed or mutilated Warrant.


                  10.2  EXCHANGE.  The Holder may  exchange  this Warrant at its
option,  upon  presentation and surrender of this Warrant to Company,  for other
Warrants of  different  denominations,  entitling  the Holder to purchase in the
aggregate  the same  number of  Warrant  Shares.  A Warrant  may be  divided  or
combined  with other  Warrants  that carry the same  rights,  upon  presentation
thereof at the principal  office of the Company,  together  with written  notice
specifying  the names and  denominations  in which new Warrants are to be issued
and signed by the holder  thereof.  In order to effect an exchange  permitted by
this  Section  10.2,  the Holder  shall  deliver  to the  Company  this  Warrant
accompanied by a written request signed by the Holder  specifying the number and
denominations  of the Warrant or the Warrants to be issued in such  exchange and
the names in which the  Warrant or  Warrants  are to be issued.  As  promptly as
practicable  but in any event within ten (10) Business Days of receipt of such a
request, the Company shall, without charge,  issue,  register and deliver to the
Holder each Warrant to be issued in such exchange.


         11.  FRACTIONAL  SHARES.  No  fractional  shares  shall be issued  upon
exercise of this Warrant.  The Company shall,  in lieu of issuing any fractional
share,  pay the  Holder  entitled  to such  fraction a sum in cash equal to such
fraction  (calculated to the nearest 1/100th of a share)  multiplied by the then
effective Exercise Price on the date the Form of Subscription is received by the
Company.


         12.  SUCCESSORS  AND  ASSIGNS.  This  Warrant and the rights  evidenced
hereby  shall inure to the  benefit of and be binding  upon the  successors  and
assigns of the Company and successors and permitted  assigns of the Holder.  The
provisions  of this  Warrant  are  intended to be for the benefit of all Holders
from time to time of this Warrant, and shall be enforceable by any such Holder.


         13. PREPARATION OF WARRANT. The Company prepared this Warrant solely on
its behalf. Each party to this Warrant  acknowledges that: (i) the party had the
advice of, or  sufficient  opportunity  to obtain the advice of,  legal  counsel
separate and  independent of legal

                                       7
<PAGE>

counsel  for  any  other  party  hereto;  (ii)  the  terms  of the  transactions
contemplated  by this Warrant are fair and  reasonable to such party;  and (iii)
such party has voluntarily  entered into the  transactions  contemplated by this
Warrant without duress or coercion.  Each party further  acknowledges  that such
party was not  represented  by the legal  counsel of any other  party  hereto in
connection with the transactions  contemplated by this Warrant, nor was he or it
under any belief or  understanding  that such legal counsel was representing his
or its interests.  Each party agrees that no conflict,  omission or ambiguity in
this  Warrant,  or the  interpretation  thereof,  shall be presumed,  implied or
otherwise  construed  against any other party to this  Warrant on the basis that
such party was responsible for drafting this Warrant.


                            [SIGNATURE PAGE FOLLOWS]

                                       8
<PAGE>


         IN WITNESS  WHEREOF,  the Company  has caused  this  Warrant to be duly
executed by its officer, thereunto duly authorized as of February____, 2003.


                                      COMPANY:



                                      HEALTH SCIENCES GROUP, INC.,

                                      a Colorado corporation



                                      By:  _______________________________
                                      Its:  _______________________________


                                       9
<PAGE>


(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for any stock
or other securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.






                              FORM OF SUBSCRIPTION

(To be signed only upon exercise of Warrant)

To:      HEALTHSCIENCES GROUP, INC.

The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, _____________shares of Common Stock of
HEALTHSCIENCES GROUP, INC. (the "COMPANY") and herewith makes payment of
$_________ therefor.

The undersigned represents that it is acquiring such Common Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof. The undersigned requests that certificates for such shares
be issued in the name of, and delivered to, _____________________whose address
is ______________
_____________________________________________________________________.



DATED:   _________________

            _________________________________________
            (Signature  must  conform  in all  respects  to name of  Holder as
            specified on the face of the Warrant)

            Name:        _________________________________

            Title:       _________________________________











                                       10
<PAGE>
                                                                  XHIBIT 10.7.6


THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A  REGISTRATION  STATEMENT IN EFFECT WITH  RESPECT TO THE  SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL  SATISFACTORY  TO THE COMPANY  THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.

THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.


                               WARRANT TO PURCHASE
                                  71,426 SHARES
                               OF COMMON STOCK OF
                           HEALTHSCIENCES GROUP, INC.

                         (Void after February 24, 2008)

         This certifies that FCIM Corp. or its permitted assigns  (collectively,
the "Holder"),  for value received,  is entitled to purchase from HEALTHSCIENCES
GROUP,  INC., a Colorado  corporation (the "Company"),  subject to the terms set
forth below,  71,426 fully paid and nonassessable  shares (subject to adjustment
as provided herein) (the "Warrant Shares") of the common stock, par value $0.001
per share,  of the  Company  ("Common  Stock")  for cash at a price per share of
$0.60 (the "Exercise Price") (subject to adjustment as provided herein), subject
to the  provisions of Section 1.1 of this  Warrant,  at any time or from time to
time up to and including 5:00 p.m.  (Eastern Time) on the 5TH  anniversary  from
the date hereof,  such day being  referred to herein as the  "Expiration  Date,"
upon surrender to the Company at its principal office (or at such other location
as the  Company  may advise  the Holder in  writing)  of this  Warrant  properly
endorsed with the Form of Subscription attached hereto duly filled in and signed
and upon payment of the  aggregate  Exercise  Price for the number of shares for
which  this  Warrant  is  being  exercised  determined  in  accordance  with the
provisions hereof. The Warrant Shares,  when issued, may not be registered under
the Securities Act of 1933 (the "Act"), and may be restricted within the meaning
of  Regulation  D of such Act. The Exercise  Price is subject to  adjustment  as
provided in Section 3 of this Warrant.  This Warrant is issued  pursuant to that
certain Securities Purchase  Agreement,  between the Company and the Holder. All
capitalized  terms not defined  herein shall have the  meanings  provided in the
Securities Purchase  Agreement.  This Warrant is issued subject to the following
terms and conditions:



<PAGE>


         1. Exercise; Issuance of Certificates.

                  1.1 General.  This Warrant is exercisable at the option of the
         Holder  of record on or prior to the  Expiration  Date,  at any time or
         from time to time for all or any part of the

                                       2
<PAGE>


         Warrant  Shares  (but not for a  fraction  of a  share),  which  may be
         purchased hereunder, as that number may be adjusted pursuant to Section
         3 of this Warrant. The Company agrees that the Warrant Shares purchased
         under this  Warrant  shall be and are deemed to be issued to the Holder
         as the record owner of such Warrant  Shares as of the close of business
         on the date on which this Warrant shall have been surrendered, properly
         endorsed,  the completed and executed Form of  Subscription  delivered,
         and payment made for such Warrant Shares.  Certificates for the Warrant
         Shares so purchased,  together with any other securities or property to
         which the Holder is entitled upon such exercise,  shall be delivered to
         the  Holder  by the  Company  at  the  Company's  expense  as  soon  as
         practicable  after the rights  represented by this Warrant have been so
         exercised.  In case of a purchase of less than all the  Warrant  Shares
         which may be purchased  under this  Warrant,  the Company  shall cancel
         this Warrant and execute and deliver to the Holder  within a reasonable
         time a new  Warrant or  Warrants  of like tenor for the  balance of the
         Warrant  Shares  purchasable  under the Warrant  surrendered  upon such
         purchase.  Each stock  certificate so delivered  shall be registered in
         the name of the Holder.

                  1.2  Consideration  The Exercise Price shall be payable at the
         time of exercise.  The Exercise Price may be paid in cash (by cashiers'
         check or wire  transfer) or by: (i) surrender of shares of Common Stock
         of the Company  already owned by the Holder,  having a Market Price (as
         defined  below)  equal to the  Exercise  Price per share;  or (ii) upon
         surrender  of  the  Warrant  at the  principal  office  of the  Company
         together with notice of election. In the event of exercise by surrender
         of shares of this  Warrant,  the Company shall issue Holder a number of
         Warrant Shares computed using the following formula:

                  X = Y (A-B)/A

         where:   X = the number of Warrant  Shares to be issued to Holder  (not
                  to exceed  the number of Shares set forth on the cover page of
                  this Warrant Agreement, as adjusted pursuant to the provisions
                  of Section 6 of this Warrant Agreement).

                  Y = the  number of  Warrant  Shares  for which the  Warrant is
                  being exercised.

                  A = the  Market  Price  of one  Share  (for  purposes  of this
                  Section  1.2),  the  "Market  Price"  shall be  defined as the
                  closing price on the exchange on which the Common Stock traded
                  for the  trading  day  prior to the date of  exercise  of this
                  Warrant Agreement; provided if the Common Stock does not trade
                  on any exchange,  the Market Price shall equal the closing bid
                  price in the over-the-counter market for the trading day prior
                  to the date of exercise of this Warrant Agreement, as reported
                  by the National  Association of Securities  Dealers  Automated
                  Quotation System;  and,  provided further,  that if the common
                  stock is not  quoted or listed by any  organization,  the fair
                  value of the  common  stock,  as  determined  by the  Board of
                  Directors  of  the  Company,   whose  determination  shall  be
                  conclusive, shall be used).

                  B = the Exercise Price.

                                       3
<PAGE>


                  1.3 Record  Ownership.  To the extent  permitted by applicable
         law,  the  person in whose  name any  certificate  for shares of Common
         Stock or other  evidence of ownership  of any other  security is issued
         upon  exercise of the Warrant  shall for all purposes be deemed to have
         become the  holder of record of such  shares or other  security  on the
         date of delivery of the subscription form,  irrespective of the date of
         delivery  of  such   certificate   or  other   evidence  of  ownership,
         notwithstanding  that the transfer  books of the Company  shall then be
         closed or that such  certificates  or other evidence of ownership shall
         not then actually have been delivered to such person.

                  1.4  Regulatory  Problem.  The Holder  shall not  exercise  or
         exchange the Warrant for shares of Common Stock if after giving  effect
         to such exercise or exchange the Holder reasonably determines that such
         exercise would violate any law or regulation or any  requirement of any
         governmental authority applicable to Holder or its affiliates.

         2. Shares to be Fully Paid.  The Company  covenants and agrees that all
Warrant  Shares,  will,  upon  issuance and payment of the  applicable  Exercise
Price, be duly authorized,  validly issued,  fully paid and  nonassessable,  and
free of all liens and encumbrances, except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.

         3. Adjustment of Exercise Price and Number of Shares.

                  3.1 Adjustment for Reorganization, Consolidation, Merger, etc.
         The  Exercise   Price  and  the  number  of  Warrant  Shares  shall  be
         proportionately  adjusted  from time to time upon the  occurrence of an
         increase in the number of shares of Common Stock outstanding by a stock
         dividend payable in shares of Common Stock or a subdivision or split-up
         of shares of Common Stock, a decrease in the number of shares of Common
         Stock  outstanding  by a combination  of  outstanding  shares of Common
         Stock, any capital  reorganization  or any  reclassification  of Common
         Stock, or the consolidation,  merger, combination or exchange of shares
         with another  entity,  or the divisive  reorganization  of the Company.
         Upon each adjustment of the Exercise Price,  the Holder of this Warrant
         shall  thereafter  be  entitled  to  purchase,  at the  Exercise  Price
         resulting  from such  adjustment,  the  number of  shares  obtained  by
         multiplying  the  Exercise  Price in effect  immediately  prior to such
         adjustment  by  the  number  of  shares  purchasable   pursuant  hereto
         immediately prior to such adjustment,  and dividing the product thereof
         by the Exercise  Price  resulting from such  adjustment.  The number of
         Shares  purchasable  upon the  exercise  of each  Warrant is subject to
         adjustment  from time to time upon the  occurrence of any of the events
         enumerated below:

                  In case the Company (i)  consolidates  with or merges into any
         other  entity and is not the  continuing  or  surviving  entity of such
         consolidation   or  merger,   or  (ii)  permits  any  other  entity  to
         consolidate  with or merge  into the  Company  and the  Company  is the
         continuing  or  surviving   Company  but,  in   connection   with  such
         consolidation or merger,  the Common Stock is changed into or exchanged
         for common stock or other securities of any other entity or cash or

                                       4
<PAGE>

         any other assets,  or (iii) transfers all or  substantially  all of its
         properties  and  assets  to  any  other  entity,   or  (iv)  effects  a
         reorganization or reclassification of the equity of the Company in such
         a way that holders of Common Stock shall be entitled to receive  stock,
         securities,  cash or assets with  respect to or in exchange  for Common
         Stock,  then, and in each such case,  proper provision shall be made so
         that,  upon  the  exercise  of  this  Warrant  at any  time  after  the
         consummation of such consolidation, merger, transfer, reorganization or
         reclassification,  the Holder  shall be  entitled  to  receive  (at the
         aggregate  Exercise Price in effect for Common Stock issuable upon such
         exercise of this Warrant  immediately prior to such  consummation),  in
         lieu of Common Stock  issuable upon such exercise of this Warrant prior
         to such consummation,  the stock and other securities,  cash and assets
         to which such Holder would have been entitled upon such consummation if
         such Holder had so exercised this Warrant immediately prior thereto.

                  3.2  Adjustments  for  Certain  Issuances  of  Securities  The
         Exercise  Price shall also be subject to adjustment in accordance  with
         Section 4(g) of the Securities Purchase Agreement.

         4. Registration. The Warrant Shares shall be subject to registration at
the expense of the Company pursuant to the Registration Rights Agreement between
the Company and the Holder dated as of the date hereof.

         5. Voting Rights.  Nothing contained in this Warrant shall be construed
as  conferring  upon the  Holder  the right to vote or to  consent to or receive
notice as a  shareholder  of the  Company  on any other  matters  or any  rights
whatsoever as a shareholder of the Company.

         6.  Compliance  with  Securities  Act:   Transferability   of  Warrant,
Disposition of Shares of Common Stock.

                  6.1 Compliance with Securities Act. The Holder,  by acceptance
         hereof,  agrees that this  Warrant and the Warrant  Shares to be issued
         upon exercise hereof are being acquired for investment and that it will
         not offer,  sell,  or otherwise  dispose of this Warrant or any Warrant
         Shares except under  circumstances which will not result in a violation
         of the Securities Act or any applicable  state  securities  laws.  This
         Warrant and all Warrant Shares (unless  registered under the Act) shall
         be stamped or imprinted  with a legend in  substantially  the following
         form:

         THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF
         1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE.  THEY
         MAY NOT BE SOLD,  OFFERED FOR SALE,  PLEDGED,  OR  HYPOTHECATED  IN THE
         ABSENCE  OF A  REGISTRATION  STATEMENT  IN EFFECT  WITH  RESPECT TO THE
         SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL  SATISFACTORY TO THE
         COMPANY

                                       5
<PAGE>

         THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE
         144 OF SUCH ACT.

                  6.2  Accredited  Investor;   Access  to  Information.   Holder
         represents  and  warrants  that  as of the  date  hereof  Holder  is an
         accredited  investor  within the  meaning of Rule 501 of  Regulation  D
         promulgated  under  the  Act.  Holder  has had the  opportunity  to ask
         questions  of,  and to  receive  answers  from,  appropriate  executive
         officers of the Company with respect to the terms and conditions of the
         transactions  contemplated  hereby and with  respect  to the  business,
         affairs,  financial condition and results of operations of the Company.
         Holder has had access to such  financial  and other  information  as is
         necessary in order for Holder to make a fully  informed  decision as to
         investment in the Company,  and has had the  opportunity  to obtain any
         additional  information  necessary to verify any of such information to
         which Holder has had access.

                  6.3  Warrant   Transferable.   Subject  to   compliance   with
         applicable  federal and state  securities laws under which this Warrant
         was issued, this Warrant and all rights hereunder are transferable,  in
         whole or in part,  without  charge to the Holder  (except for  transfer
         taxes),  upon surrender of this Warrant  properly  endorsed;  provided,
         however, that the Holder shall notify the Company in writing in advance
         of any proposed  transfer  and shall not  transfer  this Warrant or any
         rights hereunder to any person or entity which, in the sole judgment of
         the Company's board of directors, is then engaged in a business that is
         in competition with the Company,  or is otherwise  engaged in an effort
         to acquire  control of the Company.  As promptly as practicable  but in
         any event  within ten (10)  Business  Days of receipt of such  properly
         endorsed Warrant, the Company shall issue,  register and deliver to the
         Holder  thereof  a new  Warrant  or  Warrants  of like  kind and  tenor
         representing  in the aggregate the right to purchase the same number of
         Warrant  Shares that could be purchased  pursuant to the Warrant  being
         transferred.  Holder shall pay Company's  reasonable  costs incurred in
         effectuating such transfer.


                                       6
<PAGE>

                  6.4 Disposition of Warrant Shares.  With respect to any offer,
         sale, or other  disposition  of the Warrant,  or any Warrant  Shares if
         such shares are not registered  and freely  tradable under the Act when
         issued,  the Holder hereof and each  subsequent  Holder of this Warrant
         agrees to give written notice to the Company prior thereto,  describing
         briefly the manner  thereof,  together  with a written  opinion of such
         holder's counsel, if reasonably requested by the Company, to the effect
         that such offer,  sale or other  disposition  may be  effected  without
         registration or  qualification  (under the Act as then in effect or any
         federal or state law then in effect) of the Warrant or Warrant  Shares,
         as the  case  may be,  and  indicating  whether  or not  under  the Act
         certificates  for the Warrant or Warrant Shares to be sold or otherwise
         disposed  of  require   any   restrictive   legend  as  to   applicable
         restrictions on  transferability in order to insure compliance with the
         Act.  Promptly  upon  receiving  such written  notice and opinion,  the
         Company, as promptly as practicable,  shall notify the Holder that such
         Holder may sell or otherwise  dispose of the Warrant or Warrant Shares,
         all in  accordance  with  the  terms  of the  notice  delivered  to the
         Company. If a determination has been made pursuant to this subparagraph
         6.4 that the opinion of the  counsel  for the Holder is not  reasonably
         satisfactory  to the  Company,  the Company  shall so notify the Holder
         promptly after such  determination has been made.  Notwithstanding  the
         foregoing,  the  Warrant or  Warrant  Shares  may be  offered,  sold or
         otherwise  disposed  of in  accordance  with  Rule 144  under  the Act,
         provided  that  the  Company  shall  have  been   furnished  with  such
         information as the Company may request to provide reasonable  assurance
         that the provisions of Rule 144 have been satisfied.  Each  certificate
         representing the Warrant or Warrant Shares thus  transferred  (except a
         transfer pursuant to Rule 144) shall bear a legend as to the applicable
         restrictions on  transferability in order to insure compliance with the
         Act,  unless in the aforesaid  opinion of counsel for the Holder,  such
         legend is not required in order to insure  compliance with the Act. The
         Company may issue stop transfer  instructions  to its transfer agent in
         connection with such restrictions.

                  6.5 Limitation on Warrant Shares Notwithstanding anything else
         herein to the contrary, the Holder of this Warrant may not exercise any
         Warrant to the extent that after such conversion,  the number of shares
         of Common  Stock  owned by the Holder and its  affiliates  (other  than
         shares of Common Stock which may be deemed  beneficially  owned through
         the  ownership of the  unconverted  portion of the  Debentures  and any
         unexercised Warrants),  would result in ownership by the Holder and its
         affiliates  of 4.99% or more of the  Company's  issued and  outstanding
         shares of Common Stock  following such exercise.  In the event that the
         Holder owns both Debentures and Warrants which would  otherwise  result
         in ownership of 4.99% or more of the Company's  issued and  outstanding
         shares of Common  Stock but for the prior  sentence,  then the Warrants
         shall be deemed to not be exercisable to the extent  necessary to allow
         conversion of the Debentures to the maximum  extent  possible and still
         permit the Holder's  ownership to remain below 4.99%.  This restriction
         shall be binding  upon any  transferee  of the Warrant from any Holder.
         The preceding  shall not interfere  with the Holder's right to exercise
         this Warrant over time which in the aggregate totals more than 4.99% of
         the then outstanding  shares of Common Stock so long as such Holder and
         its  affiliates  do not own more  than  4.99%  of the then  outstanding
         Common Stock at any given time.


                                       7
<PAGE>

         7.  Modification and Waiver.  This Warrant and any provision hereof may
be changed, waived,  discharged,  or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.


         8.  Notices.  Any  notice,  request,  or  other  document  required  or
permitted to be given or delivered to the Holder  hereof or the Company shall be
delivered or shall be sent by certified mail,  postage prepaid,  or by facsimile
with confirmation of transmission to the parties at the address set forth in the
Securities Purchase Agreement,  or such other address as either may from time to
time provide to the other.

         9. Governing Law; Waiver of Jury Trial.

                  9.1  Governing  Law.  This  Warrant  shall be  governed by and
         construed  in  accordance  with the laws of the  State of  Colorado  as
         applied to agreements executed and performed in such state. Each of the
         parties  consents to the exclusive  jurisdiction  of the federal courts
         whose districts encompass any part of the City of New York or the state
         courts  of the  State  of New York  sitting  in the City of New York in
         connection  with any  dispute  arising  under this  Warrant  and hereby
         waives,  to  the  maximum  extent  permitted  by  law,  any  objection,
         including any objection  based on forum non coveniens,  to the bringing
         of any  such  proceeding  in  such  jurisdictions.  The  Company  shall
         reimburse the Holder for any  reasonable  legal fees and  disbursements
         incurred by the Holder in  enforcement  of or  protection of any of its
         rights under this Warrant.

                  9.2  Waiver  of  Jury  Trial.   BECAUSE  DISPUTES  ARISING  IN
         CONNECTION  WITH COMPLEX  FINANCIAL  TRANSACTIONS  ARE MOST QUICKLY AND
         ECONOMICALLY  RESOLVED  BY AN  EXPERIENCED  AND  EXPERT  PERSON AND THE
         PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN ARBITRATION  RULES),
         THE PARTIES  DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
         SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
         BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,  THE PARTIES HERETO
         WAIVE  ALL  RIGHT TO TRIAL BY JURY IN ANY  ACTION,  SUIT OR  PROCEEDING
         BROUGHT  TO  ENFORCE  OR DEFEND  ANY  RIGHTS  OR  REMEDIES  UNDER  THIS
         AGREEMENT OR ANY DOCUMENTS RELATED HERETO.


         10. Exchange of Warrant.

                  10.1 Lost Warrant.  The Company represents and warrants to the
         Holder hereof that upon receipt of evidence reasonably  satisfactory to
         the Company of the loss,  theft,  destruction,  or  mutilation  of this
         Warrant and, in the case of any such loss,  theft or destruction,  upon
         receipt of an indemnity  reasonably  satisfactory to the Company, or in
         the case of any such mutilation upon surrender and  cancellation of the
         Warrant, the Company will, at the Company's expense, make and deliver a
         new Warrant,  of like tenor, in lieu of the lost, stolen,  destroyed or
         mutilated Warrant.


                                       8
<PAGE>

                  10.2  Exchange.  The Holder may  exchange  this Warrant at its
         option, upon presentation and surrender of this Warrant to Company, for
         other  Warrants of  different  denominations,  entitling  the Holder to
         purchase in the aggregate the same number of Warrant Shares.  A Warrant
         may be divided or  combined  with  other  Warrants  that carry the same
         rights,  upon  presentation  thereof  at the  principal  office  of the
         Company,   together  with  written  notice  specifying  the  names  and
         denominations  in which new Warrants are to be issued and signed by the
         holder  thereof.  In order to  effect  an  exchange  permitted  by this
         Section  10.2,  the Holder  shall  deliver to the Company  this Warrant
         accompanied by a written  request  signed by the Holder  specifying the
         number and denominations of the Warrant or the Warrants to be issued in
         such  exchange and the names in which the Warrant or Warrants are to be
         issued.  As promptly as  practicable  but in any event  within ten (10)
         Business Days of receipt of such a request,  the Company shall, without
         charge,  issue,  register  and deliver to the Holder each Warrant to be
         issued in such exchange.


         11.  Fractional  Shares.  No  fractional  shares  shall be issued  upon
exercise of this Warrant.  The Company shall,  in lieu of issuing any fractional
share,  pay the  Holder  entitled  to such  fraction a sum in cash equal to such
fraction  (calculated to the nearest 1/100th of a share)  multiplied by the then
effective Exercise Price on the date the Form of Subscription is received by the
Company.


         12.  Successors  and  Assigns.  This  Warrant and the rights  evidenced
hereby  shall inure to the  benefit of and be binding  upon the  successors  and
assigns of the Company and successors and permitted  assigns of the Holder.  The
provisions  of this  Warrant  are  intended to be for the benefit of all Holders
from time to time of this Warrant, and shall be enforceable by any such Holder.


         13. Preparation of Warrant. The Company prepared this Warrant solely on
its behalf. Each party to this Warrant  acknowledges that: (i) the party had the
advice of, or  sufficient  opportunity  to obtain the advice of,  legal  counsel
separate and  independent of legal counsel for any other party hereto;  (ii) the
terms of the  transactions  contemplated by this Warrant are fair and reasonable
to  such  party;  and  (iii)  such  party  has  voluntarily   entered  into  the
transactions contemplated by this Warrant without duress or coercion. Each party
further acknowledges that such party was not represented by the legal counsel of
any other party hereto in connection with the transactions  contemplated by this
Warrant,  nor was he or it under any  belief or  understanding  that such  legal
counsel  was  representing  his or its  interests.  Each  party  agrees  that no
conflict,  omission or ambiguity in this Warrant, or the interpretation thereof,
shall be  presumed,  implied or otherwise  construed  against any other party to
this  Warrant on the basis that such party was  responsible  for  drafting  this
Warrant.


                                       9
<PAGE>

                            [SIGNATURE PAGE FOLLOWS]


                                       10
<PAGE>

         IN WITNESS  WHEREOF,  the Company  has caused  this  Warrant to be duly
executed by its officer, thereunto duly authorized as of February____, 2003.


                  COMPANY:



                  HEALTH SCIENCES GROUP, INC.,

                  a Colorado corporation



                  By:  _______________________________
                  Its:  _______________________________



(1)      Insert here the number of shares  called for on the face of the Warrant
         (or, in the case of a partial exercise, the portion thereof as to which
         the  Warrant is being  exercised),  in either case  without  making any
         adjustment for any stock or other securities or property or cash which,
         pursuant  to  the  adjustment   provisions  of  the  Warrant,   may  be
         deliverable upon exercise.

                                       11
<PAGE>


                              FORM OF SUBSCRIPTION

(To be signed only upon exercise of Warrant)

To:      HEALTHSCIENCES GROUP, INC.

The  undersigned,  the  holder of the  attached  Common  Stock  Warrant,  hereby
irrevocably  elects to exercise the purchase  right  represented by such Warrant
for,  and  to  purchase  thereunder,  _____________shares  of  Common  Stock  of
HEALTHSCIENCES  GROUP,  INC.  (the  "Company")  and  herewith  makes  payment of
$_________ therefor.

The  undersigned  represents  that it is acquiring such Common Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof. The undersigned requests that certificates for such shares
be issued in the name of, and delivered to,  _____________________whose  address
is                                                                ______________
_____________________________________________________________________.



DATED:   _________________

         _________________________________________
         (Signature  must  conform  in all  respects  to name of  Holder as
         specified on the face of the Warrant)

         Name:        _________________________________

         Title:       _________________________________






                                       12
<PAGE>
                                                                  EXHIBIT 10.7.7


THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A  REGISTRATION  STATEMENT IN EFFECT WITH  RESPECT TO THE  SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL  SATISFACTORY  TO THE COMPANY  THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.

THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.


                               WARRANT TO PURCHASE
                                  14,286 SHARES
                               OF COMMON STOCK OF
                           HEALTHSCIENCES GROUP, INC.

                         (Void after February 24, 2008)

         This   certifies   that   George   Matin  or  its   permitted   assigns
(collectively,  the "Holder"),  for value received, is entitled to purchase from
HEALTHSCIENCES  GROUP, INC., a Colorado corporation (the "Company"),  subject to
the terms set forth below,  14,286 fully paid and nonassessable  shares (subject
to  adjustment as provided  herein) (the "Warrant  Shares") of the common stock,
par value $0.001 per share, of the Company  ("Common Stock") for cash at a price
per share of $0.60 (the  "Exercise  Price")  (subject to  adjustment as provided
herein),  subject to the provisions of Section 1.1 of this Warrant,  at any time
or from time to time up to and  including  5:00 p.m.  (Eastern  Time) on the 5TH
anniversary  from the date  hereof,  such day  being  referred  to herein as the
"Expiration  Date," upon surrender to the Company at its principal office (or at
such other  location  as the  Company  may advise the Holder in writing) of this
Warrant  properly  endorsed with the Form of  Subscription  attached hereto duly
filled in and signed and upon payment of the  aggregate  Exercise  Price for the
number of  shares  for which  this  Warrant  is being  exercised  determined  in
accordance with the provisions hereof. The Warrant Shares,  when issued, may not
be  registered  under  the  Securities  Act of  1933  (the  "Act"),  and  may be
restricted within the meaning of Regulation D of such Act. The Exercise Price is
subject to adjustment as provided in Section 3 of this Warrant.  This Warrant is
issued  pursuant to that  certain  Securities  Purchase  Agreement,  between the
Company and the Holder.  All capitalized terms not defined herein shall have the
meanings provided in the Securities Purchase  Agreement.  This Warrant is issued
subject to the following terms and conditions:



         1. Exercise; Issuance of Certificates.

                  1.1 General.  This Warrant is exercisable at the option of the
         Holder  of record on or prior to the  Expiration  Date,  at any time or
         from time to time for all or any part of the

                                       1
<PAGE>


         Warrant  Shares  (but not for a  fraction  of a  share),  which  may be
         purchased hereunder, as that number may be adjusted pursuant to Section
         3 of this Warrant. The Company agrees that the Warrant Shares purchased
         under this  Warrant  shall be and are deemed to be issued to the Holder
         as the record owner of such Warrant  Shares as of the close of business
         on the date on which this Warrant shall have been surrendered, properly
         endorsed,  the completed and executed Form of  Subscription  delivered,
         and payment made for such Warrant Shares.  Certificates for the Warrant
         Shares so purchased,  together with any other securities or property to
         which the Holder is entitled upon such exercise,  shall be delivered to
         the  Holder  by the  Company  at  the  Company's  expense  as  soon  as
         practicable  after the rights  represented by this Warrant have been so
         exercised.  In case of a purchase of less than all the  Warrant  Shares
         which may be purchased  under this  Warrant,  the Company  shall cancel
         this Warrant and execute and deliver to the Holder  within a reasonable
         time a new  Warrant or  Warrants  of like tenor for the  balance of the
         Warrant  Shares  purchasable  under the Warrant  surrendered  upon such
         purchase.  Each stock  certificate so delivered  shall be registered in
         the name of the Holder.

                  1.2  Consideration  The Exercise Price shall be payable at the
         time of exercise.  The Exercise Price may be paid in cash (by cashiers'
         check or wire  transfer) or by: (i) surrender of shares of Common Stock
         of the Company  already owned by the Holder,  having a Market Price (as
         defined  below)  equal to the  Exercise  Price per share;  or (ii) upon
         surrender  of  the  Warrant  at the  principal  office  of the  Company
         together with notice of election. In the event of exercise by surrender
         of shares of this  Warrant,  the Company shall issue Holder a number of
         Warrant Shares computed using the following formula:

                  X = Y (A-B)/A

where:            X = the number of Warrant  Shares to be issued to Holder  (not
                  to exceed  the number of Shares set forth on the cover page of
                  this Warrant Agreement, as adjusted pursuant to the provisions
                  of Section 6 of this Warrant Agreement).

                  Y = the  number of  Warrant  Shares  for which the  Warrant is
                  being exercised.

                  A = the  Market  Price  of one  Share  (for  purposes  of this
                  Section  1.2),  the  "Market  Price"  shall be  defined as the
                  closing price on the exchange on which the Common Stock traded
                  for the  trading  day  prior to the date of  exercise  of this
                  Warrant Agreement; provided if the Common Stock does not trade
                  on any exchange,  the Market Price shall equal the closing bid
                  price in the over-the-counter market for the trading day prior
                  to the date of exercise of this Warrant Agreement, as reported
                  by the National  Association of Securities  Dealers  Automated
                  Quotation System;  and,  provided further,  that if the common
                  stock is not  quoted or listed by any  organization,  the fair
                  value of the  common  stock,  as  determined  by the  Board of
                  Directors  of  the  Company,   whose  determination  shall  be
                  conclusive, shall be used).

                  B = the Exercise Price.


                  1.3 Record  Ownership.  To the extent  permitted by applicable
         law,  the  person in whose  name any  certificate  for shares of Common
         Stock or other  evidence of ownership  of

                                       2
<PAGE>

         any other security is issued upon exercise of the Warrant shall for all
         purposes  be deemed to have  become the holder of record of such shares
         or other  security on the date of delivery  of the  subscription  form,
         irrespective  of the  date of  delivery  of such  certificate  or other
         evidence of ownership,  notwithstanding  that the transfer books of the
         Company  shall  then be  closed  or that  such  certificates  or  other
         evidence of ownership  shall not then actually  have been  delivered to
         such person.

                  1.4  Regulatory  Problem.  The Holder  shall not  exercise  or
         exchange the Warrant for shares of Common Stock if after giving  effect
         to such exercise or exchange the Holder reasonably determines that such
         exercise would violate any law or regulation or any  requirement of any
         governmental authority applicable to Holder or its affiliates.

         2. Shares to be Fully Paid.  The Company  covenants and agrees that all
Warrant  Shares,  will,  upon  issuance and payment of the  applicable  Exercise
Price, be duly authorized,  validly issued,  fully paid and  nonassessable,  and
free of all liens and encumbrances, except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.

         3. Adjustment of Exercise Price and Number of Shares.

                  3.1 Adjustment for Reorganization, Consolidation, Merger, etc.
         The  Exercise   Price  and  the  number  of  Warrant  Shares  shall  be
         proportionately  adjusted  from time to time upon the  occurrence of an
         increase in the number of shares of Common Stock outstanding by a stock
         dividend payable in shares of Common Stock or a subdivision or split-up
         of shares of Common Stock, a decrease in the number of shares of Common
         Stock  outstanding  by a combination  of  outstanding  shares of Common
         Stock, any capital  reorganization  or any  reclassification  of Common
         Stock, or the consolidation,  merger, combination or exchange of shares
         with another  entity,  or the divisive  reorganization  of the Company.
         Upon each adjustment of the Exercise Price,  the Holder of this Warrant
         shall  thereafter  be  entitled  to  purchase,  at the  Exercise  Price
         resulting  from such  adjustment,  the  number of  shares  obtained  by
         multiplying  the  Exercise  Price in effect  immediately  prior to such
         adjustment  by  the  number  of  shares  purchasable   pursuant  hereto
         immediately prior to such adjustment,  and dividing the product thereof
         by the Exercise  Price  resulting from such  adjustment.  The number of
         Shares  purchasable  upon the  exercise  of each  Warrant is subject to
         adjustment  from time to time upon the  occurrence of any of the events
         enumerated below:

                  In case the Company (i)  consolidates  with or merges into any
         other  entity and is not the  continuing  or  surviving  entity of such
         consolidation   or  merger,   or  (ii)  permits  any  other  entity  to
         consolidate  with or merge  into the  Company  and the  Company  is the
         continuing  or  surviving   Company  but,  in   connection   with  such
         consolidation or merger,  the Common Stock is changed into or exchanged
         for common stock or other securities of any other entity or cash or any
         other  assets,  or  (iii)  transfers  all or  substantially  all of its
         properties  and  assets  to  any  other  entity,   or  (iv)  effects  a
         reorganization or reclassification of the equity of the Company in such
         a way that holders of Common Stock shall be entitled to receive  stock,
         securities,  cash or assets with  respect to or in exchange  for Common
         Stock,  then, and in each such case,  proper provision shall be made so
         that,  upon  the  exercise  of  this  Warrant  at any  time  after  the
         consummation of such consolidation, merger, transfer, reorganization or
         reclassification,  the Holder  shall be  entitled  to  receive  (at the
         aggregate  Exercise Price in effect for Common Stock issuable upon

                                       3
<PAGE>

         such exercise of this Warrant  immediately prior to such consummation),
         in lieu of Common  Stock  issuable  upon such  exercise of this Warrant
         prior to such  consummation,  the stock and other securities,  cash and
         assets  to which  such  Holder  would  have  been  entitled  upon  such
         consummation  if such Holder had so exercised this Warrant  immediately
         prior thereto.

                  3.2  Adjustments  for  Certain  Issuances  of  Securities  The
         Exercise  Price shall also be subject to adjustment in accordance  with
         Section 4(g) of the Securities Purchase Agreement.

         4. Registration. The Warrant Shares shall be subject to registration at
the expense of the Company pursuant to the Registration Rights Agreement between
the Company and the Holder dated as of the date hereof.

         5. Voting Rights.  Nothing contained in this Warrant shall be construed
as  conferring  upon the  Holder  the right to vote or to  consent to or receive
notice as a  shareholder  of the  Company  on any other  matters  or any  rights
whatsoever as a shareholder of the Company.

         6.  Compliance  with  Securities  Act:   Transferability   of  Warrant,
Disposition of Shares of Common Stock.

                  6.1 Compliance with Securities Act. The Holder,  by acceptance
         hereof,  agrees that this  Warrant and the Warrant  Shares to be issued
         upon exercise hereof are being acquired for investment and that it will
         not offer,  sell,  or otherwise  dispose of this Warrant or any Warrant
         Shares except under  circumstances which will not result in a violation
         of the Securities Act or any applicable  state  securities  laws.  This
         Warrant and all Warrant Shares (unless  registered under the Act) shall
         be stamped or imprinted  with a legend in  substantially  the following
         form:

         THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF
         1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE.  THEY
         MAY NOT BE SOLD,  OFFERED FOR SALE,  PLEDGED,  OR  HYPOTHECATED  IN THE
         ABSENCE  OF A  REGISTRATION  STATEMENT  IN EFFECT  WITH  RESPECT TO THE
         SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL  SATISFACTORY TO THE
         COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT
         TO RULE 144 OF SUCH ACT.

                  6.2  Accredited  Investor;   Access  to  Information.   Holder
         represents  and  warrants  that  as of the  date  hereof  Holder  is an
         accredited  investor  within the  meaning of Rule 501 of  Regulation  D
         promulgated  under  the  Act.  Holder  has had the  opportunity  to ask
         questions  of,  and to  receive  answers  from,  appropriate  executive
         officers of the Company with respect to the terms and conditions of the
         transactions  contemplated  hereby and with  respect  to the  business,
         affairs,  financial condition and results of operations of the Company.
         Holder has had access to such  financial  and other  information  as is
         necessary in order for Holder to make a fully  informed  decision as to
         investment in the Company,  and has had the  opportunity  to obtain

                                       4
<PAGE>

         any additional  information necessary to verify any of such information
         to which Holder has had access.

                  6.3  Warrant   Transferable.   Subject  to   compliance   with
         applicable  federal and state  securities laws under which this Warrant
         was issued, this Warrant and all rights hereunder are transferable,  in
         whole or in part,  without  charge to the Holder  (except for  transfer
         taxes),  upon surrender of this Warrant  properly  endorsed;  provided,
         however, that the Holder shall notify the Company in writing in advance
         of any proposed  transfer  and shall not  transfer  this Warrant or any
         rights hereunder to any person or entity which, in the sole judgment of
         the Company's board of directors, is then engaged in a business that is
         in competition with the Company,  or is otherwise  engaged in an effort
         to acquire  control of the Company.  As promptly as practicable  but in
         any event  within ten (10)  Business  Days of receipt of such  properly
         endorsed Warrant, the Company shall issue,  register and deliver to the
         Holder  thereof  a new  Warrant  or  Warrants  of like  kind and  tenor
         representing  in the aggregate the right to purchase the same number of
         Warrant  Shares that could be purchased  pursuant to the Warrant  being
         transferred.  Holder shall pay Company's  reasonable  costs incurred in
         effectuating such transfer.


