HUMASCAN INC, 424B4, 1996-08-14

HUMASCAN INC
424B4, 1996-08-14
ELECTRONIC COMPONENTS & ACCESSORIES

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<PAGE>

PROSPECTUS
2,700,000 SHARES

HUMASCAN INC. LOGO

Common Stock
$.01 par value
------

HumaScan Inc. ("HumaScan" or the "Company") hereby offers 2,700,000 shares
of common stock, $.01 par value per share (the "Common Stock"). Prior to this
Offering, there has been no public market for the Common Stock and there can
be no assurance that a trading market will develop after the completion of
this Offering or, if developed, that it will be sustained. For information
regarding the factors considered in determining the initial public offering
price, see "Risk Factors" and "Underwriting." The Common Stock has been
approved for quotation on the Nasdaq SmallCap Market ("Nasdaq") under the
symbol "HMSC."

Certain existing stockholders, directors and officers of the Company and
their affiliates or designees intend to purchase approximately 20% of the
shares of Common Stock being offered hereby. See "Underwriting."
------

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 9 AND
"DILUTION."

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

<TABLE>
<CAPTION>
================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ............. $6.00 $0.48 $5.52
- -----------------------------------------------------------------------------
Total(3) .............. $16,200,000 $1,296,000 $14,904,000
================================================================================
</TABLE>
(1) Does not include additional compensation payable to Keane Securities Co.,
Inc., the representative of the several Underwriters (the
"Representative"), in the form of (i) a non-accountable expense allowance
equal to 2% of the gross proceeds of this Offering and (ii) warrants,
issued for nominal consideration, to purchase 270,000 shares of Common
Stock at a price of $7.80 per share ("Representative's Warrants"). In
addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Underwriters and other
compensation payable to the Representative.

(2) Before deducting estimated expenses of $824,000 payable by the Company
($872,600 if the Underwriters' over-allotment option is exercised in
full), including the non-accountable expense allowance payable to the
Representative.

(3) The Company has granted to the Underwriters an option exercisable within
45 days after the date of this Prospectus to purchase up to an aggregate
of 405,000 additional shares of Common Stock upon the same terms and
conditions as set forth above, solely to cover over-allotments, if any.
If such over-allotment option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be
$18,630,000, $1,490,400 and $17,139,600, respectively. See
"Underwriting."
------

The shares of Common Stock are being offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters,
and subject to approval of certain legal matters by their counsel and subject
to certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this Offering and to reject any order in whole or in part.
It is expected that delivery of the shares of Common Stock offered hereby
will be made on or about August 15, 1996, at the offices of Keane Securities
Co., Inc. in New York, New York against payment therefor.
------
Keane Securities Co., Inc.

The date of this Prospectus is August 12, 1996.

<PAGE>

BreastAssure(TM) Thermal Activity Sensor

[INSERT]

The BreastAssure(TM) Thermal Activity Sensor, which has received marketing
clearance under Section 510(k) of the Food, Drug and Cosmetic Act from FDA,
is a device to be used adjunctively by physicians as part of a breast disease
monitoring program. When placed over a woman's breasts inside her brassiere
for a period of 15 minutes, the device registers skin temperature variations
due to heat conducted from within the breast tissue, thus indicating the
possibility of either proliferating thermally active breast cancer cells or
certain types of thermally active breast disease.

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants and such other reports as the Company may determine to be
appropriate or as may be required by law.
------

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

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option to
purchase up to an additional 405,000 shares of Common Stock and no exercise
of the Representative's Warrants. Unless otherwise indicated, all financial
information, references to number of shares and per share data set forth in
this Prospectus give retroactive effect to the 4 to 3 reverse stock split
effected on July 23, 1996.

THE COMPANY

HumaScan, a development stage company, owns under license the exclusive
rights in the United States and Canada to manufacture and market a breast
thermal activity indicator ("BTAI") device called the "BreastAssure(TR)
Thermal Activity Sensor" ("the BreastAssure device"). The BreastAssure device
is a non-invasive, easy to use, low cost, adjunctive test to be used by
primary care physicians, gynecologists and other medical specialists as part
of a breast disease monitoring program along with breast self- examination
("BSE"), palpation and (depending on a patient's age, family history and
other factors) mammography and other established clinical procedures
including ultrasound and/or biopsy. An important feature of the BreastAssure
device is that the results will be immediately available to the physician
while the patient is "on site" at the point of care in the physician's
office, clinic, hospital and/or mammography center. If the BreastAssure
device indicates that there is unilateral breast thermal activity (i.e., in
one breast only), the physician is alerted to the possibility of a
physiological condition, including thermally active cancer. The BreastAssure
device has received marketing clearance under Section 510(k) of the Food,
Drug and Cosmetic Act (the "FDC Act" ) from the United States Food and Drug
Administration ("FDA").

As breast cancer cells multiply, excessive heat is often generated. This
heat is most often conveyed to the surface of the breast resulting in the
temperature of the skin of a particular area of one breast being elevated
from between 2o and 6o Fahrenheit versus the temperature of the same area of
the other breast. The BreastAssure device permits the measurement and
comparison of temperature variances between three mirror-image sections of
each breast, thus indicating the possibility of either proliferating
thermally active breast cancer cells or certain types of thermally active
breast disease which may require medical treatment.

The Company intends initially to market the BreastAssure device to primary
care physicians, gynecologists and other medical specialists throughout the
United States. Pursuant to this strategy, in February 1996, the Company
entered into an exclusive supply and distribution agreement (as amended, the
"Distribution Agreement") with Physician Sales & Service, Inc. ("PSS"), a
publicly traded company and one of the leading distributors of medical
supplies, diagnostic equipment and pharmaceuticals to office-based medical
professionals in the United States. PSS, with a reported distribution network
of approximately 750 sales representatives and 64 company-operated
service/distribution centers serving more than 88,000 physician-based offices
throughout the United States, has agreed to distribute the BreastAssure
device. Pursuant to the Distribution Agreement, PSS's President, John F.
Sasen, Sr., has joined HumaScan's Board of Directors and the Company has been
designated a "Platinum Level Manufacturer." PSS has informed the Company that
this status currently has been reserved for only 15 manufacturers out of
approximately 3,000 manufacturers represented by PSS and means that PSS will
assign specific sales quotas to its sales force and give the Company priority
access to the sales force for product training. Also, pursuant to the
Distribution Agreement, PSS purchased an aggregate of 56,250 shares of Common
Stock and Private Warrants (as hereinafter defined) to purchase an additional
11,250 shares of Common Stock at $2.93 per share and was issued warrants (the
"PSS Warrants") to purchase 125,000 shares of Common Stock at $4.00 per
share. See "Business--Marketing and Distribution," "Management," "Principal
Stockholders" and "Certain Transactions."

3
<PAGE>

50% of such targets, the Company and PSS will each have the right to
terminate the Distribution Agreement upon three months' notice. PSS and the
Company have agreed to work together to prepare for the BreastAssure device
sales and marketing launch, which the Company anticipates will occur in the
second quarter of 1997.

The BreastAssure device consists of a pair of mirror-image, non-invasive,
lightweight, disposable soft pads, each of which has three wafer-thin
segments containing columns of heat sensitive chemical sensor dots that
change color from blue to pink reflecting an 8.5 degree temperature range
from 90o to 98.5o Fahrenheit. When placed over a woman's breasts inside her
brassiere for a period of 15 minutes, the BreastAssure device registers skin
temperature variations due to heat conducted from within the breast tissue to
the surface of the skin. By comparing the mirror-image temperature
differences between the two breasts registered by the BreastAssure device,
the physician can objectively quantify if there is abnormal unilateral breast
thermal activity, which is considered significant if there is a 2o Fahrenheit
or more temperature difference between each breast in the same mirror-image
location. Based on clinical studies at major medical centers, the threshold
tumor size that resulted in significant skin temperature differences
detectable with the BreastAssure device was as small as five millimeters in
size. In contrast, according to industry sources, the majority of breast
tumors are, on average, at least 15 millimeters or larger before they are
palpable by most experienced clinicians.

The machinery that the Company will use to manufacture the BreastAssure
device is currently being constructed by Zigmed, Inc. ("Zigmed"), a medical
engineering contractor, and is on schedule for completion by the end of 1996.
The agreement between Zigmed and the Company (the "Turnkey Construction
Contract") provides for the turnkey construction of the production machinery
(the "Production Line") at a fixed price of $1,750,680, with payments to
Zigmed in stages over a 15-month period. $720,000 has been paid to Zigmed
pursuant to the Turnkey Construction Contract as of the date of this
Prospectus. The Company has also agreed to pay Zsigmond G. Sagi, the chief
executive officer and a principal of Zigmed, certain completion bonuses. See
"Business--Manufacturing."

The Company presently plans to sell the BreastAssure device to physicians
and other medical specialists for approximately $25 per unit and will
recommend that the BreastAssure unit be made available to patients by
physicians and other medical specialists for a cost ranging from $40 to $50.

Breast cancer is one of the most common cancers among women and,
notwithstanding existing methods of detection, is currently the leading cause
of death among women between the ages of 35 and 54 in the United States. The
American Cancer Society estimates that in 1996 approximately 184,300 new
cases of breast cancer are expected to be diagnosed and approximately 44,300
women are expected to die from the disease. Although the causes of breast
cancer are unknown and there is no known method of prevention, survival rates
are highest if the cancer is diagnosed and treated at its earliest stages.
According to the National Cancer Institute, the five-year survival rate
decreases from more than 90% to 73% after the cancer has spread to the lymph
nodes and to 19% after it has spread to other soft-tissue organs. Government
spending for, and public awareness of, early screening and diagnosis of
breast cancer has increased substantially in recent years. In fact, breast
cancer screening is generally recommended as a routine part of preventive
health care for over 90 million women in the United States. Industry sources
estimate that approximately 11.3 million mammograms were performed in the
United States in 1994 (the last year for which such data is available from
the Centers For Disease Control). Moreover, the Physicians' Insurers
Association report for 1995 indicated that, during such year, failure to
diagnose breast cancer was the most common source of malpractice complaint
and the second most expensive type of claim, with an average indemnity
payment of $301,460 during the six months preceding such report.

From 1980 to 1984, clinical data from the use of the BreastAssure device
was collected on 3,262 women of all ages in five separate clinical trials at
six institutions and hospitals, including M.D. Anderson Hospital and Tumor
Institute ("M.D. Anderson"), Brottman Memorial Hospital (UCLA) ("Brottman"),
Georgetown University School of Medicine, Memorial Sloan-Kettering Hospital
("Sloan-Kettering") and Guttman Cancer Diagnostic Institute ("Guttman
Diagnostic"). The key results of the two principal trials, one involving
multiple sites, were as follows:

4
<PAGE>

TRIAL 1 (M.D. ANDERSON, BROTTMAN, SLOAN KETTERING)

o BreastAssure Positives and Biopsy Correlation - The trial involved 145
women who underwent unilateral biopsy, 84 of whom were confirmed to
have cancer. The BreastAssure device tested positive for 74 of these 84
women for an 88.1% sensitivity index (agreement on positives with
biopsy).

TRIAL 2 (GUTTMAN DIAGNOSTIC)

o The BreastAssure device versus Clinical Screening for "Suspicion of
Cancer" (using mammography and clinical breast examination) - The trial
involved 2,805 women:

o 99 women were judged positive for "suspicion of cancer" based solely
on the standard screening methods, i.e., mammography and clinical
breast examination. Of the 99 women, 86 had positive breast thermal
activity based on the BreastAssure device results, for a sensitivity
index (agreement on positives with the standard clinical screening
methods) of 86.9%.

o Biopsy results confirmed cancer in 15 women, 13 of whom had positive
breast thermal activity based on the BreastAssure device results, for
a sensitivity index (agreement on positives with biopsy) of 86.7%.

o 2,706 women were judged negative using the standard clinical
screening methods. 2,340 women were found to have no breast thermal
activity based on the BreastAssure device results, for a specificity
index (agreement on negatives with the standard screening methods) of
86.5% for no "suspicion of cancer." Comparatively, in clinical
screening for "suspicion of breast cancer," mammography has a
reported specificity of 90.0% and sensitivity of 78.0% to 96.0%,
while clinical breast examination has a reported specificity of 57.0%
to 70.0% and BSE has a reported specificity of 20.0% to 30.0%.

The BTAI was patented in 1980 by Zsigmond L. Sagi, Ph.D. ("Dr. Sagi"), who
assigned the patents relating to the device, then called the "Breast Cancer
Screening Indicator," to a private company called BCSI Laboratories, Inc.
("BCSI"). In 1980, BCSI was acquired by Faberge, Incorporated ("Faberge") and
work on the BTAI continued. FDA authorization to market the BTAI was granted
in 1984. By that time, Faberge had constructed a plant and the necessary
machinery to commence commercial production of the BTAI. In 1985, Faberge was
acquired in a hostile takeover by McGregor Industries ("McGregor"). Following
the acquisition, McGregor reportedly discontinued work on many of the new
business projects Faberge had been pursuing, including the BTAI, but retained
ownership of the patent to, and regulatory approvals for, the BTAI. In 1986
Scantek Medical Corp. ("SMC") was formed by Dr. Sagi and purchased all of the
equity of BCSI (which still owned the patent rights and regulatory approvals
for the BTAI) from McGregor for approximately $500,000. In 1991, the assets
of SMC (including the patent rights and regulatory approvals for the
BreastAssure device) were acquired by Scantek Medical, Inc. ("Scantek"). In
October 1995, Scantek granted a license to the Company to manufacture and
market the BreastAssure device in the United States and Canada. See
"Business--License Agreement."

Certain stockholders, directors and officers of the Company and their
affiliates or designees intend to purchase 10% of the shares of Common Stock
offered hereby. See "Principal Stockholders" and "Underwriting."

The Company was incorporated in the State of Delaware on December 27,
1994. Its principal executive offices are located at 514 Centennial Avenue,
Cranford, New Jersey 07016 and its telephone number is (908) 709-3434.

5
<PAGE>

THE OFFERING

Common Stock offered by the
Company ..................... 2,700,000 shares

Common Stock outstanding prior
to the Offering ............. 5,020,313 shares(1)(2)

Common Stock to be outstanding
after the Offering .......... 7,720,313 shares(1)(2)

Use of Estimated Proceeds ..... Approximately $4,075,000 for sales and
marketing expenses; approximately $2,500,000
for clinical studies; approximately
$1,725,000 for capital equipment and
facility costs; approximately $1,050,000 for
licensing fees; approximately $1,000,000 for
inventory; and the balance, approximately
$3,730,000, for working capital and other
general corporate purposes. See "Use of
Proceeds" and "Certain Transactions."

Risk Factors and Dilution ..... An investment in the shares of Common Stock
offered hereby involves a high degree of
risk and immediate and substantial dilution.
Prospective investors should carefully
consider the matters set forth under the
captions "Risk Factors" and "Dilution."

Nasdaq Symbol ................. "HMSC"

- ------
(1) Excludes (i) 700,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Incentive Plan (the "1996 Plan"), including (x)
128,000 shares issuable upon exercise of currently outstanding options
with an exercise price equal to the initial public offering price per
share in this Offering and (y) 572,000 shares available for issuance
subject to future grants; (ii) 142,500 shares issuable upon exercise of
options granted to certain officers and directors of the Company outside
of the 1996 Plan at an exercise price of $5.33 per share; (iii) 4,000
shares issuable upon exercise of options granted to three former
directors of the Company, all of which options are exercisable at $2.93
per share; (iv) 125,000 shares issuable upon exercise of the PSS Warrants
at an exercise price of $4.00 per share; (v) 536,250 shares issuable upon
exercise of warrants sold to investors in a private placement in May 1996
(the "May Private Placement"), which warrants ("Private Warrants") are
exercisable at $2.93 per share; (vi) 400,000 shares issuable to Burnham
Securities Inc. ("Burnham") upon exercise of Private Warrants issued to
Burnham in partial consideration of Burnham's services as placement agent
of the May Private Placement; (vii) 37,500 shares, issuable to Smith
Barney Inc. upon exercise of Private Warrants issued in connection with
the May Private Placement; (viii) an aggregate of 161,250 shares issuable
to Udi Toledano and members of his family and Herbert V. Turk and members
of his family upon exercise of warrants issued in connection with the May
Private Placement, all of which are exercisable at $2.93 per share (the
"Toledano Group Warrants"); (ix) 52,500 shares issuable upon exercise of
Private Warrants issued in connection with the May Private Placement upon
conversion of certain November Bridge Notes (as hereinafter defined); (x)
224,250 shares issuable upon exercise of warrants sold in a private
placement in March 1996, which warrants are exercisable at a price of
$0.67 per share; and (xi) options to purchase up to 18,750 shares which
may be issued to Zigmed pursuant to the Turnkey Construction Contract,
which options will be exercisable at $5.33 per share. See
"Business--Marketing and Distribution," "Management," "Certain
Transactions," "Principal Stockholders" and "Description of Securities."

(2) Includes 2,943,750 shares of Common Stock issuable upon automatic
conversion upon consummation of this Offering of the same number of
shares of Series A Convertible Preferred Stock ("Series A Preferred
Stock") currently outstanding, which were issued in connection with the
May Private Placement. See "Description of Securities."

6
<PAGE>

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
Three Months
ended March 31,
---------------------
December 27, 1994 December 27, 1994
(inception) to (inception) to
December 31, 1995 1996 1995 March 31, 1996
----------------- ---------- ------- -----------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Interest income ............... $ 1 $ 1 $ -- $ 2
Operating expenses ............ 212 239 49 452
-------------- ---------- ------- -----------
Net loss ........................ $ (211) $ (238) $(49) $(450)
============== ========== ======= ===========
Pro forma net loss per share (1) . $ (.05) $ (.06)
============== ==========
Pro forma weighted average common
shares outstanding (1) ........ 4,112,835 4,326,719
============== ==========
</TABLE>

<TABLE>
<CAPTION>
As of
March 31, 1996
--------------------------------------------

As of Pro Forma,
December As
31, 1995 Actual Pro Forma(2) Adjusted(2)(3)
---------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) ........... $(1,745) $(1,996) $ (618) $13,437
Current assets ...................... 224 229 611 14,588
Total assets ........................ 373 777 1,384 15,360
Notes payable ....................... 350 540 -- --
Due to officer ...................... 125 125 -- --
Long-term debt ...................... -- 42 42 42
Preferred stock (redeemable) (4) .... -- -- 1,873 --
Deficit accumulated during the
development stage .................. (211) (450) (720) (720)
Total stockholders' equity (deficit) . (1,596) (1,491) (1,760) 14,168
</TABLE>

- ------
(1) See Notes to Financial Statements for information concerning computation
of pro forma net loss per share and "Capitalization."

(2) Gives effect to the May Private Placement and the following transactions
(collectively, with the May Private Placement, the "Prior Transactions"):
(i) the conversion, in connection with the May Private Placement, of
$350,000 aggregate principal amount of certain bridge notes issued in
November 1995 (the "November Bridge Notes") into shares of Series A
Preferred Stock and Private Warrants and the payment of $16,488 of
accrued interest thereon; (ii) the exchange, in connection with the May
Private Placement, of $460,000 aggregate principal amount of certain
bridge notes issued in March 1996 (the "March Bridge Notes") into shares
of Series A Preferred Stock and Private Warrants, the payment of $8,171
of accrued interest thereon and a charge directly to deficit accumulated
during the development stage of $269,881 representing the unaccreted
discount on the March Bridge Notes as of March 31, 1996; (iii) the
exchange, in connection with the May Private Placement, of $74,000 due to
Donald B. Brounstein, the Company's President and Chief Executive
Officer, (including $40,000 in aggregate principal amount of March Bridge
Notes) for shares of Series A Preferred Stock and Private Warrants and
the payment of $91,000 (plus accrued interest on such March Bridge Notes
of $711 due to Mr. Brounstein) from the proceeds of the May Private
Placement; and (iv) the payment to Scantek and Zigmed of an aggregate of
$640,000 required by the terms of the License Agreement (as hereinafter
defined) and the Turnkey Construction Contract. Prior to the conversion
of the November Bridge

7
<PAGE>

Notes, and the exchange of the March Bridge Notes, into shares of Series
A Preferred Stock and warrants to purchase Common Stock in connection
with the May Private Placement, the November Bridge Notes and March
Bridge Notes each bore interest at the rate of 10% per annum.

(3) Adjusted to reflect the sale of 2,700,000 shares of Common Stock offered
hereby and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

(4) Net of stock subscriptions receivable, which represents the portion of
the purchase price of the securities sold in the May Private Placement
still to be paid by the purchasers, which are to be paid in installments
in accordance with the terms of the May Private Placement. The obligation
of such purchasers to make such installment payments will cease upon
consummation of this Offering. See "Description of Securities--Private
Placements."

8
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution and should be made only
by persons who can afford a loss of their entire investment. In addition to
the other information in this Prospectus, the following risk factors should
be considered carefully in evaluating an investment in the shares of Common
Stock offered hereby.

Absence of Operating History; Development Stage; Continuing Losses. The
Company was incorporated in December 1994, has no operating history and is in
the development stage. As such, the Company is subject to all of the business
risks associated with a new enterprise, including constraints on the
Company's resources, lack of established creditor relationships and
uncertainties regarding product development and future revenues. Since its
inception, the Company has been engaged only in development activities
including negotiating the License Agreement, Distribution Agreement and
Turnkey Construction Contract, hiring key employees and raising capital. As
of December 31, 1995 and March 31, 1996, the Company had a stockholders'
deficit of $1,595,651 and $1,490,528, respectively. The Company has not
derived any revenue from operations and has incurred losses since inception.
The Company does not anticipate deriving any revenue from operations until
such time as the BreastAssure device is available for commercial delivery.
The Company anticipates incurring significant costs in connection with
bringing the BreastAssure device to market, and has presently allocated in
"Use of Proceeds" approximately $5,800,000 to the establishment of its
manufacturing facility and marketing program. See "Use of Proceeds" and
"Business--Marketing and Distribution" and "--Manufacturing." The Company's
ability to operate its business successfully will depend, in part, on a
variety of factors, many of which are outside the Company's control,
including changes in governmental programs and requirements or in physician
or consumer preferences, changes in FDA and similar regulatory requirements,
plant and equipment repair and maintenance requirements, competition and
changes in raw material supplies and suppliers. The likelihood of success of
the Company must be considered in light of the expenses, difficulties and
delays frequently encountered in connection with the formation and early
phase of operation of a new business and the competitive environment in which
it will operate. There can be no assurance regarding whether or when the
Company will successfully implement its business plan or that the Company
will achieve profitability by generating sufficient revenues to offset
anticipated costs. See "Management's Discussion and Analysis of Financial
Condition and Plan of Operation" and Note 1 of Notes to Financial Statements.

Significant Capital Requirements; Dependence on Offering Proceeds; Need
for Additional Financing. The Company's capital requirements in connection
with its product development and marketing activities will be significant.
The Company has been dependent upon the proceeds of sales of its securities
to private investors to fund its initial development activities. Since the
Company is not currently generating any revenue from operations, it is
dependent on the proceeds of this Offering to continue development
activities. The Company anticipates, based on its currently proposed plans
and assumptions relating to its operations, that the proceeds of this
Offering will be sufficient to satisfy its contemplated cash requirements for
at least 18 months following the consummation of this Offering. The Company's
future liquidity and capital funding requirements will depend on numerous
factors, including the results of clinical studies, the extent to which the
BreastAssure device gains market acceptance, the costs and timing of
expansion of sales, marketing and manufacturing activities and competition.
There can be no assurance that additional capital, if needed, will be
available on terms acceptable to the Company, or at all. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, will likely include restrictive covenants, including
financial maintenance covenants restricting the Company's ability to incur
additional indebtedness and to pay dividends. The failure of the Company to
raise capital on acceptable terms when needed could have a material adverse
effect on the Company. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Plan of Operation--Liquidity and Capital
Resources."

Dependence Upon a Single Product. The BreastAssure device is currently the
Company's only product and will account for substantially all of the
Company's revenue, if any, for the foreseeable future. The BreastAssure
device was approved by FDA in January 1984 under Section 510(k) of the FDC
Act ("510(k) Market Rights") to be marketed for use by physicians as an
adjunct to routine physical examination, including palpation, mammography and
other established procedures for the detection of breast disease, but has not
yet been commercially introduced. There can be no assurance that, when
manufactured, the BreastAssure device will be effective

9
<PAGE>

or that it will be more effective than competing products or technologies,
capable of being manufactured in commercial quantities at acceptable costs or
successfully marketed. If the BreastAssure device is not successfully
commercialized, it is likely that the Company's business operations would
cease. See "Business--The BreastAssure Device."

Uncertainty of Market Acceptance; Certain Thermographic Applications Not
Accepted. The Company's success will be substantially dependent upon, among
other factors, the market acceptance of the BreastAssure device. The Company
has not yet commenced marketing activities or conducted market or feasibility
studies with respect to the BreastAssure device. The Company believes that
market acceptance of the BreastAssure device will depend, in part, upon the
Company's ability to demonstrate to physicians the clinical benefits, safety,
efficacy and cost-effectiveness of the BreastAssure device. Prior
thermographic devices which, unlike the BreastAssure device, involved imaging
rather than measurement of temperature differences, did not perform as
intended. In 1983, the Office of Health Technology Assessment ("OHTA") of the
Department of Health and Human Services issued a report stating that
thermography needed further development and should not be used alone for
diagnostic screening for breast cancer. In 1984, the Health Care Financing
Administration ("HCFA") withdrew coverage for thermography under Medicare as
a diagnostic screening method for breast disease. In 1991, based upon reports
which addressed the use of thermography in neurological and musculoskeletal
conditions, the American Medical Association ("AMA") passed a resolution
stating that thermography had not been proven to have value as a medical
diagnostic test. In 1992, HCFA withdrew Medicare reimbursement for all other
uses of thermography. In 1993, the AMA adopted a resolution stating that the
use of thermography for diagnostic purposes could not be recommended at that
time. Although the BreastAssure device is adjunctive and is not to be used
for diagnosis of breast disease, the OHTA, HCFA and AMA positions against the
use of thermography as a diagnostic tool may cause confusion among
physicians. The Company will need to demonstrate that the BreastAssure device
is an effective adjunct to diagnostic procedures. In the event that the
BreastAssure device fails to achieve significant market acceptance, it is
likely that the Company's business operations would cease. See "Management's
Discussion and Analysis of Financial Condition and Plan of Operation,"
"Business-- The BreastAssure Device," "--Marketing and Distribution" and
"--Reimbursement."

No Manufacturing Experience; Dependence on Zigmed, Inc. The Company has no
experience in manufacturing the BreastAssure device and has not yet
manufactured it. If the Company is unable to manufacture the BreastAssure
device, the Company would not be able to commercialize it, in which event, it
is likely that the Company's business operations would cease. If the Company
encounters manufacturing difficulties, including problems involving
production yields, quality control and assurance, shortages of components or
shortages of qualified personnel, it could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, there is no assurance that the Company will be able to manufacture
the BreastAssure device in accordance with FDA's current Good Manufacturing
Practice ("cGMP") regulations, which require that medical device
manufacturers comply with various requirements pertaining to organization and
personnel; buildings, environmental control, cleaning and sanitation;
equipment and calibration of equipment; medical device components;
manufacturing specifications and processes; reprocessing of devices; labeling
and packaging; finished device inspection; device failure investigations, and
recordkeeping requirements including complaint files. The Company has entered
into the Turnkey Construction Contract with Zigmed for the turnkey
construction of the Production Line and is dependent on Zigmed for the
construction of the Production Line. In the event Zigmed fails to complete
the Production Line, the Company would be forced to complete the Production
Line itself or pay another contractor to complete it. Unless the Production
Line is substantially completed by Zigmed, it is unlikely that the Company
could complete the Production Line itself, and there can be no assurance that
the Company could find another contractor willing to complete the Production
Line or complete it at a cost acceptable to the Company. Failure by Zigmed to
complete the Production Line would, and failure by Zigmed to complete it as
scheduled could, have a material adverse effect on the Company. Zigmed is
controlled by Zsigmond G. Sagi, the son of Dr. Sagi, the Chairman of the
Board of Scantek. The Company has agreed to pay Zsigmond G. Sagi certain
bonuses for timely completion of the Production Line and Mr. Sagi has agreed
to pay the Company damages in the event the Production Line is not completed
by the scheduled delivery date. In addition, Scantek has agreed to pay
damages to the Company if the Production Line is not accepted by the Company
pursuant to the Turnkey Construction Contract by the scheduled delivery date.
See "Business-- Manufacturing" and "--Government Regulation."

10
<PAGE>

Termination of License Agreement if Certain Threshold Royalties are not
Earned. The Company has licensed the rights to the BreastAssure device from
Scantek pursuant to a license agreement dated as of October 20, 1995, as
amended (the "License Agreement"). The License Agreement provides that the
Company is to pay minimum royalties of $150,000, $300,000, $400,000 and
$500,000, respectively, in the first four years in which the BreastAssure
device is sold and $600,000 in the fifth and subsequent years. It also
provides for the automatic termination of the License Agreement if earned
royalties for the first three years in which product is sold do not exceed an
aggregate of $950,000. There is no assurance that the BreastAssure device
will be commercialized successfully, or that threshold royalties will be
earned. Any such termination of the License Agreement for failure to earn
threshold royalties would be likely to cause the Company's business
operations to cease. See "Business--License Agreement."

