TRYLON CORP, S-1/A, 1996-08-15

TRYLON CORP
S-1/A, 1996-08-15
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1996

REGISTRATION NO. 333-09915

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1

TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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THE TRYLON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3841 33-0346437
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

970 W. 190TH STREET, SUITE 900
TORRANCE, CALIFORNIA 90502
(310) 327-8820
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------
MARTIN L. LONKY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE TRYLON CORPORATION
970 W. 190TH STREET, SUITE 900
TORRANCE, CALIFORNIA 90502
(310) 327-8820
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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Copies to:
GARY OLSON ERIC A. KLEIN KENNETH J. BARONSKY
ROBERT A. KOENIG KLEIN & MARTIN MILBANK, TWEED, HADLEY &
LATHAM & WATKINS 2029 CENTURY PARK EAST MCCLOY
633 W. FIFTH STREET, SUITE 1112 601 S. FIGUEROA STREET
SUITE 4000 LOS ANGELES, CALIFORNIA 30TH FLOOR
LOS ANGELES, CALIFORNIA 90067 LOS ANGELES, CALIFORNIA
90071 (310) 201-2581 90017
(213) 485-1234 (213) 892-4000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

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If any of the securities on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended, (the "Securities Act"), check the following box: [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [_]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED AUGUST 15, 1996

PROSPECTUS
, 1996

THE TRYLON CORPORATION

COMMON STOCK

All of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being issued and sold by The
Trylon Corporation (the "Company"). Prior to this Offering, there has been no
public market for the shares of Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $ and $
per share. See "Underwriting" for a discussion of factors considered in
determining the initial public offering price of the shares.

Application has been made to include the Common Stock in the Nasdaq National
Market under the symbol "TRLN."

SEE "RISK FACTORS" ON PAGES 6-13 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK
OFFERED HEREBY.

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

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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share...................................... $ $ $
Total(3)....................................... $ $ $
</TABLE>
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(1) The Company and certain of the Company's stockholders (the "Selling
Stockholders") have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and the Selling Stockholders have granted to the Underwriters a
30-day option to purchase up to and additional shares of Common
Stock, respectively on the same terms as set forth above solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to the Public, Underwriting Discounts and Commissions,
Proceeds to the Company and proceeds to the Selling Stockholders will be
$ , $ , $ and $ , respectively. The Company will not receive any
of the proceeds from the sale of shares by the Selling Stockholders. See
"Underwriting" and "Principal and Selling Stockholders."

The shares are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to reject orders in whole or in part.
It is expected that delivery of the shares offered hereby will be available for
delivery on or about , 1996 at the offices of Donaldson, Lufkin & Jenrette
Securities Corporation, New York, New York or through the facilities of the
Depository Trust Corporation.

DONALDSON, LUFKIN & JENRETTE SMITH BARNEY INC.
SECURITIES CORPORATION
<PAGE>

[PHOTOS OF TRYLON'S PAP PLUS SPECULOSCOPY(R) AND OTHER PRODUCTS.]

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

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes an initial public
offering price of $ per share and that the Underwriters' over-allotment
option to acquire shares is not exercised. In addition, all of the
information in this Prospectus has been adjusted to give effect to an aggregate
Common Stock split to be completed prior to the consummation of the
Offering. Unless the context requires otherwise, all references herein to the
Company include the Company's wholly-owned subsidiary, Perisphere Industries,
Inc.

THE COMPANY

The Trylon Corporation ("Trylon" or the "Company") is an innovative medical
products company that has pioneered the use of chemical light technology in
diagnostic and other medical applications. The Company's first product, PAP
PLUS SPECULOSCOPY(R) ("PPS"), combines the Company's patented visual
examination, SPECULOSCOPY(TM), with the standard Pap smear, into a simple
cervical screening test for women. Speculoscopy, which can be performed by a
wide range of health care practitioners at low cost, visually illuminates
cervical abnormalities, which may include cancer and precancer, during a
routine pelvic examination. Trylon received clearance from the FDA in December
1995 to market PPS for primary cervical screening.

Clinical data reviewed by the FDA indicated that PPS was more accurate in
detecting cervical abnormalities than the traditional screening test for
detecting cervical cancer, the Pap smear. As a result, the Company believes
that PPS will allow health care practitioners to identify women with cervical
abnormalities earlier than if they used the Pap smear alone. Earlier diagnosis
allows for more cost-effective treatment. At a precancerous state of disease,
costs of treatment typically do not exceed $500, while costs of treating
invasive cervical cancer often exceed $60,000.

The Company's objective is to have PPS become a "standard of care" for
primary cervical screening worldwide. The Company has scheduled major United
States and international product launches of PPS during 1996. In the United
States, the Company has a long-term marketing and distribution agreement with
Pharmacia & Upjohn, Inc. ("P&U"), one of the largest pharmaceutical
distribution companies in the world. In addition, PPS is being marketed through
leading pharmaceutical and medical supply companies in certain European, Asian
and North American markets.

P&U has a strong commitment to the areas of women's health care and cancer
treatment and plans to utilize its entire national sales force for the
distribution of PPS. In addition, P&U has committed to a national advertising
campaign for PPS and has selected PPS for special sales incentives. P&U will be
the primary sponsor of the national advertising campaign, although the Company
will supplement P&U's efforts by contributing approximately $10 million to the
cost of such campaign. The PPS launch, scheduled to commence in the fourth
quarter of 1996, will target: (i) over 60,000 health care practitioners through
P&U's direct selling efforts and educational programs, (ii) women and women's
advocacy groups, primarily through a direct-to-consumer television and print
advertising program and other public relations efforts and (iii) third-party
payors, including managed-care organizations. The initial promotional campaign
will use P&U's established sales force to target office-based physicians in 20
major domestic markets. During 1997, P&U plans to expand these marketing
efforts nationwide, supported by the consumer advertising and advocacy
campaigns to be undertaken jointly by the Company and P&U.

Cervical cancer is the second most common cancer in women worldwide, with
approximately 450,000 new cases diagnosed annually. In the United States, over
50 million women are screened for cervical cancer annually using a standard Pap
smear. Nevertheless, the incidence of cervical cancer has increased in the
United States

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over the last ten years, and the rate of death within the first five years of
diagnosis of cervical cancer remains above 30%. The American Cancer Society
reported that in 1995 approximately 15,800 new cases of cervical cancer were
diagnosed in the United States. Worldwide, more than 150 million Pap smears are
performed annually, leaving acute, unfulfilled needs for screening in large
portions of the world, particularly in developing countries.

In addition to PPS, the Company has developed and initiated clinical studies
of a number of products that apply its proprietary technologies to other
medical, surgical and dental uses. These products include ORAL SPECULOSCOPY(TM)
for the screening of oral cancer and SPIRABRUSH Cx(R) as a cervical sampling
device. The Company's goal is to introduce at least one new product each year.
The Company is actively developing and seeking to acquire other innovative
technologies with medical applications. See "Business."

The Company was incorporated in the State of Delaware on June 30, 1987. The
Company's executive offices are located at 970 West 190th Street, Torrance,
California 90502 and its telephone number is (310) 327-8820.

THE OFFERING

<TABLE>
<C> <S>
Common Stock offered by the Company(1).......
Common Stock to be outstanding immediately
after the Offering(2).......................
Use of Proceeds to the Company............... To fund the PPS domestic
marketing campaign, research
and development activities,
capital expenditures and
general corporate purposes.
Proposed Nasdaq National Market Symbol....... TRLN
</TABLE>
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(1) Does not include up to shares of Common Stock that may be sold by the
Company and the Selling Stockholders pursuant to the Underwriters' over-
allotment option. See "Underwriting."
(2) Includes (i) 3,399.6 shares of Common Stock which will be issued upon the
automatic conversion of outstanding shares of Series A Convertible
Preferred Stock at the effective date of the Offering and (ii) up to 149.9
additional shares of Common Stock issuable to an existing stockholder of
the Company pursuant to anti-dilution rights that are held by such
stockholder and that will be triggered by the preferred stock conversion,
but excludes (a) up to 8,000 shares of Common Stock issuable on or prior to
September 9, 1996 in connection with the exercise of outstanding common
stock purchase warrants (the "Warrants") and (b) up to 1,793 shares of
Common Stock issuable upon the exercise of outstanding options held by a
director and a former director. See "Description of Capital Stock."

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The summary consolidated financial information set forth below for the
Company's fiscal years ended December 31, 1993, 1994 and 1995 is derived from
the Company's consolidated financial statements audited by Arthur Andersen LLP,
independent public accountants, included elsewhere in this Prospectus. The
summary consolidated financial information set forth below for the Company's
fiscal years ended December 31, 1991 and 1992 and the three months ended March
31, 1995 and 1996, and as of March 31, 1996, is derived from the Company's
unaudited consolidated financial statements. The unaudited consolidated
financial statements from which such financial information is derived include
all adjustments, consisting of normal recurring adjustments, which management
considers necessary for a fair presentation of the Company's financial position
and results of operations as of such date and for such periods. Operating
results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for future periods, including
the entire year ending December 31, 1996. The summary financial information
presented below is qualified in its entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $1,202,254 $37,602,254
Total assets........................................ 1,745,522 38,025,522
Total liabilities................................... 473,762 353,762
Long term debt, net of current portion.............. -- --
Stockholders' equity................................ 1,271,760 37,671,760
</TABLE>
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(1) Adjusted to reflect the sale by the Company of shares of Common Stock
in the Offering at an assumed initial public offering price of $ per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."

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RISK FACTORS

This Prospectus contains certain forward-looking statements. Actual results
of operations could differ materially from those projected in these forward-
looking statements as a result of certain of the risk factors set forth below
and elsewhere in this Prospectus. Prospective investors should consider
carefully the following factors, in addition to other information contained in
this Prospectus, in evaluating the Company and its business before purchasing
shares of Common Stock offered hereby.

DEPENDENCE ON A SINGLE PRODUCT; UNCERTAINTY OF MARKET ACCEPTANCE

Currently, the only products marketed by the Company are the SPECULITE(R)
light source, PPS, other products supporting PPS and certain derivative
products which generate only nominal revenues. The Company's PPS-related
products are expected to account for a majority of the Company's revenues for
at least the next several years. Accordingly, the Company's success depends
upon the acceptance by the medical community (including health care providers,
third-party payors and patients) in the United States and foreign markets of
the PPS screening test as a clinically useful and cost-effective method of
detecting cervical disease. To date, PPS has been used only on a limited
clinical basis and there can be no assurance that the medical community will
endorse the PPS screening test as a new standard of care for cervical
examinations. In addition, there can be no assurance that PPS will achieve
market acceptance on a timely basis, or at all, due to the influence of
established medical practices, cost constraints, the introduction or
acceptance of competing products or technologies and other factors beyond the
Company's control. Failure of the PPS screening test to achieve market
acceptance would have a material adverse effect on the Company's business,
financial condition, results of operations and prospects. See "Business--
Market and Business Strategy."

LIMITED OPERATING EXPERIENCE; HISTORICAL AND ANTICIPATED FUTURE LOSSES

The Company has a limited history of operations which have focused primarily
on research and development, product engineering, clinical trials and seeking
FDA regulatory clearance to market its products. The Company obtained FDA
clearance of its Section 510(k) premarket notification for PPS in December
1995. The Company has generated only limited revenues from the sale of its
products to date and does not have experience manufacturing, marketing or
selling products in large commercial quantities. The Company has experienced
significant operating losses since its inception and, as of March 31, 1996,
had an accumulated deficit of $4.0 million. These losses are primarily
attributable to the significant expenses associated with the research,
development, clinical testing and FDA premarket clearance process with respect
to the PPS screening test and supporting products. The Company expects to
incur substantial additional losses due to increased operating expenses
arising from continued research and development, the expansion of
manufacturing activities and domestic and international sales and marketing
efforts. The Company has established marketing, distribution and manufacturing
agreements with larger companies with expertise in those areas. See
"Business--Market and Business Strategy" and "--Manufacturing." There can be
no assurance that the Company will be able to transition successfully, either
internally or through third-party contracts, to a large-scale commercial
enterprise and achieve significant revenues or profits. The Company's results
of operations may fluctuate significantly from quarter to quarter and will
depend upon numerous factors, including the extent to which the Company's
products gain market acceptance in the United States and foreign countries,
and the accompanying timing and volume of domestic and international sales.

DEPENDENCE ON THIRD-PARTY REIMBURSEMENT

Successful sales of the PPS screening test in the United States and foreign
markets will depend, in part, on the availability of adequate reimbursement
from third-party payors such as government entities, managed care
organizations and private insurance plans. As federal and state governmental
agencies are intensifying their efforts to limit health care expenditures,
including through various pending legislative proposals to reduce Medicaid and
Medicare expenditures, there is substantial uncertainty in the United States
concerning third-party reimbursement for the use of medical tests
incorporating new technologies. Internationally, health care payment systems
vary significantly between countries, and include government-sponsored health
care payment systems

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and private insurance. The Company's foreign distributors recently have begun
to seek reimbursement approvals in selected foreign markets but has not
obtained any reimbursement approvals to date.

Reimbursement by a third-party payor may depend on a number of factors,
including such payor's determination that the use of the Company's PPS
screening test is clinically useful, cost-effective and not experimental.
Since reimbursement approval is required from each third-party payor, seeking
such approvals is a time-consuming process. Demonstration of PPS's cost-
effectiveness will be particularly important in managed-care organizations,
where tight cost controls have become common. Although the Company believes
that the low cost of the PPS screening test relative to other adjunctive
screening techniques, and its effectiveness at detecting early-stage cervical
disease, will make third-party payors receptive to its use, there can be no
assurance that payors will approve PPS for broad use or reimbursement.
Furthermore, some third-party payors may reduce over time the reimbursement
offered for the use of PPS because of the potential for less frequent
screening. Even if third-party reimbursement for the PPS screening test is
obtainable, the Company does not believe that third-party payors will always
reimburse the full cost of the test. Accordingly, acceptance of PPS in the
fee-for-service markets will depend on the willingness of the patient to bear
some or all of the cost of the test. Failure of medical practitioners to
obtain reimbursement for the PPS screening test by third-party payors could
have a material adverse effect on the Company's business, financial condition,
results of operations and prospects.

DEPENDENCE ON SINGLE CONTRACT MANUFACTURER

The Company does not currently manufacture any of its products but obtains
its most critical component, the Speculite light source, pursuant to a long-
term supply agreement with Omniglow Corporation ("Omniglow") which gives the
Company the exclusive right to sell Speculite for use in specified medical
applications through 2004. Omniglow acquired the patents for the manufacture
of Speculite from American Cyanamid Company in 1993 and is the only United
States manufacturer. In 1994, the Company entered into a relationship with
Omniglow and another company located in Shanghai, China that will manufacture
Speculite for sale in China and certain other countries at a lower price than
that currently charged by Omniglow. Under the current supply agreement, the
price charged by Omniglow to the Company for supplying Speculite is not fixed,
and the Company's only protection from potential increases in the price
charged by Omniglow for supplying Speculite is a six month advance notice
requirement. Any increase in the price charged by Omniglow for Speculite could
have a material adverse effect on the Company's business, financial condition,
results of operations and prospects.

The Company's dependence on Omniglow as its sole domestic source of supply
makes the Company vulnerable to possible interruptions in such supply. Any
alternative supplier of Speculite would be required to meet stringent FDA and
international manufacturing standards applicable to medical devices. There can
be no assurance that an alternate manufacturing source could be found if
necessary, that Omniglow would consent to the Company's use of an alternative
supplier, or that available inventories would be adequate to meet the
Company's product needs during any prolonged interruption of supply. A
reduction or interruption in supply of Speculite, or the Company's inability
to secure an alternative manufacturer, if required, would limit the Company's
ability to market the PPS screening test and would have a material adverse
effect on the Company's business, financial condition, results of operations
and prospects.

RELIANCE ON MARKETING AND DISTRIBUTION PARTNERS

The Company has no sales force of its own and relies exclusively on its
domestic and foreign distribution partners for the marketing of PPS and its
other products. The Company's principal domestic distributor of PPS is P&U,
with whom it has entered into a distribution and marketing agreement which
gives P&U exclusive rights to distribute PPS in most areas of the United
States. The Company also has entered into exclusive distribution agreements
with certain foreign distribution partners including Bracco S.p.A. in Italy.
Although the Company is currently endeavoring to establish a network of
distribution and marketing partners to sell PPS internationally, to

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date the Company has had only limited foreign sales in a limited number of
countries. The Company's inability to establish a network of distribution and
marketing partners who will commit the substantial financial resources and
sales personnel necessary to sell its products successfully in the respective
markets would have a material adverse effect on the Company's business,
financial condition, results of operations and prospects. Moreover, the
failure by one or more of the Company's distributors, particularly P&U, to
achieve success in marketing PPS would have a similar adverse effect. Although
the Company's agreements with its distributors contain minimum purchase
requirements for the PPS screening test, these purchase requirements are set
at low levels and are not sufficient to ensure the Company's short-term or
long-term viability. The Company's distributors have never sold PPS products
in any quantity in excess of these minimum purchase requirements, and their
failure to do so in the future would have a material adverse effect on the
Company's business, financial condition, results of operations and prospects.
There can be no assurance that the Company will not continue to be dependent
upon a limited number of its distributors. In 1994, P&U accounted for 54
percent of the Company's revenues and Bracco S.p.A. accounted for 16 percent
of the Company's revenues. In 1995, Bracco S.p.A. accounted for 45 percent of
the Company's revenues and Asian Sourcing Corporation accounted for 38 percent
of the Company's revenues.

RISKS RELATED TO NEW PRODUCTS; FUTURE CAPITAL NEEDS

The long-term success of the Company will not only depend upon the
successful establishment and market acceptance of PPS as a new standard of
care for primary cervical screening but also upon the further development and
successful commercialization of new technologies and additional applications
of the Company's proprietary technology. In general, the process of developing
technologies and products is time-consuming and costly, and there is no
assurance that any technology or product development will be successfully
completed, that any necessary regulatory approvals or clearances will be
granted by the FDA or other governmental authorities on a timely basis, if at
all, or that commercial acceptance will be achieved. Failure by the Company to
develop, obtain regulatory approvals or clearances for, or successfully market
domestically and internationally, new technologies or new applications of PPS
and Speculite technologies could have a material adverse effect on the
Company's business, financial condition, results of operations and prospects.
See "Business--Product and Technology Applications." In connection with the
launch of new products or otherwise, the Company may require additional
funding in the future, and the Company may seek to raise additional capital
through bank loan facilities, debt or equity offerings, or other sources of
funding. The Company recognizes that additional funding may not be available
when needed or that funds may not be available on terms acceptable to the
Company, either of which would have a material adverse effect on the Company's
business, financial condition, results of operation and prospects. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY

The Company's success will depend in large part on the Company's and its
manufacturers' ability to establish and maintain patent protection for its
proprietary technologies, products and processes, preserve its trade secrets
and operate without infringing the proprietary rights of other parties. There
can be no assurance that any United States or international patents issued or
licensed to the Company and its suppliers will not be successfully challenged,
invalidated or circumvented or that patent applications to which the Company
holds rights will result in the issuance of patents. Although the Company is
not currently aware of any claim by third parties that any of the Company's
products or technology infringe upon any patents or proprietary rights of such
parties, there can be no assurance that the Company will not be subject to
such claims in the future. The defense and prosecution of patent claims is
costly and time consuming, regardless of whether the outcome is favorable to
the Company, and can result in the diversion of substantial financial,
management, and other resources away from the Company's main business
activities. Additionally, adverse outcomes in any such claims could have a
material adverse effect on the Company's business, financial condition,
results of operation and prospects.

Many of the Company's competitors have invested substantial resources in
technologies that compete with the Company's technology in the cervical
screening market. There can be no assurance that such competitors will not
independently develop proprietary products that are substantially equivalent
or superior to PPS. Among other things, there is no certainty that other non-
toxic formulations of chemical light or other light sources with

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<PAGE>

similar color attributes as the Speculite cannot be developed by other
entities, although the Company is unaware of any other non-toxic chemical or
other light source currently under development that could effectively perform
Speculoscopy. Similarly, there can be no assurance that other parties will not
be issued patents which will prevent, limit or interfere with one or more of
the Company's products, or will require licensing and the payment of
significant fees or royalties by the Company to such third parties in order to
enable the Company to conduct its business. Any of these occurrences could
have a material adverse effect on the Company's business, financial condition,
results of operation and prospects.

The Company's success also depends upon the skill, knowledge, and experience
of its scientific and technical personnel. To help protect its rights, the
Company requires that all employees and consultants enter into confidentiality
agreements that prohibit the disclosure of confidential information to anyone
outside the Company and require developments and inventions be assigned to the
Company by the employee or consultant. There can be no assurance, however,
that such confidentiality agreements will provide adequate protection for the
Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure. Any disclosure of such
information could have a material adverse effect on the Company's business,
financial condition, results of operation and prospects. See "Business--
Patents and Proprietary Rights."

GOVERNMENTAL REGULATION

The products marketed and manufactured by the Company are medical devices
regulated by the federal Food and Drug Administration ("FDA") pursuant to the
Federal Food, Drug and Cosmetic Act, as amended, and the regulations
promulgated thereunder. These products are subject to extensive regulation by
the FDA and, in some instances, by foreign and state governments. The FDA
regulates clinical testing, manufacture, labeling, sale, distribution and
promotion of all medical devices. Manufacturers must obtain market clearance
to introduce products through either the Section 510(k) premarket notification
process or the lengthier premarket approval ("PMA") application process. The
Speculite and other medical devices manufactured or distributed by the Company
or its contract manufacturers, pursuant to FDA clearances, will be subject to
continuing regulation by the FDA. In December 1994, just prior to the
scheduled commencement of a major PPS marketing campaign by P&U, the Company
received a letter from the FDA warning against the use of certain marketing
claims being made for Speculoscopy and PPS. The Company suspended active
marketing of the product and in June 1995, submitted a Section 510(k)
application for the clearance of new claims. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview." In
December 1995, the Company received FDA clearance to market Speculite under
the claim that PPS is more accurate than the Pap smear alone at detecting
cervical abnormalities. As a result of new studies, the Company is currently
preparing a new submission to the FDA seeking clearance for a stronger series
of claims regarding the PPS screening test. In addition, the Company intends
to file a PMA seeking FDA clearance for claims that Speculoscopy is able to
detect cancer. There is no guarantee that the Company will be granted
additional claims through the Section 510(k) premarket notification process or
PMA process. Neither past nor future FDA clearance will preclude any third-
party from asserting a claim against the Company contending that the Company's
claims cannot be substantiated. See "--Risks of Liability." FDA rules permit
the FDA to revoke or limit prior clearances for safety or performance reasons.
The Company has not applied for or received FDA clearances for any products
other than Speculite and PPS, and no assurances can be given that it will
receive further FDA clearances with respect to its marketing of PPS or for any
other application of Speculite or other products. See "Business--Governmental
Regulation."