                  6.4 Disposition of Warrant Shares.  With respect to any offer,
         sale, or other  disposition  of the Warrant,  or any Warrant  Shares if
         such shares are not registered  and freely  tradable under the Act when
         issued,  the Holder hereof and each  subsequent  Holder of this Warrant
         agrees to give written notice to the Company prior thereto,  describing
         briefly the manner  thereof,  together  with a written  opinion of such
         holder's counsel, if reasonably requested by the Company, to the effect
         that such offer,  sale or other  disposition  may be  effected  without
         registration or  qualification  (under the Act as then in effect or any
         federal or state law then in effect) of the Warrant or Warrant  Shares,
         as the  case  may be,  and  indicating  whether  or not  under  the Act
         certificates  for the Warrant or Warrant Shares to be sold or otherwise
         disposed  of  require   any   restrictive   legend  as  to   applicable
         restrictions on  transferability in order to insure compliance with the
         Act.  Promptly  upon  receiving  such written  notice and opinion,  the
         Company, as promptly as practicable,  shall notify the Holder that such
         Holder may sell or otherwise  dispose of the Warrant or Warrant Shares,
         all in  accordance  with  the  terms  of the  notice  delivered  to the
         Company. If a determination has been made pursuant to this subparagraph
         6.4 that the opinion of the  counsel  for the Holder is not  reasonably
         satisfactory  to the  Company,  the Company  shall so notify the Holder
         promptly after such  determination has been made.  Notwithstanding  the
         foregoing,  the  Warrant or  Warrant  Shares  may be  offered,  sold or
         otherwise  disposed  of in  accordance  with  Rule 144  under  the Act,
         provided  that  the  Company  shall  have  been   furnished  with  such
         information as the Company may request to provide reasonable  assurance
         that the provisions of Rule 144 have been satisfied.  Each  certificate
         representing the Warrant or Warrant Shares thus  transferred  (except a
         transfer pursuant to Rule 144) shall bear a legend as to the applicable
         restrictions on  transferability in order to insure compliance with the
         Act,  unless in the aforesaid  opinion of counsel for the Holder,  such
         legend is not required in order to insure  compliance with the Act. The
         Company may issue stop transfer  instructions  to its transfer agent in
         connection with such restrictions.

                                       5
<PAGE>

                  6.5 Limitation on Warrant Shares Notwithstanding anything else
         herein to the contrary, the Holder of this Warrant may not exercise any
         Warrant to the extent that after such conversion,  the number of shares
         of Common  Stock  owned by the Holder and its  affiliates  (other  than
         shares of Common Stock which may be deemed  beneficially  owned through
         the  ownership of the  unconverted  portion of the  Debentures  and any
         unexercised Warrants),  would result in ownership by the Holder and its
         affiliates  of 4.99% or more of the  Company's  issued and  outstanding
         shares of Common Stock  following such exercise.  In the event that the
         Holder owns both Debentures and Warrants which would  otherwise  result
         in ownership of 4.99% or more of the Company's  issued and  outstanding
         shares of Common  Stock but for the prior  sentence,  then the Warrants
         shall be deemed to not be exercisable to the extent  necessary to allow
         conversion of the Debentures to the maximum  extent  possible and still
         permit the Holder's  ownership to remain below 4.99%.  This restriction
         shall be binding  upon any  transferee  of the Warrant from any Holder.
         The preceding  shall not interfere  with the Holder's right to exercise
         this Warrant over time which in the aggregate totals more than 4.99% of
         the then outstanding  shares of Common Stock so long as such Holder and
         its  affiliates  do not own more  than  4.99%  of the then  outstanding
         Common Stock at any given time.

         7.  Modification and Waiver.  This Warrant and any provision hereof may
be changed, waived,  discharged,  or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.


         8.  Notices.  Any  notice,  request,  or  other  document  required  or
permitted to be given or delivered to the Holder  hereof or the Company shall be
delivered or shall be sent by certified mail,  postage prepaid,  or by facsimile
with confirmation of transmission to the parties at the address set forth in the
Securities Purchase Agreement,  or such other address as either may from time to
time provide to the other.

         9. Governing Law; Waiver of Jury Trial.

                  9.1  Governing  Law.  This  Warrant  shall be  governed by and
         construed  in  accordance  with the laws of the  State of  Colorado  as
         applied to agreements executed and performed in such state. Each of the
         parties  consents to the exclusive  jurisdiction  of the federal courts
         whose districts encompass any part of the City of New York or the state
         courts  of the  State  of New York  sitting  in the City of New York in
         connection  with any  dispute  arising  under this  Warrant  and hereby
         waives,  to  the  maximum  extent  permitted  by  law,  any  objection,
         including any objection  based on forum non coveniens,  to the bringing
         of any  such  proceeding  in  such  jurisdictions.  The  Company  shall
         reimburse the Holder for any  reasonable  legal fees and  disbursements
         incurred by the Holder in  enforcement  of or  protection of any of its
         rights under this Warrant.

                  9.2  Waiver  of  Jury  Trial.   BECAUSE  DISPUTES  ARISING  IN
         CONNECTION  WITH COMPLEX  FINANCIAL  TRANSACTIONS  ARE MOST QUICKLY AND
         ECONOMICALLY  RESOLVED  BY AN  EXPERIENCED  AND  EXPERT  PERSON AND THE
         PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN ARBITRATION  RULES),
         THE PARTIES  DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
         SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF

                                       6
<PAGE>

         THE BENEFITS OF THE  JUDICIAL  SYSTEM AND OF  ARBITRATION,  THE PARTIES
         HERETO  WAIVE  ALL  RIGHT  TO  TRIAL  BY  JURY IN ANY  ACTION,  SUIT OR
         PROCEEDING  BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR  REMEDIES  UNDER
         THIS AGREEMENT OR ANY DOCUMENTS RELATED HERETO.


         10. Exchange of Warrant.

                  10.1 Lost Warrant.  The Company represents and warrants to the
         Holder hereof that upon receipt of evidence reasonably  satisfactory to
         the Company of the loss,  theft,  destruction,  or  mutilation  of this
         Warrant and, in the case of any such loss,  theft or destruction,  upon
         receipt of an indemnity  reasonably  satisfactory to the Company, or in
         the case of any such mutilation upon surrender and  cancellation of the
         Warrant, the Company will, at the Company's expense, make and deliver a
         new Warrant,  of like tenor, in lieu of the lost, stolen,  destroyed or
         mutilated Warrant.


                  10.2  Exchange.  The Holder may  exchange  this Warrant at its
         option, upon presentation and surrender of this Warrant to Company, for
         other  Warrants of  different  denominations,  entitling  the Holder to
         purchase in the aggregate the same number of Warrant Shares.  A Warrant
         may be divided or  combined  with  other  Warrants  that carry the same
         rights,  upon  presentation  thereof  at the  principal  office  of the
         Company,   together  with  written  notice  specifying  the  names  and
         denominations  in which new Warrants are to be issued and signed by the
         holder  thereof.  In order to  effect  an  exchange  permitted  by this
         Section  10.2,  the Holder  shall  deliver to the Company  this Warrant
         accompanied by a written  request  signed by the Holder  specifying the
         number and denominations of the Warrant or the Warrants to be issued in
         such  exchange and the names in which the Warrant or Warrants are to be
         issued.  As promptly as  practicable  but in any event  within ten (10)
         Business Days of receipt of such a request,  the Company shall, without
         charge,  issue,  register  and deliver to the Holder each Warrant to be
         issued in such exchange.


         11.  Fractional  Shares.  No  fractional  shares  shall be issued  upon
exercise of this Warrant.  The Company shall,  in lieu of issuing any fractional
share,  pay the  Holder  entitled  to such  fraction a sum in cash equal to such
fraction  (calculated to the nearest 1/100th of a share)  multiplied by the then
effective Exercise Price on the date the Form of Subscription is received by the
Company.


         12.  Successors  and  Assigns.  This  Warrant and the rights  evidenced
hereby  shall inure to the  benefit of and be binding  upon the  successors  and
assigns of the Company and successors and permitted  assigns of the Holder.  The
provisions  of this  Warrant  are  intended to be for the benefit of all Holders
from time to time of this Warrant, and shall be enforceable by any such Holder.


         13. Preparation of Warrant. The Company prepared this Warrant solely on
its behalf. Each party to this Warrant  acknowledges that: (i) the party had the
advice of, or  sufficient  opportunity  to obtain the advice of,  legal  counsel
separate and  independent of legal

                                       7
<PAGE>

counsel  for  any  other  party  hereto;  (ii)  the  terms  of the  transactions
contemplated  by this Warrant are fair and  reasonable to such party;  and (iii)
such party has voluntarily  entered into the  transactions  contemplated by this
Warrant without duress or coercion.  Each party further  acknowledges  that such
party was not  represented  by the legal  counsel of any other  party  hereto in
connection with the transactions  contemplated by this Warrant, nor was he or it
under any belief or  understanding  that such legal counsel was representing his
or its interests.  Each party agrees that no conflict,  omission or ambiguity in
this  Warrant,  or the  interpretation  thereof,  shall be presumed,  implied or
otherwise  construed  against any other party to this  Warrant on the basis that
such party was responsible for drafting this Warrant.


                            [SIGNATURE PAGE FOLLOWS]

                                       8
<PAGE>


         IN WITNESS  WHEREOF,  the Company  has caused  this  Warrant to be duly
executed by its officer, thereunto duly authorized as of February____, 2003.


                           COMPANY:



                           HEALTH SCIENCES GROUP, INC.,

                           a Colorado corporation



                           By:  _______________________________
                           Its:  _______________________________



(1) Insert here the number of shares  called for on the face of the Warrant (or,
in the case of a partial  exercise,  the portion thereof as to which the Warrant
is being exercised),  in either case without making any adjustment for any stock
or other  securities  or  property or cash  which,  pursuant  to the  adjustment
provisions of the Warrant, may be deliverable upon exercise.



                                       9
<PAGE>


                              FORM OF SUBSCRIPTION

(To be signed only upon exercise of Warrant)

To:      HEALTHSCIENCES GROUP, INC.

The  undersigned,  the  holder of the  attached  Common  Stock  Warrant,  hereby
irrevocably  elects to exercise the purchase  right  represented by such Warrant
for,  and  to  purchase  thereunder,  _____________shares  of  Common  Stock  of
HEALTHSCIENCES  GROUP,  INC.  (the  "Company")  and  herewith  makes  payment of
$_________ therefor.

The  undersigned  represents  that it is acquiring such Common Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof. The undersigned requests that certificates for such shares
be issued in the name of, and delivered to,  _____________________whose  address
is_____________________________________________________________________________.



DATED:   _________________

            _________________________________________
            (Signature  must  conform  in all  respects  to name of  Holder  as
            specified on the face of the Warrant)

            Name:        _________________________________

            Title:       _________________________________













                                       10
<PAGE>

                                                                  EXHIBIT 10.7.8


                          REGISTRATION RIGHTS AGREEMENT

         THIS REGISTRATION RIGHTS AGREEMENT,  dated as of February __, 2003(this
"Agreement"),  is made by and between HEALTH  SCIENCES  GROUP,  INC., a Colorado
corporation,  with  headquarters  located at 6080 Center Drive,  6th Floor,  Los
Angeles,  California 90045 (the "Company"), and each entity named on a signature
page  hereto  (each  an  "Investor"  and  collectively  the  "Investors")  (each
Agreement  with an Investor  being deemed a separate and  independent  agreement
between the Company and such  Investor,  except that each Investor  acknowledges
and consents to the rights granted to each other Investor under such Agreement.

                              W I T N E S S E T H:

         WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase  Agreement,  dated as of the  date of  acceptance  as set  forth on the
Securities  Purchase  Agreement,  between  the  Investor  and the  Company  (the
"Securities Purchase Agreement;"  capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Securities Purchase  Agreement),
the Company has agreed to issue and sell to the Investors the Debentures; and

         WHEREAS,  the  Debentures are  convertible  into shares of Common Stock
(the  "Conversion  Shares";  which term, for purposes of this  Agreement,  shall
include  shares of  Common  Stock of the  Company  issuable  in lieu of  accrued
interest through the Maturity Date of the Debentures, as that term is defined in
and as  contemplated  by the  Debentures  ) upon the  terms and  subject  to the
conditions contained in the Debentures; and

         WHEREAS,  the Company has agreed to issue the  Warrants to the Investor
in  connection  with the  issuance of the  Debentures,  and the  Warrants may be
exercised for the purchase of shares of Common Stock (the "Warrant Shares") upon
the terms and conditions of the Warrants; and

         WHEREAS,  to induce the Investor to execute and deliver the  Securities
Purchase  Agreement,  the  Company  has agreed to provide  certain  registration
rights  under  the  Securities  Act of  1933,  as  amended,  and the  rules  and
regulations  thereunder,  or any similar  successor statute  (collectively,  the
"Securities Act"), with respect to the Registrable Securities;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency of which are hereby  acknowledged,  the Company and the
Investor hereby agree as follows:

<page>




         1.  Definitions.  As used in this Agreement,  the following terms shall
have the following meanings:

         (a)  "Closing  Date" means the date of the closing of the  purchase and
sale of the  Debentures and Warrants upon the release of the Purchase Price from
escrow, as provided in the Securities Purchase Agreement.

         (b)  "Effective  Date" means the date the SEC  declares a  Registration
Statement covering  Registrable  Securities and otherwise meeting the conditions
contemplated hereby to be effective.

         (c)   "Register,"   "Registered,"   and   "Registration"   refer  to  a
registration  effected  by  preparing  and filing a  Registration  Statement  or
Statements in compliance  with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering  securities on a
continuous  basis ("Rule 415"), and the declaration or ordering of effectiveness
of such  Registration  Statement by the United  States  Securities  and Exchange
Commission (the "SEC").

         (d)  "Registrable  Securities"  means  the  Conversion  Shares  and the
Warrant Shares.

         (e)  "Registration  Statement"  means a  registration  statement of the
Company under the Securities Act covering  Registrable  Securities on Form SB-2,
if the Company is then eligible to file using such form, and if not eligible, on
such other appropriate form.

         2. Registration.

         (a) Mandatory Registration.

                  (i) The Company  shall  prepare and file with the SEC, as soon
         as possible  after the Closing  Date but no later than thirty (30) days
         after the Closing Date (the  "Required  Filing  Date"),  a Registration
         Statement registering for resale by the Investor a sufficient number of
         shares  of  Common  Stock  for the  Investors  to sell the  Registrable
         Securities, but in no event less than the number of shares equal to the
         number of shares into which the  Debentures  and all  interest  thereon
         through the Maturity Date would be convertible at the time of filing of
         such  Registration  Statement  (assuming  for  such  purposes  that all
         Debentures  in the  original  principal  amount  of  $300,000  had been
         issued, had been eligible to be converted, and had been converted, into
         Conversion  Shares  at  the  Conversion  Price,  whether  or  not  such
         issuance,  eligibility,  accrual of interest or conversion  had in fact
         occurred  as of such date) and (y) the number of Warrant  Shares  which
         would  be  issuable  on  exercise  of the  Warrants.  The  Registration
         Statement shall also cover (A) the Collateral,  as that term is defined
         in the Pledge and Security  Agreement executed by Frederick Tannous and
         William Glaser,  of even date herewith,  (B) the shares of Common Stock
         issuable upon exercise of the Warrants being issued to George Matin and
         FCIM Corp.  and (C) a maximum of 200,000  shares of Common Stock issued
         to Pollet,  Richardson &

                                       2
<PAGE>

         Patel in connection with and as compensation for the preparation of the
         Registration Statement. The Registration Statement shall state that, in
         accordance  with  Rule 416 and 457 under the  Securities  Act,  it also
         covers such  indeterminate  number of additional shares of Common Stock
         as may  become  issuable  upon  conversion  of the  Debentures  and the
         exercise  of the  Warrants  to prevent  dilution  resulting  from stock
         splits or stock  dividends.  The Company will use its  reasonable  best
         efforts to cause such Registration  Statement to be declared effective.
         In the event that the  Registration  Statement is is not effective (the
         "Required  Effective Date") upon the earlier of (Y) five (5) days after
         oral or written notice by the SEC that it may be declared  effective or
         (Z) ninety (90) days after the date on which the registration statement
         is filed  (unless such  failure to become  effective is a result of the
         actions of the  Lender),  the Company will be deemed to be in breach of
         this Agreement.

                  (ii)  The  aggregate  number  of  shares  registered  for  the
         Investors in each Registration  Statement or amendment thereto shall be
         allocated  among the Investors on a pro rata basis among them according
         to their  relative  Registrable  Shares  included in such  Registration
         Statement.

         (b) Payments by the Company.

                  (i) If the  Registration  Statement  covering the  Registrable
         Securities  is not  filed in proper  form with the SEC by the  Required
         Filing Date,  the Company will make payment to the Initial  Investor in
         such amounts and at such times as shall be determined  pursuant to this
         Section 2(b).

                  (ii) If the  Registration  Statement  covering the Registrable
         Securities is not effective by the relevant Required  Effective Date or
         if  the  Investor  is  restricted  from  making  sales  of  Registrable
         Securities covered by a previously effective  Registration Statement at
         any time by virtue of a  suspension  or stop order with respect to such
         Registration   Statement  (the  date  such  restriction   commences,  a
         "Restricted  Sale Date"),  then the Company  will make  payments to the
         Investor  in such  amounts  and at such  times as  shall be  determined
         pursuant to this  Section  2(b);  notwithstanding  the  following,  the
         Company may  suspend the  Investor  from  making  sales of  Registrable
         Securities  for  up  to  three  such  suspension   periods  during  any
         consecutive 12 month period,  each of which suspension period shall not
         either (i) be for more than three (3) business  days or (ii) begin less
         than ten  (10)  business  days  after  the  last  day of the  preceding
         suspension.

                  (iii) The amount  (the  "Periodic  Amount")  to be paid by the
         Company to the Investor shall be determined as of each Computation Date
         (as defined below) and such Periodic Amount shall be equal to 2% of the
         principal amount of Debenture  outstanding for the period from the date
         following  each of the  relevant  Required  Filing Date or the Required
         Effective  Date, as the case may be, to the first relevant  Computation
         Date, and thereafter to each subsequent Computation Date (prorated on a
         daily basis if such period is less than thirty [30] days).  The parties
         acknowledge  that the  failure  to  comply on a timely  basis  with the
         provisions  related to both the  Required  Filing Date and the Required
         Effective  Date would  result in a payment of  fourpercent  of the then
         outstanding  principal  amount  of  the  Debenture.   Anything  in  the
         preceding   provisions  of  this   paragraph   (iii)  to  the  contrary
         notwithstanding,  after the

                                       3
<PAGE>

         Effective  Date the Purchase  Price shall be deemed to refer to the sum
         of (X) the principal amount of all Debentures  previously purchased but
         not yet converted and (Y) the Held Shares Value (as defined below). The
         "Held Shares Value" means,  for shares  acquired by the Investor upon a
         conversion  within the thirty (30) days preceding the  Restricted  Sale
         Date,  but not yet sold by the  Investor  the  principal  amount of the
         Debentures  converted  into  such  shares of  Common  Stock;  provided,
         however,  that if the Investor effected more than one conversion during
         such thirty (30) day period and sold less than all of such shares,  the
         sold shares shall be deemed to be derived first from the conversions in
         the  sequence  of such  conversions  (that is, for  example,  until the
         number of shares from the first of such conversions have been sold, all
         shares  shall be deemed to be from the  first  conversion;  thereafter,
         from the second conversion until all such shares are sold).

                  (iv) Each Periodic Amount will be payable by the Company,  and
         at the option of the  Investor,  in cash or freely  tradable  shares of
         Common  Stock  (1) on the day  after the  Required  Filing  Date or the
         Required Effective Date, as the case may be, and (2) each thirtieth day
         thereafter.

                  (v) The  parties  acknowledge  that the  damages  which may be
         incurred by the Investor if the Registration  Statement is not filed by
         the Required  Filing Date or the  Registration  Statement  has not been
         declared effective by a Required Effective Date, including if the right
         to  sell   Registrable   Securities   under  a   previously   effective
         Registration  Statement  is  suspended  or the shares of the  Company's
         stock are not listed on the Principal Trading Market,  may be difficult
         to ascertain.  The parties agree that the Periodic Amounts  represent a
         reasonable  estimate on the part of the parties, as of the date of this
         Agreement, of the amount of such damages.

                  (vi) Notwithstanding the foregoing, the amounts payable by the
         Company  pursuant to this provision  shall not be payable to the extent
         any delay in the  effectiveness of the  Registration  Statement or such
         Registration  Statement  is suspended or subject to a stop order occurs
         because  of an act of,  or a  failure  to act or to act  timely  by the
         Investor or its counsel.

                  (vii)  "Computation  Date"  means  (A) the  date  which is the
         earlier  of (1)  thirty  (30) days after the  Required  Filing  Date or
         Required  Effective Date, as the case may be, or (2) the date after the
         Required Filing Date on which the Registration Statement is filed (with
         respect to payments due as  contemplated  by Section 2(b)(i) hereof) or
         the date after the Required  Effective  Date on which the  Registration
         Statement  is  declared  effective  (with  respect to  payments  due as
         contemplated by Section 2(b)(ii)  hereof),  as the case may be, and (B)
         each date  which is the  earlier  of (1)  thirty  (30)  days  after the
         previous   Computation   Date  or  (2)  the  date  after  the  previous
         Computation  Date on which the  Registration  Statement  is filed (with
         respect to payments due as  contemplated  by Section 2(b)(i) hereof) or
         is declared  effective (with respect to payments due as contemplated by
         Section 2(b)(ii) hereof), as the case may be.

         3.  Obligations of the Company.  In connection with the registration of
the Registrable Securities, the Company shall do each of the following:

                                       4
<PAGE>

         (a) Prepare promptly, and file with the SEC by the Required Filing Date
a Registration Statement with respect to not less than the number of Registrable
Securities  provided in Section 2(a) above,  and  thereafter  use its reasonable
best  efforts to cause  such  Registration  Statement  relating  to  Registrable
Securities  to become  effective  by the  Required  Effective  Date and keep the
Registration   Statement   effective   at  all  times  during  the  period  (the
"Registration  Period")  continuing  until the  earlier of (i) the date when the
Investors may sell all Registrable  Securities  under Rule 144 without volume or
other restrictions or limits or (ii) the date the Investors no longer own any of
the  Registrable   Securities,   which  Registration  Statement  (including  any
amendments or supplements thereto and prospectuses  contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated  therein or necessary to make the statements  therein,  in
light of the circumstances in which they were made, not misleading;

         (b)  Prepare  and  file  with  the  SEC  such   amendments   (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus  used  in  connection  with  the  Registration  Statement  as  may be
necessary to keep the Registration  Statement  effective at all times during the
Registration  Period,  and,  during the  Registration  Period,  comply  with the
provisions  of  the  Securities  Act  with  respect  to the  disposition  of all
Registrable  Securities  of the Company  covered by the  Registration  Statement
until such time as all of such  Registrable  Securities have been disposed of in
accordance  with the intended  methods of  disposition  by the seller or sellers
thereof as set forth in the Registration Statement;

         (c) Permit a single  firm of counsel  designated  by the  Investors  to
review the Registration  Statement and all amendments and supplements  thereto a
reasonable  period of time (but not less than three (3) business  days) prior to
their  filing  with the SEC,  and not file any  document in a form to which such
counsel reasonably objects.

         (d) Notify each Investor and the Investor's  counsel  (initially Steven
W. Schuster,  Esq.) and any managing underwriters  immediately (and, in the case
of (i)(A) below, not less than three (3) business days prior to such filing) and
(if  requested by any such person)  confirm such notice in writing no later than
one  (1)  business  day  following  the  day  (i)(A)  when a  Prospectus  or any
Prospectus supplement or post-effective  amendment to the Registration Statement
is proposed to be filed; (B) whenever the SEC notifies the Company whether there
will be a "review" of such  Registration  Statement;  (C)  whenever  the Company
receives (or a representative of the Company receives on its behalf) any oral or
written comments from the SEC in respect of a Registration Statement (copies or,
in the case of oral  comments,  summaries  of such  comments  shall be  promptly
furnished  by the  Company  to the  Investors);  and  (D)  with  respect  to the
Registration Statement or any post-effective amendment, when the same has become
effective;  (ii)  of any  request  by the  SEC or any  other  Federal  or  state
governmental  authority  for  amendments  or  supplements  to  the  Registration
Statement or Prospectus or for additional information;  (iii) of the issuance by
the SEC of any stop  order  suspending  the  effectiveness  of the  Registration
Statement covering any or all of the Registrable Securities or the initiation of
any proceedings for that purpose; (iv) if at any time any of the representations
or  warranties  of  the  Company  contained  in  any  agreement  (including  any
underwriting agreement) contemplated hereby ceases to be true and correct in all
material  respects;  (v) of the receipt by the Company of any notification  with
respect to the suspension of the  qualification or exemption

                                       5
<PAGE>

from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction,  or the  initiation  or  threatening  of any  proceeding  for such
purpose;  and (vi) of the  occurrence of any event that to the best knowledge of
the Company makes any statement made in the Registration Statement or Prospectus
or any document  incorporated or deemed to be incorporated  therein by reference
untrue  in  any  material   respect  or  that  requires  any  revisions  to  the
Registration  Statement,  Prospectus or other  documents so that, in the case of
the  Registration  Statement or the Prospectus,  as the case may be, it will not
contain any untrue  statement  of a material  fact or omit to state any material
fact required to be stated therein or necessary to make the statements  therein,
in light of the  circumstances  under which they were made, not  misleading.  In
addition,  the Company shall furnish the  Investor's  Counsel with copies of all
intended  written  responses to the comments  contemplated in clause (C) of this
Section  3(d) not later  than one (1)  business  day in advance of the filing of
such responses with the SEC so that the Investors  shall have the opportunity to
comment thereon;

         (e) Furnish to each  Investor  and to  Investor's  Counsel (i) promptly
after the same is  prepared  and  publicly  distributed,  filed with the SEC, or
received  by the  Company,  one (1)  copy of the  Registration  Statement,  each
preliminary prospectus and prospectus, and each amendment or supplement thereto,
and  (ii)  such  number  of  copies  of a  prospectus,  and all  amendments  and
supplements  thereto and such other  documents,  as such Investor may reasonably
request in order to facilitate  the  disposition of the  Registrable  Securities
owned by such Investor;

         (f) As promptly as practicable  after  becoming  aware thereof,  notify
each Investor of the happening of any event of which the Company has  knowledge,
as a result of which the prospectus included in the Registration  Statement,  as
then in effect,  includes  an untrue  statement  of a material  fact or omits to
state a material  fact  required to be stated  therein or  necessary to make the
statements  therein,  in light of the circumstances  under which they were made,
not  misleading,  and use its best efforts  promptly to prepare a supplement  or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission,  and deliver a number of copies of
such  supplement or amendment to each  Investor as such Investor may  reasonably
request;

         (g) As promptly as practicable  after  becoming  aware thereof,  notify
each Investor who holds  Registrable  Securities being sold (or, in the event of
an underwritten  offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other  suspension  of the  effectiveness  of the  Registration  Statement at the
earliest possible time;

         (h) Use its reasonable  efforts to secure and maintain the  designation
of all the Registrable  Securities covered by the Registration  Statement on the
Principal Trading Market within the meaning of Rule 11Aa2-1 of the SEC under the
Securities  Exchange  Act of 1934,  as amended  (the  "Exchange  Act"),  and the
quotation of the Registrable Securities on the Principal Trading Market.

         (i) Cooperate with the Investors who hold Registrable  Securities being

                                       6
<PAGE>

offered to facilitate the timely  preparation and delivery of  certificates  for
the Registrable  Securities to be offered pursuant to the Registration Statement
and  enable  such  certificates  for the  Registrable  Securities  to be in such
denominations  or amounts as the case may be, as the  Investors  may  reasonably
request, and, within five (5) business days after a Registration Statement which
includes  Registrable  Securities  is ordered  effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to the  transfer  agent  for the  Registrable  Securities  (with  copies  to the
Investors  whose  Registrable  Securities  are  included  in  such  Registration
Statement) an appropriate instruction and opinion of such counsel;

         (j) For a  period  of 90 days  from  the  Effective  Date,  not  file a
Registration  Statement  for more  than  100,000  shares of  Common  Stock;  (k)
Instruct the transfer agent to place a "stop order" with respect to the transfer
of the shares  issued to Pollet,  Richardson  and Patel that are included in the
Registration  Statement for a period of 90 days after the Effective  Date and to
place the appropriate  legend on the stock  certificates  issued with respect to
such shares; and

         (l) Take  all  other  reasonable  actions  necessary  to  expedite  and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.

         4. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:

         (a) Each Investor,  by such  Investor's  acceptance of the  Registrable
Securities,  agrees to cooperate with the Company as reasonably requested by the
Company  in  connection  with the  preparation  and  filing of the  Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such  Investor's  election  to  exclude  all  of  such  Investor's   Registrable
Securities from the Registration Statement; and

         (b) Each  Investor  agrees  that,  upon  receipt of any notice from the
Company of the  happening of any event of the kind  described in Section 3(f) or
3(g),  above,  such  Investor  will  immediately   discontinue   disposition  of
Registrable  Securities  pursuant to the  Registration  Statement  covering such
Registrable  Securities  until  such  Investor's  receipt  of the  copies of the
supplemented or amended prospectus  contemplated by Section 3(f) or 3(g) and, if
so directed by the Company,  such Investor  shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate  of
destruction)  all  copies  in  such  Investor's  possession,  of the  prospectus
covering  such  Registrable  Securities  current  at the time of receipt of such
notice.

         5. Expenses of Registration.

         (a) All expenses (other than (i) underwriting discounts and commissions
of the Investor and (ii) expenses of Investors'  counsel  incurred in connection
with  registrations,  filings  or  qualifications  pursuant  to  Section  3, but
including,  without limitation,  all registration,  listing,  and qualifications
fees,  printers and accounting  fees, the fees and  disbursements of counsel for
the Company shall be borne by the Company.

                                       7
<PAGE>

         (b) The Company has not, as of the date  hereof,  nor shall the Company
on or after the date of this Agreement, enter into any agreement with respect to
its securities that is inconsistent  with the rights granted to the Investors in
this  Agreement  or the  Securities  Purchase  Agreement,  except  as  disclosed
therein.

         6.  Indemnification.  After  Registrable  Securities  are included in a
Registration Statement under this Agreement:

         (a) To the extent permitted by law, the Company will indemnify and hold
harmless, the Investor,  the directors,  if any, of such Investor, the officers,
if any, of such Investor,  and each Lender Control Person (each, an "Indemnified
Party"), against any losses, claims, damages,  liabilities or expenses (joint or
several)  incurred  (collectively,  "Claims")  to which  any of them may  become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
Claims (or actions or proceedings,  whether  commenced in respect thereof) arise
out of or are based upon:  (i) any untrue  statement  or untrue  statement  of a
material  fact  contained in the  Registration  Statement or any  post-effective
amendment  thereof  or the  omission  or  alleged  omission  to state  therein a
material fact required to be stated  therein or necessary to make the statements
therein not  misleading,  (ii) any untrue  statement  or untrue  statement  of a
material fact contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in the light of the circumstances under which
the  statements  therein were made,  not  misleading  or (iii) any  violation or
alleged  violation by the Company of the  Securities  Act, the Exchange Act, any
state  securities law or any rule or regulation  under the  Securities  Act, the
Exchange Act or any state  securities law (the matters in the foregoing  clauses
(i) through (iii) being collectively  referred to as "Violations").  The Company
shall reimburse the Investor for any reasonable  legal fees or other  reasonable
expenses incurred by them in connection with investigating or defending any such
Claim.   Notwithstanding   anything  to  the  contrary   contained  herein,  the
indemnification  agreement contained in this Section 6(a) shall not (i) apply to
any Claims  arising  out of or based upon a Violation  which  occurs in reliance
upon and in conformity with  information  furnished in writing to the Company by
or on behalf of any  Indemnified  Party expressly for use in connection with the
preparation  of the  Registration  Statement  or any such  amendment  thereof or
supplement  thereto;  (ii) be  available  to the extent such Claim is based on a
failure of the Investor to deliver or cause to be delivered the prospectus  made
available by the Company;  or (iii) apply to amounts paid in  settlement  of any
Claim if such  settlement is effected  without the prior written  consent of the
Company,  which consent shall not be  unreasonably  withheld.  The Investor will
indemnify the Company,  its  officers,  directors  and agents  (including  legal
counsel)  (each an  "Indemnified  Party")  against any claims  arising out of or
based upon a Violation  which  occurs in reliance  upon and in  conformity  with
information  furnished  in  writing  to the  Company,  by or on  behalf  of such
Investor,   expressly  for  use  in  connection  with  the  preparation  of  the
Registration Statement,  subject to such limitations and conditions set forth in
this  Section 6. The Investor  shall  reimburse  the Company for any  reasonable
legal  fees or other  reasonable  expenses  incurred  by it in  connection  with
investigating  or defending any such Claim.  Such indemnity shall remain in full
force and effect  regardless  of any  investigation  made by or on behalf of the
Indemnified   Party,  and  shall  survive  the  offering  and  transfer  of  the
Registrable Securities by the Investor.

                                       8
<PAGE>

         (b) Promptly after receipt by an Indemnified Party under this Section 6
of notice of the commencement of any action (including any governmental action),
such  Indemnified  Party  shall,  if a Claim in  respect  thereof  is to be made
against any indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement  thereof and the  indemnifying  party
shall have the right to  participate  in,  and,  to the extent the  indemnifying
party so desires,  jointly with any other  indemnifying party similarly noticed,
to assume control of the defense thereof with counsel  mutually  satisfactory to
the indemnifying  party and the Indemnified Party, as the case may be; provided,
however,  that an  Indemnified  Party  shall  have the right to  retain  its own
counsel with the  reasonable  fees and  expenses to be paid by the  indemnifying
party,  if, in the reasonable  opinion of counsel  retained by the  indemnifying
party,  the  representation  by such  counsel of the  Indemnified  Party and the
indemnifying  party would be inappropriate due to actual or potential  differing
interests between such Indemnified Party and any other party represented by such
counsel  in such  proceeding.  The  failure  to  deliver  written  notice to the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action  shall  not  relieve  such  indemnifying  party of any  liability  to the
Indemnified  Party  under  this  Section  6,  except  to  the  extent  that  the
indemnifying  party is  prejudiced  in its  ability to defend such  action.  The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the  investigation  or defense,  as such
expense, loss, damage or liability is incurred and is due and payable.

         7. Contribution.  To the extent any  indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable  under  Section  6 to the  fullest  extent  permitted  by law;  provided,
however,  that (a) no contribution shall be made under  circumstances  where the
maker would not have been liable for  indemnification  under the fault standards
set  forth in  Section  6; (b) no  seller of  Registrable  Securities  guilty of
fraudulent  misrepresentation  (within  the  meaning  of  Section  11(f)  of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities  who was not  guilty of such  fraudulent  misrepresentation;  and (c)
except where the seller has committed fraud (other than a fraud by reason of the
information included or omitted from the Registration  Statement as to which the
Company  has not  given  notice as  contemplated  under  Section  3  hereof)  or
intentional  misconduct,  contribution  by any seller of Registrable  Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.

         8. Reports under Securities Act and Exchange Act. With a view to making
available to Investor the benefits of Rule 144 promulgated  under the Securities
Act or any  other  similar  rule or  regulation  of the SEC that may at any time
permit  Investor  to  sell  securities  of the  Company  to the  public  without
Registration ("Rule 144"), the Company agrees to:

         (a) make and keep  public  information  available,  as those  terms are
understood and defined in Rule 144;

         (b)  file  with  the SEC in a  timely  manner  all  reports  and  other
documents required of the Company under the Securities Act and the Exchange Act;

                                       9
<PAGE>

         (c) furnish to the  Investor so long as the Investor  owns  Registrable
Securities,  promptly upon request,  (i) a written statement by the Company that
it has complied with the reporting  requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) if not available on the SEC's EDGAR system, a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as may be
reasonably  requested to permit the Investor to sell such securities pursuant to
Rule 144 without Registration.

         9.  Assignment  of the  Registration  Rights.  The  rights  to have the
Company  register  Registrable  Securities  pursuant to this Agreement  shall be
automatically  assigned by the Investors to any  transferee  of the  Registrable
Securities  (or all or any portion of any  unconverted  Debentures)  only if the
Company  is,  within a  reasonable  time  after  such  transfer  or  assignment,
furnished with written notice of (a) the name and address of such  transferee or
assignee and (b) the securities with respect to which such  registration  rights
are being transferred or assigned.

         10. Amendment of Registration  Rights.  Any provision of this Agreement
may be amended and the observance  thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively),  only with the
written  consent of the Company and  Investors  who hold a eighty (80%)  percent
interest of the Registrable Securities (as calculated by the stated value of the
Debentures). Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.

         11. Miscellaneous.

         (a) A  person  or  entity  is  deemed  to be a  holder  of  Registrable
Securities  whenever  such  person or entity  owns of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or more  persons  or  entities  with  respect  to the  same
Registrable  Securities,  the Company shall act upon the basis of  instructions,
notice  or  election  received  from the  registered  owner of such  Registrable
Securities.

         (b) Notices  required or permitted to be given hereunder shall be given
in the manner contemplated by the Securities  Purchase Agreement,  (i) if to the
Company or to the Investor, to their respective address and the address of their
counsel as contemplated by the Securities Purchase Agreement, and (ii) if to any
other Investor,  at such address as such Investor shall have provided in writing
to the Company,  or at such other address as each such party furnishes by notice
given in accordance with this Section 11(b).

         (c)  Failure of any party to  exercise  any right or remedy  under this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

         (d) This Agreement  shall be governed by and  interpreted in accordance
with the laws of the State of Colorado for  contracts to be wholly  performed in
such state and without  giving effect to the  principles  thereof  regarding the
conflict  of laws.  Each of the  parties  consents  to the  jurisdiction  of the
federal  courts  in the City of New York,  New York or the  state  courts of the
State of New York sitting in the City of New York, New York County,  New York in

                                       10
<PAGE>

connection with any dispute  arising under this Agreement and hereby waives,  to
the maximum  extent  permitted by law, any  objection,  including  any objection
based on forum non  coveniens,  to the bringing of any such  proceeding  in such
jurisdictions.  To the  extent  determined  by such  court,  the  Company  shall
reimburse the Investor for any reasonable legal fees and disbursements  incurred
by the Investor in  enforcement of or protection of any of its rights under this
Agreement

         (e)  If  any   provision  of  this   Agreement   shall  be  invalid  or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or  enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

         (f) Subject to the  requirements  of Section 9 hereof,  this  Agreement
shall inure to the benefit of and be binding upon the  successors and assigns of
each of the parties hereto.

         (g) All pronouns and any  variations  thereof  refer to the  masculine,
feminine or neuter, singular or plural, as the context may require.

         (h) The headings in this  Agreement  are for  convenience  of reference
only and shall not limit or otherwise affect the meaning thereof.

         (i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall  constitute one and the
same agreement.  This Agreement,  once executed by a party,  may be delivered to
the other party hereto by telephone  line  facsimile  transmission  of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.

         (j) This Agreement  constitutes the entire  agreement among the parties
hereto with respect to the subject  matter  hereof.  There are no  restrictions,
promises, warranties or undertakings,  other than those set forth or referred to
herein. This Agreement  supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an  instrument  in writing  signed by the party to be charged
with enforcement thereof.

