COMMONWEALTH BIOTECHNOLOGIES INC, SB-2/A, 1997-10-14

COMMONWEALTH BIOTECHNOLOGIES INC
SB-2/A, 1997-10-14
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997

REGISTRATION NO. 333-31731

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO

FORM SB-2

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

COMMONWEALTH BIOTECHNOLOGIES, INC.
(Name of small business issuer in its charter)

<TABLE>
<S> <C>
VIRGINIA 8733 56-1641133
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>

<TABLE>
<S> <C>
COMMONWEALTH BIOTECHNOLOGIES, INC. COMMONWEALTH BIOTECHNOLOGIES, INC.
911 EAST LEIGH STREET, SUITE G-19 911 EAST LEIGH STREET, SUITE G-19
RICHMOND, VIRGINIA 23219 RICHMOND, VIRGINIA 23219
(804) 648-3820 (804) 648-3820
(Address and Telephone Number (Address of Principal Place of Business
of Principal Executive Offices) or Intended Principal Place of Business)
</TABLE>

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COMMONWEALTH BIOTECHNOLOGIES, INC.
911 EAST LEIGH STREET, SUITE G-19
RICHMOND, VIRGINIA 23219
ATTENTION: RICHARD D. FREER, PH.D., CHAIRMAN
(804) 648-3820
(Name, Address and Telephone Number of Agent for Service)

COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
J. BENJAMIN ENGLISH, ESQ. JAMES J. WHEATON, ESQ.
LECLAIR RYAN, A PROFESSIONAL CORPORATION WILLCOX & SAVAGE, P.C.
707 EAST MAIN STREET, SUITE 1100 800 NATIONSBANK CENTER
RICHMOND, VIRGINIA 23219 NORFOLK, VIRGINIA 23510
(804) 783-2003 (757) 628-5619
</TABLE>

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable on or after the effective date of this Registration
Statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]

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,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) OFFERING PRICE REGISTRATION FEE
<S> <C>
Common Stock.......................... 1,015,000 $6.00 $6,090,000.00
Underwriter's Warrants (2)............ 101,500 $0.001 $101.50
Common Stock Issuable Upon Exercise
of the Underwriter's Warrants (3)..... 101,500 $9.90 $1,004,850
Common Stock (4)...................... 541,370 $6.00 $3,248,220.00
Management Warrants (5)............... 100,000 $0.001 $100.00
Common Stock Issuable Upon Exercise
of the Management Warrants (6)........ 100,000 $9.90 $990,000.00
Total............................. -- -- $11,333,271.50 $3,435
</TABLE>

(1) The proposed maximum price is estimated solely for the purpose of computing
the amount of the registration fee.

(2) In connection with the Registrant's sale of the shares of Common Stock
registered hereby, the Registrant shall sell to Anderson & Strudwick,
Incorporated (the "Underwriter") warrants to purchase 101,500 shares of
Common Stock (the "Underwriter's Warrants"). The price to be paid by the
Underwriter for the Underwriter Warrants is $.001 per warrant. The exercise
price of the Underwriter's Warrants is $9.90 per share. The resale of the
Underwriter's Warrants is registered hereunder.

(3) The shares of Common Stock underlying the Underwriter's Warrants are being
registered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended.

(4) Represents the shares of Common Stock (including those representing interest
payments) (the "Conversion Shares") issuable by the Registrant upon
conversion of those certain subordinated convertible notes (the "Notes").
The Notes were issued by the Registrant in a private placement on June 25,
1997, and the Conversion Shares will be issued in a private placement
simultaneously with the completion of the Offering (the "Private
Placement"). The resale of the Conversion Shares is registered hereunder.

(5) In connection with the Private Placement, the Registrant sold to the
Registrant's executive officers warrants to purchase an aggregate of 100,000
shares of Common Stock (the "Management Warrants"). The price paid by the
executive officers for the Management Warrants was $.001 per warrant. The
exercise price of the Management Warrants is $9.90 per share. The resale of
the Management Warrants is registered hereunder.

(6) The shares of Common Stock underlying the Management Warrants are being

registered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended.

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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO 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 STATE.

SUBJECT TO COMPLETION, DATED OCTOBER 14, 1997

PROSPECTUS

[LOGO FOR COMMONWEALTH BIOTECHNOLOGIES, INC.]

1,015,000 SHARES OF COMMON STOCK

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

Commonwealth Biotechnologies, Inc. ("CBI" or the "Company") hereby offers
(the "Offering") 1,015,000 shares of the Company's common stock, no par value
per share (the "Common Stock"). Prior to the Offering, no public market for the
Common Stock existed and no assurance can be given that any such market will
develop after the completion of the Offering or, that if developed, such market
will be sustained. It is currently anticipated that the initial public offering
price will be $6.00 per share of Common Stock. For the method of determining the
initial public offering price of the Common Stock, see "Risk Factors" and
"Underwriting." Resales of (a) an aggregate of up to 541,370 shares of Common
Stock (the "Conversion Shares"), issuable in a private placement upon the
automatic conversion of certain subordinated convertible notes (the "Notes")
issued by the Company in a private placement on June 25, 1997 (the "Private
Placement"), (b) warrants to purchase an aggregate of 101,500 shares of Common
Stock (the "Underwriter's Warrants"), each of which has a term of five years and
an exercise price equal to 165% of the initial public offering price of a share
of Common Stock offered hereby, to be issued to Anderson & Strudwick,
Incorporated (the "Underwriter") upon the closing of the Offering as additional
underwriting compensation, and (c) warrants to purchase an aggregate of 100,000
shares of Common Stock (the "Management Warrants"), each of which has a term of
ten years and an exercise price equal to 165% of the initial public offering
price of a share of Common Stock offered hereby and will first become
exercisable on June 25, 1998, issued to certain executive officers of the
Company (collectively, the "Resale Securities") are also being registered
hereby. The Company is also registering an aggregate of 201,500 shares of Common
Stock issuable upon the exercise of the Underwriter's Warrants and the
Management Warrants on a delayed or continuous basis (the "Warrant Shares").
Resales of the Resale Securities are not underwritten, and resales of the
Conversion Shares and the Underwriter's Warrants are contingent upon, and may
only occur subsequent to, the closing of the Offering. The Warrant Shares will
only be issued, and the sale thereof may only occur, subsequent to the closing
of the Offering. In the event the Underwriter's Warrants and the Management
Warrants are exercised, the shares of Common Stock eligible for (x) resale
hereunder by the holders thereof (the "Selling Securityholders") or (y) sale on
a delayed or continuous basis will constitute 40.6% of the outstanding shares of
Common Stock upon completion of the Offering. See "Risk Factors -- Shares
Eligible for Future Sale." The Company has applied for listing of the shares of
Common Stock on the Nasdaq SmallCap Market under the symbol "CBTE." Pending such
listing, the shares of Common Stock are expected to be quoted on the NASD's OTC
Bulletin Board after completion of the Offering. There can be no assurance,
however, that the Nasdaq SmallCap Market will approve such listing. See "Risk
Factors--Absence of Public Market."

The Company provides sophisticated research and development support
services on a contract basis to the biotechnology industry. See
"Business -- Overview."

The Company and the Underwriter have entered into certain arrangements
which may involve a conflict of interest, including the issuance of the
Underwriter's Warrants and the service of two affiliates of the Underwriter on
the Board of Directors of the Company. See "Risk Factors -- Ongoing Relationship
with Underwriter."

THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK. INVESTORS SHOULD BE ABLE TO SUSTAIN A COMPLETE LOSS OF
THEIR INVESTMENT. SEE "RISK FACTORS" ON PAGES 8 THROUGH 12.

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

<TABLE>
<CAPTION>
PRICE TO PUBLIC UNDERWRITING DISCOUNT(1) PROCEEDS TO COMPANY(2)
<S> <C>
Per Share..................... $6.00 $0.48 $5.52
Total..................... $6,090,000 $487,200 $5,602,800
</TABLE>

(1) Does not reflect the issuance of the Underwriter's Warrants as additional
underwriting compensation. In addition, the Company has agreed to indemnify
the Underwriters against certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."

(2) Before deducting additional expenses of the Offering payable by the Company,
estimated at $200,000.

THE COMMON STOCK IS BEING OFFERED BY THE COMPANY THROUGH THE UNDERWRITER ON
A "BEST EFFORTS, ALL-OR-NONE"BASIS, WHEN, AS AND IF ISSUED AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY THE UNDERWRITER AND CERTAIN OTHER
CONDITIONS. IN ADDITION, OFFICERS, DIRECTORS AND PERSONS HOLDING MORE THAN 5% OF
THE OUTSTANDING SHARES OF COMMON STOCK PRIOR TO THE OFFERING MAY PURCHASE UP TO
15,000 OF THE SHARES OF COMMON STOCK OFFERED IN THE OFFERING. UNLESS SOONER
WITHDRAWN OR CANCELED BY EITHER THE COMPANY OR THE UNDERWRITER, THE OFFERING
WILL CONTINUE UNTIL THE EARLIER OF THE DATE ON WHICH ALL OF THE COMMON STOCK
OFFERED HEREBY IS SOLD OR NOVEMBER 21, 1997 (THE "OFFERING TERMINATION DATE").
PENDING THE SALE OF ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY, ALL
PROCEEDS WILL BE DEPOSITED INTO AN ESCROW ACCOUNT WITH CRESTAR BANK (THE "ESCROW
AGENT"). IF THE OFFERING IS WITHDRAWN OR CANCELED OR IF ALL OF THE SHARES
OFFERED HEREBY ARE NOT SOLD BY THE OFFERING TERMINATION DATE, THE OFFERING WILL
TERMINATE AND ALL PROCEEDS WILL BE RETURNED BY THE ESCROW AGENT TO THE PERSONS
FROM WHICH THEY ARE RECEIVED, WITHOUT ANY DEDUCTION THEREFROM OR INTEREST
THEREON, PROMPTLY AFTER SUCH TERMINATION OR WITHDRAWAL.

ANDERSON & STRUDWICK
INCORPORATED

THE DATE OF THIS PROSPECTUS IS , 1997.

<PAGE>
(ALTERNATE COVER)

COMMONWEALTH BIOTECHNOLOGIES, INC.
SHARES OF COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS

This Prospectus relates to the resale by the holders thereof (the "Selling
Securityholders") of (a) an aggregate of 541,370 shares (the "Conversion
Shares") of common stock, no par value per share ("Common Stock") of
Commonwealth Biotechnologies, Inc. (the "Company"), issuable upon the automatic
conversion of certain subordinated convertible notes (the "Notes") issued by the
Company in a private placement on June 25, 1997 (the "Private Placement"), (b)
warrants to purchase an aggregate of 101,500 shares of Common Stock (the
"Underwriter's Warrants"), each of which has a term of five years and an
exercise price equal to 165% of the initial public offering price of a share of
Common Stock offered hereby, issued to Anderson & Strudwick, Incorporated (the
"Underwriter") as additional underwriting compensation, and (c) warrants to
purchase an aggregate of 100,000 shares of Common Stock (the "Management
Warrants"), each of which has a term of ten years and an exercise price equal to
165% of the initial public offering price of a share of Common Stock offered
hereby and will first become exercisable on June 25, 1998, issued to certain
executive officers of the Company (collectively, the "Resale Securities"). The
offering of the Conversion Shares and the Underwriter's Warrants by the Selling
Securityholders is contingent upon and may only occur subsequent to the closing
of the separate offering of 1,015,000 shares of Common Stock by the Company in
an underwritten public offering (the "Offering"). In addition, the Offering
contemplates the registration, on a delayed or continuous basis, of an aggregate
of 201,500 shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants and the Management Warrants. In the event the
Underwriter's Warrants and the Management's Warrants are exercised, the shares
being registered on behalf of the Selling Securityholders and the shares of
Common Stock eligible for sale on a delayed or continuous basis will constitute
40.6% of the outstanding shares of Common Stock upon completion of the Offering.
The resale of the Resale Securities is subject to Prospectus delivery and other
requirements of the Securities Act of 1933, as amended (the "Securities Act").
Sales of such securities or the potential of such sales at any time may have an
adverse effect on the market prices of the securities offered hereby. See
"Selling Securityholders" and "Risk Factors -- Shares Eligible for Future Sale."

The Company has applied for inclusion of the Common Stock and the
Underwriter's Warrants on The Nasdaq SmallCap Market although there can be no
assurance that an active trading market will develop. See "Risk Factors -- No
Prior Market for Common Stock," and " -- Volatility of Stock Price."

The Resale Securities offered by this Prospectus may be sold from time to
time by the Selling Securityholders, or by their transferees. Notwithstanding
the foregoing, however, resales of the Conversion Shares and the Underwriter's
Warrants are contingent upon, and may only occur subsequent to, the closing of
the Offering. No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the securities by the Selling
Securityholders may be effected in one or more transactions that may take place
in the market, including ordinary brokerage transactions, privately-negotiated
transactions or sales to one or more dealers for resale of such shares as
principals at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage prices or commissions may be paid by the
Selling Securityholders in connection with sales of such securities.

The Selling Securityholders and intermediaries through whom such securities
may be sold may be deemed "underwriters" within the meaning of the Securities
Act, with respect to the securities offered and any profits realized or
commissions received may be deemed underwriting compensation. The Company has
agreed to indemnify certain of the Selling Securityholders against liabilities,
including liabilities under the Securities Act.

The Company will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders. All costs incurred in the
registration of the securities of the Selling Securityholders are being borne by
the Company. See "Selling Securityholders."

The Company provides sophisticated research and development analytical
services on a contract basis to the biotechnology industry. See "Business."

THE DATE OF THIS PROSPECTUS IS , 1997.

<PAGE>

(PHOTO TO COME)

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PRIOR TO THE OFFERING, THE COMPANY WAS NOT A REPORTING COMPANY UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SUBSEQUENT TO
THE OFFERING, THE COMPANY INTENDS TO FURNISH TO ITS SHAREHOLDERS ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT ACCOUNTANTS, AND SUCH
OTHER PERIODIC REPORTS AS IT MAY DETERMINE TO FURNISH OR AS MAY BE REQUIRED BY
LAW.

<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION, INCLUDING "RISK FACTORS"AND THE COMPANY'S FINANCIAL
STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. THE
SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. INVESTORS
IN THE OFFERING SHOULD BE ABLE TO SUSTAIN A COMPLETE LOSS OF THEIR INVESTMENT.
SEE "RISK FACTORS." THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS." THE COMPANY'S ACTUAL RESULTS AND THE TIMING OF
CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN OR PROJECTED BY
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED UNDER "RISK FACTORS." CERTAIN TERMS USED
HEREIN ARE DEFINED IN THE GLOSSARY SECTION OF THIS PROSPECTUS.

THE COMPANY

The Company was founded in 1992 by four experienced research scientists to
provide sophisticated research and development analytical services on a contract
basis to the biotechnology industry. The Company's customers consist of private
companies, academic institutions and government agencies, all of which use
biological and biochemical strategies to develop products for health care,
agricultural and other purposes.

Much of the revenue in biotechnology is derived from innovative products
based on research into the fundamental biological processes that support life.
These fundamental processes depend on the interrelationships of basic components
of cells in living organisms, including enzymes, proteins, peptides, DNA and
RNA, an understanding of which enables scientists to develop new compounds
having commercial applications. The Company's services assist customers in
understanding these relationships and developing commercial products based on
that understanding.

The Company provides services to customers on a contract basis and derives
its revenues from these services, and not from sales of commercial products
resulting from the research. This arrangement distinguishes the Company from
many other biotechnology companies in that the Company's revenues are not
directly dependent on successfully commercializing a new biotechnology product.

The Company has established a reputation for providing a wider range of
services than many of its competitors and in 1996 had revenues of $989,925 and
net income of $110,088. The Company has identified a growth strategy which
involves expansion of facilities and marketing and development of related lines
of business having significant potential for growth. The Company intends to
focus its efforts on the maintenance and expansion of long term relationships
with customers in the biotechnology industry as well as the establishment of new
customer relationships. See "Business -- Growth Strategy."

In addition to its analytical services, the Company is also developing
several of its own proprietary new technologies in the areas of anti-coagulation
and genomic sequence analysis. The Company has a patent application pending for
a heparin antagonist compound which may lead to a new drug having fewer adverse
effects than existing drugs. The development of these technologies has been
funded by grants from government agencies, and the Company anticipates that this
portion of its operations will continue to be funded in this manner. These
technologies are in the early stage of development and should be considered
highly speculative at this time. See "Business -- Proprietary Research and
Research Grants," " -- Intellectual Property," " -- Government Regulation" and
"Risk Factors -- Risks Associated with Development of Proprietary Technologies."

THE COMPANY'S OFFICES

The Company was incorporated in Virginia in September 1992. The Company's
principal executive offices are located at 911 East Leigh Street, Suite G-19,
Richmond, Virginia 23219 and its telephone number is (804) 648-3820.

<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Securities Offered by the Company.......................... 1,015,000 shares of Common Stock. See "Description of Capital
Stock."

Shares of Common Stock Outstanding before Offering......... 612,643

Common Stock to be Outstanding after the Offering.......... 1,627,643 shares of Common Stock

Use of Proceeds............................................ The net proceeds of this Offering will be used for working
capital, capital expenditures and general and administrative
purposes. See "Use of Proceeds."

Risk Factors............................................... Investment in the Common Stock involves a high degree of risk.
See "Risk Factors."

Proposed Nasdaq SmallCap Symbol(1)......................... CBTE
</TABLE>

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(1) No assurance can be given that an active trading market for the Common Stock
will develop or be maintained. See "Risk Factors -- No Prior Market for
Common Stock."

Except as otherwise indicated, all share and per share data in this
Prospectus (a) assume the conversion of the Notes into 541,370 Conversion Shares
of Common Stock upon completion of the Offering (including an assumed payment of
interest in the amount of 41,370 shares -- interest accrues from June 25, 1997
through the date of conversion at a rate of 20% per annum and is payable in
shares of Common Stock at a rate of $6.00 per share through the Offering
Termination Date); (b) give no effect to the aggregate of 201,500 shares of
Common Stock issuable upon the exercise of the Underwriter's Warrants and the
Management Warrants; and (c) assume no issuance of an aggregate of 410,000
shares of Common Stock which may be issued pursuant to incentive awards that may
be granted under the Company's 1997 Stock Incentive Plan (the "Incentive Plan"),
of which the Company intends to grant options to purchase an aggregate of
270,000 shares of Common Stock to the Company's founders upon the completion of
the Offering. See "Capitalization", "Management -- Incentive Plan," "Certain
Relationships and Related Transactions," "Description of Capital
Stock -- Warrants" and "Underwriting."

<PAGE>
SUMMARY FINANCIAL INFORMATION

The following table sets forth certain historical financial information of
the Company.

<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------- --------------------
1997 1996 1996 1995
---------- -------- -------- --------
<S> <C>
(UNAUDITED)
OPERATIONS DATA:
Revenue.................................................................... $1,059,212 $428,302 $989,925 $369,301
Net income (loss) before proforma income tax expense....................... $ 286,287 $122,521 $110,088 $(11,890)
Proforma net income (loss)(1).............................................. $ 161,634 $ 97,976 $ 60,437 $(33,982)
Proforma earnings (loss) per common and common equivalent share(2)......... $ 0.32 $ 0.19 $ 0.12 $ (0.07)

</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,
------------------------ --------------------
(UNAUDITED) (ACTUAL)

AS
ADJUSTED
ACTUAL (3) 1996 1995
---------- ---------- -------- --------
<S><C>
BALANCE SHEET DATA AS OF:
Working capital.......................................................... $ (261,014) $8,141,786 $ 91,637 $ (34)
Current ratio............................................................ 0.92 $ 27.62 $ 1.32 $ 1.00
Total assets............................................................. $3,964,280 $8,993,349 $634,193 $186,818
Shareholders' equity..................................................... $ 388,051 $8,417,120 $162,269 $ 62,656
Book value per share(2).................................................. $ 0.77 $ 5.53 $ 0.32 $ 0.12
</TABLE>

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(1) The above financial data gives retroactive effect to conversion from S
Corporation to C Corporation status for federal income tax purposes.