The Company's facilities, and those of its contract manufacturers, may be
subject to periodic inspections for compliance with the FDA's Good
Manufacturing Practices ("GMP") and other regulatory requirements by federal
and state agencies, including the California State Department of Health
Services ("CDHS"), Food and Drug Branch. Should the Company or its contract
manufacturers, subcontractors or suppliers be found in noncompliance with
applicable requirements, including GMP, it could result in, among other
things, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of marketing
clearances and criminal prosecution. Should the Company modify or change a
product in any manner, including the use of a different facility to
manufacture or process such product, or a change in design, packaging,
labeling or advertising,

9
<PAGE>

it may be required to submit additional Section 510(k) notices and obtain
further FDA clearances. There can be no assurance that approval of any
subsequent Section 510(k) notices will be obtained in a timely manner, if at
all. The FDA also has the authority to require the Company to repair, replace,
recall, or refund the cost of any device manufactured or distributed by the
Company. Failure or delay in attaining or maintaining FDA, CDHS or other
regulatory approvals, or non-compliance with regulatory requirements, could
have a material adverse effect on the Company's business, financial condition,
result of operations and prospects.

The Company will also be required to obtain international regulatory
approvals, and to comply with United States export laws, in order to
distribute its products outside the United States. The approval process
differs substantially between countries and may be longer or shorter in
duration and may have significantly different requirements from those
applicable to the approval process in the United States. In order to
commercially distribute medical devices in many European countries, the
Company must adhere to certain quality assurance standards and obtain certain
clearances. The Company has not yet obtained these clearances and there can be
no assurance that such clearances can be obtained on a timely basis, if at
all. Although not all countries currently regulate the distribution of medical
devices, there can be no assurance that such countries will not develop
stringent regulatory standards. In some countries, the Company may be subject
to significant expense and licensing requirements for its products. Generally,
the extent and complexity of the regulation of medical products is increasing
worldwide, with regulation in some countries already nearly as exhaustive as
that in the United States. The Company anticipates that this trend will
continue and that the cost and time required to obtain approval to market in
any given country will increase, with no assurance that such approval will be
obtainable. The Company's distributors and marketing partners generally will
be responsible for obtaining regulatory approvals and establishing
reimbursement from third-party payors in their respective territories. To
date, only limited foreign regulatory approvals for PPS have been obtained.
See "Business--International Distribution and Marketing." Failure to obtain
the necessary international regulatory approvals or applicable certifications,
or the imposition of substantial associated costs, could have a material
adverse effect on the Company's business, financial condition, results of
operations and prospects. See "Business--Government Regulation."

COMPETITION

The medical diagnostic and biotechnology industries are subject to intense
competition, innovation and technological change. Companies that compete to
develop and sell medical devices in the United States and abroad are numerous
and include, among others, diagnostic, health care, pharmaceutical and
biotechnology companies. The market for adjunctive primary cervical screening
tests is growing in the United States and internationally. Over the past few
years, a number of publicly held and private companies have entered the Pap
smear improvement market with medical devices, and some of these companies, as
well as potential new entrants into this market, have substantially greater
financial, management and technical resources than the Company. Additionally,
many of these companies have substantially greater experience in research and
development, regulatory matters, manufacturing and marketing. While no
adjunctive test has become a "standard of care," several technologies have
emerged that may compete in this field, and others may emerge in the future.
Such technologies include DNA testing for the presence of the human papilloma
virus ("HPV") which has been linked to cervical disease, visual and
photographic tests using projected rather than internal light, and other tests
which are still in the development stage. In addition, computerized slide-
reading technologies which improve the effectiveness of laboratory analysis of
Pap smear samples have recently reached the marketplace. To date, the Company
knows of no technology other than PPS that has received FDA clearance to be
marketed as being more sensitive than the Pap smear alone in detecting
cervical abnormalities. The Company believes its product can be differentiated
from other adjunctive screening products currently available by its low cost,
immediate results and proven effectiveness. However, there can be no assurance
that the Company's present or future competitors will not succeed in
developing or marketing procedures that are more effective or commercially
attractive. Should a competitive product or procedure be developed that
renders the Company's technology and products obsolete, or that otherwise
successfully competes with PPS for limited health-care expenditures, it would
have a material adverse effect on the Company's business, financial condition,
results of operation and prospects. See "Business--Competition."

10
<PAGE>

RISKS INHERENT IN INTERNATIONAL TRANSACTIONS

The Company plans to market the PPS screening test and its supporting
products to domestic and international customers. Any international sales and
operations may be limited or disrupted at any time by the imposition of
government controls or difficulties in obtaining any necessary licenses or
permits, and may be adversely affected by fluctuations in currency exchange
rates or increases in tariffs. In addition, the profit margins from
international sales generally are lower than those obtainable from domestic
sales due to cost controls imposed by foreign governments and other third-
party payors. There can be no assurance that the Company will be able to
successfully commercialize its PPS screening test or any future products in
any foreign market. In addition, the laws of some countries will not protect
the Company's proprietary rights to the same extent as the laws of the United
States.

RISKS OF LIABILITY

The development, manufacture and sale of medical products entails the risk
of exposing the Company to considerable liability. A recent United States
Supreme Court decision held that, despite a company's compliance with FDA
regulations, it still may not be shielded from common-law negligent design
claims or manufacturing and labeling claims based on state rules. The Company
currently maintains product liability insurance, with limits of $5 million per
occurrence and $5 million in the aggregate. There can be no assurance that
such coverage limits will be adequate to protect the Company from any
liabilities it might incur. Product liability insurance is expensive and there
can be no assurance that the Company will be able to continue to obtain and
maintain insurance at acceptable rates, if at all. Potential losses from any
possible future liability claims, and the effect any product liability
litigation may have upon the reputation and marketability of the Company's
technology and products, together with diversion of the attention of the
Company's key personnel, could have a material adverse effect on the Company's
business, financial condition, results of operations and prospects.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent to a significant extent upon the contributions,
experience and expertise of a few key management and technical personnel. The
loss of the services of such personnel could have a material adverse effect on
the Company's business, financial condition, results of operations and
prospects. The Company does not have key-man life insurance policies on any of
its personnel. In addition to its existing management, the Company's success
will depend upon its ability to attract and retain additional highly qualified
management and technical personnel. The Company faces competition for
qualified personnel, and there can be no assurance that the Company will be
able to attract and retain such personnel. See "Management--Executive Officers
and Directors."

BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS

The Company anticipates that the proceeds of the Offering will be used for
advertising, research and development, working capital and general corporate
purposes. The Company is not currently able to estimate precisely the
allocation of the proceeds among such uses, and the timing and amount of
expenditures will vary depending upon numerous factors. The Company's
management will have broad discretion to allocate the proceeds of the Offering
and to determine the timing of expenditures and there can be no assurance that
the proceeds can or will be invested to yield a significant return to the
Company. See "Use of Proceeds."

CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS

The Company's directors and executive officers will, in the aggregate,
beneficially own approximately % of the Company's outstanding Common Stock
following the completion of the Offering (approximately % if the
Underwriter's over-allotment option is exercised in full). These stockholders,
if acting together, would be able to control substantially all matters
requiring approval by the stockholders of the Company, including the election
of directors and the approval of mergers or other business combination
transactions. Such concentration of ownership could discourage or prevent a
change in control of the Company. See "Principal and Selling Stockholders."

11
<PAGE>

EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS; ANTI-TAKEOVER CONSIDERATIONS

Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws, and of Delaware law, may have the effect of making it more
difficult for a third-party to acquire, or of discouraging a third-party from
attempting to acquire, control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares
of the Company's Common Stock. The Company's Restated Certificate of
Incorporation allows the Company to issue Preferred Stock without any vote or
further action by the stockholders, provides for a classified board of
directors, eliminates the right of stockholders to call special meetings of
stockholders or to act by written consent without a meeting, eliminates
cumulative voting in the election of directors, and requires the holders of at
least 66 2/3% of outstanding voting shares to approve certain charter or by-
law amendments. Moreover, Section 203 of the Delaware General Corporation Law
prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years unless certain
conditions are met. These provisions of the Company's charter documents and of
Delaware law may make it more difficult for stockholders to take certain
corporate actions and could have the effect of delaying or preventing a change
in control of the Company. See "Management" and "Description of Capital
Stock."

SHARES ELIGIBLE FOR FUTURE SALE

There will be shares of Common Stock outstanding immediately following
consummation of the Offering ( shares if the Underwriters' over-allotment
option is exercised in full). The shares of Common Stock offered hereby
(plus an additional shares if the Underwriters' over-allotment option is
exercised in full) will be fully tradable without restriction or registration
under the Securities Act by persons other than "affiliates" (as defined in the
Securities Act) of the Company. The remaining shares of Common Stock will
be "restricted securities" as defined in the Securities Act and may be sold
only pursuant to an effective registration statement under the Securities Act
or an applicable exemption from the registration requirements of the
Securities Act, including Rule 144 thereunder. Upon completion of the
Offering, the Company will file an S-8 Registration Statement to register up
to shares of Common Stock reserved for issuance pursuant to stock
incentive plans of the Company. Certain holders of Common Stock and all
directors and executive officers have agreed with the Underwriters (as defined
below) not to offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of their shares of Common Stock for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. See "Shares Eligible for
Future Sale."

Upon expiration of the 180-day lock-up period, shares of Common Stock
will become eligible for sale in the public market pursuant to Rule 701 under
the Securities Act and an additional shares will become eligible for
immediate public resale, subject to volume limitations and the other
provisions of Rule 144.

Sales of the Company's Common Stock (including shares issued upon the
exercise of outstanding options) in the public market after the Offering could
materially adversely affect the market price of the Common Stock. Such sales
also might negatively affect the Company's ability to sell equity securities
in the future at a time and price that the Company deems appropriate.

NO PRIOR PUBLIC TRADING MARKET FOR COMMON STOCK; DILUTION

Prior to the Offering there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or,
if one does develop, that it will be maintained. The initial public offering
price, which will be established by negotiations between the Company and the
Underwriters, may not be indicative of prices that will prevail in the trading
market. In addition, the initial public offering price of the Company's Common
Stock is substantially higher than the net tangible book value per share of
Common Stock. Investors purchasing shares of Common Stock in the Offering will
incur immediate and substantial dilution in

12
<PAGE>

the net tangible book value of the Common Stock of $ per share. To the extent
that currently outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Underwriting" and "Dilution."

POTENTIAL VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock. In addition, the market price of
the shares of Common Stock is likely to be highly volatile. Factors such as
market acceptance of the Company's products, fluctuations in the Company's
operating results, announcements of technological innovations or new products
by the Company or its competitors, FDA and international regulatory actions,
actions with respect to reimbursement matters, developments with respect to
patents or proprietary rights, public concern as to the safety of products
developed by the Company or others, changes in health care policy in the
United States and internationally, failure of the Company's results of
operations to be consistent with the expectations of public market analysts
and investors, issuances of changes in stock market analysts' recommendations
and general market conditions may have a significant effect on the market
price of the Common Stock. There can be no assurance that the Company's future
operating results will not be below the expectations of public market analysts
and investors in some future quarter, which would have a material adverse
effect on the price of the Company's Common Stock. See "Underwriting."

ABSENCE OF DIVIDENDS

The Company has not paid any dividends on the Common Stock and does not
anticipate paying any dividends on the Common Stock in the foreseeable future.
See "Dividend Policy."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares offered by
the Company hereby are estimated to be approximately $36.4 million (or
approximately $ million if the Underwriters' over-allotment option is
exercised in full), after deducting the estimated underwriting discounts and
commissions and offering expenses. The Company intends to use approximately
$10 million of the net proceeds for funding an advertising, public relations
and women's health advocacy program for the PPS domestic marketing campaign,
and additional amounts to fund increased personnel in marketing and
administration, research and development for in-process products, leasehold
improvements and capital expenditures associated with the expansion of staff
and office space, working capital requirements and other general corporate
purposes. The exact amount and timing of these expenditures will depend on
numerous factors, including the progress and cost of the Company's product
development programs and the rate of market acceptance of the Company's
products.

Pending the above uses, the net proceeds of the Offering will be invested in
investment-grade, interest bearing securities.

DIVIDEND POLICY

The Company has not declared or paid dividends on its Common Stock. The
declaration and payment of dividends by the Company are subject to the
discretion of the Board of Directors. It is the current policy of the Company
to retain earnings, if any, to finance the operations and expansion of the
Company's business. Any determination as to the payment of dividends in the
future will depend upon, among other things, general business conditions, the
Company's earnings, financial condition, capital needs and other factors
deemed pertinent by the Company's Board of Directors, including the
limitations, if any, on the payment of dividends under state law. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

13
<PAGE>

CAPITALIZATION

The following table sets forth the cash and cash equivalents, short-term
debt and consolidated capitalization of the Company at March 31, 1996 and as
adjusted to reflect the sale of the shares of Common Stock in the Offering
(assuming an offering price of $ per share), and the receipt of the
estimated net proceeds therefrom. For a description of the intended use of
these proceeds, see "Use of Proceeds." This table should be read in
conjunction with the Company's consolidated financial statements, including
the notes thereto, appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
<S> <C> <C>
Cash and cash equivalents............................ $ 1,363,628 $37,643,628
=========== ===========
Short-term indebtedness.............................. $ 120,000 $ --
=========== ===========
Stockholders' equity:
Preferred Stock, par value $.01 per share; 10,000
shares authorized; 1,699.80 shares issued and
outstanding (actual) and no shares issued and
outstanding (as adjusted)(1)...................... 849,876 --
Common Stock, par value $.01 per share; 100,000
shares authorized; shares issued and
outstanding (actual) and shares issued and
outstanding (as adjusted)(1)(2)................... 747 [ ]
Additional paid-in capital......................... 4,405,851 [ ]
Accumulated deficit................................ (3,984,714) (3,984,714)
----------- -----------
Total stockholders' equity....................... 1,271,760 37,671,760
----------- -----------
Total capitalization................................. $ 1,271,760 $37,671,760
=========== ===========
</TABLE>
- ---------------------
(1) As adjusted amounts give effect to the automatic conversion of all
outstanding shares of Series A Convertible Preferred Stock into 3,399.6
shares of Common Stock at the effective date of the Offering, and (ii) the
issuance of up to 149.9 additional shares of Common Stock to an existing
stockholder of the Company pursuant to anti-dilution rights that are held
by such stockholder and that will be triggered by the preferred stock
conversion.
(2) Excludes (i) up to 8,000 shares of Common Stock issuable on or prior to
September 9, 1996 in connection with the exercise of the Warrants, and
(ii) up to 1,793 shares of Common Stock issuable upon the exercise of
outstanding options held by a director and a former director.

14
<PAGE>

DILUTION

After giving effect to the sale by the Company of the shares offered hereby
and the application of the net proceeds therefrom, the pro forma net tangible
book value of the Company at March 31, 1996 after such adjustment would have
been $ or $ per share of Common Stock. This represents an immediate
increase in net tangible book value per share of $ to the existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors at the initial public offering price. Net tangible book
value per share represents the amount of total tangible assets of the Company
less total liabilities, divided by the number of shares of Common Stock
outstanding on a fully diluted basis. The following illustrates this dilution
per share:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Net tangible book value per share before the Offering.............. $
Increase per share attributable to new investors...................
Pro forma net tangible book value per share after the Offering.......
Dilution per share to new investors.................................. $
</TABLE>

The following table summarizes, as of March 31, 1996, the relative
investments of the current stockholders and new investors, on a fully diluted
basis, and giving pro forma effect to the sale by the Company of the shares
offered hereby to new investors in the Offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT NUMBER PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Current stockholders.... 88,128.9
New investors...........
Total.................
</TABLE>

For purposes of the foregoing tables, the number of shares of Common Stock
outstanding have been calculated on a fully diluted basis, after giving effect
to (i) the automatic conversion of all outstanding shares of Series A
Convertible Preferred Stock into 3,399.6 shares of Common Stock at the
effective date of the Offering, (ii) the issuance of up to 149.9 additional
shares of Common Stock to an existing stockholder of the Company pursuant to
anti-dilution rights that are held by such stockholder and that will be
triggered by the preferred stock conversion, (iii) the issuance of up to 8,000
shares of Common Stock on or prior to September 9, 1996 in connection with the
exercise of the Warrants, and (iv) the issuance of up to 1,793 shares of
Common Stock upon the exercise of outstanding options held by a director and a
former director. See "Description of Capital Stock."

15
<PAGE>

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The selected consolidated financial information set forth below as of
December 31, 1994 and 1995 and for the three years ended December 31, 1993,
1994 and 1995 is derived from the Company's consolidated financial statements
audited by Arthur Andersen LLP, independent public accountants, included
elsewhere in this Prospectus. The selected consolidated financial information
set forth below as of December 31, 1991, 1992 and 1993 and March 31, 1996 and
for the years ended December 31, 1991 and 1992 and the three months ended
March 31, 1995 and 1996 is derived from the Company's unaudited consolidated
financial statements. The unaudited consolidated financial statements from
which such selected financial information is derived include all adjustments,
consisting of normal recurring adjustments, which management considers
necessary for a fair presentation of the Company's financial position and
results of operations as of such dates and for such periods. Operating results
for the three months ended March 31, 1996 are not necessarily indicative of
the results that may be expected for future periods, including the entire year
ending December 31, 1996. The selected financial information presented below
is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues, net.......... $ 88,417 $ 593,757 $1,305,014 $2,544,983 $ 628,748 $ 53,843 $ 38,799
Cost of goods sold..... 38,812 352,635 325,702 697,263 295,632 22,707 28,457
--------- --------- ---------- ---------- ----------- --------- ---------
Gross profit........... 49,605 241,122 979,312 1,847,720 333,116 31,136 10,342
Selling expenses....... 161,027 243,465 242,478 471,695 183,778 69,013 151,771
General and administra-
tive expenses......... 593,759 474,119 663,790 717,559 786,263 270,979 202,517
Research and develop-
ment expenses......... -- -- 123,687 184,542 435,733 114,293 75,443
--------- --------- ---------- ---------- ----------- --------- ---------
Operating income
(loss)................ (705,181) (476,462) (50,643) 473,924 (1,072,658) (423,149) (419,389)
Other income (expense). (205,094) (170,506) (200,743) (41,665) 64,690 (13,025) 18,496
--------- --------- ---------- ---------- ----------- --------- ---------
Income (loss) before
income taxes.......... (910,275) (646,968) (251,386) 432,259 (1,007,968) (436,174) (400,893)
Provision for income
taxes................. 2,517 800 800 800 800 -- --
--------- --------- ---------- ---------- ----------- --------- ---------
Net income (loss)...... $(912,792) $(647,768) $ (252,186) $ 431,459 $(1,008,768) $(436,174) $(400,893)
========= ========= ========== ========== =========== ========= =========
Net income (loss) per
share................. $ (15.89) $ (10.84) $ (3.53) $ 5.46 $ (11.70) $ (5.06) $ (4.65)
========= ========= ========== ========== =========== ========= =========
Weighted average number
of common shares
outstanding........... 57,459.2 59,766.7 71,475.0 79,057.6 86,184.3 86,184.3 86,184.3
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------------------- ---------------
1991 1992 1993 1994 1995 1996
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital........ $ 889,519 $(2,031,427) $ (164,892) $ 353,225 $1,566,764 $1,202,254
Total assets........... 1,418,637 747,565 919,823 2,042,727 2,485,813 1,745,522
Total liabilities...... 3,216,519 2,761,521 1,055,498 1,646,376 855,720 473,762
Long term debt, net of
current portion....... 2,318,768 18,476 6,915 -- -- --
Stockholders' equity
(deficit) ............ (1,797,882) (2,013,956) (135,675) 396,351 1,630,093 1,271,760
</TABLE>

16
<PAGE>

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

OVERVIEW

The Company has focused on the development, marketing, and sale of medical
technologies utilizing the application of chemical light. The Company's first
product is Speculoscopy, a visual examination for the screening of cervical
disease. To date, nearly all of the Company's revenues have been derived from
the sale of products or licensing fees associated with the Speculoscopy
examination. In December 1995, the Company received FDA clearance to market
PPS (the screening test which combines Speculoscopy with the standard Pap
smear) on the basis that it is more sensitive in detecting cervical
abnormalities than the Pap smear alone.

The Company's predecessor, Trylon Associates, Ltd., which was founded in
1984, operated under a joint development agreement with American Cyanamid
Company for the purpose of developing a medically useful chemiluminescent
light source. In April 1985, Trylon Associates, Ltd. received FDA clearance
for marketing Speculite. The Company commenced marketing of its first product,
Amber Speculite, in 1988. Although the Company has derived limited revenues
from the sale of Amber Speculite, virtually all of the Company's activities
from 1988 until 1992 were directed at the development of Speculoscopy. The
Company has developed and funded research studies in the United States and
abroad, and has developed collateral materials such as sales brochures,
manuals and continuing medical education programs to train health care
practitioners to perform the Speculoscopy examination. From 1992 to 1994, the
Company engaged in limited distribution of the PPS screening test while
conducting further research with clinical laboratory groups.

In 1994, the Company entered into an exclusive distribution and marketing
agreement for the sale of PPS products with what was then The Upjohn Company
("Upjohn") and is now Pharmacia & Upjohn, Inc. ("P&U"). Following a limited
sales force launch in October 1994, the PPS screening test was scheduled for
broader market introduction when the Company received the FDA's letter in
December 1994 warning against the use of certain marketing claims being made
for Speculoscopy and PPS. The Company, with the concurrence of Upjohn, decided
to discontinue active marketing of the product while it responded to the FDA
letter. In June 1995, the Company submitted a Section 510(k) application for
the clearance of new claims and marketing of Speculoscopy as a Class II
device. See "Governmental Regulation." The Company's revenues in 1995 and the
first half of 1996 were negatively affected by the delay of planned marketing
activities. In December 1995 the FDA cleared the Company's marketing claims
for Speculoscopy and PPS. The Company and P&U have scheduled a major domestic
marketing campaign for PPS commencing in late 1996. In addition, the Company
has commenced marketing PPS through other pharmaceutical and medical supply
companies in certain foreign markets. See "Business--Market and Business
Strategy."