Lack of Marketing Experience; Dependence on Physician Sales & Services,
Inc. The Company currently has no marketing experience and limited financial,
personnel and other resources to undertake the extensive marketing activities
necessary to market the BreastAssure device. The Company's ability to
generate revenue from the sale of the BreastAssure device will be dependent
upon, among other things, its ability to manage an effective sales
organization. The Company will need to develop a sales force and a marketing
group with technical expertise to coordinate marketing efforts with PSS. The
Company has entered into an exclusive distribution agreement with PSS and
will be significantly dependent on PSS for distribution and sales. Failure by
PSS to perform as anticipated would have a material adverse effect on the
Company's operations. In addition, there can be no assurance that the Company
will be able to market or sell its products effectively through independent
sales representatives, through arrangements with some other outside sales
force, or through strategic partners. See "Business--Marketing and
Distribution."

Government Regulation. The Company's products and manufacturing activities
are subject to extensive government regulation, both in the United States and
abroad. In the United States, the development, manufacture, marketing and
promotion of medical devices are regulated by FDA under the FDC Act. Unless
exempted by regulation, the FDC Act and the regulations implemented
thereunder require that all products meeting the statutory definition of
"device" receive FDA clearance or approval prior to marketing in the United
States. The BreastAssure device obtained 510(k) Market Rights from FDA in
1984. The Company has not obtained clearance or approval to market its
products in any foreign country. See "Business--Government Regulation."

Based upon reservations about the use of thermography for diagnostic
purposes expressed by OHTA, HCFA and AMA (see "Risk Factors--Uncertainty of
Market Acceptance; Certain Thermographic Applications Not Accepted"), there
is a risk that FDA could reevaluate the bases upon which it granted the
Company's 510(k) Market Rights in 1984 and classified devices such as the
BreastAssure device as Class I devices in 1988. If FDA were to reevaluate
these decisions and conclude that additional data were necessary to support
authorization to market the BreastAssure device, it could rescind previous
510(k) Market Rights for breast thermographic devices and/or reclassify these
devices from Class I medical devices to Class III medical devices (which
would effectively vitiate the Company's 510(k) Market Rights and require
filing of a new application for premarket approval prior to marketing). In
either event, the Company would be required to cease marketing the
BreastAssure device until it filed a premarket approval application ("PMA")
with FDA and received a new approval to market the BreastAssure device.

The FDC Act requires manufacturers to obtain new FDA clearance or approval
when, among other things, there is a major change in the intended use of a
legally marketed device or a modification, including product enhancements, to
a legally marketed device that could significantly affect its safety or
effectiveness. Manufacturers are responsible for making the initial
determination regarding the significance of these changes. There can be no
assurance that FDA will agree with a decision that changes to a device are
not significant and, thus, do not require FDA review and approval. In the
event FDA were to require the filing of a new 510(k) notification or a PMA
for a change it regarded as significantly affecting the safety or
effectiveness of the device, the Company may be prohibited from marketing the
modified device until FDA reviews and approves the new 510(k) notification or
PMA. FDA also requires that manufacturing conform to strict quality assurance
standards required by cGMP regulations. FDA's cGMP regulations require that
medical device manufacturers comply with various requirements pertaining to
organization and personnel; buildings, environmental control, cleaning and
sanitation;

11
<PAGE>

equipment and calibration of equipment; medical device components;
manufacturing specifications and processes; reprocessing of devices; labeling
and packaging; finished device inspection; device failure investigations, and
recordkeeping requirements including complaint files. There can be no
assurance that the Company will attain and maintain compliance with cGMP
standards.

Noncompliance with applicable FDA requirements can result in, among other
things, rejection or withdrawal of premarket clearance or approval for
devices, recall or seizure of products, total or partial suspension of
production, fines, injunctions and civil and criminal penalties. FDA also has
the authority to request repair, replacement or refund of the cost of any
devices manufactured or sold by the Company. Any of these sanctions may have
a material adverse effect on the Company's business, financial condition or
results of operations. See "Business--Government Regulation."

The Canadian government has announced its intention to promulgate new
regulations in the immediate future which will establish four classes of
devices. These new regulations (assuming they are published in September
1996) are intended to be effective in September 1997. It is not clear how the
BreastAssure device would be classified and regulated under the new Canadian
regulations. See "Business--Government Regulation."

Patents and Proprietary Information; Effect of Expiration of Patents on
Competitive Pricing. Scantek, the licensor of the BreastAssure device, holds
two United States patents and one Canadian patent (the "Patents") covering
the use of the BreastAssure device as a device for adjunctive use in the
early detection of breast cancer. Although the Patents are licensed to the
Company for the United States and Canada pursuant to the License Agreement,
both United States patents expire on May 22, 1998 and the Canadian patent
expires on August 24, 1999. There can be no assurance that the Patents will
provide meaningful protection from competition. The Company's policy is to
attempt to protect its technology by, among other things, obtaining patent
rights for technology that it considers important to the development of its
business and requiring each employee and key consultant to execute a
confidentiality agreement. There can be no assurance that the Company's
confidentiality agreements and other safeguards will protect its proprietary
information and trade secrets or provide adequate remedies for the Company in
the event of unauthorized use or disclosure of such information, or that
others will not be able independently to develop such information. In
addition, in the event that the Company becomes involved in litigation to
enforce its proprietary rights, such litigation can be a lengthy and costly
process causing diversion of effort and resources by the Company and its
management with no guarantee of success. Other parties may be issued patents
that may prevent the sale of the Company's products or require licenses and
the payment of royalties by the Company. It is possible that after the
Patents expire, other companies, inside and outside the United States, may
adopt the concept and/or design embodied in the BreastAssure device and seek
to compete with the Company. In the event such competition is encountered,
the Company would have to rely on name recognition, product acceptance,
quality and the distribution network of PSS in order to compete successfully,
and there can be no assurance that the Company will be able to so compete.
Moreover, the Company could be put at a competitive disadvantage by the
payment of any royalties, which may have a material adverse effect on its
ability to market its product successfully.

Although to date no claims have been brought against the Company alleging
that the BreastAssure device infringes intellectual property rights of
others, there can be no assurance that such claims will not be brought
against the Company in the future, or that, if made, such claims will not be
successful. In addition to any potential monetary liability for damages, the
Company could be required to obtain a license in order to continue to
manufacture or market the BreastAssure device or could be enjoined from
making or selling the BreastAssure device if such a license were not made
available on acceptable terms. If the Company becomes involved in such
litigation, it may require the expenditure of significant Company resources
and, if such a claim were successful, the Company's business could be
materially adversely affected. See "Business--Patents; Proprietary
Information."

Competition. The Company is not aware of any low-cost devices currently on
the market which compete with the BreastAssure device. Nevertheless, the
Company's potential competitors may succeed in developing

12
<PAGE>

products that are more effective or less costly than the Company's products,
and such competitors may also prove to be more successful than the Company in
manufacturing, marketing and sales. Some of the Company's potential
competitors may be large, well-financed and established companies that have
greater resources for research and development, manufacturing and marketing
than the Company and, therefore, may be better able than the Company to
compete for a share of the market even in areas in which the Company may have
superior technology. The Company's potential competitors may include one or
more of the approximate 3,000 other manufacturers represented by PSS.
Pursuant to the Distribution Agreement, PSS has agreed not to distribute a
product substantially identical to the BreastAssure device during the term of
the agreement unless PSS determines that the BreastAssure device is not
competitive with such other products on the basis of sales, pricing,
quantity, verifiable results or customer acceptance. The Company is also
aware of a diagnostic device being developed by Biofield Corp. which is
intended to measure the differential in the electric potential between normal
and cancerous tissue. The Company believes the marketing of this device will
be subject to authorization by FDA and that it therefore is not yet
competitive with the BreastAssure device. See "Business--Competition."

Technological Obsolescence. The market for products such as the
BreastAssure device is characterized by rapid changes and evolving industry
standards often resulting in product obsolescence or short product
lifecycles. Accordingly, the ability of the Company to compete will depend on
its ability to introduce the BreastAssure device to the marketplace in a
timely manner, and to enhance and improve it. There can be no assurance that
the Company's competitors or future competitors will not develop technologies
or products that render the BreastAssure device obsolete or less marketable
or that the Company will be able to successfully enhance its proposed
products or technology or adapt them satisfactorily. See
"Business--Competition."

Dependence on Qualified Personnel. The success of the Company is dependent
on the continued efforts of Donald B. Brounstein, James J. Whidden and
Kenneth S. Hollander, the Company's President and Chief Executive Officer,
Senior Vice President of Clinical Development and Chief Financial Officer,
respectively. The loss of Mr. Brounstein's, Mr. Whidden's and/or Mr.
Hollander's services could have a material adverse effect on the Company's
operations. The Company has employment agreements with Messrs. Brounstein,
Whidden and Hollander, each of which agreements prohibits any such employee
from (i) competing with the Company for one year following his termination of
employment with the Company and (ii) disclosing confidential information or
trade secrets in any unauthorized manner. The Company plans to obtain
$8,000,000 of key person life insurance on Mr. Brounstein upon completion of
this Offering. The success of the Company is also dependent upon its ability
to hire and retain additional qualified scientific, managerial and
manufacturing personnel. The Company intends to utilize professional
recruiters to locate qualified personnel and to offer appropriate
compensation packages to attract and retain such personnel. Competition for
personnel is intense in the medical device manufacturing industry. There can
be no assurance that the Company will be able to attract and retain qualified
personnel. See "Business--Employees" and "Management."

Uncertainties Regarding Third-Party Reimbursement and Health Care Reform.
Hospitals, medical clinics and physicians' offices that purchase medical
devices like the BreastAssure device generally rely on third-party payors,
such as Medicare, Medicaid and private health insurance plans, to pay for
some or all of the costs of the screening and diagnostic procedures performed
with these devices. Whether a particular procedure qualifies for third-party
reimbursement depends upon such factors as the safety and effectiveness of
the procedure, and reimbursement may be denied if the medical device is
experimental or was used for a non-approved indication. In 1984, HCFA
withdrew coverage for thermography under Medicare and Medicaid as a
diagnostic screening method. In 1992, HCFA withdrew Medicare and Medicaid
reimbursement for all other uses of thermography. There can be no assurance
that third-party reimbursement will be available for the BreastAssure device
or that the full or any part of the cost of the BreastAssure device would be
covered by such reimbursement. During the past several years, the major
third-party payors for hospital services have substantially revised their
payment methodologies to contain healthcare costs. The Company believes that
the current pressures for medical cost containment have resulted in
uncertainty in the healthcare industry. Reimbursement standards and rates may
change in the future. The failure of users of the BreastAssure device to
obtain adequate reimbursement from third-party payors could have a material
adverse effect on the Company. Several states and the United States
government are investigating a variety of alternatives to reform the health
care delivery system and further reduce and control health care spending.
These reform efforts include proposals to limit spending on health care

13
<PAGE>

items and services, limit coverage for new technology and limit or control
the price health care providers and drug and device manufacturers may charge
for their services and products, respectively. If adopted and implemented,
such reforms could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Reimbursement."

Risk of Product Liability Claims. The nature of the Company's products may
expose the Company to product liability risks. The Company currently does not
maintain product liability insurance coverage. Although the Company plans to
obtain at least $5,000,000 of product liability insurance coverage before
sales of the Breast- Assure device begin, such insurance is becoming
increasingly expensive and there can be no assurance that the Company will be
able to obtain or maintain such insurance on acceptable terms or that such
insurance, if obtained, will provide adequate coverage against product
liability claims. While no product liability claims have been brought against
the Company to date, a successful product liability claim against the Company
in excess of its insurance coverage could have a material adverse effect on
the Company. See "Business--Product Liability and Insurance."

Dependence on Third-Party Suppliers. The Company believes that there are
several sources from which it may purchase the components of the BreastAssure
device. The Company anticipates that it will obtain certain of the components
of the BreastAssure device from a single or limited number of sources of
supply. Although the Company believes it will be able to negotiate
satisfactory supply agreements, failure to do so may have a material adverse
effect on the Company. Furthermore, there can be no assurance that suppliers
will dedicate sufficient production capacity to satisfy the Company's
requirements within scheduled delivery times or at all. Failure or delay by
the Company's suppliers in fulfilling its anticipated needs may adversely
affect the Company's ability to market the BreastAssure device. See
"Business--Raw Materials."

Potential Conflicts of Interest. In connection with its acquisition of the
technology relating to the BreastAssure device, the Company entered into the
License Agreement with Scantek, the Distribution Agreement with PSS and the
Turnkey Construction Contract with Zigmed. Upon completion of this Offering,
Scantek will own beneficially approximately 13.1%, and PSS will own
beneficially approximately 2.6%, of the Company's outstanding Common Stock.
John F. Sasen, Sr., the President of PSS, is a director of the Company.
Zigmed is controlled by Zsigmond G. Sagi, the son of Dr. Sagi, the Chairman
of the Board of Scantek. The Company believes that the terms of the License
Agreement, Distribution Agreement and Turnkey Construction Contract are at
least as favorable to the Company as could be obtained from third parties in
arms' length transactions. Nevertheless, these relationships could result in
conflicts of interest and none of PSS, Mr. Sasen, Scantek, Dr. Sagi or Zigmed
is under any obligation to resolve such conflicts in favor of the Company. In
connection with this Offering, the Company has adopted a policy whereby all
future transactions between the Company and its officers, directors,
principal stockholders or affiliates, will be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
members of the Board of Directors or, if required by law, a majority of
disinterested stockholders, and will be on terms no less favorable to the
Company than could be obtained in arm's length transactions from unaffiliated
third parties. See "Business--Marketing and Distribution-- Distribution
Agreement with PSS," "--License Agreement" and "--Manufacturing" and "Certain
Transactions."

Broad Discretion of Management and the Board of Directors in Use of
Proceeds. Although the Company intends to apply the net proceeds of this
Offering in the manner described under "Use of Proceeds," the Company's
management and the Board of Directors have broad discretion within such
proposed uses as to the precise allocation of the net proceeds, the timing of
expenditures and all other aspects of the use thereof. In addition,
approximately 26.5% (36.4% if the Underwriters' over-allotment option is
exercised in full) of the net proceeds of this Offering will be allocated and
used for working capital and other general corporate purposes. The Company
reserves the right to reallocate the net proceeds of this Offering among the
various categories set forth under "Use of Proceeds" as it, in its sole
discretion, deems necessary or advisable based upon prevailing business
conditions and circumstances. See "Use of Proceeds."

Immediate and Substantial Dilution; Disparity of Consideration. Purchasers
of the shares of Common Stock offered hereby will incur an immediate dilution
in net tangible book value per share of Common Stock of $4.16 (69.3%) per
share ($3.99 per share (66.5%) if the Underwriters' over-allotment option is
exercised in full). Additional dilution to future net tangible book value per
share may occur upon the exercise of the Representative's Warrants and
options and warrants that are outstanding or to be issued under the Company's
option plans

14
<PAGE>

or otherwise. The current stockholders of the Company, including those of the
Company's officers and directors who are stockholders, acquired their shares
of Common Stock for nominal consideration or for consideration substantially
less than the initial public offering price of the shares of Common Stock
offered hereby. See "Capitalization," "Dilution" and "Certain Transactions."

Absence of Dividends. The Company has never paid a dividend on the Common
Stock and does not expect to pay any dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."

Arbitrary Offering Price. The initial public offering price of the Common
Stock has been determined arbitrarily by negotiations between the Company and
the Representative. Factors considered in such negotiations, in addition to
prevailing market conditions, included the history and prospects for the
industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure, the market
for initial public offerings and certain other factors as were deemed
relevant. Consequently, the initial public offering price of the Common Stock
does not necessarily bear any relationship to the Company's asset value, net
worth or other established valuation criteria and may not be indicative of
prices that may prevail at any time or from time to time in the public market
for the Common Stock. See "Underwriting."

No Prior Public Trading Market; Potential Volatility of Stock Price. Prior
to this Offering, there has been no public market for the Company's Common
Stock and there can be no assurance that an active trading market will
develop or be sustained after this Offering. The initial public offering
price negotiated between the Company and the Representative may not be
indicative of prices that will prevail in the trading market. The market
prices for securities of companies engaged primarily in medical technology
have at times in the past been volatile. The announcement of technological
innovations or new commercial products by the Company or its competitors,
governmental regulations, regulatory approvals or developments relating to
patents or proprietary rights, publicity regarding actual or potential
clinical results with respect to products under development by the Company or
others, as well as period-to-period fluctuations in financial results and
general economic, political and market conditions, may have a significant
impact on the market price of the Common Stock. See "Underwriting."

No Assurance of Continued Nasdaq Listing. The Board of Governors of the
National Association of Securities Dealers, Inc. has established certain
standards for the initial listing and continued listing of a security on
Nasdaq. The standards for initial listing require, among other things, that
an issuer have total assets of $4,000,000 and capital and surplus of at least
$2,000,000; that the minimum bid price for the listed securities be $3.00 per
share; that the minimum market value of the public float (the shares held by
non-insiders) be at least $2,000,000, and that there be at least two market
makers for the issuer's securities. The maintenance standards require, among
other things, that an issuer have total assets of at least $2,000,000 and
capital and surplus of at least $1,000,000; that the minimum bid price for
the listed securities be $1.00 per share; that the minimum market value of
the "public float" be at least $1,000,000 and that there be at least two
market makers for the issuer's securities. A deficiency in either the market
value of the public float or the bid price maintenance standard will be
deemed to exist if the issuer fails the individual stated requirement for ten
consecutive trading days. If an issuer falls below the bid price maintenance
standard, it may remain on Nasdaq if the market value of the public float is
at least $1,000,000 and the issuer has $2,000,000 in equity. There can be no
assurance that the Company will continue to satisfy the requirements for
maintaining a Nasdaq listing. If the Company's securities were to be excluded
from Nasdaq, it would adversely affect the prices of such securities and the
ability of holders to sell them, and the Company would be required to comply
with the initial listing requirements to be relisted on Nasdaq.

If the Company is unable to satisfy Nasdaq's maintenance requirements and
the price per share were to drop below $5.00, then unless the Company
satisfied certain net asset tests, the Company's securities would become
subject to certain penny stock rules promulgated by the Securities and
Exchange Commission. The penny stock rules require a broker-dealer, prior to
a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document prepared by the Commission
that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such rules,
the broker-dealer must make a special written determination

15
<PAGE>

that the penny stock is a suitable investment for the purchaser and receive
the purchaser's written agreement to the transaction. These disclosure
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that becomes subject to the penny stock
rules. If the Company's Common Stock becomes subject to the penny stock
rules, investors in the Offering may find it more difficult to sell their
shares.

Shares Eligible for Future Sale. Future sales of shares of Common Stock by
existing stockholders, or optionholders or warrantholders upon exercise of
their options or warrants, pursuant to Rule 144 ("Rule 144") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise, could have an adverse effect on the price of shares of Common
Stock. Sales of substantial amounts of Common Stock or the perception that
such sales could occur could adversely affect prevailing market prices for
the Common Stock. Each of the Company and the current stockholders and
holders of options, warrants or other securities exercisable or exchangeable
for or convertible into Common Stock who hold more than 1% of the Common
Stock (including Common Stock underlying options, warrants or other
securities exercisable or exchangeable for or convertible into Common Stock)
have entered into certain lock-up agreements with the Representative. See
"Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."

Anti-Takeover Provisions. The Company's Board of Directors has the
authority to issue up to 1,825,000 shares of undesignated preferred stock and
to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. The rights of holders
of Common Stock will be subject to, and may be adversely affected by, the
rights of holders of any preferred stock that may be issued in the future.
There are presently no shares of undesignated preferred stock outstanding.
Although the Company has no present intention to issue shares of undesignated
preferred stock after consummation of this Offering, any issuance of
undesignated preferred stock, while potentially providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company.
Additionally, following this Offering, the Company will become subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. Section 203 could have the effect of delaying or preventing a change
of control of the Company. See "Description of Securities-- Limitations Upon
Transactions with 'Interested Stockholders.' "

Limitation of Liability and Indemnification. The Company's Certificate of
Incorporation limits, to the maximum extent permitted by the Delaware General
Corporation Law ("Delaware Law"), the personal liability of directors for
monetary damages for breach of their fiduciary duties as a director, and
provides that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by
law. The Company has entered into indemnification agreements with its
directors which may require the Company, among other things, to indemnify
such directors against liabilities that may arise by reason of their status
or service as directors or officers (other than liabilities arising from
willful misconduct of a culpable nature), to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance, if available
on reasonable terms. The Company intends to purchase approximately $5,000,000
of directors' and officers' liability insurance after the completion of this
Offering and expects to pay annual premiums of between $150,000 and $200,000
for such insurance. Section 145 of the Delaware Law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was
a director, officer, employee or agent of the corporation or was serving at
the request of the corporation against expenses actually and reasonably
incurred in connection with such action if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
if he had no reasonable cause to believe his conduct was unlawful. Delaware
Law does not permit a corporation to eliminate a director's duty of care, and
the provisions of the Company's Certificate of Incorporation have no effect
on the availability of equitable remedies, such as injunction or rescission,
for a director's breach of the duty of care. See "Description of
Securities--Limitation of Liability and Indemnification."

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<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,700,000 shares of
Common Stock offered hereby are estimated to be $14,080,000 ($16,267,000 if
the Underwriters' over-allotment option is exercised in full), after
deducting the underwriting discount of $1,296,000 ($1,490,400 if the
Underwriters' over-allotment option is exercised in full) and estimated
Offering expenses of $824,000 ($872,600 if the Underwriters' over-allotment
option is exercised in full) payable by the Company (including the $324,000
non-accountable expense allowance ($372,600 if the Underwriters'
over-allotment option is exercised in full) payable to the Representative).
The Company currently intends to utilize the net proceeds of this Offering
approximately as follows:

<TABLE>
<CAPTION>
<S> <C> <C>
Sales and Marketing Expenses ................. $ 4,075,000 28.9%
Clinical Studies ............................. 2,500,000 17.8%
Capital Equipment and Facility Costs ......... 1,725,000 12.2%
Licensing Fees ............................... 1,050,000 7.5%
Inventory .................................... 1,000,000 7.1%
Working Capital and General Corporate Purposes. 3,730,000 26.5%
----------- ------
Total ...................................... $14,080,000 100.0%

</TABLE>

Sales and Marketing Expenses. The Company plans to allocate approximately
$4,075,000 of the net proceeds of this Offering to sales and marketing
expenses and the establishment of its sales and marketing capabilities, which
will include participation in trade shows, business travel, advertising in
professional magazines, the preparation of sales materials, market research,
and development of a sales force. See "Business--Marketing and Distribution."

Clinical Studies. The Company plans to allocate approximately $2,500,000
of the net proceeds of this Offering to product enhancement, which includes
amounts required to conduct additional clinical trials of the BreastAssure
device. See "Business--Clinical Trials."

Capital Equipment and Facility Costs. The Company plans to allocate
approximately $1,725,000 of the net proceeds of this Offering to capital
equipment and facility costs, which will include the balance due under the
Turnkey Construction Contract for the construction of the Production Line
($1,030,680), costs for warehouse equipment, rental of the Company's
headquarters and manufacturing facility and costs for related leasehold
improvements ($250,000). See "Business--Manufacturing."

Licensing Fees. The Company plans to allocate approximately $1,050,000 of
the net proceeds of this Offering to additional product license payments
required under the License Agreement with Scantek. See "Business--License
Agreement."

Inventory. The Company plans to allocate approximately $1,000,000 of the
net proceeds of this Offering to the production of inventory. The production
of inventory will consist of the purchase of raw materials and the assembly
of such raw materials into the BreastAssure device using the Production Line.

Working Capital and General Corporate Purposes. The Company plans to
allocate the balance of the net proceeds of this Offering, approximately
$3,730,000 (plus any proceeds received from the exercise of the Underwriters'
over-allotment option), to working capital and general corporate purposes.

The foregoing represents the Company's current best estimate of its
allocation of the net proceeds of this Offering based on the current state of
its business operations, its current plans and current economic and industry
conditions. Although the Company does not contemplate material changes in the
proposed allocation of the use of proceeds, to the extent the Company finds
that adjustment is required by reason of business conditions or otherwise,
the amounts shown may be adjusted among the uses indicated above.
Additionally, it is the Company's policy regularly to review potential
opportunities to acquire technologies and products compatible with its
existing business and it may use a portion of the net proceeds of this
Offering to make such acquisitions, although the Company does not currently
have any arrangements, understandings or agreements with respect thereto. See
"Risk Factors--Broad Discretion of Management and the Board of Directors in
Use of Proceeds."

17
<PAGE>

The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the net proceeds of this
Offering will be sufficient to satisfy its contemplated cash requirements for
at least 18 months following the consummation of this Offering. The Company's
future liquidity and capital funding requirements will depend on numerous
factors, including the results of clinical trials, the extent to which the
BreastAssure device gains market acceptance, the costs and timing of
expansion of sales, marketing and manufacturing activities and competition.
There can be no assurance that additional capital, if needed, will be
available on terms acceptable to the Company, or at all. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, will likely include restrictive covenants and
provide for security interests in the Company's assets. The failure of the
Company to raise capital on acceptable terms when needed could have a
material adverse effect on the Company. See "Risk Factors--Significant
Capital Requirements; Dependence on Offering Proceeds; Need for Additional
Financing." Pending the aforementioned uses, the net proceeds of this
Offering will be invested in interest-bearing government securities or
short-term, investment grade securities.

DIVIDEND POLICY

The Company has not paid any dividends on its Common Stock since its
inception and does not intend to pay any dividends on its Common Stock in the
foreseeable future. The payment of any dividends in the future will depend on
the evaluation by the Company's Board of Directors of such factors as it
deems relevant at the time and restrictions imposed by the terms of the
Company's debt obligations, if any. As of the date of this Prospectus, the
Company has no debt obligations that impose restrictions on the payment of
dividends. Currently, the Board of Directors believes that all of the
Company's earnings, if any, should be retained for the development of the
Company's business.

18
<PAGE>

CAPITALIZATION

The following table sets forth the short-term debt and the capitalization
of the Company as of March 31, 1996: (i) on an actual basis; (ii) on a pro
forma basis to give effect to the issuance to Scantek of an aggregate of
329,063 shares of Common Stock pursuant to the License Agreement and the
Prior Transactions subsequent to March 31, 1996; and (iii) on a pro forma, as
adjusted basis to give effect to the sale of 2,700,000 shares of Common Stock
offered hereby less the underwriting discount, the non-accountable expense
allowance and the other estimated Offering expenses payable by the Company
and the initial application of the estimated net proceeds from this Offering
in the manner set forth under the caption "Use of Proceeds" and the
conversion of the 2,943,750 shares of Series A Preferred Stock into shares of
Common Stock on a share-for-share basis upon consummation of this Offering.
See "Use of Proceeds" and "Description of Securities--Preferred Stock--Series
A Convertible Preferred Stock."

<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
---------- -------------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Short-term debt(1) ............................... $ 665 $ -- $ --
======= ======= =======

Long-term debt(2) ................................ $ 42 $ 42 $ 42
------- ------- -------
Preferred Stock (redeemable), $.01 par value, 6,000,000
shares authorized; no shares issued and outstanding,
actual; 2,943,750 shares issued and outstanding (net
of stock subscriptions receivable of $4,479,300(3),
pro forma; no shares issued and outstanding, pro forma,
as adjusted. .................................... -- 1,873 --
------- ------- -------
Stockholders' equity (deficit):
Common Stock, $.01 par value, 25,000,000 shares
authorized; 1,747,500 shares issued and
outstanding, actual; 2,076,563 shares issued and
outstanding, pro forma; 7,720,313 shares issued
and outstanding, pro forma, as adjusted ..... 17 21 77
Additional paid-in capital ..................... (1,058) (1,061) 14,811
Deficit accumulated during the development stage . (450) (720) (720)
------- ------- -------
Total stockholders' equity (deficit) ........ (1,491) (1,760) 14,168
------- ------- -------
Total capitalization ......................... $(1,449) $ 155 $14,210
======= ======= =======

</TABLE>

- ------
(1) Represents November Bridge Notes and March Bridge Notes payable, net of
discount, and amounts due to officer.

(2) Represents capital lease obligations.

(3) Stock subscriptions receivable represent the portion of the purchase
price of the securities sold in the May Private Placement still to be
paid by the purchasers, which are to be paid in installments in
accordance with the terms of the May Private Placement. The obligation of
such purchasers to make such installment payments will cease upon
consummation of this Offering. See "Description of Securities--Private
Placements."

19
<PAGE>

DILUTION

The pro forma net tangible book value of the Company as of March 31, 1996
(after giving effect to the issuance to Scantek of an aggregate of 329,063
shares of Common Stock pursuant to the License Agreement and the Prior
Transactions) was $112,885 or $0.05 per share of Common Stock. For purposes
of this discussion, the redeemable Series A Preferred Stock was considered as
equity. Pro forma net tangible book value per share represents the amount of
total tangible assets less total liabilities divided by the number of shares
of Common Stock outstanding. After giving effect to the receipt of the net
proceeds from the sale of the 2,700,000 shares of Common Stock offered hereby
and the conversion of the 2,943,750 shares of Series A Preferred Stock
outstanding into shares of Common Stock on a share-for-share basis upon
consummation of this Offering, the pro forma net tangible book value of the
Company as of March 31, 1996 would have been $14,167,685, or $1.84 per share.
This represents an immediate increase in such pro forma net tangible book
value of $1.79 per share to existing stockholders and an immediate dilution
of $4.16 per share (69.3%) to the persons purchasing shares of Common Stock
at the initial public offering price. The following table illustrates this
per share dilution:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Initial public offering price per share .................................. $6.00
Pro forma net tangible book value per share as of March 31, 1996 after
giving effect to the Prior Transactions ............................ $0.05
Increase per share attributable to new investors ..................... $1.79
------
As adjusted pro forma net tangible book value per share as of March 31,
1996 after this Offering ........................................... $1.84
-----
Dilution per share to new investors ....................................... $4.16
=====

</TABLE>

If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock after this Offering
would be $2.01 per share, which would result in dilution to new investors in
this Offering of $3.99 per share of Common Stock (66.5%).