(2) The above financial data gives retroactive effect to the 93.78-for-one stock
split effective June 24, 1997, to the issuance of the Conversion Shares, and
to the antidilutive effect of the Management Warrants converted using the
Treasury Stock method. See Note 2 to the Company's Financial Statements.

(3) As adjusted to reflect (i) the sale of 1,015,000 shares of Common Stock
offered hereby (at the price to public of $6.00 per share) and the
application of the estimated net proceeds therefrom and (ii) the conversion
of the Notes to Common Stock at a conversion price of $6.00 per share. See
"Description of Capital Stock."

<PAGE>
RISK FACTORS

THE SHARES OF COMMON STOCK OFFERED PURSUANT TO THIS PROSPECTUS ARE
SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK, AND AN INVESTMENT IN THE COMMON
STOCK SHOULD BE CONSIDERED ONLY BY INVESTORS WHO ARE CAPABLE OF AFFORDING AN
ENTIRE LOSS OF THE AMOUNT INVESTED. PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER, ALONG WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING CONSIDERATIONS AND RISKS IN EVALUATING AN INVESTMENT IN THE COMPANY.

VARIABILITY OF OPERATING RESULTS

The Company's revenues are derived through provision of analytical services
to the pharmaceutical, biotechnology and related industries. The Company has
experienced and may continue to experience significant quarterly fluctuations in
revenues due to variations in contract status with several large customers. In
addition, the majority of other customer projects are individual orders for
specific projects. Engagement for successive work is highly dependent upon the
customer's satisfaction with the services provided to date, and upon factors
beyond the Company's control such as the timing of product development and
commercialization programs of the Company's customers. The Company is unable to
predict for more than a few months in advance the number and size of future
projects in any given period. Thus, timing of significant projects could have a
significant impact on financial results in any given period. The combined impact
of several large contracts and the unpredictable project fluctuations from other
customers can result in very large fluctuations in financial performance from
quarter to quarter or year to year. In addition, the biotechnology industry is
currently progressing through a consolidation phase of development. As a result,
many large competitors may internalize their biotechnology research services. If
this occurs, the Company's future customers will likely be smaller companies
without captive research capabilities. See "Management's Discussion and Analysis
of Financial Condition and Result of Operations."

DEPENDENCE ON GOVERNMENT GRANTS

A significant portion of the Company's revenue (approximately 31% in the
year ended December 31, 1996 and 42% for the six months ended June 30, 1997),
and substantially all of its financing for proprietary research projects, is
funded by grants from federal government agencies. As of the date of this
Prospectus, the Company has three government grants. The Company must compete
for these grants with a large number of other companies and academic
institutions, many of which have substantially greater resources than the
Company. There can be no assurance that the Company will be able to compete
successfully for these grants, or that the agencies making the grants will
continue to make grants at levels sufficient to provide funding for the
Company's proprietary research. In the absence of these grants, the Company
would be forced to seek alternative sources of funding for its proprietary
research and development projects, and there can be no assurance that such
funding would be available. See "Business -- Proprietary Research and Research
Grants."

DEPENDENCE ON AND NEED TO HIRE PERSONNEL

The Company is highly dependent on its senior management and scientific
staff, and the loss of their services would adversely affect the Company. In
addition, the Company must hire and retain a number of additional highly
qualified and experienced management and scientific personnel, consultants and
advisors. The Company's ability to attract and retain qualified personnel is
critical to the Company's continued success. Competition for qualified
individuals is intense, and the Company faces competition from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to attract
and retain such individuals on acceptable terms or at all, and the failure to do
so would have a material adverse effect on the Company. Additionally, the hiring
of personnel after the Offering will increase the Company's expenses. See
"Business -- Employees."

LACK OF SALES AND MARKETING CAPABILITIES

The Company currently has no full-time marketing or sales personnel. The
Company will have to develop a sales force or rely on marketing partners or
other arrangements with third parties for the marketing and sale of its
services. There can be no assurance that the Company will be able to establish
sales and marketing capabilities or make arrangements with third parties to
perform those activities on terms satisfactory to the Company, or that any
internal capabilities or third party arrangements will be cost-effective. See
"Business -- Employees."

In addition, any third parties with which the Company establishes sales and
marketing arrangements may have significant control over important aspects of
these operations, including market identification, marketing methods, pricing,
composition of sales force and promotional activities. There can be no assurance
that the Company will be able to control the

<PAGE>
amount and timing of resources that any third party may devote to the Company's
services or prevent any third party from pursuing alternative services which
compete with those of the Company. See "Business -- Marketing."

COMPETITION

The Company encounters, and expects to continue to encounter, intense
competition in the development and sale of its current and future services. Many
of the Company's competitors and potential competitors have substantially larger
laboratory facilities, marketing capabilities and staff than those of the
Company. In order to remain competitive, the Company will need to make available
to its customers new analytical technologies as they become available in the
Company's rapidly changing, technology driven business. Substantial future
capital expenditures may be required to acquire these technologies. See
"Business -- Competition."

RELIANCE ON SIGNIFICANT CUSTOMER RETENTION

The Company's future success will depend, in part, upon its ability to
maintain relationships with its key customers. In 1996, approximately 20% of the
Company's revenues were attributable to one private industry customer. The loss
of this customer would adversely affect the Company. See "Business -- Customers"
and the Company's Financial Statements and the Notes thereto.

HAZARDOUS MATERIALS

The Company's operations involve the controlled use of hazardous materials,
chemicals, recombinant biological molecules, biohazards (infectious agents) and
various radioactive compounds. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.
The Company currently has no insurance against any such liability. See
"Business -- Government Regulation."

LACK OF FIRM COMMITMENT TO PURCHASE

The Company has engaged the Underwriter to conduct the Offering on a "best
efforts, all-or-none" basis. The Offering is being made without a firm
commitment by the Underwriter, which has no obligation to purchase any of the
Common Stock. If the Offering is withdrawn or canceled or if the 1,015,000
shares of Common Stock offered hereby are not sold and proceeds therefrom are
not received by the Company on or prior to the Offering Termination Date, all
proceeds will be promptly returned to investors without interest.

RISKS ASSOCIATED WITH DEVELOPMENT OF PROPRIETARY TECHNOLOGIES

The Company is conducting initial research into several new potential
technologies which may result in new pharmaceutical products, the intellectual
property rights to which the Company would control. These technologies are in
very early stages of development and are highly speculative due to the
substantial risks and considerable uncertainties associated with their
development, which include but are not limited to the following:

COMMERCIAL VIABILITY. The development of the Company's technologies may
fail to yield products which are effective or offer advantages over other
products, resulting in the products having little commercial value. Other
companies having substantially greater research, development and marketing
resources than the Company may develop competing products which would preclude
the Company's products from gaining acceptance in the marketplace.

UNCERTAINTY OF INTELLECTUAL PROPERTY RIGHTS. The Company must secure and
defend patent and other intellectual property rights to the technologies, and
avoid infringing the intellectual property rights of third parties. The patent
positions of biotechnology companies are uncertain and involve complex legal and
factual questions. There can be no assurance that the Company will develop
intellectual property rights that are protectable or that the protection
afforded by patents or otherwise will be sufficient to protect the commercial
value of the Company's technologies. In addition, there can be no assurance that
any patent rights issued to the Company will not be challenged, invalidated,
infringed or circumvented.

EXTENSIVE GOVERNMENT REGULATION. Commercialization of any products
resulting from the Company's research generally will require government
approvals and be subject to extensive government regulation. In the case of
human pharmaceutical products, the approval of the United States Food and Drug
Administration requires extensive pre-clinical and clinical trials

<PAGE>
involving considerable costs and uncertainties. Failure to receive government
approvals would preclude commercialization of products based on the Company's
research and development programs.

DEPENDENCE ON THIRD PARTIES. Because the Company does not have and does not
anticipate having the resources necessary to develop products beyond the initial
research stage, the Company anticipates licensing any valuable technologies
resulting from its research to third parties for development into commercial
products. As a result, the Company will surrender control over the development
and marketing processes and will be dependent on the efforts and resources of
third parties.

There can be no assurance that the Company's proprietary research programs
will result in any commercial products, and prospective investors considering an
investment in the Common Stock are discouraged from attributing significant
value to the Company's proprietary research programs. See
"Business -- Intellectual Property" and " -- Government Regulation."

NO DIVIDENDS

The Company does not intend to pay any cash dividends in the foreseeable
future and intends to retain its earnings, if any, for the operation of its
business. See "Dividend Policy."

ANTI-TAKEOVER PROVISIONS

The Company's Amended and Restated Articles of Incorporation ("Articles")
and Amended and Restated Bylaws ("Bylaws") provide for a classified Board of
Directors, the removal of Directors only with cause, advance notice requirements
for director nominations and actions to be taken at annual meetings of the
Company's shareholders and a requirement that affiliated transactions be
approved by at least two-thirds of the outstanding shares of each voting group.
The Company is subject to certain provisions of the Virginia Stock Corporation
Act (the "Virginia Act") which, in general, (i) prevent an Interested
Shareholder (defined generally as a person owning more than 10% of any class of
the Company's voting securities) from engaging in an "Affiliated Transaction"
(as defined herein) with the Company unless certain conditions are met and (ii)
deny voting rights to shares acquired by a person in a Control Share Acquisition
(defined generally as an acquisition resulting in voting power which exceeds
one-fifth, one-third or a majority) unless such rights are granted by the
Company's shareholders, and permit the Company, under certain circumstances, to
redeem the shares so acquired.

Such provisions could impede any merger, consolidation, takeover or other
business combination involving the Company or discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of the
Company. In addition, certain provisions of the Company employee benefit plans,
employment agreements and severance agreements may also render any such business
combination more costly and therefore less probable. See "Description of Capital
Stock -- Certain Provisions of the Company's Articles of Incorporation and
Bylaws," " -- Certain Corporate Governance Provisions of the Virginia Act,"
" -- Effect of Certain Provisions Upon an Attempt to Acquire Control of the
Company," "Management -- Incentive Plan," and " -- Change in Control
Protections."

LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER VIRGINIA LAW

Pursuant to the Company's Articles, as authorized under applicable Virginia
law, directors of the Company are not liable for monetary damages for breach of
fiduciary duty, except in connection with a breach of the duty of loyalty, for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for dividend payments or stock repurchases illegal
under Virginia law or for any transaction in which a director has derived an
improper personal benefit. In addition, the Company's Articles provide that the
Company must indemnify its officers and directors to the fullest extent
permitted by Virginia law for all expenses incurred in the settlement of any
actions against such persons in connection with their having served as officers
or directors of the Company. See "Management -- Liability and Indemnification of
Officers and Directors."

RELATED PARTY TRANSACTIONS / CONFLICTS OF INTEREST

The Company has entered into or proposes to enter into certain transactions
with its directors and executive officers. These transactions include the
issuance of warrants to acquire shares of Common Stock to executive officers
upon the closing of the Private Placement, the proposed issuance of options to
acquire shares of Common Stock upon the closing of the Offering, and the payment
of cash underwriting compensation and issuance of the Underwriter's Warrants to
the Underwriter, with which two of the Company's directors are affiliated. The
Company has issued a promissory note pursuant to which it has agreed to pay
certain amounts to an executive officer and, as an S Corporation prior to the
closing of the Private Placement, paid certain distributions to its
shareholders, who are also directors and executive officers of the Company. A
summary

<PAGE>
of the terms and conditions of these transactions may be found under the heading
"Certain Relationships and Related Transactions." These transactions involve
inherent conflicts between the interest of the Company and the interests of the
other parties to the transactions.

ONGOING RELATIONSHIP WITH UNDERWRITER

In connection with the Offering, the Company will sell to the Underwriter
for a nominal amount the Underwriter's Warrants to purchase up to 101,500 shares
of Common Stock. These warrants are exercisable for a period of five years from
the respective dates of issuance at a price of $9.90 per share of Common Stock,
equal to 165% of the price of the Common Stock in the Offering. During the term
of these warrants, the holders thereof will be given the opportunity to profit
from a rise in the market price of the Common Stock, with a resulting dilution
in the interest of the Company's other shareholders. The terms on which the
Company could obtain additional capital during the life of these warrants may be
adversely affected because the holders of these warrants might be expected to
exercise them if the Company were able to obtain any needed additional capital
in a new offering of securities at a price greater than the exercise price of
such warrants. See "Description of Capital Stock -- Warrants."

SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR THE EXERCISE OF OPTIONS AND
WARRANTS

The Company has reserved 410,000 shares of Common Stock for issuance upon
the exercise of incentive awards granted or available for grant to employees,
officers, directors, advisors and consultants pursuant to the Incentive Plan, of
which the Company anticipates granting options to purchase an aggregate of
270,000 shares of Common Stock to the Company's founders upon the completion of
the Offering. In addition, the Company has reserved an aggregate of 201,500
shares of Common Stock for issuance upon exercise of the Underwriter's Warrants
and the Management Warrants. These options and warrants may adversely affect the
Company's ability to obtain financing in the future. The holders of such options
and warrants can be expected to exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "Underwriting," "Certain Relationships and Related
Transactions" and "Management -- Management Option Grants."

SHARES ELIGIBLE FOR FUTURE SALE

Future sale of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market value for the Common
Stock. The 1,015,000 shares sold by the Company in this Offering will be freely
tradable unless acquired by an affiliate of the Company. The holders of the
Notes (which automatically convert into an aggregate of 541,370 shares of Common
Stock (including assumed interest) upon the completion of the Offering) are not
subject to any "lock-up" agreements restricting disposition of their shares, and
therefore, the holders of the Notes who are not affiliates of the Company may
sell such shares of Common Stock in accordance with the resale provisions of
this Prospectus. In addition, 201,500 shares of the Company's Common Stock (to
be issued when and if the Underwriter's Warrants and the Management Warrants are
exercised), none of which are subject to any "lock-up" agreements, are being
registered, on a delayed or continuous basis, concurrent with the Offering.
Notwithstanding the foregoing, however, transfer of the Underwriter's Warrants
and the shares underlying these warrants is restricted to bona fide officers of
the Underwriter for a one-year period following the grant thereof in accordance
with the rules of the National Association of Securities Dealers, Inc. Upon the
completion of the Offering, the Company anticipates issuing options to purchase
an aggregate of 270,000 shares of Common Stock to certain of the Company's
executive officers pursuant to the Incentive Plan. These shares are not being
registered in connection with the Offering, but may be resold in accordance with
the provisions of Rule 144 promulgated under the Securities Act ("Rule 144").
Similarly, certain of the Company's executive officers and directors own an
aggregate of 71,273 shares of Common Stock. While these shares are not
registered in the Offering, they may be resold starting 90 days after the
completion of the Offering in accordance with the provisions of Rule 144. See
"Selling Securityholders" and "Plan of Distribution For Selling
Securityholders."

ARBITRARY DETERMINATION OF OFFERING PRICE

The offering price of the shares of Common Stock has been determined
through negotiations between the Company and the Underwriter. Among the factors
considered in determining the price were prevailing market conditions, the
general economic environment, estimates of the prospects of the Company, the
background and capital contributions of management and current conditions of the
securities markets and the Company's industry. The initial public offering price
may bear no relationship to the price at which the Common Stock will trade in
the market upon completion of the Offering. See "Underwriting."

<PAGE>

ABSENCE OF PUBLIC MARKET FOR COMMON STOCK

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 be
sustained after the Offering or that investors will be able to sell the Common
Stock should they desire to do so. The Company has applied for listing of the
shares of Common Stock on the Nasdaq SmallCap Market under the symbol "CBTE."
Pending such listing, the shares of Common Stock are expected to be quoted on
the NASD's OTC Bulletin Board after completion of the Offering. The Company has
been advised by the Underwriter that Ferris, Baker Watts Incorporated and Nash,
Weiss & Co. intend to make a market in the Company's securities. There can be no
assurance that the Nasdaq SmallCap Market will approve such listing, that a
trading market for the Common Stock will develop, or that a trading market, if
developed, will be sustained. An investor in shares of Common Stock may not be
able to sell his or her shares readily, if at all. Therefore, an investor must
be able to bear the economic risk of an investment in shares of Common Stock for
an indefinite period of time. See "Underwriting."

VOLATILITY OF STOCK PRICE

The market price of the Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to factors concerning the
Company or its competitors. The Company's operating results may also be below
the expectations of market analysts and investors, which would likely have a
material adverse effect on the prevailing market price of the Common Stock.

Further, the stock market has experienced extreme price and volume
fluctuations that have affected the market prices of equity securities of many
biotechnology companies. These price fluctuations often have been unrelated or
disproportionate to the operating performance of such companies. Market
fluctuations, as well as general economic, political and market conditions such
as recessions or international currency fluctuations, may adversely affect the
market price of the Common Stock. The realization of any of the risks described
in these "Risk Factors" could have a dramatic and adverse impact on the market
price of the Common Stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements herein regarding the development of the Company's proprietary
technologies and potential changes in the Company's customer base and the impact
of those changes in the variability of the Company's results of operations
constitute forward-looking statements under the federal securities laws. Such
statements are subject to certain risks and uncertainties that could preclude
the Company from developing revenue-generating commercial products based on its
proprietary research or result in the Company's failure to realize decreased
variability of operating results. Risks and uncertainties relating to
proprietary technologies are outlined under the caption "Risk Factors -- Risks
Associated with development of Proprietary Technologies." With respect to
variability of operating results, the changes in the biotechnology industry
anticipated by the Company may fail to occur, or even if they occur, they may
fail to have the anticipated effect on the Company's revenues.

USE OF PROCEEDS

After deducting selling commissions and other expenses of the Offering, the
net proceeds to the Company from the sale of the shares of Common Stock offered
hereby are estimated to be $5,402,800. The Company currently plans to use the
net proceeds from the Offering, and any interest generated therefrom, for
working capital, capital expenditures and general and administrative purposes.
The information below constitutes the Company's best estimate as to the specific
uses of such funds:

<TABLE>
<CAPTION>
PERCENTAGE
PURPOSE EXPENSE OF TOTAL
- ---------------------------------------------------------------- ----------- ----------

<S> <C>
Equipment Purchases............................................. $ 2,600,000 48.1%
Lease of Facilities............................................. $ 500,000 9.3
Sales & Marketing............................................... $ 803,680 14.9
Personnel....................................................... $ 621,520 11.5
Working Capital................................................. $ 877,600 16.2
----------- ----------
Total........................................................... $ 5,402,800 100%
</TABLE>

The equipment to be purchased consists of laboratory equipment, including
DNA sequencers, DNA synthesizers, mass spectroscopy instruments and related
computer equipment and software. Sales and marketing expenditures are expected
to consist of compensation for sales representatives to be hired, including
payment of commissions, advertising and the cost of participating in industry
trade shows. Working capital is expected to be used to fund the Company's
accounts receivable and to maintain reasonable operating cash reserves. The
amounts actually expended for each purpose may vary. Pending the use of the net
proceeds, the Company may invest the funds in short-term money market,
government and federal agency obligations, bank certificates of deposit and
savings deposits.

<PAGE>
DIVIDEND POLICY

The Company currently intends to retain all future earnings, if any, to
finance growth and development of its business and, therefore, does not expect
to declare or pay any cash dividends in the foreseeable future. The declaration
of dividends, however, is within the discretion of the Company's Board. See
"Risk Factors -- No Dividends."