Since its inception in 1987, the Company has sustained significant losses,
with an accumulated deficit of $4.0 million as of March 31, 1996. These losses
have arisen principally from expenses associated with the Company's
development of Speculoscopy and the PPS screening test and the expenses of
clinical studies. The Company expects that such operating losses will continue
in the immediate future due to significant marketing and advertising
expenditures, hiring of additional employees and other expenses anticipated in
connection with the Company's growth. Furthermore, the Company intends to
increase its research and development expenditures on chemical light
diagnostic technologies, support materials and other medical technologies.
There can be no assurance that the revenues generated from either PPS sales or
the sales of other products will be substantial or consistent in the future,
given the fact that the Company has no long-term sales history. The Company
anticipates that its operating results may fluctuate significantly from
quarter to quarter in the future, and that this fluctuation will depend on a
number of factors, many of which are outside the Company's control. These
factors include the willingness of distributors to stock inventories,
manufacturing lead time, timing of orders and growth of market penetration.
For a description of other factors which may affect the Company's earnings,
see "Risk Factors--Limited Operating Experience; Historical and Anticipated
Future Losses."

The Company's PPS-related revenues derive principally from the sale to the
Company's distributors, including P&U domestically and the Company's foreign
distributors, of PPS materials, the components of which

17
<PAGE>

are purchased from the Company's third-party suppliers. The principal
component of PPS sales is the Speculite light source, which is manufactured
domestically by Omniglow under a long-term supply agreement which gives the
Company the exclusive right to sell Speculite for use in specified medical
applications. Under the current supply agreement, the price charged by
Omniglow to the Company for supplying Speculite is not fixed, and the
Company's only protection from potential increases in the price charged by
Omniglow for supplying Speculite is a six month advance notice requirement.
Omniglow owns patent rights with respect to Speculite, while the Company owns
patents on the Speculoscopy procedure. The Company believes that its procedure
patents prevent others from marketing cervical screening tests similar to PPS
using chemical light having the color attributes of Blue-White Speculite.
However, the Company does not generally derive licensing revenues from its
Speculoscopy patents beyond the revenues it receives for the sale to
distributors of PPS products. See "Business--Market and Business Strategy,"
"--Patents and Proprietary Rights" and "--Manufacturing."

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995

Net revenues decreased 27.9% to $38,799 for the three months ended March 31,
1996 from $53,843 for the same period in 1995. This decrease was primarily
attributable to the continuing effects of the Company's suspension of domestic
marketing of PPS in 1995. Although unit sales increased in 1996, total dollar
sales declined due to a large discounted sale to a foreign distributor, Asian
Sourcing Corporation. Foreign sales accounted for 90.7% of revenues during
this period in 1996, compared to 70.7% of revenues during the same period in
1995.

Cost of goods sold increased 25.3% to $28,457 for the three months ended
March 31, 1996 from $22,707 for the same period in 1995. The increase in cost
of goods sold resulted primarily from increased unit sales in 1996. Gross
profit decreased 66.8% to $10,342 for the three months ended March 31, 1996
from $31,136 for the same period in 1995, with a reduction in gross profit
margin to 26.7% from 57.8%. Gross profit on PPS sales alone (both domestic and
foreign) averaged $0.33 per unit for the three months ended March 31, 1996,
compared to $1.48 per unit for the same period in 1995. The decrease in gross
profit margin was a result of the large discounted foreign sale made in 1996.

Total operating expenses decreased 5.4% to $429,731 for the three months
ended March 31, 1996 from $454,285 for the same period in 1995. The decrease
in operating expenses resulted primarily from the non-recurrence of
significant compensation expense in connection with incentive stock awards in
the three months ended March 31, 1995, partially offset by an increase in
selling expenses related to domestic and international marketing efforts.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Net revenues decreased 75.3% to $628,748 in 1995 from $2,544,983 in 1994.
This decrease resulted primarily from the Company's decision to suspend
temporarily the domestic marketing of PPS after receiving the FDA letter in
December 1994. See "Risk Factors--Governmental Regulation." Domestic sales
accounted for only 13.4% of net revenues in 1995, compared to 79.6% of net
revenues in 1994. The majority of revenues generated in 1995 were derived from
two foreign distributors of PPS materials, Bracco S.p.A. and Asian Sourcing
Corporation. See "Business--International Distribution and Marketing."

Cost of goods sold decreased 57.6% to $295,632 in 1995 from $697,263 in 1994
and primarily represented amounts paid to Omniglow for the manufacture of
Speculite under the Company's supply agreement. See "Business--Manufacturing."
The decrease in cost of goods sold resulted primarily from the suspension of
domestic marketing of PPS. Gross profit decreased 82.0% to $333,116 in 1995
from $1,847,720 in 1994, with a reduction in gross profit margin to 53.0% in
1995 from 72.6% in 1994. Gross profit on PPS sales alone (both domestic and
foreign) averaged $0.94 per unit in 1995, compared to $2.16 per unit in 1994.
The decrease in gross profit margin was a result of the inefficiencies of
manufacturing smaller quantities of PPS materials and the increased
contribution of foreign PPS sales, which have a lower gross profit margin due
to price constraints.

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<PAGE>

Total operating expenses increased 2.3% to $1,405,774 in 1995 from
$1,373,796 in 1994. The increase in operating expenses resulted primarily from
an increase in research and development costs related to the initiation of new
clinical study protocols related to PPS. In addition, the Company realized
nonrecurring legal and other professional expenses of $97,679 related to
(i) discussions with Omniglow regarding the Company's proposal to acquire the
manufacturing rights for Speculite products and (ii) fees and costs resulting
from the Company's response to the FDA letter it received in December 1994.
The increase in research and development expenses and general and
administrative expenses was partially offset by a decline in selling expenses
due to the delayed launch of the PPS marketing campaign.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Net revenues increased 95.0% to $2,544,983 in 1994 from $1,305,014 in 1993.
This increase resulted from (i) an increase in sales of domestic PPS products
to Upjohn at the initiation of their distribution agreement and their PPS
launch in the third and fourth quarters of 1994, (ii) an increase in foreign
sales primarily to a single distributor and (iii) the receipt in 1994 of
$250,000 in fees associated with the Company's joint venture with Omniglow in
Asia and an additional $250,000 in fees associated with an amendment to the
Upjohn distribution and marketing agreement. Foreign sales accounted for 20.4%
of net revenues in 1994, compared to 1.2% of net revenues in 1993.
Substantially all domestic sales during 1994 and 1993 were to Upjohn and
MetWest, Inc., respectively.

Cost of goods sold increased 114.1% to $697,263 in 1994 from $325,702 in
1993 and primarily represented amounts paid to Omniglow for the manufacture of
Speculite under the Company's supply agreement. The increase in cost of goods
sold resulted from increased sales volumes. Gross profit increased 88.7% to
$1,847,720 in 1994 from $979,312 in 1993, with a decrease in gross profit
margin to 72.6% in 1994 from 75% in 1993. The decrease in gross profit margin
was a result of the increased contribution of foreign PPS sales which have a
lower gross margin due to price constraints, partially offset by the margin-
enhancing effect of licensing fees that contributed $500,000 to net revenues
in 1994. Gross profit on PPS sales alone (both domestic and foreign) averaged
$2.16 per unit in 1994, compared to $4.20 per unit in 1993.

Total operating expenses increased 33.4% to $1,373,796 in 1994 from
$1,029,955 in 1993. This increase resulted from an increase in selling
expenses to support the increased sales of PPS during 1994. These selling
expenses included an increase in personnel and the commencement of public
relations and advertising efforts for the anticipated launch of PPS which was
later postponed.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company's expenses have exceeded its revenues,
resulting in an accumulated deficit of $4.0 million at March 31, 1996. In
addition to its product sales, which have totalled approximately $5.2 million
since inception, the Company has funded its operations through the private
placement of debt and equity securities aggregating approximately $4.0
million.

At December 31, 1995, the Company had cash and cash equivalents of
$1,221,619. Cash and cash equivalents increased from $678,851 at December 31,
1994, primarily due to the issuance in 1995 of shares of Common Stock and
Warrants, for aggregate net proceeds of $1,664,215 to the Company. During 1994
and 1993, the Company did not recognize any cash infusions from investment
activities. During 1995, net cash used in operations was $1,268,545, and
during 1993, net cash used in operations was $252,806. In 1994, the Company
had $1,018,108 of net cash provided by operating activities, which resulted
from an increase in accounts payable of $499,442 in the fourth quarter of
1994, coupled with net income of $431,459 for 1994. The increase in cash used
in operations during 1995 resulted from the Company's decision to suspend
active marketing of PPS following the FDA letter received in December 1994, as
well as an increase in research and development costs related to the FDA
response and additional product development.

The Company had $512,129 of net cash provided from investing activities in
1995, largely as a result of its withdrawal of funds from a government
security. The Company used $521,359 of cash for investment purposes

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<PAGE>

in 1994, consisting primarily of the initial investment in the government
security mentioned above. The Company used a total of $100,758 in investment
activities in 1993, consisting primarily of cash placed in a restricted cash
account.

The Company had no long-term indebtedness outstanding or term loan
facilities in place at December 31, 1995. During 1995, the Company exchanged
$466,935 (in principal amount plus accrued interest) of its outstanding
convertible subordinated debentures for Common Stock, and retired $365,031 by
repayment. The Company had a $120,000 bank line of credit outstanding as of
December 31, 1994 and 1995, which matures on November 15, 1996. The Company
also had a $50,000 stand-by letter of credit from the same bank relating to
its long-term supply agreement with Omniglow. These lines of credit have been
guaranteed by Drs. Martin and Stewart Lonky, neither of whom has received any
compensation or consideration for furnishing such guarantee.

The Company has not significantly invested in capital equipment, nor has the
Company had any significant expenses related to leasehold improvements, over
the last three years. The Company anticipates a number of future cash
commitments that will impact its liquidity. These commitments include the
commencement of an advertising, public relations and women's health advocacy
program for the PPS domestic marketing campaign, in partnership with P&U, to
which the Company is expected to contribute $10 million, an increase in
personnel in both marketing and administration, and an accelerated research
and development schedule for in-process products. The research and development
efforts are expected to include the initiation of new studies, the accelerated
development of new products, and support of clinical trials of the Company's
Spirabrush Cx sampling device and its Oral Speculoscopy screening program. In
addition, the Company anticipates making leasehold improvements and capital
expenditures associated with expansion of its staff and office space. The
Company anticipates that the net proceeds from the Offering, together with
interest from such proceeds, will be sufficient to fund its anticipated
operations through at least 1997. However, the Company's future liquidity and
capital requirements will depend on numerous factors, including the extent of
revenues generated from a successful launch of the PPS screening test by P&U
and the extent to which the Company's products generate market demand and thus
require additional investment. The Company may require additional funding in
the future, and the Company may seek to raise additional capital through bank
loan facilities, debt or equity offerings, or other sources of funding. The
Company recognizes that additional funding may not be available when needed or
that funds may not be available on terms acceptable to the Company, either of
which would have a material adverse effect on the Company's business,
financial condition, results of operation and prospects.

20
<PAGE>

BUSINESS

OVERVIEW

The Trylon Corporation ("Trylon" or the "Company") is an innovative medical
products company that has pioneered the use of chemical light technology in
diagnostic and other medical applications. The Company's first product, PAP
PLUS SPECULOSCOPY(R) ("PPS"), combines the Company's patented visual
examination, SPECULOSCOPY(TM), with the standard Pap smear, into a simple
cervical screening test for women. Speculoscopy, which can be performed by a
wide range of health care practitioners at low cost, visually illuminates
cervical abnormalities, which may include cancer and precancer, during a
routine pelvic examination. Clinical data reviewed by the FDA indicated that
PPS was more accurate in detecting cervical abnormalities than the traditional
screening test for detecting cervical cancer, the Pap smear. As a result, the
Company believes that PPS will allow for the earlier detection and thus the
earlier and less expensive treatment of cervical disease.

The Company's objective is to have PPS become a "standard of care" for
primary cervical screening worldwide. Trylon received clearance from the FDA
to market PPS in December 1995 and has scheduled major United States and
international product launches of PPS during 1996. In the United States, the
Company has a long-term distribution agreement with Pharmacia & Upjohn, Inc.
("P&U"), one of the largest pharmaceutical distribution companies in the
world. In addition, PPS is being marketed through leading pharmaceutical and
medical supply companies in certain European, Asian and North American
markets.

P&U has a strong commitment to the areas of women's health care and cancer
treatment and plans to utilize its entire national sales force for the
distribution of PPS. In addition, P&U has committed to a national advertising
campaign for PPS and has selected PPS for special sales incentives. P&U will
be the primary sponsor of the national advertising campaign, although the
Company will supplement P&U's efforts by contributing approximately $10
million to the cost of such campaign. The PPS launch, scheduled to commence in
the fourth quarter of 1996, will target: (i) over 60,000 health care
practitioners through P&U's direct selling efforts and educational programs,
(ii) women and women's advocacy groups, primarily through a direct-to-consumer
television and print advertising program and other public relations efforts
and (iii) third-party payors, including managed-care organizations.

In the United States, over 50 million women are screened for cervical cancer
annually using a standard Pap smear. Nevertheless, the incidence of cervical
cancer has increased in the United States over the last ten years, and the
rate of death within the first five years of diagnosis of cervical cancer
remains above 30%. The American Cancer Society reported that in 1995
approximately 15,800 new cases of cervical cancer were diagnosed in the United
States. Worldwide, cervical cancer is the second most common cancer in women,
with approximately 450,000 new cases diagnosed annually. Approximately $5.0
billion is spent annually in the United States administering and evaluating
Pap smears.

The Company believes that PPS will allow health care practitioners to
identify women with cervical abnormalities earlier than if they used the Pap
smear alone. Earlier diagnosis allows for more cost-effective treatment. At a
precancerous stage of disease, costs of treatment typically do not exceed
$500, while costs of treating invasive cervical cancer often exceed $60,000.
In addition to PPS, the Company has developed and initiated clinical studies
of a number of products that apply its proprietary technologies to other
medical, surgical and dental uses. These products include Oral
Speculoscopy(TM) for the screening of oral cancer and Spirabrush Cx(R) as a
cervical sampling device. The Company's goal is to introduce at least one new
product each year. The Company is actively developing and seeking to acquire
other innovative technologies with medical applications. See "Additional
Product and Technology Applications."

PPS TECHNOLOGY

PPS is a patented gynecologic examination that combines the standard
Papanicolaou smear ("Pap smear") with an illuminated visual examination of the
cervix, known as Speculoscopy, for the detection of cervical abnormalities,
which may include cancer and precancer. PPS can be administered by physicians,
nurse practitioners and physician assistants without a significant up-front
investment of capital or training time. The Speculoscopy portion of the PPS
screening test takes from two to five minutes to perform and provides
immediate visual results without the need for laboratory processing.

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<PAGE>

While the patient is undergoing a pelvic examination after a Pap smear, the
health care practitioner performs a Speculoscopy by swabbing the cervix with a
preparatory solution and using the Company's small, disposable chemical light
source, known as Speculite, and a low-level magnification instrument to
visually examine the cervix. Prior to vaginal insertion, the Speculite is
activated by bending the flexible outer plastic capsule, causing an inner vial
to break and release the activator. The Speculite is then attached to the
speculum to provide the necessary light source for the examination. The
chemicals contained in the Speculite light source produce no heat and are non-
toxic.

To interpret the results of Speculoscopy, health care practitioners only
have to note the presence of whitened areas, which indicate potential
abnormalities as opposed to normal cervical tissue, which appears dark blue or
purple. This allows for a quick and simple indication as to whether further
investigation or treatment may be required. The potentially diseased areas
appear white because of the characteristics of the Speculite light source and
the presence of a larger nucleus in many abnormal cells (including cancerous
and precancerous cells) which reflects the light instead of absorbing it, as
do normal cells. Speculite possesses certain chemical and physical properties
not found in normal incandescent light (such as from a lamp or flashlight),
allowing Speculite to create a visual contrast not obtainable with other light
sources known to the Company.

The Company anticipates that, upon its nationwide launch in late 1996, the
PPS screening test will be available at an incremental cost to the patient or
her insurer in the fee-for-service market of $20 to $25 over the cost of a
routine gynecological examination (which typically ranges from $75 to $125,
including laboratory costs). The equipment required to perform Speculoscopy
consists of the disposable Speculite and a lightweight, reusable hand-held
monocular optic with a one-time cost to the practitioner of under $100. The
Speculite used in the PPS screening test is blue-white in coloration (the
"Blue-White Speculite"), and is sold in kits containing all the components
necessary to perform both a Pap smear and a Speculoscopy, or in boxes
containing the Blue-White Speculite only.

THE PROBLEM OF CERVICAL CANCER AND PRECANCER

BACKGROUND

Cervical cancer is the second most common cancer among women worldwide, with
approximately 450,000 new cases reported annually. Currently, the accepted
method of screening for cervical cancer is the Pap smear. Over 50 million Pap
smears are performed annually in the United States by an estimated 205,000
health care practitioners. Worldwide, more than 150 million Pap smears and
primary screening evaluations for cervical cancer are performed annually.
Surveys indicate that less than one-half of all women who should receive
primary screening do so, with the unfulfilled need for screening particularly
acute in developing countries.

The most severe form of cervical cancer is invasive cervical cancer, which
is cancer that is no longer isolated to the surface of the cervix and is
capable of spreading. Cervical cancer usually develops over a number of years,
typically causes no symptoms during early development and is preceded by a
curable precancerous stage. In the United States, despite the approximate 50
million Pap smears performed annually, the American Cancer Society ("ACS")
reported approximately 15,800 new cases of invasive cervical cancer in 1995,
representing eight years of generally continuing increases in new cases
reported. The rate of death within the first five years of diagnosis of
cervical cancer has remained above 30% in the United States since the ACS
began compiling statistical information in the early 1970's. In addition, the
ACS has reported a significant increase since 1977 in the incidence of late-
stage cervical precancer.

[Cervical Cancer Incidence/Death Rate Trends--1985-1995]

Under current medical practice, treating cervical precancer and non-invasive
cancer in the United States generally is much less expensive than finding and
treating invasive cervical cancer. Costs associated with treating early-stage
precancer typically are less than $500 while costs associated with treating
invasive cervical cancer often exceed $60,000.

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<PAGE>

THE PAP SMEAR AND ITS LIMITATIONS

The Pap smear, first used in the 1940's by Dr. George Papanicolaou, was
intended to be a screening test to identify women with invasive cervical
cancer. To perform a Pap smear, the health care practitioner scrapes the
surface of the cervix in order to collect cells. The cells are then placed on
a slide to be read at a clinical laboratory to determine if cancerous or
precancerous cells are present. Positive or ambiguous test results are usually
followed up by retesting or biopsy in order to arrive at a definitive
diagnosis.

There are many processing steps where errors in Pap smear interpretation can
occur. Significant public attention over the past decade has focused on the
performance quality of clinical laboratories in the reading of Pap smears. A
high incidence of slide interpretation errors has resulted in misdiagnoses in
which women with cervical cancer were not identified. These problems have been
addressed in part by legislation such as the Clinical Laboratory Improvement
Act of 1988 as well as the development of automated Pap smear readers. In
addition to laboratory errors, errors can occur as a result of clinical
conditions that reduce the potential number of cells collected and available
for diagnosis.

Despite improvements in the reading of Pap smears, a negative Pap smear
cannot assure that a woman is free of cervical cancer or precancer, because at
any given time the majority of cervical disease lies below the surface of the
cervix and cannot be detected by a Pap smear. As shown in the diagram below,
abnormal cells generally come to the surface of the cervix only as cervical
disease progresses. As a result, there is a reduced likelihood that
precancerous cells will be collected for a Pap smear, and explains why, in
clinical studies, the Pap smear has been shown to have low sensitivity in
detecting precancer.

[Stages of Cervical Cancer Graphic]

Additionally, many cancerous and precancerous cells are not collected by the
Pap smear sampling process because of a barrier created by infection with
Human Papilloma Virus ("HPV"). HPV is a sexually-transmitted disease, and in
the last two decades, an increasing number of women have become infected with
this virus. One of the features of cervical cells infected with HPV is that
most of them manufacture keratin, a material which exists on the surface of
hair and nails, but not normally on the cervix. As a result of HPV infection,
a keratin barrier frequently forms on the surface of the cervix. This barrier
can result in the trapping of cells, preventing their collection.

These biological processes significantly limit the ability of the Pap smear
to identify women with cervical disease at an early, treatable stage,
notwithstanding the use of automated Pap smear readers or improved laboratory
procedures which have been instituted in the past decade. Further improvements
in cervical screening will require health care practitioners to be able to
detect cancers and precancers below the surface or keratin barrier, as made
possible by the use of PPS.

THE ROLE OF PPS IN EFFECTIVE CERVICAL SCREENING

Over the past few years, the American College of Obstetrics and Gynecology
and other professional organizations have focused the attention of physicians
on the need for cost-effective adjunctive tests to be performed at the time of
the Pap smear to improve the sensitivity of primary cervical screening. As of
today, Speculoscopy is the only adjunct to the Pap smear that has been cleared
by the FDA for marketing as part of a primary screening procedure. The Company
anticipates filing further applications with the FDA seeking clearance to
market PPS as a device that is able to detect cervical cancer.

To further its objective to establish PPS as a "standard of care" for
cervical cancer screening, the Company has conducted multi-center trials of
PPS. The studies, which involved over 4,000 women, indicated that PPS was 2.4
times more sensitive than the Pap smear alone in detecting cervical cancer and
precancer. The following

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<PAGE>

table compares the percentage of participants with cancer or precancer in such
trials who accurately tested "positive" using each of the two screening tests.