The following table summarizes on a pro forma basis as of March 31, 1996
(after giving effect to the issuance to Scantek of an aggregate of 329,063
shares of Common Stock pursuant to the License Agreement and the Prior
Transactions), the total consideration paid and the average price paid per
share by the existing stockholders and by the new investors who purchase
pursuant to this Offering (before deducting the underwriting discount, the
non-accountable expense allowance and estimated Offering expenses):

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Price
------------------------ --------------------------
Number Percent Amount Percent Per Share
------------------------- ----------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1) . 5,020,313 65.0% $ 2,432,379 13.1% $0.48
New Investors. .......... 2,700,000 35.0% $16,200,000 86.9% $6.00
----------- --------- ------------- ---------
Total ................. 7,720,313 100.0% $18,632,379 100.0%
=========== ========= ============= =========

</TABLE>

- ------
(1) See footnotes (1) and (2) to "Prospectus Summary--The Offering."

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION

This Management's Discussion and Analysis of Financial Condition and Plan
of Operation and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements. Factors that may cause such differences include, but are not
limited to, those discussed under "Risk Factors" and elsewhere in this
Prospectus.

INTRODUCTION

HumaScan, a development stage medical device technology company, owns the
exclusive rights in the United States and Canada to manufacture and market a
BTAI device called the "BreastAssure(TR) Thermal Activity Sensor." The
Company intends initially to market the BreastAssure device to primary care
physicians, gynecologists and medical specialists throughout the United
States and to expand its marketing activities to Canada if and when
management determines such expansion is appropriate. See "Business--Marketing
and Distribution."

Since its inception, the Company has devoted substantially all of its
efforts to various organizational activities. These activities included the
execution of the License Agreement, the development of a business strategy,
the execution of the Distribution Agreement and the execution of the Turnkey
Construction Contract. The Production Line is under construction and
scheduled for delivery to the Company in the first quarter of 1997. As a
result, the Company believes it can begin marketing the BreastAssure device
in the second quarter of 1997.

When the Company becomes operational, its revenues, and hence
profitability, if any, may vary significantly from fiscal quarter to fiscal
quarter as well as in comparison to the corresponding quarter of the previous
year as a result, among other factors, of the timing of any significant
initial shipments and the inventory requirements of PSS.

The Company does not anticipate concentrations in the availability of raw
materials and labor or in the geographical area in which the Company will
sell the BreastAssure device. Concentrations could arise in one or more of
those areas as the Company gains actual experience, however, and
concentrations regarding raw materials and sales locales are more likely in
the early stages of the Company's operations before it can build a base of
business. The principal risks facing the Company in the next year are
dependence on a single product, uncertainty of market acceptance, lack of
manufacturing experience, reliance on a single distributor, technological
factors, uncertainty of ongoing regulatory approval and competition.

The Company expects to incur substantial additional costs, including
additional marketing expenses, research and development expenses,
manufacturing cost expenditures and administrative expenditures as it
prepares to commence operations. The Company does not expect, however, to
incur substantial additional costs for raw materials.

In 1983, OHTA issued a report stating that thermography needed further
development and should not be used alone for diagnostic screening for breast
cancer. In 1984, HCFA withdrew coverage for thermography under Medicare as a
diagnostic screening method for breast disease. In 1991, based upon reports
which addressed the use of thermography in neurological and musculoskeletal
conditions, the AMA passed a resolution stating that thermography had not
been proven to have value as a medical diagnostic test. In 1992, HCFA
withdrew Medicare reimbursement for all other uses of thermography. In 1993,
the AMA adopted a resolution stating that the use of thermography for
diagnostic purposes could not be recommended at that time. Although the
BreastAssure

21
<PAGE>

device is adjunctive and is not to be used for diagnosis of breast disease,
the OHTA, HCFA and AMA positions against the use of thermography as a
diagnostic tool may cause confusion among physicians. The Company will need
to demonstrate that the BreastAssure device is an effective adjunct to
diagnostic procedures. In the event that the BreastAssure device fails to
achieve significant market acceptance, it is likely that the Company's
business operations would cease. See "Risk Factors--Uncertainty of Market
Acceptance; Certain Thermographic Applications Not Accepted."

PLAN OF OPERATION

The Company has generated no revenues to date and, from inception
(December 27, 1994) until March 31, 1996, the Company accumulated a deficit
of $449,613.

The following discussion should be read in conjunction with the Company's
financial statements and related notes appearing elsewhere in this
Prospectus. In the opinion of the Company, the results of operations for the
three months ended March 31, 1996 and 1995, respectively, include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. Although the
Company does not expect to derive any revenues from operations during the
year ending December 31, 1996, the Company expects that its expenses and
interest and/or dividend income will vary from the level of expenses and
interest income experienced during the three months ended March 31, 1996, due
primarily to additional salary expense and reduced interest expense (due to
the conversion of the November Bridge Notes into, and the exchange of the
March Bridge Notes for, Series A Preferred Stock and Private Warrants) and
the anticipated temporary investment of a portion of the net proceeds of this
Offering. Therefore, the results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the results to be expected
for the year ended December 31, 1996.

THREE MONTHS ENDED MARCH 31, 1996 AND 1995

The Company's net loss for the three months ended March 31, 1996 was
$238,362 as compared to $49,374 in the same period in 1995. Such losses are
attributable to the fact that the Company is still in the development stage
and accordingly has not derived any revenues from operations to offset the
development stage expenses. The Company generated $1,246 in interest income
during the period.

Operating expenses were $239,608 in the three months ended March 31, 1996
as compared to $49,374 during the same period in 1995 primarily due to the
increased salary expenses related to the hiring of personnel, increased legal
and professional fees, and interest expenses related to bridge financings.

PERIOD FROM INCEPTION (DECEMBER 27, 1994) THROUGH DECEMBER 31, 1995

The Company's net loss was $211,251 for the period from December 27, 1994
(date of inception) to December 31, 1995. The Company generated $899 in
interest income during the period.

Operating expenses were $212,150 for the period from December 27, 1994
(date of inception) to December 31, 1995 and consisted primarily of
consulting, legal and professional fees.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since inception primarily through
the issuance of promissory notes and proceeds from the private placement of
its equity securities.

During 1995, Donald Brounstein, the Company's President and Chief
Executive Officer, loaned the Company an aggregate of $125,000 on an
interest-free basis (the "1995 Loans"). Mr. Brounstein received no
consideration from the Company for the 1995 Loans. Mr. Brounstein also
purchased $40,000 in March Bridge Notes from the Company in 1996, which March
Bridge Notes bore interest at the rate of 10% per annum. In connection with
the May Private Placement, Mr. Brounstein surrendered his March Bridge Notes
and $34,000 in principal amount of the 1995 Loans in payment of the purchase
price for two Units. The remaining $91,000 of the 1995 Loans were repaid to
Mr. Brounstein from the proceeds of the May Private Placement. See
"Description of Securities--Private Placements" and "Certain Transactions."

22
<PAGE>

In November 1995, the Company sold an aggregate of $350,000 principal
amount of November Bridge Notes to 14 accredited investors (the "November
Bridge Investors") for an aggregate consideration of $350,000. The November
Bridge Notes bore interest at the rate of 10% per annum, were to mature on
August 30, 1996, and were secured by all of the assets of the Company.
Certain of the November Bridge Notes were also secured by the shares of the
Company's Common Stock owned by Mr. Brounstein. In connection with the May
Private Placement, the November Bridge Notes were converted into shares of
Series A Preferred Stock and Private Warrants at the rate of one share of
Series A Preferred Stock and one fifth of a Private Warrant for each $1.33
principal amount of November Bridge Notes, resulting in the issuance of
262,500 shares of Series A Preferred Stock and 52,500 Private Warrants. The
November Bridge Investors also received payment from the Company of an
aggregate of $16,488 in accrued interest on such notes.

In March 1996, the Company sold an aggregate of $460,000 principal amount
of March Bridge Notes and warrants to purchase 224,250 shares of the
Company's Common Stock at $0.67 per share to 15 accredited investors (the
"March Bridge Investors") for an aggregate consideration of $460,000. The
proceeds received from the March Bridge Investors were allocated between the
March Bridge Notes and March Bridge Warrants. The $343,485 difference between
the principal amount of the March Bridge Notes and the amount allocated was
accreted and charged to operations over the term of the March Bridge Notes.
The March Bridge Notes bore interest at the rate of 10% per annum, were to
mature on the earlier of the Initial Closing (as hereinafter defined) or May
31, 1996 and were secured by all of the assets of the Company. In connection
with the May Private Placement, $434,800 in principal amount of March Bridge
Notes (plus an additional $25,200 in principal amount, representing
subscription funds in excess of the initial subscription amounts due from
four March Bridge Investors, which will be refunded to such four March Bridge
Investors if this Offering closes before August 15, 1996) was canceled and
applied to the initial purchase price of an aggregate of 11.75 Units. The
March Bridge Investors also received payment from the Company of an aggregate
of $8,171 in accrued interest on such notes.

The Company sold 71.5 Units in the May Private Placement, each Unit
consisting of 37,500 shares of Series A Preferred Stock and 7,500 Private
Warrants, for an aggregate initial payment of $2,645,500, representing 37% of
the total purchase price for the Units which includes $434,800 aggregate
principal amount of March Bridge Notes surrendered in payment of the initial
purchase price for 11.75 Units (including $40,000 in aggregate principal
amount of March Bridge Notes exchanged by Mr. Brounstein in partial
consideration for two Units purchased by him) and the cancellation of $34,000
in principal amount of certain loans made by Mr. Brounstein to the Company in
1995 in payment of the balance of the purchase price for the Units purchased
by him, but not including $350,000 aggregate principal amount of November
Bridge Notes converted into one share of Series A Preferred Stock and one
fifth of a Private Warrant for each $1.33 principal amount of November Bridge
Warrants so converted. The Company issued one quarter of one Unit to Haythe &
Curley, the law firm that represented Burnham in the May Private Placement,
and one tenth of one Unit to James J. Whidden, the Company's Senior Vice
President of Clinical Development (who was a consultant to the Company at the
time of such issuance), in exchange for services rendered. The balance of the
purchase price of such Units is to be paid in unequal installments of 13%,
21%, 20% and 9% on August 15, 1996, October 15, 1996, January 15, 1997 and
March 15, 1997. If, prior to March 1, 1997, there occurs a Qualified Initial
Public Offering, as defined in the Company's Certificate of Incorporation (a
"Qualified IPO"), then at the time of closing of the Qualified IPO (i) the
purchase price of the Units will be automatically reduced by an amount equal
to any installments not yet due and payable at the time the registration
statement relating to such Qualified IPO is declared effective under the
Securities Act, (ii) the Series A Preferred Stock will convert automatically
into Common Stock on a share-for-share basis, and (iii) the shares of Common
Stock issued upon conversion of the Series A Preferred Stock will be deemed
fully paid and nonassessable. This Offering is a Qualified IPO. See
"Description of Securities--Private Placements."

The net proceeds from the loans and the private placements were used for
product license fees, capital expenditures, marketing expenses and general
working capital purposes, including the repayment to Mr. Brounstein of
$91,000 in principal amount of the 1995 Loans (plus accrued interest relating
to his March Bridge Notes of $711).

In July 1995, the Company and Scantek entered into the License Agreement,
pursuant to which Scantek granted the Company the exclusive license to
manufacture and market the BreastAssure device in the United

23
<PAGE>

States and Canada for a cash payment of $1,600,000, $550,000 of which has
already been funded. Of the balance, $175,000 is payable on December 31,
1997, $175,000 on March 31, 1998, $350,000 on October 31, 1998 and $350,000
on January 31, 1999. Surplus Cash Flow, as defined in the License Agreement,
is to be applied to unpaid installments of the Cash Portion of the Licensing
Fee (as defined in the License Agreement) in inverse order of maturity.
Approximately $1,050,000 of the net proceeds of this Offering will be used to
pay a portion of the Cash Portion of the Licensing Fee. See "Use of Proceeds"
and "Business--License Agreement."

In November 1995, the Company arranged for the construction of the
automated Production Line for the assembly of the BreastAssure device at a
fixed price of $1,750,680 pursuant to the Turnkey Construction Contract with
Zigmed. The contract provides for payments to Zigmed in stages over a
15-month period, of which $720,000 has been paid to Zigmed as of the date of
this Prospectus. $1,030,680 of the net proceeds of this Offering will be used
to pay the balance due under the Turnkey Construction Contract. See "Use of
Proceeds." The Company has also agreed to pay Zsigmond G. Sagi, the chief
executive officer and a principal of Zigmed, certain completion bonuses. See
"Business--Manufacturing." The Company has leased a facility of approximately
30,000 square feet to house the Production Line and anticipates that
approximately $250,000 of additional leasehold improvements will be required.
See "Business--Manufacturing" and "--Facilities."

The Company has entered into a placement agreement (as subsequently
amended, the "Placement Agreement") with Burnham pursuant to which Burnham
acted as placement agent for the Company in connection with the May Private
Placement. Pursuant to the Placement Agreement, the Company paid Burnham
$570,000 in commissions and $12,000 in expense reimbursement and issued to
Burnham warrants to purchase 400,000 shares of Common Stock at $2.93 per
share. See "Description of Securities--Private Placements."

The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the net proceeds of this
Offering will be sufficient to satisfy its contemplated cash requirements for
at least 18 months following the consummation of this Offering. The Company's
future liquidity and capital funding requirements will depend on numerous
factors, including results of clinical trials, the extent to which the
BreastAssure device gains market acceptance, the costs and timing of
expansion of sales, marketing and manufacturing activities and competition.
There can be no assurance that additional capital, if needed, will be
available on terms acceptable to the Company, or at all. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, will likely include restrictive covenants and
provide for security interests in the Company's assets. The failure of the
Company to raise capital on acceptable terms when needed could have a
material adverse effect on the Company's business, financial condition and
results of operations.

In October 1995, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
which established financial accounting and reporting standards for
stock-based employee compensation plans. Companies are encouraged, but not
required, to adopt a new method that accounts for stock compensation awards
based on their fair value using an option pricing model. Companies that do
not adopt this new standard are required to make pro forma disclosures of net
income as if the fair value-based method of accounting required by this
standard had been applied. The requirements of this standard are effective
for fiscal year 1996. The Company expects to adopt the pro forma disclosure
requirements. The Company cannot at this time predict the impact of the
adoption of such requirements.

24
<PAGE>

BUSINESS

GENERAL

HumaScan, a development stage company, owns under license the exclusive
rights in the United States and Canada to manufacture and market a BTAI
device called the "BreastAssure(TM) Thermal Activity Sensor." The
BreastAssure device is a non-invasive, easy to use, low cost, adjunctive test
to be used by primary care physicians, gynecologists and other medical
specialists as part of a breast disease monitoring program along with BSE,
palpation and (depending on a patient's age, family history and other
factors) mammography and other established clinical procedures including
ultrasound and/or biopsy. An important feature of the BreastAssure device is
that the results will be immediately available to the physician while the
patient is "on site" at the point of care in the physician's office, clinic,
hospital and/or mammography center. If the BreastAssure device indicates that
there is unilateral breast thermal activity, the physician is alerted to the
possibility of a physiological condition, including thermally active cancer.
The BreastAssure device has received marketing clearance under Section 510(k)
of the FDC Act from FDA.

As breast cancer cells multiply, excessive heat is often generated. This
heat is most often conveyed to the surface of the breast, resulting in the
temperature of the skin of a particular area of one breast being elevated
from between 2o and 6o Fahrenheit versus the temperature of the same area of
the other breast. The BreastAssure device permits the measurement and
comparison of temperature variances between three mirror-image sections of
each breast, thus indicating the possibility of either proliferating
thermally active breast cancer cells, or certain types of thermally active
breast disease which may require medical treatment.

BREAST CANCER

Breast cancer is one of the most common cancers among women and,
notwithstanding existing methods of detection, is currently the leading cause
of death among women between the ages of 35 and 54 in the United States. The
American Cancer Society estimates that in 1996 approximately 184,300 new
cases of breast cancer are expected to be diagnosed and approximately 44,300
women are expected to die from the disease. Although the causes of breast
cancer are unknown and there is no known method of prevention, survival rates
are highest if the cancer is diagnosed and treated at its earliest stages.
According to the National Cancer Institute, the five-year survival rate
decreases from more than 90% to 73% after the cancer has spread to the lymph
nodes, and to 19% after it has spread to other soft-tissue organs. Government
spending for, and public awareness of, early screening and diagnosis of
breast cancer has increased substantially in recent years. In fact, breast
cancer screening is generally recommended as a routine part of preventive
health care for over 90 million women in the United States. Industry sources
estimate that approximately 11.3 million mammograms were performed in the
United States in 1994 (the last year for which such data is available from
the Centers For Disease Control). Moreover, the Physicians' Insurers
Association report for 1995 indicated that, during such year, failure to
diagnose breast cancer was the most common source of malpractice complaint
and the second most expensive type of claim, with an average indemnity
payment of $301,460 during the six months preceding such report.

The most favorable prognosis usually results from treating an early
"preclinical" or "occult" breast lesion, that is, a malignancy not yet
detectable by touch or sight in a physical examination but detectable by
mammographic or other imaging techniques. In contrast, treatment of a
malignancy after its clinical appearance is usually much less effective.
Cancerous or malignant tumors diagnosed by physical examination, especially
the most thermally active ones, are frequently associated with metastatic
cancer invasion. Once a cancer has grown to one and a half centimeters, it
usually has metastasized (spread) to other portions of the woman's body.
Cancers one centimeter or less may already display significant lymph nodal
involvement.

Currently there are two cost-effective ways to screen for breast cancer:
physical examination, including breast palpation (examination by touch), and
mammography, an x-ray type of imaging technique. Biopsy is performed for
definite diagnosis of cancer if a suspicious area is discovered. For the 27
million women above the age of 50 in the United States, regularly performed
mammography reduces disease-specific mortality by 25%. For 16 million women
in the United States between 40 and 50 years of age, mammography regularly
performed every one to two years was accepted until recently as a reasonable
way to reduce deaths due to cancer. How-

25
<PAGE>

ever, because recent studies suggest that mammography is ineffective in
reducing deaths in the absence of suspicious symptoms or a high risk factor,
the American Cancer Society now recommends that women wait until age 40 to
have their first mammogram, and the National Cancer Institute now recommends
that women wait until age 50.

Most cancers occur in older women, but the most aggressive cancers are
more thermally active (and have shorter doubling times and the highest
mortality rate) and occur mostly in younger women. In women over 50, the
doubling of the tumor volume generally occurs more slowly. By contrast,
breast cancers in younger pre- menopausal women tend to grow rapidly. The
fast-growing tumors that occur in these women may have measured doubling
times of 44 to 147 days. Typically, there is only a short period of time
between the point when the disease can be detected and clinical manifestation
of disease, and failure to intervene during this period may significantly
reduce the likelihood that the woman will survive the disease because the
cancer metastasizes.

Existing methods of detecting breast abnormalities include non-invasive
methods such as BSE, clinical examination, mammography, ultrasound,
transillumination, diaphanography, magnetic resonance imaging ("MRI") and
thermography and invasive methods such as surgical breast biopsy and
stereotactic fine needle aspiration biopsy ("SFNA").

Breast Self-Examination and Clinical Examination. BSE is a method by which
a woman examines her own breasts. BSE is both inexpensive and accessible at
any time to women who understand the method. Nevertheless, while many primary
breast cancers currently are found through BSE, the stage at which they are
found is often too advanced for treatment to be as effective as it
potentially could have been at earlier stages of detection. In clinical
examination, the physician uses a process similar to BSE, methodically
feeling for any abnormalities or unusual changes in the breasts.

Mammography. In mammography, breast X-rays are taken by special equipment
called mammography systems. Microcalcifications, which can indicate a future
cancer, are visualized on mammography film. Non- palpable lesions are
visualized well by mammography except in dense breasts, which due to their
opacity may require other methods of imaging because the cancer may be
obscured. Mammographic equipment is expensive to purchase and use, and
because of these cost factors, is generally not available for use as a
primary office care procedure except in larger group practices.

Ultrasound. Ultrasound complements mammography and in some female age
groups it images better than mammography because it defines dense, cystic
breasts very effectively. An ultrasonic transducer (probe) utilizes sonic
beams reflected by varying breast tissue types and sends reflected echoes to
a capture device in the transducer for conversion into a digitized image of
the breast. Complete assessment and diagnosis requires a diagnostic mammogram
in conjunction with the ultrasound study.

Transillumination and Diaphanography. Transillumination is an examination
in a dark room using ordinary light and diaphanography is a more
sophisticated method of transillumination which utilizes a transducer-like
wand similar to the probe used for ultrasound. When the wand is held against
the breast in a darkened room, fat, blood vessels and fluid filled cysts can
often be seen.

Magnetic Resonance Imaging. MRI attempts to get axial views of the body as
it passes through a tunnel- like device or ring housing a powerful magnetic
field and surface radio frequency ("RF") coils. Within the walls of the
tunnel, RF frequencies measure how hydrogen ions react in protons of
microcellular body tissue and reflect information in RF signals emitted from
the ions in response to the magnets' influence. The RF measurements are then
converted by a powerful computer to cross section axis-oriented and three
dimensional images. MRI is expensive compared to standard film-screen
mammography and generally is used for breast cancer diagnostics and further
assessment only when other modalities are not as effective.

Thermography. Thermography operates on the premise that an area affected
by an abnormality generally differs in temperature from the area around it.
It is also based on the premise that the temperature patterns of the two
breasts of one woman are generally symmetrical. Prior thermographic devices,
such as contact thermography, telethermography and computer-assisted
thermography, were based on these premises. These prior thermographic
systems, which, unlike the BreastAssure device, involved imaging rather than
measurement of temperature, required expensive facilities and equipment
and/or subjective interpretation of test results, and did not

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perform as intended. In 1983, OHTA issued a report stating that thermography
needed further development and should not be used alone for diagnostic
screening for breast cancer. In 1984, HCFA withdrew coverage for thermography
under Medicare as a diagnostic screening method for breast disease. In 1991,
based upon reports which addressed the use of thermography in neurological
and musculoskeletal conditions, the AMA passed a resolution stating that
thermography had not been proven to have value as a medical diagnostic test.
In 1992, HCFA withdrew Medicare reimbursement for all other uses of
thermography. In 1993, the AMA adopted a resolution stating that the use of
thermography for diagnostic purposes could not be recommended at that time.
Although the BreastAssure test is adjunctive and is not to be used alone for
diagnosis of breast cancer, the OHTA, HCFA and AMA positions against the use
of thermography as a diagnostic tool may cause confusion among physicians.
The Company believes the OHTA, HCFA and AMA positions do not apply to the
BreastAssure device because it is an adjunctive, rather than diagnostic,
device and because some of these positions related solely to neurological and
musculoskeletal conditions.

Early thermographic devices were designed initially for diagnosis of
cancer and only secondarily for adjunctive usage. Although good sensitivity
and specificity often were obtained in controlled clinical trials, poor
results were often obtained in non-controlled practice settings due to the
design of the equipment, methodology used and subjective interpretation of
the results. Unlike these early devices, the BreastAssure device does not
rely on any mechanical equipment and the BreastAssure test involves no
special methodology or subjective interpretation. Like a thermometer, the
BreastAssure device merely measures temperature--specifically, the skin
temperature of a woman's breasts. If the BreastAssure device signals the
presence of abnormal thermal activity in a woman's breast, the physician is
alerted to the probability of some type of physiological condition which may
be due to various pathologies, including thermally active cancers.

Surgical Breast Biopsy. Although open surgical biopsy is a relatively safe
procedure and the most accurate means of diagnosis, it is invasive, may
produce cosmetic deformity and is often psychologically traumatic, as well as
costly.

Stereotactic Fine Needle Aspiration Biopsy. SFNA, or core biopsy, which
involves the evaluation of small tissue samples drawn from the breast through
a needle, can be used to confirm that a lesion is benign. SFNA can also be
used to evaluate mammographic lesions that are highly suspicious for
malignancy. Although charges may vary, stereotactic biopsy is roughly 30% of
the cost of excisional surgical biopsy.

THE BREASTASSURE DEVICE

One of the important biological activities of malignant tumors is the
increased rate of growth as compared to the surrounding or "host" tissue. The
malignant propensities of cancer are directly related to the speed of cell
division, and this is in turn reflected by accelerated local metabolism which
is supported by increased blood and lymph flow. Heat is a byproduct of the
increased metabolism and most often is conducted to the skin where it is
emitted from the body. These biological alterations usually can be detected
by measuring temperature differences between the area containing the tumor
and other segments of the same breast or the same area of the other breast.
The BreastAssure device measures the highest skin surface temperature by
recording the conducted heat under each of three segmental areas when the
BreastAssure device is placed against the breast. By detecting and recording
the thermal differences in a breast or between the breasts, it can provide a
signal to alert the physician before diagnosis to the probable existence of
an unusual physiological state which may be due to various pathological
conditions, one of which may be thermally active cancers. The BreastAssure
device does not diagnose the presence of breast disease, but is an adjunct to
existing diagnostic methods.

The BreastAssure device consists of a pair of mirror-image, non-invasive,
lightweight, disposable soft pads, each of which has three wafer-thin
segments containing columns of heat sensitive chemical sensor dots that
change color from blue to pink reflecting an 8.5 degree temperature range
from 90o to 98.5o Fahrenheit. When placed over a woman's breasts inside her
brassiere for a period of 15 minutes, the BreastAssure device registers skin
temperature variations due to heat conducted from within the breast tissue to
the surface of the skin. By comparing the mirror-image temperature
differences between the two breasts registered by the BreastAssure device,
the physician can objectively quantify if there is abnormal unilateral breast
thermal activity, which is considered significant if there is a 2o Fahrenheit
or more temperature difference between each breast in the same mirror-image
location. This, in turn, alerts the physician to the possibility of a
physiological condition, includ-

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ing the pathology of thermally active cancer. Based on clinical studies at
major medical centers, the threshold tumor size that resulted in significant
skin temperature differences detectable with the BreastAssure device was as
small as five millimeters in size. In contrast, according to industry
sources, the majority of breast tumors are, on average, at least 16
millimeters or larger before they are palpable by most experienced
clinicians.

CLINICAL TRIALS

The BreastAssure device is non-invasive and clinically proven to be safe,
and, the Company believes, an effective adjunctive test for the detection of
abnormal thermal activity in the breast and an effective tool for determining
the presence of some type of abnormal physiological condition which may be
due to various pathological conditions, including thermally active cancers.
The BreastAssure device can be utilized and the results evaluated by health
care professionals after minimal instruction.

Two key clinical trials of the BreastAssure device versus biopsy and
breast cancer screening were conducted between 1980 and 1984 to assess and
validate the BreastAssure device's correlation against such diagnostic
procedures. The clinical trials were undertaken at Georgetown University
School of Medicine, Memorial Sloan- Kettering Hospital in New York City, M.D.
Anderson Hospital and Tumor Institute in Houston, Brottman Memorial Hospital
at University of California at Los Angeles and Guttman Cancer Diagnostic
Institute in New York City. The BreastAssure device was found to correlate
well in terms of the device's documented sensitivity and specificity
correlation indices. Sensitivity measures the percentage of positive
BreastAssure device results against positive results of specified methods, in
this case clinical examination for suspicion of malignancy or biopsy.
Specificity measures the percentage of negative BreastAssure device results
against negative results of a specified method. A positive BreastAssure
device result is a "false positive" if the BreastAssure device renders a
positive result and the result of the method against which the BreastAssure
device is being measured is negative. A negative BreastAssure device result
is a "false negative" if the BreastAssure device result is negative but the
result of the other method is positive.

The BreastAssure device versus Biopsy. After initial clinical trials at
Georgetown University School of Medicine involving 200 women, the
BreastAssure device was the focus of a clinical trial involving 179 women who
underwent unilateral (single breast) biopsy. This multicenter study was
conducted at Memorial Sloan- Kettering Hospital, M.D. Anderson Hospital and
Tumor Institute and Brottman Memorial Hospital at UCLA. The BreastAssure
device tested positive in 74 of the 84 women who were diagnosed with cancer
by unilateral biopsy, for an overall sensitivity index of 88.1% (that is, the
BreastAssure device results were positive for 74 of the 84 unilateral cancers
diagnosed). More than 97.0% of breast cancers are believed to be unilateral
if discovered at an early stage.

The biopsy results were subjected to a breakdown by the size of cancer
detected. The threshold tumor size that resulted in skin temperature variance
detectable with the BreastAssure device was five millimeters. Seven out of
eight cancers under one centimeter diagnosed during the screening study
tested positive using the device.

The BreastAssure device versus Breast Cancer Screening for Suspicion of
Malignancy (using mammography and clinical breast examination). In the second
major clinical trial, at Guttman Cancer Diagnostic Institute, the
BreastAssure device was used on 2,805 asymptomatic women. The BreastAssure
device data were compared to the staff's clinical judgment for suspicion of
malignancy or cancer. Of the 2,805 women screened, 99 were recommended for
biopsy based on either suspicious mammogram and/or clinical breast
examinations. The BreastAssure device results were positive in 86 of the 99
women recommended for biopsy (a sensitivity correlation index of 86.9%).
Fifty-nine biopsies were subsequently performed, and 13 of the 15 cancers
diagnosed were positive for the BreastAssure device (a sensitivity
correlation index of 86.7% against biopsy). Of the 2,706 women who had no
suspicion of cancer based on mammogram and/or clinical breast examinations,
2,340 had negative BreastAssure device results (a specificity correlation
index of 86.5%).

The false positive rate of 13.5% obtained for the initial screening trial
assumes that (1) no mammographically undetectable cancers occurred; and (2)
the rate of subsequent cancer occurrence within the false positive group was
not statistically higher than that of the population of women as a whole. If,
as several publications have suggested, abnormal thermal distribution is a
risk marker for future disease incidence, the BreastAssure device's false
positive rate may be lower.