         (k) The Company acknowledges that any failure by the Company to perform
its  obligations  under  Section 3(a) hereof,  or any delay in such  performance
could result in loss to the Investors,  and the Company agrees that, in addition
to any other  liability the Company may have by reason of such failure or delay,
the Company shall be liable for all direct damages caused by any such failure or
delay,  unless the same is the result of force  majeure.  Neither party shall be
liable for consequential damages.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       11
<PAGE>

















         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed by their  respective  officers  thereunto duly authorized as of the day
and year first above written.


                                            COMPANY:
                                            HEALTH SCIENCES GROUP, INC.


                                            By: ___________________________
                                            Title:__________________________


                                            INVESTOR:

                                            By: ____________________________
                                            Name: __________________________

                                            Title:










                                       12
<PAGE>


                                                                  EXHIBIT 10.7.9


                               SECURITY AGREEMENT

                  THIS  SECURITY  AGREEMENT  (the  "Agreement?)  is  made  as of
February , 2003 by and between HEALTH SCIENCES GROUP, INC.  ("HSG"),  a Colorado
corporation  having its chief executive office located at 6080 Center Drive, 6th
Floor,  Los  Angeles,  California  90045,  XCEL  HEALTHCARE,  INC.  ("XCEL"),  a
California  corporation  having is chief executive office located at 6080 Center
Drive, 6th Floor, Los Angeles, California 90045 and BIOSELECT INNOVATIONS,  INC.
("Bioselect"),  a Nevada corporation having is chief executive office located at
6080 Center Drive, 6th Floor, Los Angeles,  California  90045,  XCEL HEALTHCARE,
INC. ("XCEL"),  a California (HSG, XCEL and Bioselect are collectively  referred
to as the  "Debtor"),  and each  entity  named on a  signature  page hereto (the
"Secured  Party")  whom are  holders of  Debentures  (as defined  herein  issued
pursuant to the Securities Purchase Agreement by and between,  among others, HSG
and the Secured Parties) and any subsequent  holders of the Debentures  assigned
in accordance with the Securities Purchase Agreement.

                                   WITNESSETH:

                  WHEREAS,  on February  18, 2003,  HSG and each  Secured  Party
entered into a Securities  Purchase  Agreement,  which agreement is incorporated
herein by reference,  and which provides for the loan by the Secured  Parties of
$300,000 in the aggregate (the "Loan") to be evidenced by the issuance by HSG of
12% Senior  Secured  Debentures due _______ (the  "Debentures")  to each Secured
Party in the aggregate  principal amount of $300,000 (the  "Securities  Purchase
Agreement"); and

                  WHEREAS,  concurrently with the execution and delivery hereof,
HSG issued the Debentures to the Secured Parties; and

                  WHEREAS, in order to induce the Secured Party to make the Loan
evidenced by the Debentures, the Debtor has agreed to grant to the Secured Party
a lien and security interest,  subject to all prior liens and security interests
in  existence on the date of this  Agreement  of record and all  purchase  money
security interests,  whether or not of record (the "Prior Liens"), in all of the
Debtors  accounts,  pursuant  to the  terms  and  conditions  of the  Securities
Purchase Agreement and this Agreement; and

                  NOW,  THEREFORE,  for good  and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the Debtor and the
Secured Party hereby agree as follows:

          1.      DEIFINITIONS.


                  (a) All terms used  herein  which are  defined in Article 1 or
Article 9 of the Uniform  Commercial  Code (the "Code")  shall have the meanings
given therein unless otherwise defined in this Agreement.  All references to the
plural  herein shall also mean the singular and to the singular  shall also mean
the plural.  All references to the Secured Party and the Debtor  pursuant to the
definitions  set forth in the recitals  hereto,  or to any other person  herein,
shall  include  their  respective  heirs,  executors,  administrators,  personal
representatives, successors and permitted assigns. The words "hereof," "herein,"
"hereunder,"  "this  Agreement"  and words of similar  import  when used in this
Agreement  shall  refer  to this  Agreement  as a whole  and not any  particular

                                       1
<PAGE>

provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented. extended, renewed, restated or replaced.

                  (b) In addition to those  capitalized  terms defined elsewhere
in this  Agreement,  the  following  terms shall have the  following  respective
meanings wherever used in this Agreement:

                  "Accounts"  shall have such meaning as such term is defined in
Article 9 of the UCC, shall include, without limitation,  each of the following,
whether  now owned or  hereafter  acquired  by the  Debtor:  (a) all present and
future  rights of the  Debtor to payment  for goods  sold or leased or  services
rendered,  whether or not earned by  performance,  (b) all accounts  receivable,
contract  rights,  book  debts,  debentures,  drafts  and other  obligations  or
indebtedness  owing the Debtor,  including that arising from the sale,  lease or
exchange  of goods or property  by it and/or the  performance  of services by it
(including,  without limitation, any such obligation that might be characterized
as an account,  contract right, or general intangible under the UCC in effect in
any  jurisdiction) and all of the Debtor?s rights in, to, and under all purchase
orders for goods, services, or other property, and all of the Debtor?s rights to
any goods,  services,  or other property represented by any of the foregoing and
all monies due to or to become due to the  Debtor  under all  contracts  for the
sale,  lease,  or exchange of goods or other property  and/or the performance of
services by it (whether or not earned by performance on the part of the Debtor),
in each  case  whether  now in  existence  or  hereafter  arising  or  acquired,
including,  without  limitation,  the right to  receive  the  proceeds  of these
purchase  orders and  contracts  of the Debtor,  (c) all rights of the Debtor to
receive any payment of money or other form of  consideration,  (d) all  security
pledged,  assigned  or  granted  to or held by the  Debtor to secure  any of the
foregoing,  (e) all guaranties of. or  indemnifications  with respect to, any of
the foregoing,  and (f) all rights of the Debtor as an unpaid seller of goods or
services,  including,  but not  limited  to, all rights of  stoppage in transit,
replevin, recession, reclamation and resale.

                  "Collateral"  shall  have the  meaning  set forth in Section 2
below.

                  "Event of Default"  shall mean any failure to pay,  perform or
observe any covenant,  provision,  term or agreement of the Securities  Purchase
Agreement or this Agreement.

                  "Loan Documents" shall mean that certain  Securities  Purchase
Agreement,  the Debenture,  this Agreement,  together with any and all documents
related thereto, including Financing Statements.

                  "Person" or "person" shall have the meaning  ascribed  thereto
in the Securities Purchase Agreement.

                  "Security  Interests"  shall  have the  meaning  set  forth in
Section 2 below.

                  "Secured  Obligations" shall mean the collective  reference to
all obligations of the Debtor to the Secured Party,  whether currently  existing
or  hereafter  incurred or created,  including  without  limitation  (I) due and
punctual  payment and  performance of the  Debentures,  the Securities  Purchase
Agreement,  this  Agreement  and any other of the Loan  Documents  including all
principal,  interest,  collection  costs,  expenses and other  amounts  owing or
payable from time to time under any such Loan  Documents,  (2) any additional or
further  amounts which,  pursuant to the Loan  Documents,  may be deemed part of
and/or  added  to the  Secured  Obligations,  (3)  any  other  Indebtedness  not
contemplated  by clauses  (1) or (2) above  which may  hereafter  be owed by the
Debtor to the Secured Party;  and

                                       2
<PAGE>

(4) the  reimbursement  of all reasonable costs incurred by the Secured Party to
maintain,  preserve  and  enforce  the Loan  Documents,  collect  these  Secured
Obligations  and  maintain  and  preserve  the  Collateral,   including  without
limitation,  the Secured Party'?s reasonable  attorneys fees,  disbursements and
legal expenses,  and all expenditures by Secured Party for taxes,  insurance and
repairs to and  maintenance of the  Collateral,  in each case,  whether  arising
before or after the  commencement  of any case with  respect to the Debtor under
the United States  Bankruptcy  Code or any similar statute  (including,  without
limitation,  the payment of interest  and other  amounts  which would accrue and
become due but for the  commencement  of such case).  The above shall be equally
applicable  to  any  renewals,  reinstatements,   restatements,   modifications,
amendments or extensions of any of the foregoing.

                  "UCC"  means the Uniform  Commercial  Code as in effect in the
State of Colorado;  provided,  however,  that if by mandatory provisions of law,
the  perfection  or effect  of  perfection  or  non-perfection  of the  security
interest in any Collateral to which this Financing Statement relates is governed
by the Uniform  Commercial  Code as in effect on or after the date hereof in any
other  jurisdiction,  UCC means the Uniform Commercial Code as in effect in such
other  jurisdiction  for  purposes  of the  provisions  hereof  relating to such
perfection or the effect of perfection or non-perfection.

         2. THE  SECURITY  INTEREST.  In order to  secure  the due and  punctual
payment and  performance of all Secured  Obligations  owing to the Secured Party
from time to time,  the Debtor hereby  grants  hypothecates,  assigns,  pledges,
transfers  and  delivers to the Secured  Party,  subject to the Prior  Liens,  a
continuing  lien and  security  interest  in, and hereby  assigns to the Secured
Party,  subject to the Prior  Liens,  as  collateral  security,  including  that
acquired with the proceeds of the Loan and the following  described property and
interests of the Debtor,  whether now owned or  hereafter  acquired or existing,
and all  proceeds  thereof  and all  substitutes,  replacements  and  accessions
thereto, wherever located: all Accounts of the Debtor (the "Collateral").

         The  Pledge  of the  Collateral  shall be  referred  to  herein  as the
"Security Interest."

         3.  FILING:  FURTHER  ASSURANCES.  The Debtor  shall,  at its  expense,
execute,  file,  record and deliver to Secured Party (in such manner and form as
the  Secured  Party  shall  require)  any  financing  statements  and any  other
documents,  necessary or appropriate to preserve,  perfect,  validate or protect
the security  interest granted to Secured Party hereunder against the rights and
interests of third parties.  and shall cooperate with the Secured Party to cause
the same to be duly  filed in all  places  necessary  to  perfect  the  security
interest  of  Secured  Party  in the  Collateral.  This  shall  include  (a) all
financing  statements,  (b) all carbon,  photographic or other  reproductions of
financing statements or this Agreement (which shall be sufficient as a financing
statement  hereunder),  (c) all  endorsements  to title to any vehicles or other
Collateral as may be required in order to perfect the Security Interest therein,
and (d) all  specific  assignments  or other  papers  that may be  necessary  or
desirable, or that the Secured Party may request, in order to create,  preserve,
perfect or validate  any  Security  Interest  or to enable the Secured  Party to
exercise and enforce its rights hereunder with respect to any of the Collateral.
In the event that any recording or refiling thereof (or filing of any statements
of continuation or assignment of any financing statement) is required to protect
and preserve such security  interest,  the Debtor,  at its own cost and expense,
shall cause the same to be  re-recorded  and/or  re-filed at the time and in the
manner requested by the Secured Party. The Debtor hereby  authorizes the Secured
Party to file or re-file  any  financing  statements,  continuation  statements,
and/or amended statements with respect to the Security Interest granted pursuant
to this Agreement which at anytime may be required or appropriate,  although the
same may have been executed only by Secured Party, and to execute such financing
statement  on behalf of the Debtor.  The Debtor  hereby  irrevocably  designates
Ezzat  Jalldad,  its  agents,

                                       3
<PAGE>

representatives and designees,  as agent and attorney-in-fact for the Debtor for
the aforesaid purposes.  In addition, in the event and to the extent that any of
Collateral  consists of or is represented  by instruments or other  evidences of
ownership such as would require physical  possession of same in order to perfect
the Security Interest therein, the Debtor will promptly, at its expense, deliver
same to the Secured Party, with any necessary endorsements thereon.

         4.  REPRESENTATIONS  AND  WARRANTIES  OF THE DEBTOR.  The Debtor hereby
represents and warrants as follows:

                  (a)  The  Debtor  is  not  in  default  under  any  indenture,
mortgage, deed of trust, agreement or other instrument to which it is a party or
by which  it may be  bound.  Neither  the  execution  nor the  delivery  of this
Agreement,  nor the consummation of the transactions  herein  contemplated,  nor
compliance with the provisions  hereof;  will violate any law or regulation,  or
any order or decree of any court or  governmental  authority,  or will  conflict
with, or result in the breach of; or constitute a default under,  any indenture,
mortgage,  deed of trust, agreement or other instrument to which the Debtor is a
party or by which  the  Debtor  may be  bound,  or  result  in the  creation  or
imposition of any lien, claim or encumbrance upon any property of Debtor.

                  (b) The Debtor has the power to  execute,  deliver and perform
the provisions of this agreement and all instruments and documents  delivered or
to be  delivered  pursuant  hereto,  and has  taken or  caused  to be taken  all
necessary  or  appropriate  actions to  authorize  the  execution,  delivery and
performance of this Agreement and all such instruments and documents.

                  (c)  The  Debtor  is the  legal  and  equitable  owner  of the
Collateral,  subject to the interest therein granted to the holders of the Prior
Liens and the Secured  Party.  The ownership by the Debtor of the  Collateral is
free and clear of all security  interests,  liens,  claims and  encumbrances  of
every kind and nature,  except as otherwise disclosed herein and in the schedule
to the Securities Purchase Agreement of even date herewith. The Debtor has taken
all  actions  necessary  under the UCC to perfect its  interest in any  accounts
purchased  by it or in  which it  otherwise  has an  interest,  as  against  its
assignors or creditors or its assigns.

                  (d) No default  exists,  and no event which with notice or the
passage of time or both,  would constitute a default under the Collateral by any
part  thereto,  and  there  are no  offsets,  claims  or  defenses  against  the
obligations evidenced by the Collateral.

                  (e)  The  Security  Interest  constitutes  a valid  and,  upon
delivery of documents necessary to perfect the Secured Party?s security interest
in the Collateral,  a perfected  security interest in the Collateral for payment
and  performance  of the  Secured  Obligations,  in each case prior to all other
liens and rights of others, with the exception of the Prior Liens and the rights
of the holders of the Prior Liens.

                  (f) That no financing  statement covering the Collateral is on
file in any public office, other than (i) financing statements in respect of any
indebtedness  which is  being  repaid  out of the  proceeds  of the Loan  (which
financing  statements are being terminated and released  simultaneously with the
funding  of the Loan to the  Debtor),  (ii)  financing  statements  filed by the
holders of the Prior Liens,  and (iii)  financing  statements  filed pursuant to
this Agreement.

                                       4
<PAGE>

         All representations and warranties of the Debtor contained
herein shall survive the closing of this  Agreement  until  termination  of this
Agreement under Section 14.

         5. COVENANTS OF THE DEBTOR.  The Debtor hereby  covenants and agrees as
follows:

                  (a) Protection of the Collateral.  The Debtor shall defend the
title to the Collateral  against all claims and demands  whatsoever.  The Debtor
shall keep the  respective  Collateral  free and clear of all liens and security
interests  (except for the Prior Liens and the lien  created  herein),  charges,
encumbrances,  taxes and assessments,  and shall pay all taxes,  assessments and
fees relating to the Collateral.  Upon request by Secured Party,  Debtor, at the
Debtor?s expense, shall furnish further assurances of title, execute any further
instruments  and  documents,  and do any  other  acts,  that  Secured  Party may
reasonably request,  necessary to effectuate the purposes and provisions of this
Agreement,  including,  in order to perfect and protect  the  Security  Interest
granted or  purported  to be granted  hereby or to enable the  Secured  Party to
exercise  and  enforce the rights and  remedies  hereunder  with  respect to any
Collateral.

         Debtor shall not further sell, exchange,  assign, transfer or otherwise
dispose  of  the  Collateral.  and  shall  not  further  encumber,  hypothecate,
mortgage,  create a lien on or security interest in the Collateral,  without the
prior  written  consent of Secured  Party in each  instance  except as otherwise
permitted  under  the  Securities  Purchase  Agreement.  The risk of loss of the
Collateral at all times shall be borne by the Debtor.

                  (b) The Debtor?s  Obligation  to Pay. The Debtor shall pay and
perform all of the Secured  Obligations and any and all obligations set forth in
the Loan  Documents as the same may become due  according  to their  terms.  The
Debtor shall be liable for, and shall reimburse to Secured Party,  all expenses,
including  reasonable  attorneys?  fees,  incurred  or paid in  connection  with
establishing,  perfecting,  maintaining,  protecting or enforcing any of Secured
Party?s  rights  and  remedies  hereunder,   including  in,  retaking,  holding,
preparing  for  sale or  lease,  or  selling  and  leasing,  and the  like,  the
Collateral.

                  (c) Place of Business. The Debtor will not, without giving the
Secured  Party 60 days prior  written  notice,  change (i) the  locations of its
places of business and its chief executive  office,  or (ii) the locations where
it keeps or holds any Collateral or records relating thereto, or (iii) its name,
identity,  or corporate  structure in any manner. If any such change occurs, the
Debtor  shall,  at its cost and expense.  cooperate  with the Secured  Party and
cause to be filed or recorded additional financing  statements,  amendments,  or
supplements to existing financing statements,  continuation statements. or other
documents  required  to be recorded or filed in order to perfect and protect the
Security Interests.

                  (d) Additional Documents.  The Debtor will, from time to time,
at its expense,  execute,  deliver, file, and record any statement,  assignment,
instrument,  document,  agreement,  or other  paper  and take any  other  action
(including,  without  limitation,  any  filings  of  financing  or  continuation
statements  under  the  UCC)  that  the  Secured  Party  may  from  time to time
reasonably determine to be necessary or desirable in order to create,  preserve,
upgrade in rank (to the extent required hereby),  perfect,  confirm, or validate
the  Security  Interests  or to enable  the  Secured  Party to  obtain  the full
benefits  of this  Agreement,  or to enable the Secured  Party to  exercise  and
enforce any of its rights, powers, and remedies hereunder with respect to any of
the Collateral. To the extent permitted by law, the Debtor hereby authorizes the
Secured  Party  to  execute  and  file  financing   statements

                                       5
<PAGE>

or continuation statements without the Debtor?s signature appearing thereon. The
Debtor  agrees  that a  carbon,  photographic,  or  other  reproduction  of this
Security  Agreement  or of a financing  statement is  sufficient  as a financing
statement. The Debtor shall pay the costs of, or incidental to, any recording or
filing of any financing or continuation statements concerning the Collateral.

                  (e) Books/Records. The Debtor shall keep complete and accurate
books and records  relating to the Collateral,  and stamp or otherwise mark such
books and records in such manner as the Secured Party may reasonably  request in
order to reflect the Security Interests.

                  (f) Maintain  Accounts.  The Debtor shall use its best efforts
to cause to be collected from its account debtors,  as and when due, any and all
amounts  owing  under  or  on  account  of  each  Account  (including,   without
limitation,  delinquent  Accounts,  such  Accounts to be collected in accordance
with lawful  collection  procedures and the Debtor?s  standard  procedures)  and
apply forthwith upon receipt thereof all such amounts as are so collected to the
outstanding balance of such Account, except that, unless an Event of Default has
occurred  and is  continuing  and the  Secured  Party is  exercising  its rights
hereunder to collect  Accounts,  the Debtor may allow in the ordinary  course of
business as  adjustments to amounts owing under its Accounts (i) an extension or
renewal of the time or times of payment,  or settlement  for less than the total
unpaid  balance,  which the Debtor finds  appropriate in accordance with prudent
business  judgment  and (ii) a refund or credit due as a result of  returned  or
damaged  merchandise,  all in accordance  with the Debtor?s  ordinary  course of
business  consistent  with its historical  collection  practices.  The costs and
expenses (including, without limitation, attorney?s fees) of collection, whether
incurred by the Debtor or the Secured Party, shall be borne by the Debtor.

                  (g)  Notice of  Default.  Upon the  occurrence  and during the
continuance of any Event of Default,  upon the request of the Secured Party, the
Debtor will promptly notify (and the Debtor hereby  authorizes the Secured Party
so to notify) each account  debtor in respect of any Account or Instrument  that
such Collateral has been assigned to the Secured Party  hereunder,  and that any
payments  due or to become  due in  respect  of such  Collateral  are to be made
directly to the Secured Party or any designee specified by the Secured Party.

                  (h)  Additional  Information.  The Debtor will,  promptly upon
request,  provide to the  Secured  Party all  information  and  evidence  it may
reasonably request concerning the Collateral, and in particular the Accounts, to
enable the Secured Party to enforce the provisions of this Security Agreement.

                  (i) Taxes and  Assessments.  That the Debtor will promptly pay
any and all taxes,  assessments  and  governmental  charges upon the  Collateral
prior to the date that penalties may attach thereto or same become a lien on any
of the Collateral, except to the extent that such taxes, assessments and charges
shall  be  contested  by the  Debtor  in  good  faith  and  through  appropriate
proceedings.

                  (j) Material Loss. That the Debtor will immediately notify the
Secured Party of any event causing a material loss or diminution in the value of
the Collateral,  and the amount (or the Debtor?s best estimate of the amount) of
such loss or diminution.

                  (k)  Applicable  Law.  That the Debtor will not use any of the
Collateral in violation of any applicable law.

                                       6
<PAGE>

                  (l) Impairment of  Collateral.  The Debtor shall not cause any
reduction in the value of the  Collateral or take any action which  imperils the
prospect of the full performance or satisfaction of the Secured Obligations.

         6. RECORDS  RELATING TO  COLLATERAL.  The Debtor will keep and maintain
complete and accurate records concerning the Collateral,  including the Accounts
and all chattel  paper  included in the  Accounts,  at its  principal  executive
office or at such other place(s) of business as the Secured Party may approve in
writing.  The Debtor will (a)  faithfully  hold and  preserve  such  records and
chattel paper,  (b) permit  representatives  of the Secured  Party,  at any time
during normal business hours, upon reasonable notice, and without undue material
disruption of the Debtor?s  business,  to examine and inspect the Collateral and
to make copies and abstracts of such records and chattel paper,  and (c) furnish
to the Secured Party such  information  and reports  regarding the Collateral as
the Secured Party may from time to time reasonably request.

         7.  RELEASE  OF  COLLATERAL.  The  Debtor  shall not sell or  otherwise
dispose of the Collateral, or any part thereof or any interest therein except as
otherwise provided in the Securities Purchase Agreement.  If the Collateral,  or
any  part  thereof;  is sold or  otherwise  disposed  of in  violation  of these
provisions,  the Security  Interest of the Secured Party shall  continue in such
Collateral or any part thereof  notwithstanding  such sale or other disposition,
and Debtor will deliver any proceeds  thereof to the Secured Party to be, at the
option of the Secured Party, held as Collateral hereunder,  and/or be applied to
the obligations of the Debtor.

         8. GENERAL AUTHORITY.

                  (a) In the event that the  Secured  Party shall at any time be
required to take action to defend the  Security  Interests,  or the Debtor shall
fail to satisfy its  obligations  under this  Agreement.  then the Secured Party
shall have the right,  but shall not be  obligated,  to take such steps and make
such payments as may be required in order to effect compliance,  and the Secured
Party shall have the right either to demand and receive immediate  reimbursement
from the Debtor for all costs and  expenses  incurred  by the  Secured  Party in
connection  therewith,  and/or to add such  costs and  expenses  to the  Secured
Obligations.

                  (b) The Debtor hereby  irrevocably  appoints  Ezzat Jallad the
true and lawful attorney for the Debtor, with full power of substitution, in the
name of the Debtor, the Secured Party or otherwise, for the sole use and benefit
of the Secured Party,  but at the Debtor?s  expense,  to the extent permitted by
law to exercise,  at any time and from time to time during the continuance of an
Event of Default,  any or all of the following powers with respect to any or all
of the  Collateral  (which powers shall be in addition and  supplemental  to any
powers, rights and remedies of the Secured Party described herein):

                  (i)      to  demand,  sue  for,  collect,   receive  and  give
                           acquittance  for any and all  monies due or to become
                           due upon or by virtue thereof; and

                  (ii)     to receive, take, endorse, assign and deliver any and
                           all checks,  debentures,  drafts, documents and other
                           negotiable and non-negotiable instruments and chattel
                           paper  taken  or  received  by the  Secured  Party in
                           connection therewith; and

                                       7
<PAGE>

                  (iii)    to settle, compromise,  discharge,  extend, compound,
                           prosecute  or defend  any action or  proceeding  with
                           respect thereto; and

                  (iv)     to sell,  transfer,  assign or  otherwise  deal in or
                           with same, or the proceeds or avails thereof,  or the
                           related  goods  securing the  Accounts,  as fully and
                           effectually as if the Secured Party were the absolute
                           owner thereof; and

                  (v)      to extend the time of  payment of any or all  thereof
                           and to make any allowance and other  adjustments with
                           reference thereto; and

                  (vi)     to discharge any taxes, liens,  security interests or
                           other encumbrances at any time placed thereon.

         Anything  hereinabove  contained to the contrary  notwithstanding,  the
Secured  Party shall give the Debtor not less than ten (10) days?  prior written
notice of the time and place of any sale or other intended disposition of any of
the  Collateral,  except any  Collateral  which is  perishable  or  threatens to
decline  speedily  in value  or is of a type  customarily  sold on a  recognized
market.  The  Secured  Party  and the  Debtor  hereby  agree  that  such  notice
constitutes "reasonable notification" within the meaning of Section 9-610 of the
Code.

         9. REMEDIES UPON EVENT OF DEFAULT.

                  (a) If  any  Event  of  Default  shall  have  occurred  and be
continuing,  the Secured  Party may exercise all of the rights and remedies of a
secured  party  under  the Code  (whether  or not the Code is in  effect  in the
jurisdiction where such rights and remedies are exercised) and, in addition, the
Secured Party may,  without being required to give any notice,  except as herein
provided or as may be required by  mandatory  provisions  of law,  (a) apply the
cash, if any,  then held by it as Collateral in the manner  specified in Section
11  hereof,  and (b) if there  shall be no such  cash or if such  cash  shall be
insufficient to pay all of the Secured Obligations in full, sell the Collateral,
or any part  thereof,  at public or private sale or at any broker?s  board or on
any securities  exchange,  for cash, upon credit or for future delivery,  and at
such price or prices as the  Secured  Party may deem  satisfactory.  The Secured
Party may require the Debtor to assemble all or any part of the  Collateral  and
make it  available  to the  Secured  Party  at a place to be  designated  by the
Secured Party. Any holder of a Secured Obligation may be the purchaser of any or
all of the  Collateral so sold at any public sale (or, if the Collateral is of a
type  customarily  sold on a  recognized  market  or is of a type  which  is the
subject of widely  distributed  standard price quotations,  at any private sale)
and thereafter hold same,  absolutely free from any right or claim of whatsoever
kind. The Secured Party is authorized,  at any such sale, if it reasonably deems
same to be advisable,  to restrict the prospective bidders or Secured Parties of
any of the Collateral which could be subject to federal or state securities laws
to persons who will  represent and agree that they are  purchasing for their own
account for investment and not with a view to the distribution or sale of any of
such Collateral;  and the Debtor hereby  acknowledges  that such restriction may
result in a lower  price being  obtained  for the  subject  Collateral,  and the
Debtor  hereby  waives any claim  arising  therefrom.  Upon any such  sale,  the
Secured  Party  shall  have the right to  deliver,  assign and  transfer  to the
purchaser thereof the Collateral so sold.

                  (b) Each  purchaser at any such sale shall hold the Collateral
so sold absolutely,  free from any claim or right of whatsoever kind (except for
the rights of the holders of the Prior Liens),

                                       8
<PAGE>

including  any  equity  or right of  redemption  of the  Debtor.  To the  extent
permitted  by  law,  the  Debtor  hereby   specifically  waives  all  rights  of
redemption,  stay or appraisal which it has or may have under any rule of law or
statute now existing or hereafter  adopted.  and waives any  requirement for the
marshaling of any  Collateral.  The Secured Party shall give the Debtor not less
than ten (10)  days?  prior  written  notice of its  intention  to make any such
public or private sale or sales at a broker?s board or on a securities exchange.
Such notice,  in case of a public sale, shall state the time and place fixed for
such sale, and in case of sale at a broker?s board or on a securities  exchange,
shall  state the board or  exchange at which such sale is to be made and the day
on which the  Collateral,  or the  portion  thereof  being  sold,  will first be
offered for sale at such board or  exchange.  Any such public sale shall be held
at such time or times within ordinary business hours and at such place or places
as the Secured Party may fix in the notice of such sale.  At any such sale,  the
Collateral may be sold in one lot as an entirety or in separate parcels,  as the
Secured  Party may  determine.  The Secured Party shall not be obligated to make
such sale pursuant to any such notice.  The Secured Party may, without notice or
publication,  adjourn  any  public  or  private  sale or  cause  the  same to be
adjourned from time to time by  announcement at the time and place fixed for the
sale.  and such  sale may be made at any time or place to which  the same may be
adjourned.  In case of any? sale of all or any part of the  Collateral on credit
or for future  delivery,  the  Collateral so sold may be retained by the Secured
Party until the selling price is paid by the purchaser thereof;  but the Secured
Party shall not incur any liability in the case of the failure of such purchaser
to take up and pay for the  Collateral so sold and, in case of any such failure,
such Collateral may again be sold upon like notice.

                  (c) The Secured Party, instead of exercising the power of sale
herein  conferred upon it, may proceed by a suit or suits at law or in equity to
foreclose  the  Security  Interests  and sell  the  Collateral,  or any  portion
thereof;  under  a  judgment  or  decree  of a  court  or  courts  of  competent
jurisdiction.

         10.  RIGHT OF SECURED  PARTY TO USE AND  OPERATE  COLLATERAL.  Upon the
occurrence  and during the  continuance  of any Event of Default,  to the extent
permitted  by law,  the Secured  Party  shall have the right and power,  with or
without legal  process,  to enter upon any or all of the Debtor?s  premises.  to
take possession of all or any part of the Collateral,  and to exclude the Debtor
and all  persons  claiming  under the  Debtor  wholly or partly  therefrom,  and
thereafter to sell same in accordance  herewith and/or hold, store,  and/or use,
operate,  manage and control the same.  Upon any such taking of possession,  the
Secured  Party may,  from time to time,  at the expense of the Debtor,  make all
such  repairs,  replacements,  alterations,  additions and  improvements  to the
Collateral as the Secured Party may deem proper. In such case, the Secured Party
shall have the right to manage and  control the  Collateral  and to carry on the
business and to exercise all rights and powers of the Debtor in respect  thereof
as the Secured  Party shall deem proper,  including  the right to enter into any
and all such  agreements  with  respect to the leasing  and/or  operation of the
Collateral or any part thereof as the Secured Party may see fit; and the Secured
Party shall be entitled to collect and receive all profits,  fees,  revenues and
other income of the same and every part thereof.  Such profits,  fees,  revenues
and other income shall be applied to pay the expenses of holding the  Collateral
and of conducting the business  thereof,  and of all alterations,  additions and
improvements,  and to make all payments  which the Secured Party may be required
or may  elect to make,  if any,  for  taxes,  assessments,  insurance  and other
charges upon the  Collateral or any part thereof;  and all other  payments which
the Secured  Party may be required or  authorized to make under any provision of
this Agreement  (including  legal costs and  reasonable  attorneys?  fees).  The
remainder of such profits.  fees,  revenues and other income shall be applied in
accordance with Section 11 below, and, unless otherwise  provided or required by
law or by a court of competent  jurisdiction,  any surplus shall be paid over to
the Debtor.

                                       9
<PAGE>

         11.  APPLICATION OF COLLATERAL  AND PROCEEDS.  The proceeds of any sale
of;  or  other  realization  upon,  all or any part of the  Collateral  shall be
applied  in the order of  priorities  as  provided  in the  Securities  Purchase
Agreement.

         12. EXPENSES; SECURED PARTY?S LIEN. The Debtor will, forthwith upon

                  (a) the amount of any taxes or other charges which the Secured
Party  may  have  been  required  to pay by  reason  of the  Security  Interests
(including any applicable  transfer taxes) or to free any of the Collateral from
any lien thereon; and

                  (b)  the  amount  of  any  and  all  reasonable  out-of-pocket
expenses,  including the reasonable fees and disbursements of its counsel and of
any agents not  regularly  in its employ,  which the Secured  Party may incur in
connection  with (i) the  collection,  sale or other  disposition  of any of the
Collateral,  (ii)  the  exercise  by the  Secured  Party  of  any of the  powers
conferred  upon it  hereunder,  and/or  (iii) any default on the  Debtor?s  part
hereunder.

         13.  SECURITY  INTEREST  ABSOLUTE.  All  rights  of the  Secured  Party
hereunder,  the interest,  and all  obligations  of Debtor  hereunder,  shall be
absolute and unconditional irrespective of:

                  (a)  any  lack  of  validity  or  enforceability  of the  Loan
Documents  or the  Secured  Obligations  or any other  agreement  or  instrument
relating to the Loan Documents or the Secured Obligations;

                  (b) any change in the time,  manner or place of payment of. or
in any other term of; the Loan  Documents  or the  Secured  Obligations,  or any
renewal,  modification,  reinstatement,  restatement  or  extension  of the Loan
Documents or the Secured  Obligations or any other amendment or waiver of or any
consent  to any  departure  from  this  Agreement  or  any  other  agreement  or
instrument;

                  (c) any sale,  exchange,  release or  non-perfection of any of
the Collateral; or

                  (d) any other  circumstance that might otherwise  constitute a
defense available to, or a discharge of. Debtor in respect of any Loan Documents
or the Secured Obligations.

         14. TERMINATION OF SECURITY INTERESTS;  RELEASE OF COLLATERAL. Upon the
indefeasible payment in full of all Secured Obligations,  the Security Interests
shall  terminate  and all rights in the  Collateral  shall revert to the Debtor.
Upon any such  termination  of the Security  Interests or release of Collateral,
the Secured  Party will,  at the  Debtor?s  expense,  execute and deliver to the
Debtor such  documents  as the Debtor shall  reasonably  request to evidence the
termination of the Security Interests or the release of such Collateral,  as the
case may be.

         15.  RIGHT OF SET-OFF.  In  furtherance  and not in  limitation  of any
provisions herein contained,  the Debtor hereby agrees that any and all deposits
or other sums at any time due from the Secured  Party to the Debtor shall at all
times constitute security for the Secured Obligations, and the Secured Party may
exercise any right of set-off  against such deposits or other sums as may accrue
or exist hereunder and/or under applicable law.

                                       10
<PAGE>


         16. RIGHTS AMONG SECURED PARTIES.

                  (a) The parties hereto  acknowledge  that the Debentures shall
rank pari passu with respect to the  application  of proceeds of  Collateral  to
satisfy  the same and,  in  accordance  therewith,  agree that the  proceeds  of
Collateral,  after  payment of all  expenses,  shall be  applied  ratably to the
Debentures in accordance with the respective  amounts thereof  outstanding as of
the date of any application of proceeds of Collateral for such purpose.


         17. NOTICES. All notices,  demands and other  communications  hereunder
shall be given or made to the Debtor and the  Secured  Party at their  addresses
and/or telecopier  numbers as set forth in below or at such other address and/or
telecopier  number as the  addressee  may  hereafter  specify for the purpose by
means of written  notice to the other  parties  hereto.  Such  notices and other
communications  will be effectively  given only if and when given in writing and
personally  delivered,   when  sent  by  facsimile  transmission  to  a  party?s
designated  facsimile number, one (1) day after being sent by Federal Express or
other recognized overnight courier service with all charges prepaid or billed to
the account of the sender,  or three (3) days after being  mailed by first class
mail with all postage prepaid.

      Debtor:                    Health Sciences Group, Inc.
                                 6080 Center Drive, 6th Floor
                                 Los Angeles, California  90045

                                 With a copy to:

                                 Pollet, Richardson & Patel, a law corporation
                                 10900 Wilshire Blvd., Suite 500
                                 Los Angeles, California 90024


      Secured Party:             Stranco Investments, Ltd.
                                 Idriss Building, 4th Floor,
                                 Bashir Kassar Street, Verdoun,
                                 Beirut Lebanon

                                 Brivis Investments, LTD.,
                                 Arawak Chambers, Sea Meadow House,
                                 Blackdune Highway, Roadtown,
                                 Tortola British Virgin Islands



                                 With a copy to:

                                       11
<PAGE>

                                 Steven W. Schuster, Esq.
                                 McLaughlin & Stern, LLP
                                 260 Madison Avenue
                                 New York, NY 10016

                                 Telecopier No. (212) 448-0066





         18.  AMENDMENTS  AND WAIVERS.  The Loan  Documents  represent the final
agreement  agreed to by the parties.  No amendment or waiver of any provision of
the Loan  Documents,  and no consent by Secured  Party to any breach  thereof by
Debtor shall in any event be  effective  unless the same shall be in writing and
signed by the Secured Party,  Debtor and, if  appropriate,  any guarantor of any
Secured Obligation,  and then such waiver or consent shall be effective only for
the specific  purpose for which given. No course of dealing between Debtor,  any
guarantor of any Secured  Obligation  and Secured Party in exercising any rights
or  remedies in the Loan  Documents  shall  operate as a waiver or preclude  the
exercise of any other rights or remedies in the Loan Documents.  All such rights
and remedies shall continue unimpaired,  notwithstanding any delay, extension of
time. renewal, compromise or other indulgence granted with respect to any of the
Secured  Obligations.  Debtor  hereby  waives  all  notice  of any  such  delay,
extension of time, renewal,  compromise or indulgence,  and consents to be bound
thereby as fully and  effectually  as if Debtor  expressly had agreed thereto in
advance.  The  aforesaid  Note  may be  negotiated  by  Secured  Party,  without
releasing  Debtor  or  the  Collateral.  The  remedies  in  this  Agreement  are
cumulative  and are not  exclusive  of any other  remedies  provided  by law, in
equity or otherwise.

         19. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.

                  (a)  This  Agreement  shall   (irrespective  of  where  it  is
executed, delivered and/or performed) be governed by and construed in accordance
with the laws of the State of Colorado  (without  giving effect to principles of
conflicts of law), except as otherwise  required by mandatory  provisions of law
and except to the extent that  remedies  provided by the laws of any State other
than Colorado are governed by the laws of said State.

                  (b) The Debtor  hereby  consents  to the  jurisdiction  of all
courts  sitting in the State of New York, and of all courts from which an appeal
therefrom  may be taken,  with respect to any action or  proceeding  relating to
this Agreement or any related  transactions.  THE DEBTOR HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING, AND CONSENTS THAT THE SECURED
PARTY MAY FILE A COPY OF THIS  AGREEMENT  WITH ANY COURT AS WRITTEN  EVIDENCE OF
THE CONSENT OF THE DEBTOR  WITH  RESPECT TO  JURISDICTION  AND THE WAIVER OF THE
RIGHT TO

         20. TIME IS OF THE ESSENCE; NO WAIVER:  CUMULATIVE  REMEDIES.  Time and
exactitude of each of the terms,  obligations,  covenants and conditions of this
Agreement  are hereby  declared to be of the essence.  No failure on the part of
the Secured Party to exercise,  and no delay in exercising,  any right, power or
remedy  hereunder  shall  operate as a waiver  thereof,  nor shall any single or
partial  exercise  of any such  right,  power or  remedy  by the  Secured  Party
preclude  any other or further  exercise  thereof or the  exercise  of any other


                                       12
<PAGE>

right,  power or remedy.  All  remedies  hereunder  are  cumulative  and are not
exclusive of any other remedies provided by law.


         21. BINDING  EFFECT.  This Agreement shall be binding upon and inure to
the  benefit  of the  parties  hereto  and their  respective  heirs,  executors,
administrators,  successors and permitted assigns.  The Secured Party may assign
this Agreement,  and if assigned, the assignee shall be entitled, upon notifying
Debtor.  to the payment and  performance of all of the Secured  Obligations  and
agreements of Debtor  hereunder and to all of the rights and remedies of Secured
Party  hereunder.  The  gender and number  used in this  Agreement  are used for
reference term only and shall apply with the same effect whether the parties are
masculine, feminine, neuter, singular or plural.