DILUTION

At June 30, 1997, after reflecting the conversion of the Notes, the net
tangible book value of the Company was $3,014,320, or $4.92 per share. "Net
tangible book value" per share of Common Stock represents the amount of the
Company's total tangible assets, less the amount of its total liabilities,
divided by the number of shares of Common Stock outstanding, including 541,370
Conversion Shares and the estimated interest payable on the Notes in the form of
41,370 shares of Common Stock. Dilution represents the difference between the
amount per share of Common Stock paid by the new investors in the Offering and
the pro forma net tangible book value per share of Common Stock after the
Offering. After giving effect to the sale by the Company of the 1,015,000 shares
of Common Stock offered hereby at $6.00 per share and the payment of the
estimated expenses related to the Offering of $687,200, the pro forma net
tangible book value of the Company at June 30, 1997 would have been $8,417,120,
or $5.17 per share of Common Stock. This represents an immediate increase in net
tangible book value of $.25 per share of Common Stock to existing shareholders
and an immediate dilution of $.83 per share of Common Stock to new investors
purchasing Common Stock in the Offering, as illustrated in the following table:

<TABLE>
<S> <C>
Price Per Share in the Offering........................................................................... $ 6.00
Net tangible book value per share before the Offering................................................... $ 4.92
Increase per share attributable to new investors........................................................ $ 0.25
Pro forma net tangible book value per share after the Offering............................................ $ 5.17
Dilution to new investors................................................................................. $ 0.83
</TABLE>

<PAGE>

The following table sets forth, at October 13, 1997, (i) the number of
shares of Common Stock purchased from the Company by its founders and by holders
of the Conversion Shares to be issued upon completion of the Offering, (ii) the
total consideration paid and the average price per share paid for such shares by
such shareholders; and (iii) the number of shares of Common Stock to be sold by
the Company in the Offering, the total consideration to be paid and the average
price per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ---------- ---------- -------------
<S> <C>
New Investors.............................................. 1,015,000 62.4% $6,090,000(1) 67.0% $6.00
Holders of Conversion Shares............................... 541,370 33.3 $3,000,000(1) 33.0 $5.54
Company Founders........................................... 71,273 4.3 -- -- --
---------- ---------- ---------- ----------
Total...................................................... 1,627,643 100.0% $9,090,000(1) 100.0%
</TABLE>

- ---------------
(1) Prior to the deduction of expenses related to the issuance thereof.

CAPITALIZATION

The following table sets forth the actual capitalization of the Company at
June 30, 1997, and the capitalization of the Company as adjusted to reflect the
sale by the Company of the Notes in the Private Placement, the sale by the
Company of the Common Stock offered hereby and the initial application of the
estimated proceeds of thereof. See "Use of Proceeds." This table should be read
in conjunction with the Company's Financial Statements and the Notes thereto
included elsewhere herein.

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1997 1996
----------------------- ------------
(UNAUDITED)

AS
ADJUSTED ACTUAL ACTUAL
----------- --------- ------------
<S> <C>
Short-term debt:
Demand note payable................................................................ $ 42,000 $ 42,000 $ --
Current portion of long-term debt.................................................. 59,455 59,455 37,293
----------- --------- ------------
101,455 101,455 37,293
----------- --------- ------------
Long-term debt, net of current portion............................................... 270,456 270,456 185,687
----------- --------- ------------
Shareholders' equity:
Common stock, no par value, 10,200,000 shares authorized, 71,273 shares issued and
outstanding; 1,586,273 shares issued and outstanding as adjusted(1)(2).......... 760 760 760
Additional paid-in capital(1)(3)................................................... 8,416,360 387,291 --
Retained earnings(3)............................................................... -- -- 161,509
----------- --------- ------------
8,417,120 388,051 162,269
----------- --------- ------------
Total capitalization.......................................................... $ 8,789,031 $ 759,962 $385,249
----------- --------- ------------
----------- --------- ------------
</TABLE>

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

(1) Reflects the (i) conversion of the Notes into 500,000 shares of Common
Stock, and (ii) the sale 1,015,000 shares of Common Stock offered hereby (at
the price to public of $6.00 per share) and the application of the estimated
net proceeds therefrom.

(2) Does not include: (i) 100,000 shares of Common Stock reserved for issuance
upon exercise of Management Warrants; (ii) up to 410,000 shares of Common
Stock reserved for issuance under the Company's Incentive Plan; and (iii)
101,500 shares of Common Stock issuable upon exercise of the Underwriter's
Warrants for the Offering.

(3) Reflects the June 25, 1997 conversion from S Corporation to C Corporation
status and the reclassification of $387,291 in retained earnings, net of
$96,851 in distributions payable to the S Corporation shareholders to cover
their respective shares of tax liability resulting from the Company's
earnings up to the date of conversion.

<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data of the Company as of and for the
period ended December 31, 1996 are derived from the financial statements that
have been audited by Goodman & Company, L.L.P., independent auditors. The
Company's Financial Statements for the six months ended June 30, 1996 and 1997
are unaudited. However, in the opinion of the Company, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation have
been made. Interim results are not indicative of the results to be expected for
a full fiscal year. These data should be read in conjunction with the Company's
Financial Statements and the Notes thereto included elsewhere in this Prospectus
and Management's Discussion and Analysis of Financial Condition and Results of
Operations which follow.

<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------- --------------------
1997 1996 1996 1995
---------- -------- -------- --------
<S> <C>
(UNAUDITED)
OPERATIONS DATA:
Revenue............................................................... $1,059,212 $428,302 $989,925 $369,301
Net income (loss) before proforma income tax expense.................. $ 286,287 $122,521 $110,088 $(11,890)
Proforma net income (loss)(1)......................................... $ 161,634 $ 97,976 $ 60,437 $(33,982)
Proforma earnings (loss) per common and common equivalent share(2).... $ 0.32 $ 0.19 $ 0.12 $ (0.07)
Proforma weighted average common and common equivalent shares
outstanding and used in computation(2)............................. 506,273 506,273 506,273 506,273
</TABLE>

BALANCE SHEET DATA AS OF:

<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
AS DECEMBER 31,
ADJUSTED --------------------
ACTUAL (3) 1996 1995
---------- ---------- -------- --------
<S> <C>
(UNAUDITED) (ACTUAL)
Working capital..................................................... $ (261,014) $8,141,786 $ 91,637 $ (34)
Current ratio....................................................... 0.92 27.62 1.32 1.00
Property and equipment, net......................................... $ 543,386 $ 543,386 $243,611 $100,749
Total assets........................................................ $3,964,280 $8,993,349 $634,193 $186,818
Total long-term debt................................................ $ 270,456 $ 270,456 $185,687 $ --
Shareholders' equity................................................ $ 388,051 $8,417,120 $162,269 $ 62,656
Book value per share(2)............................................. $ 0.77 $ 5.53 $ 0.32 $ 0.12
</TABLE>

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

(1) The above financial data gives retroactive effect to conversion from S
Corporation to C Corporation status for federal income tax purposes.

(2) The above financial data gives retroactive effect to the 93.78-for-one stock
split effective June 24, 1997, to shares relating to the issuance of the
Conversion Shares, and to the antidilutive effect of the Management Warrants
converted using the Treasury Stock method. See Note 2 to the Company's
Financial Statements.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with "Selected Financial Data"
and the Company's Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.

OVERVIEW

The Company's revenues are derived principally from providing
protein/peptide and DNA/RNA chemistries and related analytical services to
researchers in the biotechnology industry. The biotechnology industry has
experienced rapid growth in recent years based on the development of innovative
technologies. The development process requires sophisticated laboratory
analysis. Many participants in the industry do not have the facilities or
personnel necessary to perform this analysis, and contract it out to the Company
and other organizations.

Since commencing operations in 1992, the Company has experienced
significant growth in revenues as the biotechnology industry, and the Company's
reputation in the industry, has grown. The Company experiences quarterly
fluctuations in revenues which arise primarily from variations in contract
status with its large customers. In addition, the majority of other customer
projects are individual orders for specific projects ranging from $6,000 to
$200,000. Engagement for subsequent projects is highly dependent upon the
customer's satisfaction with the services previously provided, and upon factors
beyond the Company's control such as the timing of product development and
commercialization programs of the Company's customers. The Company is unable to
predict for more than a few months in advance the volume and dollar amount of
future projects in any given period. Therefore, the timing of significant
projects could have a significant impact on the financial results of any given
period. The combined impact of several large contracts from customers and the
unpredictable project fluctuations can result in very large fluctuations in
financial performance from quarter to quarter. The Company also anticipates
that significant capital and related expenditures expected to be made
out of proceeds of the Private Placement and the Offering will impact
financial performance in the third and fourth quarter of 1997.

The biotechnology industry is currently progressing through a consolidation
stage in its development. A number of large customers may desire to develop
captive biotechnology research departments, thereby reducing their dependence on
outsource research providers such as the Company. If this trend continues, the
Company expects that it may derive a large portion of its revenues from smaller
customers which do not have the expertise or facilities to perform the
analytical services provided by the Company.

The Company believes that its growth initiatives to increase its customer
base discussed herein will reduce the significance of sales fluctuations. See
"Business -- Growth Strategy." In addition, the Company has initiated several
steps to mitigate the effects of these fluctuations where possible. The Company
has formalized team-based, project management programs to increase efficiency in
laboratory operations, and has developed and implemented a customized database
for project tracking. The Company has also instituted cost containment measures
where possible without negatively impacting project completion. These measures
include more efficient labor scheduling, the use of temporary employees to
decrease overhead costs and negotiating with suppliers to decrease supply costs.

The Company also derives revenues from government grants which fund the
Company's research on its proprietary technologies. Unlike its analytical
research services business, in which the Company provides services to customers
on a contract basis and has no ownership or other interest in any intellectual
properties resulting from the research, in its proprietary research business the
Company attempts to develop products based on intellectual property rights which
the Company owns or licenses from third parties. This research has been financed
almost entirely through government grants, although the Company has also used a
small portion of its retained earnings to finance this business. All government
grants are expense reimbursement grants which provide for reimbursement of the
Company's direct costs incurred in a research project, plus indirect costs
stated as a percentage of direct costs. The Company generally receives grant
payments semi-monthly, with the amount of each payment being determined by the
amount of the costs incurred in the immediately preceding two-week period. In
the case of one grant under which the Company serves as a subcontractor, the
Company is paid quarterly on the basis of direct and indirect costs incurred
during the immediately preceding quarter. See "Business -- Proprietary Research
and Research Grants." The Company's proprietary research business uses the same
personnel, equipment and facilities as its service business.

<PAGE>
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1996

RESULTS OF OPERATIONS

REVENUES

Gross revenue increased $620,624, or 168.0%, from $369,301 in 1995 to
$989,925 in 1996. This increase in revenue was attributable to an increase in
new customer accounts, which contributed $453,502, or 73%, of the increase, and
to larger orders with existing customers, which contributed $167,122, or 27%, of
the increase, for all types of services provided by the Company in 1996, except
for peptide synthesis which experienced a nominal decrease of $6,380, or 1.7% of
total 1995 revenue. See "Business -- Services." This decrease was more than
offset by an increase in revenues from DNA sequencing services in the amount of
$109,298, or 254.4%, from $42,958 in 1995 to $152,256 in 1996. Revenue earned
from governmental grants also increased approximately threefold from $109,820 in
1995 to $304,987 (30.8% of total revenue) in 1996. All of the aforementioned
grant revenue was used to fund research on the Company's proprietary
technologies. The beneficial increase in revenue for 1996 was achieved with
minimal advertising and marketing effort.

Management believes that increases in revenues are attributable to the
Company's enhanced reputation in the industry and to more effective advertising
activities. These activities included the introduction of a tiered pricing
structure with services billed at lower rates and initial price concessions made
as a component of the Company's aggressive entry into the government and
academic sectors. Quarterly fluctuations in gross revenues during 1995 and 1996
were primarily a result of substantial automated sequencing services performed
for the initial contract with a single customer. Revenues from this contract
were recognized during the second and third quarters of 1995 and the first
quarter of 1996. Operations for an additional contract were substantially
completed during the first quarter of 1997, significantly increasing revenues
for that quarter as compared to any prior quarters. The customer has extended
this contract for a period of one year commencing in the fourth quarter of 1997.
The Company believes that revenues to be derived from this contract during the
extended term will be commensurate with the revenues historically derived from
this contract.

EXPENSES

Cost of services consists primarily of labor and laboratory supplies. Cost
of services increased 197.3% from $79,948 to $237,726 for the years ended
December 31, 1995 and 1996, respectively. This increase was consistent with the
increased growth experienced in revenue. Cost of services as a percentage of
revenue was 21.6% and 24.0% in 1995 and 1996, respectively. Cost of services is
subject to fluctuation and can cause results of operations to fluctuate from
quarter to quarter, particularly if the Company purchases supplies but does not
record the revenue from the performance of services until a subsequent quarter.

Sales, general and administrative expenses consist primarily of
compensation and related costs, depreciation and amortization, professional fees
and advertising. Sales, general and administrative expenses increased from
$220,891 to $323,820, or 46.6%, in 1995 and 1996, respectively. Sales, general
and administrative expenses as a percentage of revenue were 59.8% and 32.7% in
1995 and 1996, respectively. The decrease in the percentage relationship of
sales, general and administrative expenses to revenue is primarily attributable
to cost containment measures and economies of scale realized with the growth in
revenues.

Research and development costs in 1995 were primarily related to developing
and improving protocols for the automated sequencing group. Research and
development costs in 1996 were related to the development of new and expanded
services. Research and development costs were $69,861 and $308,484, or 18.9% and
31.2% of revenue, in 1995 and 1996, respectively. The increase of $238,623 in
1996 research and development costs represented an increase of 341.6% over the
amount reported for 1995. Most of these costs, however, were funded by grant
awards from government sources. Research and development expenses are likely to
continue to increase as the Company's expansion efforts continue. The Company
may need increased capital in order to expand its research and development
efforts. The Company intends to apply for more grants, and is eligible to
compete for additional categories of grants.

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SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997

RESULTS OF OPERATIONS

REVENUES

Gross revenues increased 147.3% from $428,302 to $1,059,212 for the six
month periods ended June 30, 1996 and 1997, respectively. This increase in
revenue was attributable to an increase in new customer accounts for both the
automated sequencing services and cell culture and protein purification services
provided by the Company. Management believes that the increase in automated
sequencing revenue is attributable to increased reputation in the
industry and advertising activities while the increase in the cell culture and
protein purification services is due to increased advertising as well as
increased management involvement in promotional activities.

EXPENSES

Cost of services increased 252.7% from $84,003 to $296,272 for the six
months ended June 30, 1996 and 1997, respectively. Increases in personnel,
supply usage and equipment costs as a result of the increase in services
rendered comprised the increase in operating costs. Cost of services as a
percentage of revenue was 19.6% and 28.0% for the six month periods ending June
30, 1996 and 1997, respectively.

Sales, general and administrative expenses increased from $129,415 to
$255,798, or 97.7%, for the six months ended June 30, 1996 and 1997,
respectively. Sales, general and administrative expenses as a percentage of
revenue were 30.2% and 24.1% for the six months ended June 30, 1996 and 1997,
respectively. The decrease in the percentage relationship of sales general and
administrative expenses to revenue is primarily attributable to cost containment
measures and economies of scale realized with the growth in revenues.

Research and development costs for the six months ended June 30, 1997 were
primarily related to developing and improving protocols for the automated
sequencing efforts. Research and development costs for this period were related
to the receipts of new grants and contracts. Research and development costs were
$88,642 and $213,535, or 20.7% and 20.2% of revenue, for the six months ended
June 30, 1996 and 1997, respectively. The increase of $124,893 in research and
development costs for the six months ended June 30, 1997 represented an increase
of 140.9% over the amount reported for the same period a year earlier. Research
and development expenses are likely to continue to increase as the Company's
expansion efforts continue. The Company may need additional capital in order to
expand its research and development efforts.

LIQUIDITY AND CAPITAL RESOURCES

The Company has experienced significant fluctuating demands on its working
capital due to actual and anticipated growth in all current services. Operating
cash flow provided was $57,850 and $409,136 for 1995 and 1996,
respectively, and $116,160 and $218,296 for the six months ended June 30,
1996 and 1997, respectively. Net working capital (deficit) at December 31, 1995
and 1996 was ($34) and $91,637, respectively, and ($261,014) at June 30, 1997.
Capital expenditures were $961 and $194,798 in 1995 and 1996, respectively. The
Company's liquidity was increased substantially during the fourth quarter of
1996 by the receipt of a research contract and the related cash receipt in the
amount of $200,000 from a significant customer. Additionally, the Company's
liquidity was increased during the second quarter of 1996 by the expansion of
its revolving credit line to purchase a DNA sequencer for $131,116. In August
1996, the revolving credit line converted to a term note that had an outstanding
balance of $200,800 upon conversion. This term note provides for equal monthly
payments of principal and interest through October 2001. The Company received
$30,000 in July 1996 pursuant to an Enterprise Zone incentive loan with the City
of Richmond. During 1996, the Company made principal payments on its existing
debt of $33,378. The Company also retired its capital lease obligation in the
amount of $63,860. The Company's liquidity was increased substantially during
the first quarter of 1997 from the proceeds of a term loan from a financial

<PAGE>
institution in the amount of $102,800. The Company also financed the purchase of
vehicle under a term loan in the amount of $23,682.

In June 1997, the Company completed the Private Placement of the Notes. The
net proceeds of the Private Placement were $2,629,269.

Prior to the completion of the Private Placement, the Company, as an S
Corporation, made distributions to its shareholders which totaled an aggregate
of $79,533 in 1996 and $96,851 for the first six months of 1997. In June 1997,
the Company altered its taxable status to that of a corporation governed by
Subchapter C of the Internal Revenue Code of 1986, as amended (the "Code").

During the twelve-month period following completion of the Offering, the
Company expects to incur approximately $3,100,000 of capital expenditures,
consisting of approximately $2,600,000 of expenditures on laboratory equipment
and related computer equipment and software, and approximately $500,000 of
expenditures on fitting up new laboratory and office space. These expenditures
will enable the Company to expand its facilities in order to pursue its growth
strategy. See "Business -- Growth Strategy." These capital expenditures will be
funded out of the proceeds of the Offering.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123, Accounting for Stock-Based Compensation Arrangements.
FASB No. 123 permits a company to choose either a new fair value-based method of
accounting for stock-based compensation, or retain the current intrinsic
value-based method of accounting for stock-based compensation provided for in
Accounting Principles Board Opinion No. 25, Accounting for Stock-Based
Compensation. FASB Statement No. 123 requires pro forma disclosures of net
income and earnings per share computed as if the fair value-based method had
been applied in financial statements of companies that continue to follow the
intrinsic value-based method of accounting. APB No. 25 would generally only
require the recognition of compensation expense for the difference, if any,
between the fair value of the underlying Common Stock and the grant price of the
option of the date of the grant. As the Company intends to utilize stock options
in the future, these accounting pronouncements could have a material effect on
its financial condition and on results of operation in the future. The Company
is currently considering the potential effect of these pronouncements, but is
unable, at the current time, to determine the effect on its financial condition
and results of operation with any degree of certainty.

For a discussion of the Company's plan of operation, see "Use of Proceeds."

BUSINESS

OVERVIEW

The Company was founded in 1992 by four experienced research scientists to
provide sophisticated research and development support services on a contract
basis to the biotechnology industry. The Company's customers consist of private
companies, academic institutions and government agencies all of which use
biological processes to develop products for health care, agricultural and other
purposes. Much of this revenue is derived from innovative products based on
research into the fundamental biological processes that support life. These
fundamental processes depend on the interrelationships of basic components of
cells in living organisms, including enzymes, proteins, peptides, DNA and RNA,
an understanding of which enables scientists to develop new compounds having
commercial applications.

The Company provides these services to customers on a contract basis and
derives its revenues from these services, and not from sales of commercial
products resulting from the research. This arrangement distinguishes the Company
from many other biotechnology companies in that the Company's revenues are not
directly dependent on successfully commercializing a new biotechnology product.
The Company has developed a strong reputation as a leading provider of
biotechnology research and development analytical services which positions the
Company for growth with the availability of additional capital. The Company
intends to focus its expansion efforts on the maintenance and expansion of long
term relationships with customers in the biotechnology industry as well as
establishing new customer relationships. The Company will seek to identify
trends that impact its customers and develop new products and services to meet
the changing needs of its clients.

In addition to its analytical services, the Company is developing several
of its own proprietary new technologies in the areas of anti-coagulation and
genomic sequence analysis, and has a patent application pending in the
anti-coagulation area. The development of these technologies has been funded by
grants from government agencies, and the Company anticipates

<PAGE>
that this portion of its operations will continue to be funded in this manner.
These technologies are in the early stage of development and should be
considered highly speculative at this time.