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The Company intends to commence additional clinical studies utilizing the
BreastAssure device within the next 12 to 18 months. The new studies will
have two principal goals: to obtain age-related data in tests of the
BreastAssure device against biopsy in order to gauge the ability of the
BreastAssure device to detect the fast- growing cancers that typically attack
younger women and to follow up "false positive" test results over a period of
time to determine whether such results presage future breast disease. See
"Use of Proceeds."

MARKETING AND DISTRIBUTION

General. The Company believes that the target market for the BreastAssure
device will be primary care physicians such as gynecologists, internists and
general practitioners, both in their own practices and as participants in
groups such as health maintenance organizations ("HMOs") and preferred
provider organizations ("PPOs"). Because interpretation of existing
diagnostic imaging modalities for breast cancer is difficult and subjective,
additional target market segments include other health care providers who can
legally order and perform clinical tests, such as mammographers, physician
groups that have mammography systems and breast cancer surgeons.

The Company believes that market acceptance of the BreastAssure device
will depend, in part, upon the Company's ability to demonstrate to physicians
the clinical benefits (including ease of use and utility), safety and
cost-effectiveness of the BreastAssure device. To achieve this, the Company
will seek to (i) arrange for the publication of articles summarizing actual
test results to appear in selected medical journals, (ii) present papers and
make presentations at large medical symposiums and (iii) produce and
distribute videos describing the BreastAssure device and videos containing
instructions on how to use the BreastAssure device for testing. The Company's
marketing plans are in the early stages of development. The Company has not
yet selected the medical journals in which it will advertise, but expects to
advertise in several journals with national circulation. The Company
anticipates that the production of training videos will commence prior to
delivery of the Production Line in the first quarter of 1997 and distribution
of such videos will commence in the second quarter of 1997 when the Company
begins marketing the BreastAssure device. The Company will also seek to
publish the 1984 clinical results. In addition, the Company will utilize
public relations and advertise in selected magazines commonly read by women
to develop recognition of and curiosity about the BreastAssure device to
encourage women to request the test from their doctors.

The Company will first introduce the BreastAssure device to radiologists
at mammography screening centers and to breast cancer surgeons and doctors'
group practices with American College of Radiologists ("ACR") or FDA
accredited mammographic equipment. These physicians often use fine needle
aspiration, an office-based biopsy which is less accurate than excisional
biopsy, which is performed only in hospitals.

The Company will market the BreastAssure device to physicians as an
adjunctive test indicator which can alert the physicians before diagnosis to
the probable existence of some type of physiological state which may be due
to various pathological conditions, including thermally active cancers.

Distribution Agreement with PSS. In February 1996, the Company entered
into the Distribution Agreement with PSS, a publicly traded company and one
of the leading distributors of medical supplies, diagnostic equipment and
pharmaceuticals to office-based medical professionals in the United States.
PSS, with a reported distribution network of approximately 750 sales
representatives and 64 company-operated service/distribution centers serving
more than 88,000 physician-based offices throughout the United States, has
agreed to distribute the BreastAssure device. Pursuant to the Distribution
Agreement, PSS has agreed to designate the Company as a "Platinum Level
Manufacturer." PSS has informed the Company that this status currently has
been reserved for only 15 manufacturers out of approximately 3,000
manufacturers represented by PSS and means that PSS will assign specific
sales quotas to its sales force and give the Company priority access to the
sales force for product training. One or more of such other manufacturers may
in the future introduce a product designed to compete with the BreastAssure
device. Pursuant to the Distribution Agreement, PSS has agreed not to
distribute a product substantially identical to the BreastAssure device
during the term of the agreement unless PSS determines that the BreastAssure
device is not competitive with such other products on the basis of sales,
pricing, quantity, verifiable results or customer acceptance.

PSS has agreed to assist the Company in developing marketing collaterals
such as training videos and sales materials (with all costs of materials to
be paid by the Company) and to coordinate attendance at medical device

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<PAGE>

conventions with the goal of (i) locating the Company's booth near the PSS
booth or sponsoring the BreastAssure device at the PSS booth and (ii) as
agreed to on a case by case basis, helping the Company at conventions not
normally attended by PSS by having local sales representatives attend and
staff the Company's booth during convention hours. PSS has also agreed to
devote a full-time management level marketing executive designated as a
"Product Champion" to work exclusively with the Company and assist with the
launch of the BreastAssure device. PSS and the Company have agreed to work
together to prepare for the BreastAssure device sales and marketing launch,
which the Company anticipates will occur in the second quarter of 1997.

The Distribution Agreement grants to PSS exclusive distribution rights
only in the United States and provides that it is expected that the territory
of Canada will be discussed and awarded to PSS at some future date. PSS will
be responsible for selling the BreastAssure device directly to physicians at
their offices. The Company will focus its own efforts on marketing the
BreastAssure device to physicians at hospitals, to breast cancer
organizations, to government organizations, to insurance company convention
activities and in similar promotional venues.

Under the Distribution Agreement, over a two-year period beginning in
1997, PSS is to receive volume discount price incentives from HumaScan to the
extent PSS exceeds sales targets of 1.0 million units in 1997 and 3.5 million
units in 1998. If sales by PSS are less than 50% of such targets, the Company
and PSS will each have the right to terminate the Distribution Agreement upon
three months' notice. The term of the Distribution Agreement continues until
terminated by either party for failure to meet such sales targets or for
certain material breaches which are not cured within prescribed time limits.

The equipment that the Company will use to manufacture the BreastAssure
device is currently being constructed by Zigmed and is on schedule for
completion by the end of 1996, although there is no assurance that such
equipment will be completed and operational by such time or at all. The
Turnkey Construction Contract between Zigmed and the Company provides for the
turnkey construction of the equipment at a fixed price of $1,750,680, with
payments to Zigmed in stages over a 15-month period. $720,000 has been paid
to Zigmed pursuant to the Turnkey Construction Contract as of the date of
this Prospectus. The Company has also agreed to pay Zsigmond G. Sagi, the
chief executive officer and a principal of Zigmed, certain completion
bonuses. See "Business--Manufacturing."

Pursuant to the Distribution Agreement, John F. Sasen, Sr., the President
of PSS, was elected to the Company's Board of Directors in May 1996. Pursuant
to the Distribution Agreement, and as part of the May Private Placement, PSS
purchased an aggregate of 56,250 shares of the Company's Series A Preferred
Stock and the Private Warrants to purchase 11,250 shares of the Company's
Common Stock. The Series A Preferred Stock converts automatically into Common
Stock on a share-for-share basis upon the closing of a Qualified IPO. The
Private Warrants are exercisable at a price of $2.93 per share and expire on
May 15, 2001. Also, pursuant to the Distribution Agreement, the Company
issued the PSS Warrants to PSS, which warrants give PSS the right to purchase
125,000 shares of Common Stock at an exercise price of $4.00 per share
(aggregating $500,000). The Distribution Agreement restricts such $500,000
solely for use by the Company for advertising and promotion of the
BreastAssure device.

LICENSE AGREEMENT

In July 1995, the Company and Scantek entered into the License Agreement
pursuant to which Scantek granted the Company an exclusive license (the
"License") to manufacture and sell the BreastAssure device in the United
States and Canada. The License Agreement covers the 510(k) Market Rights and
Scantek's know- how, trade secrets, patent rights and trademarks relating to
the BreastAssure device. The BreastAssure device is the subject of two United
States patents expiring February 26, 1997 and a Canadian patent expiring
August 24, 1999. The License Agreement provides for a cash payment (the "Cash
Portion of the Licensing Fee") to Scantek of $1,600,000, $550,000 of which
has already been funded. Subject to the Company's acceptance of the
Production Line, $175,000 of the balance is payable on December 31, 1997,
$175,000 on March 31, 1998, $350,000

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<PAGE>

on October 31, 1998 and $350,000 on January 31, 1999, provided, however, that
any Surplus Cash Flow (one half of net income, as defined in the License
Agreement, subject to certain adjustments) after the Company begins
operations is to be applied as prepayments to unpaid installments of the Cash
Portion of the Licensing Fee in inverse order of maturity. See "Use of
Proceeds." Contemporaneously with the execution of the License Agreement, the
Company issued to Scantek 675,000 shares of Common Stock. Scantek received an
additional 329,063 shares of Common Stock upon the closing of the May Private
Placement in exchange for the termination of its right, pursuant to the
License Agreement, to maintain a specified ownership interest in the Company.

Pursuant to the License Agreement, Scantek is entitled to additional
payments as follows: (i) $100,000 (to be applied to unpaid installments of
the Cash Portion of the Licensing Fee in order of maturity) upon the later of
(x) the investment at any time by PSS of $500,000 in the Company by
exercising the PSS Warrant and (y) the shipment by the Company of the first
order of the BreastAssure device to PSS; (ii) $300,000 (of which $100,000 is
to be applied to unpaid installments of the Cash Portion of the Licensing Fee
in order of maturity and $200,000 is to be applied to unpaid installments of
the Cash Portion of the Licensing Fee in inverse order of maturity) upon the
earlier to occur of (a) the extension of the relevant patents at least
through January 1, 2003 or (b) Scantek's obtaining a new United States patent
on the product; and (iii) if the circumstances described in the preceding
clause (ii) have not occurred, Scantek is entitled to payment of $100,000
from the proceeds of this Offering (which shall be deemed a partial advance
of the $300,000 payable pursuant to such clause (ii) and which is to be
applied to the unpaid installments of the Cash Portion of the Licensing Fee
in direct order of maturity). The License Agreement also provides for minimum
annual royalty payments of $150,000, $300,000, $400,000 and $500,000,
respectively, in the first four years in which the product is sold and
$600,000 in the fifth and subsequent years (the "Minimum Royalties") and
maximum royalty payments ranging from 3% of annual net product sales of up to
$2,000,000 to 10% of the annual net product sales if annual net product sales
exceed $10,000,000 (the "Percentage Royalties"). In addition, the License
Agreement will terminate automatically if the aggregate earned royalties for
the first three years the product is sold do not exceed $950,000 (the
"Threshold Earned Royalties"). The Minimum Royalties and Threshold Earned
Royalties terminate automatically at any time after February 26, 1997 (the
date the relevant patents expire) if a competitor introduces a product which
would have infringed upon such patents. In addition, the Percentage Royalties
are reduced or eliminated if the Company reduces the price of its product
below certain preset amounts. The License Agreement also provides that, if
Scantek places an order with the Company prior to the date which is 60 days
prior to the Company's acceptance of the Production Line from Zigmed, Scantek
may purchase from the Company $1,000,000 worth of BreastAssure devices at a
per unit price equal to the greater of 150% of the Company's Costs of
Production (as defined in the License Agreement) or $2.50.

Pursuant to the License Agreement, Scantek is obligated to render
consulting services (the "Consulting Services") to the Company through July
1997 in connection with bringing the BreastAssure device to market and Dr.
Sagi must devote up to one day per week or 90 hours per calendar quarter of
his time to the development and marketing of the BreastAssure device (the
"Minimum Services"). In the event Consulting Services are requested in excess
of the Minimum Services, Scantek will be compensated at the rate of $100 per
hour. Dr. Sagi is also required to render advisory and supervisory services
on behalf of the Company in connection with the Production Line being
constructed by Zigmed. Scantek is responsible for all expenses of training
the Company's manufacturing personnel. The Company is obligated to reimburse
Scantek for all reasonable out-of-pocket expenses.

MANUFACTURING

The Company intends to establish a facility to produce the BreastAssure
device, with a maximum capacity of ten million units annually, based upon two
shifts per day. The Company's production facility will be based on a
prototype plant built by BCSI and Faberge.

The Company has leased a fully air-conditioned facility of approximately
30,000 square feet to house the Production Line and provide warehouse space
and anticipates that approximately $250,000 of leasehold improvements will be
required. The Company plans also to relocate its executive offices into such
facility. See "Business--Facilities." Specifications for the production
equipment to be installed in the facility were prepared by Scantek. The
Company has arranged for the construction of the automated Production Line
for the assembly

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of the BreastAssure device pursuant to the $1,750,680 fixed-price Turnkey
Construction Contract with Zigmed. The Turnkey Construction Contract provides
payments to Zigmed in stages over a 15-month period that began November 30,
1995. $720,000 has been paid to Zigmed as of the date of this Prospectus. The
Turnkey Construction Contract provides that a working Production Line will be
installed by Zigmed, subject to acceptance by the Company, by March 31, 1997
(the "Delivery Date"). Zsigmond G. Sagi, the chief executive officer and a
principal of Zigmed, is the son of Dr. Sagi, Chairman of the Board of
Scantek.

The Company has agreed to pay Zsigmond G. Sagi a two-part completion
bonus, payable on May 31, 1997, if certain conditions are met in connection
with the manufacturing of production equipment for the BreastAssure device.
Specifically, such bonus consists of: (1) $10,000 plus warrants to purchase
7,500 shares of Common Stock at an exercise price of $5.33 per share, if
workable and acceptable samples are produced within four months after the
closing of the May Private Placement; and (2) an additional $15,000 plus
warrants to purchase an additional 11,250 shares of Common Stock at an
exercise price of $5.33 per share if the manufacturing machine and the
assembly and packaging machine are complete and fully operational within nine
months after the closing of the May Private Placement.

Zsigmond G. Sagi has agreed to pay the Company damages of $100,000 per
month for three months commencing at the end of the fourth month following
the Delivery Date if Zigmed is unable to deliver the Production Line by the
Delivery Date. In addition, as part of the License Agreement, Scantek has
agreed to pay the Company $75,000 per month if the Production Line is not
accepted by the Company pursuant to the terms of the Turnkey Construction
Contract by the Delivery Date. Furthermore, Scantek has guaranteed that
BreastAssure device manufactured costs will not exceed $2.25 for each unit,
excluding depreciation, assuming production at the rate of 1,000,000 units or
more per year for two consecutive quarters. If the Company's manufactured
cost is greater than $2.25 per unit, royalties due to Scantek will be offset
by the product of (x) the number of units manufactured during the relevant
year multiplied by (y) the manufactured cost of the unit less $2.25.

Zigmed began construction of the Production Line in February 1996. As of
the date of this Prospectus, the Company believes that Zigmed has received
all of the principal components of the Production Line and is on schedule to
complete the Production Line by the Delivery Date.

RAW MATERIALS

The Company believes that there are several sources from which it may
purchase the components of the BreastAssure device. Although the Company has
not yet begun to negotiate with potential suppliers, Zigmed has identified
several potential sources of supply of the raw materials for the BreastAssure
device. The Company anticipates that it will obtain certain of the components
of the BreastAssure device from a single or limited number of sources of
supply. Although the Company believes it will be able to negotiate
satisfactory supply agreements, failure to do so may have a material adverse
effect on the Company. Furthermore, there can be no assurance that suppliers
will dedicate sufficient production capacity to satisfy the Company's
requirements within scheduled delivery times or at all. Failure or delay by
the Company's suppliers in fulfilling its anticipated needs may adversely
affect the Company's ability to market the BreastAssure device.

PATENTS; PROPRIETARY INFORMATION

Scantek, the licensor of the BreastAssure device, holds two United States
patents and one Canadian patent covering the use of the BreastAssure device
as a device for adjunctive use in the early detection of breast cancer.
Although the Patents are licensed to the Company for the United States and
Canada pursuant to the License Agreement, both United States patents expire
on May 22, 1998 and the Canadian patent expires on August 24, 1999. There can
be no assurance that the Patents will provide meaningful protection from
competition. The Company's policy is to attempt to protect its technology by,
among other things, obtaining patent rights for technology that it considers
important to the development of its business and requiring each employee and
key consultant to execute a confidentiality agreement. There can be no
assurance that the Company's confidentiality agreements and other safeguards
will protect its proprietary information and trade secrets or provide
adequate remedies for the Company in the event of unauthorized use or
disclosure of such information, or that others will not be able to
independently develop such information. In addition, in the event that the
Company becomes involved in litigation to enforce its proprietary rights,
such litigation can be a lengthy and costly process caus-

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ing diversion of effort and resources by the Company and its management with
no guarantee of success. Other parties may be issued patents that may prevent
the sale of the Company's products or require licenses and the payment of
royalties by the Company. It is possible that after the Patents expire, other
companies, inside and outside the United States, may adopt the concept and/or
design embodied in the BreastAssure device and seek to compete with the
Company. In the event such competition is encountered, the Company would have
to rely on name recognition, product acceptance, quality and the distribution
network of PSS in order to compete successfully, and there can be no
assurance that the Company will be able to so compete. Moreover, the Company
could be put at a competitive disadvantage by the payment of any royalties,
which may have a material adverse effect on its ability to market its product
successfully.

Scantek has filed an application with the United States Patent and
Trademark Office for a trademark for the term "BreastAssure." The Company has
filed an application with the United States Patent and Trademark Office for a
service mark for the HumaScan Inc. logo.

GOVERNMENT REGULATION

The Company's products and manufacturing activities are subject to
extensive regulation by the FDA and, in some instances, by state, local, and
foreign authorities. Pursuant to the FDC Act and the regulations promulgated
thereunder, FDA regulates the development, clinical testing, manufacture,
packaging, labeling, storage, distribution and promotion of medical devices.

In the United States, medical devices intended for human use are
classified into three categories (Class I, II or III), on the basis of the
controls deemed necessary by FDA reasonably to assure their safety and
effectiveness. Class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to cGMP regulations) and Class
II devices are subject to general and special controls (for example,
performance standards, postmarket surveillance, patient registries and FDA
guidelines). Generally, Class III devices are those which must receive
premarket approval from FDA to ensure their safety and effectiveness (for
example, life- sustaining, life-supporting and implantable devices, or new
devices which have not been found substantially equivalent to legally
marketed devices).

Before a new device can be introduced into the market, the manufacturer
must generally obtain marketing clearance or approval through either a 510(k)
notification or a PMA. FDA will grant 510(k) Market Rights if the submitted
information establishes that the proposed device is "substantially
equivalent" to a legally marketed Class I or II medical device, or to a Class
III medical device for which FDA has not called for a PMA. Commercial
distribution of a device for which a 510(k) notification is required can
begin only after FDA issues an order of "substantial equivalence." FDA has
recently been requiring a more rigorous demonstration of substantial
equivalence than in the past. It generally takes from four to 12 months to
obtain clearance of 510(k) Market Rights, but it may take longer. FDA may
determine that a proposed device is not substantially equivalent to a legally
marketed device, in which case a PMA may be required to market the device, or
that additional information or data are needed before a substantial
equivalence determination can be made. A request for additional data may
require that clinical studies of the device's safety and efficacy be
performed.

A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed Class I or Class II device or if it is a
Class III device for which FDA has called for PMAs. A PMA application must be
supported by valid scientific evidence which typically includes extensive
data, including preclinical and clinical trial data, to demonstrate the
safety and effectiveness of the device. If human clinical trials of a device

33
<PAGE>

are required, and the device presents a "significant risk," the sponsor
(usually the manufacturer or the distributor of the device) must obtain FDA
approval of an investigational device exemption application prior to
commencing human clinical trials. If the device presents a "nonsignificant
risk" to the patient, a sponsor may begin the clinical trial after obtaining
approval for the study by one or more appropriate Institutional Review
Boards, but not FDA. Sponsors of clinical trials are permitted to sell those
devices distributed in the course of the study provided such compensation
does not exceed recovery of the costs of manufacture, research, development
and handling.

Upon receipt of a PMA application, FDA makes a threshold determination as
to whether the application is sufficiently complete to permit a substantive
review. If FDA determines that the PMA application is sufficiently complete
to permit a substantive review, FDA will accept the application for filing.
An FDA review of a PMA application generally takes one to two years from the
date the PMA application is accepted for filing, but may take significantly
longer. During the review period, an advisory committee, typically a panel of
clinicians, ordinarily will evaluate the application and provide
recommendations to FDA as to whether the device should be approved. FDA is
not bound by the recommendations of the advisory panel. FDA also will conduct
an inspection of the manufacturer's facilities prior to PMA approval to
ensure that the facilities are in compliance with applicable cGMP
requirements. If FDA's evaluations are favorable, FDA will issue an approval
letter authorizing commercial marketing of the device for certain
indications. If FDA's evaluations are not favorable, FDA will deny approval
and may require additional clinical trials. The PMA process can be expensive,
uncertain, and lengthy, and a number of devices for which FDA approval has
been sought by other companies have never been approved for marketing.

The FDC Act requires device manufacturers to obtain new FDA clearance or
approval when, among other things, there is a major change or modification in
the intended use of a legally marketed device or a change or modification,
including product enhancements, to a legally marketed device that could
significantly affect its safety or effectiveness. For devices marketed
pursuant to 510(k) Market Rights, the manufacturer must obtain FDA clearance
of a new 510(k) notification prior to marketing the modified device; for
devices marketed pursuant to an approved PMA, the manufacturer must obtain
FDA approval of a supplement to the PMA (a "PMA supplement") prior to
marketing the modified device.

A device manufacturer is responsible for making the initial determination
as to whether a proposed change to a cleared or approved device or to its
intended use necessitates the filing of a new 510(k) notification or a PMA
supplement. If the Company determines that any modification to a device would
not require the submission of a new 510(k) notification (or a PMA supplement,
for devices marketed pursuant to an approved PMA), there can be no assurance
that FDA would agree with the Company's determinations and would not require
the Company to submit a new 510(k) notification (or PMA supplement) for any
modifications made to the device. If FDA requires the Company to submit a new
510(k) notification (or PMA supplement) for any modification to the device,
the Company may be prohibited from marketing the device as modified until FDA
clears the 510(k) notification (or approves the PMA supplement). There can be
no assurance that the Company will obtain 510(k) Market Rights (or approval
of a PMA supplement) on a timely basis, or at all, for modifications to a
device for which it files a future 510(k) notification (or a future PMA
supplement). Moreover, the clearances or approvals, if granted, could limit
the uses for which the product could be marketed. Failure to obtain, or
delays caused by, regulatory clearances or approvals could have a material
adverse affect on the Company's business, financial condition and results of
operations.

Breast thermographic devices (such as the BreastAssure device) intended to
be used by physicians as an adjunct to other established clinical detection
methods for breast disease are currently classified as Class I devices. On
January 17, 1984, FDA granted 510(k) Market Rights to the then owner of the
BTAI technology. The BreastAssure device may be marketed by the owner of the
510(k) Market Rights without further FDA authorization as a BTAI when used
adjunctively by the physician. Scantek assigned the 510(k) Market Rights for
the BreastAssure device to the Company in October 1995.

34
<PAGE>

market the BreastAssure device, it could rescind previous 510(k) Market
Rights for breast thermographic devices and/or reclassify these devices from
Class I medical devices to Class III medical devices (which would effectively
vitiate the Company's 510(k) Market Rights and require filing of a new
application for premarket approval prior to marketing). In either event, the
Company would be required to cease marketing the BreastAssure device until it
filed a PMA with FDA and received a new approval to market the BreastAssure
device.

The process of obtaining premarket approval can be lengthy, expensive and
uncertain, and no assurance can be given that premarket approval of the
BreastAssure device can or will be obtained. Among the factors which may
negatively impact upon the Company's ability to obtain FDA approval is the
possibility that FDA may reject or invalidate, in whole or in part, clinical
data previously submitted by the Company. In such event, the Company may be
required to conduct additional clinical trials prior to submission of a PMA.

Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
FDA. Device manufacturers are required to register their establishments and
list their devices with FDA, and are subject to periodic inspections by FDA
and certain state agencies. FDA has authorized the states of California,
Colorado and Texas to conduct medical device inspections on behalf of FDA.
There are certain states that perform their own separate inspections of
medical device facilities and some have the authority to force the seller to
cease the marketing and manufacturing of medical devices, but any such state
inspections generally should not seek to enforce standards that are different
from or in addition to the requirements of the FDC Act and regulations
promulgated thereunder.

The FDC Act requires device manufacturers to comply with cGMP regulations.
The regulations require that medical device manufacturers comply with various
requirements pertaining to organization and personnel; buildings,
environmental control, cleaning and sanitation; equipment and calibration of
equipment; medical device components; manufacturing specifications and
processes; reprocessing of devices; labeling and packaging; finished device
inspection; device failure investigations; and recordkeeping requirements
including complaint files. FDA enforces these requirements through periodic
inspections of medical device manufacturing facilities. The agency has been
in the process of repromulgating its cGMP regulations for some time, and it
is possible that a new final regulation will be published in the Federal
Register within a few months. The new regulation will, among other things,
clarify current requirements for such things as device failure and complaint
investigations and add new provisions such as the requirement for design
validation.

In addition, the Medical Device Reporting ("MDR") regulation obligates the
Company to inform FDA whenever there is reasonable evidence to suggest that
one of its devices may have caused or contributed to death or serious injury,
or when one of its devices malfunctions and, if the malfunction were to
recur, the device would be likely to cause or contribute to a death or
serious injury.

Labeling and promotion activities are also subject to scrutiny by FDA and,
in certain instances, by the Federal Trade Commission. FDA actively enforces
regulations prohibiting marketing of products for unapproved uses.

If, as a result of FDA inspections, MDR reports or information derived
from any other source, FDA believes the Company is not in compliance with the
law, FDA can refuse to clear or approve pending 510(k) notifications or PMA
applications; withdraw 510(k) Market Rights or PMA approvals; require
notification to users regarding newly found unreasonable risks; request
repair, refund or replacement of faulty devices; request corrective
advertisements, formal recalls or temporary marketing suspension; impose
civil penalties; or institute legal proceedings to detain or seize products,
enjoin future violations, or seek criminal penalties against the Company, its
officers and/or employees.

The Company and its products are also subject to a variety of state and
local laws and regulations in those states or localities where its products
are or will be marketed. Any applicable state or local laws or regulations
may hinder the Company's ability to market its products in those states or
localities.

The FDC Act generally prohibits states and their political subdivisions
from issuing or enforcing regulations that are different from, or in addition
to, the requirements of the FDC Act. However, the FDC Act permits the FDA to
grant state and local governments the authority to implement laws or issue
regulations applicable to medical devices that are stricter than or different
from the FDC Act and the regulations thereunder. The Company is not aware of
any state or local provisions that would impact the Company.

35
<PAGE>

Manufacturers are also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. Although the Company is not aware of any
specific, material costs it may incur in order to comply with environmental
laws and believes the effect of compliance with environmental laws and
regulations on its operations will be negligible, there can be no assurance
that the Company will not be required to incur significant costs to comply
with such laws and regulations.

Products for export are subject to foreign countries import requirements
and FDA's exporting requirements. The introduction of the Company's products
in foreign markets may subject the Company to foreign regulatory clearances,
which may impose additional substantial costs and burdens. The regulatory
review process varies from country to country. Many countries impose product
standards, packaging and labeling requirements, and import restrictions on
devices. In addition, each country has its own tariff regulations, duties and
tax requirements. The Company has not obtained clearance or approval to
market its products in any foreign country. Approval by foreign government
authorities is unpredictable and uncertain, and no assurance can be given
that the necessary approvals or clearances will be granted on a timely basis
or at all. Delays in receipt of, or a failure to receive, such approvals or
clearances could have a material adverse effect on the Company.

Under Canada's current Food and Drugs Act and Medical Devices Regulations,
the vast majority of medical devices enter the Canadian market without any
type of premarket approval; device manufacturers are required only to notify
the government that the device will be marketed in Canada. Only approximately
5% of medical devices (those generally considered to be high-risk products)
are subject to premarket review before they can be marketed in Canada.
Devices that are clinically tested (i.e. used in studies involving human
subjects) in Canada are subject to review by the Canadian government prior to
initiation of the study. The Company has been advised that it is likely that
the BreastAssure device can be marketed in Canada via notification without
any type of premarket approval.

The Canadian government has announced its intention to promulgate new
regulations in this area in the immediate future which will establish four
classes of devices. Class IV devices will be required to demonstrate safety
and effectiveness and manufacturers must have quality systems including
controls for both product design and performance. Although manufacturers of
Class III and Class II devices must also demonstrate safety and effectiveness
and have quality systems, the requirements and level of substantiation are
fewer and less stringent for each progressively lower level. Class I devices
will not be regulated until the year 2000. The Company has been advised that
these new regulations (assuming they are published in September 1996) are
intended to be effective in September 1997. It is not clear how the
BreastAssure device would be classified and regulated under the new Canadian
regulations.

In addition to the import requirements of foreign countries, the Company
must also comply with United States laws governing the export of products
regulated by FDA. Devices that have obtained 510(k) Market Rights or PMA
approval may be exported, under certain circumstances, without further FDA
authorization. However, foreign countries often require, among other things,
an FDA certificate for products for export (a "CPE"). To obtain a CPE, the
device manufacturer must certify to FDA that the product has been granted
clearance or approval in the United States and that the manufacturing
facilities appeared to be in compliance with cGMPs at the time of the last
FDA inspection. FDA will refuse to issue a CPE if significant outstanding
cGMP violations exist.

36
<PAGE>

The FDA Export Reform and Enhancement Act of 1996 has relaxed the
exportation requirements governing unapproved devices under certain
circumstances. Pursuant to this new law, a Class III device that has not
obtained FDA approval may be exported to any country in the world without FDA
authorization if the product complies with the laws of that country and has
valid marketing authorization in one of the following countries: Australia,
Canada, Israel, Japan, New Zealand, Switzerland, South Africa, the European
Union, or a country in the European economic area (FDA is authorized to add
countries to this list in the future). In general, a device may be exported
under this provision only if it is not adulterated, accords to the
specifications of the foreign purchaser, complies with the laws of the
importing country, is labeled for export, is manufactured in substantial
compliance with cGMP regulations or recognized international standards, is
not sold in the United States and meets other conditions.