         22. CONTINUING  SECURITY  INTEREST;  ASSIGNMENTS.  This Agreement shall
create a continuing  security interest in the Collateral and shall (i) remain in
full force and effect until  termination as provided in herein.  (ii) be binding
upon Debtor, the Secured Party and their respective  successors and assigns. and
(iii)  inure,  together  with the rights,  powers and remedies of Debtor and the
Secured Party hereunder,  to the benefit of Debtor,  the Secured Party and their
respective successors, transferees and permitted assigns, as the case may be.

         23. USURY. All agreements between Debtor and the Secured Party, whether
now  existing  or  hereafter  arising and  whether  written or oral;  are hereby
limited so that in no  contingency,  whether by reason of demand or acceleration
of the final  maturity  date, as that term is defined in the Note, or otherwise,
shall the interest contracted for, charged,  received, paid or agreed to be paid
to the Secured Party exceed the maximum amount permissible under the laws of the
State of Colorado  (hereinafter the "Applicable Law?). If, from any circumstance
whatsoever,  interest would  otherwise be payable to the Secured Party in excess
of the maximum amount permissible under the Applicable Law, the interest payable
to the Secured Party shall be reduced to the maximum  amount  permissible  under
the Applicable  Law, and if from any  circumstance  the Secured Party shall ever
receive anything of value deemed interest by the Applicable Law in excess of the
maximum  amount  permissible  under the  Applicable  Law, an amount equal to the
excessive interest shall be applied to the reduction of the principal hereof and
not to the payment of interest,  or if such excessive amount of interest exceeds
the unpaid  balance of  principal  hereof;  such excess shall be refunded to the
party making such payment. All interest paid or agreed to be paid to the Secured
Party  shall,  to the extent  permitted  by the  Applicable  Law, be  amortized,
prorated, allocated and spread throughout the full period (including any renewal
or extension) until payment in full of the principal so that the interest hereon
for such full period shall not exceed the maximum amount  permissible  under the
Applicable Law. The Secured Party expressly disavows any intent to contract for,
charge or  receive  interest  in an amount  which  exceeds  the  maximum  amount
permissible   under  the  Applicable  Law.  This  paragraph  shall  control  all
agreements between Debtor and the Secured Party.

         24. MULTIPLE  COUNTERPARTS.  This Agreement may be executed in separate
or multiple  counterparts by the parties.  and all of such counterparts shall be
considered as one and the same instrument  notwithstanding the fact that various
counterparts  are  signed  by only one or more of the  parties,  and all of such
Agreements shall be deemed but one and the same Agreement.

         25.   SEVERABILITY.   If  any  provision  hereof  is  held  invalid  or
unenforceable  in any  jurisdiction,  such  provision  shall  (for  purposes  of
enforcement  in such  jurisdiction  only) be  reduced in scope and

                                       13
<PAGE>

effect  to the  extent  necessary  to  render  same  enforceable,  and the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Secured Party.

         26.  HEADINGS.  The captions and Section headings in this Agreement are
for convenience of reference  only, and shall not limit or otherwise  affect the
meaning or interpretation of any provision hereof.

         27.  ASSIGNMENT.  This  Agreement  may not be  assigned  by the  Debtor
without the Secured  Party?s  prior  written  consent,  but shall  otherwise  be
binding upon and inure to the benefit of the parties hereto and their respective
heirs,  executors,  administrators,  personal  representatives,  successors  and
assigns.

         28.  CONTROLLING  INSTRUMENT.  In  the  event  any  provision  of  this
Agreement conflicts with any provision of the Securities Purchase Agreement, the
provision of the Securities Purchase Agreement shall be controlling.

                         [Signatures on following page]


                                       14
<PAGE>

         IN WITNESS  WHEREOF,  this Security  Agreement has been executed by the
parties hereto as of the date first set forth above.

              SECURED PARTY:

              STRANCO INVESTMENTS, LTD.

              By:________________________
              Name:______________________
              Title:_______________________

              BRIVIS INVESTMENTS, LTD.

              By: ________________________
              Name:______________________
              Title:_______________________


              DEBTOR:

              HEALTH SCIENCES GROUP, INC.


              By:___________________________
              Name:_________________________
              Title:__________________________


               BIOSELECT INNOVATIONS, INC.


               By:___________________________
               Name:_________________________
               Title:__________________________


               XCEL HEALTHCARE, INC.



               By:___________________________
               Name:_________________________
               Title:__________________________








                                       15
<PAGE>




                                                                 EXHIBIT 10.7.10


                          PLEDGE AND SECURITY AGREEMENT

THIS PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT"),  dated as of this ___ day
of February,  2003,  is made by  Frederick  Tannous,  residing at ________,  and
William  Glaser,  residing at  ________________,  (the  "PLEDGORS")  in favor of
Stranco Investments, LTD., a corporation organized under the laws of the British
Virgin  Islands  and  having an address at Idriss  Building,  4th Floor,  Bashir
Kassar  Street,   Verdun,  Beirut  Lebanon  and  Brivis  Investments,   LTD.,  a
corporation organized under the laws of the British Virgin Islands and having an
address at Arawak  Chambers,  Sea Meadow  House,  Blackdune  Highway,  Roadtown,
Tortola British Virgin Islands (the "SECURED PARTIES").

                  1.  PLEDGE.  In order to induce the Secured  Parties to extend
the  Obligations  (as  defined  below),  the  Pledgor  hereby  grants a security
interest in and absolutely and presently  pledges to the Secured  Parties all of
the Pledgor's right,  title and interest in and to the shares of common stock of
Health Sciences  Group,  Inc. (the  "Borrower"),  whether now owned or hereafter
acquired, together with all additions, substitutions,  replacements and proceeds
and  all  income  interest,  dividends  and  other  distributions  thereon  (the
"COLLATERAL")  and  which  are  specified  on  Exhibit  A  annexed  hereto.  The
certificates   (the   "CERTIFICATES")   representing  the  Collateral  shall  be
accompanied  by duly  executed  blank  stock or bond powers or  assignments,  as
applicable,  with  medallion  signature  guaranteed  of the Pledgors and, if the
Certificates bear a restrictive  legend, The Certificates and stock powers shall
be  delivered  to Ezzat Jallad (the  "Agent").  Notwithstanding  anything to the
contrary  contained  herein,  this  Agreement  evidences a present and  absolute
pledge of the Collateral to the Secured  Parties,  which shall be effective upon
the  execution of this  Agreement.  The  Pledgors  agree to cause the Company to
register  250,000

                                       1
<PAGE>

shares  of the  Collateral  in the  names  of each  of the  Secured  Parties  in
accordance with the terms of the Registration  Rights Agreement  executed by the
Company and the Secured Parties as of the date hereof.  2. OBLIGATIONS  SECURED.
The Collateral  secures payment to the Secured  Parties of all loans,  advances,
debts,  liabilities,  obligations,  covenants  and duties  owing to the  Secured
Parties from the Borrower, of any kind or nature, present or future, under those
certain  Debentures of even date herewith  payable to the Secured Parties in the
aggregate original principal amount of three hundred thousand dollars ($300,000)
(the  "DEBENTURES"),  and the  obligations of Borrower to Secured  Parties under
that certain Securities  Purchase  Agreement (the "PURCHASE  AGREEMENT") and the
Warrant,  Security  Agreement  and  Registration  Rights  Agreement of even date
herewith (the  "Transaction  Agreements"),  all of the foregoing whether arising
from any  agreement,  instrument or document,  whether or not for the payment of
money, whether arising by reason of an extension of credit,  opening a letter of
credit,  loan or guarantee or in any other  manner,  whether  direct or indirect
(including  those  acquired  by  assignment  or   participation),   absolute  or
contingent,  joint or severally, due or to become due, now existing or hereafter
arising, and any amendments,  extensions,  renewals or increases,  and all costs
and expenses of the Secured Parties incurred in the documentation,  negotiation,
modification, enforcement, collection or otherwise in connection with any of the
foregoing,  including reasonable attorneys fees and expenses (collectively,  the
"OBLIGATIONS").  All capitalized  terms not otherwise  defined herein shall have
the meanings given to such terms in the Purchase Agreement.

                  3.  REPRESENTATIONS  AND  WARRANTIES.  Each Pledgor  severally
represents and warrants to the Secured Parties as follows:

                  (a) There are no restrictions on the pledge or transfer of any
of the  Collateral,  other  than  restrictions  referenced  on the  face  of any
certificates evidencing the Collateral.

                  (b) The Pledgor is the legal owner of the Collateral, which is
registered in the name of the Pledgor as of the date hereof

                                       2
<PAGE>

                  (c) Except as otherwise  provided in the Purchase Agreement or
as approved in advance by Secured  Parties,  the Collateral is free and clear of
any security interests, pledges, liens, encumbrances charges, agreements, claims
or other  arrangements  or  restrictions  of any kind;  and the Pledgor will not
incur, create,  assume or permit to exist and pledge,  security interest,  lien,
charge or other encumbrance of any nature whatsoever on any of the Collateral or
assign,  pledge or  otherwise  encumber  any right to  receive  income  from the
Collateral.

                  (d) The Pledgor has the right to transfer the Collateral  free
of any  encumbrances  and the  Pledgor  will defend the  Pledgor's  title to the
Collateral  against the claims of all persons,  and any  registration  with,  or
consent or approval to or action by, any  federal,  state or other  governmental
authority or  regulatory  body which was or is necessary for the validity of the
pledge and grant of the security interest in the Collateral has been obtained

                  (e) The pledge of and grant of the  security  interest  in the
Collateral  is  effective to vest in the Secured  Parties a valid and  perfected
first priority security interest, superior to the rights of any other person, in
and to the Collateral as set forth herein

                  (f) Upon the occurrence of an Event of Default, no third Party
has any rights to receive  notice of such default or the sale of the  Collateral
or any portion  thereof,  and no third  Party has rights to purchase  all or any
portion of the Collateral.

                  4.   GOVERNMENTAL   APPROVALS.   The  Secured  Parties  hereby
acknowledges  that  any  transfer  of the  Collateral  shall be  subject  to the
approval of any  governmental  authorities to the extent  required by applicable
law.

                                       3
<PAGE>

                  5. DEFAULT.

                  (a) If any of the  following  shall  occur  (each an "EVENT OF
DEFAULT"):  (i) any  Event of  Default  under  the  Debentures  or the  Purchase
Agreement;  (ii) demand by the Secured Parties under any of the Obligations that
have such a demand feature;  or (iii) the failure by the Pledgors to perform any
of its obligations hereunder after written notice from the Secured Parties and a
reasonable opportunity to cure, which cure period shall in no event be less than
ten (10) days,  then the Secured  Parties is  authorized  in its  discretion  to
declare any or all of the  Obligations to be immediately due and payable without
further demand or notice of any kind whatsoever which are expressly waived,  and
may exercise any one or more of the rights and remedies granted pursuant to this
Agreement or given to a secured Parties under the Uniform Commercial Code of New
York,  as it may be amended from time to time, or otherwise at law or in equity,
including the right to sell or otherwise dispose of the Collateral.

                  (b) (i) At any bona fide public sale the Secured Parties shall
be free to purchase all or any part of the  Collateral.  Any such sale may be on
cash or credit.  The Secured Parties shall be authorized at any such sale (if it
deems it advisable to do so) to restrict the  prospective  bidders or purchasers
to persons who will  represent and agree that they are purchasing the Collateral
for their own account in compliance  with  Regulation D of the Securities Act of
1933  or any  other  applicable  exemption  available  under  such  Act.  If the
Collateral is  customarily  sold on a recognized  market or threatens to decline
speedily in value,  the Secured  Parties  may sell such  Collateral  at any time
without  giving  prior  notice to the  Pledgors.  Whenever  notice is  otherwise
required by law to be sent by the Secured Parties to the Pledgors of any sale or
other  disposition of the  Collateral,  five (5) days written notice sent to the
Pledgors at the notice address specified below will be reasonable.

                                       4
<PAGE>

                  (ii) The Pledgors  recognize  that the Secured  Parties may be
unable to effect or cause to be  effected  a public  sale of the  Collateral  by
reason of certain  prohibitions  contained  in the  Securities  Act of 1933,  as
amended (the "ACT"),  so that the Secured  Parties may be compelled to resort to
one or more  private  sales  to a  restricted  group of  purchasers  who will be
obligated to agree,  among other things,  to acquire the  Collateral  for resale
thereof. The Pledgors understand that private sales so made may be at prices and
on other terms less favorable to the seller than if the Collateral  were sold at
public sales,  and agree that the Secured Parties have no obligation to delay or
agree  to delay  the  sale of any of the  Collateral  from  the  period  of time
necessary  to  permit  the  issuer  of the  securities  which  are  part  of the
Collateral  (even if the issuer would agree),  to register such  securities  for
sale  under the Act.  The  Pledgors  agree  that  private  sales  made under the
foregoing  circumstances  shall be deemed  to have  been made in a  commercially
reasonable manner.

                  (c) The net  proceeds  arising  from  the  disposition  of the
Collateral,  if any, after deducting  expenses  incurred by the Secured Parties,
will be  applied  to the  Obligations  in the order  determined  by the  Secured
Parties in its sole discretion. If any excess remains after the discharge of all
of the Obligations the same will be paid to the Pledgors.

                  (d) If any demand is made at any time upon the Secured Parties
for the  repayment  or  recovery  of any amount  received by it in payment or on
account of any of the Obligations  from the disposition of the Collateral and if
the Secured  Parties repays all or any Parties of such amount,  the Pledgor will
be and remain  liable for the amounts so repaid

                                       5
<PAGE>

or  recovered  to the same  extent as if such  proceeds  were  never  originally
received by the Secured Parties.

                  6. VOTING RIGHTS AND TRANSFER.  Prior to the  occurrence of an
Event of Default, the Pledgors will have the right to exercise all voting rights
with respect to the Collateral.  At any time after the occurrence of an Event of
Default,  the Secured Parties may transfer any or all of the Collateral into its
name or that of its nominee and may exercise  all voting  rights with respect to
the  Collateral,  but no  such  transfer  shall  constitute  a  taking  of  such
Collateral in satisfaction  of any or all of the Obligations  unless the Secured
Parties expressly so indicates by written notice to the Pledgors.

                  7.  DIVIDENDS,  INTEREST AND PREMIUMS.  The Pledgors will have
the right to receive all cash dividends, interest and premiums declared and paid
on the Collateral prior to the occurrence of any Event of Default.  In the event
any additional  shares are issued to the Pledgors as a stock dividend or in lieu
of  interest  on any of the  Collateral,  as a result of any split of any of the
Collateral by  reclassification  or otherwise,  any certificates  evidencing any
such additional shares will be immediately  delivered to the Secured Parties and
such shares will be subject to this  Agreement  and a part of the  Collateral to
the same extent as the original Collateral.  At any time after the occurrence of
an Event of Default,  the Secured  Parties shall be entitled to receive all cash
or stock  dividends,  interest and premiums  declared or paid on the Collateral,
all of which shall be subject to the Secured  Parties'  rights  under  Section 5
above.

                  8.  ADDITIONAL  COVENANTS.  The parties  acknowledge  that the
liability of the  Pledgors  with  respect to the  Obligations  is limited to the
proceeds that may be obtained by the Secured Parties from the disposition of the
Collateral  under this  Agreement  and, in the event that

                                       6
<PAGE>

the  proceeds  from  such   disposition  are  less  than  the  then  outstanding
Obligations,  the Secured  Parties may seek to recover any  deficiency  from the
Borrower and not from the Pledgors.  The parties  acknowledge that the pledge of
the Collateral is made to secure the Secured  Parties'  agreement to satisfy the
Obligations in the event of a default by the Borrower on a non-recourse basis to
the Pledgors  except with respect to the Collateral.  Pledgors  consent that the
Transaction  Agreements or the liability of any guarantor,  surety,  indemnitor,
indorser,  or any other party for or upon the  Transaction  Agreements may, from
time to time, in whole or in part, be renewed, extended, modified,  accelerated,
compromised, settled or released by the Secured Parties , all without any notice
to, or further  assent by, or any  reservation of rights  against,  Pledgors and
without in any way effecting or releasing  the  liability of Pledgors  hereunder
with  respect to the  Collateral.  The Secured  Parties  shall not be liable for
failure  to  collect or realize  upon the  Transaction  Agreements,  or any part
thereof,  for any delay in so  doing,  nor shall  Secured  Parties  be under any
obligation  to take any  action  whatsoever  with  regard  thereto.

                  9. POWER OF ATTORNEY. Secured Parties appoint the Agent or any
other  person  whom  Agent  may from  time to time  designate,  as the  Debtor's
attorney-in-fact  to hold the  Certificates  in escrow and, after the occurrence
and during the  continuance  of a default as  described in Section 5, to endorse
the Secured Parties' names on the Certificates and to do all things necessary to
carry out the intents of this Agreement.  Each of the Secured  Parties  ratifies
and  approves  all acts of the Agent  taken  within  the scope of the  authority
granted.  Agent will not be liable for any acts of commission or omission or for
any error in  judgment  or mistake  of

                                       7
<PAGE>

fact or law,  except for Agent's gross  negligence or willful  misconduct.  This
power,  being coupled with an interest,  is  irrevocable  so long as any Secured
Obligation  remains unpaid.  Each of the Secured Parties waives  presentment and
protest of all instruments  and notice  thereof,  notice of default and dishonor
and all other  notices to which the Secured  Parties may  otherwise be entitled.
The Pledgors  acknowledge the right of the Agent to act on behalf of the Secured
Parties under this Agreement.

                  10.  FURTHER  ASSURANCES.  At any time and from  time to time,
upon demand of the Secured Parties,  the Pledgors will give,  execute,  file and
record any notice,  financing  statement,  continuation  statement,  instrument,
document  or  agreement  that the  Secured  Parties may  consider  necessary  or
desirable  to create,  preserve,  continue,  perfect or  validate  any  security
interest granted hereunder or to enable the Secured Parties to inform its rights
hereunder with respect to such security interest.

                  11.  NOTICES.  All  notices,  demands,   requests,   consents,
approval and other communications  required or permitted hereunder shall be sent
and  delivered in  accordance  with Section 11 of the Purchase  Agreement to the
addresses  first set forth above or, at the option of the Secured  Parties  with
respect to the Pledgors,  to them at the  Borrower.  All notices with respect to
the Agent shall be sent to Ezzat  Jallad,  117 E. 57th  Street,  Suite 50C,  New
York, New York 10022.

                                       8
<PAGE>

                  12.  PRESERVATION  OF  RIGHTS.  No  delay or  omission  on the
Secured Parties part to exercise any right or power arising hereunder, including
without  limitation,  the failure of the Secured  Parties to exercise its rights
against the Collateral  after the Holding Period,  will impair any such right or
power or be considered a waiver of any such right or power, nor will the Secured
Parties' action or inaction impair any such right or power. The Secured Parties'
rights and  remedies  hereunder  are  cumulative  and not  exclusive of an other
rights or remedies which the Secured Parties may have under other agreements, at
law or in equity.

                  13.  ILLEGALITY.  In case  any  one or more of the  provisions
contained in this Agreement  should be invalid,  illegal or unenforceable in any
respect,  the validity,  legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.

                  14. CHANGES IN WRITING.  No modification,  amendment or waiver
of any provision of this  Agreement nor consent to any departure by the Pledgors
therefrom  will be  effective  unless  made in a writing  signed by the  Secured
Parties, and then such waiver or consent shall be effective only in the specific
instance  and for the  purpose  for which  given.  No notice to or demand on the
Pledgors in any case will entitle the Pledgors to any other or further notice or
demand in the same, similar or other circumstance. No executory agreement and no
course of dealing between  Borrower and the Secured Parties or Pledgors shall be
effective to terminate, change or modify this Agreement in whole or in part; nor
shall any waiver of any rights or

                                       9
<PAGE>

powers of the Secured  Parties , or consent by the Secured Parties , be valid or
effective unless in writing and signed by Secured Parties or the Agent.

                  15. ENTIRE AGREEMENT.  This Agreement (including the documents
and  instruments  referred  to  herein)  constitutes  the entire  agreement  and
supersedes all other prior agreements and understandings, both written and oral,
between the Pledgors and the Secured  Parties with respect to the subject matter
hereof.

                  16.  SUCCESSORS  AND ASSIGNS.  This  Agreement will be binding
upon and inure to the benefit of the Pledgors and the Secured  Parties and their
respective heirs, executors,  administrators,  successors and assigns; provided,
however,  that the Secured  Parties may not assign this Agreement in whole or in
part without the Pledgors'  prior  written  consent.  This  Agreement is for the
benefit of the Secured Parties and their successors and assigns and in the event
of an  assignment  of any  amounts  payable  under the  Debentures  or the other
Transaction  Agreements,  the rights hereunder,  to the extent applicable to the
indebtedness so assigned, may be transferred with such indebtedness.

                  17.  INTERPRETATION.  In this  Agreement,  unless the  Secured
Parties and the Pledgors  otherwise agree in writing,  the singular includes the
plural and the plural the  singular;  references to statutes are to be construed
as including all statutory provisions  consolidating,  amending or replacing the
statute  referred  to; the word "or" shall be deemed to  include  "and/or",  the
words  "including"  and  "includes"  shall be deemed to be followed by the words
"without

                                       10
<PAGE>

limitation." Section headings in this Agreement are included for the convenience
of  reference  only and shall not  constitute a part of this  Agreement  for any
other purpose.

                  18. INDEMNITY. Each Pledgor severally agrees to indemnify each
of the Secured  Parties,  its  directors,  officers and employees and each legal
entity, if any, who controls the Secured Parties (the "INDEMNIFIED PARTIES") and
to hold each  Indemnified  Parties harmless from and against any and all claims,
damages,  losses,  liabilities and expenses  (including all fees of counsel with
whom any  indemnified  Parties  may consult and all  expenses of  litigation  or
preparation  therefor) which any  Indemnified  Parties may incur or which may be
asserted  against any  Indemnified  Parties as a result of the  execution  of or
performance  under  this  Agreement;   provided,  however,  that  the  foregoing
indemnity agreement shall not apply to claims, damages, losses,  liabilities and
expenses  solely  attributable to an Indemnified  Parties  negligence or willful
misconduct.

                  19. GOVERNING LAW AND JURISDICTION.  This Pledge Agreement has
been  delivered to and accepted by the Secured  Parties and will be deemed to be
made in the State of New York.

THIS PLEDGE  AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE
PLEDGORS AND SECURED PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW  YORK,  EXCLUDING  ITS  CONFLICT  OF  LAWS  RULES.  The  Pledgors  hereby
irrevocably consents to the exclusive

                                       11
<PAGE>

jurisdiction of any state or federal court for New York County and consents that
all  service of  process  be sent by  nationally  recognized  overnight  courier
service  directed to the Pledgors at the Pledgors'  address set forth herein and
service so made will be deemed to be completed on the business day after deposit
with such  courier;  provided  that  nothing  contained in this  Agreement  will
prevent the Secured  Parties from  bringing any action,  enforcing  any award or
judgment or exercising any rights against the Pledgors individually, against any
security or against any property of the  Pledgors  within any other county state
or other foreign or domestic jurisdiction.  The Pledgors acknowledges and agrees
that the venue provided above is the most convenient  forum for both the Secured
Parties and the  Pledgors.  The  Pledgors  waive any  objection to venue and any
objection based on a more convenient  forum in any action  instituted under this
Agreement.

                  20. WAIVER OF JURY TRIAL. THE PLEDGORS  IRREVOCABLY  WAIVE ANY
AND  ALL  RIGHTS  THE  PLEDGORS  MAY  HAVE TO A  TRIAL  BY  JURY IN ANY  ACTION,
PROCEEDING OR CLAIM OF ANY INURE RELATING TO THIS  AGREEMENT OR ANY  TRANSACTION
CONTEMPLATED IN ANY OF THE TRANACTION AGREEMENTS.  THE PLEDGORS ACKNOWLEDGE THAT
THE FOREGOING WAIVER IS MADE KNOWINGLY AND VOLUNTARILY.



                            [SIGNATURES ON NEXT PAGE]




                                       12
<PAGE>



           IN WITNESS  WHEREOF,  intending to be legally bound, the Pledgors and
the Secured Parties have  heretofore  executed this Agreement as of the date and
year first above written.


                      PLEDGORS:


                      _______________________________________
                      Frederick Tannous

                      _______________________________________
                      William Glaser



                      SECURED PARTIES:


                      BRIVIS INVESTMENTS, LTD.


                      By:____________________________________


                      STRANCO INVESTMENTS, LTD.


                      By:____________________________________

















                                       13
<PAGE>



                          EXHIBIT A TO PLEDGE AGREEMENT









                             (CERTIFIED SECURITIES)
         The  Collateral   listed  below  are  pledged  as  collateral  and  are
restricted  from trading and  withdrawals.  The Secured  Parties' or the Agent's
written approval is required prior to any trading or withdrawals of such assets.
<table>
<S>                           <C>                                                          <C>
Quantity                      Description of Securities                                     Certificate Number(s)


500,000 shares_____________   Common Stock of Health Sciences Group, Inc.                   __________________


500,000 shares                Common Stock of Health Sciences Group, Inc.
</table>
                                   STOCK POWER



         FOR VALUE  RECEIVED,  the  undersigned  does  hereby  sell,  assign and
transfer                              to                               _________
_________________________________________________________________,   having   an
address  at   ________________________________________________,   Tax  I.D.  No.
_________,  __________  shares of the  capital  stock  (the  "STOCK")  of Health
Sciences Group, Inc., a Colorado corporation,  represented by Certificate Number
______________,  standing  in the name of the  undersigned  on the books of said
Company; and do hereby irrevocably constitute ____________, Attorney to transfer
the said Shares on the books of the within named  Corporation with full power of
substitution in the premises.




                                         _________________________________











                                       15
<PAGE>
5

                                                                 EXHIBIT 10.7.11
                                ESCROW AGREEMENT

         THIS ESCROW AGREEMENT (this "AGREEMENT"),  dated as of this 18th day of
February,  2003, is made by and between HEALTH SCIENCES GROUP,  INC., a Colorado
corporation,  with  headquarters  located at 6080 Center Drive,  6th Floor,  Los
Angeles  California  90045  (the  "Company"),   Stranco  Investments,   LTD.,  a
corporation organized under the laws of the British Virgin Islands and having an
address at Idriss Building,  4th Floor,  Bashir Kassar Street,  Verdoun,  Beirut
Lebanon and Brivis Investments,  LTD., a corporation organized under the laws of
the British Virgin Islands and having an address at Arawak Chambers,  Sea Meadow
House,  Blackdune  Highway,   Roadtown,  Tortola  British  Virgin  Islands  (the
"Investors")  and  McLaughlin & Stern LLP,  having offices at 260 Madison Avenue
New York, New York 10016 (the "Escrow Agent").
                                                W I T N E S S E T H
         WHEREAS,  The Company and the Investors  have entered into an agreement
for the purchase by the Investors of certain Convertible  Debentures dated as of
February 18, 2003 (the "Purchase  Agreement" for an aggregate  consideration  of
$300,000 (the "Purchase Price"); and

        WHEREAS,  in conjunction  with the Purchase  Agreement,  the Company and
certain  of  its  subsidiaries  will  enter  into  a  Security  Agreement  and a
Registration Rights Agreement,  and Messrs. Tannous and Glaser,  shareholders of
the Company, will enter into a Pledge Agreement.

         WHEREAS,  the  consummation  of the  transactions  contemplated  by the
Purchase Agreement is contingent upon the consummation of the acquisition by the
Company  or  its  subsidiary  of  substantially  all of the  assets  of  Quality
Botanical   Ingredients,   Inc.  on  or  before  February  28,  2003  (the  "QBI
Acquisition").

        WHEREAS, the Escrow Agent is willing to act as escrow agent on the terms
and conditions hereinafter set forth;
<PAGE>

        NOW,  THEREFORE,  in  consideration of the mutual covenants and promises
herein  contained  and  subject to the  conditions  hereinafter  set forth,  the
parties  agree as  follows:

1. Each  Investor has  delivered  $150,000  for an  aggregate  of $300,000  (the
"Escrowed  Assets")  to the Escrow  Agent and each  Investor  has  delivered  an
executed  Security  Agreement and  Registration  Rights  Agreement to the Escrow
Agent.  The  Escrow  Agent  will  hold the  Escrowed  Assets  on the  terms  and
conditions hereinafter set forth.

2. At such time as the Company  completes  its  acquisition  of QBI, the Company
shall  deliver to the Escrow Agent the  following  documents  (collectively  the
"Documents"):  (a)  either (i) a copy of the form 8-K or other  filing  with the
Securities  and  Exchange  Commission   announcing  such  acquisition,   (ii)  a
certification  executed  by the  Company  and  Ezzat  Jallad  (as  agent for the
Investors) that such  acquisition has been  consummated or (iii) a certification
signed by the Company,  its subsidiary  Quality Botanical  Ingredients,  Inc. (a
Delaware  corporation)  and  Quality  Botanical  Ingredients,  Inc (a New Jersey
corporation)  substantially  in the  form  of  Exhibit  A  (together  with  oral
confirmation of the accuracy of such certificate by counsel to the Company), (b)
four fully executed Security  Agreements,(c) an original  Debenture  executed in
favor of each Investor, (d) four executed Registration Rights Agreements, (e) an
original  Warrant  executed  in favor of each  Investor,  FCIM Corp.  and George
Matin,(f)four  executed Pledge Agreements and (g) the stock  certificates  which
comprise the collateral under the Pledge Agreement with stock powers endorsed in
blank and with medallion  signatures  (the  "Collateral").  The Investors  shall
deliver to the Escrow Agent:  (a) four executed  Security  Agreements,  (b) four
executed   Registration   Rights  Agreements,   and  (c)  four  executed  Pledge
Agreements.  The documents to be delivered by the Company  (except for Exhibit A
and the stock  certificates  representing  the  Collateral)  must bear  original
signatures).  The documents to be delivered by the  Investors  shall bear either
original or facsimile signatures.  Provided that such documents are delivered on
or before  February  28,  2003,  and the  conditions  set
                                       2
<PAGE>

 forth in the  Purchase
Agreement have been waived or satisfied,  the Escrow Agent shall deliver (A) the
difference  between (i) the Escrowed Assets and (ii) the consulting fee equal to
5% of the  Escrowed  Assets to each of FCIM Corp and  George  Matin and  $10,000
payable to the Escrow Agent for legal services  rendered in connection  with the
preparation of the Purchase Agreement and the transactions  contemplated thereby
and (B)  the  Security  Agreement,  Registration  Rights  Agreement  and  Pledge
Agreement  executed by the  Investors  to the  Company.  The Escrow  Agent shall
deliver the Warrants, Security Agreement,  Registration Rights Agreement, Pledge
Agreement  and the  Collateral  to Ezzat Jallad as Agent for the  Investors.  In
addition,  the Escrow Agent shall deliver the  consulting  fee to FCIM Corp. and
George Matin and retain the amount  payable to the Escrow Agent for services and
expenses incurred in connection with its representation of the Investors. In the
event that such  documents  are not  delivered  to the Escrow Agent on or before
February 28, 2003, or the  conditions  set forth in the Purchase  Agreement have
not been waived or  satisfied,  the Escrow Agent shall,  upon receipt of written
notice executed by an Investor, distribute $150,000, less the amount of any wire
charges, to such Investor.

3.  Except as  provided  in Section 2, in the event that the Escrow  Agent shall
receive an instruction (the  "Instruction")  with respect to the Escrowed Assets
or any portion  thereof from the Company but not from the  Investors or from the
Investors  but not from the Company  (the person or firm giving the  Instruction
being hereinafter  referred to as the "Instructing Party" and the person or firm
which shall not have given the Instruction being hereinafter  referred to as the
"Other  Party"),  the Escrow  Agent  shall  transmit  a copy of the  Instruction
received from the Instructing  Party to the Other Party.  The Escrow Agent shall
thereafter act in accordance with the Instruction if the Other Party shall fail,
within ten days of receipt of the transmittal from the Escrow Agent to the Other
Party of the copy of the Instruction, to notify the Escrow Agent in writing that
the  Escrow  Agent is not to comply  with the  Instruction.  If the Other  Party
shall,  within ten days after transmittal of the Instruction by the Escrow Agent
to the Other Party,  advise the Escrow Agent not to comply with the Instruction,

                                       3
<PAGE>

the Escrow  Agent shall not act in  accordance  with the  Instruction  but shall
thereafter  act, with respect to such of the Escrowed Assets as were the subject
of the  Instruction,  solely in accordance with any of the following:  (a) a new
instruction  signed  jointly by the Investors  and the Company,  or (b) separate
instructions of like tenor from each of the Investors and the Company,  or (c) a
certified copy of an  arbitrator's  award issued under the rules of the American
Arbitration  Association  as to which the Escrow  Agent  shall have  received an
opinion of counsel,  satisfactory  to the Escrow  Agent in its sole and absolute
discretion, that such award is final beyond appeal, or (d) a certified copy of a
judgment of a court of competent jurisdiction as to which the Escrow Agent shall
have  received an opinion of counsel,  satisfactory  to the Escrow  Agent in its
sole and absolute discretion, that such judgment is final beyond appeal.

4. The  Escrow  Agent  shall  not be bound  in any way by any  agreement  or any
contract  between the Investors and the Company (whether or not it has knowledge
thereof)  and the Escrow  Agent's only duties and  responsibilities  shall be to
hold the  Escrowed  Assets as  Escrow  Agent and to  dispose  of said  assets in
accordance with the terms of this Escrow Agreement.

5. The Escrow Agent may act upon any  instruction  or other writing  believed by
the Escrow  Agent in good faith to be genuine and to be signed or  presented  by
the proper  person and the Escrow Agent shall not be liable in  connection  with
the performance of its duties under this Escrow  Agreement except for the Escrow
Agent's own willful  default or gross  negligence.  The Escrow Agent may consult
with   counsel,   and  any  opinion  of  counsel  shall  be  full  and  complete
authorization  and protection in respect of any action taken or permitted by the
Escrow Agent hereunder in good faith and reliance upon such opinion.

6. Any notice,  reports,  demands or  instruction  required or  permitted by any
provision  of  this  Agreement  shall  be  deemed  to  have  been   sufficiently
transmitted,  delivered,  given or served  for all  purposes  if sent by prepaid

                                       4
<PAGE>

registered  mail  to the  respective  parties  at  their  addresses  hereinabove
written.  The date of delivery or transmittal  shall be deemed to be the date of
mailing except that no notice,  report, demand or instruction shall be deemed to
have been  delivered or  transmitted  to a party  hereto  until  actual  receipt
thereof.

7. Each  party  hereto  agrees to  reimburse  the  Escrow  Agent for all  actual
expenses  incurred by the Escrow Agent in acting  hereunder and to indemnify the
Escrow Agent and to hold the Escrow Agent harmless  against any loss,  liability
and expense incurred  without  negligence or bad faith on the part of the Escrow
Agent arising out of or in connection with the acceptance or  administration  by
the Escrow Agent of its duties  hereunder,  including  the costs and expenses of
defending  itself  against any claim of  liability  hereunder.  The Escrow Agent
shall serve in such capacity without compensation.

8. This  Agreement  shall be binding  upon and shall inure to the benefit of the
parties and their respective  heirs,  successors and assigns.

9. This  Agreement  may be executed in one or more  counterparts,  each of which
shall constitute one Agreement,  binding on all the parties hereto,  even though
all the parties are not signatories to the original or the same counterpart.


                                       5
<PAGE>




        IN WITNESS WHEREOF,  the parties hereto have caused this Agreement to be
made and executed the day and year first above written.

                           STRANCO INVESTMENTS, LTD.
                           By:________________________________

                           BRIVIS INVESTMENTS LTD.

                           By:________________________________


                           HEALTH SCIENCES GROUP, INC.

                           By:_____________________________



                           McLaughlin & Stern LLP, as Escrow Agent
                           By: _______________________________

                                       6
<PAGE>


























                                    EXHIBIT A



                                   CERTIFICATE


        The  undersigned,  Health Sciences Group,  Inc., its subsidiary  Quality
Botanical  Ingredients,  Inc. (a  Delaware  corporation)  and Quality  Botanical
Ingredients,  Inc (a New Jersey corporation) (collectively,  the Parties) hereby
severally represent and certify as follows:

1.      All of the conditions  precedent to the consummation of the transactions
        contemplated  by the Asset  Purchase  Agreement  amongst the Parties and
        Collola Inc.  and Joseph R.  Schortz  dated as of November 30, 2002 (the
        "Asset Purchase  Agreement") have been satisfied or waived,  except with
        respect to the delivery of $260,000 to  ___________________  pursuant to
        the following wire instructions:


2.      Immediately  upon  the  delivery  of  such  funds  by wire  transfer  by
        McLaughlin & Stern, LLP, in its capacity as escrow agent under an Escrow
        Agreement  dated  as of  February  18,  2003,  to  _______________,  the
        Transactions will be consummated, including but not limited to, the sale
        of the Assets (as defined in the Asset  Purchase  Agreement)  to Quality
        Botanical Ingredients, Inc. ( a Delaware corporation).


        IN WITNESS WHEREOF, the undersigned have executed this certificate as of
February __, 2003.


                        QUALITY BOTANICAL INGREDIENTS, INC. (DELAWARE)

                        BY:___________________________________
                                 ITS:____________________________


                        HEALTH SCIENCES GROUP, INC.

                        BY:___________________________________
                                 ITS:___________________________

                        QUALTIY BOTANICAL INGREDIENTS, INC. (NEW JERSEY)

                        BY:___________________________________
                                 ITS:___________________________


                                       7
<PAGE>





                                                                  EXHIBIT 10.8.1



                                            LOAN AND SECURITY AGREEMENT

         This LOAN AND  SECURITY  AGREEMENT,  is entered into as of February __,
2003 by and between XCEL HEALTHCARE, INC. ("Borrower"),  and MERIDIAN COMMERCIAL
HEALTHCARE FINANCE, LLC ("Lender").

                                    RECITALS

         A. Borrower is a  fully-licensed  specialty  health care pharmacy which
provides  prescription  drugs and related  patient-specific  biopharmaceuticals,
medical  supplies  and  disease  treatment  programs to  patients  with  chronic
diseases in return for payments from Medicare,  Medicaid,  insurance  companies,
health  maintenance  organizations  and  preferred  provider  organizations  and
insurance copayments from patients.

         B.  Borrower has  requested  that Lender make loans to Borrower as more
fully set forth herein.

         C. This Agreement is entered into and will be performed in California.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby  acknowledged,  and in consideration of the mutual promises,
covenants and conditions herein contained, the Parties agree as follows:

                                    AGREEMENT

1. CERTAIN  DEFINITIONS  AND INDEX TO  DEFINITIONS.  All terms contained in this
Agreement  that are not  specifically  defined  herein  shall have the  meanings
provided in the UCC. All accounting terms used herein shall have the meaning set
forth in Generally Accepted Accounting Principles. As used herein, the following
terms shall have the following meanings:

1.1 "ACCOUNT  DEBTOR" - an  individual or entity that owes money to Borrower for
products delivered or services rendered.

1.2  "ACCOUNT"  - a right to  payment  of a  monetary  obligation  for  products
delivered  or  services  rendered  or  to  be  rendered  by  Borrower  including
Borrower's  accounts  receivable  (such as  payments  from  Medicare,  Medicaid,
insurance  companies,  health  maintenance  organizations and preferred provider
organizations  and insurance  copayments from patients)  arising in the ordinary
course of Borrower's business.

1.3 "AGREEMENT" - this Loan and Security  Agreement,  together with all exhibits
and  schedules  hereto,  as the same now  exists or may  hereafter  be  amended,
modified, supplemented, extended, renewed, restated or replaced.