GROWTH STRATEGY

The Company's strategy for growth consists of the following elements:

o Expansion of Capacity in its Existing Service Business. The
Company believes there is significant demand for additional
services of the type the Company currently offers. The Company's
capacity to service this demand has been constrained by the
limitations of its facilities and need to make significant capital
expenditures on equipment. By securing a significantly larger
laboratory facility and additional research equipment, the Company
will have the capacity to generate substantially greater revenues
from its core services and to improve profit margins through more
efficient operations.

o Expansion of Marketing Capabilities. The Company believes that it
can increase revenues and profits through greater presence in the
biotechnology industry. The Company's marketing to date has
consisted largely of customer referrals, limited advertisements in
trade publications and participation at trade shows. The Company
intends to significantly expand its marketing operations to
attract new customers and to receive more business from existing
customers.

o Expansion into New Service Businesses. By enhancing its facilities
and expertise, the Company believes it will be positioned to
expand its service offerings to existing customers and to attract
new customers. For example, the Company does not currently provide
services to companies seeking FDA approval for pharmaceutical
products because the Company's laboratory does not meet FDA
requirements, and it does not offer services in various genetic
and forensic testing areas because it does not have personnel who
possess the necessary expertise. The Company intends to address
these needs, which will open up new markets. The Company believes
there is a substantial opportunity to offer analytical services
related to the human genome project, and its genetic and forensic
applications. See " -- The Biotechnology Industry."

THE BIOTECHNOLOGY INDUSTRY

The biotechnology industry consists of a broad range of companies that use
biological processes to develop products for the human health care, agricultural
productivity, food safety and nutrition, environmental improvement and animal
health markets. The industry began to develop in the early 1970s, with much of
its activity focusing on fundamental research and initial development of new
products based on that research. The development cycle for products derived from
biotechnology research and development has typically been quite long, with many
new technologies taking ten or more years to yield products with significant
commercial potential.

The promise of the research and development efforts of the previous decades
is now being realized, and the result is a stream of new products ready for
commercialization and renewed interest in further basic research into new
technologies and extensions of existing technologies. Much of the success of the
biotechnology industry can be traced to advancements in "foundation"
technologies which define the basic structures and relationships of biologically
relevant compounds. Elucidation of these structures and relationships has led to
the development of commercial scale quantities of pure, custom designed
macromolecules.

There are two stages in the development of foundation technologies. In the
first stage, the building block components of a macromolecule (amino acids,
nucleotides, etc.) are determined and defined. In the second stage, these
components are altered in a precise fashion to meet the user's needs. Once
analyzed, sequences of peptides and proteins and of RNA and DNA are used to
create or enhance a wide range of products and applications, including
pharmaceuticals, genetically altered freeze-and pest-resistant crops, DNA
"fingerprints" of criminals, paternity testing, infectious disease diagnosis and
prognosis, genetic disease detection, identification of cancer-prone individuals
and other applications.

Due to the relatively short history of the biotechnology industry and the
complexity of most macromolecules, researchers have only recently begun to
unravel the sequences of DNA, RNA, peptides, and proteins, and research and
development expenditures in this area are expected to grow rapidly in the
future. For example, in the early 1990's the federal government budgeted $15
billion on the human genome project, a multi-government agency sponsored project
to sequence the entire human gene sequence (comprised of approximately three
billion individual nucleotides), and the completion of this project is estimated
to take another 10 years and $15 billion. The recent success in cloning a sheep
from maternal cells has generated significant new interest in cloning. The
ability to use DNA sequence analysis to precisely categorize the lineage of
domestic

<PAGE>
animals, or to diagnose genetic pathologies, or to create new
biopharmaceuticals, has the potential to become a major industry of the 21st
century. The Company believes that the expansion of existing biotechnology
industries and the development of new ones will lead to an increased demand for
sophisticated analytical research services. The Company believes that it will
become well positioned to participate in these new service areas.

ANALYTICAL SUPPORT SERVICES

In order to analyze and experiment with cell components and macromolecules,
researchers need to analyze, sequence, purify, synthesize, and characterize
those components. The cost of creating an in-house laboratory with the equipment
and personnel to perform all these functions is well in excess of $3 million.
The Company's business is dependent upon the use of sophisticated, analytical
equipment. The Company intends to use a portion of the proceeds of the Offering
to purchase additional equipment necessary to provide a wider range of services.
The biotechnology industry is rapidly developing and the need for more
sophisticated equipment will increase significantly as the technology develops.
In light of increasing cost pressures, many companies, universities, and
research institutions seek to avoid incurring the costs to equip and staff such
a laboratory. Instead, they contract with biotechnology support companies for
many of these analytical services. They are increasingly outsourcing routine
procedures to maximize the innovative aspects of their internal efforts. Many
players in the biotechnology sector have developed according to the "virtual
company" model, which supports outsourcing of routine research and development
efforts. In response to this demand, a number of foundation biotechnology
support companies have emerged to supply the emerging companies in this growing
field.

The Company was founded in September 1992 by four internationally
recognized investigators with expertise in the general areas of protein/peptide
and nucleic acid chemistries to provide a high degree of expertise and a wide
range of analytical services to the biotechnology industry. The Company is a
fee-for-service contractor and typically takes no ownership position in the
intellectual property rights of the services it performs under contract. A key
to the growth of the Company has been to integrate a number of foundation
technologies and provide a broad range of capabilities to customers who
otherwise must go to several different sources for their needs. Since commencing
operations, the Company has become noted for providing a wide range of services
relating to design, synthesis, purification, and analysis of peptides, proteins,
and oligonucleotides.

Providing a wide range of services is an important element of the Company's
competitive strategy. Virtually all of its closest competitors provide either
DNA level technologies or protein/peptide level technologies. There are few
major competitors which offer integrated DNA/RNA and protein/peptide
technologies and none that offer these technologies combined with sophisticated
biophysical analytical techniques, such as RNA synthesis, DNA synthesis,
calorimetry, spectroscopy, and mass spectral analysis. Thus, the Company can
provide complete research programs to its customers. "One stop biotechnology
shopping" has proved attractive in securing long-term contracts with customers
ranging from major players in the pharmaceutical industry to major government
sponsors of research, such as the National Institutes of Health. The Company
believes it has earned a reputation as a leading provider of high quality DNA
sequencing -- a reputation which has enabled it to obtain key contracts with
major pharmaceutical and biotechnology companies throughout the world.

SERVICES

The following are the major categories of services the Company provides.

OLIGONUCLEOTIDE SYNTHESIS. Nucleotides are the building blocks of DNA and
RNA. Investigators synthesize oligonucleotides in order to build new, or clone
existing, DNA strands. Some applications of synthesis include gene therapies,
recombinant DNA technologies, pharmaceuticals, infectious disease detection and
prognosis, hereditary disease detection and prognosis and cancer detection and
predilection, insecticides, test vaccines and anti-viral agents. The Company
provides both routine syntheses, for which the average sale is $150, and custom
synthesis chemistries for design of special nucleotide derivatives. Very few
commercial companies offer custom RNA synthesis or synthesis of RNA/DNA hybrid
molecules, and the Company has been successful in supplying these specialized
products to academic and commercial customers. An average order for an RNA
oligonucleotide is $1,000. In addition, the Company has recently negotiated a
broad license for the synthesis and distribution of a new type of highly
specific, high performance oligonucleotide referred to as "PNA's" or Protein
Nucleic Acids.

PROTEIN/PEPTIDE SYNTHESIS. Assembly of amino acids into chains creates
synthetic peptides which can act as effective substitutes for their
physiological counterparts. For example, synthetic peptide hormones are
molecules carried through the blood that can affect cell functions. There are
many types of peptides including therapeutics, anti-diuretics, anti-coagulants,
and anti-hypertensives. Still other peptides are used as specific substrates or
inhibitors of enzyme function. Peptides are used

<PAGE>
primarily for research, clinical therapeutics, and for counteracting the
biological activities of other peptides. The Company now has the ability to
produce 36 peptides simultaneously, or to produce libraries of peptides
containing literally millions of different peptide sequences. New equipment
expected to be purchased with the proceeds of the Offering will enable the
Company to produce an additional 96 peptides simultaneously. An average order is
about $1,500 per peptide.

DNA SEQUENCING. Sequencing is essentially the reverse process of synthesis.
An investigator who wants to know the precise order of constituent nucleotides
of a DNA or RNA strand would use sequencing to perform that analysis. Examples
of uses of DNA sequencing include gene therapy, cloning, identity testing,
mutation analysis, and disease and cancer detection. A customer often will
require development of novel sequencing protocols and analysis of the data
resulting from sequencing, services which the Company has the expertise to
provide. In a typical experiment, a customer will require 10-20 sequencing
reactions which are priced at $60 to $100 per reaction. However, a number of
customers require thousands of sequencing reactions, for which the Company
offers aggressive discounts in pricing.

PEPTIDE/PROTEIN SEQUENCING. DNA arranges amino acids into the proteins and
enzymes of the body, such as hemoglobin or gamma globulin. Analysis of the order
of amino acids in proteins and enzymes is an important analytical tool. For
example, to clone a protein, a researcher must know the precise sequence of
amino acids that make up a protein, and in creating DNA, a researcher must
verify the sequence of amino acids in the new protein resulting from the DNA.
The Company provides these analytical services, with a typical sequence
experiment costing $800, although the Company has attracted customers who send
the Company hundreds of peptides and proteins for sequence analysis.

PEPTIDE/PROTEIN COMPOSITIONAL ANALYSIS. Analysis of the amino acids that
compose a protein or peptide is used to verify purity of synthesized peptides
and to determine the make-up of newly discovered proteins or enzymes. Each
sample submitted for analysis is $50 and usually two or three analyses are
required for a complete compositional determination.

OTHER TECHNOLOGIES. The Company offers a number of even more complex and
sophisticated services that are based on the foundation technologies and
interdigitate the current and ongoing biotechnology revolution stimulated by the
development of recombinant DNA gene cloning technology. Thus, the marriage in
the Company of the gene cloning and recombinant DNA technologies with the
protein, DNA, and macromolecular analysis foundation technologies provides a
strong strategic capability for services for prospective customers. The breadth
and depth of the Company's expertise, therefore, provides a wide range of
potential approaches to research and developmental contracts.

OPERATIONS

Requests for quotes from potential customers are received via phone,
e-mail, from the Company's World Wide Web page, or by hard copy and directed to
the Company's business coordinator or laboratory manager. All inquiries are
answered by direct mail of the Company brochure and price lists, with follow up
phone calls, where appropriate. Price quotes for small projects or routine
analytical procedures are generated by scientists who possess the expertise
necessary to respond appropriately. Quotes for more complex projects are
developed collaboratively by the Company personnel having the requisite
expertise. Most quotations are sent back to the inquiring scientist within one
working day.

Incoming orders are logged onto the Company's project management system,
assigned a work order number, and delivered to the appropriate scientist
designated to oversee and coordinate all aspects of the particular project. The
work to be done is scheduled on the appropriate instruments, and all necessary
reagents or other supplies needed to complete the project are ordered as needed.
Every customer is required to sign a service agreement prior to the Company
initiating any requested work.

As a prolonged project is completed, progress reports are usually sent to
the customer detailing the results found to date, and the conclusions to be
drawn. If the project is relatively straight-forward, such as an amino acid
analysis, spectroscopy, or DNA sequence analysis, the results are faxed or
e-mailed to the customer prior to sending the customer the hard copy of his
results. If the project entails a synthesis of a peptide or oligonucleotide, for
example, the product is sent to the customer by express mail service. Every
product is accompanied by a data sheet, which details the physiochemical
properties of the compound, including the results of all analytical tests
performed which support the claimed purity and composition. The customer is
invoiced upon completion of the work, or at particular points in the work
program. The customer pays for the analytical services provided in accordance
with the Company's standard fee structure and retains all rights to any
developments resulting from the analysis.

All data generated at the Company are archived for the customer. Where
appropriate, the data are archived on selected storage media, such as back up
tapes or computer disks. A file is maintained for every customer, and these
files are also archived. The Company employs appropriate security measures to
ensure the confidentiality of customer information.

<PAGE>
The Company operates under strict Standard Operating Protocols ("SOPs")
which detail the particular technologies used to complete the work in progress.
SOPs are made available to the customer upon request. In addition, the Company's
technical team follows standard operating procedures which help to produce
consistent, high quality results.

CUSTOMERS

The Company currently provides similar products and support to more than
300 individual customers in university and/or government laboratories, and to
customers in private companies. The composition of the Company's customer base
in terms of numbers of customers is approximately 60% private industry, 20%
government agencies and 20% academic institutions. In 1996, one private industry
customer accounted for approximately 20% of the Company's revenues. The Company
has entered into a research agreement with this customer which will expire in
December 1997, and has entered into two additional research agreements with this
customer which are expected to run from January through December 1998. The
Company regularly bills the customer against a standing purchase order. No other
customer accounted for more than 5% of the Company's revenues in 1996.

COMPETITION

The Company faces several types of competition. The Company believes there
are between 12 and 15 companies concentrating on peptide synthesis and about 20
other companies offering DNA related services in the United States. Very few
companies offer both DNA/RNA and protein/peptide analysis. Other competition
comes from divisions of larger research oriented companies or university core
facilities. The principal competitive factors are pricing, expertise, and range
of services offered, and that it competes effectively on all of these factors.
The Company believes that it is very competitive in protein sequence analysis
and DNA sequence analysis and competitive in all other services, with the
exception of DNA synthesis, in which it is currently less competitive. See "Risk
Factors -- Competition."

MARKETING

The Company has expanded its customer base primarily through word-of-mouth
referrals and attendance at a limited number of trade shows, seminars and
meetings. Because of its ability to offer a wide range of biotechnology research
services, the Company enjoys a favorable reputation among its customers, and
many new customers come to the Company by word-of-mouth recommendation. The
Company has constructed its own World Wide Web Home Page (www.cbi-biotech.com)
and is listed with several biotechnical and biomedical oriented sites on the
World Wide Web. See "Risk Factors -- Lack of Sales and Marketing Capabilities."

FACILITIES

The Company currently occupies 10,000 square feet of laboratory and office
space in two adjacent locations, each having 5,000 square feet of space. The
lease for one location continues through the year 2000 and is subject to
cancellation by the Company upon nine months' notice. The lease for the other
location continues through May 31, 1998 and is subject to cancellation by the
Company upon three months' notice. The Company sponsors a research program at
the Medical College of Virginia ("MCV") campus of Virginia Commonwealth
University ("VCU") which allows its employees access to certain laboratories and
facilities of MCV. As part of its growth strategy, the Company anticipates the
need for substantial additional space and is investigating a 18,000 square foot
facility which, together with options to lease at least 10,000 square feet of
adjoining space, would accommodate the Company's needs for the foreseeable
future.

RELATIONSHIP WITH VIRGINIA COMMONWEALTH UNIVERSITY

Three of the Company's founders were faculty members at VCU, and the
Company benefited from certain agreements with VCU in the early stage of its
development. See "Management -- Relationship with VCU."

PROPRIETARY RESEARCH AND RESEARCH GRANTS

In addition to customer billings, the Company has attracted federal
contracts and grants which are used to fund the Company's development of its own
proprietary technologies. See " -- Intellectual Property." The Company has
completed three $25,000 contracts from the National Institutes of Health
("NIH"), has completed three different Phase I Small Business Technology
Transfer Research ("SBTTR") grants from NIH ($100,000 each), and has completed
the first year of a Phase II SBTTR grant from NIH ($235,000). The Company
currently is in the second year of the Phase II SBTTR grant from NIH ($265,000),
which will expire on August 31, 1998, and has a Small Business Innovative
Research Award ("SBIR") from the United States Department of Agriculture
($55,000), which will expire on May 31, 1998. Revenues from federally funded
contracts are recognized on a cost reimbursement basis. See "Risk Factors --
Dependence on Government Grants" and "Management's Discussion and Analysis of
Financial Condition -- Overview."

<PAGE>
INTELLECTUAL PROPERTY

The Company's principal intellectual property rights consist of a patent
application relating to an anti-coagulation technology it is developing. The
Company's anti-coagulation technology is an experimental new compound that
counteracts the effects of heparin, which is used to prevent blood clotting
during open heart surgery and other surgical procedures involving significant
intervention into the circulatory system. The only drug currently available to
counteract heparin exhibits toxicity and other adverse side effects, so its use
is primarily restricted to open heart surgery and emergencies. However, the
inability to counteract the effects of heparin can result in bleeding
complications. Initial tests indicate that compounds the Company has developed
can neutralize heparin's anticoagulant activity without displaying the toxicity
associated with the existing drug. This anti-coagulation technology, and all
other proprietary technologies under development at the Company, are at a very
early stage of development. To yield commercial products, these technologies
will require extensive additional research and development, testing and
government approval. The Company does not anticipate undertaking this work
itself, but instead will license the technologies to third parties which would
pursue commercialization and pay the Company license fees and royalties based on
sales of products, if any. As a result, there can be no assurance that
commercial products will result from these technologies, all of which should be
considered highly speculative.

The Company anticipates that its ability to secure and protect patents and
other intellectual property rights will be increasingly important to the
business of the Company in the event its proprietary research programs yield
technologies which can be commercialized. There can be no assurance that the
Company will be successful in securing and protecting intellectual property
rights, or that its activities will not infringe on the intellectual property
rights of others.

The Company takes appropriate steps to protect its intellectual property
rights and those of its customers. The Company's practice is to require its
employees and consultants to execute non-disclosure and proprietary rights
agreements upon commencement of employment or consulting arrangements with the
Company. These agreements acknowledge the Company's exclusive ownership of all
intellectual property developed by the individual during the course of his work
with the Company and require that all proprietary information disclosed to the
individual by the Company or its customers remain confidential.

GOVERNMENT REGULATION

The Company does not require government regulatory approvals to provide its
current services. Numerous federal, state and local agencies, such as
environmental, working condition and other similar regulators, have jurisdiction
to take actions that could have a material adverse effect upon the Company's
ability to do business. The Company believes that it is in general compliance
with existing federal, state and local laws and regulations and does not
anticipate that continuing compliance will have any material effect upon the
capital expenditures, earnings or competitive position of the Company.

The Company anticipates that its pursuit of its growth strategy will
subject the Company to a heightened level of government regulation of its
operations. For example, in pursuing opportunities to provide analytical
services to customers seeking the approval of the United States Food and Drug
Administration (the "FDA") of products, the Company's operations will become
subject to compliance with standards established by the FDA, including
inspections by the FDA and other federal, state and local agencies regarding
work performed by the Company on specific FDA submission projects. If
significant violations are discovered during an inspection, the Company may be
restricted from undertaking additional work on FDA submission projects until the
violations are remedied. The Company will also require a new license from the
Nuclear Regulatory Commission ("NRC") for the operation of a new laboratory
facility. The Company estimates that the time period for obtaining the NRC
license should not exceed three months. See "Risk Factors -- Government
Regulation."

The commercialization of the Company's proprietary technologies would also
be subject to extensive government regulation and approval requirements,
including the need for pre-clinical laboratory and animal tests and human
clinical trials for FDA approval of human pharmaceutical products. The Company
does not have, and does not anticipate developing, the facilities and expertise
necessary to obtain FDA approval for or to manufacture any pharmaceutical
products that may result from its technologies. Instead, the Company would
license these technologies to third parties having the necessary facilities and
expertise, which would assume responsibility for and control of regulatory
matters.

EMPLOYEES

The Company currently employs 30 full-time and 3 part-time employees. The
Company believes its relations with its employees to be very good. See "Risk
Factors -- Dependence on and Need to Hire Personnel" and " -- Lack of Sales and
Marketing Capabilities."

LEGAL PROCEEDINGS

The Company is not involved in any legal proceedings.