In order to export an unapproved Class III device for which a PMA would be
required to market the product in the United States and which has not
obtained valid marketing authorization in one of the countries listed above,
the Company must obtain prior FDA authorization and the following
requirements must be satisfied: (i) the device accords to the specifications
of the foreign purchaser, (ii) the device is not in conflict with the laws of
the country to which it is intended for export, (iii) the device is labeled
that it is intended for export; (iv) the device is not sold or offered for
sale in domestic commerce, and (v) FDA determines that the exportation of the
device is not contrary to the public health and has the approval of the
country to which it is intended for export.

The Company is aware of a number of health care reform alternatives being
investigated by several states and the United States. On the federal level,
the Senate passed the "Health Insurance Reform Act of 1996" and the House of
Representatives passed the "Health Care Coverage Availability and
Affordability Act of 1996" this session. Both measures endeavor to improve
portability and continuity of health insurance coverage, promote the use of
medical savings accounts, combat waste, fraud and abuse in health insurance
and health delivery, and simplify the administration of health insurance.

Various forms of health care and insurance reform legislation also are
pending or have been considered during the past several years in a number of
states, including, for example, the Maine Health Care Reform Act of 1996,
which was signed by the Governor of Maine on April 11, 1996, and the New York
Health Care Reform Act of 1996, which passed the New York Senate on July 13,
1996. A few items of pending health care or insurance related legislation are
directed specifically at women's health care issues, including coverage for
breast cancer treatments or diagnostic tests. For example, the Connecticut
legislature currently is considering legislation which would prohibit rate
discrimination by insurance companies against women with a genetic
predisposition to breast cancer. In addition, the New York state legislature
is considering a bill relating to insurance coverage for the use of
experimental or investigational drugs in the treatment of breast cancer. As
of December 1995, ten states had enacted laws requiring insurers to cover an
"experimental" treatment for breast cancer, autologous bone marrow
transplant.

Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company. There can be no assurance that
the Company will not be required to incur significant costs to comply with
laws and regulations in the future or that laws or regulations will not have
a material adverse effect upon the Company.

Subject to the potential changes in regulatory status discussed above, the
Company believes that it is in substantial compliance with Section 510(k) of
the FDC Act and that its ownership of the 510(k) Market Rights permits
immediate marketing of the BreastAssure device once the Production Line is
operational. See "Risk Factors--Government Regulation."

COMPETITION

The Company is not aware of any low-cost devices currently on the market
which compete with the BreastAssure device. Nevertheless, the Company's
potential competitors may succeed in developing products that are more
effective or less costly than the Company's products and such competitors may
also prove to be more successful than the Company in manufacturing, marketing
and sales. Some of the Company's potential competitors may be large,
well-financed and established companies that have greater resources for
research and

37
<PAGE>

development, manufacturing and marketing than the Company and, therefore, may
be better able than the Company to compete for a share of the market even in
areas in which the Company may have superior technology. The Company's
potential competitors may include one or more of the approximately 3,000
other manufacturers represented by PSS. Pursuant to the Distribution
Agreement, PSS has agreed not to distribute a product substantially identical
to the BreastAssure device during the term of the agreement unless PSS
determines that the BreastAssure device is not competitive with such other
products on the basis of sales, pricing, quantity, verifiable results or
customer acceptance.

The Company is also aware of a diagnostic device being developed by
Biofield Corp. which is intended to measure the differential in the electric
potential between normal and cancerous tissue. The Company believes the
marketing of this device will be subject to authorization by FDA. The Company
believes that the BreastAssure device incorporates a unique combination of
features and benefits that are not found in any other single product
available in the marketplace today. The Company believes that, when
introduced, the BreastAssure device will augment BSE, clinical examination
and screening and diagnostic techniques such as mammography, ultrasound,
transillumination, diaphanography, MRI, surgical biopsy and SFNA. The market
for products such as the BreastAssure device is characterized by rapid
changes and evolving industry standards often resulting in product
obsolescence or short product lifecycles. Accordingly, the ability of the
Company to compete will depend on its ability to introduce the BreastAssure
device to the marketplace in a timely manner, and to enhance and improve it.
There can be no assurance that the Company will be able to compete
successfully, that its competitors or future competitors will not develop
technologies or products that render the BreastAssure device obsolete or less
marketable or that the Company will be able to successfully enhance its
proposed products or technology or adapt them satisfactorily.

PRODUCT LIABILITY AND INSURANCE

The nature of the Company's products may expose the Company to product
liability risks. The Company currently does not maintain product liability
insurance coverage. Although the Company plans to obtain at least $5,000,000
of product liability insurance coverage before sales of the BreastAssure
device begin, such insurance is becoming increasingly expensive and there can
be no assurance that the Company will be able to obtain or maintain such
insurance on acceptable terms or that such insurance, if obtained, will
provide adequate coverage against product liability claims.

The BreastAssure device has received 510(k) Market Rights from FDA. The
grant of such rights reflects FDA's determination that the BreastAssure
device was substantially equivalent to other medical devices marketed prior
to May 28, 1976, the date the Medical Device Amendments Act of 1976 was
enacted. The fact that the BreastAssure device received 510(k) Market Rights
from FDA may not be sufficient to defend successfully against product
liability lawsuits. While no product liability claims have been brought
against the Company to date, a successful product liability claim against the
Company in excess of its insurance coverage could have a material adverse
effect on the Company.

REIMBURSEMENT

Hospitals, medical clinics and physicians' offices that purchase medical
devices like the BreastAssure device generally rely on third-party payors,
such as Medicare, Medicaid and private health insurance plans, to pay for
some or all of the costs of the screening and diagnostic procedures performed
with these devices. Whether a particular procedure qualifies for third-party
reimbursement depends upon such factors as the safety and effectiveness of
the procedure, and reimbursement may be denied if the medical device is
experimental or was used for a non-approved indication. In some cases,
reimbursement amounts are based on the provider's costs associated with the
procedure, including materials costs. In such a situation, the cost of an
instrument used in the procedure likely would be covered by the reimbursement
payment. In other cases, payment is a fixed amount per procedure, per
hospital day or per hospital stay. Such a payment might not specifically
cover the cost of materials such as a device used in the procedure. In 1984,
HCFA withdrew coverage for thermography under Medicare as a diagnostic
screening method for breast disease. In 1992, HCFA withdrew Medicare
reimbursement for all other uses of thermography.

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<PAGE>

There can be no assurance that third-party reimbursement will be available
for BreastAssure tests or that the full or any part of the cost of the
BreastAssure device would be covered by such reimbursement. During the past
several years, the major third-party payors for hospital services have
revised substantially their payment methodologies to contain healthcare
costs. The Company believes that the current pressures for medical cost
containment have resulted in uncertainty in the healthcare industry.
Reimbursement standards and rates may change in the future. The failure of
users of the BreastAssure device to obtain adequate reimbursement from
third-party payors could have a material adverse effect on the Company.

Several states and the United States government are investigating a
variety of alternatives to reform the health care delivery system and further
reduce and control health care spending. These reform efforts include
proposals to limit spending on health care items and services, limit coverage
for new technology and limit or control the price health care providers and
drug and device manufacturers may charge for their services and products,
respectively. If adopted and implemented, such reforms could have a material
adverse effect on the Company's business, financial condition and results of
operations.

EMPLOYEES

As of the date of this Prospectus, the Company employed five full-time
persons in connection with its development stage activities, all of whom are
administrative and professional personnel. The Company will require a
significant number of additional persons at virtually every level below
senior management before it can commence full operations. The Company intends
to utilize professional recruiters to locate qualified personnel and to offer
appropriate compensation packages to attract and retain such personnel. When
fully staffed, the Company expects to have approximately 40 full-time
employees. The Company may also employ part-time personnel from time to time
to meet specific demands of its business should they arise. None of the
Company's employees are expected to be subject to collective bargaining
agreements with labor unions. Management believes that its relations with the
Company's current employees are satisfactory.

FACILITIES

The Company's principal executive offices are located at 514 Centennial
Avenue, Cranford, New Jersey 07016. Such offices are leased by the Company
under a one-year lease, commencing January 1, 1996, for approximately 1,500
square feet of office space. Annual rent payments under the lease are
approximately $15,000 for the first year, subject to certain annual
escalations in each year thereafter. The Company has also leased a facility
of approximately 30,000 square feet at 125 Moen Avenue, Cranford, New Jersey
07016 under a six-year lease commencing October 1, 1996 to house the
Production Line and provide warehouse space. The Company plans also to
relocate its executive offices into such facility. The annual rental under
such lease is $124,015 for the first two years, $145,900 for the third year
of the lease and $160,490 for each of the fourth through sixth years of the
lease. See "Business--Manufacturing."

LEGAL PROCEEDINGS

There are no legal proceedings pending or, to the Company's knowledge,
threatened against the Company.

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<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
Name Age Position
--------------------------- ----- ----------------------------------------------
<S> <C> <C>
Donald B. Brounstein(1)(3) . 44 President, Chief Executive Officer and Director
James J. Whidden .......... 60 Senior Vice President of Clinical Development
Kenneth S. Hollander ...... 31 Chief Financial Officer
Steven S. Elbaum(2) ....... 47 Director
Jack L. Rivkin(1)(2)(3) ... 55 Director
John F. Sasen, Sr. ........ 54 Director
Udi Toledano(1)(2)(3) ..... 46 Director
</TABLE>

(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.

- ------

Donald B. Brounstein has served as President and Chief Executive Officer
of the Company since its inception and was Chairman of the Board of Directors
from the Company's inception on December 27, 1994 until May 1996. In 1978,
Mr. Brounstein founded Lee Surgical Co., Inc. ("Lee Surgical"), a company
which specialized in sales and service of medical supplies and equipment to
physicians throughout New Jersey and New York. He was Chief Executive Officer
of Lee Surgical until February 1994 when Lee Surgical was acquired by PSS.
Mr. Brounstein served as General Manager of Lee Surgical for PSS until
January 1995. In 1989, Mr. Brounstein founded BBU Leasing Inc., a medical
equipment finance company, of which he remains a director. Mr. Brounstein
devotes all of his business time to the Company's affairs.

James J. Whidden has served as Senior Vice President of Clinical
Development of the Company since May 1996. From the Company's inception until
May 1996, he was a consultant to the Company. From 1985 to 1994, Mr. Whidden
was a consultant for various private and public companies in the health care
field, as well as president of two development stage medical companies. From
1989 to 1990, he was President of Biomonitor, Inc., a development stage
biotechnology company and from 1988 to 1989, he was President of Humagen,
Inc., a development stage biotechnology company. In 1983 and 1984, he was
Senior Vice President, Business Development at Technicon Corporation, a
manufacturer of clinical instruments and diagnostic chemicals and had
responsibility for new clinical systems. From 1981 to 1982, he was an
independent consultant in the healthcare industry and from 1975 to 1981, he
was President of two divisions of Becton, Dickinson & Co., a manufacturer of
health care products.

Kenneth S. Hollander has been Chief Financial Officer of the Company since
June 1996. From 1989 to May 31, 1996, Mr. Hollander was Controller of Sidmak
Laboratories, Inc., a company engaged in the generic pharmaceutical industry.
From 1987 to 1989, Mr. Hollander was employed by the accounting firm of
Arthur Andersen and Co. Mr Hollander serves as Treasurer of the Board of
Trustees of The Richmond Fellowship, a private, non-profit, psychiatric
transitional residence.

Steven S. Elbaum has been a director of the Company since June 1996. Mr.
Elbaum has been the Chairman and Chief Executive Officer of The Alpine Group,
Inc., a public, diversified holding company which owns several companies
engaged in various manufacturing businesses, since 1984. He was a partner in
the law firm of Gifford, Woody, Palmer & Serles from 1979 to 1984 and was an
associate with such firm from 1974 to 1979. Mr. Elbaum is also a director of
Interim Services, Inc., one of the nation's largest providers of value added
staffing and health care services, and Polyvision Corporation, a manufacturer
of information display systems, each of which is a public company.

Jack L. Rivkin has been a director of the Company since May 1996. Mr.
Rivkin has been a Senior Vice President of Travelers Group Inc., the parent
company of The Travelers Insurance Company ("TIC"); and Smith

40
<PAGE>

Barney Inc., since January 1, 1996. He is currently responsible for the
management of venture capital and public equity partnerships for several
insurance subsidiaries of Travelers Group Inc. He is also a director and
member of the Investment Committee of Greenwich Street Capital Partners,
Inc., a merchant banking fund affiliated with Travelers Group Inc. From May
1993 to October 1995, he was Vice Chairman and Director of Global Research at
Smith Barney Inc. From August 1992 to May 1993, he was an independent
consultant. From 1990 to August 1992, Mr. Rivkin was Director of the Equities
Division and Director of Research of Lehman Brothers. From 1987 to 1990, he
was Director of Research at Shearson Lehman Brothers. From 1984 to 1987, Mr.
Rivkin was President of PaineWebber Capital, Inc., the merchant banking arm
of PaineWebber Group, and Chairman of Mitchell Hutchins Asset Management. He
is the co-author of a book on the venture capital industry, "Risk and Reward,
Venture Capital and the Making of America's Great Industries," published by
Random House. He is also a guest lecturer on venture capital at Columbia
University. Mr. Rivkin is a designee of TIC pursuant to the Voting Rights
Agreement (as hereinafter defined).

John F. Sasen, Sr. has been a director of the Company since May 1996. Mr.
Sasen has been President of PSS since August 1995, Chief Operating Officer of
PSS since December 1993 and a director of PSS since July 1993. Mr. Sasen also
was Executive Vice President of PSS from August 1993 to August 1995. From
August 1990 to December 1992, he was Vice President--Sales and Marketing of
PSS, and from January 1993 to July 1993, he was Regional Vice President of
PSS. Prior to joining PSS, Mr. Sasen was Vice President--Sales, Marketing and
Distributor Relations of Becton, Dickinson & Co., a manufacturer of health
care products. Mr. Sasen was employed by Becton, Dickinson & Co. for over 20
years.

Udi Toledano has been a director of the Company since May 1996. Mr.
Toledano has been the President of Andromeda Enterprises, Inc., a private
investment company, since December 1993. He has been the President of CR
Capital Inc., a private investment company, since 1983. He has also been an
advisor to various public and private corporations, none of which is
affiliated with or competes with the Company. Since April 1995, Mr. Toledano
has been a director of Global Pharmaceutical Corporation, a publicly traded
generic pharmaceuticals manufacturer; since July 1994, he has been a director
of Universal Stainless & Alloy Products, Inc., a publicly traded specialty
steel producer, and since February 1993, he has been a director of Pudgie's
Chicken, Inc., a publicly traded national fast food chain.

All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Executive officers
are elected by the Board of Directors to hold office for such term as may be
prescribed by the Board of Directors.

COMMITTEES

The Executive Committee, established in June 1996, currently consists of
Mr. Brounstein, as Chairman, and Messrs. Rivkin and Toledano. The Executive
Committee has all the powers of the Company's Board of Directors except that
it is not authorized to amend the Company's Certificate of Incorporation,
declare any dividends or issue shares of the capital stock of the Company.

The Audit Committee, established in June 1996, currently consists of Mr.
Elbaum as Chairman, and Messrs. Rivkin and Toledano. The Audit Committee
reviews with the Company's independent accountants the scope and timing of
their audit services, any other services they are asked to perform, the
report of independent accountants on the Company's financial statements
following completion of their audit and the Company's policies and procedures
with respect to internal accounting and financial controls. In addition, the
Audit Committee makes an annual recommendation to the Board of Directors
concerning the appointment of independent accountants for the ensuing year.

The Compensation Committee, established in June 1996, currently consists
of Mr. Toledano, as Chairman, and Messrs. Brounstein and Rivkin. The
Compensation Committee reviews the compensation and benefits of all officers
of the Company and makes recommendations to the Board of Directors, reviews
general policy matters relating to compensation and benefits of employees of
the Company. See "Management--Executive Compensation."

EXECUTIVE COMPENSATION

Compensation of Executive Officers. None of the Company's executive
officers was paid any compensation for services to the Company as an
executive officer during the fiscal year ended December 31, 1995.

41
<PAGE>

Employment Agreements. Donald B. Brounstein, James J. Whidden and Kenneth
S. Hollander have entered into employment agreements with the Company for the
position of President and Chief Executive Officer, in the case of Mr.
Brounstein, Senior Vice President of Clinical Development, in the case of Mr.
Whidden, and Chief Financial Officer, in the case of Mr. Hollander. Mr.
Brounstein's employment agreement provides for a base annual salary of
$145,000 with annual cost of living increases and a customary benefits
package. The agreement has a term of three years, ending December 31, 1999,
with automatic one-year extensions thereafter unless either party gives
notice of termination. Mr. Whidden's and Mr. Hollander's employment
agreements provide for a base annual salary of $120,000 and $90,000,
respectively, which may be increased annually at the discretion of the Board
of Directors, and a customary benefits package. Mr. Whidden's and Mr.
Hollander's employment agreements continue until canceled by the Company or
the employee. The Company may terminate Mr. Brounstein's employment agreement
for cause (as defined in the agreement), in which case Mr. Brounstein will be
entitled to receive all accrued and unpaid salary and benefits through the
termination date and an additional amount equal to one semi-monthly
installment of salary. The Company may terminate the respective employment
agreements of Messrs. Whidden and Hollander for cause (as defined in such
agreements) at any time, and with no further obligation to pay salary or
benefits. If either Mr. Whidden or Mr. Hollander were terminated without
cause, he would be entitled to receive six months severance pay. Each of the
employment agreements of Messrs. Brounstein, Whidden and Hollander prohibits
any such employee from (i) competing with the Company for one year following
his termination of employment with the Company and (ii) disclosing
confidential information or trade secrets in any unauthorized manner. The
Company has agreed to purchase a key person insurance policy on the life of
Mr. Brounstein in the amount of $8,000,000, with $600,000 of the death
benefit payable to a beneficiary selected by Mr. Brounstein and the remaining
$7,400,000 payable to the Company.

Under his employment agreement, Mr. Brounstein is eligible to receive a
bonus during calendar year 1996 as determined by the Compensation Committee.
Mr. Brounstein is eligible to receive in 1997 an annual bonus of up to 100%
of his base compensation, subject to the Company achieving certain after-tax
net income levels during the 1997 calendar year.

The following table sets forth for 1997 only the additional percentage of
base salary that will be paid to Mr. Brounstein as a bonus, and the target
after-tax net income that must be achieved by the Company in order for Mr.
Brounstein to be entitled to the corresponding bonus award:

<TABLE>
<CAPTION>
Additional Percentage
Targeted 1997 After Tax Net Income of Salary Paid as Bonus
------------------------------------------------------- ---------------------------
<S> <C>
$3.0 million or greater but less than $3.7 million .... 10%
$3.7 million or greater but less than $4.4 million .... 20%
$4.4 million or greater but less than $4.7 million .... 30%
$4.7 million or greater but less than $5.0 million .... 40%
$5.0 million or greater ............................... 100%
</TABLE>

Mr. Brounstein will be eligible to receive performance-based annual
bonuses for each year after calendar year 1997 modeled on a similar formula
as determined and agreed to by the Compensation Committee.

Mr. Whidden may, at the Company's option, receive an annual discretionary
bonus in an amount to be determined by the Compensation Committee. Mr.
Hollander will receive an annual bonus equal to a minimum of one month's
salary or such larger amount determined by the Company in its discretion.

Other than as described above and except for $30,000 paid to Mr. Whidden
as consulting fees during fiscal year 1995 before he was appointed an officer
of the Company, none of the Company's executive officers was paid any
compensation.

Stock Incentive Plan. The Company's 1996 Stock Incentive Plan (the "1996
Plan") was adopted by the Company's Board of Directors in June 1996 for the
purpose of securing for the Company and its stockholders the benefits arising
from the ownership of restricted shares of Common Stock ("Restricted Stock"),
stock appreciation rights ("SARs") and options to purchase Common Stock
("Options") by directors who are not employees ("Eligible Directors")
(Messrs. Elbaum, Rivkin, Sasen and Toledano are currently Eligible
Directors), officers, other key employees and consultants (the "Key
Employees") of the Company (and any subsidiary

42
<PAGE>

companies) who are expected to contribute to the Company's future growth and
success. No shares of Restricted Stock or SARs have been granted under the
1996 Plan. Options for 128,000 shares have been issued under the 1996 Plan as
of the date of this Prospectus. No award may be granted under the 1996 Plan
after June 2006.

Under the 1996 Plan, the maximum number of shares with respect to which
Options or SARs may be granted or which may be awarded as restricted stock is
700,000 shares of Common Stock. The Company may in its sole discretion grant
shares of Restricted Stock, SARs and Options to Key Employees and shall grant
Options to the Company's Eligible Directors subject to specified terms and
conditions and in accordance with a specified formula ("Formula") as
discussed below. Options granted to Key Employees may be either incentive
stock options ("ISOs") meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified
stock options ("NQSOs") not meeting the requirements of Section 422 of the
Code. SARs are rights to receive the appreciation in value, or a portion of
the appreciation in value, of a specified number of shares of Common Stock,
and may be granted in conjunction with, or independently of, Options.
Restricted Stock is Common Stock that is subject to restrictions against
transfer and forfeiture upon termination of employment. Options granted to
Eligible Directors shall be NQSOs.

The 1996 Plan provides that the Plan will be administered by the Board of
Directors. Subject to the terms of the 1996 Plan, the Board of Directors will
determine the Key Employees who will receive grants of Options, SARs or
Restricted Stock, the number of shares of Common Stock subject to each Option
or SAR or awarded as Restricted Stock, the grant date, the expiration date,
and other terms and conditions. Options granted to Eligible Directors are
governed by the Formula discussed below. The Board of Directors has the
authority to construe and interpret the provisions of the 1996 Plan or the
grants made thereunder. Each grant will be evidenced by a written agreement
executed by the Company and the Eligible Director or Key Employee, as the
case may be, at the time of grant, in accordance with the terms and
conditions of the 1996 Plan.

An Option or SAR granted to a Key Employee shall expire on the date
determined by the Board of Directors, which date may not exceed ten years
from the date the Option or SAR is granted, or five years, in the case of
NQSOs granted to Key Employees who at the time of grant own more than ten
percent of the combined voting power of all classes of stock of the Company
or any subsidiary (a "Ten Percent Stockholder"). Options and SARs granted to
Key Employees are exercisable, and restrictions on Restricted Stock lapse, at
such time or times and in such installments as determined by the Board of
Directors at the time of grant, but not earlier than six months, or later
than ten years (in the case of Restricted Stock and ISOs to Ten Percent
Stockholders, five years) from the date of grant.

If a Key Employee's employment with the Company terminates, the Board of
Directors may, in its discretion, permit the exercise of Options and SARs
granted to such Key Employee (i) for a period not longer than three months
following a termination other than for death or permanent disability, (ii)
for a period not longer than one year following a termination due to death or
permanent disability, and (iii) for a period not to extend beyond the
expiration date of any NQSOs or related or independently granted SARs,
provided, however, that the Board of Directors may not extend any Option or
SAR beyond its expiration date. If the employment of a Key Employee who holds
Restricted Stock terminates for any reason other than death or permanent
disability, any shares of Restricted Stock still subject to restrictions are
forfeited and must be transferred back to the Company for no consideration.
If such employment is terminated by the Company or any subsidiary without
cause or by agreement between the Company or a subsidiary and the Key
Employee, the Board of Directors may, in its discretion, release some or all
of the Restricted Stock from the restrictions. If the employment of a Key
Employee who holds Restricted Stock terminates by reason of death or
permanent disability, the restrictions on such Restricted Stock lapse unless
the Board of Directors determines otherwise.

In connection with his employment agreement, the Company granted Mr.
Hollander Options under the 1996 Plan to purchase 35,000 shares of Common
Stock at the initial public offering price per share (contingent upon the
closing of this Offering). The Options will vest in increments of 1,750 per
month for 20 months beginning April 30, 1997, subject to Mr. Hollander's
continued employment. The Company granted Mr. Whidden Options under the 1996
Plan to purchase 24,000 shares of Common stock at the initial public offering
price per share (contingent upon the closing of this Offering). The options
vest 33 1/3 % upon the grant of such Options, 66 2/3 % one year after the
date of grant and 100% two years after the date of grant, subject to Mr.
Whidden's continued employment.

43
<PAGE>

Under the Formula, each Eligible Director will be granted immediately
prior to the Offering Options to purchase 15,000 shares of Common Stock at an
exercise price equal to the initial public offering price per share, all of
which vest immediately (the "Initial Director Options"). On the first
business day following the annual meeting of stockholders of the Company to
elect directors in 1997, and thereafter on the first business day following
each successive annual meeting of stockholders, so long as Options remain
available to grant to Eligible Directors, each person who is elected as a
director after that meeting and is an Eligible Director, and each person who
continues to serve as a director after that meeting and is an Eligible
Director, shall be granted 10,000 Options ("Director Options") in recognition
of service as a director, subject to vesting, for the year ending on the day
prior to the next annual meeting of stockholders of the Company to elect
directors. Director Options expire ten years from the date of grant and vest
as follows (except for the Initial Director Options, which vest immediately
upon grant): 33 1/3 % upon the grant of such Options, 66 2/3 % one year after
the date of grant and 100% two years after the date of grant, in each case
assuming the recipient continuously serves as a director during that time.
Options that have vested as of the date on which an Eligible Director ceases
to serve as a director remain exercisable for 60 days or, if termination was
due to death or disability, 12 months.

The exercise price for each Option granted under the 1996 Plan shall be
not less than the fair market value (the "Fair Value") per share of Common
Stock on the date such Option is granted. For ISOs granted to a Ten Percent
Stockholder, the exercise price shall not be less than 110% of the Fair Value
per share of Common Stock. The exercise price may be paid in cash or by
transferring shares of Common Stock owned by the Option holder and having a
Fair Value on the date of surrender equal to the aggregate exercise price of
the Option, by the Company retaining from the shares to be delivered upon
exercise of the Option that number of shares having a Fair Value on the date
of exercise equal to the aggregate exercise price of the Option, pursuant to
a promissory note, and in any case, upon the terms and conditions as the
Board of Directors shall determine. Upon the exercise of any Option, the
Company is required to comply with all applicable withholding tax
requirements.

The Board of Directors may amend or terminate the 1996 Plan at any time
and in any respect except that the Board cannot, without the approval of a
majority of the Company's stockholders, amend the 1996 Plan to (i) increase
the maximum number of shares which are subject to the 1996 Plan, (ii)
increase the maximum number of shares for which any Key Employee may be
granted Options or SARs or which may be awarded to such Key Employee as
Restricted Stock, or (iii) change the class of persons eligible to
participate in the 1996 Plan. No amendment to the 1996 Plan may, without the
Option holder's consent, adversely affect any Options, SARs or Restricted
Stock previously granted to him or her.

Other Options. The Company has issued options outside of the 1996 Plan to
certain officers, employees and consultants to purchase a total of 142,500
shares of Common Stock. Options for 131,250 shares are dated February 9, 1996
and have a five-year term and an exercise price of $5.33 per share. The
holders of and the number of shares of Common Stock represented by the
options dated February 9, 1996 are as follows: Donald B. Brounstein, the
Company's President, Chief Executive Officer and a director, 37,500 shares;
James J. Whidden, the Company's Senior Vice President of Clinical Development
(who was a consultant to the Company at the time of grant), 37,500 shares;
Whidden & Associates, Inc., a corporation wholly owned by Mr. Whidden, 18,750
shares; Amy Lewis, director of sales of the Company, 18,750 shares; and
Everett M. Lautin, M.D., a consultant to the Company, 18,750 shares. All of
such options were fully vested on the date of grant. Options for 11,250
shares issued to Kenneth S. Hollander, the Company's Chief Financial Officer,
are dated June 3, 1996, have an exercise price of $5.33 per share and vest
April 30, 1997.

DIRECTOR COMPENSATION

Members of the Board of Directors of the Company presently receive no
additional remuneration for acting in that capacity. The Company anticipates
its nonemployee directors will be paid $500 (plus reasonable expenses) for
each attended meeting of the Board of Directors or committee thereof. Members
of the Board of Directors of the Company will also be eligible for the grant
of Options under the 1996 Plan which currently provides for each Eligible
Director (currently Messrs. Elbaum, Rivkin, Sasen and Toledano) to receive
the Initial Director Options and the Director Options. Mr. Rivkin is a
nominee of TIC. Mr. Rivkin has waived the $500 fee for attendance at meetings
of the Board of Directors or committees thereof and the Initial Director
Options. In lieu thereof, the Board of Directors has determined to grant TIC
options outside the 1996 Plan to purchase 15,000 shares of Common Stock at an
exercise price equal to the initial public offering price. See
"Management--Executive Compensation--Stock Incentive Plan." Four former
directors of the Company each received Options for 1,500 shares under the
Company's Nonemployee Director Stock Incentive Plan (the "Nonemployee
Director Plan"), which was adopted by the Company in January 1996 and
terminated upon the adoption of the 1996 Plan. Options held by one former
director expired unexercised in May 1996, 60 days after such director's
resignation from the Board.

44
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus,
and as adjusted to reflect the sale of the Common Stock offered hereby, by
(i) each stockholder known by the Company to be the beneficial owner of 5% or
more of the outstanding Common Stock, (ii) each of the Company's directors,
(iii) each of the named executive officers (as such term is defined in Rule
402(a)(2) of Regulation S-B) and (iv) all directors and executive officers of
the Company as a group. Except as otherwise indicated, the Company believes
that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power
with respect to such shares, subject to community property laws where
applicable.