                                  Page 1 of 29
<PAGE>

1.4 "ALLOWABLE AMOUNT" - the lesser of the Borrowing Base or the Credit Limit.

1.5 "ANNIVERSARY DATE" - the date which is one year from the date of the Closing
Date, and the same day of each year thereafter.

1.6  "ASSIGNMENT  DATE" - the date on which  Borrower  receives a statement from
Lender listing Accounts which Lender has determined to be Eligible Accounts.

1.7      "ACH" - Automated Clearing House.

1.8 "AVAILABILITY  RESERVES" - as of any date of determination,  such amounts as
Lender may from time to time  establish  and revise in good faith  reducing  the
amount of advances which would otherwise be available to Borrower hereunder:

1.8.1 To reflect events, conditions, contingencies or risks which, as determined
by Lender in good faith, do or may affect either (i) the Collateral or any other
property which is security for the  Obligations  or its value,  (ii) the assets,
business or  prospects of  Borrower,  or (iii) the  security  interest and other
rights of Lender in the Collateral (including the enforceability, perfection and
priority thereof);

1.8.2 To  reflect  Lender's  good faith  belief  that any  collateral  report or
financial  information  furnished  by or on behalf of Borrower or any Obligor to
Lender is or may have been incomplete,  inaccurate or misleading in any material
respect; or

1.8.3 In  respect  of any state of facts that  Lender  determined  in good faith
constitutes  an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.

1.9  "AVOIDANCE  CLAIM" - any claim that any payment  received by Lender from or
for the account of an Account Debtor is avoidable  under the Bankruptcy  Code or
any other debtor relief statute.

1.10  "BATCH" - all  Specifically  Assigned  Accounts  listed by  Borrower  on a
Schedule of Accounts.

1.11 "BORROWER" - see Preamble hereof.

1.12 "BORROWING  BASE" - Seventy-five  percent (75%) of the unpaid Estimated Net
Receivable  Value of  Specifically  Assigned  Accounts  which are not Ineligible
Accounts.

1.13 "BUSINESS DAY" - any day which is not a Saturday,  Sunday,  or other day on
which national banks are authorized or required to be closed.

1.14  "CLEARANCE  DAYS" - (i) 2 days for checks  drawn on banks  located  within
California and for all electronic funds transfers, and (ii) 4 days for all other
payments.

                                  Page 2 of 29
<PAGE>

1.15 "CLOSED" - a Batch is closed when each Specifically Assigned Account listed
therein  has  either  been paid in full to  Lender  based on its  Estimated  Net
Receivable Value or has become an Ineligible Account.

1.16 "CLOSING DATE" - the date on which this Agreement is accepted by Lender.

1.17  "COLLATERAL" - all now owned and hereafter  acquired personal property and
fixtures,  and proceeds  thereof  (including  proceeds of  proceeds),  including
without  limitation  Accounts,  Chattel  Paper,  Goods,  Inventory,   Equipment,
Instruments, Investment Property, Documents, and General Intangibles.

1.18 "CREDIT ACCOMMODATION" - any advance or other extension of credit by Lender
to or on behalf of Borrower hereunder.

1.19     "CREDIT LIMIT" - $750,000.

1.20     "CURRENT RATIO" - As defined in Section 8.11.2.

1.21     "DATA INTERFACE SET UP FEE" - $1,000.

1.22     "DEFAULT RATE" - One-half percent (0.5%).

1.23     "DEFAULT WAIVER FEE" - $5,000.

1.24 "EARLY  TERMINATION  FEE" - For any event requiring the payment of an Early
Termination  Fee,  (a) 3% of the Credit  Limit if such event occurs prior to the
first  Anniversary  Date,  (b) 2% of the Credit Limit if such event occurs on or
after the first  Anniversary Date but prior to the second  Anniversary  Date, or
(c) 1% of the  Credit  Limit  if  such  event  occurs  on or  after  the  second
Anniversary Date but prior to the third Anniversary Date.

1.25  "ELECTRONIC DATA DOWNLOAD" - an electronic file or files containing all of
Borrower's Accounts.

1.26 "ELIGIBLE ACCOUNT" - an Account on which an Eligible Payor is obligated, or
which is  acceptable  to Lender as  determined  by Lender in the exercise of its
reasonable sole credit or business judgment.

1.27  "ELIGIBLE  PAYOR" - means  (i) a  solvent  commercial  insurance  company,
organized under the laws of any  jurisdiction  in the United States,  having its
principal  office in the United States,  (ii) a solvent Blue  Cross/Blue  Shield
plan, (iii) Medicare,  (iv) Medicaid, (v) Civilian Health and Medical Program of
the Uniformed Service,  or (vi) a solvent Health  Maintenance  Organization or a
Preferred Provider  Organization which has been approved in writing by Lender on
Exhibit A ("Eligible Payors").

1.28  "ESTIMATED NET RECEIVABLE  VALUE" - the amount which Lender has determined
in its  reasonable  discretion,  based  upon  information  acquired  by  Lender,

                                     Page 3 of 29
<PAGE>

(including  information  from  Borrower)  which  will  be  paid  on  account  of
Specifically Assigned Accounts.

1.29     "EVENT OF DEFAULT" - see Section 13.1 hereof.

1.30  "EXPOSED  PAYMENTS"  - Payments  received by Lender from a Payor which has
become subject to a bankruptcy  proceeding,  to the extent such payments cleared
said Payor's  deposit  account  within ninety days of the  commencement  of said
bankruptcy case.

1.31  "FINANCING  FEE" - the Financing Fee  Percentage  multiplied by the unpaid
Estimated Net Receivable  Value of a Batch computed from  Assignment Date to the
date on which the Batch has been Closed.

1.32  "FINANCING FEE  PERCENTAGE" - 3.75% per annum in excess of the Prime Rate.
Any change in the Financing Fee Percentage  shall be effective as of the date of
any change in the Prime Rate.

1.33  "GOVERNMENTAL  LOCK BOX" - A lock box relationship  between Borrower and a
Governmental Lock Box Bank.

1.34 "GOVERNMENTAL LOCK BOX BANK" - A financial institution acceptable to Lender
which has entered into a Lock Box Agreement.

1.35 "GUARANTOR(S)" - all individuals or entities now or hereafter  guaranteeing
the Obligations.

1.36     "INELIGIBLE ACCOUNT" - An Account which:

1.36.1   Is disputed by the Payor or Account Debtor obligated thereon;

1.36.2 Is not a bona fide  obligation  created by the sale and delivery of goods
or the rendition of services in the ordinary course of Borrower's business; or

1.36.3   Remains unpaid beyond the Late Payment Date.

1.37  "INVOICE" - the Record  that  evidences  an Account.  Where the context so
requires,  reference  to an Invoice  shall be deemed to refer to the  Account to
which it relates.

1.38  "LATE  PAYMENT  DATE" - the date which is 90 days from the date on which a
Specifically  Assigned  Account was assigned to Lender pursuant to a Schedule of
Accounts.

1.39     "LENDER" - See Preamble.

1.40  "LOCK  BOX  AGREEMENT"  - An  agreement  among  Borrower,  Lender  and the
Governmental  Lock Box Bank wherein (i) the Governmental Lock Box Bank agrees to


                                  Page 4 of 29
<PAGE>

sweep all deposits to Lock Box Account  (whether or not represented by collected
funds) into a deposit  account  identified in said  Agreement  which is owned by
Lender,  (ii)  Borrower  is  permitted  to revoke such sweep  instructions  upon
written  instructions  from Borrower to the Governmental Lock Box Bank and (iii)
the  Governmental  Lock Box Bank agrees to immediately  notify Lender in writing
upon receipt of such instructions.

1.41     "MINIMUM CURRENT RATIO" - 0.75:1.00.

1.42     "MINIMUM MONTHLY FEE" - $6,000.

1.43     "MINIMUM TANGIBLE NET WORTH" - _____________________________.

1.44  "MISDIRECTED  PAYMENT  FEE" - Fifteen  percent  (15%) of the amount of any
payment on an Account  where said payment has been  received by Borrower and not
delivered  in kind by  Borrower  to Lender or the  Governmental  Lock Box within
three Business Days of receipt thereof.

1.45  "MONETARY  COLLATERAL" - cash,  checks or other  proceeds of Collateral in
tangible form.

1.46  "MONITORING  FEE" - The product of the  Monitoring  Fee Percentage and the
Estimated Net Receivable Value of each advance.

1.47     "MONITORING FEE PERCENTAGE" - 0.60 percent (0.60%).

1.48 "OBLIGATED PARTY" - any entity obligated with respect to any Collateral.

1.49  "OBLIGATIONS"  - all present and future  obligations  owing by Borrower to
Lender whether or not for the payment of money,  whether or not evidenced by any
note or other  instrument,  whether direct or indirect,  absolute or contingent,
due or to become due,  joint or several,  primary or  secondary,  liquidated  or
unliquidated,  secured or  unsecured,  original or renewed or extended,  whether
arising  before,  during or after the  commencement of any case under the United
States Bankruptcy Code in which Borrower is a debtor,  including but not limited
to  any  obligations  arising  pursuant  to  letters  of  credit  or  acceptance
transactions or any other financial accommodations, and all principal, interest,
fees,  charges,  expenses,  attorneys' fees and accountants'  fees chargeable to
Borrower or  incurred by Lender in  connection  with this  Agreement  and/or the
transaction(s) related thereto.

1.50     "OBLIGORS" - Borrower and all Guarantors.

1.51     "ORIGINATION FEE" - $15,000.

1.52  "PAYOR" - An  Account  Debtor or other  obligor on an  Account,  or entity
making payment thereon for the account of such party.

                                  Page 5 of 29
<PAGE>

1.53 "PRIME  RATE" - The  interest  rate known as the Prime Rate as announced in
the Wall Street  Journal from time to time. If the Wall Street  Journal does not
announce a "prime rate",  then the prime rate as announced  from time to time by
the Bank of America.

1.54  "SCHEDULE  OF  ACCOUNTS"  - a form  supplied  by Lender  from time to time
wherein Borrower lists such of its Accounts as it requests that Lender accept as
Collateral under the terms of this Agreement.

1.55  "SPECIFICALLY  ASSIGNED  ACCOUNTS"  -  Accounts  listed on a  Schedule  of
Accounts which Lender has determined to be Eligible Accounts.

1.56  "SUBMITTED  ACCOUNTS"  - Accounts  listed by  Borrower  on a  Schedule  of
Accounts and submitted to Lender.

1.57     "TANGIBLE NET WORTH" - As defined in Section 8.10.1.

1.58  "TERMINATION  DATE" - the earlier of (a) three years from the date hereof,
or if this Agreement is extended  automatically under Section 16 below, such new
Anniversary Date, or (b) the date on which either party elects to terminate this
Agreement pursuant to the terms herein.

1.59 "UCC" - The Uniform  Commercial Code in effect in California at the date on
which a determination thereunder is to be made.

2.       CREDIT FACILITIES.

2.1 Unless otherwise instructed by Lender, Borrower shall transmit an Electronic
Data Download to Lender on the 1st day of each week.

2.2 On the basis of the  Electronic  Data  Download,  Lender  shall  prepare and
transmit  to  Borrower a  Borrowing  Base  Certificate  in the form of Exhibit B
hereto.

2.3 At the request of  Borrower in the form of Exhibit C hereto,  and subject to
Borrower's  availability  under the Borrowing Base Certificate,  Lender,  shall,
from time to time, at the request of Borrower,  make advances to Borrower,  less
any  Availability  Reserves,  so long as,  before  and after such  advance,  the
Obligations do not exceed the Allowable Amount.

2.4 Notwithstanding  anything to the contrary contained herein, Lender shall not
be  obligated to make an advance  hereunder  to the extent that,  before or as a
result thereof, the Obligations shall exceed the Allowable Amount.

3. PAYMENTS BY BORROWER.

3.1 Place of  Payments.  All  payments  hereunder  shall be made by  Borrower to
Lender at the  address of Lender  set forth  herein,  or at such other  place as
Lender may designate in writing;  provided however,  that Borrower may also send
payments to Lender by wire transfer.

                                  Page 6 of 29
<PAGE>

3.2 ACH  Debits.  In order to satisfy any of the  Obligations,  Lender is hereby
authorized by Borrower to initiate  electronic  debit entries through the ACH or
other electronic  payment system to any account  maintained by Borrower.  At the
Lender's request,  Borrower shall execute and deliver to Lender an authorization
agreement for ACH debits.

4. CLEARANCE DAYS. For all purposes under this Agreement, Clearance Days will be
added to the date on which any payment is received by Lender.

5. FEES. Borrower shall pay to Lender:

5.1 ORIGINATION  FEE. The Origination Fee no later than the date on which Lender
makes the initial advance hereunder.

5.2 FINANCING FEE. The Financing Fee on the date which is the earlier of (i) the
date on which a Batch is Closed, or (ii) the last day of each month.

5.3 MONITORING FEE. The Monitoring Fee on the date of each advance.

5.4 MISDIRECTED  PAYMENT FEE. The  Misdirected  Payment Fee on the amount of any
payment on an Account  where said payment has been  received by Borrower and not
delivered  as required  by Section  8.3 hereof  within  three  Business  Days of
receipt thereof, immediately upon its accrual.

5.5 MINIMUM  MONTHLY  FEE. Any amount by which the  Financing  Fee earned in any
month (prorated for partial months) is less than the Minimum Monthly Fee, on the
first day of the following month.

5.6 DEFAULT WAIVER FEE. The Default Waiver Fee to Lender,  immediately  upon the
waiver by Lender of any Event of  Default  hereunder,  so long as the waiver was
done at Borrower's request.

5.7  OUT-OF-POCKET  EXPENSES.  The  out-of-pocket  expenses directly incurred by
Lender in the  administration  of this  Agreement  such as wire  transfer  fees,
postage, audit fees, and lockbox fees, on demand.

5.8 EARLY  TERMINATION FEE.  Borrower shall  immediately pay to Lender the Early
Termination Fee if Borrower terminates this Agreement prior to the expiration of
three years from the date hereof,  becomes  subject to a  Bankruptcy  proceeding
(not including the filing of an involuntary bankruptcy petition against Borrower
that  does not  result  in the entry of an order for  relief),  or  prepays  the
Obligations  (whether by  acceleration  or otherwise),  at any time prior to the
Termination Date.

5.9 DATA  INTERFACE SET UP FEE. The unpaid  portion of any Data Interface Set Up
Fee,  immediately  upon  Borrower's  receipt  of  the  first  proceeds  received
hereunder.

                                  Page 7 of 29
<PAGE>

6. GRANT OF SECURITY INTEREST.  To secure the payment and performance in full of
the  Obligations,  Borrower  grants to the  Lender a  security  interest  in the
Collateral, and all proceeds and products thereof.

7. AUTHORIZATION TO LENDER.

7.1 Borrower hereby  irrevocably  authorizes  Lender at Borrower's  expense,  to
exercise all or any of the following  powers until all of the  Obligations  have
been paid in full:  (a) receive,  take,  endorse,  assign,  deliver,  accept and
deposit, in the name of Lender or Borrower, any and all cash, checks, commercial
paper,  drafts,  remittances and other instruments and documents relating to the
Collateral or the proceeds thereof,  (b) take or bring, in the name of Lender or
Borrower, all steps, actions, suits or proceedings deemed by Lender necessary or
desirable to effect  collection  of or other  realization  upon the Accounts and
other Collateral, (c) after an Event of Default, change the address for delivery
of mail to Lender and to receive and open mail  addressed to Borrower;  provided
that,  Lender shall  promptly  upon  receipt,  mail to Borrower,  at  Borrower's
expense,  all original documents and correspondence,  other than payments,  that
Lender receives,  (d) after an Event of Default,  extend the time of payment of,
compromise or settle for cash, credit, return of merchandise, and upon any terms
or  conditions,  any and all  Accounts  or other  Collateral  which  includes  a
monetary obligation and discharge or release any Account Debtor or other obligor
(including filing of any public record releasing any lien granted to Borrower by
such Account Debtor),  without affecting any of the Obligations,  (e) execute in
the name of Borrower  and file  against  Borrower  in favor of Lender  financing
statements  or  amendments  with  respect  to the  Collateral,  (f) pay any sums
necessary  to  discharge  any lien or  encumbrance  which is senior to  Lender's
security interest in the Collateral, which sums shall be included as Obligations
hereunder  and due on demand,  (g)  notify any  Account  Debtor  obligated  with
respect to any Account or any Payor  thereof,  that the  underlying  Account has
been  assigned to Lender by Borrower and that  payment  thereof is to be made to
the order of and directly  and solely to Lender,  and (h)  communicate  directly
with Borrower's  Account  Debtors or applicable  Payors to verify the amount and
validity of any Account created by Borrower.

7.2 Borrower hereby releases and exculpates Lender, its officers,  employees and
designees,  from any liability  arising from any acts under this Agreement or in
furtherance  thereof  whether of omission or commission,  and whether based upon
any error of judgment or mistake of law or fact, except for willful  misconduct.
In no event will Lender have any liability to Borrower for lost profits or other
special  or  consequential  damages.  Without  limiting  the  generality  of the
foregoing,  Borrower  releases  Lender from any claims which Borrower may now or
hereafter have arising out of Lender's  endorsement and deposit of checks issued
by  Borrower's  customers  stating that they were in full payment of an Account,
but  issued  for less  than the full  amount  which  may have  been  owed on the
Account.

7.3  Borrower  authorizes  Lender to accept,  endorse  and  deposit on behalf of
Borrower any checks  tendered by a Payor "in full payment" of its  obligation to
Borrower.  Borrower shall not assert against Lender any claim arising therefrom,
irrespective of whether such action by Lender effects an accord and satisfaction
of Borrower's claims, under ss.3-311 of the UCC or otherwise.

                                  Page 8 of 29
<PAGE>

8. COVENANTS BY BORROWER.

8.1 After  written  notice by Lender to  Borrower,  and  automatically,  without
notice, after an Event of Default, Borrower shall not (a) grant any extension of
time for payment of any of the  Accounts,  (b)  compromise  or settle any of the
Accounts for less than the full amount thereof,  (c) release in whole or in part
any Payor or (d) grant any credits, discounts,  allowances,  deductions,  return
authorizations or the like with respect to any of the Accounts.

8.2  Borrower,  at its sole  expense,  shall give Lender  access to all premises
where  Collateral  is  located  to  inspect  (and  remove,  if after an Event of
Default) any of the Collateral,  including  Borrower's  books and records,  such
access to be permitted  during  reasonable  business hours if before an Event of
Default  and at any time if on or after an  Event  of  Default.  Borrower  shall
permit  Lender or its  designee  to make  copies of such  books and  records  or
extracts therefrom as Lender may request.  Without expense to Lender, Lender may
use  any of  Borrower's  personnel,  equipment,  including  computer  equipment,
programs,  printed output and computer readable media, supplies and premises for
the collection of Accounts and realization on other Collateral as Lender, in its
sole discretion,  deems appropriate.  Borrower hereby irrevocably authorizes all
accountants  and third  parties to disclose and deliver to Lender at  Borrower's
expense all financial  information,  books and records, work papers,  management
reports and other information in their possession relating to Borrower.

8.3 Before  sending any Invoice to an Account  Debtor or Payor,  Borrower  shall
instruct that all payments on account thereof be made directly to:

8.3.1 Lender,  if the Account is not the result of healthcare  services provided
pursuant  to a program of the  United  States  Government  which  requires  that
payments  thereunder  be made only to the  Governmental  Lock Box,  in all other
cases,

8.3.2    The Governmental Lock Box.

8.4 Lender  shall,  promptly  upon  receipt,  mail to  Borrower,  at  Borrower's
expense,  all original documents and correspondence,  other than payments,  that
Lender receives.

8.5 Borrower  shall pay when due all payroll and other taxes,  and shall provide
proof thereof to Lender in such form as Lender shall reasonably require.

8.6 Borrower shall not after the date of this Agreement create, incur, assume or
permit to exist any lien upon or with  respect  to any  Collateral  now owned or
hereafter  acquired by  Borrower,  except any liens that  Lender  consents to in
writing.  However,  Lender will enter into an agreement in the form of Exhibit D
hereto with any such lienor,  so long as Borrower is not in default hereunder at
the time it requests the execution thereof.

8.7 Notwithstanding  that Borrower has agreed to pay the Misdirected Payment Fee
pursuant to Section 5.4, Borrower shall deliver any proceeds of any Specifically
Assigned  Account  received by Borrower  within three  Business  Days of receipt
thereof.

                                  Page 9 of 29
<PAGE>

8.8 So long as this Agreement is in effect,  Borrower will deliver to Lender the
following:

8.8.1  Within  thirty days after the end of each  calendar  month and sixty days
after the end of each fiscal  year,  Borrower's  financial  statements  for such
period and for that  portion of its fiscal  year  through the end of such period
including a statement  of profit and loss,  a balance  sheet and a statement  of
operating cash flow, all in reasonable  detail and certified by Borrower's chief
executive  officer and Borrower's chief financial officer and within thirty days
after the end of each calendar quarter, Borrower's trial balance.

8.8.2  Within one hundred  five days after the end of  Borrower's  fiscal  year,
Borrower's audited annual financial statements for such year.

8.8.3 (i) a monthly  aging of all  receivables  aged by date of service  for all
receivables;  (ii)  reconciliations of all collections  received with respect to
all such  Specifically  Assigned  Accounts within ten days after the end of each
month;  and (iii) a monthly  aging of all accounts  payable of Borrower  aged by
date of invoice or such other date as may be acceptable to Lender.

8.8.3.1  Tax Returns.  Copies of each of Borrower's:

8.8.3.2                    federal  income  tax  returns,   and  any  amendments
                           thereto,  within ten days of the filing  thereof with
                           the Internal Revenue Service; and

8.8.3.3                    federal  payroll tax returns  within ten (10) days of
                           filing, together with proof,  satisfactory to Lender,
                           that all taxes have been paid.
8.8.4 Such other information  concerning the Borrower or the Borrower's contract
billing  and  collection  company  as Lender  may from  time to time  reasonably
request including Medicare audits.

8.8.5 No later than the twentieth of each month,  copies of all bank  statements
of Borrower for the prior month.

8.8.6  Copies of any  correspondence  received  from Payors,  including  but not
limited to facsimiles,  e-mail,  overnight  delivery (e.g.  Federal Express) and
mail  delivered by the U.S.  Postal  Service,  promptly upon receipt.  After the
occurrence of an Event of Default, any correspondence delivered to Borrower in a
closed envelope shall be delivered to Lender  unopened.  Failure to comply shall
result in a fee of $20.00 for each item of correspondence.

8.9 The proceeds  received by Borrower from the Agreement will be used for legal
business  and  commercial  purposes of the  Borrower  and the  execution  of the
Agreement  is made in good faith by the Borrower  and without  actual  intent to
hinder, delay, or defraud present or future creditors of the Borrower.

                                  Page 10 of 29
<PAGE>

8.10  Borrower  shall deliver to Lender any  instrument  necessary for Lender to
obtain  records  from any  service  bureau  maintaining  records  for  Borrower.
Borrower shall not re-date any  Specifically  Assigned Account from the original
date  thereof or make any claims for  reimbursement  beyond  those  customary in
Borrower's industry, or otherwise extend or modify the terms thereof.

8.11     FINANCIAL COVENANTS.  As of the end of each quarter:

8.11.1 Borrower's Tangible Net Worth shall not be less than the Minimum Tangible
Net Worth.

8.11.2  Borrower's  Current  Ratio  shall not be less than the  Minimum  Current
Ratio.

9. ACCOUNT DISPUTES.  Borrower shall notify Lender promptly of and, if requested
by Lender,  will  settle  all  disputes  concerning  any  Specifically  Assigned
Account,  at Borrower's  sole cost and expense.  Lender may, but is not required
to, attempt to settle,  compromise,  or litigate (any such action, to "Resolve")
the dispute upon such terms as Lender in its sole  discretion  deems  advisable,
for  Borrower's  account  and  risk and at  Borrower's  sole  expense.  Upon the
occurrence  of an Event of Default,  Lender may Resolve such issues with respect
to any Account of Borrower.

10.  PERFECTION  OF SECURITY  INTEREST.  Borrower  shall  execute and deliver to
Lender such  documents  and  instruments,  including,  without  limitation,  UCC
financing  statements,  as  Lender  may  request  from  time to time in order to
evidence and perfect its security interest in any Collateral.

11. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:

11.1 CORPORATION.  Borrower is a corporation,  duly organized, validly existing,
and in good  standing  under  the  laws of the  state of its  incorporation,  is
qualified to do business as a foreign corporation, is in good standing under the
laws of each state where Borrower is doing business, and has all requisite power
and authority necessary to carry on its business as now being conducted,  and to
enter into and perform under the terms of the Agreement,  all Exhibits  thereto,
and all related documents.

11.2 VALIDITY OF DOCUMENTS. The execution, delivery, and performance by Borrower
of this  Agreement  and any  related  documents  and  any  additional  documents
required by the Lender have been duly  authorized by all  appropriate  action on
behalf of Borrower.  When executed and delivered by Borrower, this Agreement and
related documents will be the legal, valid and binding  obligations of Borrower,
enforceable against Borrower in accordance with their respective terms. Upon the
filing  of  the  applicable   financing   statement(s)  and/or  any  release  or
termination of any financing statement(s) in the appropriate  jurisdiction(s) in
connection with the Agreement,  all right,  title and interest in the Collateral
will be perfected.

11.3 AUTHENTICITY OF DOCUMENTS. All information, receivable data, documents, and
data  interface  including,  without  limitation,  all  information  included in

                                  Page 11 of 29
<PAGE>


documents and data interface  pertaining to the Accounts and all  information in
any application for this Agreement is authentic and accurate in all respects.

11.4 AUTHORITY TO EXECUTE  DOCUMENTS.  The execution and delivery by Borrower of
this Agreement and any related documents do not, and the performance by Borrower
of this  Agreement  will not (i)  conflict  with or result in a violation of the
Articles or Certificate of Incorporation  and By-laws of Borrower,  (ii) violate
or  conflict  with,  or result  in a breach or  default  under,  any  agreement,
instrument  to which  Borrower  is a party or to  which  Borrower  or any of its
respective properties are subject, or (iii) violate,  breach or default any law,
regulation , order, writ, judgment or decree of any court or governmental agency
to  which  Borrower  is a party or to which  Borrower  or any of its  respective
properties are subject, which violation,  conflict, breach or default would have
a materially adverse effect on Borrower,  or any of its respective properties or
result in the creation of any lien or security  interest  upon any of Borrower's
assets, except in favor of Lender.

11.5 BORROWER HAS LEGAL AUTHORITY TO CONDUCT BUSINESS. Borrower has all material
permits, licenses,  accreditation,  certifications,  authorizations,  approvals,
consents,    and    agreements   of   all   Payors,    governmental    agencies,
instrumentalities,  accreditation agencies and any other person(s), necessary or
required for  Borrower  (where the failure to have one or more of any such items
would materially impair Borrower's  ability) to own the assets that it now owns,
to carry on its business as now conducted,  to execute,  deliver and perform its
Obligations  hereunder,  and to receive payments on Submitted  Accounts from the
applicable Obligors thereon. Borrower has not been notified by any such Obligor,
governmental agency,  instrumentality,  accreditation agency or any other person
during the  twenty-four  month  period  immediately  preceding  the date of this
Agreement,  that such person has rescinded or not renewed, or intends to rescind
or  not  renew,  any  such  permit,   license,   accreditation,   certification,
authorization,  approval,  consent or agreement  granted by it to Borrower or to
which it and Borrower are parties.

11.6 NO SPECIAL AUTHORITY REQUIRED.  No authorization,  approval or other action
by, and no notice to or filing with,  any  governmental  authority or regulatory
body is required for the due execution, delivery, and performance by Borrower of
this Agreement or any other document or instrument to be delivered.

11.7 NO  LAWSUITS  PENDING.  There are no  actions,  suits,  investigations,  or
proceedings pending or threatened against Borrower before any court,  government
agency,  or other tribunal,  which, if determined  adversely to Borrower,  could
materially and adversely  affect  Borrower's  ability to perform its Obligations
pertaining to this Agreement,  and Borrower is not currently subject to, and has
no intention of commencing, any bankruptcy or insolvency proceeding.

11.8 COMPLIANCE WITH MEDICARE.  Borrower is in compliance with all laws,  rules,
regulations,  orders,  decrees,  and  directions of any  governmental  authority
applicable to the Accounts or any contracts  relating thereto,  or applicable to
Borrower's  business  and  properties,  a  violation  of  which  would  or could
materially and adversely affect Borrower's  ability to carry out its Obligations
hereunder or with respect to the Accounts.

                                  Page 12 of 29
<PAGE>

11.9 PENSION AND PROFIT SHARING PLANS.  The pension and profit sharing plans, if
any, of Borrower (and its subsidiaries,  if any) are in full compliance with all
applicable state and federal laws and regulations and fully funded in accordance
with the obligations of Borrower (and its subsidiaries, if any) thereunder.

11.10 NO EXISTING LITIGATION OR DISPUTES.  There is no event that materially and
adversely  affects  Borrower's  operations  including its ability to perform its
Obligations hereunder and the transactions contemplated by the Agreement.  There
is no default in the  performance  or  observance  of any  contract,  indenture,
mortgage, loan agreement, lease, or other material instrument, to which Borrower
is a party or by which it or any of its properties is bound, involving an amount
in controversy in excess of $5,000; however, Borrower shall not be considered in
default  hereunder  if the validity of any claim in  controversy,  or the amount
thereof,  is being contested in good faith by appropriate actions or proceedings
and  there  is no  material  interference  with  the  business  of  Borrower  or
collection  of  Accounts   caused  by  the   continuation  of  such  actions  or
proceedings.

11.11 NO INJUNCTIONS,  RESTRAINING  ORDERS OR DISPUTES.  There is no injunction,
writ,  restraining  order, or other order of any nature materially and adversely
affecting   Borrower's   performance  of  its  Obligations   hereunder  and  the
transactions contemplated by the Agreement.

11.12  ACCURACY OF BORROWER  NAME. The true and complete name of Borrower is set
forth at the beginning of the Agreement and on the signature pages hereof and is
the same name  registered  with the Secretary of the State of  incorporation  or
organization. Such name has not been changed in the last four months, and during
such period  Borrower did not use,  nor does  Borrower now use, any trade names,
fictitious names, assumed names or "doing business as" names except as disclosed
in a separate schedule to the Agreement.

11.13 VALID PROVIDER IDENTIFICATIONS.  Borrower holds current and valid Provider
ID's and will  advise  Lender,  in  writing as to all such  existing  and future
numbers  promptly  upon  their  issuance.  Borrower  has  exclusive  use  of its
respective Provider ID's, and the licenses necessary to receive payment from the
applicable Obligors on Submitted Accounts.  Borrower has not allowed, permitted,
authorized or caused any person, other than Borrower,  to use Borrower's federal
Provider ID number.

11.14  BORROWER IS SOLVENT.  Borrower is solvent and, after giving effect to the
transactions contemplated by the Agreement, will not become insolvent.  Borrower
is paying its debts as they become due and payable,  and, after giving effect to
the transactions  contemplated by this Agreement,  will have adequate capital to
conduct its business.

11.15    With respect to Submitted Accounts:

11.15.1  They will be at the time of submission to Lender and thereafter:

                                  Page 13 of 29
<PAGE>

11.15.1.1  bona fide  existing  obligations  created by the sale and delivery of
goods  or the  rendition  of  services  in the  ordinary  course  of  Borrower's
business;

11.15.1.2  unconditionally  owed and will be paid to  Lender  without  defenses,
disputes, offsets, counterclaims, or rights of return or cancellation;

11.15.1.3  not sales to any entity which is  affiliated  with Borrower or in any
way not an "arms length" transaction.

11.15.2 Fees for services which are subject to  limitations  imposed by workers'
compensation  regulations  or by contracts for  reimbursement  do not exceed the
limitations  imposed  thereunder,  and each  Account  for  which the fees are so
restricted  has been clearly  identified  to the Lender as being subject to such
restriction.

11.15.3 Borrower shall deliver to Lender any instrument  necessary for Lender to
obtain records from any service bureau maintaining records for Borrower.

11.15.4  Borrower  shall not change the date from the  original  date thereof or
make any claims for reimbursement beyond those customary in Borrower's industry,
or otherwise extend or otherwise modify the terms thereof.

11.15.5  Borrower  has not  received  notice or  otherwise  learned of actual or
imminent  bankruptcy,  insolvency,  or  material  impairment  of  the  financial
condition of any Account Debtor regarding Submitted Accounts.

11.16 TAX RETURNS.  Borrower has filed (or has obtained  extensions  for filing)
all returns for all federal, state and local taxes, including income and payroll
taxes,  on a timely  basis or has an agreement  of  settlement  with an approved
payment plan with the relevant agency.

11.17 APPROPRIATE  COLLECTION OF ACCOUNTS.  As of the date of each advance,  all
documents and agreements  relating to each  Specifically  Assigned  Account upon
which such  advance  shall be made,  and any  pre-audit  worksheets  required by
Lender will have been  delivered to Lender and  certified  by the Borrower  that
such  documents  are true and correct in all  material  respects.  Borrower  has
timely and properly  billed the  applicable  Payor and Borrower has delivered or
caused to be  delivered  to such  Payor  all  Payor-requested  supporting  claim
documents  with respect  thereto  including  all  documentation  required by the
applicable  Payor(s) for payment on the Account,  and the  statutory  period for
issuing an Explanation of Benefits in connection  therewith has not expired. All
information set forth in the bill and supporting claim documents  submitted to a
Payor with respect to a Specifically  Assigned  Account is true,  complete,  and
correct in all material respects, and, if additional information is requested by
such Payor in connection therewith,  Borrower will promptly provide the same and
will rebill such Account, if necessary.

                                  Page 14 of 29
<PAGE>

11.18 FINANCIAL  INFORMATION IS ACCURATE.  The  representations,  warranties and
statements  made by Borrower in the Agreement  and in any financial  information
with respect to Borrower delivered to Lender including,  without limitation, any
description of the Specifically  Assigned Accounts,  remain true and correct and
do not  contain  any  untrue  statement  of a  material  fact or omit to state a
material fact necessary to make the statements made therein not misleading.

12.      AVOIDANCE CLAIMS.

12.1 Borrower shall indemnify  Lender from any loss arising out of the assertion
of any Avoidance Claim and shall pay to Lender on demand the amount thereof.

12.2 Borrower  shall notify Lender within two business days of it becoming aware
of the assertion of an Avoidance Claim.

12.3     This provision shall survive termination of this Agreement.

13. DEFAULT.

13.1 EVENTS OF DEFAULT. Each of the following events will constitute an Event of
Default hereunder:

13.1.1 Borrower defaults in the payment of any Obligations or in the performance
of any provision hereof or of any other agreement now or hereafter  entered into
with Lender;

13.1.2   Any warranty or representation contained herein proves to be false;

13.1.3 The  Obligations  are in excess of the Allowable  Amount and Borrower has
not cured such situation within five business days;

13.1.4  Borrower  or any  Guarantor  of the  Obligations  ("Guarantor")  becomes
subject  to any  debtor-relief  proceedings  (not  including  the  filing  of an
involuntary  bankruptcy  petition  against  Borrower that does not result in the
entry of an order for relief);

13.1.5 Any Guarantor  fails to perform or observe any  Obligations  to Lender or
notifies  Lender of its  intention to rescind,  modify,  terminate or revoke any
guaranty of the Obligations, or any such guaranty ceases to be in full force and
effect for any reason whatever; and

13.1.6 Lender for any reason, in good faith,  deems itself insecure with respect
to the prospect of repayment or performance of the Obligations.

13.2 NOTICE OF DEFAULT. IF LENDER BELIEVES THAT BORROWER HAS DEFAULTED ON ANY OF
ITS  OBLIGATIONS  UNDER THIS  AGREEMENT,  LENDER SHALL SEND A WRITTEN

                                  Page 15 of 29
<PAGE>

NOTICE BY FACSIMILE  TRANSMISSION TO DAVID JOHNSON,  BORROWER'S  CONTROLLER,  AT
BORROWER'S  EXECUTIVE  OFFICES AT THE  FOLLOWING  FAX  NUMBER:  (818)  348-1106,
ADVISING  BORROWER OF THE DEFAULT(S) AND THAT BORROWER HAS FIVE BUSINESS DAYS TO
CURE THE  DEFAULT(S).  LENDER SHALL ENSURE THAT THE  FACSIMILE  TRANSMISSION  IS
ELECTRONICALLY  CONFIRMED.  IF, FIVE  BUSINESS  DAYS AFTER THE  OCCURRENCE OF AN
EVENT OF DEFAULT AND THE  SENDING OF NOTICE  THEREOF  FROM  LENDER TO  BORROWER,
LENDER BELIEVES THAT BORROWER HAS NOT CURED THE DEFAULT(S),  LENDER SHALL SEND A
WRITTEN NOTICE BY FACSIMILE  TRANSMISSION TO MR. JOHNSON IN THE MANNER SPECIFIED
ABOVE,  ADVISING  BORROWER THAT LENDER IS ACCELERATING ONE OR MORE OF BORROWER'S
OBLIGATIONS   UNDER  THIS  AGREEMENT  (IF  LENDER  CHOOSES  TO  ACCELERATE  SUCH
OBLIGATIONS).  LENDER'S  FAILURE  TO CHARGE OR  ACCRUE  INTEREST  OR FEES AT ANY
"DEFAULT" OR "PAST DUE" RATE SHALL NOT BE DEEMED A WAIVER BY LENDER OF ITS CLAIM
THERETO.

13.3     EFFECT OF DEFAULT.

13.3.1 Upon the  occurrence of any Event of Default which Borrower has not cured
within five business days after receiving  Lender's notice thereof,  in addition
to any rights  Lender has under this  Agreement or  applicable  law,  Lender may
immediately terminate this Agreement, at which time all Obligations shall become
immediately due and payable without notice.

13.3.2   All Obligations shall accrue interest at the Default Rate.

14. ACCOUNT  STATED.  Lender shall render to Borrower a statement  setting forth
the transactions  arising hereunder.  Each statement shall be considered correct
and binding upon Borrower as an account stated, except to the extent that Lender
receives, within sixty days after the mailing of such statement,  written notice
from Borrower of any specific exceptions by Borrower to that statement, and then
it  shall  be  binding  against  Borrower  as to any  items  to which it has not
objected.

15. WAIVER. No failure to exercise and no delay in exercising any right,  power,
or remedy  hereunder  shall impair any right,  power, or remedy which Lender may
have,  nor  shall  any such  delay be  construed  to be a waiver  of any of such
rights,  powers,  or  remedies,  or any  acquiescence  in any  breach or default
hereunder;  nor shall any waiver by Lender of any breach or default by  Borrower
hereunder  be deemed a waiver of any default or breach  subsequently  occurring.
All rights and remedies  granted to Lender  hereunder shall remain in full force
and  effect   notwithstanding   any  single  or  partial  exercise  of,  or  any
discontinuance of action begun to enforce,  any such right or remedy. The rights
and remedies  specified herein are cumulative and not exclusive of each other or
of any rights or remedies that Lender would otherwise have. Any waiver,  permit,
consent or  approval  by Lender of any breach or  default  hereunder  must be in
writing and shall be effective  only to the extent set forth in such writing and
only as to that specific instance.

16. EFFECTIVE DATE; TERMINATION.

                                  Page 16 of 29
<PAGE>

16.1 This  Agreement  shall become  effective  upon the  execution  and delivery
hereof by  Borrower  and Lender and shall  continue in full force and effect for
three years from the date hereof.

16.2 This Agreement may be extended for successive  one-year periods  thereafter
by written notice from Lender to Borrower,  and may be terminated by Borrower on
the next  Anniversary  Date, so long as such written  notice of  termination  is
received by Lender at least six months prior to the next Anniversary Date.