<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages, as of
October 13, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------------------------------- --- ----------------------------------------
<S> <C>
Richard J. Freer, Ph.D..................................................... 55 Chairman of the Board, Director and
Founder
Robert B. Harris, Ph.D..................................................... 45 President, Director and Founder
Gregory A. Buck, Ph.D...................................................... 46 Senior Vice-President, Chief Scientific
Officer, Secretary, Director and
Founder
Thomas R. Reynolds......................................................... 35 Senior Vice President, Director and
Founder
Chester M. Trzaski......................................................... 51 Chief Operating Officer
Charles A. Mills, III...................................................... 50 Director
Peter C. Einselen.......................................................... 58 Director
</TABLE>

The following is a brief summary of the background of each executive
officer and director of the Company:

RICHARD J. FREER, PH.D., Chairman of the Board, Director and Founder. Since
founding the Company in 1992, Dr. Freer has served as the Chairman of the Board
and a Director of the Company. From 1977 until 1997, Dr. Freer was employed by
VCU, first as an Associate Professor and then a Professor, in the Department of
Pharmacology and Toxicology. In addition, from 1988-1995, Dr. Freer was first
Director and then Chair of the Biomedical Engineering Program. Dr. Freer
received a bachelor's degree in Biology from Marist College and a doctorate in
Pharmacology from Columbia University.

ROBERT B. HARRIS, PH.D., President, Director and Founder. Since founding
the Company in 1992, Dr. Harris has served as the President and a Director of
the Company. Until 1997, Dr. Harris was employed in the Department of
Biochemistry and Molecular Biophysics at VCU, first as an Assistant, then
Associate and finally a full Professor. Dr. Harris received a joint bachelor's
degree in Chemistry and Biology from the University of Rochester, and a master's
degree and a doctorate degree in Biochemistry/Biophysical Chemistry from New
York University.

GREGORY A. BUCK, PH.D., Senior Vice President, Chief Scientific Officer,
Secretary, Director and Founder. Since founding the Company in 1992, Dr. Buck
has served as Senior Vice President, Chief Scientific Officer, Secretary and a
Director of the Company. In addition, from 1996 until 1997, Dr. Buck was
employed as a Professor in the Department of Microbiology and Immunology at VCU.
From 1991 through 1996, Dr. Buck served as an Associate Professor in the
Department of Microbiology and Immunology at VCU. Dr. Buck received a bachelor's
degree in Genetics from the University of Wisconsin-Madison and a doctorate
degree in Microbiology and Immunology from the University of Washington.

THOMAS R. REYNOLDS, Senior Vice President, Director and Founder. Since
founding the Company in 1992, Mr. Reynolds has served as a Senior Vice President
and a Director of the Company. From 1987 until 1997, Mr. Reynolds served as the
Manager of the Nucleic Acids Core Laboratory at The Massey Cancer Center in the
Department of Microbiology and Immunology at VCU. From 1984 through 1986, Mr.
Reynolds served as a research assistant in Genetics at Carnegie Mellon
University. Mr. Reynolds received a bachelor's degree in Biology from the
Pennsylvania State University.

CHESTER M. TRZASKI, Chief Operating Officer. Mr. Trzaski has been employed
by the Company as its Chief Operating Officer since May 1996. From 1993 to 1995,
Mr. Trzaski was the Chief Operating Officer and Executive Vice President of
Corning National Packaging, a clinical packaging company. From 1990 to 1993, Mr.
Trzaski served as the Director of Materials Management for Whitby
Pharmaceuticals, a pharmaceutical marketing company. Mr. Trzaski received a
bachelor's degree in Microbiology from Alliance College.

CHARLES A. MILLS, III, Director. Mr. Mills became a director of the Company
in June 1997. Mr. Mills has been employed by the Underwriter as a Senior Vice
President since 1986. He served as Chairman of the Board of the Underwriter from
1990 to 1992 and from 1994 to the present. He has served as a director of
Humphrey Hospitality Trust, Inc. since 1994 and as a Director of Virginia Gas
Company since 1996.

PETER C. EINSELEN, Director. Mr. Einselen became a director of the Company
in June, 1997. Mr. Einselen has served as Senior Vice President of the
Underwriter since 1990. From 1983 to 1990, Mr. Einselen was employed by Scott &
Stringfellow, Incorporated, Richmond, Virginia. He has been a member of the
Board of Directors of American Industrial Loan Association since 1992 and has
also been a director of Virginia Gas Company since 1996.

<PAGE>
The Company anticipates appointing one additional non-employee Director to
the Board.

RELATIONSHIP WITH VCU

Drs. Freer, Harris, and Mr. Reynolds have terminated their employment with
VCU and are now full-time employees of the Company. Dr. Buck has been granted a
one-year leave of absence from VCU and will devote 100% of his efforts to the
Company's business.

BOARD OF DIRECTORS

The Articles and the Bylaws provide that the Company's Board of Directors
shall have between five and nine members and shall be divided into three
classes. The members of each class of directors will serve for staggered
three-year terms. Following the completion of the Offering, Messrs. Reynolds and
Mills will be classified as Class I directors to serve until the annual meeting
of the Company's shareholders (the "Annual Meeting") to be held in 1998; Dr.
Harris and Mr. Einselen will be classified as Class II directors to serve until
the 1999 Annual Meeting; and Drs. Freer and Buck will be classified as Class III
directors to serve until the 2000 Annual Meeting. Each successor to a director
whose term expires at an Annual Meeting will be elected to serve until the third
Annual Meeting after his or her election and until his or her successor has been
duly elected and qualified. Any director chosen to fill a vacancy on the Board
shall hold office until the next election of the class for which he or she shall
have been chosen, and until his or her successor has been duly elected and
qualified. Directors may be removed only for cause.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company's Audit Committee and Compensation Committee are each composed
of Mr. Mills and Mr. Einselen, both of whom are independent directors. The Audit
Committee recommends the annual appointment of auditors, with whom the Audit
Committee reviews the scope of audit and non-audit assignments and related fees,
accounting principles used by the Company in financial reporting, internal
auditing procedures and the adequacy of the internal control procedures of the
Company. The Compensation Committee will administer the Company's Incentive Plan
and make recommendations to the Board of Directors regarding compensation and
benefits for the executive officers. The Compensation Committee also has
oversight responsibilities for all broad-based compensation and benefit
programs, including the Incentive Plan.

DIRECTOR COMPENSATION

All directors receive a fee of $2,500 for each regularly scheduled
quarterly Board meeting attended (the "Director's Fee"). The Director's Fee
shall be adjusted upwards or downwards on an annual basis in an amount equal to
the percentage change in the market price of the Company's Common Stock as
compared to the market price of the Common Stock for the previous fiscal year.
For the first year of this calculation, the prior fiscal year's market price
will be $6.00 per share. In addition to the Director's Fee, all directors
receive reimbursement for travel and other related expenses incurred in
attending Board meetings and committee meetings.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

The following table set forth certain information regarding compensation
earned by Dr. Freer during the fiscal years ended December 31, 1996, December
31, 1995 and December 31, 1994. No executive officer of the Company, including
Dr. Freer, received compensation in excess of $100,000 during such fiscal years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
TABLE
------------------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------------------------- ---- ---------- --------- ------------
<S> <C>
Richard J. Freer, Ph.D....................... 1996 $8,729 -- $ 23,024(1)
Chairman of the Board 1995 -- -- --
1994 -- -- --
</TABLE>

- ---------------
(1) Represents distribution to pay income taxes incurred by Dr. Freer as a
result of the Company's status, as of December 31, 1996, as a corporation
taxed in accordance with Subchapter S of the Code.

INCENTIVE PLAN

The Company adopted the Incentive Plan on June 24, 1997. The Incentive Plan
provides for the granting to employees, officers, directors, consultants and
certain non-employees of the Company of options to purchase shares of Common
Stock.

<PAGE>

The maximum number of shares of Common Stock that may be issued pursuant to
options under the Incentive Plan is 410,000, subject to adjustment in the event
of a stock split, stock dividend or other change in the Common Stock or the
capital structure of the Company. Of these shares, 270,000 have been reserved
for incentive awards to be granted to Drs. Freer, Harris and Buck and Mr.
Reynolds. 140,000 shares are reserved for incentive awards to be granted to
other persons. Incentive awards may be in the form of stock options, restricted
stock, incentive stock or tax offset rights. The Incentive Plan is administered
by the Compensation Committee of the Board of Directors. Subject to the
provisions of the Incentive Plan, the Compensation Committee is authorized to
determine who may participate in the Incentive Plan, the number and type of
awards to each participant, the schedules on which each award will become
exercisable, and the terms, conditions, and limitations applicable to each
award. The Compensation Committee has the exclusive power to interpret the
Incentive Plan and to adopt such rules and regulations as it may deem necessary
or appropriate for the purposes of administering the plan. Subject to certain
limitations, the Board of Directors is authorized to amend, modify or terminate
the Incentive Plan to meet any changes in legal requirements or for any other
purpose permitted by law.

OPTIONS. Options granted under the Incentive Plan may be either "incentive
stock options" within the meaning of Section 422(a) of the Code, or
non-qualified options. Incentive stock options may be granted only to employees
of the Company (including directors who are employees), while non-qualified
options may be issued to non-employee directors, employees, consultants,
advisors and other independent contractors providing services to the Company.
The per share exercise price of the Common Stock subject to all options granted
pursuant to the Incentive Plan shall be determined by the Compensation Committee
at the time any option is granted. In the case of incentive stock options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the incentive stock option is granted. "Fair
market value" shall be determined by the Board, or by its designated committee,
in good faith and using any reasonable method. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option to him, 10%
or more of the total combined voting power of all classes of Common Stock (a
"10% Shareholder"), shall be eligible to receive any incentive stock options
under the Incentive Plan unless the option price is at least 110% of the fair
market value of the Common Stock subject to the option, determined on the date
of grant. Non-qualified options are not subject to this limitation.

No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment, other than by death or permanent, total disability,
the optionee will have three months after such termination to exercise the
option. Upon termination of employment of an optionee by reason of death or
permanent disability, an option remains exercisable for one year thereafter to
the extent it was exercisable on the date of such termination. No similar
limitation applies to non-qualified options.

Incentive stock options granted under the Incentive Plan cannot be
exercised more than 10 years from the date of grant, except that incentive stock
options issued to a 10% Shareholder are limited to five year terms. All options
granted under the Incentive Plan may provide for the payment of the exercise
price in cash, by cash equivalent acceptable to the Company, or by delivery to
the Company of shares of Common Stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of such methods of payment. Therefore, a participant may be
able to tender shares of Common Stock to purchase additional shares of Common
Stock and may, theoretically, exercise all of his or her stock options with no
additional investment other than his or her original shares. Any unexercised
options that expire or terminate become available once again for issuance.

RESTRICTED STOCK. Restricted stock issued pursuant to the Incentive Plan is
subject to the following general restrictions: (i) none of such shares may be
sold, transferred, pledged or otherwise encumbered or disposed of until the
restrictions on such shares have lapsed or been removed under the provisions of
the Incentive Plan, and (ii) if a holder of restricted stock ceases to be
employed by the Company, he will forfeit any shares of restricted stock on which
the restrictions have not lapsed or been otherwise removed.

The Compensation Committee will establish as to each share of restricted
stock issued under the Incentive Plan the terms and conditions upon which the
restriction on such shares shall lapse. Such terms and conditions may include,
without limitation, the lapsing of such restrictions at the end of a specified
period of time, as a result of the disability, death or retirement of the
participant. In addition, the Compensation Committee may at any time, in its
sole discretion, accelerate the time at which any or all restrictions will lapse
or remove any and all such restrictions.

INCENTIVE STOCK. The Compensation Committee may establish performance
programs with fixed goals and designate key employees as eligible to receive
incentive stock if the goals are achieved. Incentive stock will only be issued
in accordance with the program established by the Compensation Committee. More
than one performance program may be established by

<PAGE>

the Compensation Committee and they may operate concurrently or for varied
periods of time and a participant may participate in more than one program at
the same time. A participant who is eligible to receive incentive stock under a
performance program has no rights as a shareholder until such incentive stock is
received.

TAX OFFSET RIGHTS. The Compensation Committee may, in its discretion, award
tax offset rights in conjunction with any incentive award. Tax offset rights
entitle the participant to receive an amount of cash from the Company sufficient
to satisfy the income and payroll taxes legally required to be withheld upon
exercise of an option or tax offset right, upon grant of incentive stock, or
upon the lapse of restriction on restricted stock.

FEDERAL INCOME TAX CONSEQUENCES. A participant will not incur federal
income tax when he is granted an option, tax offset right, or, in most cases and
depending on the restrictions imposed, restricted stock. Upon receipt of
incentive stock, a participant will recognize compensation income, which is
subject to income tax withholding by the Company, equal to the fair market value
of the shares of incentive stock on the date of transfer to the participant.

Upon exercise of a nonstatutory stock option, a participant generally will
recognize compensation income, which is subject to income tax withholding by the
Company, equal to the difference between the fair market value of the Common
Stock on the date of the exercise and the option price. The Compensation
Committee has authority under the Incentive Plant to include provisions allowing
the participant to deliver Common Stock, or to elect to have withheld a portion
of the shares he would otherwise acquire upon exercise, to cover his tax
liabilities. The election will be effective only if approved by the Compensation
Committee and made in compliance with other requirements set forth in the
Incentive Plan. When an employee exercises an incentive stock option, he
generally will not recognize income, unless he is subject to the alternative
minimum tax.

If the terms of an option permit, a participant may deliver shares of
Common Stock instead of cash to acquire shares under an option, without having
to recognize taxable gain (except in some cases with respect to "statutory
option stock") on any appreciation in value of the shares delivered. However, if
an employee delivers shares of "statutory option stock" in satisfaction of all,
or any part, of the exercise price under an incentive stock option, and if the
applicable holding periods of the "statutory option stock" have not been met
(two years from grant and one year from exercise), he will be considered to have
made a taxable disposition of the "statutory option stock." "Statutory option
stock" is stock required upon the exercise of incentive stock options.

In general, a participant who receives shares of restricted stock will
include in his gross income as compensation an amount equal to the fair market
value of the shares of restricted stock at the time the restriction lapse or are
removed. Such amounts will be included in income in the tax year in which such
event occurs. The income recognized will be subject to income tax withholding by
the Company.

Upon exercise of a tax offset right, a participant generally will recognize
ordinary income, which is subject to income tax withholding by the Company,
equal to the cash received.

The Company generally will be entitled to a business expense deduction,
except as explained below, at the time and in the amount that the recipient of
an incentive award recognizes ordinary compensation income in connection
herewith. As stated above, this usually occurs upon exercise of nonstatutory
options or tax offset rights, upon the lapse or removal of restrictions on
restricted stock, and upon issuance of incentive stock. Generally, the Company's
deduction is contingent upon the Company's meeting withholding tax requirements.
No deduction is allowed in connection with an incentive stock option, unless the
employee disposes of Common Stock received upon exercise in violation of the
holding period requirements. The Company's right to a tax deduction for income
recognized in connection with incentive awards or the exercise of options by
executives whose total compensation is subject to the proxy disclosure rules
will depend upon whether the compensation of such executive in the aggregate
exceeds $1,000,000; if so, the excess over $1,000,000 will not be deductible.

This summary of the federal income tax consequence of nonstatutory stock
options, incentive stock options, tax offset rights, restricted stock and
incentive stock does not purport to be complete. There may also be state and
local income taxes applicable to theses transactions. Holders of incentive
awards should consult their own advisors with respect to the application of the
laws to them and to understand other tax consequences of the awards including
possible income deferral, alternative minimum tax rules, taxes on parachute
payments and the tax consequences of the sale of shares.

CHANGE IN CONTROL PROVISIONS. In the event of a "change in control"
transaction, the Company's Compensation Committee may take any one or more of
the following actions either at the time an incentive award is granted or any
time thereafter: (i) provide for an assumption of incentive awards granted under
the Incentive Plan (which a Common Stock assumption may be effected by means of
a payment to each participant in exchange for the cancellation of the incentive
awards held by such

<PAGE>
participant, of the difference between the fair market value of the aggregate
number of shares of Common Stock subject to the participant's incentive awards
and the aggregate exercise price that would have to be paid to acquire such
shares); (ii) provide for substitution of appropriate new incentive awards
covering stock to a successor corporation or the Company or an affiliate
thereof; or (iii) give notice to participants that no such assumption or
substitution will be made, in which event each incentive award outstanding shall
automatically accelerate to become fully exercisable immediately before the
effective date for the change in control, except that such acceleration will not
occur if, in the opinion of the Company's outside accountants, it would render
unavailable "pooling of interest" accounting for a change in control that would
otherwise qualify for such accounting treatment. All incentive awards will
terminate immediately following consummation of a change in control, except to
the extent assumed by the successor corporation or an affiliate thereof. In
relation to the Incentive Plan, a "change in control" transaction is defined to
constitute any of the following: (i) approval by the shareholders of a merger or
consolidation in which holders of outstanding voting stock of the Company would
receive less than 50% of the voting stock of the surviving or resulting
corporation; (ii) approval by the shareholders of a plan of liquidation or
approval of the dissolution of the Company; (iii) approval by the shareholders
of the sale or transfer of substantially all of the assets of the Company; or
(iv) the acquisition by a person or group of related persons of beneficial
ownership of 50% or more of the outstanding voting securities of the Company.

MANAGEMENT OPTION GRANTS

The Company has agreed that simultaneously with the closing of the
Offering, the Company will issue to Drs. Freer, Harris and Buck and Mr. Reynolds
incentive stock options to acquire a total of 270,000 shares of Common Stock
pursuant to the Incentive Plan. Incentive stock options to acquire 70,000 shares
will have an exercise price of $6.00 per share and incentive stock options to
acquire 200,000 shares will have an exercise price of $9.90 per share. All such
incentive stock options will have terms of ten years. See "Certain Relationships
and Related Transactions."

EMPLOYMENT AGREEMENTS

On June 24, 1997, the Company entered into employment agreements with each
of Drs. Freer, Harris and Buck and Mr. Reynolds. Each of these agreements has a
term of five years and will be extended for successive one-year terms beginning
on the first anniversary of its commencement, unless either the executive
officer or the Company shall have given notice to the other of an election not
to extend the term of the employment agreement; provided that the Company may
not give such notice prior to December 31, 1997. The employment agreements
provide for base salaries of $165,000 for Drs. Freer, Harris and Buck and
$120,000 for Mr. Reynolds, which are adjustable annually at the discretion of
the Compensation Committee. In addition, the employment agreements provide the
Company's executive officers with annual bonuses equal to, in the aggregate, 15%
of the Company's pre-tax net income for the preceding fiscal year. Such bonuses
will be paid within 30 days following the release of the Company's annual
audited financial statements. Notwithstanding the foregoing, however, the
bonuses for the executive officers for the fiscal year ending December 31, 1997
shall collectively equal the greater of (i) 15% of the Company's pre-tax net
income or (ii) $150,000. Under each of the employment agreements, the Company
may terminate the executive officers employment at any time for "Cause" as such
term is defined in the employment agreement, without incurring any continuing
obligations to the executive officer. If the Company terminates an executive
officer's employment for any reason other than for "Cause" or if an executive
officer terminates his or her employment for "Good Reason," as such term is
defined in the employment agreement, the Company will remain obligated to
continue to provide the compensation and benefits specified in the executive
officers employment agreement for the duration of what otherwise would have been
the term of the employment agreement. In addition, each employment agreement
contains non-competition provisions which prohibit each executive officer from
competing with the Company or soliciting its employees under certain
circumstances. A court may, however, determine that these non-competition
provisions are unenforceable or only partially enforceable.