<TABLE>
<CAPTION>
Percentage
Beneficially Owned
---------------------------
Number of Shares of Common Before After
Name and Address Stock Beneficially Owned Offering(1) Offering(2)(3)
------------------------------------- -------------------------- ----------- ------------
<S> <C> <C> <C>
Donald Brounstein(4)(5) ............. 897,000 40.3% 11.7%
Steven S. Elbaum(6)
1790 Broadway
New York, NY 10019 ................. 37,500 1.8% *
Jack L. Rivkin
388 Greenwich Street
New York, NY 10013 ................. 0 * *
John F. Sasen, Sr.(7)
7800 Belfort Parkway, Suite 250
Jacksonville, FL 32256 ............. 207,500 9.1% 2.6%
Udi Toledano(8)
545 Madison Avenue, Suite 800
New York, NY 10022 ................. 271,271 11.6% 3.5%
Travelers Group Inc.(9)
388 Greenwich Street
New York, NY 10013 ................. 1,732,020 45.5% 25.1%
Zsigmond L. Sagi, Ph.D.(10)
Scantek Medical, Inc.
26 Merry Lane
East Hanover, NJ 07936 ............. 1,013,438 48.6% 13.1%
Burnham Securities Inc.(11)
1325 Avenue of the Americas
New York, NY 10018 ................. 400,000 16.2% 4.9%
Herbert V. Turk(12)
2132 Cedarwood Lane
San Jose, CA 95125 ................. 256,271 11.0% 3.6%
All Officers and Directors as a group
(7 persons)(5)(6)(7)(8)(13) ........ 1,482,021 52.8% 18.4%

</TABLE>

- ------
* Less than 1%.

(1) Based upon 2,076,563 shares of Common Stock outstanding before Offering,
not including 2,943,750 shares issuable upon conversion of the Series A
Preferred Stock.

(2) Based upon 7,720,313 shares of Common Stock outstanding, including
2,943,750 shares issuable upon conversion of the Series A Preferred
Stock.

(3) Includes 363,500 shares of Common Stock to be purchased by certain
directors, officers and affiliates of the Company in this Offering, of
which 315,000 shares have been allocated to TIC, 16,000 shares have been
allocated to Donald B. Brounstein, 1,000 shares have been allocated to
Alexander Brounstein, the son of Donald B. Brounstein, 1,000 shares have
been allocated to James J. Whidden, 500 shares have been allocated to
Kenneth S. Hollander, 5,000 shares have been allocated to Udi Toledano
and 25,000 shares have been allocated to Herbert V. Turk.

45
<PAGE>

(4) c/o HumaScan Inc., 514 Centennial Avenue, Cranford, New Jersey 07016.

(5) Includes 75,000 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 15,000 shares issuable upon exercise of
Private Warrants, 19,500 shares issuable upon exercise of March Bridge
Warrants and 37,500 shares issuable upon exercise of options issued to
Mr. Brounstein on February 9, 1996. See "Management--Executive
Compensation."

(6) Includes 18,750 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 3,750 shares issuable upon exercise of Private
Warrants and 15,000 shares issuable upon exercise of Options issued to
Mr. Elbaum in June 1996 under the 1996 Plan.

(7) Includes 15,000 shares of Common Stock issuable upon exercise of Options
issued to Mr. Sasen in June 1996 under the 1996 Plan. Also includes
56,250 shares of Common Stock issuable upon conversion of Series A
Preferred Stock, 125,000 shares issuable upon exercise of the PSS
Warrants, and 11,250 shares issuable upon exercise of Private Warrants,
all of which securities are held by PSS. Mr. Sasen disclaims beneficial
ownership of all of the securities held by PSS.

(8) Includes 46,875 shares issuable upon conversion of Series A Preferred
Stock, 9,375 shares issuable upon exercise of Private Warrants, 11,250
shares issuable upon exercise of Toledano Group Warrants and 10,646
shares issuable upon conversion of March Bridge Warrants owned by Mr.
Toledano, as well as 15,000 shares issuable upon exercise of Options
issued to Mr. Toledano in June 1996 under the 1996 Plan. Also includes
75,000 shares of Common Stock issuable upon conversion of Series A
Preferred Stock, 15,000 shares issuable upon the exercise of Private
Warrants, 51,375 shares issuable upon exercise of Toledano Group
Warrants owned by Mr. Toledano's wife and a certain trust for the
benefit of their minor children (the "Toledano Trust"), an aggregate of
18,000 shares underlying Toledano Group Warrants owned by certain other
members of Mr. Toledano's family and 18,750 shares underlying March
Bridge Warrants held by the Toledano Trust. Mr. Toledano disclaims
beneficial ownership of all of the Private Warrants and Toledano Group
Warrants held by members of his family other than his wife and the
Toledano Trust, as well as the Common Stock issuable upon exercise of
such Private Warrants and Toledano Group Warrants.

(9) Includes 1,125,000 shares of Common Stock issuable upon conversion of
Series A Preferred Stock held by TIC, 225,000 shares issuable upon
exercise of Private Warrants held by TIC, 159,375 shares issuable upon
conversion of Series A Preferred Stock held by Smith Barney Worldwide
Special Fund, N.V. ("Smith Barney Fund"), 31,875 shares issuable upon
exercise of Private Warrants held by Smith Barney Fund, 28,125 shares
issuable upon conversion of Series A Preferred Stock held by Smith
Barney Worldwide Securities, Ltd. ("Smith Barney Securities"), 5,625
shares issuable upon exercise of Private Warrants held by Smith Barney
Securities, 37,500 shares issuable upon exercise of Private Warrants
held by Smith Barney Inc., 2,438 shares issuable upon exercise of March
Bridge Warrants held by Smith Barney Securities, 12,260 shares issuable
upon exercise of March Bridge Warrants held by Smith Barney Fund and
89,822 shares issuable upon exercise of March Bridge Warrants held by
TIC. Smith Barney Inc. and TIC are both subsidiaries of Travelers Group
Inc., and Smith Barney Securities and Smith Barney Fund are investment
funds domiciled outside the United States for which Smith Barney Inc.
acts as sponsor and adviser. Also includes 15,000 shares issuable upon
exercise of options issued to TIC in June 1996. See
"Management--Director Compensation." None of Travelers Group Inc., TIC,
Smith Barney Inc. or their respective affiliates has assumed or has any
responsibility for the management, business or operations of the Company
or for the statements contained in this Prospectus or the Registration
Statement of which this Prospectus is a part (other than the limited
information regarding the stock ownership of such entities under the
caption "Principal Stockholders").

(10) Includes 1,004,063 shares of Common Stock owned by Scantek, of which Dr.
Sagi is the Chairman of the Board and a principal stockholder, and 3,750
shares issuable upon conversion of Series A Preferred Stock, 750 shares
issuable upon exercise of Private Warrants and 4,875 shares issuable
upon exercise of March Bridge Warrants owned by Dr. Sagi. Does not
include 1,500 shares issuable upon exercise of options issued to Dr.
Sagi under the Nonemployee Director Plan which are not currently
exercisable.

(11) Includes 400,000 shares of Common Stock issuable upon exercise of
Private Warrants owned by Burnham.

(12) Includes 65,625 shares issuable upon conversion of Series A Preferred
Stock, 13,125 shares issuable upon exercise of Private Warrants owned
jointly by Mr. Turk and his wife, 50,625 shares issuable upon exercise
of Toledano Group Warrants owned jointly by Mr. Turk and his wife and
29,396 shares issuable upon con-

46
<PAGE>

version of March Bridge Warrants owned by Mr. Turk. Also includes an
aggregate of 56,250 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 11,250 shares issuable upon the exercise of
Private Warrants and 30,000 shares issuable upon exercise of Toledano
Group Warrants owned by Mr. Turk's two adult daughters. Mr. Turk
disclaims beneficial ownership of all of the Series A Preferred Stock,
Private Warrants and Toledano Group Warrants owned by his daughters as
well as the Common Stock issuable upon conversion of such Series A
Preferred Stock and exercise of such Private Warrants and Toledano Group
Warrants.

(13) Includes 3,750 shares of Common Stock issuable upon conversion of Series
A Preferred Stock, 750 shares issuable upon exercise of Private Warrants
and 64,250 shares issuable upon exercise of options held by James J.
Whidden, the Company's Senior Vice President of Clinical Development.
Does not include 16,000 shares issuable upon exercise of options held by
Mr. Whidden and 46,250 shares issuable upon exercise of options held by
Kenneth S. Hollander, the Company's Chief Financial Officer, which
options are not currently exercisable.

47
<PAGE>

CERTAIN TRANSACTIONS

Scantek Medical, Inc. The Company entered into the License Agreement with
Scantek in October 1995. Scantek owns beneficially 1,013,438 shares of the
Company's Common Stock, or 12.6% of the Common Stock to be outstanding after
this Offering. See "Business--License Agreement" and "Principal
Stockholders."

Zigmed, Inc. The Company entered into the Turnkey Construction Contract
with Zigmed as of October 31, 1995, and is obligated to purchase the
Production Line from Zigmed for a price of $1,750,680. Zsigmond G. Sagi, the
Chief Executive Officer and a principal stockholder of Zigmed, is the son of
Dr. Zsigmond L. Sagi, the Chairman of the Board of Scantek. See
"Business--Manufacturing."

Physician Sales & Service, Inc. The Company entered into the Distribution
Agreement with PSS as of February 27, 1996, pursuant to which PSS was
appointed the exclusive United States distributor of the BreastAssure device.
PSS owns 56,250 shares of Series A Preferred Stock, 11,250 Private Warrants
and 125,000 PSS Warrants. John F. Sasen, Sr., the President of PSS, is a
director of the Company. See "Business--Marketing and Distribution" and
"Principal Stockholders."

Donald B. Brounstein. During 1995, Donald B. Brounstein, the Company's
President, Chief Executive Officer and a director, loaned the Company an
aggregate of $125,000 on an interest-free basis (the "1995 Loans"), none of
which was repaid prior to the May Private Placement. Mr. Brounstein received
no consideration for the 1995 Loans. Mr. Brounstein also purchased $40,000
principal amount of the March Bridge Notes, which March Bridge Notes bore
interest at the rate of 10% per annum. In connection with the May Private
Placement, Mr. Brounstein exchanged such $40,000 principal amount of March
Bridge Notes and $34,000 of the 1995 Loans in payment of the initial purchase
price for two Units. The remaining $91,000 of the 1995 Loans, plus accrued
interest on Mr. Brounstein's March Bridge Notes of $711, was repaid to Mr.
Brounstein from the proceeds of the May Private Placement.

In connection with the May Private Placement, Mr. Brounstein granted the
holders of Series A Preferred Stock (or the underlying Common Stock if the
Series A Preferred Stock is converted) the right to participate on a pro rata
basis in the sale of any Common Stock or common stock equivalents owned by
him or his successors or assigns, based on the number of shares of Common
Stock into which the Series A Preferred Stock owned by such holder is
convertible or has been converted, the number of such shares held by such
other holders electing to participate, and the number of such shares of
Common Stock and common stock equivalents owned by him. Such right terminates
upon consummation of a Qualified IPO.

Private Warrants. In connection with the May Private Placement, the
Company issued Private Warrants to purchase 400,000 shares of Common Stock at
$2.93 per share to Burnham pursuant to the Placement Agreement and Private
Warrants to purchase 37,500 shares of Common Stock to Smith Barney Inc. See
"Principal Stockholders" and "Description of Securities--Private Placements."

Toledano Group Warrants. In connection with the May Private Placement, the
Company issued an aggregate of 161,250 Toledano Group Warrants to Udi
Toledano, a director of the Company, and members of his family, and Herbert
V. Turk and members of his family. The Toledano Group Warrants (i) may be
exercised in full if the Common Stock has been trading in the public market
at a price per share of at least $7.33 before a date which is six months
after the Initial Closing (as hereinafter defined), (ii) may be exercised for
an aggregate of only 52,500 shares of Common Stock if the Common Stock has
been trading publicly at a price per share of at least $7.33 more than six
months but less than nine months from the Initial Closing and (iii) may not
be exercised at all if the Common Stock does not trade in the public market
at a price per share of at least $7.33 within nine months after the Initial
Closing. See "Description of Securities--Private Placements."

James J. Whidden. In connection with the May Private Placement, for
clinical and business services rendered, the Company issued one tenth of a
Unit to James J. Whidden, the Company's Senior Vice President of Clinical
Development (who was a consultant to the Company at the time of such
issuance).

Conversion of Series A Preferred Stock. Upon consummation of this
Offering, all 2,943,750 outstanding shares of Series A Preferred Stock will
convert automatically into shares of Common Stock on a share-for-share basis.
Of the 2,943,750 shares of Series A Preferred Stock to be so converted,
Donald B. Brounstein, the Company's President, Chief Executive Officer and a
director, holds 75,000 shares, PSS holds 56,250 shares, Udi

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Toledano, a director of the Company, holds 121,875 shares (including 75,000
shares held by his wife), TIC holds 1,125,000 shares, Smith Barney Fund holds
159,375 shares, Smith Barney Securities holds 28,125 shares, Dr. Sagi holds
37,500 shares and Herbert V. Turk holds 121,875 shares (including an
aggregate of 56,250 shares held by his two adult daughters, as to which he
disclaims beneficial ownership).

Voting and Stockholder Rights Agreement. The Company, Burnham, TIC, Smith
Barney Securities, Smith Barney Fund and a consortium of investors led by Udi
Toledano entered into a Voting and Stockholder Rights Agreement dated as of
May 15, 1996 (the "Voting Rights Agreement") pursuant to which the parties
agreed that in connection with the exercise of the voting rights of the
holders of Series A Preferred Stock to elect three of the Company's
directors, one of such three directors will be nominated by each of Burnham,
TIC (or an affiliate) and Mr. Toledano, and each of the parties other than
the Company will vote their shares of Series A Preferred Stock to elect such
nominees. The Voting Rights Agreement also provides that the Company will
give each of the other parties to the agreement certain monthly financial
statements and annual budgets and projections. In addition, parties to the
Voting Rights Agreement that have not designated a nominee for election to
the Company's Board of Directors have certain rights to inspect the Company's
properties and examine its books, and are entitled to have a representative
attend and participate (but not vote) at meetings of the Company's Board of
Directors. The Voting Rights Agreement terminates upon the automatic
conversion of the Series A Preferred Stock into Common Stock upon
consummation of this Offering.

The Company believes that the terms of each of the foregoing transactions
are at least as favorable to the Company as could be obtained from third
parties in arms' length transactions. In connection with this Offering, the
Company has adopted a policy whereby all future transactions between the
Company and its officers, directors, principal stockholders or affiliates
will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested members of the Board of
Directors or, if required by law, a majority of disinterested stockholders,
and will be on terms no less favorable to the Company than could be obtained
in arm's length transactions from unaffiliated third parties.

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DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.01 par value per share, 4,175,000 shares of Series A
Convertible Preferred Stock, $.01 par value per share (the "Series A
Preferred Stock"), and 1,825,000 shares of undesignated preferred stock (the
"Undesignated Preferred Stock"). As of the date of this Prospectus, there are
2,076,563 shares of Common Stock issued and outstanding and held of record by
16 persons and 2,943,750 shares of Series A Preferred Stock issued and
outstanding and held of record by 81 persons. Upon the closing of this
Offering, the 2,943,750 outstanding shares of Series A Preferred Stock will
convert automatically into shares of Common Stock on a share-for-share basis,
and there will be no shares of Series A Preferred Stock outstanding. There
are presently no shares of Undesignated Preferred Stock outstanding.

COMMON STOCK

The shares of Common Stock currently outstanding are, and the shares of
Common Stock that will be outstanding upon the consummation of this Offering
will be, validly issued, fully paid and non-assessable. Each holder of Common
Stock is entitled to one vote for each share owned of record on all matters
voted upon by the stockholders. In the event of a liquidation, dissolution or
winding-up of the Company, the holders of Common Stock are entitled to share
equally and ratably in the assets of the Company, if any, remaining after the
payment of all debts and liabilities of the Company and the liquidation
preference of any outstanding Preferred Stock. The holders of the Common
Stock have no preemptive rights or cumulative voting rights and there are no
redemption, sinking fund or conversion provisions applicable to the Common
Stock.

Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors, out of funds legally available for such
purpose, subject to the dividend and liquidation rights of any Preferred
Stock that may be issued. See "Dividend Policy."

PREFERRED STOCK

Series A Convertible Preferred Stock. Each share of Series A Preferred
Stock is convertible into a share of Common Stock on a share-for-share basis
and is automatically converted into Common Stock upon an underwritten public
offering of the Company's securities registered pursuant to the Securities
Act in which the Company receives gross proceeds of at least $10,000,000 or
such lesser amount as may be determined by a majority of the three directors
elected by the holders of the Series A Preferred Stock pursuant to the voting
rights described below (a "Qualified IPO").

The holders of shares of Series A Preferred Stock are entitled to vote on
all matters for which holders of Common Stock are entitled to vote on an
as-if-converted basis. In addition, they have special voting rights with
respect to the election of directors as provided in the terms of such Series
A Preferred Stock. So long as at least one third of the shares of the Series
A Preferred Stock remain outstanding: (i) the holders of Series A Preferred
Stock, voting as a class, will be entitled to elect at least three directors
to the Company's Board of Directors, and (ii) notwithstanding clause (i)
above, until the completion of a Qualified IPO, the holders of a majority of
the Series A Preferred Stock will be entitled by written notice to the
Company at any time to determine the size of and to elect the entire Board of
Directors of the Company (other than one director to be specified by PSS
pursuant to the Distribution Agreement and one director to be designated by
Burnham pursuant to the Placement Agreement; Burnham has waived its right to
designate a director in contemplation of this Offering). Such Board of
Directors must approve, by affirmative vote, the payment of dividends, the
issuance of any capital stock, the issuance of debt and certain other
activities of the Company.

The holders of Series A Preferred Stock will be entitled to receive, on a
share-for-share basis with the holders of Common Stock, dividends when and as
declared by the Board of Directors of the Company.

In the event of any liquidation, dissolution or winding-up of the Company,
holders of the Series A Preferred Stock will be entitled to an amount equal
to $2.67 per share, subject to adjustment in connection with the antidilution
provisions described below, plus the amount of any dividend previously
declared with respect to the Series A Preferred Stock and remaining unpaid,
before any payments are made to the holders of Common Stock.

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After such amount has been paid to the holders of Series A Preferred Stock,
any additional funds available for distribution to the Company's stockholders
will be allocated equally among the holders of Series A Preferred Stock and
the holders of Common Stock, on a share-for-share basis (deeming each share
of Series A Preferred Stock to equal the number of shares of Common Stock
into which it is convertible). In the event that the Company has insufficient
funds to pay the full liquidation preference payable to the holders of Series
A Preferred Stock, the existing funds will be allocated among the holders of
all such shares pro rata in proportion to the full amounts to which they
would respectively be entitled.

The holders of Series A Preferred Stock are entitled to weighted average
anti-dilution protection for issuances or sales of Common Stock, or any
security convertible or exercisable into or exchangeable for shares of Common
Stock, to the extent that the Company sells such securities for less than the
Conversion Value (as defined in the Company's Certificate of Incorporation)
of the Series A Preferred Stock in effect on the date of such issuance
(initially, $2.67), subject to exclusions for the Common Stock issuable: (i)
upon exercise of Private Warrants issued as part of the Units sold in the May
Private Placement; (ii) to the November Bridge Investors upon conversion of
their November Bridge Notes; (iii) to Burnham upon exercise of the 400,000
Private Warrants held by Burnham; (iv) to certain officers, employees and
consultants upon exercise of options issued on February 9, 1996 and June 3,
1996 for up to 142,500 shares; (v) to PSS upon exercise of the PSS Warrants;
(vi) to Udi Toledano and family and Herbert V. Turk and family upon exercise
of an aggregate of 161,250 Private Warrants; (vii) to Smith Barney Inc. upon
exercise of an aggregate of 37,500 Private Warrants; and to the holders of
the March Bridge Warrants upon exercise of such March Bridge Warrants.

Any outstanding shares of Series A Preferred Stock will be redeemed by the
Company, at the option of the holder, during the 12-month period following
(i) the date of death of Donald B. Brounstein, the President and Chief
Executive Officer of the Company, or (ii) the third anniversary of the
initial closing of the May Private Placement if a Qualified IPO has not been
completed prior to such date for an amount equal to the Conversion Value of
such stock plus any accrued but unpaid dividends.

The holders of shares of Series A Preferred Stock have certain rights to
require the Company to register such shares and the underlying shares of
Common Stock for resale under the Securities Act. Such holders have waived
any and all rights they may have to register such shares in connection with
this Offering. See "Shares Eligible for Future Sale."

Undesignated Preferred Stock. The Company's Certificate of Incorporation
provides that the Company may, by vote of its Board of Directors, issue the
Undesignated Preferred Stock in one or more series having the rights,
preferences, privileges and restrictions thereon, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or designation of such series, without further vote
or action by the stockholders. The issuance of Undesignated Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company without further action by the stockholders and may adversely
affect the voting and other rights of the holders of Common Stock.

PRIVATE PLACEMENTS

On November 30, 1995, the Company sold an aggregate of $350,000 principal
amount of November Bridge Notes to 14 accredited investors (the "November
Bridge Investors") for an aggregate consideration of $350,000. The November
Bridge Notes bore interest at the rate of 10% per annum, were to mature on
August 30, 1996, and were secured by all of the assets of the Company.
Certain of the November Bridge Notes were also secured by the shares of the
Company's Common Stock owned by Donald B. Brounstein. $230,000 of the
proceeds of the November Bridge Notes was paid to Zigmed pursuant to the
Turnkey Construction Contract and the balance was used for working capital
and general corporate purposes. At the closing of the May Private Placement
(the "Initial Closing"), November Bridge Investors holding all $350,000 in
principal amount of the November Bridge Notes converted their November Bridge
Notes into one share of Series A Preferred Stock and one fifth of a Private
Warrant for each $1.33 principal amount of November Bridge Notes (resulting
in the issuance of 262,500 shares of Series A Preferred Stock and 52,500
Private Warrants) and received payment from the Company of an aggregate of
$16,488 in accrued interest due on such November Bridge Notes.

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<PAGE>

In connection with the May Private Placement, the Company offered each
November Bridge Investor the option, exercisable through May 22, 1996, to (i)
reaffirm their purchase of the November Bridge Notes, in which event the
November Bridge Notes would be converted in accordance with their terms into
fully paid shares of Series A Preferred Stock and Private Warrants, or (ii)
redeem the November Bridge Notes from the proceeds of the May Private
Placement for the amount of such investment plus applicable interest on the
November Bridge Notes, in which event all of the November Bridge Notes
purchased by such November Bridge Investor would be canceled. None of the
November Bridge Investors elected to redeem their purchases of November
Bridge Notes although one November Bridge Investor transferred a portion of
its November Bridge Note to another investor.

On March 19, 1996, the Company sold an aggregate of $460,000 principal
amount of March Bridge Notes and warrants to purchase 224,250 shares of
Common Stock at $0.67 per share to 15 accredited investors (the "March Bridge
Investors") for an aggregate consideration of $460,000. The March Bridge
Notes bore interest at the rate of 10% per annum, were to mature on the
earlier of the Initial Closing or May 31, 1996, were secured by all of the
assets of the Company and were senior in right of payment and security to the
November Bridge Notes. $50,000 of the proceeds of the March Bridge Notes was
paid to Zigmed pursuant to the Turnkey Construction Contract. $25,000 was
paid to Scantek pursuant to the License Agreement and $385,000 was used for
working capital and general corporate purposes.

At the Initial Closing, $434,800 in principal amount of the March Bridge
Notes (plus an additional $25,200 of the March Bridge Notes, representing
subscription funds in excess of the initial subscription amounts due from
four March Bridge Investors, which will be refunded to such four March Bridge
Investors if this Offering is consummated before August 15, 1996) were
canceled and applied to the initial purchase price of an aggregate of 11.75
Units.

In connection with the May Private Placement, the Company offered March
Bridge Investors whose March Bridge Notes had face amounts less than $50,000
the right, exercisable through May 23, 1996, to rescind the purchase of their
March Bridge Notes and March Bridge Warrants and be paid in full the
principal amounts of such March Bridge Notes from the proceeds of the May
Private Placement plus any accrued and unpaid interest on such March Bridge
Notes in lieu of applying such principal amount toward the purchase of Units,
in which event the March Bridge Notes and March Bridge Warrants purchased by
such March Bridge Investors would be canceled. None of the March Bridge
Investors elected to rescind their purchases of March Bridge Notes and March
Bridge Warrants.

In the May Private Placement, the Company sold 71.5 units ("Units") for
gross proceeds of $2,645,500 (representing 37% of the aggregate purchase
price of the Units) before commissions and related expenses. $434,800 of such
amount represented the aggregate principal amount of March Bridge Notes that
were exchanged for Units (including $40,000 in principal amount of March
Bridge Notes exchanged by Donald B. Brounstein, the Company's President and
Chief Executive Officer, in partial consideration for two Units purchased by
him), $2,163,750 was received in cash from other purchasers and $34,000
represented the principal amount of 1995 Loans surrendered by Mr. Brounstein
in payment of the balance of the purchase price for the Units purchased by
him. The Company issued one quarter of one Unit to Haythe & Curley, the law
firm that represented Burnham in the May Private Placement, and one tenth of
one Unit to James J. Whidden, the Company's Senior Vice President of Clinical
Development (who was a consultant to the Company at the time of such
issuance), in exchange for services rendered. Each Unit consisted of 37,500
shares of the Company's Series A Preferred Stock, which are convertible into
shares of Common Stock on a one-for-one basis, and Private Warrants to
purchase 7,500 shares of the Company's Common Stock for $2.93 per share. The
Private Warrants expire on the fifth anniversary of the Initial Closing. The
balance of the purchase price for each Unit is to be paid in unequal
installments of 13%, 21%, 20% and 9%, on August 15, 1996, October 15, 1996,
January 15, 1997 and March 15, 1997, respectively. If, prior to March 1,
1997, there occurs a Qualified IPO, then at the time of the closing of the
Qualified IPO: (i) the purchase price of the Units will be automatically
reduced by an amount equal to any installments not yet due and payable at the
time the registration statement relating to such Qualified IPO is declared
effective under the Securities Act, (ii) the Series A Preferred Stock will
convert automatically into Common Stock on a share for share basis, and (iii)
the shares of Common Stock issued upon conversion of the Preferred Stock will
be deemed fully paid and nonassessable. This Offering is a Qualified IPO.

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$215,000 of the net proceeds of the May Private Placement was paid to Zigmed
pursuant to the Turnkey Construction Contract, $375,000 was paid to Scantek
pursuant to the License Agreement, $91,000 (plus $711 in accrued interest on
March Bridge Notes) was paid to Donald B. Brounstein in payment of the
balance of the 1995 Loans and approximately $430,000 is being used for
working capital and general corporate purposes.

In connection with the May Private Placement, the Company issued
additional Private Warrants to Smith Barney Inc. to purchase 37,500 shares of
Common Stock at $2.93 per share. Also in connection with the May Private
Placement, the Company issued the Toledano Group Warrants to Udi Toledano, a
director of the Company, and members of his family and Herbert V. Turk and
members of his family. The Toledano Group Warrants (i) may be exercised in
full if the Common Stock has been trading in the public market at a price per
share of at least $7.33 before a date which is six months after the Initial
Closing, (ii) may be exercised for an aggregate of only 52,500 shares of
Common Stock if the Common Stock has been trading publicly at a price per
share of at least $7.33 more than six months but less than nine months from
the Initial Closing, and (iii) may not be exercised at all if the Common
Stock does not trade in the public market at a price per share of at least
$7.33 within nine months after the Initial Closing. See "Certain
Transactions."

The Company entered into the Placement Agreement with Burnham as of
November 16, 1995 pursuant to which Burnham acted as placement agent in
connection with the May Private Placement. Pursuant to the Placement
Agreement, the Company paid Burnham an aggregate of $570,000 in commissions
and $12,000 in expense reimbursement and issued to Burnham Private Warrants
to purchase 400,000 shares of Common Stock at $2.93 per share.

The Company granted certain demand and piggyback registration rights to
the holders of securities issued in connection with the May Private
Placement. Such holders have waived any and all rights they may have to
register such securities (and securities issuable upon conversion or exchange
of such securities) in connection with this Offering. See "Shares Eligible
for Future Sale."

LIMITATIONS UPON TRANSACTIONS WITH "INTERESTED STOCKHOLDERS"

Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least 66
2/3 % of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The restrictions of Section 203 do not apply,
among other things, if a corporation, by action of its stockholders, adopts
an amendment to its certificate of incorporation or by-laws expressly
electing not to be governed by Section 203, provided that, in addition to any
other vote required by law, such amendment to the certificate of
incorporation or by-laws must be approved by the affirmative vote of a
majority of the shares entitled to vote. Moreover, an amendment so adopted is
not effective until 12 months after its adoption and does not apply to any
business combination between the corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption. The
Company's Certificate of Incorporation and By-Laws do not currently contain
any provisions electing not to be governed by Section 203 of the Delaware
General Corporation Law. The provisions of Section 203 of the Delaware
General Corporation Law may have a depressive effect on the market price of
the Common Stock because they could impede any merger, consolidating takeover
or other business combination involving the Company, or discourage a
potential acquiror from making a tender offer or otherwise attempting to
obtain control of the Company.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director, and pro-

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vides that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by
law. The Company has entered into indemnification agreements with its
directors which may require the Company, among other things, to indemnify
such directors against liabilities that may arise by reason of their status
or service as directors (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance, if available on reasonable
terms. The Company intends to purchase directors' and officers' liability
insurance after the completion of this Offering. Section 145 of the Delaware
Law provides that a corporation may indemnify a director, officer, employee
or agent made or threatened to be made a party to an action by reason of the
fact that he was a director, officer, employee or agent of the corporation or
was serving at the request of the corporation against expenses actually and
reasonably incurred in connection with such action if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was
unlawful. Delaware Law does not permit a corporation to eliminate a
director's duty of care, and the provisions of the Company's Certificate of
Incorporation have no effect on the availability of equitable remedies, such
as injunction or rescission, for a director's breach of the duty of care.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

TRANSFER AGENT AND REGISTRAR

Continental Stock Transfer & Trust Company has been appointed as the
transfer agent and registrar for the Common Stock.