16.3 Upon the Termination  Date, the unpaid balance of the Obligations  shall be
due and payable without demand or notice.

16.4     EXPOSED PAYMENTS.

16.4.1  Upon  termination  of this  Agreement  Borrower  shall pay to Lender (or
Lender may retain), to hold in a non-segregated non-interest bearing account the
amount of all Exposed Payments (the "Preference Reserve").

16.4.2 Lender may charge the  Preference  Reserve with the amount of any Exposed
Payments  which Lender pays to the  bankruptcy  estate of the Account  Debtor or
Payor  which made the  Exposed  Payment,  on account of a claim  asserted  under
Section 547 of the Bankruptcy Code.

16.4.3  Lender  shall  refund to Borrower  from time to time that balance of the
Preference  Reserve for which a claim under Section 547 of the  Bankruptcy  Code
can no longer be  asserted  due to the  passage of the  statute of  limitations,
settlement with the bankruptcy estate of the Payor or otherwise.

17. AMENDMENT.  Neither this Agreement nor any provisions hereof may be changed,
waived, discharged or terminated,  nor may any consent to the departure from the
terms hereof be given, orally (even if supported by new  consideration),  except
by an instrument in writing signed by all parties to this Agreement.  Any waiver
or consent so given shall be effective only in the specific instance and for the
specific purpose for which given.

18. NO LIEN TERMINATION WITHOUT RELEASE. In recognition of the Lender's right to
have its  attorneys'  fees and other expenses  incurred in connection  with this
Agreement  secured  by the  Collateral,  notwithstanding  payment in full of all
Obligations by Borrower, Lender shall not be required to record any terminations
or  satisfactions  of any of Lender's liens on the  Collateral  unless and until
Borrower has executed and  delivered to Lender a general  release in the form of
Exhibit E hereto.  BORROWER UNDERSTANDS THAT THIS PROVISION CONSTITUTES A WAIVER
OF ITS RIGHTS UNDER SS. 9513 OF THE UCC. After Borrower signs a general  release
in the  form of  Exhibit  E and upon  the  request  of  Borrower,  Lender  shall
immediately  file  with the  California  Secretary  of State a form  UCC-3  (UCC
Financing  Statement  Amendment) with the box for Item 2  (Termination)  checked
pursuant to ss.  9513 of the UCC with  respect to any Form UCC-1 filed by Lender
against Borrower.

                                  Page 17 of 29
<PAGE>

19. CONFLICT.  Unless otherwise  expressly stated in any other agreement between
Lender and  Borrower,  if a  conflict  exists  between  the  provisions  of this
Agreement and the  provisions of such other  agreement,  the  provisions of this
Agreement shall control.

20. SURVIVAL.  All  representations,  warranties and agreements herein contained
shall be effective so long as any portion of this Agreement remains executory.

21.  SEVERABILITY.  In the event any one or more of the provisions  contained in
this Agreement is held to be invalid,  illegal or  unenforceable in any respect,
then such provision shall be ineffective  only to the extent of such prohibition
or invalidity,  and the validity,  legality, and enforceability of the remaining
provisions  contained  herein  shall  not in any  way be  affected  or  impaired
thereby.

22. ATTORNEYS FEES. Borrower shall pay Lender its reasonable  attorneys fees and
expenses  incurred  in the  administration  or  enforcement  of  this  Agreement
(whether  or not the result of  litigation).  It shall be  presumed  (subject to
rebuttal only by the  introduction  of competent  evidence to the contrary) that
the amount  recoverable  is the amount  billed to the Lender by its  counsel and
that such amount will be reasonable if based on its counsel's  customary billing
rates charged to Lender by its counsel in similar  matters.  For the purposes of
Section  1717 of the  California  Civil Code,  Lender  shall be the  "prevailing
party" if it recovers any funds whatsoever from Borrower, whether by settlement,
judgment or otherwise.

23. ENTIRE  AGREEMENT.  This  Agreement,  supersedes  all other  agreements  and
understandings  between  the  parties,  verbal or  written,  express or implied,
relating to the subject matter hereof. No promises of any kind have been made by
Lender or any third  party to induce  Borrower  to execute  this  Agreement.  No
course of dealing,  course of performance or trade usage,  and no parol evidence
of any  nature,  shall  be  used to  supplement  or  modify  any  terms  of this
Agreement.

24. CHOICE OF LAW. This Agreement and all  transactions  contemplated  hereunder
and/or  evidenced  hereby shall be governed by, construed under, and enforced in
accordance with the internal laws of the State of California.

25. JURY TRIAL WAIVER.  IN  RECOGNITION  OF THE HIGHER COSTS AND DELAY WHICH MAY
RESULT FROM A JURY TRIAL, THE PARTIES HERETO WAIVE ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM,  DEMAND,  ACTION OR CAUSE OF ACTION (A) ARISING HEREUNDER,  OR (B) IN
ANY WAY  CONNECTED  WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT HERETO,  IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER  ARISING,  AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE;  AND
EACH PARTY FURTHER  WAIVES ANY RIGHT TO  CONSOLIDATE  ANY SUCH ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE
OR HAS NOT BEEN WAIVED;  AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL

                                  Page 18 of 29
<PAGE>

WITHOUT A JURY, AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL  COUNTERPART OR A
COPY OF THIS  SECTION  WITH ANY COURT AS WRITTEN  EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

26. VENUE;  JURISDICTION.  The parties agree that any suit, action or proceeding
arising out of the subject matter hereof, or the interpretation,  performance or
breach of this  Agreement,  shall,  if Lender so elects,  be  instituted  in the
United  States  District  Court for the Southern  District of  California or any
court of the  State of  California  located  in San Diego  (each an  "Acceptable
Forum"),  each party agrees that the Acceptable Forums are convenient to it, and
each party  irrevocably  submits to the  jurisdiction of the Acceptable  Forums,
irrevocably  agrees to be bound by any judgment  rendered  thereby in connection
with this Agreement,  and waives any and all objections to jurisdiction or venue
that it may have under the laws of the State of California or otherwise in those
courts in any such  suit,  action  or  proceeding.  Should  such  proceeding  be
initiated in any other forum,  Borrower waives any right to oppose any motion or
application  made by Lender as a  consequence  of such  proceeding  having  been
commenced in a forum other than an Acceptable Forum.

27. NOTICE.

27.1 All notices  required  to be given to any party other than Lender  shall be
deemed  given upon the first to occur of (i)  deposit  thereof  in a  receptacle
under the control of the United  States  Postal  Service,  (ii)  transmittal  by
electronic  means to a receiver under the control of such party; or (iii) actual
receipt by such party or an employee or agent of such party.

27.2 All notices  required to be given to Lender hereunder shall be deemed given
upon actual receipt by a responsible officer of Lender.

27.3 For the purposes hereof,  notices  hereunder shall be sent to the following
addresses,  or to  such  other  addresses  as each  such  party  may in  writing
hereafter indicate:

                                                     BORROWER

Address:                   6016 Fallbrook Avenue
                           Suite 200
                           Woodland Hills, California 91367
Contact:                   David Johnson
Fax number:                818-348-1106

                                                      LENDER

Address:                   4320 La Jolla Village Drive, Suite 250
                           San Diego, California 92122
Officer:                   Ronald R. Pituch
Fax number:                858-200-2051

                                  Page 19 of 29
<PAGE>

IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.

BORROWER:           XCEL HEALTHCARE, INC.

                    By:

                    Name:

                    Title:

LENDER:             MERIDIAN COMMERCIAL HEALTHCARE FINANCE, LLC

                    By:

                    Name:

                    Title:




                                  Page 20 of 29
<PAGE>



                                                     EXHIBIT A
                                                  ELIGIBLE PAYORS






                                  Page 21 of 29
<PAGE>



                              XCEL HEALTHCARE, INC.
                                 ELIGIBLE PAYORS

                  PLAN #   PLAN NAME
                  3                 Express Scripts
                  5                 Medi-Cal
                  6                 Medicare
                  8.                GHPP
                  9                 Caremark
                  10                Universal Care
                  11                Paid Rx
                  13                Aetna
                  15                PacifiCare
                  16                PCS
                  17                RxAmerica
                  19                Med Impact
                  20                Argus
                  23                Wellpoint
                  25                Inland Empire Health Plan
                  32                National Med Healthcare
                  41                Rx Prime
                  44                Med Impact
                  45                Cigna
                  47                PCN
                  48                Med Impact
                  55                Med Impact
                  58                Priority
                  60                TAR Pending (Medi-Cal)
                  61                TAR Billed (Medi-Cal)
                  66                DME
                  68                Other Health Claims
                  103               Diversified
                  104               Bravell
                  108               LA Community
                  201               Blue Cross
                  202      Crixivan

         All of the foregoing Payors are approved as Eligible Payors pursuant to
Section 1.27 of that certain Loan and  Security  Agreement,  dated  February __,
2003, between XCEL Healthcare,  Inc. and Meridian Commercial Healthcare Finance,
LLC.

                                    MERIDIAN COMMERCIAL HEALTHCARE FINANCE, LLC

                                    By:
                                    Name:
                                    Title:



                                  Page 22 of 29
<PAGE>



                                    EXHIBIT B

                           BORROWING BASE CERTIFICATE




                                  Page 23 of 29
<PAGE>



                                    EXHIBIT C



                                 FUNDING REQUEST

                      [Letterhead of XCEL Healthcare, Inc.]

Via Facsimile to 858-200-2051

Meridian Commercial Healthcare Finance, LLC
4320 La Jolla Village Drive, Suite 250
San Diego, California  92122
Attn:  ________________

Re:      Funding Request Under Loan and Security Agreement

Dear _________:

                  Please wire [$________] to XCEL Healthcare, Inc. in accordance
with the wire transfer instructions set forth below:

                  BANK OF AMERICA
                  WESTWOOD BANKING CENTER
                  930 WESTWOOD BOULEVARD
                  LOS ANGELES, CA  90024-2971
                  PHONE NUMBER:     310-247-2080
                  ROUTING NUMBER:     121000358
                  ACCOUNT NUMBER:     0099002558
                  BENEFICIARY:     XCEL HEALTHCARE, INC.

                  This  request is  supported  by the  attached  Borrowing  Base
Certificate and is made under Section 2.3 ("Credit  Facilities") of that certain
Loan  and  Security  Agreement  between  XCEL  Healthcare,   Inc.  and  Meridian
Commercial  Healthcare  Finance,  LLC,  dated  February  __, 2003 (the "Loan and
Security  Agreement").  All representations and warranties of Borrower set forth
in the Loan and  Security  Agreement  are  true,  correct  and  complete  in all
material respects as of the date hereof; provided that those representations and
warranties  expressly  referring  to  another  date shall be true,  correct  and
complete in all materials respect as of such date.

         Thank you.

                                      Sincerely,

                                      By: _________________________
                                      Name:_______________________
                                      Title:________________________




                                  Page 24 of 29
<PAGE>



                                    EXHIBIT D



                          CONSENT TO SECURITY INTEREST

This AGREEMENT, dated as of among , (the "Debtor"), (the "Junior Creditor"), and
  (the "Senior Creditor").

                                    RECITALS

A The  Debtor is or may become  indebted  to the Junior  Creditor  (the  "Junior
Creditor Obligations").

B The Senior Creditor has a security interest in certain property of the Debtor,
including  but not limited to that  described  in Exhibit A hereto (the  "Senior
Creditor  Collateral"),  as collateral  securing the Debtor's present and future
obligations to the Senior Creditor (the "Senior Creditor Obligations").

C The Debtor has agreed  with  Senior  Creditor  that it will not  encumber  the
Senior Creditor Collateral.

D The Junior Creditor has requested that the Debtor grant it a security interest
in all or a portion of the Senior  Creditor  Collateral  (the  "Junior  Creditor
Security Interest").

E The Senior  Creditor has asserted that the above request,  if not consented to
by the Senior Creditor would constitute  interference with the Senior Creditor's
contractual relationships with the Debtor.

F The Parties are  executing  this  Agreement to set forth the consent of Senior
Creditor to the Junior Creditor Security Interest and the conditions thereto.

NOW,  THEREFORE,  in consideration of the premises,  and intending to be legally
bound hereby, the Parties hereby agree as follows:

                                    AGREEMENT

1. CERTAIN DEFINITIONS AND INDEX TO DEFINITIONS.

1.1.  DEFINITIONS.  The  following  terms  shall have the  following  respective
meanings:

1.1.1. "CONTROLLING STATE" -

1.1.2. "DEBTOR" - see Preamble.

1.1.3. "JUNIOR CREDITOR" - see Preamble.

1.1.4. "JUNIOR CREDITOR OBLIGATIONS" - see Recital A

1.1.5. "JUNIOR CREDITOR SECURITY INTEREST" - see Recital D.

1.1.6. "PARTIES" - the Junior Creditor and the Senior Creditor.

1.1.7. "SENIOR CREDITOR" - see Preamble.

1.1.8. "SENIOR CREDITOR COLLATERAL" - see Recital B

                                  Page 25 of 29
<PAGE>

1.1.9. "SENIOR CREDITOR OBLIGATIONS" - see Recital B.

1.2. OTHER DEFINED TERMS. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless  otherwise  defined
in this Agreement.

2.  CONSENT.  The  Senior  Creditor  consents  to the Junior  Creditor  Security
Interest.

3.  COVENANTS  OF JUNIOR  CREDITOR.  Junior  Creditor  covenants  and  agrees as
follows:

3.1.  Any security  interest in the Senior  Creditor  Collateral  granted to the
Senior  Creditor by the Debtor,  whether or not perfected,  and the  obligations
secured thereby,  are and shall remain senior to the Junior Creditor Obligations
and any security  interest in the Senior  Creditor  Collateral  now or hereafter
granted by the Debtor to the Junior Creditor.

3.2. It will, at the request of Senior  Creditor,  release any lien and security
interest it has on the Senior Creditor  Collateral to facilitate its transfer or
sale so long as the  proceeds  thereof are applied  against the Senior  Creditor
Obligations  and any excess is paid to the Junior Creditor to be applied against
the Junior Creditor Obligations.

3.3.  STANDSTILL BY JUNIOR CREDITOR.  The Junior Creditor shall have no right to
take any  action  with  respect to the Senior  Creditor  Collateral,  whether by
judicial or  non-judicial  foreclosure,  notification  to the  Debtor's  account
debtors,  or otherwise,  unless and until all Senior Creditor  Obligations  have
been fully and indefensibly paid.

3.4.  Any  proceeds  of the Senior  Creditor  Collateral,  or  proceeds  thereof
(whether or not identifiable),  received by the Junior Creditor shall be paid to
the Senior Creditor on demand.

4. EFFECT OF BANKRUPTCY.  This  Agreement  shall remain in full force and effect
notwithstanding  the  filing of a petition  for relief by or against  the Debtor
under the  Bankruptcy  Code and shall  apply  with full  force and  effect  with
respect to all Senior Creditor Collateral acquired by the Debtor, or obligations
incurred by the Debtor to the Junior  Creditor,  subsequent  to the date of said
Petition.

5. WAIVERS BY JUNIOR CREDITOR. The Junior Creditor irrevocably waives:

5.1.  Any right to compel the Senior  Creditor to marshal  assets of the Debtor,
whether such rights arise under  California  Civil Code  ss.ss.2899  and 3433 or
otherwise; and

5.2. All rights under Uniform  Commercial Code  ss.ss.9-501 et. seq.,  including
rights  to  notice,   rights  to  surplus  funds  and  rights  relating  to  the
commercially reasonable disposition of collateral.

6. CHOICE OF LAW. This  Agreement and all  transactions  contemplated  hereunder
and/or  evidenced  hereby shall be governed by, construed under, and enforced in
accordance with the internal laws of the Controlling State.

7. AMENDMENT.  Neither this Agreement nor any provisions  hereof may be changed,
waived, discharged or terminated,  nor may any consent to the departure from the
terms hereof be given, orally (even if supported by new consideration), but only
by an instrument in writing signed by all parties to this Agreement.  Any waiver
or consent so given shall be effective only in the specific instance and for the
specific purpose for which given.

                                  Page 26 of 29
<PAGE>

8. TERM.  This Agreement  shall continue so long as both Parties have a security
interest in the Senior Creditor Collateral.

9. ATTORNEYS FEES.

9.1.  In the event that  either  Party  retains  counsel  to enforce  its rights
hereunder, the prevailing party shall recover its attorneys' fees and expenses.

9.2.  Debtor agrees to pay the attorneys  fees and expenses of counsel to Senior
Creditor  incurred in the preparation  and negotiation of this agreement,  which
Senior  Creditor  estimates to be $_. Debtor  consents that Senior  Creditor may
request  that Junior  Creditor  disburse  such fees and  expenses to counsel for
Senior Creditor,  upon their demand, and debit Debtor's loan account with Junior
Creditor  therefor.  Junior  Creditor  agrees  that such  demand will be honored
within thirty days of receipt.

10. WAIVER.

10.1.  No delay or failure of either  Party in  exercising  any right,  power or
remedy under this  Agreement  shall affect or operate as a waiver or such right,
power or remedy,  nor shall any single or partial  exercise  of any such  right,
power or  remedy  preclude,  waive or  otherwise  affect  any  other or  further
exercise thereof or the exercise of any other right, power or remedy.

10.2. Any waiver, permit, consent or approval of any kind by either Party or any
breach or of default under this Agreement is  ineffective  unless in writing and
shall be effective only to the extent set forth in such writing.

11. COUNTERPARTS.  This Agreement may be executed in any number of counterparts,
each of which  when so  executed  shall be deemed to be an  original  and all of
which taken together shall constitute one and the same agreement.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly  executed  and  delivered  by  their  respective  officers  thereunto  duly
authorized as of the date first above written.

Debtor:

                            By:

                            Name:

                            Title:

Junior Creditor:

                            By:

                            Name:

                            Title:

Senior Creditor:            _

                            By:

                            Name:

                            Title:




                                  Page 27 of 29
<PAGE>



                    EXHIBIT A TO CONSENT TO SECURITY INTEREST

All  Debtor's  present  and  future  accounts,   contract  rights,  instruments,
documents,  chattel  paper,  general  intangibles  (including but not limited to
trademarks, trade names, patents, copyrights and all other forms of intellectual
property,  and tax  refunds),  returned and  repossessed  goods and all Debtor's
rights as a seller of goods; all collateral  securing any of the foregoing;  all
deposit accounts,  special and general, whether on deposit with Secured Party or
others;

All  Debtor's  now  owned  and  hereafter  acquired  inventory,   including  raw
materials, work-in-process and finished goods wherever located; all shipping and
packing  supplies used or usable in connection  with the sale of inventory;  all
Debtor's present and future claims against any supplier of any of the foregoing,
including  claims for defective  goods or  overpayments to or under shipments by
suppliers;  all  proceeds  arising  from  the  lease  or  rental  of  any of the
foregoing;

All Debtor's now-owned and hereafter acquired equipment, including furniture and
fixtures.

All present and future  warranty  and other claims which Debtor may have against
any vendor or lessor of any of the foregoing;

All cash  and  non-cash  proceeds  of any of the  foregoing,  in  whatever  form
(including  proceeds in the form of  inventory,  equipment  or any other form of
personal property), including proceeds of proceeds;

All books and records relating to the any of the foregoing  collateral,  and all
computers  and  other  equipment  (and  computer  software  used  in  connection
therewith) used in connection with the record keeping for the collateral.




                                  Page 28 of 29
<PAGE>



                                    EXHIBIT E

                                 GENERAL RELEASE

         FOR GOOD AND VALUABLE CONSIDERATION,  the receipt and adequacy of which
are hereby acknowledged,  the undersigned  ("Releasor") hereby forever releases,
discharges and acquits MERIDIAN COMMERCIAL HEALTHCARE FINANCE, LLC ("Releasee"),
its parent, directors,  shareholders,  agents and employees, of and from any and
all  claims  of  every  type,  kind,  nature,   description  or  character,  and
irrespective  of how,  why,  or by  reason  of what  facts,  whether  heretofore
existing,  now existing or hereafter arising,  or which could,  might, or may be
claimed to exist, of whatever kind or name, whether known or unknown,  suspected
or  unsuspected,  liquidated  or  unliquidated,  each as though  fully set forth
herein  at  length,  to the  extent  that  they  arise  out of or are in any way
connected to or related to that certain Loan and Security Agreement dated .

Releasor  agrees  that the  matters  released  herein are not limited to matters
which are known or  disclosed,  and the  Releasor  waives any and all rights and
benefits  which it now has,  or in the  future  may have,  conferred  upon it by
virtue of the  provisions  of  Section  1542 of the  Civil  Code of the State of
California which provides as follows:

                  A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR  SUSPECT  TO EXIST IN HIS  FAVOR AT THE TIME OF  EXECUTING  THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
THE DEBTOR.

         Acceptance  of this  Release  shall not be deemed  or  construed  as an
admission of liability by any party released.

         Releasor  acknowledges  that either (a) it has had advice of counsel of
its own choosing in negotiations for and the preparation of this release, or (b)
it has knowingly determined that such advice is not needed.

DATED:

Entity Releasor:            XCEL HEALTHCARE, INC.

                            By:
                            Name:
                            Title:


                                  Page 29 of 29
<PAGE>




                                                                 EXHIBIT 10.8.2



                                                February ___, 2003




Meridian Commercial Healthcare Finance, LLC
4320 La Jolla Village Drive, Suite 250
San Diego, California 92122

         Re: XCEL HEALTHCARE, INC. (THE "DEBTOR")

Ladies and Gentlemen:

         The undersigned  ("Indemnitor")  is entering into this  Indemnification
Agreement  to  induce  you to  extend  financial  accommodations  to the  Debtor
pursuant to the terms of a Loan and Security Agreement, dated February ___, 2003
(the "Credit Agreement"). (All obligations of Debtor to you, whether pursuant to
the  Credit   Agreement  or  otherwise  are  hereinafter   referred  to  as  the
"Obligations".)  Any capitalized  term not defined herein shall have the meaning
ascribed  thereto in the  current or any future  California  Uniform  Commercial
Code.

         Indemnitor hereby continuously represents and warrants, that:

         A. FINANCIAL STATEMENTS.  All statements and reports made or to be made
to you by the Debtor or any direct or indirect,  absolute or contingent  obligor
on the Obligations are and shall remain true and correct.

         B. BORROWING BASE  CALCULATIONS.  All  calculations  of availability of
funds of Debtor under the Credit Agreement shall be correct in all respects.

C. ACCOUNTS.

         i.       Each  Account  of Debtor (an  "Account")  is  genuine,  valid,
                  subsisting and enforceable in accordance with its terms, is in
                  all  respects  what  it  purports  to be,  and  represents  an
                  undisputed and bona fide  indebtedness  owing to Debtor by the
                  Account Debtor.

         ii.      To the best  knowledge of the Debtor and its  employees,  each
                  Account is accepted by the corresponding  Account Debtor,  and
                  there  are  no  defenses,   setoffs,   credits,   contras,  or
                  counter-claims  against,  or  disputes  with  respect  to  any
                  Account,  nor is the  payment of any  Account  conditioned  or
                  contingent upon the fulfillment of any contract,  condition or
                  warranty, past or future, expressed or implied.

         iii.     All payments received by Debtor in payment of any Account have
                  been  deposited,  delivered  and used only as permitted in the
                  Credit Agreement.

                                   Page 1 of 4
<PAGE>

         iv.      Each copy of an  invoice  delivered  to or shown to you in the
                  course of  providing  credit  accommodations  to Debtor is and
                  shall be a true and genuine copy of the  original  sent to the
                  Account Debtor named therein and accurately reflects all terms
                  of the  transaction  from which such Account arose,  including
                  but not  limited to the amount  due and the  payment  due date
                  (whether stated on each such invoice, or computed based on the
                  information set forth on such invoice).

         v.       All   Chattel   Paper,   promissory   notes,   drafts,   trade
                  acceptances,  or other  instruments  for the payment of money,
                  and any endorsements  thereon, are true and genuine and in all
                  respects  what they purport to be, and represent the valid and
                  binding obligation of all parties thereto, and all amounts and
                  dates stated on all such items are correct.

         vi.      Any promissory  notes,  letters of credit or post-dated checks
                  received by Debtor in payment of or as credit  support for any
                  Accounts will be immediately  either  delivered or reported to
                  you.

         vii.     All Inventory  described in any invoice has been  delivered to
                  an  Account   Debtor  or  placed  for  such  delivery  in  the
                  possession  of a carrier not owned or  controlled  directly or
                  indirectly  by Debtor,  except for drivers  employed by Debtor
                  who  deliver  Inventory  to  Debtor's  customers.

         viii.    All  evidence of the delivery or shipment of Inventory is true
                  and genuine.

         ix.      All services to be performed by Debtor in connection with each
                  Account have been performed by Debtor.

         D. TITLE TO COLLATERAL. Debtor:

         i.       Is the owner of all collateral heretofore or hereafter pledged
                  by  Debtor  to you (the  "Collateral"),  free of all  security
                  interests,  liens or other encumbrances,  except your security
                  interest therein and any other liens which have been disclosed
                  in writing to you.

         ii.      Has  the  unconditional  authority  to  grant  you a  security
                  interest in the Collateral.

         iii.     Will  not  take  or  fail to  take  any  action  (specifically
                  including  but not limited to the suffering of any federal tax
                  lien)  which  will  adversely  affect  the  priority  of  your
                  security interest in the Collateral.

         iv.      Will not  transfer the  Collateral,  other than the selling or
                  leasing Inventory in the ordinary course of Debtor's business.

         Indemnitor  indemnifies  you  from  any  loss,  including  any  actual,
consequential,  incidental  or other  damage,  (the  amount  of  which  shall be
presumed to be and limited to the face amount of any  affected  invoice,  or the
greater  of cost or market of any  affected  Inventory,  where  such  measure of
damage  shall be  appropriate  in your sole  discretion)  incurred by you as the
result  of, or  arising  out of,  the  breach of any  covenants,  warranties  or
representations  (in  whole  or  part)  made by  Debtor  or  Indemnitor  to you.
Indemnitor further indemnifies you against, and agrees to

                                   Page 2 of 4
<PAGE>

reimburse  you for,  all  costs  and  expenses  incurred  (including  reasonable
attorneys'  fees)  in  the  negotiation,   preparation,   administration  and/or
enforcement of this Indemnification Agreement.

         Indemnitor's  obligations  hereunder  shall  not be  affected  by,  and
Indemnitor  waives any and all claims and  defenses  arising  out of, any of the
following:

         o        Any  failure to  perfect or  continue  the  perfection  of any
                  security interest in or other lien upon any Collateral;

         o        The  invalidity,  unenforceability,  impropriety  of manner of
                  enforcement  of, or loss or change in  priority  of,  any such
                  security interest or lien;

         o        The failure to protect, preserve or insure any Collateral;

         o        Any   failure  of  the   Indemnitor   to  receive   notice  of
                  presentment,  demand, protest, default,  non-payment,  partial
                  payment,  any intended  disposition of any of the  Collateral,
                  the  acceptance  of this  Agreement  or the  Credit  Agreement
                  (including  the  acceptance  of  any  assignment  of  accounts
                  thereunder), any extension of credit by you to Debtor, and all
                  other notices to which Indemnitor might be otherwise entitled;

         o        The  cessation,   from  any  cause  whatsoever,   of  Debtor's
                  liability,   including,   without  limitation,   any  failure,
                  negligence or omission by you in enforcing your claims against
                  Debtor;

         o        Any release,  settlement or  compromise  of any  obligation of
                  Debtor; or

         o        The invalidity or unenforceability of the Obligations.

         This  Indemnification  Agreement  shall remain in full force and effect
until the later to occur of termination of the Credit  Agreement or repayment in
full of the Obligations.

         In the event of any litigation arising hereunder,  the prevailing party
shall recover its attorney's fees and expenses from the unsuccessful  party. Any
action  arising  hereunder  may, at your  election,  be  prosecuted in any court
located in California  (the  "Acceptable  Forums").  We agree that such forum is
convenient to us and we submit to such  jurisdiction and waive any objections to
jurisdiction or venue. Should we commence an action in any other forum, we waive
any right to oppose your motion or application to transfer such  proceeding to a
court in the Acceptable Forum.

                                     Very truly yours,


                                     Fred E. Tannous, Individually


                                   Page 3 of 4
<PAGE>


[NOTARIAL ACKNOWLEDGEMENT]


                                   Page 4 of 4
<PAGE>


                                                                  EXHIBIT 10.8.3



                                                February ___, 2003




Meridian Commercial Healthcare Finance, LLC
4320 La Jolla Village Drive, Suite 250
San Diego, California 92122

         Re: XCEL HEALTHCARE, INC. (THE "DEBTOR")

Ladies and Gentlemen:

         The undersigned  ("Indemnitor")  is entering into this  Indemnification
Agreement  to  induce  you to  extend  financial  accommodations  to the  Debtor
pursuant to the terms of a Loan and Security Agreement, dated February ___, 2003
(the "Credit Agreement"). (All obligations of Debtor to you, whether pursuant to
the  Credit   Agreement  or  otherwise  are  hereinafter   referred  to  as  the
"Obligations".)  Any capitalized  term not defined herein shall have the meaning
ascribed  thereto in the  current or any future  California  Uniform  Commercial
Code.

         Indemnitor hereby continuously represents and warrants, that:

         A. FINANCIAL STATEMENTS.  All statements and reports made or to be made
to you by the Debtor or any direct or indirect,  absolute or contingent  obligor
on the Obligations are and shall remain true and correct.

         B. BORROWING BASE  CALCULATIONS.  All  calculations  of availability of
funds of Debtor under the Credit Agreement shall be correct in all respects.

         C. ACCOUNTS.

         i.       Each  Account  of Debtor (an  "Account")  is  genuine,  valid,
                  subsisting and enforceable in accordance with its terms, is in
                  all  respects  what  it  purports  to be,  and  represents  an
                  undisputed and bona fide  indebtedness  owing to Debtor by the
                  Account Debtor.

         ii.      To the best  knowledge of the Debtor and its  employees,  each
                  Account is accepted by the corresponding  Account Debtor,  and
                  there  are  no  defenses,   setoffs,   credits,   contras,  or
                  counter-claims  against,  or  disputes  with  respect  to  any
                  Account,  nor is the  payment of any  Account  conditioned  or
                  contingent upon the fulfillment of any contract,  condition or
                  warranty, past or future, expressed or implied.

         iii.     All payments received by Debtor in payment of any Account have
                  been  deposited,  delivered  and used only as permitted in the
                  Credit Agreement.

                                   Page 1 OF 4
<PAGE>

         iv.      Each copy of an  invoice  delivered  to or shown to you in the
                  course of  providing  credit  accommodations  to Debtor is and
                  shall be a true and genuine copy of the  original  sent to the
                  Account Debtor named therein and accurately reflects all terms
                  of the  transaction  from which such Account arose,  including
                  but not  limited to the amount  due and the  payment  due date
                  (whether stated on each such invoice, or computed based on the
                  information set forth on such invoice).

         v.       All   Chattel   Paper,   promissory   notes,   drafts,   trade
                  acceptances,  or other  instruments  for the payment of money,
                  and any endorsements  thereon, are true and genuine and in all
                  respects  what they purport to be, and represent the valid and
                  binding obligation of all parties thereto, and all amounts and
                  dates stated on all such items are correct.

         vi.      Any promissory  notes,  letters of credit or post-dated checks
                  received by Debtor in payment of or as credit  support for any
                  Accounts will be immediately  either  delivered or reported to
                  you.

         vii.     All Inventory  described in any invoice has been  delivered to
                  an  Account   Debtor  or  placed  for  such  delivery  in  the
                  possession  of a carrier not owned or  controlled  directly or
                  indirectly  by Debtor,  except for drivers  employed by Debtor
                  who deliver Inventory to Debtor's customers.

         viii.    All  evidence of the delivery or shipment of Inventory is true
                  and  genuine.  ix. All  services to be  performed by Debtor in
                  connection with each Account have been performed by Debtor.

         D. TITLE TO COLLATERAL. Debtor:

         i.       Is the owner of all collateral heretofore or hereafter pledged
                  by  Debtor  to you (the  "Collateral"),  free of all  security
                  interests,  liens or other encumbrances,  except your security
                  interest therein and any other liens which have been disclosed
                  in writing to you.

         ii.      Has  the  unconditional  authority  to  grant  you a  security
                  interest in the Collateral.

         iii.     Will  not  take  or  fail to  take  any  action  (specifically
                  including  but not limited to the suffering of any federal tax
                  lien)  which  will  adversely  affect  the  priority  of  your
                  security interest in the Collateral.

         iv.      Will not  transfer the  Collateral,  other than the selling or
                  leasing Inventory in the ordinary course of Debtor's business.

         Indemnitor  indemnifies  you  from  any  loss,  including  any  actual,
consequential,  incidental  or other  damage,  (the  amount  of  which  shall be
presumed to be and limited to the face amount of any  affected  invoice,  or the
greater  of cost or market of any  affected  Inventory,  where  such  measure of
damage  shall be  appropriate  in your sole  discretion)  incurred by you as the
result  of, or  arising  out of,  the  breach of any  covenants,  warranties  or
representations  (in  whole  or  part)  made by  Debtor  or  Indemnitor  to you.
Indemnitor further indemnifies you against, and agrees to

                                   Page 2 of 4
<PAGE>

reimburse  you for,  all  costs  and  expenses  incurred  (including  reasonable
attorneys'  fees)  in  the  negotiation,   preparation,   administration  and/or
enforcement of this Indemnification Agreement.

         Indemnitor's  obligations  hereunder  shall  not be  affected  by,  and
Indemnitor  waives any and all claims and  defenses  arising  out of, any of the
following:

         o        Any  failure to  perfect or  continue  the  perfection  of any
                  security interest in or other lien upon any Collateral;

         o        The  invalidity,  unenforceability,  impropriety  of manner of
                  enforcement  of, or loss or change in  priority  of,  any such
                  security interest or lien;

         o        The failure to protect, preserve or insure any Collateral;

         o        Any   failure  of  the   Indemnitor   to  receive   notice  of
                  presentment,  demand, protest, default,  non-payment,  partial
                  payment,  any intended  disposition of any of the  Collateral,
                  the  acceptance  of this  Agreement  or the  Credit  Agreement
                  (including  the  acceptance  of  any  assignment  of  accounts
                  thereunder), any extension of credit by you to Debtor, and all
                  other notices to which Indemnitor might be otherwise entitled;

         o        The  cessation,   from  any  cause  whatsoever,   of  Debtor's
                  liability,   including,   without  limitation,   any  failure,
                  negligence or omission by you in enforcing your claims against
                  Debtor;

         o        Any release,  settlement or  compromise  of any  obligation of
                  Debtor;  or

         o        The invalidity or unenforceability of the Obligations.

         This  Indemnification  Agreement  shall remain in full force and effect
until the later to occur of termination of the Credit  Agreement or repayment in
full of the Obligations.

         In the event of any litigation arising hereunder,  the prevailing party
shall recover its attorney's fees and expenses from the unsuccessful  party. Any
action  arising  hereunder  may, at your  election,  be  prosecuted in any court
located in California  (the  "Acceptable  Forums").  We agree that such forum is
convenient to us and we submit to such  jurisdiction and waive any objections to
jurisdiction or venue. Should we commence an action in any other forum, we waive
any right to oppose your motion or application to transfer such  proceeding to a
court in the Acceptable Forum.

                                                     Very truly yours,


                                                     Bill Glaser, Individually

                                   Page 3 of 4
<PAGE>



[NOTARIAL ACKNOWLEDGEMENT]


                                   Page 4 of 4
<PAGE>

                                                                  EXHIBIT 10.8.4


                             GUARANTY BY CORPORATION
            NOTICE: THIS DOCUMENT CONTAINS A WAIVER OF TRIAL BY JURY

         This  GUARANTY,  dated as of  February  ___,  2003,  is made by  HEALTH
SCIENCES GROUP, INC.  ("Guarantor") in favor of MERIDIAN  COMMERCIAL  HEALTHCARE
FINANCE,  LLC ("Guaranteed  Party"),  to induce Guaranteed Party to extend or to
continue to extend financial accommodations to Debtor (as hereinafter defined).

         FOR  GOOD  AND  VALUABLE   CONSIDERATION,   Guarantor  irrevocably  and
unconditionally  undertakes  and agrees for the benefit of  Guaranteed  Party as
follows:

1. DEFINITIONS AND CONSTRUCTION. As used herein:

1.1.  "AGREEMENT" - means this Guaranty  agreement and all permitted  amendments
hereto or renewals hereof.

1.2. "BANKRUPTCY CODE" - means Title 11 of the United States Code.

1.3. "CHOSEN STATE" - California.

1.4. "CREDIT DOCUMENTS" - means that certain Loan and Security Agreement,  dated
as of February ___, 2003, between,  inter alia, Debtor and Guaranteed Party, all
documents  executed in connection  therewith,  and all  permitted  amendments or
renewals to or of any of the foregoing.

1.5. "DEBTOR" - means XCEL HEALTHCARE,  INC., a California corporation,  and all
its  successors-in-interest  by operation  of law or  otherwise,  including  any
"Trustee" (as defined in the Bankruptcy Code) or  debtor-in-possession,  and any
successor-in-interest arising out of any merger or reorganization involving such
entity, whether such entity is the surviving or disappearing entity.

1.6. "DEFAULT" - means any event of default under any Credit Document, including
any event or  occurrence  that,  with the giving of notice or the lapse of time,
would constitute such an event of default.

1.7.  "GUARANTEED  OBLIGATIONS"  - means all  present  and  future  obligations,
indebtedness,  and  liabilities  of Debtor of every kind and  character  owed to
Guaranteed  Party,  including,  but not limited to,  those  arising  directly or
indirectly out of or in connection with the Credit Documents,  and including all
interest that, but for the filing of a petition under the Bankruptcy  Code would
have accrued,  and whether incurred,  or created before or after any entry of an
order for relief with respect to Debtor in a case under the Bankruptcy Code.

1.8. "GUARANTEED PARTY" - has the meaning set forth in the introduction hereto.

1.9. "GUARANTOR" - has the meaning set forth in the introduction hereto.

                                   Page 1 of 9
<PAGE>

2. GUARANTY BY GUARANTOR.

2.1.  PROMISE TO PAY AND  PERFORM.  Guarantor  unconditionally  and  irrevocably
guarantees  to  Guaranteed  Party the  prompt  payment  and  performance  of the
Guaranteed  Obligations  when  and as the  same  shall  become  due and  payable
(whether at stipulated or any accelerated or earlier date of maturity (including
the  date  of  any  required  prepayment)  and  whether  or not  the  Guaranteed
Obligations  are  found  to be  invalid,  illegal  or  unenforceable),  it being
Guarantor's intent that Guarantor's  guaranty is a guaranty of payment and not a
guaranty  of  collection.  If  Debtor  fails to pay or  perform  any  Guaranteed
Obligation  on or  before  the  date  when due  (whether  at  stipulated  or any
accelerated  or earlier  date of maturity  (including  the date of any  required
prepayment)),  Guarantor shall unconditionally and immediately make such payment
or render such performance upon written demand therefor by Guaranteed Party.

2.2.  CUMULATIVE  OBLIGATIONS.  The  obligations  of Guarantor  hereunder are in
addition to any other  obligations of such Guarantor under any other  guaranties
of the  indebtedness  or other  obligations of Debtor or any other person at any
time given to Guaranteed  Party.  This Agreement  shall not affect or invalidate
any such other guaranties.

2.3.  CONTINUING  GUARANTY.  This  Agreement is a continuing  guaranty and shall
remain in full force and effect notwithstanding the fact that, at any particular
time, no Guaranteed Obligations may be outstanding.