CHANGE IN CONTROL PROTECTIONS

The Company has entered into severance agreements with each of its
executive officers. Each severance agreement (all of which are substantially
similar) has an initial term of five years and will be extended for successive
one-year periods beginning on the first anniversary of its commencement, unless
either the executive officer or the Company shall have given notice to the other
of an election not to extend the term of the severance agreement. If the
employment of any of these executive officers is terminated (with certain
exceptions) within 60 months following a "Change in Control," as such term is
defined in the severance agreement, the executive officer will be entitled to
receive a cash payment equal to two times the annual salary for the most recent
twelve-month period and three times the bonus paid with respect to such period.
To the

<PAGE>
extent the aggregate benefits available to an executive officer, whether under
his respective severance agreement or otherwise, exceed the limit of three times
the executive's average base compensation provided in Section 280G of the Code,
resulting in the executive officer incurring an excise tax under Section 4999 of
the Code or any other taxes or penalties (other than ordinary income or capital
gains taxes), the severance agreements require the Company to pay the executive
officer an additional amount to cover any such excise taxes or penalties
incurred. The Company will not be entitled to a deduction for the amount in
excess of this limit. Neither the Offering nor an initial public offering of the
Common Stock will constitute a Change in Control for purposes of these
agreements.

LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Articles eliminate all liability of the Company's directors and
officers for monetary damages to the Company or its shareholders except in the
event of willful misconduct or a knowing violation of the criminal law or any
federal or state securities law. Pursuant to such provisions, the Company's
directors or officers will not be liable for monetary damages to the Company or
its shareholders even if they should fail, through negligence or gross
negligence, to satisfy their duty of care to the Company or its shareholders.

The Articles require indemnification of any person against liability
incurred in connection with any proceeding to which that person is made a party
by reason of (i) his service to the Company as a director or officer or (ii) his
service as director, officer, trustee, or partner to some other enterprise at
the request of the Company, except in the event of willful misconduct or a
knowing violation of the criminal law. The Articles also authorize the Company's
Board of Directors to contract in advance to indemnify any director or officer
by a majority vote of a quorum of disinterested directors. In addition, the
Articles authorize the Company's Board of Directors, by a majority vote of a
quorum of disinterested directors, to cause the Company to indemnify, or agree
to indemnify in advance, to the same extent any person who serves as an
employee, agent or consultant of the Company or who serves at the request of the
Company in some other capacity. See "Risk Factors -- Limitations on Officers'
and Directors' Liabilities Under Virginia Law."

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. Currently there is no pending litigation or
proceeding involving a director or office of the Company as to which
indemnification is being sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any officer or
director.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 13, 1997 (i) each person who is
known by the Company to own of record or beneficially more than five percent
(5%) of the Common Stock, (ii) each director and executive officer of the
Company and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated, each of the persons or entities listed below
has sole voting and investment power with respect to all shares shown
beneficially owned by them, except to the extent such power is shared by a
spouse under applicable law.

<TABLE>
<CAPTION>
PERCENT OF
SHARES
OUTSTANDING
---------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) BEFORE OFFERING
- ------------------------------------------------------------------------------- --------------------- ---------------
<S> <C>
Richard J. Freer, Ph.D.(2)..................................................... 49,579 7.7%
Robert B. Harris, Ph.D.(2)..................................................... 49,578 7.7%
Gregory A. Buck, Ph.D.(2)...................................................... 57,912(3) 9.0%
Thomas R. Reynolds(2).......................................................... 22,537 3.6%
Chester M. Trzaski(2).......................................................... 8,333(4) 1.4%
Charles A. Mills, III(5)....................................................... 0 0
Peter C. Einselen(5)........................................................... 0 0
James T. Martin(6)(7).......................................................... 133,333 21.8%
James H. Wallace(8)(9)......................................................... 33,333 5.4%
All Directors and Executive Officers
as a Group (7 persons)......................................................... 187,939 26.4%

AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OFFERING
- ------------------------------------------------------------------------------- --------
<S> <C>
Richard J. Freer, Ph.D.(2)..................................................... 3.0%
Robert B. Harris, Ph.D.(2)..................................................... 3.0%
Gregory A. Buck, Ph.D.(2)...................................................... 3.6%
Thomas R. Reynolds(2).......................................................... 1.4%
Chester M. Trzaski(2).......................................................... *
Charles A. Mills, III(5)....................................................... 0
Peter C. Einselen(5)........................................................... 0
James T. Martin(6)(7).......................................................... 8.2%
James H. Wallace(8)(9)......................................................... 2.0%
All Directors and Executive Officers
as a Group (7 persons)......................................................... 11.5%
</TABLE>

<PAGE>
- ---------------
* Less than one percent (1%)

(1) The table above includes shares of the Company's Common Stock which an
individual has the right to acquire upon the exercise of the Management
Warrants within 60 days of October 6, 1997. Such shares are deemed to be
outstanding for the purpose of calculating the percentage ownership of the
individual holding such shares, but are not deemed to be outstanding for
calculating the percentage of any other person shown on the table.

(2) 911 East Leigh Street, Suite G-19, Richmond, Virginia 23219

(3) Includes 8,333 shares of Common Stock issuable to Dr. Buck and Leon I.
Salzberg, as tenants in common, upon the conversion of the Note held by
them.
(4) Represents shares of Common Stock issuable to Mr. Trzaski and his spouse,
upon the conversion of the Note held by them.

(5) 1108 East Main Street, Richmond, Virginia 23218

(6) Tupenny House, Tuckerstown, Bermuda
(7) Represents shares of Common Stock issuable upon the conversion of the Note
held by Dr. Martin.
(8) 1776 K Street, N.W., Washington, D.C. 20006-2304
(9) Represents shares of Common Stock issuable upon the conversion of the Notes
held by Mr. Wallace.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Simultaneously with the closing of the Offering, the Company anticipates
issuing to Drs. Freer, Harris and Buck and Mr. Reynolds options to acquire an
aggregate of 270,000 shares of Common Stock pursuant to the Incentive Plan.
Options to acquire 70,000 shares will have an exercise price of $6.00 per share,
and options to acquire 200,000 will have an exercise price of $9.90 per share.
Each of such options will have a term of 10 years. See "Management -- Management
Option Grants."

On June 25, 1997, the Company issued the Management Warrants to members of
the Company's management team. The Management Warrants are exercisable
commencing June 25, 1998 and for a period of nine years thereafter at an
exercise price of $9.90 per share. The Management Warrants were issued as noted
below:

<TABLE>
<S> <C>
Richard J. Freer, Ph.D....................................................... 28,947 Warrants
Robert B. Harris, Ph.D....................................................... 28,947 Warrants
Gregory A. Buck, Ph.D........................................................ 28,948 Warrants
Thomas R. Reynolds........................................................... 13,158 Warrants
</TABLE>

On June 25, 1997, the Company entered into an agreement with Mr. Trzaski
pursuant to which the Company agreed to pay certain amounts due to Mr. Trzaski,
and Mr. Trzaski agreed to relinquish certain rights to acquire shares of the
capital stock of the Company in exchange for $110,000, which will be paid in
accordance with the terms of a promissory note. The note provides that the
Company will pay Mr. Trzaski $60,000 on demand at any time after the Company has
increased its working capital to not less than $2,000,000, and will pay him an
additional $50,000 at any time after the Company has increased its working
capital by not less than an additional $3,000,000, provided that the second
payment shall not be made prior to January 1, 1998. The note will bear interest
at an annual rate of 8% on any principal amounts due thereunder. On July 2,
1997, the Company paid the first $60,000 installment of the note to Mr. Trzaski.

The Company, as an S Corporation, made distributions to its shareholders in
1996 and 1997. These distributions totaled an aggregate of $79,533 in 1996 and
$96,851 for the first six months of 1997.

Two directors of the Company, Charles A. Mills, III and Peter C. Einselen,
also serve as executive officers of the Underwriter. The Company paid
commissions to the Underwriter in connection with the closing of the Private
Placement. In connection with the Offering, the Company will pay an underwriting
discount and issue the Underwriter's Warrants to the Underwriter. See "Risk
Factors -- Ongoing Relationship with Underwriter" and "Underwriting."

The Company believes that all of the transactions noted above were made or
will be made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal shareholders will be approved
in accordance with the Virginia law by a majority of the Board, including a
majority of the independent and disinterested directors of the Board, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Company's Articles.

COMMON STOCK

The Company is authorized to issue up to 10,000,000 shares of Common Stock.
As of the date of this Prospectus, 71,273 shares of Common Stock are issued and
outstanding. Such shares are held by four holders of record. Upon the completion
of the Offering, the Notes will automatically convert into an aggregate of
500,000 additional shares of Common Stock. Accrued interest on the Notes payable
in the form of additional shares of Common Stock will also be issued at that
time. For purposes of this Prospectus, the interest on the Notes has been
assumed to be 41,370 shares of Common Stock, the amount that would accrue
through November 21, 1997. See "Principal Shareholders."

The holders of Common Stock are entitled to one vote for each share on all
matters voted on by shareholders, including elections of directors, and possess
exclusively all voting power except as otherwise required by law. The Articles
do not provide for cumulative voting for the election of directors. The holders
of Common Stock are entitled to such dividends as may be declared from time to
time by the Company's Board of Directors from funds available therefor, and upon
liquidation will be entitled to receive pro rata all assets of the Company
available for distribution to such holders. The holders of Common Stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock.

WARRANTS

As of the date of this Prospectus, the Company has reserved (a) 101,500
shares of Common Stock issuable upon the exercise of the Underwriter's Warrants,
and (b) 100,000 shares of Common Stock issuable upon the exercise of the
Management Warrants.

The Underwriter's Warrants, the Management Warrants and the Warrant Shares
are being registered with the Offering but are not underwritten. The
Underwriter's Warrants and the Management Warrants will not necessarily be sold
concurrently with the Common Stock being offered through the Underwriter, and
the Warrant Shares will not be issued until after the completion of the
Offering. The shares of Common Stock underlying the Underwriter's Warrants and
the Management Warrants, however, are being registered on a delayed or a
continuous basis. It is anticipated that the Underwriter's Warrants will be
listed for trading on the Nasdaq SmallCap Market under the symbol " ."
Pending such listing, the Underwriter's Warrants are expected to be quoted on
the NASD's OTC Bulletin Board after completion of the Offering. There can be
no assurance, however, that the Nasdaq SmallCap Market will approve such
listing. The Underwriter's Warrants will be issued and the Management Warrants
were issued subject to the terms and conditions of certain warrant agreements
between the Company and the holders of such warrants. The following description
of the Underwriter's Warrants and the Management Warrants is not complete and is
qualified in all respects by the warrant agreements which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.

Each Underwriter's Warrant entitles the holder to purchase one share of
Common Stock at an exercise price of $9.90 per share. The number, character, and
exercise price of the shares of Common Stock underlying these warrants are
subject to adjustment in certain events, such as mergers, reorganizations, stock
dividends, subdivisions or reclassifications, to prevent dilution. The
Underwriter's Warrants are exercisable at any time after one year from the date
of this Prospectus until five years from the date of this Prospectus. Holders of
the Underwriter's Warrants will not, as such, have any of the rights of
stockholders of the Company.

Each Management Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $9.90 per share. The number, character, and
exercise price of the shares of Common Stock underlying these warrants are
subject to adjustment in certain events, such as mergers, reorganizations, stock
dividends, subdivisions or reclassifications, to prevent dilution. The
Management Warrants are exercisable from June 25, 1998 through June 25, 2007.
Holders of the Management Warrants will not, as such, have any of the rights of
stockholders of the Company.

In certain cases, the sale of securities by the Company upon exercise of
the Underwriter's Warrants or the Management Warrants could violate the
securities laws of the United States, certain states thereof or other
jurisdictions. The Company will use its best efforts to cause a registration
statement with respect to such securities under the Securities Act to continue
to be effective during the respective terms of the warrants and to take such
other actions under the laws of various states as may be required to cause the
sale of securities upon the exercise of the Underwriter's Warrants or the
Management Warrants to be lawful. The Company, however, will not be required to
cause the sale of securities upon exercise of such warrants if, in the opinion
of counsel, the sale of securities upon such exercise would be unlawful.

<PAGE>
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS

The Company's Articles and Bylaws contain provisions that make more
difficult the acquisition of control of the Company by means of a tender offer,
a proxy contest, open market purchases or otherwise. The Articles provide for
the Company's Board of Directors to be divided into three classes serving
staggered terms so that directors initial terms will expire at the 1998, 1999 or
2000 Annual Meeting. Starting with the 1998 Annual Meeting, one class of
directors will be elected each year for a three-year term subject to the rights
of the holders of any series or class of Preferred Stock then outstanding. A
director may be removed only for cause.

The Articles follow the Virginia Act by requiring the affirmative vote of
more than two-thirds of the outstanding shares of Common Stock for the approval
of mergers, share exchanges, certain dispositions of assets and other
extraordinary transactions. In addition, the affirmative vote of at least
two-thirds of the outstanding shares of each voting group of capital stock is
required for approval of an Affiliated Transaction (as defined below) with an
Interested Shareholder (as defined below), subject to certain exceptions
comparable to those contained in the Virginia Act. See " -- Certain Corporate
Governance Provisions of the Virginia Act." The Articles further require the
affirmative vote of the majority of the outstanding shares of Common Stock for
the approval of amendments to the Articles, except that the affirmative vote of
at least two-thirds of the outstanding shares of Common Stock is required to
approve an amendment to the provisions of the Articles establishing the
classified board and the super majority voting requirement for Affiliated
Transactions.

The Bylaws establish an advance notice procedure for the nomination of
candidates for election as directors, other than by the Board of Directors of
the Company, and for certain matters to be brought before an Annual Meeting of
the Company. A shareholder must give the Company notice not less than 90 days
prior to an Annual Meeting of shareholders to (i) nominate persons to be elected
directors of the Company at such meeting or (ii) propose business matters to be
considered at such meeting.

The purpose of the relevant provisions of the Articles and Bylaws is to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company and to encourage persons seeking to
acquire control of the Company to consult first with the Company Board of
Directors to negotiate the terms of any proposed business combination or offer.
The provisions are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a takeover of the Company that does not have the effect
of maximizing long-term shareholder value or is otherwise unfair to shareholders
of the Company, or an unsolicited proposal for the restructuring or sale of all
or part of the Company that could have such effects. See "Risk
Factors -- Anti-Takeover Provisions."

CERTAIN CORPORATE GOVERNANCE PROVISIONS OF THE VIRGINIA ACT

The Company is subject to the "affiliated transactions" provisions of the
Virginia Act which restrict certain transactions between the Company and any
person (an "Interested Shareholder") who beneficially owns more than 10% of any
class of the Company's voting securities ("Affiliated Transactions"). These
restrictions, which are described below, do not apply to an Affiliated
Transaction with an Interested Shareholder who has been such continuously since
the date the Company first had 300 shareholders of record or whose acquisition
of shares making such person an Interested Shareholder was previously approved
by a majority of the Company's Disinterested Directors. "Disinterested Director"
means, with respect to a particular Interested Shareholder, a member of the
Company's Board of Directors who was (i) a member on the date on which an
Interested Shareholder became an Interested Shareholder or (ii) recommended for
election by, or was elected to fill a vacancy and received the affirmative vote
of, a majority of the Disinterested Directors then on the Board of Directors.
Affiliated Transactions include mergers, share exchanges, material dispositions
of corporate assets not in the ordinary course of business, any dissolution of
the Company proposed by or on behalf of an Interested Shareholder, or any
reclassification, including reverse stock splits, recapitalization or merger of
the Company with its subsidiaries, which increases the percentage of voting
shares owned beneficially by an Interested Shareholder by more than five
percent.

The "affiliated transactions" statute prohibits the Company from engaging
in an Affiliated Transaction with an Interested Shareholder for a period of
three years after the Interested Shareholder became such unless the transaction
is approved by the affirmative vote of a majority of the Disinterested Directors
and by the affirmative vote of the holders of two-thirds of the voting shares
other than those shares beneficially owned by the Interested Shareholder.
Following the three-year period, in addition to any other vote required by law
or by the Articles, an Affiliated Transaction must be approved either by a
majority of the Disinterested Directors or by the shareholder vote described in
the preceding sentence unless the transaction satisfies the fair-price
provisions of the statute. These fair-price provisions require, in general, that
the consideration to be received by shareholders in the Affiliated Transaction
(i) be in cash or in the form of consideration used by the Interested
Shareholder to acquire the largest number of its shares and (ii) not be less, on
a per share basis, than an amount determined in the manner

<PAGE>
specified in the statute by reference to the highest price paid by the
Interested Shareholder for shares it acquired and the fair market value of the
shares on specified dates. The Company is also subject to the "control share
acquisitions" provisions of the Virginia Act, which provide that shares of the
Company's voting securities which are acquired in a "Control Share Acquisition"
have no voting rights unless such rights are granted by a shareholders'
resolution approved by the holders of a majority of the votes entitled to be
cast on the election of directors by persons other than the acquiring person or
any officer or employee-director of the Company. A "Control Share Acquisition"
is an acquisition of voting shares which, when added to all other voting shares
beneficially owned by the acquiring person, would cause such person's voting
strength with respect to the election of directors to meet or exceed any of the
following thresholds: (i) one-fifth, (ii) one-third or (iii) a majority.
"Beneficial ownership" means the sole or shared power to dispose or direct the
disposition of shares, or the sole or shared power to vote or direct the voting
of shares, or the sole or shared power to acquire shares, including any such
power which is not immediately exercisable, whether such power is direct or
indirect or through any contract, arrangement, understanding, relationship or
otherwise. A person shall be deemed to be a beneficial owner of shares as to
which such person may exercise voting power by virtue of an irrevocable proxy
conferring the right to vote. An acquiring person is entitled, before or after a
Control Share Acquisition, to file a disclosure statement with the Company and
demand a special meeting of shareholders to be called for the purpose of
considering whether to grant voting rights for the shares acquired or proposed
to be acquired. The Company may, during specified periods, redeem the shares so
acquired if no disclosure statement is filed or if the shareholders have failed
to grant voting rights to such shares. In the event full voting rights are
granted to an acquiring person who then has majority voting power, those
shareholders who did not vote in favor of such grant are entitled to dissent and
demand payment of the fair value of their shares from the Company. The control
share acquisitions statute does not apply to an actual or proposed Control Share
Acquisition if the Articles or the Company's Bylaws are amended, within the time
limits specified in the statute, to so provide.

A corporation may, at its option, elect not to be governed by the foregoing
provisions of the Virginia Act by amending its articles of incorporation or
bylaws to exempt itself from coverage; provided, however, any such election not
to be governed by the "affiliated transactions" statute must be approved by the
corporation's shareholders and will not become effective until 18 months after
the date it is adopted. The Company has not elected to exempt itself from
coverage under these statutes. See "Risk Factors -- Limitation on Officers and
Directors Liabilities Under Virginia Law."

EFFECT OF CERTAIN PROVISIONS UPON AN ATTEMPT TO ACQUIRE CONTROL OF THE COMPANY

The foregoing provisions of the Company's Articles and Bylaws, as well as
the provisions of Virginia law described above, make more difficult, and may
discourage certain types of potential acquirers from proposing, a merger, tender
offer or proxy contest, even if such transaction or occurrence may be favorable
to the interests of the shareholders. Similarly, such provisions may delay or
frustrate the assumption of control by a holder of a large block of Common Stock
and the removal of incumbent management, even if such removal might be
beneficial to shareholders. By discouraging takeover attempts, these provisions
might have the incidental effect of inhibiting (i) certain changes in management
and (ii) the temporary fluctuations in the market price of the shares that often
result from actual or considered takeover attempts. See "Risk
Factors -- Limitations on Officers' and Directors' Liabilities Under Virginia
Law."

TRANSFER AGENT AND REGISTRAR

American Securities Transfer & Trust, Inc. will serve as the Company's
transfer agent and registrar.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. The
availability for sale or sales of substantial amounts of Common Stock of the
Company in the public market could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.

Upon completion of the Offering, the Company will have 1,627,643 shares of
Common Stock outstanding. Of these shares, the 1,015,000 shares of Common Stock
sold in this Offering will be freely transferable without restriction or further
registration under the Act, except shares purchased by an affiliate (in general,
a person who is in a control relationship with the Company) which will be
subject to the limitations of Rule 144. The Management Warrants and the
Underwriter's Warrants will be freely transferable without restriction or
further registration under the Act pursuant to the resale provisions of this
Prospectus; provided, however, the transfer of the Underwriter's Warrants
and the Warrant Shares underlying these warrants is restricted to bona fide
officers of the Underwriter for a one-year period in accordance with the rules
of the

<PAGE>

National Association of Securities Dealers, Inc. In addition, the 541,370
shares of Common Stock assumed for purposes of this Prospectus to be issuable
upon the conversion of the Notes will be freely transferable without restriction
or further registration in accordance with the resale provisions contained in
this Prospectus.