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SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have a total of
7,720,313 shares of Common Stock outstanding. Of these shares of Common
Stock, the 2,700,000 shares of Common Stock sold in this Offering (3,105,000
if the Underwriters' over-allotment option is exercised in full) will be
freely tradable by persons other than "affiliates" of the Company without
restriction under the Securities Act and the remaining 5,020,313 shares of
Common Stock outstanding will be "restricted" securities within the meaning
of Rule 144 ("Restricted Shares of Common Stock") and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption provided by Rule 144.

In general, under Rule 144 as currently in effect, the existing
stockholders and their transferees will, at various dates between March 1997
and May 1999, be entitled to sell in brokers' transactions or to market
makers some portion of the Restricted Shares of Common Stock which they
currently own. The number of Restricted Shares of Common Stock which may be
sold within any three-month period may not exceed the greater of (i) 1% of
the then outstanding shares of the Company's Common Stock (77,203 shares,
based on the number of shares of Common Stock outstanding immediately after
this Offering) or (ii) the average weekly trading volume of the Common Stock
on Nasdaq during the four calendar weeks preceding the date on which notice
of such sale is filed with the Securities and Exchange Commission. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company.

A person who is not an affiliate of the Company at any time during the 90
days preceding a sale and who has beneficially owned Restricted Shares of
Common Stock for at least three years is entitled to sell such Restricted
Shares of Common Stock under Rule 144(k) without regard to the availability
of current public information, volume limitations, manner of sale provisions
or notice requirements.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 generally may be relied upon with
respect to the sale of shares purchased from the Company by its employees,
directors, officers or consultants prior to the date of this Prospectus
pursuant to written compensatory benefit plans such as the 1996 Plan and
written contracts such as option agreements. Rule 701 is also available for
sales of shares acquired by persons pursuant to the exercise of options
granted prior to the effective date of this Prospectus, regardless of whether
the option exercise occurs before or after the effective date of this
Prospectus. Securities issued in reliance on Rule 701 are "restricted
securities" within the meaning of Rule 144 and, beginning 90 days after the
date of this Prospectus, may be sold by persons other than affiliates of the
Company subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its two-year minimum
holding period requirement.

Options granted outside the 1996 Plan to purchase a total of 142,000
shares of Common Stock, options granted under the 1996 Plan to purchase a
total of 128,000 shares of Common Stock and options granted under the
Nonemployee Director Plan to purchase 4,000 shares of Common Stock are
currently outstanding. 71,000 of the options granted under the 1996 Plan are
currently exercisable, 35,000 become exercisable at the rate of 1,750 per
month beginning in April 1997, 11,000 become exercisable in June 1998 and
11,000 become exercisable in June 1999. 131,250 of the options issued outside
the 1996 Plan are currently exercisable and 11,250 become exercisable in
April 1997. All of the options issued under the Nonemployee Director Plan
will expire before any of such options become exercisable. Shares of Common
Stock issued upon the exercise of outstanding options will be Restricted
Shares of Common Stock and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available.
Potential exemptions include those available under Rule 144 and Rule 701.

In connection with the May Private Placement, the Company granted certain
registration rights to the holders of the Series A Preferred Stock and the
Common Stock issuable upon conversion of the Series A Preferred Stock and
upon exercise of the Private Warrants, including the Series A Preferred Stock
and Private Warrants issued upon conversion of the November Bridge Notes and
in exchange for the March Bridge Notes, and issuable upon exercise of the PSS
Warrants, the Private Warrants issued to Smith Barney Inc. and Burnham and
the Toledano Group Warrants (the "Registrable Securities"). The Company has
granted the holders of the Registrable Securities unlimited demand and
piggyback registration rights exercisable at any time after the earlier to
occur

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of the consummation of this Offering or the date that is three years after
the closing of the May Private Placement upon written request by a majority
of such holders. If the registration rights are exercised and the Company
files a registration statement which is declared effective covering the
Registrable Securities, those shares of Common Stock will be registered and
as such, to the extent they are offered and sold pursuant to the registration
statement, will be available for immediate sale in the public market. The
Company has also granted piggyback registration rights to stockholders
holding an aggregate of 75,000 shares of Common Stock (the "Registrable
Stock"). The sale of the Registrable Securities or the Registrable Stock may
have a negative effect on the market price of the Common Stock and may
adversely affect the Company's ability to raise additional capital. See "Risk
Factors--Shares Eligible for Future Sale." The Company has agreed to pay all
registration expenses incurred by the Company in complying with the
registration rights pertaining to the Registrable Securities. Notwithstanding
the foregoing, the Company has agreed not to, without the prior written
consent of the Representative and for a period of 24 months following the
effective date of the Registration Statement, issue, sell, agree or offer to
sell, grant an option for the purchase or sale of, or otherwise transfer or
dispose of (i) more than an aggregate of 700,000 shares of Common Stock
(including 128,000 shares issuable upon exercise of currently outstanding
options granted under the 1996 Plan and including securities with equivalent
rights as the Common Stock and shares of Common Stock, or such equivalent
securities, issuable upon exercise of any and all options, warrants and other
contract rights and securities convertible directly or indirectly into shares
of Common Stock or such equivalent securities) or (ii) any such shares of
Common Stock (including securities with equivalent rights as the Common Stock
and shares of Common Stock, or such equivalent securities, issuable upon
exercise of any and all options, warrants and other contract rights and
securities convertible directly or indirectly into shares of Common Stock or
such equivalent securities) at a price less than the higher of the market
value of such shares of Common Stock or equivalent securities at the date of
grant (or issuance, as the case may be) or the initial public offering price
of the shares of Common Stock offered hereby; provided, however, that the
Company may (a) issue securities in connection with an underwritten public
offering on behalf of the Company, (b) authorize and issue a class or classes
of preferred stock, including convertible preferred stock, (c) issue employee
and director options to purchase up to 200,000 shares of Common Stock (out of
the aforesaid 700,000 shares) at fair market value on the date of grant (even
if such fair market value is less than the initial public offering price of
the shares of Common Stock offered hereby), (d) issue securities upon the
exercise of options, warrants and convertible securities currently
outstanding and (e) effect private placements of shares of Common Stock at a
per share price equal to or exceeding the initial public offering price of
the shares of Common Stock offered hereby (even if less than the fair market
value of the shares). All current stockholders of the Company and holders of
options, warrants or other securities exercisable or exchangeable for or
convertible into Common Stock who hold more than 1% of the Common Stock
(including Common Stock underlying options, warrants or other securities
exercisable or exchangeable for or convertible into Common Stock), have
agreed (i) not to, directly or indirectly, issue, offer, agree or offer to
sell, sell, transfer, assign, grant an option for purchase or sale of,
pledge, hypothecate or otherwise encumber or dispose of any beneficial
interest in such securities for a period of 12 months following the date of
this Prospectus without the prior written consent of the Company and the
Representative and (ii) not to exercise their registration rights for a
period of 12 months from the date of this Prospectus without the prior
written consent of the Company and the Representative.

Prior to this Offering, there has been no public market for the Common
Stock and no predictions can be made as to the effect, if any, that future
sales of shares of Common Stock or the availability of shares of Common Stock
for future sale will have on the market price prevailing from time to time.
Sales of substantial amounts of Common Stock or the perception that such
sales could occur could adversely affect the prevailing market price for the
Common Stock.

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UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Keane
Securities Co., Inc. is acting as representative (in such capacity, the
"Representative"), have severally and not jointly agreed, subject to the
terms and conditions of the Underwriting Agreement among the Company and the
Underwriters (the "Underwriting Agreement") to purchase from the Company and
the Company has agreed to sell to the Underwriters on a firm commitment
basis, the respective number of shares of Common Stock set forth opposite
their names below:

<TABLE>
<CAPTION>
Number
Shares of
Underwriter Common Stock
---------- --------------
<S> <C>
Keane Securities Co., Inc. ............. 890,000
Josephthal Lyon & Ross Incorporated ... 100,000
Pennsylvania Merchant Group, Ltd. ..... 100,000
Roney & Company ....................... 100,000
Societe Generale Securities Corporation . 100,000
Stephens, Inc. ........................ 100,000
Barington Capital Group, L.P. ......... 70,000
Brean Murray, Foster Securities, Inc. . 70,000
Commonwealth Associates ............... 70,000
Gaines, Berland Inc. .................. 70,000
GKN Securities Corp. .................. 70,000
Laidlaw Equities, Inc. ................ 70,000
Nutmeg Securities Ltd. ................ 70,000
Paulson Investment Company, Inc. ...... 70,000
Baird, Patrick & Co., Inc. ............ 50,000
Dakin Securities Corporation .......... 50,000
First Equity Corporation of Florida ... 50,000
First London Securities Corporation ... 50,000
Gilford Securities Incorporated ....... 50,000
Hampshire Securities Corporation ...... 50,000
Hefren-Tillotson, Inc. ................ 50,000
Keeley Investment Corp. ............... 50,000
LaJolla Securities Corporation ........ 50,000
L.T. Lawrence & Co., Inc. ............. 50,000
Ormes Capital Markets, Inc. ........... 50,000
Prime Charter Ltd. .................... 50,000
Scott & Stringfellow, Inc. ............ 50,000
Smith, Moore & Co. .................... 50,000
Southeast Research Partners, Inc. ..... 50,000
---------
Total ................................. 2,700,000
=========

</TABLE>

The Underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any of such shares of Common Stock are purchased. The
Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by their
counsel and various other conditions precedent specified therein.

The Representative has advised the Company that the Underwriters propose
initially to offer the Common Stock directly to the public at the initial
public offering price set forth on the cover page of this Prospectus and that
the Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD") a selling concession not
in excess of $.26 per share of Common Stock. Such dealers may reallow a
concession not in excess of $.10 per share of Common Stock to certain other
dealers who are NASD members. After the commencement of the Offering, the
public offering price, concession and reallowance may be changed by the
Representative.

57
<PAGE>

The Representative has advised the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed 5% of the total
number of shares of Common Stock offered hereby.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make. The Company has
also agreed to pay to the Representative a non-accountable expense allowance
equal to 2% of the gross proceeds derived from the sale of the Common Stock
underwritten, of which $50,000 has been paid to date.

The Company has granted to the Underwriters an over-allotment option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase from the Company up to an additional 405,000 shares of Common Stock
at the initial public offering price per share of Common Stock offered
hereby, less the underwriting discount and the non-accountable expense
allowance. The Underwriters may exercise such option only for the purpose of
covering over-allotments, if any, incurred in the sale of the Common Stock
offered hereby. To the extent the Underwriters exercise such option in whole
or in part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional shares of Common Stock
proportionate to its initial commitment and the Company will be obligated to
sell such shares of Common Stock to the Underwriters.

In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the
Company up to 270,000 shares of Common Stock (the "Representative's
Warrants"). The Representative's Warrants are initially exercisable at a
price of $7.80 per share of Common Stock for a period of four years,
commencing at the beginning of the second year after their issuance and sale,
and are restricted from sale, transfer, assignment or hypothecation for a
period of 12 months from the date hereof, except to officers of the
Representative. The Representative's Warrants provide for adjustment in the
number of shares of Common Stock issuable upon the exercise thereof and in
the exercise price of the Representative's Warrants as a result of certain
events, including subdivisions and combinations of the Common Stock. The
Representative's Warrants grant to the holders thereof certain rights of
registration with regard to the Common Stock issuable upon exercise thereof.

All officers and directors of the Company, and all current stockholders of
the Company and holders of options, warrants or other securities exercisable
or exchangeable for or convertible into Common Stock who hold more than 1% of
the Common Stock (including Common Stock underlying options, warrants or
other securities exercisable or exchangeable for or convertible into Common
Stock) have agreed not to, directly or indirectly, issue, offer, agree or
offer to sell, sell, transfer, assign, encumber, grant an option for the
purchase or sale of, pledge, hypothecate or otherwise dispose of any
beneficial interest in such securities for a period of 12 months following
the effective date of the Registration Statement without the prior written
consent of the Company and the Representative. An appropriate legend shall be
marked on the face of certificates representing all such securities.

The Company has agreed not to, without the prior written consent of the
Representative and for a period of 24 months following the effective date of
the Registration Statement, issue, sell, agree or offer to sell, grant an
option for the purchase or sale of, or otherwise transfer or dispose of (i)
more than an aggregate of 700,000 shares of Common Stock (including 128,000
shares issuable upon exercise of currently outstanding options granted under
the 1996 Plan and including securities with equivalent rights as the Common
Stock and shares of Common Stock, or such equivalent securities, issuable
upon exercise of any and all options, warrants and other contract rights and
securities convertible directly or indirectly into shares of Common Stock or
such equivalent securities) or (ii) any such shares of Common Stock
(including securities with equivalent rights as the Common Stock and shares
of Common Stock, or such equivalent securities, issuable upon exercise of any
and all options, warrants and other contract rights and securities
convertible directly or indirectly into shares of Common Stock or such
equivalent securities) at a price less than the higher of the market value of
such shares of Common Stock or equivalent securities at the date of grant (or
issuance, as the case may be) or the initial public offering price of the
shares of Common Stock offered hereby; provided, however, that the Company
may (a) issue securities in connection with an underwritten public offering
on behalf of the Company, (b) authorize and issue a class or classes of
preferred stock, including convertible preferred stock, (c) issue employee
and director options to purchase up to 200,000 shares of Common Stock (out of
the aforesaid 700,000 shares) at fair market value on the date of grant (even
if such fair market value is less than the initial public offering price of
the shares of Com-

58
<PAGE>

mon Stock offered hereby), (d) issue securities upon the exercise of options,
warrants and convertible securities currently outstanding and (e) effect
private placements of shares of Common Stock at a price per share equal to or
exceeding the initial public offering price of the shares of Common Stock
offered hereby (even if less than the fair market value of the shares).

Certain existing stockholders, directors and officers of the Company and
their affiliates or designees intend to purchase an aggregate of
approximately 20% of the shares of Common Stock offered hereby.

Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock
has been determined arbitrarily by negotiation between the Company and the
Representative and does not necessarily bear any relationship to the
Company's asset value, net worth, or other established criteria of value. The
factors considered in such negotiations, in addition to prevailing market
conditions, included the history of and prospects for the industry in which
the Company competes, an assessment of the Company's management, the
prospects of the Company, its capital structure, the market for initial
public offerings and certain other factors as were deemed relevant.

The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Graubard Mollen & Miller, New York, New York. Orrick,
Herrington & Sutcliffe, New York, New York has acted as counsel to the
Underwriters in connection with this Offering.

EXPERTS

The financial statements of HumaScan Inc. (a development stage enterprise)
as of December 31, 1995 and for the period from December 27, 1994 (inception)
to December 31, 1995 have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and exhibits and schedules thereto, certain parts
of which having been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement and the
exhibits and schedules thereto which may be inspected and copied at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Commission's Public
Reference Section at prescribed rates. Descriptions contained in this
Prospectus as to the contents of any contract or other documents filed as an
exhibit to the Registration Statement are not necessarily complete and each
such description is qualified by reference to such contract or document.

The Company intends to furnish its stockholders with annual reports
containing financial statements examined by an independent public accounting
firm and such other reports as the Company may determine to be appropriate or
as may be required by law. The Company's fiscal year ends on December 31. The
Company will become a reporting company under the Securities Exchange Act of
1934 after this Offering.

59
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report ..................................................................... F-2
Financial Statements:
Balance Sheet as of December 31, 1995 .......................................................... F-3
Statement of Operations for the period from December 27, 1994 (date of inception) to
December 31, 1995 ........................................................................... F-4
Statement of Stockholders' Deficit for the period from December 27, 1994 (date of inception) to
December 31, 1995 ........................................................................... F-5
Statement of Cash Flows for the period from December 27, 1994 (date of inception) to
December 31, 1995 ........................................................................... F-6
Notes to Financial Statements .................................................................. F-7
Financial Statements (unaudited):
Condensed Balance Sheets as of March 31, 1996 (unaudited) ...................................... F-15
Condensed Statements of Operations for the three months ended March 31, 1996 and 1995 and for the
period from December 27, 1994 (date of inception) to March 31, 1996 (unaudited) ............. F-16
Condensed Statements of Stockholders' Deficit for the period from December 27, 1994 (date of
inception) to December 31, 1995 and for the three months ended March 31, 1996 (unaudited) ... F-17
Condensed Statements of Cash Flows for the three months ended March 31, 1996 and 1995 and for the
period from December 27, 1994 (date of inception) to March 31, 1996 (unaudited) ............. F-18
Notes to Condensed Financial Statements (unaudited) ............................................ F-19

</TABLE>

All schedules are omitted for the reason that they are not required or are
not applicable, or the required information is shown in the financial
statements or notes thereto.

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying balance sheet of HumaScan Inc. (a
development stage enterprise) as of December 31, 1995, and the related
statements of operations, stockholders' deficit, and cash flows for the
period from December 27, 1994 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HumaScan Inc. (a development
stage enterprise) as of December 31, 1995, and the results of its operations
and its cash flows for the period from December 27, 1994 (date of inception)
to December 31, 1995 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP

Short Hills, New Jersey
February 9, 1996, except as to
note 9, which is as of July 23, 1996

F-2
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1995

<TABLE>
<CAPTION>
<S> <C>
Assets
------
Current assets:
Cash ................................................. $ 218,520
Prepaid expenses ..................................... 5,000
-----------
Total current assets ............................ 223,520
Property, plant and equipment ............................. 4,400
Other assets (note 6) ..................................... 145,000
-----------
Total assets .................................... $ 372,920
===========
Liabilities and Stockholders' Deficit
-------------------------------------
Notes payable (note 8) .................................... 350,000
Accrued expenses (note 2) ................................. 1,493,571
Due to officer (note 3) ................................... 125,000
-----------
Total current liabilities ....................... 1,968,571
-----------
Stockholders' deficit (notes 2 and 4):
Common stock, $0.01 par value, 25,000,000 shares authorized;
1,747,500 shares issued and outstanding ............ 17,475
Additional paid-in capital ........................... (1,401,875)
Deficit accumulated during the development stage ..... (211,251)
-----------
Total stockholders' deficit ..................... (1,595,651)
-----------
Commitments (note 6)
Total liabilities and stockholders' deficit ..... $ 372,920
===========

</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1995

<TABLE>
<CAPTION>
<S> <C>
Interest income .................................. $ 899
-------------
Operating expenses:
Consulting fees ................................ 92,842
Legal and professional fees .................... 99,972
Interest ....................................... 7,041
Other .......................................... 12,295
-------------
212,150
-------------
Net loss ......................................... $ (211,251)
=============
Pro forma net loss per share (note 1) (unaudited) . $ (.05)
=============
Shares used in computing pro forma net loss
per share (note 1) (unaudited) ................. 4,112,835
=============

</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1995

Deficit
Common stock accumulated
------------------------- Additional during
Shares paid-in development
issued Amount capital stage Total
----------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of shares of common stock $
upon incorporation ............ 825,000 $ 8,250 $ 53,750 -- $ 62,000
Issuance of shares of common stock
pursuant to subscription
agreements .................... 247,500 2,475 151,125 -- 153,600
Issuance of shares of common stock
in connection with license
agreement (note 2) ............ 675,000 6,750 (1,606,750) -- (1,600,000)
Net loss ....................... -- -- -- (211,251) (211,251)
--------- ------- ----------- --------- -----------
Balance, December 31, 1995 ..... 1,747,500 $17,475 $(1,401,875) $(211,251) $(1,595,651)
========= ======= =========== ========= ===========

</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1995

<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss ............................................................... $ (211,251)
Adjustments to reconcile net loss to net cash used in operating activities:
Noncash miscellaneous expenses ...................................... 40,350
Noncash interest expense ............................................ 7,041
Changes in operating assets and liabilities:
Increase in prepaid expenses ...................................... (5,000)
Increase in accrued expenses ...................................... 3,180
-----------
Net cash used in operating activities .......................... (165,680)
-----------
Cash flows from investing activities:
Purchase of property, plant and equipment .............................. (4,400)
Payments for production line ........................................... (105,000)
Payments in connection with license agreement .......................... (150,000)
-----------
Net cash used in investing activities .......................... (259,400)
-----------
Cash flows from financing activities:
Increase in other assets ............................................... (40,000)
Proceeds from issuance of common stock ................................. 208,600
Proceeds from officer loan ............................................. 125,000
Proceeds from borrowings of notes payable .............................. 350,000
-----------
Net cash provided by financing activities ...................... 643,600
-----------
Net increase in cash ..................................................... 218,520
Cash, beginning of period ................................................ --
-----------
Cash, end of period ...................................................... $ 218,520
==========
Supplemental disclosure of noncash transactions:
Amounts due in connection with license agreement ....................... $1,450,000
==========
Common stock issued in connection with license agreement ............... $ 9,000
==========

</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements

December 31, 1995

(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION:

HumaScan Inc. (the Company) is a development stage company which owns
under license the exclusive rights in the United States and Canada to
manufacture and market a breast thermal activity indicator (BTAI) device
called the "BreastAssure(TM) Thermal Activity Sensor" (the BreastAssure
device). The BreastAssure device is a non-invasive, easy to use, low cost,
adjunctive test to be used by primary care physicians, gynecologists and
other medical specialists as part of a breast disease monitoring program
along with breast self-examination, palpation and (depending on a patient's
age, family history and other factors) mammography and other established
clinical procedures including ultrasound and/or biopsy. The BreastAssure
device has received marketing clearance under Section 510(k) of the Food,
Drug and Cosmetic Act from the United States Food and Drug Administration.

The Company is currently devoting substantially all of its efforts to
raising capital and other organizational activities. There are no operating
revenues to date and there have been no product sales from inception of the
Company through December 31, 1995. The Company plans to finance its
operations through a private placement of its equity securities (see note 9)
and the initial public offering contemplated herein (the Offering). To date,
the Company has not manufactured or sold any product and there can be no
assurance that the Company will be able to manufacture or market its product
in the future, that future revenues will be significant, that any sales will
be profitable, or that the Company will have sufficient funds available to
manufacture or market its product. The Company's product and manufacturing
facility are also subject to extensive government regulations. Further, the
Company's future operations are dependent on the success of the Company's
commercialization efforts and market acceptance of its product.

BASIS OF PRESENTATION:

As no operations occurred in fiscal 1994, a separate statement of
operations for that period has not been presented.

INCOME TAXES:

Certain expense items are included in one reporting period for financial
reporting purposes and another for income tax purposes. Deferred income taxes
are provided in recognition of these temporary differences which relate
primarily to organization costs.

ORGANIZATION COSTS:

All organization costs are expensed as incurred.

OTHER ASSETS:

Costs paid to a placement agent and its attorneys associated with the
Company's private placement transaction (see note 9) are deferred and will be
recorded as a reduction of the proceeds received upon consummation of the
private placement.

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment is stated at cost and consists of computer
equipment. The computer equipment will be depreciated using the straight-line
method over five years upon being placed in service.

F-7
<PAGE>

HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)

(1) Organization and Significant Accounting Policies - (Continued)

REVERSE STOCK SPLIT:

The Company effected a four-to-three reverse stock split of its common
stock on July 23, 1996 (see note 9). All common share, per share and pro
forma per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect this reverse stock split.

CONCENTRATION OF CREDIT RISKS:

The Company invests its excess cash in deposits with major U.S. financial
institutions and money market funds. To date, the Company has not experienced
any losses on its cash equivalents and money market funds.

PRO FORMA NET LOSS PER SHARE (UNAUDITED):

Pro forma net loss per share was calculated by dividing the net loss by
the weighted average number of common shares outstanding for the period
adjusted for the dilutive effect of common stock equivalents which consist of
stock options and warrants using the treasury stock method. Pro forma net
loss per share gives effect to certain adjustments described below including
the aforementioned reverse stock split.

Pursuant to Securities and Exchange Commission (SEC) Staff Accounting
Bulletins and SEC Staff policy, common equivalent shares issued during the
twelve-month period prior to the proposed initial public offering at prices
below the anticipated initial public offering price are presumed to have been
issued in contemplation of the initial public offering and have been included
in the calculation as if they were outstanding for all periods presented
(using the treasury stock method and an initial public offering price of
$6.00 per share).

Pursuant to the policy of the SEC Staff, the calculation of shares used in
computing pro forma net loss per share also includes all of the preferred
stock that will convert into shares of common stock upon completion of the
Offering (using the treasury stock method and an initial public offering
price of $6.00 per share) as if they were outstanding for all periods
presented (see note 9).

(2) LICENSE AGREEMENT

In July 1995, the Company entered into an exclusive license agreement, as
amended, with Scantek which grants the Company the right to manufacture and
sell in the United States and Canada the BTAI test. The test is protected by
United States patents expiring February 26, 1997. The license agreement, as
amended, in addition to providing for the issuance of 675,000 shares of
common stock (see note 4), provides for a cash payment to Scantek of
$1,600,000, $150,000 of which has already been paid at December 31, 1995 and
$400,000 of which is to be funded from the proceeds of additional bridge
financings or the private placement, but no later than May 31, 1996 (see note
9). Thereafter (subject to the Company accepting the production line
described in note 6), $175,000 is payable on December 31, 1997, $175,000 on
March 31, 1998, $350,000 on October 31, 1998 and $350,000 on January 31,
1999. Surplus cash flow (one half of net income, as defined in the license
agreement, subject to certain adjustments) after the Company begins
operations is to be applied to unpaid installments of the cash portion of the
licensing fee in inverse order of maturity. Scantek is entitled to advance
payments as follows: (i) $100,000 (applied to unpaid installments of the cash
portion of the licensing fee in direct order of maturity) upon the later of
(x) the investment at any time by a distributor of $500,000 in the Company by
exercising its warrant for 125,000 shares of the Company's common stock (see
note 6) and (y) the shipment by the Company of the first order of the BTAI
test to the distributor; (ii) $300,000 (of which $100,000 is to be applied to
unpaid installments of the cash portion of the licensing fee in direct order
of maturity and the other $200,000 to be applied in inverse order of
maturity) upon the earlier to occur of (a) the extension of the relevant
patents at least through January 1, 2003 or (b) Scantek's obtaining a new
United States patent on the product; and (iii) if the circumstances described
in the preceding clause (ii) have not occurred and if Scantek has filed an
application for a new United States patent on the product at least one week
prior to the first road show for an initial public offering of the Company's
securities, Scantek is entitled to an advance payment of $100,000

F-8
<PAGE>

HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)

(2) License Agreement - (Continued)

from the proceeds of the closing of the public offering (which shall be
deemed a partial advance of the $300,000 payable pursuant to such clause (ii)
and which is to be applied to the unpaid installments of the cash portion of
the licensing fee in direct order of maturity). The license agreement also
provides for minimum annual royalty payments ranging from $150,000 in the
first year in which the product is sold to $600,000 in the fifth and
subsequent years (the Minimum Royalties) and maximum royalty payments ranging
from 3% of annual net product sales of up to $2,000,000 to 10% of the annual
net product sales if annual net product sales exceed $10,000,000 (the
Percentage Royalties). In addition, the license agreement will automatically
terminate if the aggregate earned royalties for the first three years the
product is sold do not exceed $950,000 (the Threshold Earned Royalties). The
Minimum Royalties and Threshold Earned Royalties automatically terminate
after February 26, 1997 (the date the relevant patents expire) if a
competitor introduces a product which would have infringed upon such patents.
In addition, the Percentage Royalties are reduced or eliminated if the
Company reduces the price of its product below certain preset amounts.

At December 31, 1995, the Company has accrued the remaining $1,450,000 of
license fees due to Scantek and has charged the entire consideration for the
license, in accordance with published SEC rules and regulations regarding
transfers of nonmonetary assets by promoters and shareholders, against
additional paid-in capital in the accompanying financial statements. The
reduction in paid-in capital reflects the equivalent of a return of capital
to be paid in accordance with the terms of the license out of the proceeds of
future equity offerings (see note 9). The Chairman of the Board of Directors
and majority owner of Scantek, who is the principal inventor of the BTAI
test, is also a member of the Board of Directors of the Company.

(3) DUE TO OFFICER

The majority stockholder and chief executive officer of the Company has
agreed to loan the Company up to $200,000 prior to the initial closing of the
private placement (see note 9), at which time he has agreed to purchase two
of the units offered, and any outstanding amount due from the Company
pursuant to the loans will be applied to such purchase and any amounts in
excess of the first installment (which aggregates $74,000) of the purchase
price for the units (which aggregates $200,000) will be repaid to him.
Amounts advanced as of December 31, 1995 totalled $125,000.

(4) STOCKHOLDERS' DEFICIT

At December 31, 1995, the Company was authorized to issue 5,000,000 shares
of common stock, par value $.01 per share (see note 9). The holders of common
stock are entitled to one vote for each share held of record on all matters
to be voted on by the common stockholders. The holders of common stock are
entitled to receive dividends when, as, and if declared by the Board of
Directors out of funds legally available for them. In the event of
liquidation, dissolution or winding-up of the Company, the holders of common
stock are entitled to share ratably together with the holders of the Series A
Convertible Preferred Stock to be issued in connection with the private
placement (see note 9) in all assets remaining which are available for
distribution to them after payment of liabilities and after provision has
been made for each class of stock having preference over the common stock.
Holders of shares of common stock, as such, have no conversion, preemptive or
other subscription rights, and there are no redemption provisions applicable
to the common stock.