COMPARISON OF SCREENING TEST SENSITIVITY

<TABLE>
<CAPTION>
PAP SMEAR
PATIENTS BY STAGE OF DISEASE ALONE PPS
---------------------------- --------- ----
<S> <C> <C>
Patients with early-stage precancer 33% 88%
Patients with severe precancer 73% 100%
Patients with invasive cancer 100% 100%
Total (all patients with cancer or precancer) 37% 89%
</TABLE>

Additional data from such trials showed that less than 1% of all women who
tested negative using PPS had any biopsy evidence of cervical cancer or
precancer, whereas more than 5% of all women who tested negative using the Pap
smear alone had biopsy evidence of cervical cancer or precancer. Based on
these findings, the Company believes that a principal advantage of PPS over
the Pap smear alone will be its ability to detect cancers and precancers at
earlier stages of the disease, allowing for less costly prevention or
treatment. The Company's existing FDA clearances permit the marketing of PPS
as being more accurate than the Pap smear alone in detecting cervical
abnormalities. Although the Company has not yet sought FDA clearance of claims
that Speculoscopy can detect cancer, the Company believes that the foregoing
data should support such claims. Using PPS, with its greater accuracy than the
Pap smear alone, health care practitioners will have more confidence than
before that a negative PPS screening test correlates highly with the absence
of cervical cancer and precancer.

MARKET AND BUSINESS STRATEGY

GENERAL

The Company's marketing objective is to capture a significant portion of the
market for primary cervical screening, which includes over 50 million Pap
smears performed annually in the United States and more than 150 million
performed worldwide, and thereby establish PPS as a "standard of care." The
Company intends to tailor the marketing of PPS according to the
characteristics of each particular market, while the Company will utilize
three key elements in its overall strategy to capture market share and
maximize earnings:

. leveraging the resources of large pharmaceutical distributors;
. focusing the advertising and marketing campaigns on target market
segments; and
. gaining acceptance with payors.

DISTRIBUTION AND MARKETING IN THE UNITED STATES

P&U distribution agreement. The Company has signed an agreement with P&U for
the marketing and distribution of PPS products in the United States through
1998. The agreement makes P&U the exclusive distributor of PPS in 45 states,
and a non-exclusive distributor in the five remaining states. The agreement
calls for P&U to market the PPS screening test and related products through
its entire national sales force, and for P&U's nationwide distribution system
to fulfill orders. In addition, P&U has committed to a national advertising
campaign for PPS.

The Company and P&U have scheduled a major domestic marketing campaign for
PPS commencing in late 1996. As part of its 18-month initial promotional
campaign, P&U will offer to its sales representatives special incentives for
sales of PPS and will offer to purchasers significant trial discounts. Sales
efforts over the first six months will be targeted to over 60,000 health care
practitioners in 20 major domestic markets, primarily through direct selling
efforts and educational programs. In addition, PPS will be marketed directly
to women and women's advocacy groups, primarily through a television, radio
and print advertising program. P&U will be the primary sponsor of the national
advertising campaign, although the Company will supplement P&U's efforts by
contributing approximately $10 million to the cost of such campaign. During
1997, P&U intends to expand its marketing efforts nationwide. The domestic
marketing campaign for PPS, as currently designed, will rely on marketing
claims previously cleared by the FDA and will not require any additional
clearances.

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<PAGE>

Educating physicians. The Company will employ P&U's large direct account
database and distribution expertise to effectively market, sell and distribute
PPS to practicing physicians and other health care practitioners. Initially,
the Company and P&U will target office-based physicians who perform a large
number of Pap smears, have direct accounts with P&U and practice in high-
income areas. P&U will send its trained PPS representatives on initial sales
calls to the target physicians to introduce PPS, to enroll the physicians in
workshops on the screening procedure and to encourage the physicians to be
early advocates of PPS. The representatives will use several sales aids to
demonstrate the sensitivity of PPS in cervical cancer screening, including
demonstration kits, videotapes, and printed articles. The campaign to market
to physicians will commence in late 1996.

Utilizing P&U's entire national sales force, state-of-the-art distribution
and delivery system, and relationships with physicians and other health-care
practitioners nationwide allows the Company to expedite the market penetration
of PPS and shorten the sales process without bearing the cost of an in-house
sales force. P&U has successfully utilized its infrastructure and distribution
system to introduce a number of new products to the female health-care market,
including Depo-Provera(R) 150.

Informing women of health benefits. The Company will focus its direct-to-
consumer advertising campaign on women and advocacy groups for women's health
care. P&U has demonstrated, through its successful promotional campaign for
Rogaine(R), that an effective way to generate immediate awareness and create
substantial demand is to directly market to the consumer. Based upon consumer
market research, the Company and P&U have designed the PPS media campaign,
utilizing television, radio and print advertising to generate consumer
awareness and communicate the benefits of PPS to women. In addition, the
Company and its public relations firm have designed specific programs to
assist women's health care advocacy groups in capturing for PPS a greater
proportion of health care expenditures.

Proving cost effectiveness to payors. Evidence of the cost effectiveness and
improved quality of disease detection will be primary factors in achieving
acceptance of PPS by third-party payors, including managed care organizations.
The Company and P&U will utilize pharmaceutical economic models that enable
payors to assess how PPS will increase both the quality of disease detection
and cost-effectiveness of the cervical screening programs they currently use.
As a result, the introduction of the PPS screening test in managed care
organizations will offer the prospect of better detection of cervical disease
coupled with material long-term cost savings over existing cervical screening
protocols. In addition, the Company believes that managed care organizations
that initiate the PPS screening test will see PPS as offering a potential
marketing advantage over competitors by providing a higher level of care to
women and increasing patient confidence in the managed care organizations. The
Company envisions that managed care organizations will be able to provide a
PPS screening program to its members by purchasing, for a single price or for
a capitated fee, a PPS screening test which includes materials, training of
health care practitioners, educational materials for practitioners and
patients and continuing education programs. Pricing incentives will be given
to the managed care organizations that signup for the PPS screening program
during 1997.

INTERNATIONAL DISTRIBUTION AND MARKETING

Acceptance of PPS as a standard of care in international markets will
involve many of the same considerations as in the United States, with
recognition of the significant variations in health care payment systems
between countries, including government-sponsored systems and private
insurance. The Company's international strategy will require it to work with
each of its foreign distributors to obtain required governmental and third-
party approvals, and to provide marketing materials, including continuing
medical education programs. In selecting its foreign distributors, the Company
has teamed primarily with pharmaceutical companies, but also works with
medical supply companies that have expertise and distribution networks already
in place. The Company will identify basic marketing needs of its distributors,
as well as advertising needs, and will share its research and clinical
expertise with its distributors to meet marketing and regulatory requirements.
Other than in Asia, the Company's foreign distribution agreements rely on the
export of Speculite manufactured by the Company's domestic supplier, Omniglow
Corporation ("Omniglow"). See "--Manufacturing."

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<PAGE>

Europe. The Company has entered into a five-year exclusive distribution
agreement for PPS in Italy with Bracco, S.p.A. ("Bracco"), a pharmaceutical
company based in Milan, Italy and an affiliate of Merck & Co., Inc., one of
the world's leading pharmaceutical distribution companies. Bracco has invested
significantly in studying the effectiveness and market potential of PPS, and
has scheduled the commencement of marketing efforts in Italy in October 1996.
Such marketing efforts will be targeted primarily to physicians through
educational symposia and demonstrations. Due to the influence of physicians in
the public health care system in Italy, the Company believes that acceptance
of PPS by physicians will be a key to its success in Italy. Moreover, the
Company believes that a successful launch in Italy may facilitate access to
other markets in Europe. In particular, the Company has targeted Germany and
France as potentially attractive markets for PPS, and to a lesser extent
England, Spain and Portugal. The Company may seek to access these other
European markets through Bracco and its subdistributors or through other
distribution partners.

Canada. In Canada, the Company is completing negotiations to extend an
existing exclusive distribution agreement with Pharmascience, Inc.
("Pharmascience"), based in Montreal, Canada for the distribution of PPS
products. The Company has been approved for marketing by Canadian regulatory
authorities. Pharmascience is familiar with the marketing and distribution
plan for the launch of PPS in the United States and has expressed to the
Company its desire to follow a similar launch plan. The Company believes it is
in a good position to achieve market exposure in Canada due to a recent effort
by the Canadian public health care system to locate an effective adjunct to
the Pap smear in order to increase the intervals between cervical cancer
screening. Pharmascience intends to focus a significant initial selling and
advertising effort towards physicians in an effort to capitalize on a national
effort to improve upon the existing Pap smear screening test.

Australia. In Australia, the Company intends to sign an exclusive agreement
with Baxter Healthcare Pty. Ltd. ("Baxter"), for the distribution of PPS
products in Australia, New Zealand and certain other countries of the South
Pacific for a five-year term. PPS has been registered for sale with the
Australian regulatory authorities, and Baxter already has commenced sales.
Baxter has informed the Company that it intends to conduct further research
studies of its own on PPS in order to support its marketing efforts. Baxter's
marketing campaign will be aimed at physicians and will include direct selling
efforts and advertising in professional journals. The Company will provide
Baxter with training assistance in the marketing of PPS.

Asia. The Company has entered into a fifteen-year exclusive agreement for
the distribution of PPS in certain countries in Asia by Asian Sourcing
Corporation ("ASC"), a distributing group based in Shanghai. In each of these
Asian countries, which include China, Taiwan, the Philippines, Thailand,
Singapore, Indonesia, Malaysia and Hong Kong, ASC subcontracts or will
subcontract with local medical supply companies or pharmaceutical companies
for distribution. Unlike under the Company's other distribution agreements,
ASC will not be required to purchase PPS from the Company. Rather, the
Company's primary manufacturer, Omniglow, has granted ASC a license to
manufacture Speculite locally. In return, ASC has agreed to purchase certain
chemicals from the Company, which the Company, in turn, will purchase from
Omniglow. ASC will manufacture Speculite at its newly constructed 15,000
square foot facility that can currently produce 15 million units per year.
Local manufacturing eliminates import duties and allows significant cost
reductions which the Company believes will be essential to the successful
marketing of PPS in Asia. Prior to opening its PPS manufacturing facility, ASC
purchased from the Company Speculite supplied by Omniglow. Although the
Company does not expect to generate significant revenues from the sale to ASC
of chemicals to be used in ASC's manufacturing operations, the Company
believes that ASC could become a second source of supply of Speculite in the
future.

Other Regions. The Company has entered into additional contracts,
relationships and agreements for the distribution of PPS in Greece, Mexico and
the Middle East.

Medically Underserved Populations. The Company is continuing to conduct
research internationally aimed at bringing practical cervical screening to
medically underserved populations. These populations are found in remote or
poor regions with a low medical infrastructure which cannot support a highly
technical screening program such as the Pap smear. Even where laboratory based
tests such as the Pap smear are feasible, such tests require a waiting period
while results are returned, and patients must return to the clinic or be found
again to

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complete diagnostic evaluation and treatment. Because of these inefficiencies,
the follow-up rate for the Pap smear in these regions is quite low.

For these reasons, numerous national and international health organizations,
including the World Health Organization ("WHO"), are looking for a cervical
cancer screening protocol that does not rely heavily on patient return or
recall visits for the completion of treatment. The Company has been asked by
WHO to participate in a trial of cervical cancer screening in Myanmar
(formerly Burma) to assess the use of Speculoscopy as a screening adjunct. In
addition, Speculoscopy alone has been used by the California based Medicine
For Humanity group in remote areas of the Philippines for a "one-stop"
cervical cancer screening protocol. The procedure of performing a Speculoscopy
alone in areas where laboratory infrastructure is either poor or nonexistent
has been referred to as a "Speculoscopy See and Treat" protocol. This protocol
is undergoing evaluation not only in foreign countries, but in under served
and low infrastructure areas in the United States.

PRICING AND REIMBURSEMENT

The Company anticipates that its distributors will charge health care
practitioners and managed care organizations a price for the PPS screening
test that will range from $6 to $10 per unit of Speculite. The Company
currently anticipates that the price of the PPS screening test charged by the
practitioner to the patient in the fee-for-service market in the United States
will be approximately $20 to $25 more than the price of a routine
gynecological examination (which typically ranges from $75 to $125, including
laboratory costs). This amount may be subject to full, partial or no
reimbursement, and the level of reimbursement likely will affect PPS's market
penetration. Reimbursement for PPS requires approval from each payor
individually. Currently, there is no unique procedure code for PPS or
Speculoscopy under the Current Procedural Terminology ("CPT") codes published
by the American Medical Association. Presently, third-party reimbursement for
the PPS screening test requires doctors to submit and substantiate PPS
services using existing general procedure codes for patient examinations.
However, Speculoscopy added to the Pap smear results in an "upgrade" of the
existing examination, and allows the practitioner to bill for a more extensive
examination. Since health care practitioners already routinely perform a
pelvic examination and a Pap smear on healthy women in yearly examinations,
the addition of the Speculoscopy component of the PPS screening test could be
billed to the third-party payor as a separate procedure, or the entire PPS
screening test could be billed as a higher level of screening service,
allowing an increased charge for the entire examination and patient visit.
Currently, billing for the Pap smear occurs separately from the examination
and is generally rendered by the clinical laboratory providing the Pap smear
interpretation. The Company envisions no change in the billing of Pap smears.
Because the Company does not anticipate third-party payors will always
reimburse the full cost of the PPS screening test, acceptance of PPS in the
fee-for-service market will depend in addition on the willingness of the
patient to bear some or all of the cost of the test. The Company has
incorporated this consideration into the promotional strategy being
implemented by P&U and the Company. In addition, some third-party payors may
reduce over time the reimbursement offered for the use of PPS because of the
potential for less frequent screening.

Internationally, health care payment systems vary significantly between
countries, and include government-sponsored health care payment systems and
private insurance. The Company's foreign distributors recently have begun to
seek reimbursement approvals in selected foreign markets but have not obtained
any reimbursement approvals to date. See "Risk Factors--Dependence on Third-
Party Reimbursement."

PRODUCT AND TECHNOLOGY APPLICATIONS

The Company markets or plans to market several products for use with the PPS
procedure, as described below:

PPS TECHNOLOGY

The components used in the PPS screening test include the disposable
Speculite light source and the lightweight, reusable magnifying lens known as
the Speculoscopy optic. Together with the Speculite and Speculoscopy optics,

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the Company markets educational programs which support the PPS screening test,
including the Atlas of Speculoscopy, a photographic illustration of positive
and negative Speculoscopy findings for the examiner, and a monograph on
cervical disease and diagnostic procedures which includes a practitioner test
eligible for continuing medical education credit.

SAMPLING BRUSH

The Company has designed and contracted for the manufacture of a new
sampling brush used to obtain samples from areas of either the cervix or oral
cavity that show white coloration in the Speculoscopy examination. The Company
plans to begin clinical testing of this product, Spirabrush Cx, with the goal
of obtaining FDA clearance to use it to sample the cervix and oral surfaces.
The market for Spirabrush Cx will depend in part on the ability and
willingness of clinical laboratories to process the cell samples obtained by
the brush.

In addition, the Company markets or has under development certain non-PPS
applications of Speculite and Speculoscopy and related products, as described
below:

AMBER SPECULITE

In addition to the Blue-White Speculite used in Speculoscopy, the Company
has developed the Amber Speculite, designed to emulate a standard incandescent
light. The Amber Speculite was introduced to the market in 1990 and was test
marketed to physicians for examinations other than the Pap smear, including
radiologic procedures, fertility procedures, in-hospital examinations and
office procedures. Sales to date have not been significant because the Company
has focused its efforts on the development of PPS. The Company plans to
increase its marketing and sales efforts for the Amber Speculite to targeted
market segments.

SURGICAL OPTICS

In 1996, as an outgrowth of Speculoscopy optics, the Company completed the
design of low-cost, stereo-optic binocular surgical magnifying loupes. These
binocular loupes are designed to be used by surgeons, dentists and
veterinarians who use either low-powered or medium-powered magnification to
assist in surgical and dental procedures. The Company believes that there are
over 44,000 surgeons in the United States who constitute the potential market
for surgical loupes. The Company's loupes were introduced in June 1996 at the
United States annual meeting of cardiovascular surgeons and will be subject to
further development and marketing. The Company's loupes currently sell at less
than one-half of the price of equivalent loupes on the market, and the Company
believes that its products will be very competitive with those of other
surgical magnifying loupe manufacturers.

ORAL SPECULOSCOPY

The Company believes that the Speculite might have applications in the field
of screening for cancers and precancerous lesions in the oral cavity. As of
1995, according to the American Cancer Society, there were almost twice as
many cases of oral cancer in the United States (approximately 28,000) as there
were cases of cervical cancer. Currently, palpation (feeling for
abnormalities) and direct visualization of larger lesions are the only
generally-used means available for screening the oral cavity for tumors.
However, preliminary observations have indicated that white lesions evidencing
oral cancer or precancer are visible using the Speculite light source and low
powered magnification. The Company plans to begin prospective evaluations of a
procedure referred to as Oral Speculoscopy, using the Speculite light source,
to screen for oral cancer and precancer. The Company believes that, if the
data demonstrate that precancerous and cancerous lesions can be visualized
using Oral Speculoscopy, it can become a screening test for oral cancer and
precancer. Should such studies substantiate this use, the Company would seek
necessary FDA clearances for the marketing of Oral Speculoscopy.

CO/2/ STAT

The Company is developing a low cost, disposable carbon dioxide (CO/2/)
detection device to be used in determining carbon dioxide levels in exhaled
breath. It is often necessary to determine the carbon dioxide levels

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of individuals experiencing respiratory distress in order to make a
preliminary diagnosis of the nature of the problem, and a recommendation for
treatment. There are more than 20 million individuals in the United States
with various lung diseases who could be potential candidates for use of this
product. The Company intends to make the product available for use in
physicians' offices, emergency rooms, and in-patient hospital settings. In
addition, the Company intends to make the product available to the home market
in the same manner as blood sugar, home pregnancy and cholesterol tests which
are sold over the counter.

OTHER COLORED SPECULITE

The Company also is investigating other chemical light colorations for use
in other endoscopic applications, such as peritoneal lighting for micro-
laparoscopy, lighting cavities and crevices in orthopedic procedures,
urological lighting of the bladder and endoscopic lighting in the
gastrointestinal tract. These applications will require additional clearances
and approvals from the FDA.

PATENTS AND PROPRIETARY RIGHTS

The Company holds United States patents on the Speculoscopy method and the
underlying apparatus. The apparatus patent, which was issued in 1993 and has
14 years of remaining life, covers endoscopic instruments for performing
Speculoscopy. This patent describes Speculoscopy as an endoscopic procedure
involving a visually magnified examination of a body cavity, illuminated by a
chemical light source including blue and green colorations. The method patent,
which was issued in 1994 and has 15 years of remaining life, covers the use of
Speculoscopy for vaginal examinations. The Company has been granted patents
from the European Patent Office and in Canada, Australia, India, Japan, Taiwan
and Spain on endoscopic instruments using chemical light sources. Some of
these patents also cover the Speculoscopy procedure. The Company plans to file
further domestic and foreign patent applications for Oral Speculoscopy and for
the use of chemical light in other endoscopic applications, although no
assurance can be given that the Company will be granted the patent rights it
seeks.

Omniglow owns patents on the formulations of chemical light used in the
Blue-White Speculite for the PPS screening test. Approximately nine years
remain on the term of the principal patent for the Blue-White Speculite, and
the Company enjoys the protection of this patent by virtue of its agreement
with Omniglow giving the Company the exclusive right to sell the Speculite for
use in specified medical applications. This agreement was entered into in 1994
and has a ten-year term, which will be automatically renewed for an additional
ten-year term commencing 2004 unless either party gives notice to the other of
non-renewal. See "--Manufacturing." There is no certainty that other non-toxic
formulations of chemical light or other light sources with similar color
attributes as the Blue-White Speculite cannot be developed, but the Company is
unaware of any other non-toxic chemical or other light source currently under
development that could effectively perform Speculoscopy. See "Risk Factors--
Reliance on Patents and Proprietary Technology." In contrast to the patents
covering the Blue-White Speculite, patents covering the formulation of
chemical light used in the Amber Speculite have expired.

Patents on medical and diagnostic procedures, such as the Company's patent
relating to use of the Speculoscopy examination, historically have been
uncommon in the United States and rarely enforced. In response to increasing
attempts in recent years to enforce and exploit such patents, Congress
currently is considering bills that could limit in certain respects the
issuance or enforcement of process patents on medical procedures. Because
congressional consideration of these bills has been preliminary in nature, it
is impossible to predict whether any legislation ultimately will be enacted or
whether such legislation, if enacted, would have any effect on the Company.
Even if enacted, however, such legislation would not be expected to affect the
patents governing the Blue-White Speculite, because such patents relate to a
product rather than a medical procedure.

The Company has copyright protection on certain product literature and has
obtained trademark registrations for Speculite and PPS in the United States,
France and Germany and has applied for trademark registrations in
approximately 20 other countries.

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PAP PLUS SPECULOSCOPY CLINICAL DATA

Clinical research trials of Speculoscopy and the PPS screening test began in
1988 and have continued to the present time. Studies have taken place at
multiple sites in the United States, Italy and Canada. A total of 4,212 women
have been studied prospectively using a protocol in which each woman in the
study had a Pap smear, Speculoscopy and colposcopy performed. Women who had an
abnormal colposcopy received a cervical biopsy to diagnose the cervical
disease present. Only a protocol like this one that uses definitive testing,
including a biopsy, can determine the true incidence of cervical disease in
the population, and only in studies which first determine the true incidence
of cervical disease can any new screening test or screening test improvement
be evaluated fully.

In these clinical research studies a total of 358 of the 4,212 women had
cervical cancer or precancer, as determined by cervical biopsy. The Pap smear
was abnormal in only 132 of these 358 women, yielding a sensitivity of 37%. In
contrast, the PPS screening test was positive in 318 of these 358 women,
yielding an overall sensitivity of 89%. Thus, the PPS screening test was more
than twice as sensitive as the Pap smear alone in detecting those women with
cervical disease. The Pap smear alone found only 106 of 323 women (or 33%)
with early stage precancer, while PPS found 283 of such women (or 88%). In
addition, the Pap smear alone found only 24 of 33 women (or 73%) with the most
severe form of cervical precancer, while the PPS screening test correctly
identified 100% of these women. Both the Pap smear and PPS found two women
with invasive cancer. The only women with cervical disease not identified by
the PPS screening test were women with the earliest precancerous lesions.