The remaining 71,273 shares of Common Stock are held by the Company's
executive officers and are "restricted securities" as that term is defined in
Rule 144 ("Restricted Shares"). Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144 or 144(k), which rules are summarized below. As a result of the
provisions of Rules 144 and 144(k), all 71,273 Restricted Shares will be
available for sale in the public market commencing 90 days after the
effectiveness of the registration statement of which this Prospectus is a part.

In the event the Underwriter's Warrants and the Management Warrants are
exercised, the holders of 201,500 shares of Common Stock, or their permitted
transferees, who are not affiliates will hold shares that are freely tradable
without restriction under the Securities Act.

See "Risk Factors -- No Prior Market for Common Stock," " -- Volatility of
Stock Price" and " -- Shares Eligible for Future Sale."

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate of the Company) would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of: (i) one percent of the number of shares of Common
Stock then outstanding or (ii) the average weekly trading volume of the Common
Stock on The Nasdaq SmallCap Market during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144; therefore,
unless otherwise restricted, "144(k) shares" may therefore be sold immediately
upon the completion of the Offering.

SELLING SECURITYHOLDERS

In addition to the registration of the shares of Common Stock included in
the Offering and the Warrant Shares, the registration statement of which this
Prospectus forms a part covers the resale by the Selling Securityholders (as
defined below) of the Resale Securities, consisting of (a) up to 541,370 shares
of Common Stock issuable upon conversion of the Notes, (b) the Underwriter's
Warrants and (c) the Management Warrants. In the event the Underwriter's
Warrants and the Management Warrants are exercised, the shares of Common Stock
eligible for (x) sale on a delayed or continuous basis or resale hereunder and
(y) resale pursuant to the resale provisions of this Prospectus will constitute
40.6% of the outstanding shares of Common Stock upon completion of the Offering.
The Resale Securities are not being underwritten as a part of the Offering and
may be sold from time to time as described under the caption "Plan of
Distribution For Selling Securityholders." The Company will not receive any of
the proceeds on the sale of the securities by the Selling Securityholders (other
than the proceeds from the exercise of the warrants). The resale of the
securities of the Selling Securityholders are subject to prospectus delivery and
other requirements of the Securities Act. Sales of such securities or the
potential of such sale at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Risk Factors -- Shares Eligible
for Future Sale."

The following table sets forth the number of shares of Common Stock and
warrants owned by each Selling Securityholder upon completion of the Offering,
the number of warrants and shares of Common Stock being offered and the number
of shares and the percentage of the class to be owned after the Offering is
complete. The information contained in the following table assumes the
conversion of the Notes in accordance with their terms.

<PAGE>

<TABLE>
<CAPTION>
SHARES OF
COMMON WARRANTS COMMON SHARES OF
STOCK OWNED WARRANTS STOCK STOCK OWNED
BEFORE UPON CLOSING OF OFFERED FOR RESALE OFFERED FOR RESALE AFTER
RESALE OFFERING RESALE OFFERING HEREBY HEREBY RESALE OFFERING
--------------- --------------- ------------------ ------------------ ---------------
<S> <C>
Dr. John F.
Bourgeois.......... 8,333 -- -- 8,333 0
Haley Chisholm &
Morris............. 8,333 -- -- 8,333 0
Joseph J. Cockriel... 8,333 -- -- 8,333 0
Michael Riggs
Crane.............. 8,333 -- -- 8,333 0
Dennis R. Deans...... 8,333 -- -- 8,333 0
Robert G. Doumar..... 8,333 -- -- 8,333 0
Gerald Einhorn, DDS
LTD
Defined S Benefit
Trust DTD
4-1-84............. 8,333 -- -- 8,333 0
Stephen F. Evans..... 8,333 -- -- 8,333 0
Gerald T. George..... 8,333 -- -- 8,333 0
Thomas T. Goodale.... 8,333 -- -- 8,333 0
Jonathan M. Gorog.... 8,333 -- -- 8,333 0
Harold P. Heafner,
Jr................. 8,333 -- -- 8,333 0
George C. Hutter..... 8,333 -- -- 8,333 0
Ali R. Jamali........ 8,333 -- -- 8,333 0
Paul L. Johnson and
Margaret
W. Johnson, JT TEN
WROS............... 8,333 -- -- 8,333 0
Edwin A. Joseph...... 8,333 -- -- 8,333 0
Edward C. Kvetko..... 8,333 -- -- 8,333 0
Willard H. Lane and
Hellen M. Lane..... 8,333 -- -- 8,333 0
James T. Martin...... 133,333 -- -- 133,333 0
Martha D. Massie..... 8,333 -- -- 8,333 0
Dr. Andrew A.
Mayer.............. 8,333 -- -- 8,333 0
Milton Miller and
Louis
Miller, JT CON..... 8,333 -- -- 8,333 0
Joan Miller.......... 8,333 -- -- 8,333 0
Eugene Moos and Susan
Bell Moos, JT TEN
WROS............... 8,333 -- -- 8,333 0
Padua Ventures
Limited BVI........ 8,333 -- -- 8,333 0
Leah T. Robinson TTEE
of
the Revocable TR
DTD 3-21-89
FBO Leah T.
Robinson........... 8,333 -- -- 8,333 0
Karen Lee Sobel
Sachs.............. 8,333 -- -- 8,333 0
Joyce M. Salzberg.... 8,333 -- -- 8,333 0

<CAPTION>
PERCENT OF
COMMON
STOCK
AFTER
RESALE OFFERING
---------------
<S> <C>
Dr. John F.
Bourgeois.......... 0
Haley Chisholm &
Morris............. 0
Joseph J. Cockriel... 0
Michael Riggs
Crane.............. 0
Dennis R. Deans...... 0
Robert G. Doumar..... 0
Gerald Einhorn, DDS
LTD
Defined S Benefit
Trust DTD
4-1-84............. 0
Stephen F. Evans..... 0
Gerald T. George..... 0
Thomas T. Goodale.... 0
Jonathan M. Gorog.... 0
Harold P. Heafner,
Jr................. 0
George C. Hutter..... 0
Ali R. Jamali........ 0
Paul L. Johnson and
Margaret
W. Johnson, JT TEN
WROS............... 0
Edwin A. Joseph...... 0
Edward C. Kvetko..... 0
Willard H. Lane and
Hellen M. Lane..... 0
James T. Martin...... 0
Martha D. Massie..... 0
Dr. Andrew A.
Mayer.............. 0
Milton Miller and
Louis
Miller, JT CON..... 0
Joan Miller.......... 0
Eugene Moos and Susan
Bell Moos, JT TEN
WROS............... 0
Padua Ventures
Limited BVI........ 0
Leah T. Robinson TTEE
of
the Revocable TR
DTD 3-21-89
FBO Leah T.
Robinson........... 0
Karen Lee Sobel
Sachs.............. 0
Joyce M. Salzberg.... 0
</TABLE>

<PAGE>

SHARES OF
COMMON WARRANTS COMMON SHARES OF
STOCK OWNED WARRANTS STOCK STOCK OWNED
BEFORE UPON CLOSING OF OFFERED FOR RESALE OFFERED FOR RESALE AFTER
RESALE OFFERING RESALE OFFERING HEREBY HEREBY RESALE OFFERING
--------------- --------------- ------------------ ------------------ ---------------
<S> <C>
Leon I. Salzberg and
Gregory A. Buck,
JTTEN COM.......... 8,333 -- -- 8,333(1) 0
Steven E. Shinholser
and
Keller R.
Shinholser, JT
WROS............... 8,333 -- -- 8,333 0
Louise Williams
Sloan.............. 8,333 -- -- 8,333 0
Jacquelyn C. Smith... 8,333 -- -- 8,333 0
Robert M. Smith,
III................ 8,333 -- -- 8,333 0
Robert G. Sullivan... 8,333 -- -- 8,333 0
Chester M. Trzaski
and
Stella M.
Trzaski(2)......... 8,333 -- -- 8,333 0
Noell P. Vawter...... 8,333 -- -- 8,333 0
James H. Wallace..... 33,333 -- -- 33,333 0
Maurice Edward
Waller............. 8,333 -- -- 8,333 0
Eric M. Warner....... 8,333 -- -- 8,333 0
Kent J. Weber........ 8,333 -- -- 8,333 0
Transerve Marine,
Inc................ 8,333 -- -- 8,333 0
Jeffrey M.
Zwerdling.......... 8,333 -- -- 8,333 0
Richard J. Freer,
Ph.D.(2)........... 20,632 28,947 28,947 -- 20,632
Robert B. Harris,
Ph.D.(2)........... 20,631 28,947 28,947 -- 20,631
Gregory A. Buck,
Ph.D.(2)........... 20,632 28,948 28,948 -- 20,632
Thomas R.
Reynolds(2)........ 9,379 13,158 13,158 -- 9,379
Anderson & Strudwick,
Inc................ -- 101,500 101,500 0 0

<CAPTION>
PERCENT OF
COMMON
STOCK
AFTER
RESALE OFFERING
---------------
<S> <C>
Leon I. Salzberg and
Gregory A. Buck,
JTTEN COM.......... 0
Steven E. Shinholser
and
Keller R.
Shinholser, JT
WROS............... 0
Louise Williams
Sloan.............. 0
Jacquelyn C. Smith... 0
Robert M. Smith,
III................ 0
Robert G. Sullivan... 0
Chester M. Trzaski
and
Stella M.
Trzaski(2)......... 0
Noell P. Vawter...... 0
James H. Wallace..... 0
Maurice Edward
Waller............. 0
Eric M. Warner....... 0
Kent J. Weber........ 0
Transerve Marine,
Inc................ 0
Jeffrey M.
Zwerdling.......... 0
Richard J. Freer,
Ph.D.(2)........... 1.3
Robert B. Harris,
Ph.D.(2)........... 1.3
Gregory A. Buck,
Ph.D.(2)........... 1.8(3)
Thomas R.
Reynolds(2)........ 0
Anderson & Strudwick,
Inc................ 0
</TABLE>

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

(1) Excludes shares of Common Stock held by Dr. Buck in an individual capacity.

(2) Officers and directors of the Company.

(3) Includes shares of Common Stock held by Dr. Buck and Leon I. Salzberg, as
tenants in common.

PLAN OF DISTRIBUTION
FOR SELLING SECURITYHOLDERS

The Resale Securities offered by the Selling Securityholders consist of (a)
the Conversion Shares, (b) the Underwriter's Warrants and (c) the Management's
Warrants. Resales of the Conversion Shares and the Underwriter's Warrants are
contingent upon, and may only occur subsequent to, the closing of the Offering.
The Selling Securityholders may offer and sell the Resale Securities from time
to time directly or through underwriters, dealers or agents. The distribution of
securities by the Selling Securityholders may be effected in one or more
transactions that may take place in the market, including ordinary brokerage
transactions, privately-negotiated transactions or sales to one or more
broker-dealers for resale of such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or

<PAGE>
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitations: (a) a block trade in which a
broker-dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers, and (d) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, broker-dealers engaged by the
Selling Securityholders may arrange for other broker-dealers to participate. The
Selling Securityholders and intermediaries through whom such securities are sold
may be deemed "underwriters" within the meaning of the Securities Act with
respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.

At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of shares being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for sales purchased from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers and the proposed selling price to the public. Sales
of securities by the Selling Securityholders or even the potential of such sales
would likely have an adverse effect on the market prices of the securities
offered hereby. See "Risk Factors -- Shares Eligible for Future Sale."

UNDERWRITING

The Company has engaged the Underwriter to conduct the Offering on a "best
efforts, all-or-none" basis. The Offering is being made without a firm
commitment by the Underwriter, which has no obligation or commitment to purchase
any of the Common Stock. The Underwriter has advised the Company that it
proposes to offer the Common Stock to the public at the price shown on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $.24 per share.

The Conversion Shares, the Underwriter's Warrants, the Management Warrants
and the Warrant Shares are being registered contemporaneously with the shares
of Common Stock being sold by the Company in the Offering, but are not part of
the underwritten offering. See "Selling Securityholders."

Unless sooner withdrawn or canceled by either the Company or the
Underwriter, the Offering will continue until the earlier of the date on which
all of the Common Stock offered hereby is sold or November 21, 1997 (the
"Offering Termination Date"). Until the closing of the Offering, all proceeds
from the sale of the Common Stock will be deposited in escrow with Crestar Bank
(the "Escrow Agent"). Proceeds deposited in escrow with the Escrow Agent may not
be withdrawn by investors prior to the earlier of the closing of the Offering or
the Offering Termination Date. If the Offering is withdrawn or canceled or if
the 1,015,000 shares of Common Stock offered hereby are not sold and proceeds
therefrom are not received by the Company on or prior to the Offering
Termination Date, all proceeds will be returned by the Escrow Agent without
interest to the persons from which they are received promptly after such
withdrawal or cancellation. Officers, directors and persons holding more than 5%
of the outstanding shares of Common Stock prior to the Offering may purchase up
to 15,000 shares in the aggregate of the shares of Common Stock offered in the
Offering. Such persons may purchase such shares only on the prevailing terms and
conditions of the Offering and with investment intent.

Pursuant to that certain Underwriting Agreement by and between the Company
and the Underwriter, the obligations of the Underwriter to solicit offers to
purchase the Common Stock and of investors solicited by the Underwriter to
purchase the Common Stock are subject to approval of certain legal matters by
counsel to the Underwriter and to various other conditions which are customary
in transactions of this type, including, that, as of the closing of the
Offering, there shall not have occurred (a) a suspension or material limitation
in trading in securities generally on the New York Stock Exchange or the
publication of quotations on the Nasdaq Stock Market (National Market System or
SmallCap Market); (ii) a general moratorium on commercial banking activities in
the Commonwealth of Virginia or the State of New York; (iii) the engagement by
the United States in hostilities which have resulted in the declaration of a
national emergency or war if any such event would have a material adverse
effect, in the Underwriter's reasonable judgment, as to make it impracticable or
inadvisable to proceed with the solicitation of offers to consummate the
Offering with respect to investors solicited by the Underwriter on the terms and
conditions contemplated herein. The Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to the Underwriter pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the

<PAGE>

opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

Mr. Einselen, Senior Vice President of the Underwriter, and Mr. Mills,
Chairman of the Board of the Underwriter, serve as directors of the Company. Mr.
Einselen and Mr. Mills will each receive a Director's Fee for services rendered
to the Company. In addition, the Company will reimburse them for any expenses
incurred in attending such Board meetings. See "Management -- Director
Compensation."

The Underwriter does not intend to sell the Common Stock to any accounts
over which it exercises discretionary authority.

The initial public offering price of the Common Stock along with the
exercise price of the Underwriter's Warrants, which are being registered with
the Common Stock, but are not underwritten, have been determined by negotiation
between the Company and the Underwriter and are not necessarily related to the
Company's asset value, net worth or other established criteria of value. Factors
considered in determining the public offering price of the Common Stock and the
exercise price of the Underwriter's Warrants include the business in which the
Company is engaged, the stage of development of the Company's activities, the
Company's financial condition, and assessment of management, the general
condition of the securities markets and the demand for similar securities of
comparable companies.

As additional underwriting compensation, the Company has agreed to sell the
Underwriter's Warrants to the Underwriter at a purchase price of $.001 per
warrant upon completion of the Offering. The exercise price of the Underwriter's
Warrants shall be $9.90 per share. The purchase price of the Underwriter's
Warrants and the exercise price thereof (165% of the initial public offering
price of the Common Stock) was determined by negotiation between the Company and
the Underwriter. The factors considered in determining these values are noted
above.

LEGAL MATTERS

The validity of shares of Common Stock offered hereby will be passed upon
for the Company by LeClair Ryan, A Professional Corporation, Richmond, Virginia.
Willcox & Savage, P.C., Norfolk, Virginia, has acted as counsel for the
Underwriter with respect to certain legal matters relating to the Common Stock
offered hereby.

EXPERTS

The financial statements of the Company as of December 31, 1996 and 1995,
and for the years then ended appearing in this Prospectus and Registration
Statement have been audited by Goodman & Company, L.L.P., independent public
accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and have been included herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
SB-2 (as amended from time to time and together with all exhibits and schedules
thereto, the "Registration Statement") under the Securities Act with respect to
the Common Stock to be sold in the Offering. This Prospectus constitutes a part
of the Registration Statement and does not contain all the information set forth
therein, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the content of any contract or other document are not necessarily complete, and
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.

For further information regarding the Company and the Common Stock to be
sold in the Offering, reference is hereby made to the Registration Statement. A
copy of the Registration Statement, including the exhibits and schedules
thereto, may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following Regional Offices of the Commission:
New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048; and Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of the Registration Statement and the exhibits
and schedules thereto can be obtained from the Public Reference Section of the
Commission upon payment of prescribed fees. In addition the Commission maintains
a Web site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission. Such
information can be accessed free of charge (other than costs associated with
acquiring access to the Internet) at the Commission's Web site
(http://www.sec.gov).

<PAGE>
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act. Upon effectiveness of the Registration
Statement, the Company will become subject to the informational and periodic
reporting requirements of the Exchange Act, and in accordance therewith, will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the public reference facilities and
other regional officers referred to above. The Company intends to register the
securities offered by the Registration Statement under the Exchange Act
simultaneously with the effectiveness of the Registration Statement and to
furnish its shareholders with annual reports containing audited financial
statements and quarterly reports for the first three quarters of each fiscal
year containing unaudited interim financial information.

The Common Stock registered in connection with the Offering will be listed
on The Nasdaq SmallCap Market. Reports and other information required to be
filed with such market may be inspected at the offices of The Nasdaq SmallCap
Market at 1735 K Street, N.W., Washington, D.C. 20006.

GLOSSARY

AMINO ACIDS -- The basic building blocks of proteins and peptides. There
are twenty naturally occurring amino acids that differ from each other in
chemical structures and physicochemical properties.

AMINO ACID ANALYSIS -- The process by which the number or quantity of amino
acids in a particular protein, peptide or physiological fluid are measured.

BIOPHYSICAL -- Having to do with the intrinsic properties of the
macromolecule.

CALORIMETRY STUDIES -- A biophysical technique for determining the relative
structural stability of a macromolecule. In some calorimetry experiments
(differential scanning calorimetry), the amount of heat necessary to unfold
(denature) a macromolecule is determined, while in other types of calorimetry
experiments (isothermal titration calorimetry), the amount of heat that
accompanies the binding between two molecules is determined.

COAGULATION -- The process by which blood clots.

DNA (DEOXYRIBONUCLEIC ACID) -- Genes are composed of long strands of DNA,
which are, in turn, assembled from individual nucleotides. The particular
arrangement (sequence) of nucleotides in a strand of DNA encodes the sequence of
individual proteins. Each cell of the human body is estimated to contain
approximately 100,000 genes, although not every gene is expressed in each cell.

DNA SEQUENCE ANALYSIS -- The process by which the sequence of nucleotides
in a strand of DNA is determined.

ELECTROLYTES -- Charged species in the blood, such as sodium or chloride,
that help maintain cell integrity and vascular tone.

ENZYMES -- Often called "nature's catalysts," enzymes carry out virtually
every critical biological function necessary for life, such as the conversion of
food stuffs into energy, the conversion of inactive proteins into active
peptides, and the synthesis of DNA or RNA. Enzymes are, in effect, specialized
proteins.

FIBRINOLYSIS -- The process by which blood clots are dissolved.

GENE -- The unit of the genome used to describe the structural and genetic
features of DNA which encode for a functional protein.

GENOME SEQUENCING -- Performing DNA sequence analysis of an organism with
the goal of determining all of the sequence contained in its genetic material.

GENE THERAPY -- The process by which diseases of hereditary, genetic,
cancer or infectious etiology are treated with products of recombinant DNA.

HEMOSTASIS -- The balance between coagulation and fibrinolysis that
maintains normal cardiovascular function and tone.