2.4. JOINT AND SEVERAL OBLIGATION; INDEPENDENT OBLIGATION. Guarantor is directly
liable to Guaranteed  Party.  The obligations of Guarantor  hereunder are direct
and  primary  and are  independent  of the  obligations  of Debtor.  Guarantor's
liability  hereunder shall not be contingent upon the exercise or enforcement by
Guaranteed  Party  of any  remedies  it may have  against  Debtor  or any  other
guarantor  or the  enforcement  of any lien or  realization  upon  any  security
Guaranteed  Party  may at any time  possess.  Any  release  that may be given by
Guaranteed Party to Debtor shall not release Guarantor.

3. PAYMENTS.

3.1.  NATURE AND  APPLICATION  OF  PAYMENTS.  Guarantor  shall make all payments
hereunder in immediately  available  lawful money of the United States,  without
deduction  or  withholding  (whether  for  taxes  (whether  income,  excise,  or
otherwise) or offset). Without regard to the form in which received,  Guaranteed
Party may apply any payment with respect to the  Guaranteed  Obligations  or any
other amounts due hereunder in such order as Guaranteed  Party shall in its sole
and absolute  discretion  determine,  irrespective of any contrary  instructions
received from any other person.

                                   Page 2 of 9
<PAGE>

3.2. INDEFEASIBLE PAYMENT;  REVIVAL. If any portion of any payment to Guaranteed
Party is set aside and repaid by  Guaranteed  Party for any reason  after  being
made by  Guarantor,  the amount so set aside  shall be  revived as a  Guaranteed
Obligation and Guarantor shall be liable for the full amount Guaranteed Party is
required to repay plus all costs and expenses (including attorneys' fees, costs,
and expenses) incurred by Guaranteed Party in connection therewith.

4. CERTAIN REPRESENTATIONS AND WARRANTIES OF GUARANTOR. Guarantor represents and
warrants  as  follows  (which  representations  and  warranties  shall  be true,
correct, and complete at all times):

4.1. This  Agreement is not made by Guarantor in reliance on any  representation
or warranty,  express or implied,  by Guaranteed  Party concerning the financial
condition  of Debtor,  the  nature,  value,  or extent of any  security  for the
Guaranteed  Obligations,  or any other matter, and no promises have been made to
Guarantor by any person,  including,  without  limitation,  Guaranteed Party, to
induce  Guarantor  to enter  into  this  Agreement,  except as set forth in this
Agreement.  Guarantor is presently informed of the financial condition of Debtor
and of all other  circumstances  which a diligent inquiry would reveal and which
bear upon the risk of nonpayment of the  Guaranteed  Obligations.  Guarantor has
reviewed the Credit Documents.

4.2.  The  consideration  given or  provided,  or to be given  or  provided,  by
Guaranteed  Party in connection with this Agreement is adequate and satisfactory
in all respects,  and represents  reasonably  equivalent  value, to support this
Agreement and Guarantor's obligations hereunder.

4.3. Guarantor shall keep informed of Debtor's financial  condition,  the status
of any security for the Guaranteed Obligations, and all other circumstances that
bear upon the risk of nonpayment of the Guaranteed Obligations.

4.4.  Guarantor shall, from time to time, at the expense of Guarantor,  promptly
execute and deliver all further  documents and take all further  action that may
be  necessary,  or that  Guaranteed  Party  may  reasonably  request,  to enable
Guaranteed Party to exercise and enforce its rights and remedies hereunder.

4.5.  Guarantor (a) is duly organized,  validly  existing,  and in good standing
under the laws of the jurisdiction of Guarantor's organization;  and (b) has the
power and authority and all governmental licenses, authorizations, consents, and
approvals to execute,  deliver,  and perform Guarantor's  obligations under this
Agreement.

4.6. This Guaranty has been authorized by all necessary organizational action by
Guarantor,  and does not and will not: (a)  contravene  the terms of Guarantor's
organization   documents;   (b)  conflict  with  or  result  in  any  breach  or
contravention  of, any  contractual  obligation to which Guarantor is a party or
any order,  injunction,  writ, or decree of any governmental  authority to which
Guarantor or Guarantor's  properties are subject;  or (c) violate any law, rule,
or regulation of any governmental authority.

4.7. This Agreement  constitutes the legal,  valid,  and binding  obligations of
Guarantor,  enforceable against Guarantor in accordance with its terms,  subject
to rules governing creditors' rights generally and principles of equity.

                                   Page 3 of 9
<PAGE>

4.8. There are no actions, suits, proceedings,  claims, or disputes pending, or,
to the best  knowledge of  Guarantor,  threatened  or  contemplated,  at law, in
equity, in arbitration, or before any governmental authority,  against Guarantor
or any of  Guarantor's  properties  which  purport  to affect or pertain to this
Agreement,  any of  the  other  Credit  Documents,  or  any of the  transactions
contemplated  hereby or thereby,  other than as disclosed to Guaranteed Party in
the Credit Documents.

4.9.  This  Agreement is not made by  Guarantor in reliance on any  statement by
Guaranteed  Party  concerning  the  financial  condition of Debtor,  the nature,
value,  or extent of any security for the Guaranteed  Obligations,  or any other
matter,  and no promises  have been made to Guarantor to induce it to enter into
this Agreement.  Guarantor is presently  informed of the financial  condition of
Debtor.

4.10.  The benefit to  Guaranteed  Party in  connection  with this  Agreement is
adequate and satisfactory in all respects,  and represents reasonably equivalent
value, to support this Agreement and Guarantor's obligation hereunder.

5. COVENANTS.

5.1. Guarantor shall keep informed of Debtor's financial  condition,  the status
of any security for the Guaranteed Obligations, and all other circumstances that
bear upon the risk of nonpayment of the Guaranteed Obligations.

5.2.  Guarantor shall, from time to time, at the expense of Guarantor,  promptly
execute and deliver all further  documents and take all further  action that may
be  necessary,  or that  Guaranteed  Party  may  reasonably  request,  to enable
Guaranteed Party to exercise and enforce its rights and remedies hereunder.

6. ACKNOWLEDGEMENTS AND AGREEMENTS.

6.1.  MODIFICATIONS  TO CREDIT DOCUMENTS AND GUARANTEED  OBLIGATIONS.  Guarantor
acknowledges and agrees that,  without notice to Guarantor and without affecting
or impairing the obligations of Guarantor  hereunder,  Guaranteed  Party may, by
action or inaction,  compromise or settle,  extend the period of duration or the
time for the payment,  or  discharge  the  performance  of, or may refuse to, or
otherwise not enforce, or may, by action or inaction,  release all or any one or
more  parties  to, any one or more of the Credit  Documents  or  otherwise  with
respect to the Guaranteed  Obligations or may grant other  indulgences to Debtor
in  respect  thereof,  or may amend or modify in any  manner and at any time (or
from time to time) any one or more of the Credit  Documents  or  otherwise  with
respect to the Guaranteed Obligations, or may, by action or inaction, release or
substitute any guarantor, if any, of the Guaranteed Obligations, or may enforce,
exchange,  release,  or waive,  by  action or  inaction,  any  security  for the
Guaranteed  Obligations  or any guaranty of the Guaranteed  Obligations,  or any
portion thereof.

6.2.  SUBORDINATION.  Guarantor  agrees  that  any and all  present  and  future
indebtedness  of  Debtor  owing  to  Guarantor  is  postponed  in  favor  of and
subordinated  to  indefeasible  payment,  in full,  in cash,  of the  Guaranteed
Obligations.  In this regard,  no payment of any kind  whatsoever  shall be made
with respect to such  indebtedness  until the Guaranteed  Obligations  have been
indefeasibly  paid in full. Any payment received by Guarantor in respect of such
indebtedness

                                   Page 4 of 9
<PAGE>

shall be held by Guarantor as trustee for  Guaranteed  Party,  and promptly paid
over to Guaranteed  Party on account of the Guaranteed  Obligations  but without
reducing or affecting in any manner the  liability of Guarantor  under the other
provisions of this  Agreement.  Upon request by Guaranteed  Party,  any notes or
other  instruments now or hereafter  evidencing  such  indebtedness of Debtor to
Guarantor,  and any  security  therefor,  shall be marked with a legend that the
same are subject to this Agreement or shall be delivered to Guaranteed Party for
safekeeping.

6.3.  GUARANTEED PARTY AS GUARANTOR'S  ATTORNEY-IN-FACT.  Guarantor  irrevocably
appoints Guaranteed Party as Guarantor's  attorney-in-fact,  with full authority
in the place and stead and name of  Guarantor,  from time to time at  Guaranteed
Party's discretion but only following the occurrence and during the continuation
of a Default,  to take any action and to execute any instrument which Guaranteed
Party may, in accordance  with the  provisions  of the Credit  Documents or this
Agreement,  require as necessary or advisable to accomplish the purposes of this
Agreement.

6.4. COMMERCIALLY  REASONABLE DISPOSITION OF COLLATERAL.  Guarantor acknowledges
and agrees that if  Guaranteed  Party shall,  pursuant to the rights  granted to
Guaranteed  Party,  under the terms of the Credit  Documents or applicable  law,
dispose of any or all of the  Collateral  (as such term is defined in the Credit
Documents) after the occurrence of a Default,  such disposition  shall be deemed
commercially  reasonable if, in the written opinion of three (3) commercial loan
officers with three (3) or more years of workout  experience each, the manner of
the  disposition is not  inconsistent  with the manner in which such  commercial
loan officers would have handled the disposition.

7. GENERAL PROVISIONS.

7.1. NOTICES.

7.1.1. All notices required to be given to any party other than Guaranteed Party
shall be  deemed  given  upon the  first to occur of (i)  deposit  thereof  in a
receptacle  under  the  control  of  the  United  States  Postal  Service,  (ii)
transmittal  by electronic  means to a receiver under the control of such party;
or (iii) actual receipt by such party or an employee or agent of such party.

7.1.2. All notices to Guaranteed Party shall be deemed given upon actual receipt
by a responsible officer of Guaranteed Party.

7.1.3.  Notices  shall  be sent to the  following  addresses,  or to such  other
addresses as each such party may in writing hereafter indicate:

                                                     GUARANTOR

Address:                   6080 Center Drive
                           6th Floor
                           Los Angeles, CA 90045
Officer:                   Fred E. Tannous
Fax number:                312-362-8607

                                   Page 5 of 9
<PAGE>



                                                 GUARANTEED PARTY

Address:                   4320 La Jolla Village Drive, Suite 250
                           San Diego, California 92122
Officer:                   Ronald R. Pituch
Fax number:                858-200-2051

7.2.  AMENDMENTS,   WAIVERS,  AND  CONSENTS.  Neither  this  Agreement  nor  any
provisions hereof may be changed, waived, discharged or terminated,  nor may any
consent  to the  departure  from the  terms  hereof be  given,  orally  (even if
supported by new consideration),  but only by an instrument in writing signed by
all parties to this Agreement. Any waiver or consent so given shall be effective
only in the specific instance and for the specific purpose for which given.

7.3. NO WAIVER;  CUMULATIVE  NATURE OF  REMEDIES.  No failure to exercise and no
delay in  exercising  any right,  power,  or remedy  hereunder  shall impair any
right,  power,  or remedy which  Guaranteed  Party may have,  nor shall any such
delay be construed to be a waiver of any of such rights, powers, or remedies, or
any  acquiescence  in any breach or default  hereunder;  nor shall any waiver by
Guaranteed  Party of any breach or default by  Guarantor  hereunder  be deemed a
waiver of any default or breach subsequently occurring.  All rights and remedies
granted to  Guaranteed  Party  hereunder  shall  remain in full force and effect
notwithstanding  any single or partial  exercise  of, or any  discontinuance  of
action  begun to  enforce,  any such  right or remedy.  The rights and  remedies
specified herein are cumulative and not exclusive of each other or of any rights
or remedies which  Guaranteed  Party would otherwise  have. Any waiver,  permit,
consent or approval by Guaranteed Party of any breach or default  hereunder must
be in  writing  and  shall be  effective  only to the  extent  set forth in such
writing and only as to that specific instance.

8.  ATTORNEYS'   FEES.  In  any  dispute  arising  out  of  the  enforcement  or
interpretation  of this  Agreement,  the  prevailing  party shall be entitled to
recover its reasonable  attorneys' fees, court costs, and expenses of litigation
actually  incurred in such  dispute.  For the  purposes  of Section  1717 of the
California  Civil Code, a party shall be the  "prevailing  party" if it recovers
any funds  whatsoever from the other party,  whether by settlement,  judgment or
otherwise. If both parties could be deemed to be a "prevailing party" under this
rule, then each party shall bear its own fees, costs, and expenses.

9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.

10.  HEADINGS.  Section and  subsection  headings in this Agreement are included
herein for  convenience  of reference  only and do not constitute a part of this
Agreement or have any substantive effect.

11.  AMBIGUITIES.  This  Agreement  and all  agreements  relating to the subject
matter hereof are the product of negotiation  and  preparation by and among each
party and its respective attorneys, and shall be construed accordingly.

12.  SEVERABILITY.  In the event any one or more of the provisions  contained in
this Agreement is held to be invalid,  illegal or  unenforceable in any respect,
then such provision shall

                                   Page 6 of 9
<PAGE>

be ineffective  only to the extent of such  prohibition  or invalidity,  and the
validity,  legality,  and enforceability of the remaining  provisions  contained
herein shall not in any way be affected or impaired thereby.

13. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in one or
more  counterparts,  each of which shall be deemed an original  but all of which
together shall  constitute the same  instrument.  Guarantor may effect execution
and delivery of this Agreement by executing a counterpart hereof and sending the
signature page bearing  Guarantor's  signature to Guaranteed  Party by facsimile
and,  thereafter,  promptly sending by mail or delivering such signature page to
Guaranteed  Party;  provided that the failure to deliver such  signature page by
Guarantor  shall not affect the validity,  enforceability,  or binding effect of
this Agreement.

14.  ENTIRE  AGREEMENT.  This  Agreement  supersedes  all other  agreements  and
understandings  between  the  parties  hereto,  verbal or  written,  express  or
implied,  relating to the subject  matter  hereof.  No promises of any kind have
been made by Guaranteed  Party or any third party to induce Guarantor to execute
this Agreement.  No course of dealing, course of performance or trade usage, and
no parole  evidence of any  nature,  shall be used to  supplement  or modify any
terms of this Agreement.

15. CERTAIN  WAIVERS BY GUARANTOR.  Guarantor  makes the following  waivers with
full  knowledge  and  understanding  that such  waivers,  if not so made,  might
otherwise result in Guarantor being able to avoid or limit Guarantor's liability
hereunder either in whole or in part.

15.1. NOTICES.  Each Guarantor irrevocably waives notice of (i) the extension of
Guaranteed  Obligations,  (ii) any  adverse  change  in the  Debtor's  financial
condition,  (iii) any change in value, or the release, of any Collateral,  or of
any other fact that might  increase  Guarantor's  risk  hereunder,  and (iv) any
default by Debtor.

15.2. REVOCATION.

15.2.1.  Guarantor  waives  any  right  to  revoke  the  Guaranty  as to  future
Guaranteed Obligations.

15.2.2.  If,  contrary  to the  express  intent  of  this  agreement,  any  such
revocation  is  effective   notwithstanding  the  foregoing  waiver,   Guarantor
acknowledges  and agrees that: (a) no such  revocation  shall be effective until
written  notice  thereof has been  received  by  Guaranteed  Party;  (b) no such
revocation  shall apply to any Guaranteed  Obligations in existence on such date
(including any subsequent continuation, extension, or renewal thereof, or change
in the interest rate, payment terms, or other terms and conditions thereof); (c)
no such  revocation  shall apply to any Guaranteed  Obligations  made or created
after such date to the  extent  made or created  pursuant  to a legally  binding
commitment  of  Guaranteed  Party  which is,  or is  believed  in good  faith by
Guaranteed  Party to be, in  existence  on the date of such  revocation;  (d) no
payment  by  Debtor,  or  from  any  other  source,  prior  to the  date of such
revocation  shall reduce the  obligations  of Guarantor  hereunder;  and (e) any
payment by Debtor or from any source  other than  Guarantor,  subsequent  to the
date  of such  revocation,  shall  first  be  applied  to  that  portion  of the


                                   Page 7 of 9
<PAGE>

Guaranteed  Obligations,  if any, as to which the  revocation  by  Guarantor  is
effective  and, to the extent so applied,  shall not reduce the  obligations  of
Guarantor hereunder.

15.3. Defenses of debtor.  Guarantor waives any defense arising by reason of any
disability  or other  defense  (other  than  the  defense  that  the  Guaranteed
Obligations  have been fully paid) of Debtor  including any defense arising from
any lack of power or authority of Debtor.

15.4.  DEFENSES.  GUARANTOR  WAIVES  ANY AND ALL  SURETYSHIP  DEFENSES,  WHETHER
ARISING BY CONTRACT, STATUTE OR BY OPERATION OF LAW.

16. GOVERNING LAW. This agreement,  and the  construction,  interpretation,  and
enforcement  hereof, and the rights of Guarantor and Guaranteed Party hereto and
hereunder  shall be determined  under,  governed by, and construed in accordance
with the internal laws of the Chosen State.

17. AMENDMENT AND WAIVER.  No failure to exercise and no delay in exercising any
right, power, or remedy hereunder shall impair any right, power, or remedy which
Guaranteed  Party may have, nor shall any such delay be construed to be a waiver
of any of such rights, powers, or remedies, or any acquiescence in any breach or
default  hereunder;  nor shall any waiver by  Guaranteed  Party of any breach or
default  by  Guarantor  hereunder  be deemed a waiver of any  default  or breach
subsequently  occurring.  All rights and remedies  granted to  Guaranteed  Party
hereunder  shall remain in full force and effect  notwithstanding  any single or
partial exercise of, or any discontinuance of action begun to enforce,  any such
right or remedy. The rights and remedies specified herein are cumulative and not
exclusive  of each other or of any rights or  remedies  which  Guaranteed  Party
would  otherwise  have.  Any waiver,  permit,  consent or approval by Guaranteed
Party of any  breach  or  default  hereunder  must be in  writing  and  shall be
effective  only to the  extent  set  forth in such  writing  and only as to that
specific instance.

18. WAIVER OF TRIAL BY JURY. IN  RECOGNITION OF THE HIGHER COSTS AND DELAY WHICH
MAY RESULT FROM A JURY TRIAL,  THE  PARTIES  HERETO  WAIVE ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND,  ACTION OR CAUSE OF ACTION (A) ARISING HEREUNDER,  OR
(B) IN ANY WAY  CONNECTED  WITH OR RELATED OR  INCIDENTAL TO THE DEALINGS OF THE
PARTIES  HERETO OR ANY OF THEM WITH  RESPECT  HERETO,  IN EACH CASE  WHETHER NOW
EXISTING  OR  HEREAFTER  ARISING,  AND  WHETHER  SOUNDING IN CONTRACT OR TORT OR
OTHERWISE;  AND EACH  PARTY  FURTHER  WAIVES ANY RIGHT TO  CONSOLIDATE  ANY SUCH
ACTION IN WHICH A JURY TRIAL HAS BEEN  WAIVED  WITH ANY OTHER  ACTION IN WHICH A
JURY TRIAL  CANNOT BE OR HAS NOT BEEN WAIVED;  AND EACH PARTY HEREBY  AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL  WITHOUT A JURY,  AND THAT ANY PARTY  HERETO MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN  EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

                                   Page 8 of 9
<PAGE>

19.  VENUE.  Any suit,  action or proceeding  arising out of the subject  matter
hereof, or the interpretation,  performance or breach of this Agreement,  shall,
if Guaranteed Party so elects, be instituted in the United States District Court
for the  District  of the Chosen  State in which the  Guaranteed  Party's  chief
executive  office  is  located  or any  court  of said  state  (the  "Acceptable
Forums").  Guarantor agrees that the Acceptable Forums are convenient to it, and
irrevocably  submits to the jurisdiction of the Acceptable  Forums,  irrevocably
agrees to be bound by any  judgment  rendered  thereby in  connection  with this
Agreement,  and waives any and all objections to  jurisdiction  or venue that it
may have under the laws of the Chosen  State or otherwise in those courts in any
such suit,  action or  proceeding.  Should such  proceeding  be initiated in any
other forum, Guarantor waives any right to oppose any motion or application made
by Guaranteed Party as a consequence of such proceeding having been commenced in
a forum other than an Acceptable Forum.

     IN WITNESS  WHEREOF,  Guarantor has executed this  Agreement as of the date
first written above.

GUARANTOR:                           HEALTH SCIENCES GROUP, INC.

                                     By:
                                     Name: Fred E. Tannous
                                     Title: Chief Executive Officer




                                   Page 9 of 9
<PAGE>




                                                                  EXHIBIT 10.8.5



                             SUBORDINATION AGREEMENT

         This  SUBORDINATION  AGREEMENT  dated as of  February  ___,  2003 (this
"Agreement"),  is  among  XCEL  HEALTHCARE,  INC.,  ("Debtor"),  MAC  ROSENSTEIN
("Junior  Creditor"),  and MERIDIAN COMMERCIAL  HEALTHCARE FINANCE, LLC ("Senior
Creditor").

                                    RECITALS

A.  Debtor  is  indebted  to  Junior  Creditor  in the  amount  of  the  Present
Indebtedness.

B. The Present Indebtedness has not heretofore been assigned or subordinated.

C. Debtor has requested that Senior Creditor extend financial  accommodations to
it,  which  Senior  Creditor  is  willing  to do  only  upon  execution  of this
Agreement.

                                    AGREEMENT

1.1. DEFINITIONS AND INDEX TO DEFINITIONS. The following terms used herein shall
have the following meaning.  All capitalized terms not herein defined shall have
the meaning set forth in the Uniform Commercial Code:

1.2. "CHOSEN STATE" - California.

1.3. "DEBTOR" - see preamble.

1.4.  "DIVIDENDS"  - means any and all  distributions  in any  federal  or state
debtor relief statute on account of the Junior Debt.

1.5. "JUNIOR CREDITOR" - see preamble.

1.6. "JUNIOR DEBT" - means the Present  Indebtedness and all future indebtedness
(together with any and all interest  accrued or to accrue  thereon) of Debtor to
Junior Creditor.

1.7. "PERMITTED PAYMENTS" - $1,064.68 per month.

1.8. "PRESENT INDEBTEDNESS" - $116,147.00.

1.9. "SENIOR CREDITOR" - see preamble.

                                   Page 1 of 6
<PAGE>

1.10.  "SENIOR  DEBT" - means all  present  and  future  obligations  (including
interest  accruing  after  the  date on  which  Debtor  becomes  subject  to the
jurisdiction  of any  federal or state  debtor  relief  statute,  whether or not
recoverable  against Debtor) of Debtor to Senior  Creditor,  whether absolute or
contingent,  due or to become  due,  and  whether  direct or  acquired by Senior
Creditor by transfer,  assignment,  or  otherwise  whether or not such debts are
contemplated by Debtor, Senior Creditor, or the Junior Creditor.

2. TERMS OF SUBORDINATION.

2.1. Junior Creditor hereby makes the Junior Debt subject and subordinate to the
payment of the Senior Debt.

2.2.  Any  payments  received by Junior  Creditor on account of the Junior Debt,
other than Permitted Payments, shall be held by Junior Creditor in trust for the
benefit of Senior  Creditor,  and shall be delivered to Senior  Creditor in kind
immediately  upon  receipt by Junior  Creditor to be held by Senior  Creditor as
cash collateral securing the Senior Debt.

2.3. The provision set forth in Section 2.2 above permitting  Junior Creditor to
retain Permitted  Payments shall terminate and be of no further force and effect
immediately  upon default in the performance of the Senior Debt,  whether or not
such default is cured.

2.4. Upon the distribution of any of the Debtor's  assets,  whether by reason of
sale,  reorganization,   liquidation,   dissolution,   arrangement,  bankruptcy,
receivership,   assignment  for  the  benefit  of  creditors,   foreclosure,  or
otherwise,  Senior  Creditor shall be entitled to receive payment in full of the
Senior Debt prior to the payment of all or any part of the Junior Debt.

2.5. Senior Creditor is hereby irrevocably  appointed  attorney-in-fact  for the
Junior  Creditor  with full  power to act in the  place and stead of the  Junior
Creditor in all matters relating to or affecting the Junior Debt,  including the
right to make,  present,  file,  and vote such proofs of claim against Debtor on
account  of all or any part of the  Junior  Debt,  as Senior  Creditor  may deem
advisable,  and to receive and collect  Dividends  made thereon and to apply the
same on account of the Senior Debt.

2.6. Senior Creditor may at any time, in Senior Creditor's discretion,  renew or
extend  the time of  payment of any  portion  of the  Senior  Debt,  or waive or
release any collateral which may be held therefor, and Senior Creditor may enter
into such agreements  with Debtor as Senior Creditor may deem desirable  without
notice to or further  assent  from the Junior  Creditor  and  without in any way
affecting Senior Creditor's rights hereunder.

2.7. Junior Creditor agrees not to ask, demand, sue for, take or receive payment
of,  discharge  the Debtor from, or take capital stock of the Debtor in exchange
for all or any part of the Junior Debt.

                                   Page 2 of 6
<PAGE>

2.8. This Agreement is and shall be deemed to be a continuing  subordination and
assignment, and shall be irrevocable.  Any attempted or purported termination of
this Agreement by the Junior  Creditor shall  constitute a default of the Senior
Debt.

2.9.  Junior  Creditor  and Debtor  shall not  convert any of the Junior Debt to
equity of Debtor.

2.10. Junior Creditor will cause any instrument evidencing the Junior Debt to be
legended  as  follows:  "This  note is  subject  to that  certain  Subordination
Agreement,  dated  as  of  February  ___,  2003,  among  Mac  Rosenstein,   Xcel
Healthcare, Inc., and Meridian Commercial Healthcare Finance, LLC, as amended."

3. REPRESENTATIONS, WARRANTIES, AND COVENANTS.

3.1.  Junior  Creditor has not  heretofore  and will not in the future,  without
Senior  Creditor's  prior  written  consent  in  each  instance,  assign  to  or
subordinate  in favor of any other  entity any right,  claim or  interest in any
part of the  Junior  Debt or  commence  or  join  with  any  other  creditor  in
commencing  any  bankruptcy,  reorganization  or insolvency  proceeding  against
Debtor.

3.2.  The  Debtor  acknowledges  that the Junior  Debt is due and owing  without
setoff, defense, or counterclaim.

3.3.  Junior  Creditor  waives  any  rights  it  may  have  to  claim  that  the
enforceability of this Agreement may be affected by any subsequent modification,
release, extension, or other change, material or otherwise, in the Senior Debt.

4. COLLATERAL.

     As  collateral  securing  payment of the Senior Debt,  the Junior  Creditor
hereby  grants to Senior  Creditor a security  interest  in the Junior  Debt and
agrees to  deliver to Senior  Creditor,  endorsed  in blank,  all notes or other
instruments now or hereafter evidencing the Junior Debt.

5.       REMEDIES; DAMAGES.

     Senior Creditor may demand specific  performance of this Agreement.  Debtor
and Junior  Creditor  waive any defense based on the adequacy of a remedy at law
that might be asserted as a bar to such remedy of specific performance.

6.  TERMINATION.  This  Agreement  shall  terminate  upon payment in full of the
Senior Debt and written  acknowledgment  by Senior  Creditor that this Agreement
has been terminated.

7. AMENDMENT AND WAIVER.  This Agreement may be amended only by a writing signed
by all parties  hereto.  No failure to exercise and no delay in  exercising  any
right,

                                   Page 3 of 6
<PAGE>

hereunder  shall impair any such right which Senior Creditor may have, nor shall
any waiver by Senior  Creditor  hereunder  be deemed a waiver of any  default or
breach subsequently occurring.  Senior Creditor's rights and remedies herein are
cumulative  and not  exclusive  of each other or of any rights or remedies  that
Senior Creditor would otherwise have.

8.  ATTORNEYS'  FEES.  In the event that any party finds it  necessary to retain
counsel in connection with the  interpretation,  defense, or enforcement of this
Agreement, the prevailing party shall recover its reasonable attorney's fees and
expenses from the unsuccessful  party. It shall be presumed (subject to rebuttal
only by the introduction of competent  evidence to the contrary) that the amount
recoverable is the amount billed to the prevailing party by its counsel and that
such amount will be  reasonable  if based on the  billing  rates  charged to the
prevailing party by its counsel in similar matters.  For the purposes of Section
1717 of the California  Civil Code,  Senior  Creditor  shall be the  "prevailing
party" if it recovers  any funds  whatsoever  from Junior  Creditor,  whether by
settlement, judgment or otherwise.

9. CHOICE OF LAW. This  Agreement and all  transactions  contemplated  hereunder
and/or  evidenced  hereby shall be governed by, construed under, and enforced in
accordance  with the internal  laws of the Chosen  State.  The parties waive the
provisions of California Civil Code ss.1654.

10.  CONSTRUCTION.  This  Agreement and all  agreements  relating to the subject
matter hereof is the product of  negotiation  and  preparation by and among each
party and its respective attorneys.  Therefore,  the parties expressly waive the
provisions of California  Civil Code ss.1654 and acknowledge and agree that such
agreements  shall not be deemed  prepared  or  drafted by one party or other and
shall be construed accordingly.

11. JURY TRIAL WAIVER.  IN  RECOGNITION  OF THE HIGHER COSTS AND DELAY WHICH MAY
RESULT FROM A JURY TRIAL, THE PARTIES HERETO WAIVE ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM,  DEMAND,  ACTION OR CAUSE OF ACTION (A) ARISING HEREUNDER,  OR (B) IN
ANY WAY  CONNECTED  WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT HERETO,  IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER  ARISING,  AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE;  AND
EACH PARTY FURTHER  WAIVES ANY RIGHT TO  CONSOLIDATE  ANY SUCH ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE
OR HAS NOT BEEN WAIVED;  AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL  COUNTERPART OR A COPY OF
THIS  SECTION  WITH ANY COURT AS

                                   Page 4 of 6
<PAGE>

WRITTEN  EVIDENCE OF THE  CONSENT OF THE  PARTIES  HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.

12.  COUNTERPARTS.  This Agreement may be signed in any number of  counterparts,
each of which shall be an  original,  with the same effect as if all  signatures
were  upon the same  instrument.  Delivery  of an  executed  counterpart  of the
signature page to this Agreement by facsimile  shall be effective as delivery of
a manually executed counterpart of this Agreement, and any party delivering such
an executed  counterpart of the signature page to this Agreement by facsimile to
any other party  shall  thereafter  also  promptly  deliver a manually  executed
counterpart of this Agreement to such other party,  provided that the failure to
deliver  such  manually  executed  counterpart  shall not affect  the  validity,
enforceability, or binding effect of this Agreement.

13. NOTICES.

All notices  required to be given to any party other than Senior  Creditor shall
be deemed  given upon the first to occur of (i) deposit  thereof in a receptacle
under the control of the United  States  Postal  Service,  (ii)  transmittal  by
electronic  means to a receiver under the control of such party; or (iii) actual
receipt by such party or an  employee  or agent of such  party.  All  notices to
Senior  Creditor  hereunder  shall be deemed  given  upon  actual  receipt  by a
responsible officer of Senior Creditor.

                                                  JUNIOR CREDITOR

Address: 4250 South Arville Street, #96
                  Las Vegas, NV 89103
Fax Number:

                                                  SENIOR CREDITOR

Address: 4320 La Jolla Village Drive
                  San Diego CA 92122
                        Attention: Mr. Ronald R. Pituch
                            Fax Number: 858-200-2051

                                                      DEBTOR

Address: 6016 Fallbrook Avenue
                  Suite 200
                  Woodland Hills, CA 91367
Attention:
Fax Number:       818-348-1106

14. CONFLICTS WITH OTHER  AGREEMENTS.  Unless otherwise  expressly stated in any
other  agreement  between  Senior  Creditor and Junior  Creditor,  if a conflict
exists

                                   Page 5 of 6
<PAGE>

between  the  provisions  of this  Agreement  and the  provisions  of such other
agreement, the provisions of this Agreement shall control. 15. ENTIRE AGREEMENT.
No promises of any kind have been made by Senior  Creditor or any third party to
induce Junior Creditor to execute this Agreement.  No course of dealing,  course
of performance or trade usage,  and no parole  evidence of any nature,  shall be
used to supplement or modify any terms of this Agreement.

         IN WITNESS  WHEREOF the parties hereto have caused this Agreement to be
duly  executed  and  delivered  by  their  respective  officers  thereunto  duly
authorized as of the date first above written.


Subordinating Creditor:
                         Mac Rosenstein, individually


Debtor:                  XCEL Healthcare, Inc.

                         By:
                         Name:
                         Title:


Senior Creditor:         Meridian Commercial Healthcare Finance, LLC

                         By:
                         Name:
                         Title:






                                    Page 6 of 6
<PAGE>



                                                                 EXHIBIT 10.8.6



                             SUBORDINATION AGREEMENT

         This  SUBORDINATION  AGREEMENT  dated as of  February  ___,  2003 (this
"Agreement"),  is among XCEL HEALTHCARE,  INC., ("Debtor"),  MOE GELBER ("Junior
Creditor"), and MERIDIAN COMMERCIAL HEALTHCARE FINANCE, LLC ("Senior Creditor").

                                    RECITALS

A.  Debtor  is  indebted  to  Junior  Creditor  in the  amount  of  the  Present
Indebtedness.

B. The Present Indebtedness has not heretofore been assigned or subordinated.

C. Debtor has requested that Senior Creditor extend financial  accommodations to
it,  which  Senior  Creditor  is  willing  to do  only  upon  execution  of this
Agreement.

                                    AGREEMENT

1.1. DEFINITIONS AND INDEX TO DEFINITIONS. The following terms used herein shall
have the following meaning.  All capitalized terms not herein defined shall have
the meaning set forth in the Uniform Commercial Code:

1.2. "CHOSEN STATE" - California.

1.3. "DEBTOR" - see preamble.

1.4.  "DIVIDENDS"  - means any and all  distributions  in any  federal  or state
debtor relief statute on account of the Junior Debt.

1.5. "JUNIOR CREDITOR" - see preamble.

1.6. "JUNIOR DEBT" - means the Present  Indebtedness and all future indebtedness
(together with any and all interest  accrued or to accrue  thereon) of Debtor to
Junior Creditor.

1.7. "PERMITTED PAYMENTS" - $65.00 per month.

1.8. "PRESENT INDEBTEDNESS" - $7,753.00.

1.9. "SENIOR CREDITOR" - see preamble.

                                   Page 1 of 6
<PAGE>

1.10.  "SENIOR  DEBT" - means all  present  and  future  obligations  (including
interest  accruing  after  the  date on  which  Debtor  becomes  subject  to the
jurisdiction  of any  federal or state  debtor  relief  statute,  whether or not
recoverable  against Debtor) of Debtor to Senior  Creditor,  whether absolute or
contingent,  due or to become  due,  and  whether  direct or  acquired by Senior
Creditor by transfer,  assignment,  or  otherwise  whether or not such debts are
contemplated by Debtor, Senior Creditor, or the Junior Creditor.

2. TERMS OF SUBORDINATION.

2.1. Junior Creditor hereby makes the Junior Debt subject and subordinate to the
payment of the Senior Debt.

2.2.  Any  payments  received by Junior  Creditor on account of the Junior Debt,
other than Permitted Payments, shall be held by Junior Creditor in trust for the
benefit of Senior  Creditor,  and shall be delivered to Senior  Creditor in kind
immediately  upon  receipt by Junior  Creditor to be held by Senior  Creditor as
cash collateral securing the Senior Debt.

2.3. The provision set forth in Section 2.2 above permitting  Junior Creditor to
retain Permitted  Payments shall terminate and be of no further force and effect
immediately  upon default in the performance of the Senior Debt,  whether or not
such default is cured.

2.4. Upon the distribution of any of the Debtor's  assets,  whether by reason of
sale,  reorganization,   liquidation,   dissolution,   arrangement,  bankruptcy,
receivership,   assignment  for  the  benefit  of  creditors,   foreclosure,  or
otherwise,  Senior  Creditor shall be entitled to receive payment in full of the
Senior Debt prior to the payment of all or any part of the Junior Debt.

2.5. Senior Creditor is hereby irrevocably  appointed  attorney-in-fact  for the
Junior  Creditor  with full  power to act in the  place and stead of the  Junior
Creditor in all matters relating to or affecting the Junior Debt,  including the
right to make,  present,  file,  and vote such proofs of claim against Debtor on
account  of all or any part of the  Junior  Debt,  as Senior  Creditor  may deem
advisable,  and to receive and collect  Dividends  made thereon and to apply the
same on account of the Senior Debt.

2.6. Senior Creditor may at any time, in Senior Creditor's discretion,  renew or
extend  the time of  payment of any  portion  of the  Senior  Debt,  or waive or
release any collateral which may be held therefor, and Senior Creditor may enter
into such agreements  with Debtor as Senior Creditor may deem desirable  without
notice to or further  assent  from the Junior  Creditor  and  without in any way
affecting Senior Creditor's rights hereunder.

2.7. Junior Creditor agrees not to ask, demand, sue for, take or receive payment
of,  discharge  the Debtor from, or take capital stock of the Debtor in exchange
for all or any part of the Junior Debt.

                                   Page 2 of 6
<PAGE>

2.8. This Agreement is and shall be deemed to be a continuing  subordination and
assignment, and shall be irrevocable.  Any attempted or purported termination of
this Agreement by the Junior  Creditor shall  constitute a default of the Senior
Debt.

2.9.  Junior  Creditor  and Debtor  shall not  convert any of the Junior Debt to
equity of Debtor.

2.10. Junior Creditor will cause any instrument evidencing the Junior Debt to be
legended  as  follows:  "This  note is  subject  to that  certain  Subordination
Agreement,  dated as of February ___, 2003,  among Moe Gelber,  Xcel Healthcare,
Inc., and Meridian Commercial Healthcare Finance, LLC, as amended."

3. REPRESENTATIONS, WARRANTIES, AND COVENANTS.

3.1.  Junior  Creditor has not  heretofore  and will not in the future,  without
Senior  Creditor's  prior  written  consent  in  each  instance,  assign  to  or
subordinate  in favor of any other  entity any right,  claim or  interest in any
part of the  Junior  Debt or  commence  or  join  with  any  other  creditor  in
commencing  any  bankruptcy,  reorganization  or insolvency  proceeding  against
Debtor.

3.2.  The  Debtor  acknowledges  that the Junior  Debt is due and owing  without
setoff, defense, or counterclaim.

3.3.  Junior  Creditor  waives  any  rights  it  may  have  to  claim  that  the
enforceability of this Agreement may be affected by any subsequent modification,
release, extension, or other change, material or otherwise, in the Senior Debt.

4. COLLATERAL.

     As  collateral  securing  payment of the Senior Debt,  the Junior  Creditor
hereby  grants to Senior  Creditor a security  interest  in the Junior  Debt and
agrees to  deliver to Senior  Creditor,  endorsed  in blank,  all notes or other
instruments now or hereafter evidencing the Junior Debt.

5.       REMEDIES; DAMAGES.

     Senior Creditor may demand specific  performance of this Agreement.  Debtor
and Junior  Creditor  waive any defense based on the adequacy of a remedy at law
that might be asserted as a bar to such remedy of specific performance.

6.  TERMINATION.  This  Agreement  shall  terminate  upon payment in full of the
Senior Debt and written  acknowledgment  by Senior  Creditor that this Agreement
has been terminated.

7. AMENDMENT AND WAIVER.  This Agreement may be amended only by a writing signed
by all parties  hereto.  No failure to exercise and no delay in  exercising  any
right,

                                   Page 3 of 6
<PAGE>

hereunder  shall impair any such right which Senior Creditor may have, nor shall
any waiver by Senior  Creditor  hereunder  be deemed a waiver of any  default or
breach subsequently occurring.  Senior Creditor's rights and remedies herein are
cumulative  and not  exclusive  of each other or of any rights or remedies  that
Senior Creditor would otherwise have.