An additional 8,713 women have been studied prospectively in the United
States with the PPS screening test using a protocol in which only the women
with either a positive Pap smear result or a positive Speculoscopy result were
sent for definitive colposcopy and biopsy. In this protocol, the true
incidence of cervical disease in the entire population cannot be established,
but the difference between the Pap smear alone and the PPS screening test can
be determined. In these studies, which were carried out by primary healthcare
practitioners, a total of 375 women were identified through the PPS screening
test as having cervical cancer and precancerous lesions. The Pap smear alone
was abnormal in only 99 of these women, with a sensitivity of 26%. In
addition, out of 55 women identified through PPS as having severe cervical
precancer, the Pap smear alone was abnormal in only 41, or 75%, of these
women.

MANUFACTURING

The Company does not currently manufacture any of its products but obtains
its most critical component, the Speculite light source, pursuant to a long-
term supply agreement with Omniglow which gives the Company the exclusive
right to sell Speculite for use in specified medical applications. The
agreement was entered into in 1994 and has a ten-year term, which will be
automatically renewed for an additional ten-year term commencing 2004 unless
either party gives notice to the other of non-renewal. Omniglow acquired the
patents for the manufacture of Speculite from American Cyanamid Company in
1993 and is the only United States manufacturer. Speculite is manufactured at
Omniglow's manufacturing facility in West Springfield, Massachusetts. The
Company specifies standards of production for Omniglow's manufacture of
Speculite in accordance with Good Manufacturing Procedures ("GMP") as required
by the FDA. The Company believes that the Omniglow facility is in full
compliance with current FDA standards for the manufacture of Speculite.

In 1994, the Company and Omniglow entered into a joint venture with ASC to
establish a manufacturing facility in Shanghai, China and to transfer
technology for the manufacture and sale of PPS products and protocol to ASC.
ASC was licensed by Omniglow to manufacture Speculite from prepackaged
chemicals and activators, while the Company licensed to ASC the clinical
technology for the PPS screening test. The Company, with the help of ASC,
commenced clinical trials of PPS in China in 1994. These studies remain
underway today. Production of Speculite at the Shanghai facility began in
early 1996. The Company purchases the pre-packaged chemicals from Omniglow and
acts as a re-seller of these chemicals to ASC for packaging at the Shanghai
facility. ASC markets the PPS screening test in China and certain other
countries in Asia. See "--Market and Business Strategy--International
Distribution and Marketing."

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Adhesive strips for affixing the Speculite light to the vaginal speculum
used in the pelvic examination are manufactured for the Company according to
its specifications by Medifix Adhesive Products, Ltd. of England. Alternative
sources for the manufacturing of this component exist at other locations and
the Company does not anticipate difficulty in obtaining supply. Medical
packaging of Speculite products is performed either at Omniglow's
Massachusetts facility or at Anderson Winn Medical Packagers, an FDA-approved
medical packaging site in Canoga Park, California.

Speculoscopy magnification optics, as well as magnifying surgical loupes,
are manufactured for the Company according to its specifications at three
separate manufacturing facilities in China, and are sold to the company by
ASC. They are shipped via Shanghai to Los Angeles, where they are inspected by
the Company.

GOVERNMENTAL REGULATION

GENERAL

As an entity engaged in the sale and marketing of medical products, the
Company is subject to extensive regulation by the FDA, other federal agencies,
certain state and local governments, and foreign governmental agencies. The
FDA regulates the research, clinical studies, marketing, manufacture,
packaging and promotion of medical products in the United States. The Company
has had extensive interaction with the FDA over the past ten years in
obtaining clearance for the marketing of Speculite and the PPS screening test.

Medical devices are generally classified into three classes on the basis of
the controls required by the FDA to assure safety and efficacy. Class I
devices are considered a low risk if they malfunction, and are subject to
general controls, such as maintaining GMPs for manufacture and packaging and
general labeling requirements. Class II devices are subject to both the
general controls of Class I devices and more specific controls, including
performance standards and postmarket surveillance, in order to ensure safety
and effectiveness. Class III devices are considered to be life-supporting or
life-sustaining or new devices or technologies that are not found to be
substantially equivalent to legally marketed devices and will require a PMA to
demonstrate safety and effectiveness. A company can apply for clearance to
market a medical device under the Section 510(k) premarket notification
process, rather than a PMA, if the device can be shown by valid scientific
evidence to be substantially equivalent to an existing legally marketed
medical device.

If an applicant can establish that a device is substantially equivalent to
an existing legally marketed device, the applicant may still be required to
submit clinical research data to support any new claims it is making. Clinical
research data in such instances will be reviewed by internal FDA experts and
consultants to the FDA. The current waiting period to receive a response from
the FDA in the review of Section 510(k) applications is 90 to 200 days. The
FDA response to such an application may be to determine that the device is
substantially equivalent to another legally marketed device and to allow the
device to be marketed in the United States. The FDA, however, could decide
that further data is required for approval of the claims being made for the
device, which can substantially delay the use of these new claims to describe
the device's capabilities.

The Company also is 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. In addition, the Company is subject to state
tort law. A recent United States Supreme Court decision held that, despite a
company's compliance with FDA regulations, it still may not be shielded from
common-law negligent design claims or manufacturing and labeling claims based
on state law or regulations. There can be no assurance that the Company will
not be required to incur significant costs to comply with such laws and
regulations in the future, or that such laws will not have a material effect
upon the Company's business, financial condition and results of operations.

Sales of medical devices outside of the United States are subject to United
States export laws and foreign regulatory requirements that vary widely from
country to country. The time required to obtain approval by a foreign country
may be longer or shorter than that required for FDA clearance, and the
requirements may differ. In order to commercially distribute medical devices
in many European countries, the Company must adhere to

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certain quality assurance standards and obtain certain clearances that the
Company has not yet obtained. Generally, the extent and complexity of the
regulation of medical products is increasing worldwide, with regulation in
some countries already nearly as exhaustive as that in the United States. The
Company anticipates that this trend will continue and that the cost and time
required to obtain approval to market in any given country will increase. The
Company's distributors and marketing partners generally will be responsible
for obtaining regulatory approvals and establishing reimbursement from third-
party payors in their respective territories. To date, only limited foreign
regulatory approvals for PPS have been obtained. See "Business--International
Distribution and Marketing" and "Risk Factors--Governmental Regulation."

THE COMPANY'S FDA APPLICATIONS AND CLEARANCES

The Company's predecessor submitted a Section 510(k) application and
received its first FDA review in 1985 for the Speculite light source. The
Company's claims that the chemical light source was efficacious, safe, non-
toxic to vaginal tissue in case of rupture and a colposcopic-equivalent light
source were approved with a Class I clearance. Marketing and sales of the
Company's Amber Speculite commenced under this clearance.

Following introduction of the Amber Speculite, the Company supported
research both in the United States and in foreign countries by investigators
wishing to determine the efficacy of the Blue-White Speculite chemical light
in pelvic examinations. From 1992 to 1994 the Company engaged in a limited
market introduction of the PPS screening test with a clinical laboratory
group, which purchased Speculoscopy supplies for resale and to support further
research. The Company abandoned the clinical laboratory approach to
distribution and sale of Speculoscopy in 1994 when it entered into its
exclusive marketing and distribution agreement with P&U. Following a limited
sales force launch in October 1994, the PPS screening test was scheduled for
broader market introduction when the Company received the FDA's letter in
December 1994 warning against the use of certain marketing claims being made
for Speculoscopy and PPS. The Company, with the concurrence of P&U, decided to
suspend active marketing of the product while it responded to the FDA letter.
In June 1995, the Company submitted a Section 510(k) application for the
clearance of new claims. In support of such application, the Company submitted
data from prospective studies conducted in the United States and in foreign
countries. In December 1995 the Company received FDA clearance to market PPS
as a Class II device under the claim that PPS is more accurate than the Pap
smear alone at detecting cervical abnormalities. The Company's Speculite
medical products, and the manufacturing, labeling and advertising of such
products, will continue to be under the surveillance of the FDA, including
inspection of facilities and records and medical device reporting
requirements. The Company and its manufacturer and packager keep required
records at their respective sites.

The Company currently is preparing another Section 510(k) application
regarding additional claims for the PPS screening test, which relate to PPS's
effectiveness at detecting early phases of disease. An additional 4,000
patients have been studied with the PPS examination in the United States and
Italy, with correlations of the results of colposcopic biopsy, Pap smear,
Speculoscopy, and the PPS screening test. The Company anticipates submission
of this new application by the fourth quarter of 1996. See "Risk Factors--
Governmental Regulation."

The Company does not currently have clearance to market PPS under the claim
that it is able to detect cervical cancer. The Company intends to file a PMA
seeking FDA approval of such a claim. Although the Company has developed
substantial data to support such application, there is no guarantee that such
PMA will be granted by the FDA at any time in the future. The domestic
marketing campaign to be launched by P&U in late 1996 will rely on claims
previously cleared by the FDA and will not require any additional clearances.

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The Company may be required to submit either a Section 510(k) or PMA
application to the FDA for the clearance of marketing claims for Oral
Speculoscopy in the future. It is the Company's intention to embark on
clinical research trials of Oral Speculoscopy, with the goal of obtaining a
Section 510(k) clearance for claims using Speculoscopy as the existing,
legally marketed predicate device if such FDA clearance is required.

The Company plans to submit a Section 510(k) application for clearance of
claims for its Spirabrush Cx cervical sampling device in the fourth quarter of
1996. Although the Company believes that Spirabrush Cx will be found to be
substantially equivalent to currently marketed cervical cytologic sampling
devices, there can be no assurance that the Company will receive FDA clearance
of the Spirabrush Cx in a timely manner or at all.

COMPETITION

Over the past few years, a number of publicly held and private companies
have entered the cervical screening market with devices that are designed to
improve the Pap smear or to act as adjuncts or as secondary screening
procedures. The Company believes that there are substantial differences
between its PPS products and the products of these other companies.

The diagnostically definitive test for detecting all levels of cervical
disease is a biopsy of the cervix directed by colposcopy. Colposcopy is a
magnified examination of the cervix performed by a specially trained expert
after the cervix has been washed with dilute acetic acid (vinegar), and is
designed to identify the area(s) of the cervix containing abnormal cells so
that a biopsy may be performed. Colposcopy is generally performed only on
women with abnormal Pap smears. The cost of equipment to perform a colposcopy
is significant, usually amounting to more than $5,000 and frequently exceeding
$10,000. The cost to patients for colposcopy varies from $150 to more than
$300. Additionally, a diagnostic colposcopy can be performed by only a small
fraction of the health care practitioners who perform primary screening
examinations on women. The Company believes
that colposcopy is neither a suitable or affordable adjunctive primary
screening test, nor a replacement for the Pap smear, although it will remain
in widespread use as the definitive follow-up test for guiding cervical
biopsy.

Several companies recently have begun to market computerized slide-reading
systems that select the most abnormal cells on a Pap smear slide for review by
the slide-reading technician. Other companies have focused on new slide
preparation solutions and technology for the preparation of slides for review.
The Company believes that the technologies of these companies are not directly
competitive with the PPS screening test, inasmuch as Speculoscopy is designed
in large part to identify cervical abnormalities that do not produce cells for
collection and reading. Another new technology in cervical screening is DNA
testing for HPV, which has been linked to cervical disease. The Company
believes that Speculoscopy can be differentiated from HPV testing by its lower
cost, immediate results and greater diagnostic efficacy.

The Pap smear improvement technologies described above, as well as other
laboratory technologies such as HPV testing, will compete with the Company for
a limited amount of health care dollars available for the improvement of
cervical cancer and precancer screening. Pap smear reading improvement devices
have been on the market longer than PPS, and successful capture of market
share by PPS will depend on the Company's ability to communicate the
differences between Speculoscopy as an adjunct to the Pap smear and the
improvements of Pap smear reading technology.

Other companies currently are marketing, or plan to market, adjunctive tests
to be done in conjunction with the Pap smear that are either visual tests or
tests that use highly technical equipment to measure cells' light absorption
or electromagnetic conductivity. One visual adjunct that is currently
available, known as cervicography, produces a photograph which the health care
provider obtains though a specialized camera and then sends to a laboratory
for review. However, this test requires costly photographic equipment and
produces delayed results. Moreover, its cost to the patient, excluding the
cost of the Pap smear, is approximately $40. This test does not currently have
significant market share. The Company believes that PPS is a more effective
adjunctive test for widespread cervical screening than is cervicography,
because PPS is quick, cost-effective and highly accurate. Another type of test
being developed is known as spectroscopy and uses a fiberoptic device to

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test cells' ability to absorb light, relying on scientific principles similar
to those on which Speculoscopy is based. It currently is impossible to
estimate the impact on PPS of spectroscopy and other early-stage technologies
being prepared as adjuncts, since these technologies are still in their
developmental stages and do not currently have FDA clearance for marketing.

To date, the Company knows of no technology other than PPS that has received
FDA clearance to be marketed as part of a primary screening procedure. The FDA
has cleared PPS to be marketed as being more sensitive than the Pap smear
alone in detecting cervical abnormalities. The Company believes that this
clearance will aid the Company in drawing the distinction between its PPS
screening test and these other technologies. See "Risk Factors--Competition."

PRODUCT LIABILITY

The Company currently maintains product liability coverage for any harmful
effects of the intact Speculite light capsule or its contents during the
routine use of the Speculite chemical light device. There have been no claims
made to date regarding Speculite.

PERSONNEL AND FACILITIES

The Company currently employs nine full time personnel and two part-time
personnel at its 3,000 square foot office space in Torrance, California. There
are immediate plans to increase the full time personnel to twelve, with
further increases in full time personnel upon successful completion of the
Offering. The Company has plans to increase its current office space to 5,000
square feet and to extend its current lease, which expires in 1998.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

34
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information about the executive
officers and directors of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Martin L. Lonky, Ph.D. . 52 Chief Executive Officer, President and Chairman of the Board
Stewart A. Lonky, M.D. . 49 Executive Vice President, Chief Medical Officer and Director
Neal M. Lonky, M.D. .... 39 Secretary and Director
David G. Wallace........ 45 Director
Alfred M. Bloch, M.D.,
Ph.D. ................. 61 Director
George A. Vandeman...... 56 Director
</TABLE>

Martin L. Lonky, Ph.D.--Chief Executive Officer, President and Chairman of
the Board. Dr. Martin Lonky is a founder of the Company and has served as
Chairman of the Board of Directors, Chief Executive Officer and President of
the Company since its inception in 1987. Dr. Lonky received his B.S. degree in
physics from Rensselaer Polytechnic Institute in 1964 and his M.S. and Ph.D.
degrees in physics in 1967 and 1972, respectively, from the University of
Delaware. From 1972 to 1974, he was a Presidential Intern to the United States
Army Land Warfare Laboratory, where he was involved in government programs
using chemical light technology. For the past eight years, Dr. Lonky has
operated a privately held consulting service providing engineering and
management guidance for both government and private companies. From 1993 to
1996, Dr. Lonky has also served as a consultant with the Aircraft Division of
Northrop Grumman, Inc. ("Northrop") in the capacity of Manager of Reliability
and Systems Assurance. From 1991 to 1993 he served as a Manager in the
Engineering Department of the Northrop Electronics Division. Dr. Lonky is the
brother of Stewart A. Lonky, M.D. and Neal M. Lonky, M.D.

Stewart A. Lonky, M.D.--Executive Vice President, Chief Medical Officer and
Director. Dr. Stewart Lonky is a founder of the Company, has served as a
Director of the Company since 1987 and has served as Executive Vice President
of the Company since 1991. Dr. Lonky has been a practicing physician in Los
Angeles, California since 1982. Prior to entering the private sector, Dr.
Lonky was a full time faculty member and Assistant Professor of Medicine at
the University of California, San Diego. In that capacity, he headed a basic
science and clinical research laboratory funded entirely by research grants,
conducting research in the areas of biochemistry and applied physiology. Dr.
Lonky received his B.S. from St. Lawrence University, and his M.D. from the
State University of New York. His post-graduate training took place in New
York, Missouri, and California. He was a National Institutes of Health Post-
graduate Fellow from 1974-1977, and joined the full-time teaching and research
faculty at the University of California, San Diego in 1977. He received his
Master's in Business Administration from Pepperdine University, Malibu,
California, in 1993.

Neal M. Lonky, M.D.--Secretary and Director. Dr. Neal Lonky is a founder of
the Company and has served as a Director and Secretary of the Company since
1987. Dr. Lonky is an obstetrician and gynecologist with the Southern
California Permanente Medical Group (Kaiser Permanente) in Anaheim,
California, and serves as Assistant Chief of Service and Area Research
Chairman. Dr. Lonky has practiced medicine with this group since 1986. Dr.
Lonky is an Associate Clinical Professor of Obstetrics and Gynecology at the
University of California, Irvine, California. Dr. Lonky currently is engaged
in clinical gynecologic research studies at Kaiser Permanente, including
screening and management of cervical neoplasia. In addition, he currently is
pursuing a Masters in Public Health and Health Services at the University of
California at Los Angeles School of Public Health. Dr. Lonky has served as a
consultant to the Company since 1992 and is currently involved in product
evaluation, medical informatics and development of medical and nursing
education programs.

35
<PAGE>

David G. Wallace--Director. Mr. Wallace has served as a Director of the
Company since 1991. Mr. Wallace has served as the Vice President of Sales and
Marketing for Micro-Kinetics Corporation, a motion control company, from 1991
to the present. In addition, in 1995, Mr. Wallace co-founded Micro Optics
Design Corporation where he currently serves as Chairman and Chief Executive
Officer. In 1989, Mr. Wallace co-founded Paige Innovations, Inc., where he
served as an officer and director. Between 1975 and 1989 Mr. Wallace served in
sales and management roles in numerous early stage companies. Mr. Wallace has
been a director of Advanced Medical Devices, Inc. ("AMD") since 1989.

Alfred M. Bloch, M.D., Ph.D.--Director. Dr. Bloch has served as a Director
of the Company since 1995. Dr. Bloch has been a practicing physician in
private practice in Los Angeles, California for the past 25 years. From 1986
to 1995, when Dr. Bloch negotiated its sale, Dr. Bloch was a director, and in
1995 was Chairman of the Board of the restaurant chain Johnny Rockets
International, Inc.

George A. Vandeman--Director. Mr. Vandeman has served as a Director of the
Company since 1996 and has been Senior Vice President, General Counsel and
Secretary of Amgen Inc. ("Amgen") since July, 1995. Prior to joining Amgen,
Mr. Vandeman was a senior partner specializing in mergers and acquisitions at
Latham & Watkins.

Pursuant to its acquisition of Common Stock in December, 1992, AMD was given
the right to appoint two members of the Board of Directors. AMD currently has
exercised its right to appoint one director, David G. Wallace.

CLASSIFIED BOARD OF DIRECTORS

Pursuant to the terms of the Restated Certificate of Incorporation of the
Company, the Board of Directors is divided into three classes, designated
Class I, Class II and Class III. Class I, consisting of Dr. Neal Lonky and Mr.
Wallace, will hold office initially for a term expiring at the annual meeting
of stockholders to be held in 1997, Class II, consisting of Dr. Stewart Lonky
and Mr. Vandeman, will hold office initially for a term expiring at the annual
meeting of the stockholders to be held in 1998 and Class III, consisting of
Dr. Martin Lonky and Dr. Bloch, will hold office initially for a term expiring
at the annual meeting of stockholders to be held in 1999. Currently there is
one vacancy in each designated Class of directors. Each director will hold
office until the annual meeting for the year in which his term expires and
until his successor is duly elected and qualified. At each annual meeting of
stockholders of the Company, the successors to the class of directors whose
terms expire at such meeting will be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election. See "Description of Capital Stock--
Certain Anti-Takeover Effects." The Board of Directors elects officers
annually and such officers serve at the discretion of the Board of Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established an Audit Committee and a Compensation
Committee, each of which are composed of independent directors.

Audit Committee. The Audit Committee has the responsibility for reviewing
and supervising the financial controls of the Company. The Audit Committee
makes recommendations to the Board of Directors of the Company with respect to
the Company's financial statements and the appointment of independent
auditors, reviews significant audit and accounting policies and practices,
meets with the Company's independent public accountants concerning, among
other things, the scope of audits and reports, and reviews the performance of
overall accounting and financial controls of the Company. Following the
Offering, the Audit Committee will consist of at least two independent
directors to be designated by the Board of Directors.

Compensation Committee. The Compensation Committee has the responsibility
for reviewing the performance of the officers of the Company and recommending
to the Board of Directors of the Company annual salary and bonus amounts for
all officers of the Company. The Compensation Committee also has the
responsibility for oversight and administration of the Company's stock
incentive and other compensatory plans. The Compensation Committee consists of
David G. Wallace and George A. Vandeman.

36
<PAGE>

DIRECTOR COMPENSATION

Except as described below, members of the Company's Board of Directors do
not receive any cash compensation for attending Board of Directors' or
committee meetings.

The Company's 1994 Directors' Stock Award Plan (the "Directors' Plan")
provides for stock grant awards to non-employee members of the Board of
Directors pursuant to a formula. At the end of each year, a total pool of up
to 1200 shares of Common Stock is made available to non-employee directors, as
a group, for their services during that year, with the exact award amounts
fixed by formula based on attendance at Board of Directors' meetings and, if
applicable, committee meetings. Generally, a total of 750 shares are available
to all directors as a group based on board attendance, and 450 additional
shares are available to committee members as a group. See "Management -- 1994
Directors' Stock Award Plan." Pursuant to the Directors' Plan, for services
rendered in 1995, Dr. Neal Lonky and Mr. Wallace received stock awards of 150
shares and 200 shares, respectively, and certain other directors who are not
current continuing members of the Board of Directors received an additional
500 shares.

For agreeing to serve as a member of the Board of Directors in 1996, Mr.
Vandeman has been granted an option to purchase 1,043 shares of Common Stock.
The shares underlying his option shall vest equally in one-third increments
over a three-year period with exercise prices of $260.00, $300.00 and $340.00
per share, respectively. Mr. Vandeman's option will expire ten years from the
date of its issuance.