Upon completion of the private placement (see note 9), the Company will be
authorized to issue 4,175,000 shares of preferred stock, which may have such
preferences and rights as the Board of Directors may designate, and the
Company will have one class of preferred stock designated as Series A
Convertible Preferred Stock, up to 4,175,000 shares of which will be
outstanding (assuming the maximum number of units provided for in the private
placement are sold and all of the November bridge promissory notes are
converted into 262,500 shares of Series A Convertible Preferred Stock (see
note 8)).

F-9
<PAGE>

HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)

(4) Stockholders' Deficit - (Continued)

Each share of Series A Convertible Preferred Stock is convertible into
shares of common stock on a one- for-one basis and is automatically converted
into common stock upon an underwritten public offering of the Company's
securities registered pursuant to the Securities Act of 1933 in which the
Company receives gross proceeds of at least $10,000,000 or such lesser amount
as may be determined by a majority of certain preferred stock directors (a
Qualified IPO (see note 9).

The holders of shares of Series A Convertible Preferred Stock will be
entitled to vote on all matters for which holders of common stock are
entitled to vote on an as-if-converted basis. In addition, they will have
special voting rights with respect to the election of directors and as
otherwise provided by law or in the terms of such preferred stock. As long as
at least one-third of the shares of the Series A Convertible Preferred Stock
issued in connection with the private placement (see note 9) remain
outstanding: (i) the holders of Series A Convertible Preferred Stock, voting
as a class, will be entitled to elect at least three directors to the
Company's Board of Directors and (ii) notwithstanding clause (i) above, until
the completion of a Qualified IPO, the holders of a majority of the Series A
Convertible Preferred Stock will be entitled by written notice to the Company
at any time to determine the size of and to elect the entire Board of
Directors of the Company (other than two individuals entitled to be
designated pursuant to separate agreements). Such Board of Directors must
approve, by affirmative vote, the payment of dividends, the issuance of any
capital stock, the issuance of debt and certain other activities of the
Company.

The holders of Series A Convertible Preferred Stock and the holders of
common stock will be entitled to receive, on a share-for-share basis,
dividends when and as declared by the Board of Directors of the Company.

In the event of any liquidation, dissolution or winding-up of the Company,
holders of the Series A Convertible Preferred Stock will be entitled to an
amount equal to $2.67 per share, subject to adjustment in connection with
certain anti-dilution provisions, plus the amount of any dividend previously
declared with respect to such Preferred Stock and remaining unpaid, before
any payments are made to the holders of common stock. After such amount has
been paid to the holders of Series A Convertible Preferred Stock, any
additional funds available for distribution to the Company's shareholders
will be allocated equally among the holders of Series A Convertible Preferred
Stock and the holders of common stock, on a share-for-share basis (deeming
each share of Series A Convertible Preferred Stock to equal the number of
shares of common stock into which it is convertible). In the event that the
Company has insufficient funds to pay the full liquidation preference payable
to the holders of Series A Convertible Preferred Stock, the existing funds
will be allocated among the holders of all such shares pro rata in proportion
to the full amounts to which they would respectively be entitled.

Any outstanding shares of Series A Convertible Preferred Stock will be
redeemed by the Company, at the option of the holder, during the 12-month
period following (i) the date of death of the Company's president; or (ii)
the third anniversary of the initial closing date of the private placement if
a Qualified IPO has not been completed prior to such date for an amount equal
to the conversion value of such stock plus any accrued but unpaid dividends
(currently $2.67 per share).

Although no assurance can be given that the Company will ever become
publicly traded, the Company has agreed (at any time during the five-year
period following the earlier to occur of (i) the date on which the Company
receives the net proceeds from a Qualified IPO; or (ii) the third anniversary
of the initial closing date of the private placement) to give holders of the
common stock issuable upon conversion of the Series A Convertible Preferred
Stock and upon exercise of warrants included in the units and conversion of
certain bridge loans (see notes 8 and 9) and issuable pursuant to certain
warrant arrangements (collectively such common stock is called the
Registrable Securities) unlimited "piggy-back" and demand registration
rights, with respect to the inclusion of any Registrable Securities owned by
such holders or issuable to them in any registration statement filed with the
SEC pursuant to the Securities Act of 1933, as amended, relating to an
offering of its securities to the public, provided that a majority vote of
the holders of Registrable Securities (or securities exercisable for or
convertible into Registrable Securities, treating for purposes of this
calculation all such securities as having been exercised for or converted
into Registrable Securities) is required to exercise any such demand right,
and subject to the provisions relating to a lock-up period, as defined.

F-10
<PAGE>

HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)

(4) Stockholders' Deficit - (Continued)

In connection with the private placement and prior to a Qualified IPO, the
chief executive officer of the Company has granted the holders of Series A
Convertible Preferred Stock (or the underlying common stock if in the event
of a conversion) the right to participate on a pro rata basis in the sale of
any common stock or common stock equivalents owned by him or his successors
or assigns, based on the number of common shares into which the preferred
stock owned by such holder is convertible or has been converted, the number
of such shares held by such other holders electing to participate, and the
number of such shares of common stock and common stock equivalents owned by
him.

As of inception, the Company issued 750,000 shares of its common stock at
$.067 per share to its chief executive officer and 75,000 shares at $.16 per
share to certain other investors. The Company also issued 22,500 and 225,000
shares of its common stock at $.16 and $.67 per share, respectively, in March
1995 pursuant to various subscription agreements.

In March 1995, the Company issued 675,000 shares of its common stock,
valued at $.067 per share, in conjunction with a license agreement with
Scantek (see note 2). The agreement requires the Company to increase or
decrease the number of shares upon the occurrence of a private placement
offering so that Scantek owns 20% of the issued and outstanding shares of the
Company's common stock at the completion of the private placement (see note
9). If the Company completes a second offering which would result in proceeds
to the Company that aggregate at least $10,000,000 ($15,000,000 if Scantek
gives the Company a Qualified Purchase Order (QPO) as defined in the License
Agreement of at least $1,000,000) when combined with the first private
placement offering which results in Scantek's ownership of less than 15% of
the issued and outstanding shares of the Company's common stock, Scantek will
receive warrants to purchase shares of the Company's common stock at an
exercise price of $5.33 ($3.33 if the Company receives the QPO) per share on
a one-for-one basis so that the sum of the common stock and warrants issued
to Scantek aggregate 15% of the issued and outstanding shares of the
Company's common stock. The aforementioned warrants expire five years from
the date of issuance.

(5) STOCK OPTION PLANS

As of January 12, 1996, the Company adopted its 1995 Stock Incentive Plan
(the Plan) permitting the Board of Directors to grant options to purchase
shares of common stock to certain persons. The Plan provides the Company's
Compensation Committee of the Board of Directors with the discretion to grant
or award to participants incentive stock options and nonqualified stock
options together with stock appreciation rights and/or restricted stock.
Pursuant to the grant of incentive stock options, nonqualified stock options,
and stock appreciation rights, the maximum number of shares of common stock
which may be awarded under the Plan is 750,000 shares. The maximum number of
shares issuable pursuant to the Plan will be increased by the number of
shares with respect to which rights previously granted have expired.

As of January 12, 1996, the Company also adopted a Nonemployee Director
Stock Option Plan (the Director's Plan) in which certain directors of the
Company, as defined, are eligible to participate. Two thousand shares are
automatically granted at an exercise price equal to the fair market value of
the Company's common stock to each eligible director upon the adoption of the
Director's Plan and on the date of the annual meeting of the Company (6,000
such options were granted on January 12, 1996 at an exercise price of $2.93).
Such options vest at a rate of 25% per year from the date of grant. The
maximum number of shares with respect to which options may be granted under
the Director's Plan is 75,000 shares.

In addition to the options provided for in the aforementioned Plans, in
February 1996, 93,750 options were issued to certain officers, employees and
consultants at an exercise price of $5.33 per share, each with a five-year
term.

F-11
<PAGE>

HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)

(6) COMMITMENTS

The Company has arranged for the construction of an automated production
line for the assembly of the BTAI test pursuant to a $1,750,680 fixed-price
turnkey construction contract (the Turnkey Construction Contract). The
Turnkey Construction Contract provides payments in stages over a 15-month
period. Payments in accordance with the terms of this agreement aggregated
$105,000 as of December 31, 1995. Such amount is included in other assets in
the accompanying balance sheet. An additional $615,000 will be paid from the
proceeds of the private placement or additional bridge financings in 1996
(see note 9). The vendor's president is the son of the Chairman of the Board
of Scantek. The Company has agreed to pay the vendor a bonus of up to $25,000
and 18,750 warrants to purchase the Company's common stock at an exercise
price of $5.33 per share upon the timely completion of the production line.

Pursuant to an agreement dated November 15, 1995, the Company entered into
an agreement with a placement agent to sell its securities on a best efforts
basis through a private placement (the Placement Agreement) (see note 9).
Fees for the agent will be 7% of the gross proceeds received by the Company
in the private placement and certain other financings. The Company will also
reimburse the placement agent for its expenses, including legal fees,
incurred in connection with the private placement. Additionally, the Company
has agreed to issue to the placement agent one warrant to purchase one share
of common stock for each $15 of units sold pursuant to the private placement
and certain other financings, but for not less than 300,000 shares of common
stock, all exercisable at $2.93 per share. Amounts advanced to the placement
agent and its attorneys aggregated $40,000 as of December 31, 1995 which is
included in other assets in the accompanying balance sheet.

The Company has signed, effective January 1, 1996, a three-year employment
agreement with its chief executive officer, with a rolling one-year renewal.
Annual compensation under the agreement includes a base salary of $145,000
and a bonus, pursuant to a formula based on net earnings of the Company, of
up to 100% of such salary. In addition, options to purchase 37,500 shares of
common stock at an exercise price of $5.33 per share were issued in
connection with the signing of the agreement. Such options expire in five
years.

The Company entered into an exclusive distribution agreement (Distribution
Agreement) in February 1996. The Distribution Agreement covers exclusive
United States rights and provides for the parties to cooperate on plans and
preparations for the regional and national introduction of the BTAI test
prior to the first production, sales and deliveries to physicians. The term
of the Distribution Agreement continues until terminated by either party for
certain material breaches which are not cured within prescribed time limits.
A representative of the distributor shall be nominated to the Board of
Directors of the Company. In connection with the Distribution Agreement, the
Company also has issued to the distributor warrants to purchase 125,000
shares of common stock at an exercise price of $4.00 per share (aggregating
$500,000), and the distributor is obligated to exercise such warrants within
90 days after both (i) the first 50,000 saleable BTAI test units have been
provided to the distributor and (ii) an officer of the Company certifies in
good faith to the distributor that the Company has no reason to believe it
will be unable to supply sufficient product to the distributor to achieve the
Distribution Agreement's first operating year objective. The Distribution
Agreement restricts such $500,000 solely for use by the Company for
advertising and promotion of the BTAI test. In accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," $10,000 of expense will be recorded upon the signing of the
agreement as an estimate of the value of such warrants.

(7) INCOME TAXES

No income tax expense has been recorded by the Company as the majority of
costs incurred as a development stage enterprise are capitalized for income
tax purposes. Such costs will be amortized over 60 months upon the
commencement of operations.

F-12
<PAGE>

HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)

(7) Income Taxes - (Continued)

At December 31, 1995, under Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (Statement 109), the Company has a
deferred tax asset relating to the future tax deductibility of such start-up,
organizational and deferred offering costs. There are no assurances that the
Company will be profitable in the future and, accordingly, a 100% provision
against the deferred tax asset has been recorded.

(8) BRIDGE FINANCING

On November 30, 1995, the Company sold an aggregate of $350,000 principal
amount of secured convertible promissory notes (November Bridge Notes) to
certain accredited investors (November Bridge Investors). The notes bear
interest at the rate of 10% per annum, mature on August 30, 1996, and are
secured by all of the assets of the Company. Certain of the notes are also
secured by the shares of the Company's common stock owned by the Company's
chief executive officer and one of its founders. The notes will be
automatically converted into .75 share of Series A Convertible Preferred
Stock and one fifth of a warrant to purchase a share of common stock at $2.93
for each $1.00 principal amount of such note if the Company issues and sells
the minimum number of units provided for in the private placement (see note
9).

(9) SUBSEQUENT EVENTS

On May 15, 1996, the Company completed a private placement for 71.5 units
(Units) for committed gross proceeds of $7,150,000 before commissions and
related expenses of approximately $1,000,000. Each Unit consists of 37,500
shares of the Company's Series A Convertible Preferred Stock, which are
convertible into shares of common stock on a one-for-one basis, and warrants
to purchase 7,500 shares of the Company's common stock for $2.93 per share.
The warrants expire on the fifth anniversary of the closing of the sale of
the Units. Such amount includes 37% of the purchase price for each Unit which
was paid at the time the Unit was purchased (the Initial Closing), and the
balance of the purchase price is to be paid thereafter in unequal
installments of 13%, 21%, 20% and 9%, on August 15, 1996, October 15, 1996,
January 15, 1997 and March 15, 1997, respectively, subject to certain
consequences of failure to pay any installment of the purchase price. If
prior to March 1, 1997 there occurs a Qualified IPO, then at the time of the
closing of the Qualified IPO: (i) the purchase price of the Units will be
automatically reduced by an amount equal to any installments not yet due and
payable at the time the registration statement relating to such offering is
declared effective under the Securities Act of 1933; and (ii) the shares
included therein will be deemed fully paid and nonassessable.

In connection with the closing of the private placement, the Company
issued 329,063 additional shares of common stock to Scantek in exchange for
the termination of its right, pursuant to the license agreement, to maintain
a 15% beneficial ownership interest in the Company if the Company completes
an initial public offering, as defined in the license agreement, by December
31, 1996 (see note 4).

On March 19, 1996, the Company issued an aggregate of $460,000 principal
amount of secured promissory notes (the March Bridge Notes) and warrants for
224,250 shares of the Company's common stock (at $0.67 per share exercise
price) (the March Bridge Warrants) to 15 accredited investors (the March
Bridge Investors). The March Bridge Notes bore interest at the rate of 10%
per annum, were to mature on the earlier of the Initial Closing or May 31,
1996, were secured by all of the assets of the Company and were senior in
right of payment and security to the November Bridge Notes. The proceeds
received from the March Bridge Investors were allocated between the March
Bridge Notes and the March Bridge Warrants. The $343,485 difference between
the principal amount of the March Bridge Notes and the amount allocated is to
be accreted and charged to operations over the term of the March Bridge
Notes. The March Bridge Notes were converted into the initial 37% purchase
price of 11.75 Units at the initial closing. Accrued interest through May 15,
1996 was paid to the March Bridge Investors.

Also at the Initial Closing, all of the November Bridge Notes to the
Company were converted in exchange for a total of 262,500 shares of Series A
Convertible Preferred Stock.

F-13
<PAGE>

HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)

(9) Subsequent Events - (Continued)

In connection with the private placement, the Company also issued
additional private warrants to certain investors totalling 198,750 shares of
common stock at a price of $2.93 per share. These include 161,250 warrants
which (i) may be exercised in full if the common stock has been trading in
the public market at a price per share of at least $7.33 before a date which
is six months after the Initial Closing, (ii) may be exercised for an
aggregate of only 52,500 shares of common stock if the common stock has been
trading publicly at a price per share of at least $7.33 more than six months
but less than nine months from the Initial Closing, and (iii) may not be
exercised at all if the common stock does not trade in the public market at a
price per share of at least $7.33 within nine months after the Initial
Closing. Pursuant to the Placement Agreement, the Company also issued to the
placement agent warrants to purchase 400,000 shares of common stock at $2.93
per share. Also in connection with the private placement, the Company's chief
executive officer exchanged $34,000 of amounts due to him in payment of the
purchase price for two Units, together with $40,000 of March Bridge Notes.
The remaining $91,000 of such loan was repaid from the proceeds of the
private placement together with accrued interest on such March Bridge Notes.

On July 23, 1996, the Company effected a four-to-three reverse stock split
of all outstanding shares of common stock including shares issuable under any
share option plan. All common share, per share and pro forma per share
amounts in the accompanying financial statements have been retroactively
restated to reflect this reverse stock split.

In May 1996, the authorized capital stock of the Company was increased to
14,000,000 shares of common stock, 4,175,000 shares of Series A Convertible
Preferred Stock and 1,825,000 shares of undesignated preferred stock (the
Undesignated Preferred Stock). On July 23, 1996, in connection with the
aforementioned stock split, the authorized common stock was increased to
25,000,000 shares.

The Company's certificate of incorporation now provides that the Company
may, by vote of its Board of Directors, issue the Undesignated Preferred
Stock in one or more series having the rights, preferences, privileges and
restrictions thereon, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or designation
of such series, without further vote or action by the stockholders. The
issuance of Undesignated Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the voting and other
rights of the holders of common stock. The issuance of Undesignated Preferred
Stock with voting and conversion rights may adversely affect the voting power
of the holders of common stock, including the loss of voting control to
others.

F-14
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
MARCH 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
Pro Forma
March 31, March 31,
Assets 1996 1996
------ ------------- -------------
<S> <C> <C>
Cash ................................................................ $ 229,294 $ 611,148
Property, plant and equipment, net .................................. 52,503 52,503
Other assets ........................................................ 495,000 720,000
----------- -----------
Total assets .............................................. $ 776,797 $ 1,383,651
=========== ===========
Liabilities and Stockholders' Deficit
-------------------------------------
Notes payable ....................................................... $ 540,119 $ --
Accrued expenses .................................................... 1,552,790 1,221,350
Due to officer ...................................................... 125,000 --
Obligations under capital lease ..................................... 7,436 7,436
----------- -----------
Total current liabilities ................................. 2,225,345 1,228,786
Obligations under capital lease, noncurrent portion ................. 41,980 41,980
Series A Convertible Preferred Stock (redeemable), $0.01 par value, 6,000,000
shares authorized, no shares issued and outstanding (2,943,750 pro forma
shares issued and outstanding shown net of stock subscriptions receivable
of $4,479,300) .................................................... -- 1,873,294
Stockholders' deficit:
Common stock, $0.01 par value, 25,000,000 shares authorized; 1,747,500
shares issued and outstanding (2,076,563 pro forma shares issued and
outstanding) ...................................................... 17,475 20,766
Additional paid-in capital .......................................... (1,058,390) (1,061,681)
Deficit accumulated during the development stage .................... (449,613) (719,494)
----------- -----------
Total stockholders' deficit ............................... (1,490,528) (1,760,409)
----------- -----------
Commitments
Total liabilities and stockholders' deficit ............... $ 776,797 $ 1,383,651
=========== ===========

</TABLE>

See accompanying notes to unaudited condensed financial statements.

F-15
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO MARCH 31, 1996
(UNAUDITED)

Period from
Three months December 27,
ended March 31, 1994 (date of
---------------------------- inception) to
1996 1995 March 31, 1996
------------- ----------- --------------
<S> <C> <C> <C>
Interest income ..................................... $ 1,246 $ -- $ 2,145
------------- ----------- --------------
Operating expenses:
Salaries .......................................... 55,589 -- 55,589
Consulting fees ................................... 21,892 26,500 114,734
Legal and professional fees ....................... 39,323 20,683 139,295
Interest .......................................... 87,605 -- 94,646
Other ............................................. 35,199 2,191 47,494
------------- ----------- --------------
239,608 49,374 451,758
------------- ----------- --------------
Net loss ............................................ $ (238,362) $(49,374) $(449,613)
============= =========== ==============
Pro forma net loss per share ........................ $ (.06)
=============
Shares used in computing pro forma net loss per share . 4,326,719
=============

</TABLE>

See accompanying notes to unaudited condensed financial statements.

F-16
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)

Deficit
Common stock accumulated
------------------------- Additional during
Shares paid-in development
issued Amount capital stage Total
----------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of shares of common stock
upon incorporation ............. 825,000 $ 8,250 $ 53,750 $ -- $ 62,000
Issuance of shares of common stock
pursuant to subscription agreements 247,500 2,475 151,125 -- 153,600
Issuance of shares of common stock
in connection with license
agreement ...................... 675,000 6,750 (1,606,750) -- (1,600,000)
Net loss ........................ -- -- -- (211,251) (211,251)
----------- ---------- -------------- ------------- --------------
Balance, December 31, 1995 ...... 1,747,500 $17,475 (1,401,875) (211,251) (1,595,651)
Issuance of common stock warrants in
connection with bridge financing
(unaudited) .................... -- -- 343,485 -- 343,485
Net loss (unaudited) ............ -- -- -- (238,362) (238,362)
----------- ---------- -------------- ------------- --------------
Balance, March 31, 1996 (unaudited) 1,747,500 $17,475 $(1,058,390) $(449,613) $(1,490,528)
=========== ========== ============== ============= ==============

</TABLE>

See accompanying notes to unaudited condensed financial statements.

F-17
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND FOR THE PERIOD FROM DECEMBER 27, 1994
(DATE OF INCEPTION) TO MARCH 31, 1996
(UNAUDITED)

Period from
Three months December 27,
ended March 31, 1994 (date of
----------------------------- inception) to
1996 1995 March 31, 1996
------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................... $ (238,362) $ (49,374) $ (449,613)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash miscellaneous expenses ................. 10,000 -- 50,350
Noncash interest expense ....................... 87,605 -- 94,646
Depreciation expense ........................... 1,886 -- 1,886
Changes in operating assets and liabilities:
Decrease in prepaid expenses ................. 5,000 -- --
Increase in accrued expenses ................. 35,218 -- 38,398
------------- ------------ --------------
Net cash used in operating activities ..... (98,653) (49,374) (264,333)
------------- ------------ --------------
Cash flows from investing activities:
Increase in other assets .......................... (350,000) -- (350,000)
Purchases of property, plant and equipment ........ -- -- (4,400)
Payments for production line ...................... -- -- (105,000)
Payments in connection with license agreement ..... -- (100,000) (150,000)
------------- ------------ --------------
Net cash used in investing activities ..... (350,000) (100,000) (609,400)
------------- ------------ --------------
Cash flows from financing activities:
Increase in other assets .......................... -- -- (40,000)
Proceeds from issuance of common stock ............ -- 203,600 208,600
Proceeds from officer loan ........................ -- -- 125,000
Proceeds from borrowings of notes payable ......... 460,000 -- 810,000
Principal payments on obligation under capital lease (573) -- (573)
------------- ------------ --------------
Net cash provided by financing activities . 459,427 203,600 1,103,027
------------- ------------ --------------
Net increase in cash ................................ 10,774 54,226 229,294
Cash, beginning of period ........................... 218,520 -- --
------------- ------------ --------------
Cash, end of period ................................. $ 229,294 $ 54,226 $ 229,294
============= ============ ==============
Supplemental disclosure of noncash transactions:
Amounts due in connection with license agreement . $ -- $1,500,000 $1,450,000
============= ============ ==============
Common stock issued in connection with license
agreement .................................... $ -- $ 9,000 $ 9,000
============= ============ ==============
Equipment acquired under capital lease ......... $ 49,989 $ -- $ 49,989
============= ============ ==============

</TABLE>

See accompanying notes to unaudited condensed financial statements.

F-18
<PAGE>

HUMASCAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Condensed Financial Statements

March 31, 1996 and 1995
(UNAUDITED)

(1) BASIS OF PRESENTATION

The unaudited condensed financial statements included herein have been
prepared by HumaScan Inc. (the Company), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and in accordance
with generally accepted accounting principles. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These unaudited financial
statements should be read in conjunction with the 1995 financial statements
and notes thereto.

In the opinion of the Company's management, the accompanying unaudited
condensed financial statements have been prepared on a basis substantially
consistent with the audited financial statements and contain adjustments, all
of which are of a normal recurring nature, necessary to present fairly its
financial position as of March 31, 1996 and its results of operations and
cash flows for the three months ended March 31, 1996 and 1995 and for the
period December 27, 1994 (date of inception) to March 31, 1996. Interim
results are not necessarily indicative of results for the full fiscal year.

The Company effected a four-to-three reverse stock split of its common
stock on July 23, 1996. All common share, per share and pro forma per share
amounts in the accompanying financial statements have been retroactively
adjusted to reflect this reverse stock split.

(2) BRIDGE FINANCING

On March 19, 1996, the Company sold an aggregate of $460,000 principal
amount of secured promissory notes (the March Bridge Notes) and warrants for
224,250 shares of the Company's common stock (at $.67 per share exercise
price) (the March Bridge Warrants) to 15 accredited investors (the March
Bridge Investors) for an aggregate consideration of $460,000. The March
Bridge Notes bear interest at the rate of 10% per annum, mature on the
earlier of the initial closing of the May 1996 private placement or May 31,
1996, are secured by all of the assets of the Company and are senior in right
of payment and security to a prior issuance of secured convertible promissory
notes. The March Bridge Notes were converted into the initial 37% purchase
price of 11.75 units at the initial closing of the May 1996 private
placement.

The proceeds received from the March Bridge Investors were allocated
between the March Bridge Notes and the March Bridge Warrants. The $343,485
difference between the principal amount of the March Bridge Notes and the
amount allocated is to be accreted and charged to operations over the term of
the March Bridge Notes. As such, $73,604 was recorded as additional interest
expense during the three months ended March 31, 1996.

(3) AMENDMENT TO STOCK OPTION PLANS

In June 1996, the Company terminated its 1995 Stock Incentive Plan and the
Nonemployee Director Stock Option Plan and reserved an aggregate of 700,000
shares for the 1996 Stock Incentive Plan.

(4) COMMON STOCK OPTIONS

In June 1996, the Company agreed to grant to a recently hired officer the
following stock options to purchase shares of common stock:

o 11,250 options at an exercise price of $5.33 per share which vest in
April 1997; and,

o 35,000 options at an exercise price equal to the initial public
offering price per share (contingent upon the closing of the proposed
offering) which vest on a monthly basis over 20 months, beginning in
April 1997.

F-19
<PAGE>

HUMASCAN INC.
(A Development Stage Enterprise)
Notes to Condensed Financial Statements - (Continued)

In addition, the Company agreed to grant an officer 24,000 and a
consultant 9,000 stock options, vesting ratably over two years, at the
initial public offering price per share (contingent upon the closing of the
proposed offering).

(5) APPROVAL OF INITIAL PUBLIC OFFERING

In August 1996, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission permitting
the Company to sell approximately 3,000,000 shares (3,450,000 shares if the
underwriters' over-allotment option is exercised in full) of its common stock
at a price of $6.00 per share.

(6) LEASE COMMITMENT

In June 1996, the Company leased a facility under a six year lease with
aggregate rental payments of $875,400.

(7) PRO FORMA BALANCE SHEET

The unaudited pro forma March 31, 1996 balance sheet has been prepared
using the unaudited March 31, 1996 historical balance sheet of the Company
and reflects the effects of the following transactions (all of which are
assumed to have occurred at March 31, 1996):

o The conversion/partial repayment of amounts due to the chief executive
officer.

o The conversion of the $350,000 November Bridge Notes into 262,500
shares of Series A Convertible Preferred Stock.

o The issuance of an additional 329,063 shares of common stock to Scantek
in connection with the terms of the 1995 license agreement.

o The conversion of the $460,000 March Bridge Notes in connection with
the sale of 71.5 units in a private placement, resulting in the
issuance of 2,681,250 shares of Series A Convertible Preferred Stock.
The unamortized debt discount described in note 2 above, which totalled
$269,881 at March 31, 1996, was recorded as a charge directly to the
deficit accumulated during the development stage. Immediate proceeds of
such sale represent 37% of the total $7,150,000 consideration for all
the units, less the $460,000 March Bridge Financing amount, in
accordance with the terms of the private placement. Remaining amounts
are due in the next 12 months unless a Qualified IPO is completed, as
defined.

o Cash payments made at closing for interest on various previous
financings, private placement expenses, including the placement agent
fee, required license payments to Scantek ($375,000) and payments to
the vendor in accordance with the terms of the Turnkey Construction
Contract ($265,000) have also been reflected.

The unaudited pro forma balance sheet should be read in conjunction with
the Company's historical financial statements and accompanying notes thereto.

F-20
<PAGE>

LOGO

FIGURE A

The thermal dots on the BreastAssure(TM) device are blue when removed from the
package.

[INSERT ART]

Each column of thermal dots will change color at a pre-set
temperature. Column 1 starts at 90 degrees F and each adjacent column
is 0.5 degrees higher, so that column 18 reads 98.5 degrees F.

FIGURE B

After the device is worn by the the patient for 15 minutes, some of the
columns of thermal dots will turn pink due to heat emitted from the breast. A
4 column difference between opposite segements is a positive test result.

[INSERT ART]

On the orange segement of the left breast, 7 columns of
dots have turned pink. On the orange segement of the right
breast, 12 columns of dots have turned pink.

Since a 4 column difference (2 degrees F) between opposite segements is a
positive test result, the above example, which shows a difference of 5 columns
(a 2.5 degrees F higher temperature on the right side) is a positive result.

<PAGE>

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

No dealer, salesperson or any other person has been authorized to give any
information or to make any representations in connection with this Offering
other than those contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer
or solicitation is not authorized, or in which the person making such offer
or solicitation is not qualified to do so or to anyone to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof as of which such information is furnished.
------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary .......................... 3
Risk Factors ................................ 9
Use of Proceeds ............................. 17
Dividend Policy ............................. 18
Capitalization .............................. 19
Dilution .................................... 20
Management's Discussion and Analysis of Financial
Condition and Plan of Operation ............ 21
Business .................................... 25
Management .................................. 40
Principal Stockholders ...................... 45
Certain Transactions ........................ 48
Description of Securities ................... 50
Shares Eligible for Future Sale ............. 55
Underwriting ................................ 57
Legal Matters ............................... 59
Experts ..................................... 59
Additional Information ...................... 59
Index to Financial Statements ............... F-1

</TABLE>

Until September 6, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.

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

2,700,000 SHARES
[LOGO]
COMMON STOCK
------
PROSPECTUS
------
KEANE SECURITIES CO., INC.
August 12, 1996

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