8.  ATTORNEYS'  FEES.  In the event that any party finds it  necessary to retain
counsel in connection with the  interpretation,  defense, or enforcement of this
Agreement, the prevailing party shall recover its reasonable attorney's fees and
expenses from the unsuccessful  party. It shall be presumed (subject to rebuttal
only by the introduction of competent  evidence to the contrary) that the amount
recoverable is the amount billed to the prevailing party by its counsel and that
such amount will be  reasonable  if based on the  billing  rates  charged to the
prevailing party by its counsel in similar matters.  For the purposes of Section
1717 of the California  Civil Code,  Senior  Creditor  shall be the  "prevailing
party" if it recovers  any funds  whatsoever  from Junior  Creditor,  whether by
settlement, judgment or otherwise.

9. CHOICE OF LAW. This  Agreement and all  transactions  contemplated  hereunder
and/or  evidenced  hereby shall be governed by, construed under, and enforced in
accordance  with the internal  laws of the Chosen  State.  The parties waive the
provisions of California Civil Code ss.1654.

10.  CONSTRUCTION.  This  Agreement and all  agreements  relating to the subject
matter hereof is the product of  negotiation  and  preparation by and among each
party and its respective attorneys.  Therefore,  the parties expressly waive the
provisions of California  Civil Code ss.1654 and acknowledge and agree that such
agreements  shall not be deemed  prepared  or  drafted by one party or other and
shall be construed accordingly.

11. JURY TRIAL WAIVER.  IN  RECOGNITION  OF THE HIGHER COSTS AND DELAY WHICH MAY
RESULT FROM A JURY TRIAL, THE PARTIES HERETO WAIVE ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM,  DEMAND,  ACTION OR CAUSE OF ACTION (A) ARISING HEREUNDER,  OR (B) IN
ANY WAY  CONNECTED  WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT HERETO,  IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER  ARISING,  AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE;  AND
EACH PARTY FURTHER  WAIVES ANY RIGHT TO  CONSOLIDATE  ANY SUCH ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE
OR HAS NOT BEEN WAIVED;  AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL  COUNTERPART OR A COPY OF
THIS  SECTION  WITH ANY COURT AS

                                   Page 4 of 6
<PAGE>

WRITTEN  EVIDENCE OF THE  CONSENT OF THE  PARTIES  HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.

12.  COUNTERPARTS.  This Agreement may be signed in any number of  counterparts,
each of which shall be an  original,  with the same effect as if all  signatures
were  upon the same  instrument.  Delivery  of an  executed  counterpart  of the
signature page to this Agreement by facsimile  shall be effective as delivery of
a manually executed counterpart of this Agreement, and any party delivering such
an executed  counterpart of the signature page to this Agreement by facsimile to
any other party  shall  thereafter  also  promptly  deliver a manually  executed
counterpart of this Agreement to such other party,  provided that the failure to
deliver  such  manually  executed  counterpart  shall not affect  the  validity,
enforceability, or binding effect of this Agreement.

13. NOTICES.

  All notices required to be given to any party other than Senior Creditor shall
be deemed  given upon the first to occur of (i) deposit  thereof in a receptacle
under the control of the United  States  Postal  Service,  (ii)  transmittal  by
electronic  means to a receiver under the control of such party; or (iii) actual
receipt by such party or an  employee  or agent of such  party.  All  notices to
Senior  Creditor  hereunder  shall be deemed  given  upon  actual  receipt  by a
responsible officer of Senior Creditor.

                                                  JUNIOR CREDITOR

Address: 126 N. Poinsettia Place
                  Los Angeles, CA 90036
Fax Number:

                                                  SENIOR CREDITOR

Address: 4320 La Jolla Village Drive
                  San Diego CA 92122
                        Attention: Mr. Ronald R. Pituch
                            Fax Number: 858-200-2051

                                                      DEBTOR

Address: 6016 Fallbrook Avenue
                  Suite 200
                  Woodland Hills, CA 91367
Attention:
Fax Number:       818-348-1106

14. CONFLICTS WITH OTHER  AGREEMENTS.  Unless otherwise  expressly stated in any
other  agreement  between  Senior  Creditor and Junior  Creditor,  if a conflict
exists between the

                                   Page 5 of 6
<PAGE>

 provisions of this Agreement and the provisions of such other
agreement, the provisions of this Agreement shall control. 15. ENTIRE AGREEMENT.
No promises of any kind have been made by Senior  Creditor or any third party to
induce Junior Creditor to execute this Agreement.  No course of dealing,  course
of performance or trade usage,  and no parole  evidence of any nature,  shall be
used to supplement or modify any terms of this Agreement.

         IN WITNESS  WHEREOF the parties hereto have caused this Agreement to be
duly  executed  and  delivered  by  their  respective  officers  thereunto  duly
authorized as of the date first above written.


Subordinating Creditor:
                          Moe Gelber, individually


Debtor:                   XCEL Healthcare, Inc.

                          By:
                          Name:
                          Title:


Senior Creditor:          Meridian Commercial Healthcare Finance, LLC

                          By:
                          Name:
                          Title:






                                       Page 6 of 6
<PAGE>

                                                                  EXHIBIT 10.8.7


                        HIPAA BUSINESS ASSOCIATE ADDENDUM

         This HIPAA Business Associate Addendum ("Addendum")  supplements and is
made a part of the Loan and Security Agreement dated as of _______________, 2003
("Agreement") by and between XCEL HEALTHCARE,  INC. ("XCEL" or "Covered Entity")
and  MERIDIAN  COMMERCIAL  HEALTHCARE  FINANCE,  LLC  ("Meridian"  or  "Business
Associate").  This  Addendum is  effective  as of April 14, 2003 (the  "Addendum
Effective Date").

                                    RECITALS

A.                Covered  Entity  wishes to  disclose  certain  information  to
                  Business  Associate  pursuant  to the terms of the  Agreement,
                  some of which  information  may  constitute  Protected  Health
                  Information ("PHI") as defined below.

B.                Covered  Entity and Business  Associate  intend to protect the
                  privacy  and  provide for the  security  of PHI  disclosed  to
                  Business  Associate  pursuant to the  Agreement in  compliance
                  with the Health Insurance  Portability and  Accountability Act
                  of  1996,   Public  Law  104-191   ("HIPAA")  and  regulations
                  promulgated  there under by the U.S.  Department of Health and
                  Human Services (the "HIPAA  Regulations") and other applicable
                  laws.

C.                As part of the HIPAA  Regulations,  the Privacy Rule  (defined
                  below)  requires  that,  prior to the disclosure of PHI on and
                  after the Addendum Effective Date, Covered Entity enter into a
                  contract  with   Business   Associate,   containing   specific
                  requirements  as set forth in, but not limited  to,  Title 45,
                  Sections  164.502(e)  and  164.504(e)  of the Code of  Federal
                  Regulations ("CFR") and as contained in this Addendum.

         In   consideration  of  the  mutual  premises  and  the  covenants  and
agreements contained in this Addendum, the parties agree as follows:

                                    ADDENDUM

1. Definitions.

a.  "Business  Associate"  shall have the  meaning  given to such term under the
Privacy Rule,  including,  but not limited to, 45 CFR Section 160.103, and shall
refer to Meridian.

b. "Covered  Entity" shall have the meaning given to such term under the Privacy
Rule,  including,  but not limited to, 45 CFR Section 160.103 and shall refer to
XCEL.

                                       1
<PAGE>

c.  "Individual"  shall have the same meaning as the term "individual" in 45 CFR
Section  164.501  and  shall  include  a  person  who  qualifies  as a  personal
representative in accordance with 45 CFR Section 164.502(g).

d.  "Designated  Record Set" shall have the meaning given to such term under the
Privacy Rule, including, but not limited to, 45 CFR Section 164.501.

e.  "Privacy  Rule"  shall  mean  the  Standards  of  Privacy  of   Individually
Identifiable Health Information codified at 45 CFR Parts 160 and 164, Subparts A
and E.

f. "Protected Health  Information" or "PHI" shall have the meaning given to such
term in 45 CFR  Section  164.501  including  any  information,  whether  oral or
recorded in any form or medium:  (i) that relates to the past, present or future
physical or mental  condition of an individual;  the provision of health care to
an  individual;  or the past,  present or future  payment for the  provision  of
health care to an  individual;  and (ii) that  identifies the individual or with
respect to which there is a reasonable basis to believe that the information can
be used to identify the individual.

g. "Protected Information" shall mean PHI provided by Covered Entity to Business
Associate  or created or  received  by Business  Associate  on Covered  Entity's
behalf.

h.  "Required by Law" shall have the same  meaning  given to such term in 45 CFR
Section 164.501.

2. Obligations of Business Associate.

a. Permitted Uses. Business Associate shall not use Protected Information except
for the  purpose  of  performing  Business  Associate's  obligations  under  the
Agreement and as permitted under the Agreement and Addendum.  Further,  Business
Associate  shall  not  use  Protected  Information  in  any  manner  that  would
constitute a violation of the Privacy Rule if so used by Covered Entity,  except
that Business Associate may use Protected  Information for Business  Associate's
proper management and administration or to carry out the legal  responsibilities
of Business Associate.

b.  Permitted  Disclosures.  Business  Associate  shall not  disclose  Protected
Information in any manner that would  constitute a violation of the Privacy Rule
if disclosed by Covered  Entity,  except that  Business  Associate  may disclose
Protected  Information  (i) for the  proper  management  and  administration  of
Business  Associate,  (ii) in a manner  permitted  pursuant to the Agreement and
Addendum,  or (ii) as Required by Law.  To the extent  that  Business  Associate
discloses  Protected  Information  to a third party and such  disclosure  is not
Required  by Law,  Business  Associate  must  obtain,  prior to making  any such
disclosure,  (i) reasonable assurances from such third party that such Protected
Information will remain  confidential as provided  pursuant to this Addendum and
only disclosed as Required by Law or for the specific  purposes for which it was
disclosed  to such third  party,  and (ii)  agreement  from such third  party to
immediately  notify Business  Associate of any breach of  confidentiality of the
Protected  Information,  to the extent it has obtained knowledge of such breach.
Except  as

                                       2
<PAGE>

otherwise  limited  in this  Addendum,  Business  Associate  may  use  Protected
Information to provide data aggregation  services to Covered Entity as permitted
under  45  C.F.R.  164.504(e)(2)(i)(B)  and  to  report  violations  of  law  to
appropriate   federal  and  state   authorities,   consistent   with  45  C.F.R.
164.502(j)(1).

c.  Appropriate  Safeguards.  Business  Associate  shall  implement  appropriate
safeguards  as are  necessary  to prevent  the use or  disclosure  of  Protected
Information otherwise than as permitted by this Addendum and the Agreement.

d. Reporting of Improper Use or Disclosure.  Business  Associate shall report to
Covered  Entity any use or  disclosure  of Protected  Information  other than as
provided for by the Agreement and this Addendum within ten (10) business days of
Business Associate becoming aware of such use or disclosure.

e. Business Associate's Agents. Business Associate shall ensure that any agents,
including subcontractors, to whom it provides Protected Information agree to the
same  restrictions  and conditions  that apply through this Addendum to Business
Associate with respect to such information.

f. Mitigation. Business associate agrees to mitigate, to the extent practicable,
any harmful effect that is known to Business Associate of a use or disclosure of
Protected  Information by Business Associate in violation of the requirements of
this Addendum.

g. Access to Protected  Information.  Business  Associate  shall make  Protected
Information maintained by Business Associate (or its agents or subcontractors on
behalf of Business  Associate)  in Designated  Record Sets  available to Covered
Entity for  inspection  and copying  within ten (10)  calendar days of a written
request by Covered  Entity to enable  Covered  Entity to fulfill its  disclosure
obligations  under the  Privacy  Rule,  including,  but not  limited  to, 45 CFR
Section 164.524.  Copies of the Protected  Information in Designated Record Sets
requested by Covered Entity will be sent by Business Associate to Covered Entity
by mail or overnight courier, at the expense of Covered Entity,  within ten (10)
calendar days after Business Associate receives Covered Entity's request.

h.  Amendment  of PHI.  Within  ten (10)  calendar  days of receipt of a written
request from Covered  Entity for an  amendment  of  Protected  Information  or a
record about an individual  contained in a Designated  Record Set  maintained by
Business  Associate  (or its  agents or  subcontractors  on  behalf of  Business
Associate),  Business Associate shall make such Protected  Information available
to Covered  Entity for amendment and  incorporate  any such  amendment to enable
Covered Entity to fulfill its obligations under the Privacy Rule, including, but
not limited to, 45 CFR Section 164.526.  If any individual requests an amendment
of  Protected  Information  directly  from  Business  Associate or its agents or
subcontractors,  Business Associate must notify Covered Entity in writing within
five  (5)  business  days  of  the  request.  All  action  and  decisions  on an
individual's  request  for  amendment  of  Protected  Information  or  a  record
contained in a Designated Record Set, including but not limited to any denial of
amendment of Protected  Information,  maintained  by Business  Associate (or its
agents or subcontractors on behalf of

                                       3
<PAGE>
Business  Associate)  shall be the  responsibility  of Covered Entity and not of
Business Associate, its agents or subcontractors.

i.  Accounting  Rights.  Within thirty (30)  calendar days of written  notice by
Covered  Entity of a request  for an  accounting  of  disclosures  of  Protected
Information,  Business  Associate  and its agents or  subcontractors  shall make
available to Covered Entity the information  required to provide an accurate and
complete  accounting  of  disclosures  by  Business  Associate,  its  agents and
subcontractors  which,  under  45  C.F.R  Section  164.528(a),  are  subject  to
disclosure accounting, to enable Covered Entity to fulfill its obligations under
the  Privacy  Rule,  including,  but not  limited  to, 45 CFR  Section  164.528.
Business  Associate agrees to implement a process that allows for it to collect,
maintain and document an  accounting of  disclosures  for at least six (6) years
following the making of any disclosure of Protected  Information subject to such
an accounting;  provided, however, that reportable disclosures made prior to the
Addendum  Effective Date are not subject to such process.  The information to be
collected,  maintained  and  documented  by  Business  Associate  shall  be  the
information specified, and shall be in the form referenced, in 45 C.F.R. Section
164.528(b).  In the  event  that the  request  for an  accounting  is  delivered
directly  to  Business  Associate  or its  agents  or  subcontractors,  Business
Associate shall, within five (5) business days of its receipt of such a request,
forward it to Covered Entity.  It shall be Covered  Entity's  responsibility  to
prepare and deliver any such accounting requested.

j. Government Access to Records. Unless prohibited by attorney-client  privilege
and/or other  applicable  legal  privileges,  or unless so doing would result in
Business  Associate  violating its  contractual  and other legal  obligations to
Covered Entity, Business Associate shall make its internal practices,  books and
records,  including policies and procedures and Protected Information,  relating
to the use and disclosure of Protected Information available to the Secretary of
the U.S.  Department of Health and Human Services (the "Secretary") for purposes
of  determining  Covered  Entity's  compliance  with the Privacy Rule.  Business
Associate  shall provide to Covered  Entity a copy of any Protected  Information
that Business  Associate  provides to the Secretary  concurrently with providing
such Protected  Information  to the  Secretary.  Nothing in this Addendum or the
Agreement will be construed to otherwise provide the Secretary or Covered Entity
any right of access to Business Associate's financial, employment or other books
and records.

k. Minimum  Necessary.  Business  Associate  (and its agents or  subcontractors)
shall only request, use and disclose the minimum amount of Protected Information
necessary to accomplish the purpose of the request, use or disclosure.

j.  Retention  of  Protected  Information.  Notwithstanding  Section  5 of  this
Addendum,  Business Associate shall retain all Protected Information  throughout
the term of the  Agreement  and  shall  continue  to  maintain  the  information
required under Section 2(i) of this Addendum for a period of six (6) years after
termination of the Agreement.

3. Obligations of Covered Entity.

          a.  Covered  Entity  shall  be  responsible   for  using   appropriate
safeguards to maintain and ensure the  confidentiality,  privacy and security of
Protected  Information  transmitted  to  Business

                                       4
<PAGE>

Associate  pursuant to this Addendum and the  Agreement in  accordance  with the
standards and requirements of the Privacy Rule until Business Associate receives
such Protected Information.  In order to protect the integrity,  confidentiality
and authenticity of Protected Information transmitted and transferred by Covered
Entity to Business  Associate  and by Business  Associate to Covered  Entity and
others in connection with Business Associate's  obligations under the Agreement,
Covered Entity and Business  Associate agree to the procedures and protocols set
forth in  Attachment  A. The parties may change or amend a protocol or procedure
set forth in  Attachment  A to conform  with best  practices  under  current and
future HIPAA requirements, subject to their respective rights under Section 6.

         b. Covered Entity will notify Business  Associate of any  limitation(s)
in its notice of Covered  Entity's  privacy  practices in accordance with 45 CFR
ss. 164.520, to the extent that such limitation may affect Business  Associate's
use or disclosure of Protected Information under this Addendum or the Agreement.

         c. Covered Entity will notify Business  Associate of any restriction to
the use or disclosure of Protected Information that Covered Entity has agreed to
in accordance with 45 CFR ss. 164.522,  to the extent that such  restriction may
affect  Business  Associate's use or disclosure of Protected  Information  under
this Addendum or the Agreement.

         d. To be effective  against Business  Associate,  any notice by Covered
Entity  under  this  Section  3 will be in  writing  and  received  by  Business
Associate not less than 30 calendar days prior to the date upon which the change
or  limitations  referenced  in such  notice  will be  effective  as to Business
Associate's  use and  disclosure  of  Protected  Information.  Covered  Entity's
written notice will set forth the limitation's proposed effective date. Business
Associate will have no liability or responsibility with respect to any provision
of  Covered  Entity's  notice  of  privacy  practices  or of any  limitation  or
restriction on uses and disclosures of Protected Health Information agreed to by
Covered Entity except as provided in this Section 3.

         e. Business  Associate's  rights and duties with respect to a change or
limitation  referenced in a written notice from Covered Entity  pursuant to this
Section 3 will be as set forth, and governed by, Section 6 of this Addendum.

         f.  Covered  Entity  will  not  request  Business  Associate  to use or
disclose Protected Information in any manner that would not be permissible under
the Privacy Rule if done by Covered Entity,  except that Business  Associate may
use or disclose  Protected  Health  Information  as  Required  by Law,  for data
aggregation  and  for  management  and  administrative  activities  of  Business
Associate as provided in this Addendum and the Agreement.

4. Covered Entity Representations and Warranties.  Covered Entity represents and
warrants to Business  Associate  with  respect to itself and with respect to the
Protected Information:

         a. Covered  Entity has received all  necessary or required  consents or
authorizations under the Privacy Rule and all applicable state law, and has made
all  necessary  or  required  disclosures  to  Individuals,  for such  Protected
Information (a) to be disclosed to Business  Associate by



                                       5
<PAGE>

Covered  Entity  and  (b) to be used  or  disclosed  by  Business  Associate  in
performing  and  providing  the  services  to Covered  Entity and as provided or
permitted under this Addendum and the Agreement.

         b. The disclosure of Protected  Information to Business Associate under
this Addendum and the Agreement,  and the uses and disclosures of such Protected
Information  by Business  Associate in  performing  under the Agreement and this
Addendum  constitute  uses  and  disclosures  of the  Protected  Information  in
connection  with payment and/or health care operations of Covered Entity and, if
Business Associate's uses and disclosures of Protected Information hereunder and
under  the  Agreement  were  made or done  by  Covered  Entity,  such  uses  and
disclosures would not violate the provisions of the Privacy Rule.

         c.  Neither  the  disclosures  of  Protected  Information  to  Business
Associate  contemplated  by  this  Addendum  or  the  Agreement,   nor  Business
Associate's  uses  and  disclosures  of  Protected   Information   permitted  or
authorized  under this Addendum or the Agreement,  violate the Covered  Entity's
minimum necessary policies and procedures.

         d.  For all  purposes  of  this  Addendum  the  persons  designated  in
Attachment  B are the  designated  officials  of  Covered  Entity  and  Business
Associate  with respect to all matters  arising  under the Privacy Rule and this
Addendum. The person so designated as acting on behalf of Covered Entity will at
all times be the person  which  Covered  Entity has  designated  as its "privacy
official"  under and pursuant to the Privacy Rule. A party to this Addendum may,
upon written  notice to other party,  change the name and address for the person
(a)  designated  as Covered  Entity's  "privacy  official" or (b)  designated by
Business Associate for purposes of this Section 4(d).

         e. Set  forth  in  Attachment  B is the  Protected  Information,  which
Covered  Entity  deems  to be  part  of a  Designated  Record  Set,  created  or
maintained by Business Associate under this Addendum and the Agreement.

         f. Covered Entity agrees and acknowledges that Business  Associate will
not be deemed in violation of this Addendum, and a use or disclosure by Business
Associate of  Protected  Information  will not be  considered a violation of the
Privacy Rule, if such use or disclosure by Business  Associate is made in one or
more of the  circumstances  described  in 45 CFR ss.  164.502(j),  dealing  with
whistle blowers and workforce victims of crime.

5.       Term and Termination

         a. The Term of this Addendum shall begin on the Addendum Effective Date
         and shall  terminate  when all  Protected  Information  is destroyed or
         returned  to  Covered  Entity  or, if it is not  feasible  to return or
         destroy  Protected  Information,   protections  are  extended  to  such
         information  in  accordance  with the  termination  provisions  of this
         Section 5.

         b. Upon Covered  Entity's  knowledge  of a material  breach by Business
         Associate  of the  provisions  of this  Addendum,  Covered  Entity will
         either:

                                       6
<PAGE>

         (1) Provide an opportunity for Business Associate to cure the breach or
         end the  violation.  If Business  Associate does not cure the breach or
         end the violation  within the time specified by Covered  Entity,  which
         specified   time  would  be   reasonable  in  view  of  the  facts  and
         circumstances  of such breach,  Business  Associate may terminate  this
         Addendum and the Agreement;

         (2)  Immediately  terminate this Addendum and the Agreement if Business
         Associate has breached a material term of this Addendum and cure is not
         possible within a reasonable period of time; or

         (3) If neither  termination  nor cure is feasible,  Covered Entity will
         report the violation to the Secretary.

         c. Except as provided in this Section 5.c.,  upon  termination  of this
         Addendum for any reason,  Business Associate will return or destroy all
         Protected  Information  received  from  Covered  Entity,  or created or
         received  by  Business  Associate  on behalf of  Covered  Entity.  This
         provision will apply to Protected Information that is in the possession
         of  subcontractors  or agents of  Business  Associate.  Subject  to its
         rights  under this  Section  5.c.,  Business  Associate  will retain no
         copies  of the  Protected  Information.  In  the  event  that  Business
         Associate   determines  that  returning  or  destroying  the  Protected
         Information  is  infeasible  following  termination  of this  Addendum,
         Business Associate will furnish Covered Entity written  notification of
         the  conditions  that  make  return  or  destruction  infeasible.  Upon
         delivery of such written notice to Covered Entity,  Business  Associate
         will  extend  the  protections  of  this  Addendum  to  such  Protected
         Information  and limit further uses and  disclosures  of such Protected
         Information  to those  purposes  that make the  return  or  destruction
         infeasible,  for so long as Business Associate maintains such Protected
         Information.

         d.  Notwithstanding  any express or implied provision of this Addendum,
         termination  of this  Addendum and the  Agreement by Covered  Entity as
         permitted  under Section 5.c.  shall not relieve  Covered Entity of its
         obligations and liabilities to Business  Associate under the Agreement.
         Any such  termination of the Agreement by the Covered Entity under this
         Section 5 will be considered  an event of default  described in Section
         13 of the Agreement,  and Business  Associate shall have the rights and
         remedies specified in said Section 13.

6. Amendment.

         a. The parties acknowledge that state and federal laws relating to data
security and privacy for  Protected  Information  are rapidly  evolving and that
amendment of this  Addendum may be required to provide for  procedures to ensure
compliance with such developments.  Subject to the provisions of this Section 6,
the parties  specifically agree to take such action as is necessary to implement
the standards and  requirements of HIPAA,  the Privacy Rule and other applicable
laws  relating  to the  security  or  confidentiality  of PHI and the  Protected
Information.  The parties  understand and agree that Covered Entity must receive
satisfactory  written assurance from Business  Associate that Business Associate
will  adequately   safeguard  all  Protected

                                       7
<PAGE>

Information.  Unless otherwise specifically stated, a reference in this Addendum
to a section in the Privacy Rule means the section as in effect or as amended.

         b. Subject to the other  provisions  of this Section 6, Covered  Entity
and Business Associate agree to take such action as are reasonably  necessary to
amend this  Addendum  from time to time as is  necessary  for Covered  Entity to
comply with the requirements of the Privacy Rule and HIPAA.  Covered Entity will
be the party responsible for initially  determining whether any actions to amend
this Addendum described in this Section 6 are necessary and will provide written
notice to Business  Associate of the need to so amend this  Addendum,  including
the reasons for the proposed  amendment  and the form of such  amendment,  to be
provided to Business  Associate not less than 45 calendar days prior to the date
upon  which the  proposed  amendment  is to take  effect.  Business  Associate's
obligations and  responsibilities  with respect to an amendment to this Addendum
proposed by Covered  Entity  pursuant to this  Section 6 will be governed by and
subject to the provisions of Section 6.c. of this Addendum.

         c. If,  in  Business  Associate's  determination,  either or both (a) a
limitation on its use and disclosure of Protected  Information  contained in any
notice it receives from Covered Entity pursuant to Section 6.b. hereof or (b) an
amendment to this Addendum  proposed by Covered Entity  pursuant to Section 6.b.
hereof (such limitation or amendment herein referred to as a "Change") adversely
impacts  on  Business  Associate's  ability to perform  under the  Agreement  or
imposes  or  creates  or  imposes  a cost or burden on  Business  Associate  not
contemplated by Business Associate at the time of Business Associate's execution
and delivery of this  Addendum,  as determined by Business  Associate,  Business
Associate will notify  Covered  Entity of such adverse impact and/or  additional
cost or burden in writing not less than 15 calendar  days prior to the effective
date of the Change,  and the modifications or amendments to this Addendum or the
Agreement  that Business  Associate has  determined  are necessary to ameliorate
such adverse impact and/or reduce or eliminate the additional cost or burdens on
Business  Associate's ability to perform under the Agreement resulting from such
Change.

         d. If Covered Entity does not object in writing to the modifications or
amendments  to this  Addendum  and the  Agreement  set  forth in a  notice  from
Business  Associate  pursuant to Section 6.c. prior to the effective date of the
Change  giving  rise to  Business  Associate's  notice,  such  modifications  or
amendments to this Addendum and the Agreement, including any increase in amounts
payable to Business Associate  specified in Business  Associate's  notice,  will
conclusively  be deemed agreed to by Covered  Entity and the Business  Associate
notice  pursuant to Section 6.c.  will be deemed  incorporated  in and a part of
this Addendum and the Agreement from and after the effective date of the related
Change.

         e. If (a) Business  Associate  objects to a Change  proposed by Covered
Entity and does not  provide a proposed  modification  or  amendment  to Covered
Entity  pursuant to Section 6.d. or (b) Covered Entity objects in writing to the
modification  or amendment to this  Addendum  and the  Agreement  set forth in a
notice from Business  Associate  pursuant to Section 6.d, prior to the effective
date  of the  Change  giving  rise  to  Business  Associate's  notice,  Business
Associate  will have the right to declare,  in writing,  a  termination  of this
Addendum and the Agreement as a termination  by mutual  consent  pursuant to the
Agreement.  Business  Associate  will  thereupon

                                       8
<PAGE>

give written notice of such  termination to Covered Entity and such  termination
without  cause  pursuant to this  Section  6.e.  will become  effective  without
further act or deed of Covered Entity as provided in the Agreement.  The parties
shall treat  termination  of the  Agreement  as provided in this Section 6 as an
event of default under Section 13 of the Agreement.

7. No Third Party Beneficiaries.  Nothing express or implied in this Addendum is
intended to confer, nor shall anything herein confer, upon any person other than
Covered Entity,  Business Associate and their respective  successors or assigns,
any rights, remedies, obligations or liabilities whatsoever.

8.  Effect on  Agreement.  Except as  specifically  required  to  implement  the
purposes of this Addendum, or to the extent inconsistent with this Addendum, all
other terms of the Agreement shall remain in force and effect.

9. Notices.  Any notice by any Party to the other will be in writing and will be
deemed to have been duly  given when  delivered  personally  or 3 business  days
after deposit in the US Mail, postage prepaid to their respective addresses,  to
the attention of the person specified, in Attachment B to this Addendum.

10.  Applicable  Law. This Addendum will be deemed to have been made and entered
into in and will be  interpreted  in  accordance  with the laws of the  State of
California.

11.  Survival.  The  respective  rights and  obligations  of the  Parties  under
Sections 5 and 6 hereof will survive the termination of this Addendum.

12.  Interpretation.  Any  ambiguity in this Addendum will be resolved to permit
Covered  Entity to comply  with the Privacy  Rule;  provided,  however,  that if
resolving  such  ambiguity will be such as to change a term or provision of this
Addendum applicable to Business Associate, such change will be deemed a "Change"
under  this  Addendum  and  subject to the rights of  Business  Associate  under
Section 6 hereof.

13.  Severability.   If  any  part  of  this  Addendum  will  be  held  void  or
unenforceable,  such  part  will be  treated  as  severable,  leaving  valid the
remainder  of this  Addendum  notwithstanding  the part or parts  found  void or
unenforceable.  To the extent that any provision of this  Addendum  violates the
California  Confidentiality  of Medical  Information Act (California  Civil Code
Sections 56 et seq.,) or any other  applicable state law and such provision does
not preempt the California  Confidentiality  of Medical  Information  Act or any
other  applicable  state law (by virtue of being  required by HIPAA or the HIPAA
Regulations),  such provision shall be deemed severed from this Addendum and the
remaining provisions shall remain in full force and effect. Any such severing of
a provision from this Addendum as provided in this Section 13 will be considered
an amendment of this Addendum subject to Section 6 hereof.

14. Entire Agreement. This Addendum contains the entire agreement of the parties
with  respect to the  subject  matter  hereof and may not be amended or modified
except in writing

                                       9
<PAGE>

signed by both  parties.  All  continuing  covenants,  duties,  and  obligations
contained herein will survive the expiration or termination of this Addendum.

15.  Changes in Law. In the event that  performances  under this Addendum are or
become unlawful as a result of any law, court decision, rule regulation,  manual
provision,  or  memorandum  enacted or  promulgated  by any federal,  state,  or
administrative  body, or financially  impossible or imprudent as a result of any
such change,  the parties will in good faith  restructure the Addendum by mutual
agreement  with  Covered  Entity and  Business  Associate,  and the parties will
thereafter  be bound by the changes in the Addendum.  If the Addendum  cannot be
modified  in a manner to comply  with the  change,  then this  Addendum  and the
Agreement will terminate in accordance with the provisions of Section 6.


IN WITNESS  WHEREOF,  the parties  hereto have duly executed this Addendum as of
the Addendum Effective Date.

COVERED ENTITY              BUSINESS ASSOCIATE

XCEL HEALTHCARE, INC.       MERIDIAN COMMERCIAL HEALTHCARE FINANCE,     LLC

By:                         By:

Print Name:                 Print Name:

Title:                      Title:

Date:                       Date:

























                                       10
<PAGE>



                                  ATTACHMENT A


                    PHI TRANSMISSION PROTOCOLS AND PROCEDURES


TRANSMISSIONS BY FAX:

         To Covered Entity:                 818.348.1106


         To Business Associate:     858.200.2051

         Covered Entity and Business  Associate  represent to the other that (1)
the fax number  specified for it is connected to a telephone  line and is not an
internet fax number,  (2) PHI  transmitted by fax to the other will have a cover
sheet referencing that the information  being  transmitted is confidential,  (3)
the fax number for it set forth above is for a fax  machine  that is in a secure
location  within the  business  premises of such Party and (4) access to the fax
machine and  information  received on such fax  machines is limited or otherwise
restricted  to persons  within such Party's  control who are  authorized to view
PHI.

TRANSMISSIONS BY INTERNET (INCLUDING EMAIL OR EMAIL ATTACHMENTS):

         The  Parties  agree  that  any  transmission  of PHI  via  an  internet
connection,  email or email  attachment  instituted  by (1)  Covered  Entity  to
Business  Associate,  (2)  Business  Associate to Covered  Entity,  (3) Business
Associate  to a health plan or (4)  Business  Associate  to any other  person or
entity to which it is permitted or authorized to disclose PHI under the Addendum
will be encrypted using  encryption  protocols (a) set forth below in connection
with  internet  communications  and  transmissions  between  Covered  Entity and
Business Associate and (b) agreed to in writing between Business Associate and a
health plan or other person or entity described in (4) above;  provided that the
encryption  protocols  applicable to a transmission or communication in this (b)
will be at least as stringent and robust as those set forth below governing such
transmissions or protocols between Covered Entity and Business Associate.

COMMUNICATIONS  VIA U.S.  MAIL,  COMMERCIAL  DELIVERY  SERVICES (SUCH AS FEDERAL
EXPRESS, AIRBORNE, ETC.), COURIER OR TELEPHONE VOICE COMMUNICATION:

         Communications  and  transmissions  of PHI under this  protocol will be
permitted  without  encryption  so long as the PHI is in a  sealed  envelope  or
package  at the  time it is  delivered  to a

                                       11
<PAGE>

post  office,   commercial   delivery   service  or  courier.   Telephone  voice
communication  (other than through internet  telephony devices) are not required
to be encrypted.




AUTHENTICATION POLICIES AND PROCEDURE

         Within a reasonable  time after the execution of the Agreement and this
Addendum, but in no event later than April 13, 2003, Covered Entity will provide
Business  Associate  with a  description  of  the  Authentication  Policies  and
Procedure.  Pending establishment of the Authentication  Policies and Procedure,
Business  Associate may transmit PHI in the same manner in which Covered  Entity
transmits PHI to Business Associate and otherwise as provided in this Addendum.







                                       12
<PAGE>



                                  ATTACHMENT B

                          PRIVACY OFFICIAL DESIGNATION


Covered Entity Privacy Official:

         Name:             David Johnson
         Title:            Controller
         Address:          XCEL Healthcare, Inc.
                           6016 Fallbrook Avenue
                           Suite 200
                           Woodland Hills, CA 91367

         Telephone:        818.346.8590
         Fax:              818.348.1106
         Email:            david@hsciences.com


Business Associate Privacy Official:  TO BE PROVIDED BY BUSINESS ASSOCIATE PRIOR
                                      TO APRIL 14, 2003.

         Name:
         Title:
         Address:          Meridian Commercial Healthcare Finance
                           4320 La Jolla Village Drive
                           Suite 250
                           San Diego, CA 92121

         Telephone:
         Fax:
         Email:



                        PROTECTED INFORMATION COMPRISING
                             A DESIGNATED RECORD SET

         Within a reasonable  time after the execution of the Agreement and this
Addendum, but in no event later than April 13, 2003, Covered Entity will provide
Business  Associate  a  description  of the  Protected  Information  received by
Business  Associate  from Covered  Entity or created or  maintained  by Business
Associate on behalf of Covered Entity and which comprises a part of a Designated
Record Set.



                                       13
<PAGE>
                                                                   Exhibit 99.1



                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,
                             RULES 13A-14 AND 15D-14
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


         In connection with the Annual Report of Health Sciences Group, Inc.
(the "Company") on Form 10-KSB for the period ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Fred E. Tannous, Chief Executive Officer of the Company, certify, pursuant to
Rules 13a-14 and 15-d14 of the Securities Exchange Act of 1934, as adopted
pursuant to ss.302 of the Sarbanes-Oxley Act of 2002, that:

(1)      I have reviewed the Report;
(2)      Based upon my knowledge, the Report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         in order to make the statements made, in light of the circumstances
         under which such statements were made, not misleading;
(3)      Based upon my knowledge, the financial statements, and other financial
         information included in the Report, fairly present in all material
         respects the financial condition and results of operations of the
         Company, as of, and for, the periods presented in the Report;
(4)      I and the other certifying officers of the Company:

            a.    are responsible for establishing and maintaining disclosure
                  controls and procedures for the Company;

            b.    have designed such disclosure controls and procedures to
                  ensure that material information is made known to us,
                  particularly during the period in which the Report is being
                  prepared;

            c.    have evaluated the effectiveness of the Company's disclosure
                  controls and procedures within 90 days of the date of the
                  Report; and

            d.    have presented in the Report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on the required evaluation.

(5)      I and the other certifying officers have disclosed to the Company's
         auditors and to the audit committee of the board of directors (or
         persons fulfilling the equivalent function):

            a.          all significant deficiencies in the design over
                        operation of internal controls (a pre-existing term
                        relating to internal controls regarding financial
                        reporting) which could adversely affect the Company's
                        ability to record, process, summarize and report
                        financial data and have identified for the Company's
                        auditors any material weaknesses in internal controls;
                        and

            b.          any fraud, whether or not material, that involves
                        management or other employees who have a significant
                        role in the Company's internal controls.

(6)      I and the other certifying officers have indicated in the Report
         whether or not there were significant changes in internal controls or
         in other factors that could significantly affect internal controls
         subsequent to the date of their evaluation, including any corrective
         actions with regard to significant deficiencies and material
         weaknesses.


         April 14, 2003    /S/ FRED E. TANNOUS
                           Fred E. Tannous
                           Chief Executive Officer (Principal Executive Officer)
                           and Principal Financial Officer


                                                                    Exhibit 99.2



                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,
                             RULES 13A-14 AND 15D-14
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


         In connection with the Annual Report of Health Sciences Group, Inc.
(the "Company") on Form 10-KSB for the period ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Fred E. Tannous, Principal Financial Officer of the Company, certify,
pursuant to Rules 13a-14 and 15-d14 of the Securities Exchange Act of 1934, as
adopted pursuant to ss.302 of the Sarbanes-Oxley Act of 2002, that:

(1)      I have reviewed the Report;
(2)      Based upon my knowledge, the Report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         in order to make the statements made, in light of the circumstances
         under which such statements were made, not misleading;
(3)      Based upon my knowledge, the financial statements, and other financial
         information included in the Report, fairly present in all material
         respects the financial condition and results of operations of the
         Company, as of, and for, the periods presented in the Report;
(4)      I and the other certifying officers of the Company:
         a.       are responsible for establishing and maintaining disclosure
                  controls and procedures for the Company;
         b.       have designed such disclosure controls and procedures to
                  ensure that material information is made known to us,
                  particularly during the period in which the Report is being
                  prepared;
         c.       have evaluated the effectiveness of the Company's disclosure
                  controls and procedures within 90 days of the date of the
                  Report; and
         d.       have presented in the Report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on the required evaluation.
(5)      I and the other certifying officers have disclosed to the Company's
         auditors and to the audit committee of the board of directors (or
         persons fulfilling the equivalent function):

         a.       all significant deficiencies in the design over operation of
                  internal controls (a pre-existing term relating to internal
                  controls regarding financial reporting) which could adversely
                  affect the Company's ability to record, process, summarize and
                  report financial data and have identified for the Company's
                  auditors any material weaknesses in internal controls; and
         b.       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  Company's internal controls.

(6)      I and the other certifying officers have indicated in the Report
         whether or not there were significant changes in internal controls or
         in other factors that could significantly affect internal controls
         subsequent to the date of their evaluation, including any corrective
         actions with regard to significant deficiencies and material
         weaknesses.


         April 14, 2003            /S/ FRED E. TANNOUS
                                   Fred E. Tannous
                                   Chief Executive Officer (Principal Executive
                                   Officer) and Principal Financial Officer