Dr. Bloch and certain related entities (Dr. Bloch and these entities are
hereinafter referred to as the "Bloch Entities") acquired 4,573 shares of
Common Stock for a purchase price of $260 per share and 4,573 Warrants
exercisable at the same price, as part of a private equity placement effected
by the Company in December 1995. Certain terms of the purchase by the Bloch
Entities vary from the terms offered to unaffiliated investors, as follows.
For Dr. Bloch agreeing to serve as a member of the Board of Directors, the
Bloch Entities were granted certain antidilution rights with regard to their
Common Stock and Warrants. The agreements covering the Common Stock
antidilution rights (the "Bloch Antidilution Agreements") require the Company
to issue additional Common Stock to the Bloch Entities if the Company issues
or sells Common Stock, other than through a subdivision, combination, stock
split or reverse stock split of the Company's Common Stock, for a price which
is less than $260 per share. The Bloch Antidilution Agreements expire on
September 9, 1996. The Bloch Entities also have a "net exercise" feature that
allows them to forego paying the exercise price of their Warrants in cash, by
surrendering upon exercise a number of shares of Common Stock having a fair
market value equal to the exercise price.

EXECUTIVE OFFICER COMPENSATION

The following table presents for the periods shown information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer. Other than the Chief Executive Officer, no executive
officer of the Company received total salary and bonus during the year ended
December 31, 1995 in excess of $100,000.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------- ----------------
RESTRICTED STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS COMPENSATION
--------------------------- ---- -------- ----- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Martin L. Lonky, Ph.D. .................... 1995 $120,000 -- $9,000(1) $12,513(2)
Chief Executive Officer and President
</TABLE>
- ---------------------
(1) In September 1995, under the Company's 1994 Long-Term Equity Incentive
Plan, Dr. Lonky received a restricted stock award of 750 shares of Common
Stock, which vests in equal increments over a three year period,
commencing September 1995. Neither Dr. Lonky nor any other officer has
received any stock option grants or exercised any stock options in 1995 or
prior years.
(2) Represents automobile insurance, service and lease payments.

37
<PAGE>

EMPLOYMENT AGREEMENTS

The Company entered into an employment agreement with Dr. Martin L. Lonky in
June 1996. For the first twelve months of the agreement, Dr. Lonky is entitled
to receive a base salary of $240,000, subject to an adjustment upwards in
subsequent years by the Board of Directors. In addition, during each fiscal
year, the executive is eligible for a cash bonus, based in part on his
individual performance and in part on the Company's overall performance during
such fiscal year. The agreement provides, among other things, for a cash bonus
of $50,000 to Dr. Lonky upon completion of the Company's initial public
offering. In addition to such group benefits as are provided by the Company to
its employees, Dr. Lonky shall receive certain specified life, health and
disability insurance benefits.

The agreement is for a term of three years and, no later than one year prior
to expiration, the Company must inform Dr. Lonky (referred to as the
"executive") whether it will renew the agreement or offer the executive a new
employment agreement. The executive may terminate his agreement for any reason
upon 60 days advance written notice. In the event of death or permanent
disability (as defined in the employment agreement), the executive or his
beneficiary shall be entitled to receive a lump sum payment equal to his then
current annual base salary. The Company, at any time after the first 18 months
of the agreement, may terminate the executive without cause upon 60 days
advance written notice, and in such event the Company shall pay the executive
a lump sum in cash equal to 18 months of the executive's current annual base
salary, bonus compensation and the cash value of all benefits. This lump sum
payment will not apply in the event of termination for cause (as defined). In
addition, upon a Change of Control (as defined in the employment agreement),
the executive shall be entitled to receive a lump sum payment equal to the
greater of (i) his annual base salary, bonus compensation and the cash value
of all benefits he would have earned had he remained employed for the 18
months following his termination; or (ii) a lump sum cash payment equal to his
annual base salary, bonus compensation and the cash value of all benefits he
would have earned had he remained employed for his entire term. Generally, a
Change of Control under the agreement will be deemed to occur if the
executive's employment is terminated by the Company without cause or by the
executive with cause within three months before or 12 months after (i) the
sale or transfer of more than 50% of the Company's Common Stock to persons who
were not stockholders at the effective date of the agreement or (ii) the sale
of all or substantially all of the assets of the Company, but excludes any
initial or secondary public offering or any transaction with a subsidiary or
affiliate of the Company.

1994 LONG-TERM EQUITY INCENTIVE PLAN

The Company's 1994 Long-Term Equity Incentive Plan (the "1994 Plan") was
approved by the Board of Directors in May, 1994 and approved by the
stockholders in June, 1994. There were 11,000 shares of Common Stock
originally reserved for issuance under the 1994 Plan which was increased to
23,377 shares of Common Stock pursuant to an amendment to the 1994 Plan
adopted by the Board of Directors and approved by the stockholders in June
1996.

The 1994 Plan is intended to provide equity incentives to encourage a high
level of performance by employees of, and consultants and advisors to, the
Company, including executive officers of the Company. The 1994 Plan allows the
Board or the Compensation Committee to administer the 1994 Plan and to issue
nontransferable incentive and nonqualified stock options, stock awards, stock
purchase rights, stock appreciation rights, and long-term performance awards,
either individually or in any type of combination. All of the forms of awards
are subject to repurchase limitations and vesting limitations, unless
otherwise specified by the Board or Compensation Committee.

The 1994 Plan permits the granting of non-transferable stock options that
are intended to qualify either as incentive stock options ("ISOs") or non-
qualified stock options ("NQSOs"). The option exercise price for each share
covered by an option may be less than the fair market value of a share of
Common Stock on the date of grant of such option. However, in the case of an
ISO, or in the case of an NQSO granted to a person other than an employee, the
price shall be no less than 100% of the fair market value of a share of the
Common Stock at the time of grant, subject to certain conditions in the 1994
Plan; provided that, in the case of an ISO granted to a 10% stockholder of the
Company, the price shall be no less than 110% of the fair market value of the
Common

38
<PAGE>

Stock on the date the option is granted. The term of each option will be fixed
by the Compensation Committee but may not exceed ten years from the date of
grant. Options may be made exercisable in installments, and the exercisability
of options may be accelerated by the Board or the Compensation Committee or
upon the occurrence of certain events, such as a change in control of the
Company. The options may be exercised by payment of cash, stock or by cashless
exercise. In the event of death or disability of an optionee, the optionee or
his or her estate will have a certain period of time in which to exercise any
vested options. Options granted under the 1994 Plan which do not vest shall
become available again for grant and purchase under the 1994 Plan.

The Board or the Compensation Committee may grant stock awards, which are
grants of Common Stock made without the payment of consideration by the
recipient of the grant; Common Stock purchase rights, which allow for the
purchase of stock in addition to, or in tandem with, other awards under the
1994 Plan; and nontransferable stock appreciation rights entitling the holder
upon exercise thereof to receive an amount in any combination of cash or
Common Stock (as determined by the Board or the Compensation Committee) equal
in value to the difference between the fair market value of the shares covered
by such right on the date of exercise over the aggregate exercise price.

The Company also may grant long-term performance awards, which are grants of
stock issued for no cash consideration that are based on the Company's, a
subsidiary's and/or an individual's performance factors or upon such other
criteria as the Company may deem appropriate. Performance factors may vary
from participant to participant, between group to group and period to period.
Unless otherwise determined by the Board or the Compensation Committee, long-
term performance awards may be paid out on a prorated basis in the event of
termination due to death or disability and are forfeited in the event of other
types of termination. Long-term performance awards are payable in cash or
Common Stock.

The 1994 Plan provides for proportional adjustments of outstanding awards
and the number of shares available for awards under the 1994 Plan in the event
of stock dividends, stock splits, combinations, reclassifications or similar
changes in the capital structure of the Company without consideration. The
1994 Plan also generally provides for acceleration of awards in the event of a
corporate acquisition of the Company in which the Company is not the surviving
entity and the awards are not assumed by the surviving entity.

The Board may amend, alter or discontinue the 1994 Plan at any time, which
action shall not adversely affect any outstanding awards. The Board also may
accelerate any award or waive any conditions or restrictions of any
outstanding award at any time. Unless earlier terminated, the 1994 Plan will
terminate in 2004.

As of the date hereof, the Company has granted restricted stock awards
totaling 10,662.5 shares of Common Stock to management directors, employees
and independent contractors, of which 8,458.75 are fully vested to the
recipients.

1994 DIRECTORS' STOCK AWARD PLAN

The Company's 1994 Directors' Stock Award Plan (the "Directors' Plan") was
adopted by the Board of Directors in May, 1994 and approved by the
stockholders in June, 1994. A total of 4,000 shares of Common Stock have been
authorized for issuance under the Directors' Plan.

The Directors' Plan is intended to provide equity incentives to non-employee
members of the Board to reward their past service, encourage their continued
service on the Board and to enable the Company to attract and retain the best
qualified individuals for service on the Board. The incentives take the form
of stock grant awards, which are made automatically without the payment of
cash consideration by the directors receiving the grants. The Compensation
Committee of the Board, or the Board, may impose certain terms and conditions
on the grant of stock awards under the Directors' Plan. To date, all stock
awards granted under the Directors' Plan were fully vested upon their
issuance.

39
<PAGE>

At the end of each year, a total pool of up to 1,200 shares of Common Stock
is made available to non-employee directors, as a group, for their services
during that year, with the exact award amounts fixed by formula based on
attendance at Board of Directors' meetings and, if applicable, committee
meetings. Generally, a total of 750 shares are available to all directors as a
group based on board attendance, and 450 additional shares are available to
committee members as a group. Pursuant to the Directors' Plan, for services
rendered in 1995, Dr. Neal Lonky and Mr. Wallace received stock awards of 150
shares and 200 shares, respectively, and certain other directors who are not
current continuing members of the Board of Directors received an additional
500 shares.

As of the date hereof 3,590 shares of Common Stock have been issued under
the Directors' Plan. Unless earlier terminated, the Directors' Plan will
terminate in 2003.

LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS

The Company's Restated Certificate of Incorporation contains a provision
eliminating or limiting the personal liability of a director to the Company
and its stockholders for monetary damages arising from acts or omissions in
the director's capacity as a director. The provision does not, however,
eliminate or limit the personal liability of a director (i) for any breach of
such director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under the Delaware statutory provision
making directors personally liable, under a negligence standard, for unlawful
dividends or unlawful stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Board of Directors of the Company
protection against awards of monetary damages resulting from breaches of their
duty of care (except as indicated above). As a result of this provision, the
ability of the Company or a stockholder thereof to successfully prosecute an
action against a director for a breach of his duty of care is limited.
However, this provision does not affect the availability of equitable remedies
such as an injunction or rescission based upon a director's breach of his duty
of care. The Securities and Exchange Commission (the "Commission") has taken
the position that a provision of this sort will have no effect on claims
arising under the federal securities laws.

In addition, the Restated Certificate of Incorporation and the Company's
Bylaws provide for mandatory indemnification rights, subject to limited
exceptions, to any director or officer of the Company who by reason of the
fact that he or she is a director or officer of the Company is involved in a
legal proceeding of any nature. Such indemnification rights include
reimbursement for expenses incurred by such director or officer in advance of
the final disposition of such proceeding in accordance with the applicable
provisions of Delaware General Corporation Law (the "DGCL"). The Company may
from time to time agree to provide similar indemnifications to certain
employees and other agents.

The Company intends to enter into separate indemnification agreements with
its directors and executive officers. Each indemnification agreement will
provide, among other things, for (i) indemnification against any and all
expenses, judgments, fines, penalties, and amounts paid in settlement of any
claim against an indemnified party unless it is determined, as provided in the
indemnification agreement, that indemnification is not permitted under law and
(ii) prompt advancement of expenses to any indemnitee in connection with his
or her defense against any claim.

The Company also maintains directors' and officers' liability insurance.

40
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 30, 1996, and as
adjusted to give effect to the sale of Common Stock by the Company offered
hereby, by (i) each stockholder who is known by the Company to beneficially
own 5% or more of the outstanding shares of Common Stock, (ii) each director
and the Chief Executive Officer of the Company and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OWNERSHIP(2)
-----------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) SHARES OFFERING OFFERING
<S> <C> <C> <C>
Martin L. Lonky, Ph.D.(3)(4)....................... 11,972.12 16.01
Stewart A. Lonky, M.D.(3)(5)....................... 11,868.72 15.85
Neal M. Lonky, M.D.(6)............................. 10,666.02 14.26
Alfred M. Bloch, M.D., Ph.D.(7).................... 9,470.90 12.05
David G. Wallace................................... 690 *
George A. Vandeman(8).............................. -- --
All executive officers and directors as a group (6
persons)(9)....................................... 44,667.76 56.75
</TABLE>
- ---------------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each of the stockholders named
in this table is: c/o The Trylon Corporation, 970 West 190th Street, Suite
900, Torrance, California 90502.
(2) Pursuant to the rules of the Commission, in calculating percentage
ownership, each person is deemed to beneficially own his own shares
subject to options, warrants or stock grants which are exercisable or vest
within 60 days, but options, warrants and stock grants owned by others
(even if exercisable or subject to vesting within 60 days) are deemed not
to be outstanding. Unless otherwise indicated in the footnotes to this
table and subject to the community property laws where applicable, each of
the stockholders named in this table has sole voting and investment power
with respect to the shares beneficially owned.
(3) Dr. Martin Lonky and Dr. Stewart Lonky (the "Selling Stockholders") have
agreed to sell up to shares and shares, respectively, if the
underwriter's over-allotment option is exercised. Assuming the over-
allotment option is exercised in full, the percentage ownership of Dr.
Martin Lonky and Dr. Stewart Lonky would be % and %, respectively.
(4) Includes 937.5 shares issuable pursuant to stock awards that are not
vested.
(5) Includes 409 shares held by the Stewart A. Lonky, M.D. Pension and Profit
Sharing Plan; 7,693.72 shares held by The S & M Lonky Revocable Trust,
Stewart and Marilyn Lonky, Trustees; and 88 shares held by PaineWebber as
custodian for the benefit of The Stewart A. Lonky, M.D., Rollover IRA,
which includes 60 shares issuable upon the conversion of 30 shares of
Series A Convertible Preferred Stock. Also includes 28 shares issuable
upon exercise of outstanding warrants. Also includes 937.5 shares issuable
pursuant to stock awards that are not vested. Excludes 200 shares held by
Elizabeth Lonky, Dr. Lonky's daughter and 300 shares held by Danielle and
Bret Stone, Dr. Lonky's daughter and son-in-law, to which Dr. Lonky
disclaims beneficial ownership.
(6) Includes 40, 40 and 20 shares, respectively, held by Dr. Lonky as
custodian for the benefit of David J. Lonky, U.T.M.A., Nathaniel J. Lonky,
U.T.M.A., and Jeffrey Hoblin, U.T.M.A., Dr. Lonky's minor children and 20
shares held by Jason Hoblin, Dr. Lonky's step-son. Also includes 8,686.72
shares held by The Neal M. Lonky and Naomi L. Lonky Revocable Trust, dated
July 10, 1988.
(7) Includes 2,527.6 shares held by Lincoln Trust Company, custodian for
Alfred M. Bloch Rollover IRA; 2,778 shares held by The Bloch/Reinhardt
Charitable Remainder Unitrust; and 287.3 shares held by The
Bloch/Reinhardt Living Trust, Alfred M. Bloch and Ruth R. Bloch, Trustees.
Also includes 3,832 shares issuable upon exercise of outstanding warrants
held by Dr. Bloch and the above listed entities. Excludes 741 shares held
by The Ruth Reinhardt Bloch, Irrevocable Trust, E. Alan Levi, Trustee and
741 shares issuable upon the exercise of outstanding warrants held by such
trust, to which Dr. Bloch disclaims beneficial ownership.
(8) Excludes 1,043 shares issuable pursuant to stock options not presently
exercisable.
(9) See Notes 4, 5, 6, 7 and 8.

41
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 100,000 shares of
Common Stock, par value $.01 per share, and 10,000 shares of Preferred Stock,
par value $.01 per share. The following summary description of the capital
stock of the Company is qualified in its entirety by reference to the Restated
Certificate of Incorporation and Bylaws of the Company, copies of which are
filed as exhibits to the registration statement of which this Prospectus is a
part, and by the provisions of applicable law.

COMMON STOCK

As of June 30, 1996, there were 74,786.4 shares of Common Stock issued and
outstanding, held of record by 164 stockholders. Of these shares, 2,203.75
shares were subject to vesting restrictions or other forfeiture provisions. In
addition, the Company will be obligated to issue (i) 3,399.6 shares of Common
Stock upon the automatic conversion of outstanding shares of Series A
Convertible Preferred Stock at the effective date of the Offering, (ii) up to
149.9 additional shares of Common Stock to an existing stockholder of the
Company pursuant to anti-dilution rights that are held by such stockholder and
that will be triggered by the preferred stock conversion, (iii) up to 8,000
shares of Common Stock on or prior to September 9, 1996 in conection with the
exercise of outstanding Warrants held by certain investors and (iv) up to
1,793 shares of Common Stock upon the exercise of outstanding options held by
a director and a former director.

Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders, and do
not have preemptive rights. The Company's Restated Certificate of
Incorporation does not provide for cumulative voting in the elections of
directors. However, pursuant to the provisions of Section 2115 the California
General Corporation Law, if a majority of a corporation's property, payroll
and sales relate to California (as measured by certain specified tests), and
if more than one-half of the outstanding voting securities of the Company are
held by California residents, stockholders may be entitled to cumulate their
votes, unless the recordholders of the Company's listed stock certify that
such stock is held by at least 800 beneficial holders.

Subject to preferences that may be applicable to any outstanding shares of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors of the Company out of funds legally available therefor. See
"Dividend Policy." All outstanding shares of Common Stock are, and all shares
to be outstanding upon the completion of the Offering, including the shares to
be sold in the Offering, when issued and paid for will be, fully paid and
nonassessable. In the event of any liquidation, dissolution or winding-up of
the affairs of the Company, holders of Common Stock will be entitled to share
ratably in the assets of the Company remaining after payment or provision for
payment of all of the Company's debts and obligations and the liquidation
preference of any outstanding Preferred Stock.

PREFERRED STOCK

The Board of Directors, without further stockholder authorization, is
authorized to issue 10,000 shares of Preferred Stock in one or more series and
to determine and fix the rights, preferences, privileges and restrictions of
each series, including dividend rights and preferences over dividends on the
Common Stock and one or more series of Preferred Stock, conversion rights,
voting rights (in addition to those provided by law), redemption rights and
the terms of any sinking fund therefor, and rights upon liquidation,
dissolution or winding up, including preferences over the Common Stock and one
or more series of Preferred Stock. Upon the closing of the Offering, no shares
of Preferred Stock will remain outstanding. Although the Company has no
present plans to issue any shares of Preferred Stock following the closing of
the Offering, the issuance of shares of Preferred Stock, or the issuance of
rights to purchase such shares, may have the effect of delaying, deferring or
preventing a change in control of the Company, may discourage bids for the
Company's Common Stock at a premium over the market price of the Common Stock
and may adversely affect the market price of, and the voting and other rights
of the holders of the Common Stock.

42
<PAGE>

WARRANTS

The Company has issued and outstanding 8,000 warrants (the "Warrants"),
which allow the Warrant holders to purchase shares of Common Stock equal to
the number of Warrants they own at a price of $260 per share. The shares
underlying the Warrants must be exercised upon the earlier to occur of two
years from the Warrant's issuance date or 30 days after the Company files with
the Commission a registration statement for an initial public offering of the
Company's Common Stock. The Warrants, therefore, must either be exercised
within 30 days of the filing of the Registration Statement to which this
Prospectus is a part or be forfeited by the Warrant holders.

For Alfred M. Bloch, M.D., Ph.D., agreeing to serve as a member of the Board
of Directors, the Bloch Entities, pursuant to the Bloch Warrant Amendments,
received certain antidilution rights with regard to their Common Stock and
Warrants. See "Management--Director Compensation" for a description of these
rights.

CERTAIN ANTI-TAKEOVER EFFECTS

Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws summarized in the following paragraphs may be deemed to have anti-
takeover effects and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider to be in such stockholder's best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.

Classified Board of Directors. The Restated Certificate of Incorporation and
Bylaws of the Company provide for the Board of Directors to be divided into
three classes of directors, as nearly equal in number as is reasonably
possible, serving staggered terms so that directors' initial terms will expire
either at the 1997, 1998 or 1999 annual meeting of stockholders. Starting with
the 1997 annual meeting of stockholders, one class of directors will be
elected each year for a three-year term. See "Management--Classified Board of
Directors."

The Company believes that a classified Board of Directors will help to
assure the continuity and stability of the Board of Directors and the
Company's business strategies and policies as determined by the Board of
Directors, since a majority of the directors at any given time will have had
prior experience as directors of the Company. The Company believes that this,
in turn, will permit the Board of Directors to more effectively represent the
interests of stockholders.

With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
the majority of the Board of Directors. As a result, a provision relating to a
classified Board of Directors may discourage proxy contests for the election
of directors or purchases of a substantial block of the Common Stock because
such provision could operate to prevent obtaining control of the Board of
Directors in a relatively short period of time. The classification provision
could also have the effect of discouraging a third-party from making a tender
offer to otherwise attempt to obtain control of the Company. Under the DGCL,
unless the certificate of incorporation otherwise provides, a director on a
classified board may be removed by the stockholders of the corporation only
for cause.

Although the Bylaws do not give the Board of Directors any power to approve
or disapprove stockholder nominations for the election of directors or of any
other business desired by stockholders to be conducted at an annual or any
other meeting, the Bylaws (i) may have the effect of precluding a nomination
for the election of directors or precluding the conduct of business at a
particular annual meeting if the proper procedures are not followed or (ii)
may discourage or deter a third-party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company, even if the conduct of such solicitation or such
attempt might be beneficial to the Company and its stockholders.

Limitations of Stockholder Action by Written Consent. The Restated
Certificate of Incorporation prohibits stockholder action by written consent
in lieu of a meeting, and provides that stockholder action can be taken

43
<PAGE>

only at an annual or special meeting of stockholders. This provision may have
the effect of delaying consideration of a stockholder proposal until the next
annual meeting, unless a special meeting is called by the Board of Directors
or the Chairman of the Board.

Amendment of Certain Provisions of Restated Certificate of Incorporation and
Bylaws. The Restated Certificate of Incorporation and the Bylaws provide that
the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of the Company then entitled to vote on the matter is required to amend
the Bylaws and certain provisions of the Restated Certificate of
Incorporation, including those provisions relating to the number of directors,
the filling of vacancies on the Board of Directors, the prohibition on
stockholder action without a meeting, indemnification of directors, officers
and others, the limitation on liability of directors and the supermajority
voting requirements in the Restated Certificate of Incorporation and Bylaws.
The Restated Certificate of Incorporation further provides that the Bylaws may
be amended by the Board of Directors, except that the authorized number of
directors may not be amended without the affirmative vote of the holders of at
least 66 2/3% of the outstanding shares of the Company then entitled to vote
on the matter. These voting requirements will have the effect of making more
difficult any amendment by stockholders, even if a majority of the Company's
stockholders believes that such amendment would be in the Company's best
interests.

Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. The Bylaws establish an advance notice procedure
with regard to the nomination, other than by or at the direction of the Board
or a committee thereof, of candidates for election as directors (the
"Nomination Procedure") and with regard to other matters to be brought by
stockholders before an annual meeting of stockholders of the Company (the
"Business Procedure"). The Nomination Procedure requires that a stockholder
give prior written notice, in proper form, of a planned nomination for the
Board of Directors to the Secretary of the Company. The requirements as to the
form and timing of that notice are specified in the Bylaws. If the Chairman of
the Board of Directors determines that a person was not nominated in
accordance with the Nomination Procedure, such person will not be eligible for
election as a director. Under the Business Procedure, a stockholder seeking to
have any business conducted at an annual meeting must give prior written
notice, in proper form, to the Secretary of the Company. The requirements as
to the form and timing of that notice are specified in the Bylaws. If the
Chairman of the Board of Directors determines that the other business was not
properly brought before such meeting in accordance with the Business
Procedure, such business will not be conducted at such meeting.

Section 203 of the Delaware Law. The Company is subject to Section 203 of
the DGCL. Generally, Section 203 of the DGCL 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, excluding for purposes of determining the number of shares
outstanding shares owned by officer-directors, or (iii) on or after such date
the business combination is approved by the board 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.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation.

44
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the Offering. Sales of a substantial
number of shares of Common Stock in the public market after the Offering, or
the perception that such sales could occur, could adversely affect the market
price of the Common Stock and the Company's ability to raise capital through a
subsequent offering of securities. In connection with the Offering, certain
holders of the Common Stock, including all directors and executive officers of
the Company, have agreed not to offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of shares of Common Stock for a period
of 180 days from the effective date of the Offering, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. See
"Underwriting."

Of the shares of Common Stock to be outstanding after the Offering,
shares ( shares if the Underwriters' over-allotment option is exercised in
full) will be available for resale in the public market without restriction
immediately following the Offering if held by holders who are not "affiliates"
of the Company (as defined in the Securities Act). All of the remaining shares
are "restricted securities" within the meaning of Rule 144 adopted under the
Securities Act. These restricted shares were issued and sold by the Company in
private transactions in reliance upon exemptions from registration under the
Securities Act. After the 180-day lock-up period pursuant to agreements with
the Underwriters, all of these restricted shares will be available for resale
subject, in the case of all of such shares, to the holding period, quantity
and manner of sale limitations of Rule 144. In addition, the Company intends
to register approximately shares of Common Stock reserved for issuance
under the Company's 1994 Long-Term Equity Incentive Plan and 1994 Directors'
Stock Award Plan as soon as practicable following the consummation of the
Offering. See "Description of Capital Stock" and "Underwriting."

In general, under Rule 144 as currently in effect, any person who has
beneficially owned restricted shares for at least two years will be entitled
to sell in any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of (i) 1% of
the then outstanding shares of Common Stock or (ii) the average weekly trading
volume of the then outstanding shares during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 are also subject to certain
requirements relating as to manner of sale, the filing of a notice and the
availability of current public information about the Company. A person who is
not deemed to have been an affiliate of the Company at any time during the 90
days immediately preceding the sale and who has beneficially owned his or her
shares for at least three years is entitled to sell such shares pursuant to
Rule 144(k) without regard to the limitations described above.

45
<PAGE>

UNDERWRITING

Subject to the terms and conditions contained in the Underwriting Agreement,
the syndicate of Underwriters named below (the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney Inc. are
acting as representatives (the "Representatives"), have severally agreed to
purchase from the Company an aggregate of shares of Common Stock. The
number of shares of Common Stock that each Underwriter has agreed to purchase
is set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...................
Smith Barney Inc......................................................

Total.................................................................
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock directly to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers (who may include the Underwriters) at a price that represents
a concession not in excess of $ per share under the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Underwriters. The Underwriters do not intend to confirm sales of the Common
Stock offered hereby to accounts over which they exercise discretionary
authority.

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

The Company and the Selling Stockholders have granted to the Underwriters an
option solely to cover over-allotment, exercisable no later than 30 days from
the date of this Prospectus, to purchase up to an aggregate of additional
shares of Common Stock at the price to the public set forth on the cover page
of this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such options solely for the purpose of covering
over-allotments, if any, in connection with the Offering. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares listed in such table.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.

Certain holders of the Company's Common Stock, including all directors and
executive officers, have agreed that they will not directly or indirectly
offer, sell, contract to sell, grant any option to purchase, or otherwise
dispose or transfer any shares of Common Stock of the Company owned by them
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation for a period of 180 days after the date of this Prospectus. In
addition, the Company has agreed that for a period of 180 days after the date
of this Prospectus it will not, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, directly or indirectly
offer, sell, issue, distribute or otherwise dispose of any equity securities
or any option, rights or warrants with respect to any equity securities,
except for (i) shares of Common Stock offered hereby,

46
<PAGE>

(ii) shares of Common Stock issued pursuant to the exercise of options
outstanding on the date of this Prospectus and (iii) options granted after the
date of this Prospectus pursuant to the 1994 Directors' Stock Award Plan or
the 1994 Long-Term Equity Incentive Plan. "See Shares Eligible for Future
Sale."

Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the shares offered hereby
has been determined by negotiations between the Company and the
Representatives. Among the factors considered in determining the initial
public offering price were the history of, and the prospects for, the
Company's business and the industry in which it competes, an assessment of the
Company's management, its past and present operations, its past and present
earnings and the trend of such earnings, the prospects for earnings of the
Company, the present state of the Company's development, the general condition
of the securities market at the time of the Offering and the market prices and
earnings of similar securities of comparable companies at the time of the
Offering.

LEGAL MATTERS

Certain matters with respect to the validity of the issuance of the shares
offered hereby are being passed upon for the Company by Latham & Watkins, Los
Angeles, California and Klein & Martin, Los Angeles, California. Two Klein &
Martin partners currently hold an aggregate of 850 shares of Common Stock.
Certain legal matters relating to the Offering will be passed upon for the
Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles, California.

EXPERTS

The consolidated financial statements of the Company for the three years
ended December 31, 1995, included in this Prospectus and Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.

ADDITIONAL INFORMATION

The Company has filed with the Commission, a Registration Statement on Form
S-1, including amendments, exhibits and schedules thereto, under the
Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission, and to which reference hereby is made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference hereby is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement filed by the Company
with the Commission, as well as such reports and other information filed by
the Company with the Commission, may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material, when
filed, may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.

Upon consummation of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports and other information with the
Commission in accordance with the Commission's rules. Such reports and other
information concerning the Company may be inspected and copied at the public
reference facilities and regional offices of the Commission referred to above.

The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by independent auditors, and quarterly reports for the first three
quarters of each fiscal year containing unaudited interim financial
information.

47
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995, and March
31, 1996 (unaudited)..................................................... F-3
Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1995, and the unaudited three month periods
ended March 31, 1995 and 1996............................................ F-4
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1995, and the unaudited three
month period ended March 31, 1996........................................ F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1995, and the unaudited three month periods
ended March 31, 1995 and 1996............................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

The consolidated financial statements as of March 31, 1996, and for the
three month periods ended March 31, 1995 and 1996, are unaudited.

The information required by the applicable financial statement schedules has
been disclosed in the financial statements and notes thereto and, accordingly,
the schedules have been omitted.

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Trylon Corporation:

After the stock splits discussed in Note 1 of Notes to Consolidated
Financial Statements are effected, we expect to be in a position to render the
following audit report.

Arthur Andersen LLP

Los Angeles, California
April 30, 1996

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

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Trylon Corporation:

We have audited the accompanying consolidated balance sheets of THE TRYLON
CORPORATION (a Delaware corporation) and subsidiary as of December 31, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended 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 audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Trylon Corporation and
subsidiary as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.

Los Angeles, California
August , 1996

F-2
<PAGE>

THE TRYLON CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 678,851 $ 1,221,619 $ 1,363,628
Restricted cash....................... 185,256 196,350 198,332
Short-term investment................. 509,189 -- --
Accounts receivable, net of allowance
of $15,000 in 1994, 1995 and 1996.... 580,570 941,314 10,237
Inventories........................... 45,735 63,201 61,819
Other current assets.................. -- -- 42,000
----------- ----------- -----------
Total current assets................ 1,999,601 2,422,484 1,676,016
----------- ----------- -----------
Property and equipment, at cost:
Machinery and equipment............... 43,848 45,625 51,072
Furniture and fixtures................ 52,297 52,297 56,627
Leasehold improvements................ 3,095 3,095 3,095
----------- ----------- -----------
99,240 101,017 110,794
Less--Accumulated depreciation and
amortization......................... (69,902) (75,118) (78,478)
----------- ----------- -----------
Total property and equipment, net... 29,338 25,899 32,316
----------- ----------- -----------
Other assets............................ 13,788 37,430 37,190
----------- ----------- -----------
Total assets............................ $ 2,042,727 $ 2,485,813 $ 1,745,522
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................. $ 120,000 $ 120,000 $ 120,000
Convertible subordinated debentures... 760,302 -- --
Accounts payable...................... 681,424 356,940 144,191
Accrued liabilities................... 46,382 275,871 106,662
Preferred dividends payable........... 38,268 102,909 102,909
----------- ----------- -----------
Total current liabilities........... 1,646,376 855,720 473,762
----------- ----------- -----------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized--10,000 shares
Issued and outstanding--1,699.80
shares in 1994, 1995 and 1996...... 849,876 849,876 849,876
Common stock, $0.01 par value:
Authorized--100,000 shares
Issued and outstanding--55,160.4
shares in 1994, 74,286.4 in 1995
and 74,786.4 in 1996............... 551 742 747
Additional paid-in capital.............. 2,044,486 4,363,296 4,405,851
Accumulated deficit..................... (2,498,562) (3,583,821) (3,984,714)
----------- ----------- -----------
Total stockholders' equity.......... 396,351 1,630,093 1,271,760
----------- ----------- -----------
Total liabilities and stockholders'
equity................................. $ 2,042,727 $ 2,485,813 $ 1,745,522
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

THE TRYLON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- --------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net:
Product sales......... $1,305,014 $2,044,983 $ 628,748 $ 53,843 $ 38,799
License and other
fees................. -- 500,000 -- -- --
---------- ---------- ----------- --------- ---------
Total revenues, net. 1,305,014 2,544,983 628,748 53,843 38,799
Cost of goods sold...... 325,702 697,263 295,632 22,707 28,457
---------- ---------- ----------- --------- ---------
Gross profit........ 979,312 1,847,720 333,116 31,136 10,342
Operating expenses:
Selling expenses...... 242,478 471,695 183,778 69,013 151,771
General and
administrative
expenses............. 663,790 717,559 786,263 270,979 202,517
Research and
development expenses. 123,687 184,542 435,733 114,293 75,443
---------- ---------- ----------- --------- ---------
Total operating
expenses........... 1,029,955 1,373,796 1,405,774 454,285 429,731
---------- ---------- ----------- --------- ---------
Operating income
(loss)............. (50,643) 473,924 (1,072,658) (423,149) (419,389)
---------- ---------- ----------- --------- ---------
Other income (expense):
Interest income....... 11,249 43,340 36,709 8,884 20,669
Interest expense...... (213,034) (86,273) (84,631) (22,076) (2,173)
Other, net............ 1,042 1,268 112,612 167 --
---------- ---------- ----------- --------- ---------
Total other income
(expense).......... (200,743) (41,665) 64,690 (13,025) 18,496
---------- ---------- ----------- --------- ---------
Income (loss) before
provision for
income taxes....... (251,386) 432,259 (1,007,968) (436,174) (400,893)
Provision for income
taxes.................. 800 800 800 -- --
---------- ---------- ----------- --------- ---------
Net income (loss)... $ (252,186) $ 431,459 $(1,008,768) $(436,174) $(400,893)
========== ========== =========== ========= =========
Net income (loss) per
common share........... $ (3.53) $ 5.46 $ (11.70) $ (5.06) $ (4.65)
========== ========== =========== ========= =========
Weighted average number
of common shares
outstanding............ 71,475.0 79,057.6 86,184.3 86,184.3 86,184.3
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-4
<PAGE>

THE TRYLON CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
-------- -------- -------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... -- $ -- 37,609.6 $376 $ 588,202 $(2,602,534)
Conversion of
subordinated
debentures........... 1,457.20 728,573 13,632.6 136 1,329,551 --
Issuance of common
stock in connection
with TMSC merger..... -- -- 928.2 9 (9) --
Issuance of common
stock for services... -- -- 250.0 3 18,329 --
Sale of preferred
stock................ 106.78 53,392 -- -- -- --
Net loss.............. -- -- -- -- -- (252,186)
-------- -------- -------- ---- ---------- -----------
Balance, December 31,
1993................... 1,563.98 781,965 52,420.4 524 1,936,073 (2,854,720)
Conversion of
subordinated
debentures........... 21.82 10,911 -- -- -- --
Sale of preferred
stock................ 114.00 57,000 -- -- -- --
Preferred stock
dividends............ -- -- -- -- -- (75,301)
Issuance of common
stock in connection
with stock plans..... -- -- 2,740 27 108,413 --
Net income............ -- -- -- -- -- 431,459
-------- -------- -------- ---- ---------- -----------
Balance, December 31,
1994................... 1,699.80 849,876 55,160.4 551 2,044,486 (2,498,562)
Sale of common stock.. -- -- 6,226.7 62 1,664,153 --
Conversion of
subordinated
debentures........... -- -- 1,729.4 17 466,918 --
Conversion of
preferred dividends
payable to common
stock................ -- -- 43.9 1 11,849 --
Issuance of common
stock in connection
with stock plans..... -- -- 11,012.5 110 175,891 --
Issuance of common
stock in connection
with TMSC merger..... -- -- 113.5 1 (1) --
Preferred stock
dividends............ -- -- -- -- -- (76,491)
Net loss.............. -- -- -- -- -- (1,008,768)
-------- -------- -------- ---- ---------- -----------
Balance, December 31,
1995................... 1,699.80 849,876 74,286.4 742 4,363,296 (3,583,821)
Issuance of common
stock for services
(unaudited).......... -- -- 500.0 5 42,555 --
Net loss (unaudited).. -- -- -- -- -- (400,893)
-------- -------- -------- ---- ---------- -----------
Balance, March 31, 1996
(unaudited)............ 1,699.80 $849,876 74,786.4 $747 $4,405,851 $(3,984,714)
======== ======== ======== ==== ========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-5
<PAGE>

THE TRYLON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- ---------- ------------ --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net income (loss)..... $(252,186) $ 431,459 $(1,008,768) $(384,874) $ (400,893)
Adjustments to recon-
cile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and am-
ortization........... 12,554 11,727 5,216 4,110 3,360
Provision for losses
on accounts receiv-
able................. -- 15,000 -- -- --
Amortization of dis-
count on U.S. trea-
sury bill............ -- -- (15,811) (15,811) --
Issuance of common
stock for services... 18,332 -- -- -- 42,560
Issuance of common
stock in connection
with stock plans..... -- 108,440 149,555 28,500 --
Accrued interest on
convertible deben-
tures................ 210,377 77,504 71,664 19,438 --
Changes in assets and
liabilities:
Decrease (increase)
in:
Accounts receivable. (471,737) (100,564) (360,744) (1,385) 931,077
Inventories......... 81,826 (4,388) (17,466) (3,567) 1,382
Other assets........ 4,124 6,481 2,804 1,161 (41,760)
Increase (decrease)
in:
Accounts payable.... 146,555 499,442 (324,484) (189,101) (219,305)
Accrued liabilities. (2,651) (26,993) 229,489 (3,953) (162,653)
--------- ---------- ------------ --------- ----------
Net cash provided
by (used in)
operating
activities....... (252,806) 1,018,108 (1,268,545) (545,482) 153,768
--------- ---------- ------------ --------- ----------
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Purchases of property
and equipment........ (12,739) (4,933) (1,777) (1,777) (9,777)
Purchase of invest-
ment................. -- (509,189) -- -- --
Proceeds from sale of
investment........... -- -- 525,000 525,000 --
Restricted cash....... (88,019) (7,237) (11,094) -- (1,982)
--------- ---------- ------------ --------- ----------
Net cash provided
by (used in)
investing
activities....... (100,758) (521,359) 512,129 523,223 (11,759)
--------- ---------- ------------ --------- ----------
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Net proceeds from sale
of preferred stock... 53,392 57,000 -- -- --
Net proceeds from sale
of common stock...... -- -- 1,664,215 -- --
Proceeds from short-
term borrowings...... 10,000 20,000 -- -- --
Principal payments on
convertible deben-
tures................ -- -- (365,031) -- --
Principal payments on
notes payable........ (11,561) (6,915) -- -- --
Preferred dividends
paid................. -- (37,033) -- -- --
--------- ---------- ------------ --------- ----------
Net cash provided
by financing ac-
tivities......... 51,831 33,052 1,299,184 -- --
--------- ---------- ------------ --------- ----------
Net increase (decrease)
in cash and cash
equivalents........... (301,733) 529,801 542,768 (22,259) 142,009
Cash and cash equiva-
lents, beginning of
year.................. 450,783 149,050 678,851 678,851 1,221,619
--------- ---------- ------------ --------- ----------
Cash and cash equiva-
lents, end of year.... $ 149,050 $ 678,851 $ 1,221,619 $ 656,592 $1,363,628
========= ========== ============ ========= ==========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-6
<PAGE>

THE TRYLON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BACKGROUND AND BUSINESS RISKS

The Trylon Corporation (the Company) was incorporated in the state of
Delaware on June 30, 1987. The Company is the successor to the business of
Trylon Development Corporation and Trylon Associates, Ltd., which were formed
in 1983 and 1984, respectively. The Company designs, markets and sells medical
products obtained primarily through an exclusive supply agreement (see below).
The Company's primary product, which is used in cervical examinations,
utilizes a patented chemiluminescent light capsule manufactured by the
Company's major supplier. The Company also sells optics used in connection
with the light capsules. The Company sells its products both domestically and
internationally through distribution agreements with its customers.

In December 1994, the Company was warned by the Food and Drug Administration
(FDA) to discontinue using certain medical claims to sell its primary product.
The Company chose to suspend active marketing of the product until such claims
received FDA clearance. This action significantly affected 1995 operations as
the Company virtually stopped domestic shipments of its primary product. In
December 1995, the Company was cleared by the FDA to market this product using
the previously asserted claims. As a result of this clearance, the Company has
scheduled a major domestic marketing campaign for its product commencing in
late 1996.

At this stage of its development, the Company faces a variety of significant
business risks. These include, but are not limited to, the uncertainty of
market acceptance of the Company's products and applications thereof,
continued government regulation, potential competition, and dependence upon a
principal contract manufacturer, outside marketing and distribution partners
and key personnel.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Perisphere Industries, Inc. All significant
intercompany transactions and accounts have been eliminated.

USE OF ESTIMATES

In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

EXCLUSIVE SUPPLY AGREEMENT

The Company obtains its most critical product component (the Speculite)
pursuant to a long-term exclusive supply agreement with Omniglow Corporation
(Omniglow). The Company entered into this agreement in 1994, shortly after
Omniglow acquired the exclusive patent rights to produce Speculite. The
initial term of the agreement is 10 years with an optional 10 year renewal,
which can be revoked by either party at the end of the initial term. Sales of
Speculite supplied pursuant to the agreement represented 88 percent, 92
percent and 52 percent of the Company's revenues in 1993, 1994 and 1995,
respectively.

REVENUE RECOGNITION

The Company recognizes revenue upon shipment of products. Revenues for 1994
included $500,000 of license fees and other fees relating to distribution
agreements. These fees were recognized as revenue upon receipt of the funds.

F-7
<PAGE>

THE TRYLON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SIGNIFICANT CUSTOMERS

The Company's largest customers accounted for approximately 77 percent in
1993, 54 percent and 16 percent in 1994, and 45 percent and 38 percent in 1995
of the Company's revenues. With the exception of one customer, which accounted
for 16 percent in 1994 and 45 percent in 1995 of the Company's revenues, no
other customer accounted for more than 10 percent of the Company's revenues in
more than one year. At December 31, 1994 and 1995, there was one customer with
a significant receivable balance, representing 88 percent and 95 percent of
total receivables, respectively.

FOREIGN SALES

Sales to foreign countries represented 1 percent, 20 percent and 87 percent
of the Company's revenues in 1993, 1994 and 1995, respectively. Foreign sales
in 1994 and 1995 were primarily to Europe and Asia.

CASH AND CASH EQUIVALENTS

Cash balances include restricted deposits with a bank amounting to $185,256
and $196,350 at December 31, 1994 and 1995, respectively, which are security
required by the Company's line of credit (see Note 2).

The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents.

SHORT-TERM INVESTMENT

As of December 31, 1994, the short-term investment consisted of a U.S.
Treasury bill, which is recorded at its cost, and which approximated its
market value.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market
and primarily consist of finished goods purchased under the exclusive
distribution agreement (see above).

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred, while significant replacements and betterments
are capitalized.

Depreciation and amortization are provided using the straight-line method
based upon the estimated useful lives of the related assets. Useful lives
range from five to seven years.

WARRANTY

The Company warrants its products against defects in materials and
workmanship for a two year period. The estimated cost of warranty obligations
is recognized at the time of revenue recognition.

COMMON STOCK SPLITS

In 1993, the Company effected a 10 for 1 stock split of its common stock. In
June 1996, the Company's Board of Directors and stockholders approved a 5 for
1 split of the Company's common stock. In August 1996, the board of directors
is expected to approve an additional split of the Company's common stock, with
the ratio to be determined, which will be submitted to stockholders for
approval in September 1996. These stock splits are expected to take effect
prior to closing of the Company's initial public offering when required
filings with the Delaware Secretary of State are made. All share amounts set
forth in these consolidated financial statements have been retroactively
restated to give effect to the 10 for 1 stock split, but not either of the
subsequent splits.

F-8
<PAGE>

THE TRYLON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share are based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
related periods. For all periods presented, per share information was computed
pursuant to the rules of the Securities and Exchange Commission (SEC), which
require that common shares issued by the Company during the twelve months
immediately preceding the Company's initial public offering plus the number of
common shares issuable pursuant to the issue of warrants or the grant of
options during the same period, be included in the calculation of the shares
outstanding from the beginning of all periods presented. The effect of
dilutive common share equivalents is not included in the net income (loss) per
common share calculations except for the year ended December 31, 1994.

2. SHORT-TERM BORROWINGS

The Company has entered into a line of credit agreement with a bank under
which the Company may borrow up to $120,000. The agreement expires on November
15, 1996. At December 31, 1994 and 1995, $120,000 was outstanding under the
agreement. Borrowings under the agreement bear interest at the bank's
reference rate (8.5 percent at December 31, 1995). The line of credit is
secured by a certificate of deposit held by the bank (see Note 1) and is
guaranteed by certain shareholders of the Company.

3. CONVERTIBLE SUBORDINATED DEBENTURES

In 1990 and 1991, the Company issued approximately $2,000,000 of 12 percent
convertible subordinated debentures. The debentures had a maturity date of
June 1, 1993 and a conversion period beginning April 15, 1993 through June 1,
1993. During the conversion period, the holders could convert up to 50 percent
of the original principal balance at the conversion price of $73.33 per common
share. Upon conversion, the related portion of accrued interest would be
forfeited by the debenture holder. The debentures were subordinated to all
other indebtedness of the Company.

During the initial conversion period, $999,666 principal amount of the
debentures was converted into 13,632.60 shares of common stock. In connection
with the conversion, $330,021 of forfeited accrued interest was recorded as a
capital contribution by the Company. In May 1993, the Company agreed with the
debenture holders to an extension of the maturity date through June 1994 and
offered the holders the option to exchange the unpaid amounts for preferred
stock pursuant to a private offering (see Note 4) at the price of $500 per
share. During 1993, $728,573 of principal and accrued interest on the
debentures was exchanged for 1,457.20 preferred shares. In April 1994, $10,911
of principal and accrued interest on the debentures was exchanged for 21.82
preferred shares.

In July 1994, the Company agreed with the debenture holders to extend the
maturity date through June 1995. At December 31, 1994, $760,302 was owed in
principal and accrued interest to the debenture holders. In June 1995, the
Company agreed with the debenture holders to a further extension through June
1996 and offered the holders the option to exchange the unpaid amounts for
common stock in connection with the Company's private offering of common stock
(see Note 5) at the price of $270 per unit. In November 1995, $466,935 of
principal and accrued interest on the debentures was exchanged for 1729.40
units. After this exchange, $365,031 in principal and accrued interest was
outstanding under the debentures. In December 1995, the debentures were repaid
in full from the proceeds of the private offering.

4. PREFERRED STOCK

In June 1994, the Company completed a private offering of preferred stock at
a price of $500 per share. The preferred stock bears a nine percent cumulative
dividend which is payable semi-annually, as may be declared by the Board of
Directors, and has a liquidation preference of $500 per share. The preferred
stock is convertible, at the holder's option and in certain other
circumstances, into common stock at the conversion price of $295.86 per common
share. The preferred stock automatically converts into common stock upon the
effectiveness of a registration statement for an underwritten public offering
of common stock by the Company. The preferred stock is subject to redemption
at the Company's option beginning in June 1996. Upon redemption, the Company
is obligated to pay the holders their initial purchase price plus all declared
but unpaid dividends.

F-9
<PAGE>

THE TRYLON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

During 1993, the Company sold 106.78 preferred shares for $53,392. Also in
1993, 1,457.20 preferred shares were issued in exchange for certain of the
Company's convertible debentures (see Note 3). During 1994, the Company sold
an additional 114.00 preferred shares for $57,000, and another 21.82 preferred
shares were issued in exchange for additional debentures. No preferred shares
were issued during 1995. In 1994, the Company declared a dividend on the
preferred shares in the aggregate amount of $75,301, of which $38,268 remained
unpaid at December 31, 1994 and 1995. In 1995, the Company declared a dividend
on the preferred shares in the aggregate amount of $76,491. In December 1995,
in connection with the Company's private offering of common stock (see Note
5), $11,850 of the accrued dividends was converted into 43.90 units of common
stock. At December 31, 1995, the Company had unpaid dividends on the preferred
shares in the amount of $102,909.

5. COMMON STOCK

PRIVATE OFFERING

In December 1995, the Company completed a private offering of its common
stock. The Company sold 6,226.70 units for cash, each unit consisting of one
share of common stock and a warrant to purchase one share of common stock, at
a price of $270 per unit. The gross and net proceeds from the offering were
$1,681,215 and $1,664,215, respectively. The exercise price of the warrants is
$260 per share. The warrants expire in November 1997 and 2000, or 30 days
following the Company's filing of a registration statement for an initial
public offering, if earlier. As of December 31, 1995, no warrants had been
exercised and warrants to purchase 8,000 shares had been issued in connection
with the private offering, and also in exchange for certain of the convertible
debentures and convertible preferred stock (see Notes 3 and 4).

MERGER AGREEMENT

On December 31, 1992, the Company entered into a merger agreement with
Trylon Medical Systems Corporation (TMSC). At the time of merger, the Company
was the majority owner of TMSC. In connection with the merger, the Company
issued 2,397.60 shares of its common stock to the minority owner of TMSC. The
merger agreement included an anti-dilution clause under which the Company must
issue additional shares to the minority owner upon the Company's issuance of
its common stock relating to the conversion of the Company's convertible
debentures or sales of common stock to repay the debentures (see Note 3). In
1993, in connection with the conversion of the debentures, an additional
928.20 shares were issued to the minority owner of TMSC. In December 1995, in
connection with the final disposition of the debentures, the Company issued an
additional 113.50 shares to the minority owner. During 1993 and 1994, $739,484
of debentures were exchanged for convertible preferred stock (see Note 4). If
all of this preferred stock were converted into common stock, the Company
would be committed to issue an additional 149.9 shares to the minority owner.

CONVERTIBLE NOTES PAYABLE

In 1992, the holders of certain convertible notes converted the debt into
3,076.70 shares of the Company's common stock.

6. INCOME TAXES

Under Statement of Financial Accounting Standards No. 109, deferred income
tax assets or liabilities are computed based on temporary differences between
the financial statement and income tax bases of assets and liabilities using
the enacted marginal income tax rate in effect for the year in which the
differences are expected to reverse. Deferred income tax expenses or credits
are based on the changes in the deferred income tax assets or liabilities from
period to period.

The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 represents the minimum state tax.

F-10
<PAGE>

THE TRYLON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The components of the net deferred income tax asset at December 31, 1994 and
1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Allowance for bad debts.............................. $ 6,015 $ 6,015
Net operating loss carryforward...................... 804,774 1,131,302
Accrued salaries..................................... -- 29,273
Other, net........................................... 16,713 18,718
--------- -----------
827,502 1,185,308
Valuation reserve.................................... (827,502) (1,185,308)
--------- -----------
$ -- $ --
========= ===========
</TABLE>

Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate for the years ended December 31, 1993, 1994
and 1995 are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----------------- ----------------- ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Income tax provision
(benefit) at statutory
federal rate........... $(85,471) (34.0)% $183,827 34.0% $(327,781) (34.0)%
State and local income
taxes, net of federal
income tax effect...... 800 .3 32,981 6.1 800 .1
Tax benefits not recog-
nized.................. 85,471 34.0 -- -- 327,781 34.0
Effect of net operating
loss carryforwards..... -- -- (216,008) (39.9) -- --
-------- ----- -------- ----- --------- -----
$ 800 .3 % $ 800 .2% $ 800 .1 %
======== ===== ======== ===== ========= =====
</TABLE>

Net operating loss carryforwards as of December 31, 1995 for federal and
state tax purposes are approximately $3,000,000 and $1,000,000, respectively,
and expire beginning in 2004 and 1997.

7. STATEMENTS OF CASH FLOWS

Cash paid for income taxes was approximately $2,000 in 1993 and 1994, and
$7,000 in 1995. Cash paid for interest was approximately $13,000 in 1993,
$8,000 in 1994 and $85,000 in 1995.

During 1995, the Company issued common stock under its stock incentive
plans. Approximately $26,000 was recorded as deferred compensation and was
included in other assets. Also in 1995, the Company declared a preferred stock
dividend in the amount of $76,491 and $11,850 of dividends payable were
converted into common stock and $466,935 of convertible debentures were
converted into common stock. During 1994, the Company declared a dividend in
the amount of $75,301, and $10,911 of convertible debentures were converted
into preferred stock. In 1993, $999,666 of convertible debentures were
converted into common stock and $728,573 of debentures were converted into
preferred stock. Also in 1993, $330,021 of accrued interest on the convertible
debentures was converted to equity as a capital contribution. These non-cash
transactions are excluded from the December 31, 1993, 1994 and 1995
Consolidated Statements of Cash Flows.

8. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company leases its facilities and certain equipment under noncancelable
operating leases, expiring at various dates through July 1998. Minimum future
obligations under such leases at December 31, 1995 are as follows:

F-11
<PAGE>

THE TRYLON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Rent expense under noncancelable operating leases for the years ended
December 31, 1993, 1994 and 1995 was $46,000, $68,000 and $68,000,
respectively.

LETTER OF CREDIT

The Company maintains a stand-by letter of credit arrangement with a bank in
the amount of $50,000, relating to contractual obligations with the Company's
major supplier.

9. STOCK PLANS

In 1994, the Company established a Long-Term Equity Incentive Plan and a
Directors Stock Award Plan (the Plans) under which a total of 15,000 shares of
its common stock may be awarded to eligible employees, officers, consultants
and directors. Shares awarded vest over a period fixed by the Board of
Directors (generally not more than four years), except for those awarded to
non-employee directors, which vest immediately, and in certain other
circumstances. In 1994, 2,740 shares were awarded and issued under the Plans,
all of which vested in 1994. In 1995, 11,012.5 shares were awarded and issued
under the Plans, 5,700 of which were awarded in January 1995, 4,962.5 of which
were awarded in September 1995, and 350 of which were awarded in December
1995. Of the total awarded shares, 8,808.75 vested in 1995. In connection with
the award of these shares, $108,440 and $149,555 was recorded as compensation
expense in the December 31, 1994 and 1995 Consolidated Statement of
Operations, respectively.

10. UNAUDITED INFORMATION

BASIS OF PRESENTATION

The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations, although the
Company believes that the disclosures made are adequate to make the
information presented not misleading. These unaudited financial statements
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the results of
operations, changes in cash flows and financial position as of and for the
periods presented. These unaudited financial statements should be read in
conjunction with the audited financial statements and related notes thereto,
appearing elsewhere herein. The results for the interim periods presented are
not necessarily indicative of results to be expected for the full year.

COMMON STOCK

In March 1996, the Company entered into an agreement with one of its law
firms under which the Company may pay for certain legal services by issuing
common stock. Under the agreement, the Company issued 500 shares, all of which
are currently voted by the law firm and can be earned through future services
rendered. As of March 31, 1996, 152 shares were earned at a value of $42,560.
The Company may repurchase any unearned shares for $1 in total consideration
at any time prior to August 31, 1996.

EXCLUSIVE SUPPLY AGREEMENT

Sales of Speculite supplied pursuant to the Company's exclusive supply
agreement (see Note 1) represented primarily all of the Company's revenues
during the three month periods ended March 31, 1995 and 1996, respectively.

SIGNIFICANT CUSTOMERS

During the three months ended March 31, 1995 and 1996, the Company's largest
customer accounted for approximately 48 percent and 90 percent, respectively,
of the Company's revenues.

FOREIGN SALES

Sales to foreign countries represented approximately 70 percent and 90
percent of the Company's revenues during the three month periods ended March
31, 1995 and 1996, respectively.

F-12
<PAGE>

THE TRYLON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

RESTRICTED CASH

Restricted cash balances, relating to the Company's line of credit
agreement, totaled to $198,332 at March 31, 1996.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market
and primarily consist of finished goods purchased under the exclusive
distribution agreement (see above).

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for income taxes during the three month period ended March 31,
1995 was $2,410. No cash was paid for income taxes for the three month period
ended March 31, 1996. Cash paid for interest during the three month periods
ended March 31, 1995 and 1996 was $2,620 and $2,547, respectively.

INCOME TAXES

For the three months ended March 31, 1996, the provision for income taxes
differs from the amount computed by applying the federal statutory income tax
rate to the income before provision for income taxes as follows:

<TABLE>
<S> <C> <C>
Expected federal tax benefit.............................. $(136,304) (34.0)%
State tax benefit, net of federal tax benefit............. -- --
Tax benefit not recognized................................ 136,304 34.0
--------- -----
$ -- -- %
========= =====
</TABLE>

F-13
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAK-
ING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON 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 THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Consolidated Financial Information............................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 21
Management................................................................ 35
Principal and Selling Stockholders........................................ 41
Description of Capital Stock.............................................. 42
Shares Eligible for Future Sale........................................... 45
Underwriting.............................................................. 46
Legal Matters............................................................. 47
Experts................................................................... 47
Additional Information.................................................... 47
Index to Consolidated Financial Statements................................ F-1
</TABLE>

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

UNTIL , 1996 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

THE TRYLON CORPORATION

COMMON STOCK

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

PROSPECTUS

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

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

SMITH BARNEY INC.

, 1996

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered hereby. All of
the amounts shown are estimates except for the Commission registration fee and
the NASD filing fee.

<TABLE>
<S> <C>
Commission Registration Fee............................................ $
NASD Filing Fee........................................................
Nasdaq National Market Listing Fees.................................... *
Accounting Fees and Expenses........................................... *
Blue Sky Fees and Expenses............................................. *
Legal Fees and Expenses................................................ *
Printing and Engraving Expenses........................................ *
Transfer Agent Fees.................................................... *
Miscellaneous Expenses................................................. *
----
TOTAL.............................................................. $ *
====
</TABLE>
- ---------------------
* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Bylaws of the Company generally provide that the Company shall
indemnify, to the fullest extent permitted by law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, investigation, administrative hearing or any other
proceeding (each, a "Proceeding") by reason of the fact that he is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another entity, against
expenses (including attorneys' fees) and losses, claims, liabilities,
judgments, fines and amounts paid in settlement actually incurred by him in
connection with such Proceeding. The Bylaws also provide that the Company may
advance litigation expenses to a director, officer, employee or agent upon
receipt of an undertaking by or on behalf of such director, officer, employee
or agent to repay such amount if it is ultimately determined that the
director, officer, employee or agent is not entitled to be indemnified by the
Company.

The Company has entered into, or intends to enter into, agreements to
indemnify its directors and executive officers in addition to the
indemnification provided for in the Restated Certificate of Incorporation and
Bylaws. These agreements, among other things, will indemnify the Company's
directors and executive officers for certain expenses (including attorneys'
fees), and all losses, claims, liabilities, judgments, fines and settlement
amounts incurred by such person arising out of or in connection with such
person's service as a director or officer of the Company to the fullest extent
permitted by applicable law.

Policies of insurance may be obtained and maintained by the Company under
which its directors and officers will be insured, within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of, and certain liabilities which might be imposed
as a result of, actions, suits or proceedings to which they are parties by
reason of being or having been such directors or officers.

The form of Underwriting Agreement, filed as Exhibit 1.1. hereto, provides
for the indemnification of the Registrant, its controlling persons, its
directors and certain of its officers by the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In December 1993 and April 1994, the Registrant issued 1,457.2 and 21.82
shares, respectively, of Series A Convertible Preferred Stock to certain
existing holders of its 12% Convertible Debentures for the conversion of
$728,572.59 of principal and interest and $10,910.63 of principal,
respectively, outstanding under those debentures.

In 1993 and 1994, the Registrant issued 220.8 shares of Series A Convertible
Preferred Stock to 13 individual investors for aggregate consideration of
$110,392.09.

In June 1994, the Registrant granted stock awards in the aggregate of 1,600
shares of Common Stock to non-employee directors under the 1994 Directors'
Stock Award Plan for services to the Registrant during fiscal years 1989
through 1993.

In September 1994, the Registrant granted stock awards in the aggregate of
1,140 shares of Common Stock to non-employee directors under the 1994
Directors' Stock Award Plan for services to the Registrant during fiscal year
1994.

In December 1994, the Registrant granted to one of its non-employee
directors an option to purchase 750 shares of Common Stock at $73.33 per
share.

In January 1995, the Registrant granted stock awards in the aggregate of
5,700 shares of Common Stock to certain employees, officers and consultants
under its 1994 Long-Term Equity Incentive Plan, for services to the Registrant
during fiscal years 1989 through 1993.

In September 1995, the Registrant granted stock awards in the aggregate of
4,112.5 shares of Common Stock to employees, officers, and employee-directors
under its 1994 Long-Term Equity Incentive Plan for services to the Registrant
during fiscal years 1994 and 1995, and 850 shares of Common Stock to non-
employee directors under the 1994 Directors' Stock Award Plan for services to
the Registrant during fiscal year 1995.

In November and December of 1995, the Registrant issues 8,000 units (the
"Units"), consisting of 1 share of Common Stock and a warrant granting the
holder the right to purchase 1 additional share of Common Stock at $260 per
share, to 29 individuals and entities, 11 existing 12% Convertible Debenture
holders and 3 Series A Convertible Preferred Share holders. From the issuance,
the Registrant received an aggregate of $1,681,215 in cash and converted an
aggregate of $466,935 of debenture principal and an aggregate of $11,850 of
accrued dividends on the preferred stock into Units.

In December 1995, the Registrant issued to Klein & Martin 350 shares of
Common Stock for legal services provided to the Registrant (other than matters
relating to securities offerings).

In December 1995, the Registrant issued 113.5 shares of Common Stock to
Advanced Medical Devices ("AMD") pursuant to AMD's antidilution rights which
were triggered by the conversion of certain 12% Convertible Debenture
principal as part of the offering of the Units.

In March 1996, the Registrant issued to Klein & Martin 500 shares of Common
Stock for legal services provided (or to be provided) to the Registrant (other
than matters relating to securities offerings).

In May 1996, the Registrant granted Mr. George A. Vandeman an option to
purchase 1,043 shares of Common Stock. The option is exercisable in one-third
(1/3) increments over a 3-year period at $260, $300 and $340 per share,
respectively.

Any sale of securities described herein were carried out in reliance on the
exemption from registration contained in Section 4(2) and/or Section 3(b) of
the Securities Act as transactions not involving any public offering, except
that transactions involving the Registrant's stock plans were also carried out
in reliance upon Rule 701 promulgated under the Securities Act. The recipients
in each case represented their intention to acquire the securities for
investment only and not with a view to the distribution thereof. All
recipients had adequate access, through employment or other relationships, to
information about the Registrant.

II-2
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

See Exhibit Index.

(b) Financial Statement Schedules:

Schedules for which provision is made in the applicable accounting
regulation of the Commission are either not required under the related
instructions or are inapplicable, and therefore have been omitted.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing as specified in the underwriting agreements certificates in
such denominations and registered in such names as required by the underwriter
to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective: and

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such new securities at that time shall
be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF TORRANCE, STATE OF CALIFORNIA, ON AUGUST 15, 1996.

THE TRYLON CORPORATION

By: /s/ Martin L. Lonky
__________________________________
Martin L. Lonky
President, Chief Executive
Officer and Director

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE

President, Chief
*/s/ Martin L. Lonky Executive Officer August 15, 1996
- ------------------------------------- and Chairman of the
MARTIN L. LONKY Board (Principal
Executive Officer)

Executive Vice
*/s/ Stewart A. Lonky President, Chief August 15, 1996
- ------------------------------------- Medical Officer and
STEWART A. LONKY Director (Acting
Principal Financial
and Accounting
Officer)

*/s/ Neal M. Lonky Secretary and August 15, 1996
- ------------------------------------- Director
NEAL M. LONKY

*/s/ Alfred M. Bloch Director August 15, 1996
- -------------------------------------
ALFRED M. BLOCH

*/s/ David G. Wallace Director August 15, 1996
- -------------------------------------
DAVID G. WALLACE

*/s/ George A. Vandeman Director August 15, 1996
- -------------------------------------
GEORGE A. VANDEMAN

*By /s/ Martin L. Lonky
- -------------------------------------

ATTORNEY-IN-FACT

II-4
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
*1.1 Form of Underwriting Agreement
*3.1 Restated Certificate of Incorporation of Registrant
*3.2 Bylaws of Registrant
*5.1 Opinion and Consent of Latham & Watkins
*10.1 Employment Agreement dated as of June 12, 1996 by and between Registrant and
Dr. Martin L. Lonky
*10.2 Employment Agreement dated as of April 1, 1996 by and between Registrant and
Dr. Stewart A. Lonky
*10.3 The Trylon Corporation 1994 Long-Term Equity Incentive Plan
*10.4 The Trylon Corporation 1994 Directors' Stock Award Plan
*10.5 Agreement dated March 16, 1994 by and among Omniglow Corporation, Registrant
and Asian Sourcing Corporation
*10.6 Distribution Agreement dated as of September 1, 1994 by and between
Registrant and Pharmacia & Upjohn as amended as of November 16, 1994 and
February 20, 1996
*10.7 Development and Licensing Agreement dated January 11, 1996 by and between
Registrant and Bracco, S.p.A.
*10.8 Exclusive Distribution Agreement dated as of September 9, 1994 by and
between Omniglow Corporation and Registrant, as amended September 9, 1994
*10.9 Lease for Registrant's corporate offices in Torrance, California
*10.10 Form of Indemnification Agreement between the Registrant and its Executive
Officers and Directors
**11.1 Statement Regarding Computation of Per Share Earnings
**21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen & Company
*23.4 Consent of Latham & Watkins (included in Exhibit 5.1)
**24.1 Power of Attorney (included on page II-4)
**27.1 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment

** Previously filed

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Los Angeles, California

August 15, 1996