HEPARIN -- A complex carbohydrate composed of long chains of highly
negatively charged, individual saccharide (sugar) residues of known chemical
structure. Heparin possesses many biological activities, including the ability
to cause anti-coagulation and the ability to inhibit the proliferation of smooth
muscle cells.

<PAGE>
MACROMOLECULES -- Any of the organic molecules essential for life. DNA,
RNA, and proteins are all considered macromolecules.

MASS SPECTRAL ANALYSIS- A PROCESS BY WHICH THE ATOMIC MASS OF AN ORGANIC
MOLECULE CAN BE DETERMINED WITH GREAT PRECISION.

MUTATION ANALYSIS- THE PROCESS BY WHICH MUTATIONS IN GENES RESPONSIBLE FOR
CANCER AND METABOLIC AND HEREDITARY DISEASES ARE IDENTIFIED AND CHARACTERIZED.

NUCLEOTIDES -- The basic building blocks of DNA and RNA strands. There are
four chemically distinct nucleotides that make up DNA; three of these
nucleotides are also found in RNA along with a fifth structurally distinct
nucleotide.

OLIGONUCLEOTIDE -- An assemblage of more than one nucleotide.
Oligonucleotides can be in the deoxy or ribonucleotide families.

PEPTIDE -- Peptides are small proteins, usually encompassing fewer than 80
amino acid residues. Different peptides are intimately involved in regulating
most aspects of human physiology, including neurotransmission, regulation of
electrolytes in blood, reproduction and vascular tone.

PHYSIOCHEMICAL -- Relating to the physical and chemical properties a of a
particular compound.

PHYSIOLOGICAL FLUID -- Fluids such as blood, urine or lymph.

PROTEINS -- Proteins are composed of long strands of amino acids assembled
in particular order, the sequences of all proteins are coded by genes. There are
many specialized classes of proteins, such as enzymes, peptides, antibodies and
structural proteins (e.g., keratin, collagen, and elastin).

PROTEIN SEQUENCE ANALYSIS -- The process by which the sequence of amino
acids that make up a protein chain is determined.

RNA (RIBONUCLEIC ACID) -- Long strands of RNA are composed of individual
nucleotides, in much the same was as DNA is composed of individual nucleotides.
The order in which the nucleotides of RNA are assembled is dictated by the
sequence of the genomic DNA from which it is transcribed. RNA performs many
physiological functions, and specialized RNA molecules carry out the assembly of
amino acids into proteins.

SOLID-PHASE PEPTIDE SYNTHESIS -- A strategy for chemical synthesis of amino
acids into peptides.

SPECTROSCOPY -- Any study which uses electromagnetic radiation (light
waves, X-rays, radio waves, etc.)

<PAGE>
INDEX TO FINANCIAL STATEMENTS

INDEX

PAGE
---------

Financial Statements:

Report of Independent Auditors........................... F-2

Balance Sheets........................................... F-3

Statements of Operations................................. F-4

Statements of Changes in Shareholders' Equity............ F-5

Statements of Cash Flows................................. F-6

Notes to Financial Statements............................ F-7-F-14

F-1

<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Commonwealth Biotechnologies, Inc.

We have audited the accompanying balance sheets of Commonwealth Biotechnologies,
Inc. (the Company) as of December 31, 1996 and 1995, and the related statements
of income, changes in shareholders' equity, and cash flows for the years then
ended. 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 Commonwealth Biotechnologies,
Inc. at December 31, 1996 and 1995, and the results of its operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.

/s/ GOODMAN & COMPANY, L.L.P.

7301 Forest Avenue
Richmond, Virginia
June 10, 1997
(except for Notes 2, 11, 12 and 13,
as to which the date is June 25, 1997)

F-2

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
PROFORMA
JUNE 30, JUNE 30, DECEMBER 31,
1997 1997 1996 1995
----------- ----------- --------- ---------
<S> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents.............................................. $ 8,264,005 $ 2,861,205 $ 260,357 $ 1,115
Accounts receivable.................................................... 181,625 181,625 116,437 79,015
Prepaid expenses....................................................... 1,929 1,929 1,080 --
----------- ----------- --------- ---------
Total current assets........................................... 8,447,559 3,044,759 377,874 80,130
----------- ----------- --------- ---------
Property and equipment, net.............................................. 543,386 543,386 243,611 100,749
----------- ----------- --------- ---------
Other assets
Organization costs, net................................................ 2,004 2,004 3,183 5,539
Deposits............................................................... 400 400 9,525 400
Deferred loan costs.................................................... -- 373,731 -- --
----------- ----------- --------- ---------
Total other assets............................................. 2,404 376,135 12,708 5,939
----------- ----------- --------- ---------
$ 8,993,349 $ 3,964,280 $ 634,193 $ 186,818
----------- ----------- --------- ---------
----------- ----------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Demand note payable.................................................... $ 42,000 $ 42,000 $ -- $ --
Current portion of long-term debt...................................... 59,455 59,455 37,293 25,468
Current portion of capital lease obligation............................ -- -- -- 19,862
Accounts payable....................................................... 144,706 144,706 48,944 33,004
Distributions payable to shareholders.................................. 59,612 59,612 -- --
Deferred revenue....................................................... -- -- 200,000 1,830
Convertible subordinated notes payable................................. -- 3,000,000 -- --
----------- ----------- --------- ---------
Total current liabilities...................................... 305,773 3,305,773 286,237 80,164
Long-term debt......................................................... 270,456 270,456 185,687 --
Long-term portion of capital lease obligation.......................... -- -- -- 43,998
----------- ----------- --------- ---------
Total liabilities.............................................. 576,229 3,576,229 471,924 124,162
----------- ----------- --------- ---------
Shareholders' equity
Common stock, no par value, 10,000,000 shares authorized, 71,273 shares
issued and outstanding at June 30, 1997 (unaudited) and December 31,
1996 and 1995 and on a proforma basis, 1,586,273 shares issued and
outstanding at June 30, 1997 (unaudited)............................ 760 760 760 760
Additional paid-in capital............................................. 8,416,360 387,291 134,662 65,604
Retained earnings (deficit)............................................ -- -- 26,847 (3,708)
----------- ----------- --------- ---------
Total stockholders' equity..................................... 8,417,120 388,501 162,269 62,656
----------- ----------- --------- ---------
$ 8,993,349 $ 3,964,280 $ 634,193 $ 186,818
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>

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

F-3

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996 1996 1995
---------- -------- -------- --------
(UNAUDITED)
<S> <C>
Revenue
Laboratory services...................................................... $1,059,212 $428,302 $989,925 $369,301
---------- -------- -------- --------
Costs and expenses
Cost of services......................................................... 296,272 84,003 237,726 79,948
Sales, general and administrative........................................ 255,798 129,415 323,820 220,891
Research and development................................................. 213,535 88,642 308,484 69,861
---------- -------- -------- --------
Total cost and expenses.......................................... 765,605 302,060 870,030 370,700
---------- -------- -------- --------
Operating income (loss).................................................... 293,607 126,242 119,895 (1,399)
Other income (expense)
Interest expense......................................................... (10,675) (3,771) (10,102) (10,545)
Interest income.......................................................... 3,355 50 295 54
---------- -------- -------- --------
Total other income (expense)..................................... (7,320) (3,721) (9,807) (10,491)
---------- -------- -------- --------
Net income (loss).......................................................... 286,287 122,521 110,088 (11,890)
---------- -------- -------- --------
---------- -------- -------- --------
Proforma presentation applicable to conversion from S Corporation to
C Corporation
Net income (loss) before proforma income tax expense....................... $ 286,287 $122,521 $110,088 $(11,890)
Proforma Income tax expense................................................ 124,653 24,545 49,651 22,092
---------- -------- -------- --------
Proforma net income (loss)................................................. $ 161,634 $ 97,976 $ 60,437 $(33,982)
---------- -------- -------- --------
---------- -------- -------- --------
Proforma earnings (loss) per common and common equivalent share............ $ 0.32 $ 0.19 $ 0.12 $ (0.07)
Proforma weighted average common and common equivalent
shares outstanding....................................................... 506,273 506,273 506,273 506,273
---------- -------- -------- --------
---------- -------- -------- --------
</TABLE>

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

F-4

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
NUMBER ADDITIONAL RETAINED
OF SHARES COMMON PAID-IN EARNINGS
OUTSTANDING STOCK CAPITAL (DEFICIT) TOTAL
----------- ------ ---------- --------- -----------
<S> <C>
Balance at January 1, 1995.................................. 71,273 $760 $ -- $ 8,182 $ 8,942
Net income (loss)........................................... -- -- -- (11,890) (11,890)
Contributed services........................................ -- -- 65,604 -- 65,604
----------- ------ ---------- --------- -----------
Balance at December 31, 1995................................ 71,273 760 65,604 (3,708) 62,656
Net income.................................................. -- -- -- 110,088 110,088
Contributed services........................................ -- -- 69,058 -- 69,058
Distributions............................................... -- -- -- (79,533) (79,533)
----------- ------ ---------- --------- -----------
Balance at December 31, 1996................................ 71,273 760 134,662 26,847 162,269
Net income (unaudited)...................................... -- -- -- 286,287 286,287
Contributed services (unaudited)............................ -- -- 36,346 -- 36,346
Distributions (unaudited)................................... -- -- -- (37,239) (37,239)
Distribution payable to shareholders for payment of income
taxes through June 25, 1997 (unaudited)................... -- -- -- (59,612) (59,612)
Effects of conversion to C Corporation (unaudited).......... -- -- 216,283 (216,283) --
----------- ------ ---------- --------- -----------
Balance at June 30, 1997 (unaudited)........................ 71,273 760 387,291 -- 388,051
Proforma effects of the conversion of convertible
subordinated notes to common stock at a conversion price
of $6.00 per share (unaudited)............................ 500,000 -- 2,626,269 -- 2,626,269
Proforma effects of the intial public offering of 1,015,000
shares of common stock at $6.00 per share
(unaudited)............................................... 1,015,000 -- 5,402,800 -- 5,402,800
----------- ------ ---------- --------- -----------
Proforma Balance at June 30, 1997 (unaudited)............... 1,586,273 $760 $8,416,360 $ -- $ 8,417,120
----------- ------ ---------- --------- -----------
----------- ------ ---------- --------- -----------
</TABLE>

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

F-5

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996 1996 1995
---------- --------- --------- --------
(UNAUDITED)
<S> <C>
Cash flows from operating activities
Net income (loss)....................................................... $ 286,287 $ 122,521 $ 110,088 $(11,890)
---------- --------- --------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 56,813 21,409 54,382 38,938
Contributed services................................................. 36,346 34,529 69,058 65,605
Changes in:
Accounts receivable................................................ (65,188) (55,147) (37,422) (40,225)
Prepaid expenses................................................... (849) (2,338) (1,080) 5,457
Deposits........................................................... 9,125 -- -- --
Accounts payable................................................... 95,762 (2,984) 15,940 (1,865)
Deferred revenue................................................... (200,000) (1,830) 198,170 1,830
---------- --------- --------- --------
Total adjustments............................................... (67,991) (6,361) 299,048 69,740
---------- --------- --------- --------
Net cash provided by (used in) operating activities............. 218,296 116,160 409,136 57,850
---------- --------- --------- --------
Cash flows from investing activities
Purchases of property and equipment..................................... (355,409) (159,783) (194,798) (961)
Deposits................................................................ -- -- (9,125) 5,752
---------- --------- --------- --------
Net cash provided by (used in) investing activities............. (355,409) (159,783) (203,923) 4,791
---------- --------- --------- --------
Cash flows from financing activities
Proceeds from issuance of long-term debt................................ 126,540 149,948 231,000 --
Proceeds from notes payable............................................. 42,000 -- -- --
Principal payments on long-term debt.................................... (19,609) (25,468) (33,578) (41,007)
Principal payments on capital lease obligations......................... -- (6,080) (63,860) (18,545)
Principal payments on related party notes payable....................... -- -- -- (7,500)
Proceeds from issuance of convertible subordinated notes, net of
deferred loan costs.................................................. 2,626,269 -- -- --
Shareholder distributions............................................... (37,239) (38,981) (79,533) --
---------- --------- --------- --------
Net cash provided by (used in) financing activities....................... 2,737,961 79,419 54,029 (67,052)
---------- --------- --------- --------
Net (decrease) increase in cash and cash equivalents...................... 2,600,848 35,796 259,242 (4,411)
Cash and cash equivalents, beginning of period............................ 260,357 1,115 1,115 5,526
---------- --------- --------- --------
Cash and cash equivalents, end of period.................................. $2,861,205 $ 36,911 $ 260,357 $ 1,115
---------- --------- --------- --------
---------- --------- --------- --------
Supplemental disclosure of cash flow information
Cash paid during the period for interest................................ $ 10,675 $ 3,771 $ 10,102 $ 10,545
---------- --------- --------- --------
---------- --------- --------- --------
</TABLE>

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

F-6

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 AND 1995

NOTE 1 -- ORGANIZATION

Commonwealth Biotechnologies, Inc., a Virginia S Corporation (the
"Company"), was formed on September 30, 1992, for the purpose of providing
specialized analytical laboratory services for the life scientist. The Company
provides basic research services in the general areas of protein/peptide and
DNA/RNA chemistries. Such services include synthesis, sequence analysis,
composition analysis, protein purification and biophysical characterization of
biologically relevant materials. The Company also pursues its own research and
development leading to intellectual properties.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL INFORMATION

The unaudited financial statements as of June 30, 1997, and for the six
months ended June 30, 1997 and 1996, include, in the opinion of management, all
adjustments necessary to present fairly the Company's financial position,
results of operations, changes in shareholders' equity and cash flows. All such
adjustments are of a normal and recurring nature. The results of operations for
the unaudited six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997.

REVENUE RECOGNITION

The Company recognizes revenue and related profit upon the completion of
laboratory service projects, or upon the delivery and acceptance of biologically
relevant materials that have been synthesized in accordance with project terms.
Laboratory service projects are generally administered under fee-for-service
contracts or purchase orders. Any revenues from research and development
arrangements, including corporate contracts and research grants, are recognized
pursuant to the terms of the related agreements as work is performed, or as
scientific milestones, if any, are achieved. Amounts received in advance of
services to be performed, or acceptance of milestones, are recorded as deferred
revenue.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation and amortization
expense is recorded over the estimated useful lives of the assets. The
straight-line method is used by the Company in providing depreciation and
amortization for financial reporting purposes. The cost of repairs and
maintenance is expensed as incurred. The estimated useful lives of assets are as
follows:

Laboratory equipment..................................... 5 years
Furniture and fixtures................................... 7 years
Computer equipment and improvements...................... 30 months to 5 years

OTHER ASSETS

Other assets consist of the organizational costs associated with the
formation of the Company and are amortized over five years.

INCOME TAXES AND SUBSEQUENT EVENT

The Company has been an S Corporation since January 1, 1993 for federal
income tax purposes. Accordingly, the taxable income or loss of the Company has
been "passed-through" to its shareholders, and they have been subject to the tax
on any income earned by the Company.

F-7

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

As more fully described in Note 11, the Company organized a private
placement offering of convertible subordinated notes, which caused the income
tax status of the Company to change. Management believes that the Company is no
longer eligible for S Corporation status effective June 25, 1997. Therefore, at
June 25, 1997, the undistributed earnings were treated as a constructive
distribution to the original shareholders and as a contribution to additional
paid-in capital. As a C Corporation, the Company will be responsible for income
taxes payable resulting from earnings subsequent to June 25, 1997. Additionally,
under the provisions of Financial Accounting Standards Board ("FASB") Statement
No. 109, ACCOUNTING FOR INCOME TAXES, deferred tax assets and liabilities are
computed based on the difference between the financial statement and tax bases
of assets and liabilities using currently enacted tax rates.

At June 30, 1997 (unaudited) and December 31, 1996, the Company's deferred
taxes would have consisted of differences attributable to the cash basis of
accounting and accelerated methods of depreciation used for income tax purposes.
If the Company had been a C Corporation for all periods presented, at June 30,
1997, its current tax liability for federal and state taxes would have been
$124,653; its deferred tax liabilities would have been $66,075 and its retained
earnings would be decreased by $199,652. At December 31, 1996, its current tax
liability for federal and state taxes would have been $39,931; its deferred tax
liabilities would have been $35,068 and its retained earnings would be decreased
by $74,999.

RESEARCH & DEVELOPMENT

Costs incurred in connection with research and development activities are
expensed as incurred. These consist of direct and indirect costs associated with
specific research and development projects.

ADVERTISING COSTS

The Company expenses all advertising costs as incurred. Total advertising
expense for the six months ended June 30, 1997 (unaudited), June 30, 1996
(unaudited), and for the years ended December 31, 1996 and 1995 was $23,263,
$8,751, $25,008 and $26,286, respectively.

PROFORMA EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

The proforma earnings per common and common equivalent share were computed
by dividing the proforma net income, including applying the effects of proforma
income taxes, by the weighted average number of shares of common stock and
common stock equivalents outstanding during each period. Common stock
equivalents include the effect of the Company's convertible subordinated notes
and warrants that are assumed to be exercised or converted into common stock for
the earliest period presented. The Company's warrants are antidilutive. However,
pursuant to Securities and Exchange Commission ("SEC") rules (Staff Accounting
Bulletin No. 83), shares of stock sold, stock options and warrants granted and
convertible subordinated notes issued within one year of the date of the
comtemplated initial public offering (but exclusive of the initial public
offering itself) have been included in the calculation of common stock
equivalents, using the treasury stock method, as if they were outstanding for
all periods presented, even if the effect is antidilutive.

The number of shares outstanding for the purpose of presenting proforma
earnings per common and common equivalent share gives effect retroactively for
the 93.78-for-one stock split that occurred on June 17, 1997. After giving
retroactive effect to the stock split, the weighted average number of shares
outstanding during the year ended December 31, 1996 and the six months ended
June 30, 1997 (unaudited) was 71,273. For December 31, 1996 and 1995, and June
30, 1997 (unaudited) and June 30, 1996 (unaudited), the average common
equivalent shares used to calculate proforma earnings per common and common
equivalent share were 473,773. This includes the Company's presently outstanding
common shares of 71,273, 500,000 shares relating to the Company's convertible
subordinated notes on an "as if converted" basis, and the antidilutive effect of
the Company's 100,000 warrants converted using the Treasury Stock method to
reduce the shares outstanding by 65,000. The antidilutive component results from
the exercise price of $9.90 for each of the Company's warrants being greater
than the $6.00 anticipated market price of the Company's common stock.

F-8

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

CREDIT RISK

The Company provides laboratory services primarily to researchers in North
America (United States, Canada). Other major clients are located in South
America (Brazil, Colombia), in the far east (Japan, Korea), and in Europe
(Norway, Sweden, Germany, Italy, France, Greece). For projects exceeding $5,000,
the Company mitigates its credit risk by requiring a deposit of 50% of total
anticipated billings. The Company performs ongoing credit evaluations of its
customers and generally does not require additional collateral on its laboratory
services. However, the Company provides a charge to bad debts when, in the
opinion of management, such balances are not deemed to be collectible.

The Company primarily invests its excess cash in a money market fund
administered by an institutional investment firm and also in overnight deposits
managed by a financial institution and, at times, these deposits may exceed
federally insured limits.

ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

NOTE 3 -- PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- --------- --------
(UNAUDITED)
<S> <C>
Laboratory equipment.......................................................... $ 685,637 $ 359,476 $180,574
Vehicles...................................................................... 25,029 -- --
Furniture and fixtures........................................................ 1,925 1,925 --
Office equipment and improvements............................................. 21,201 16,983 3,012
----------- --------- --------
733,792 378,384 183,586
Less accumulated depreciation and
amortization................................................................ (190,406) (134,773) (82,837)
----------- --------- --------
Property and equipment, net................................................... $ 543,386 $ 243,611 $100,749
----------- --------- --------
----------- --------- --------
</TABLE>

Long-term debt consists of the following at:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- --------- --------
(UNAUDITED)

<S> <C>
Term note payable at an interest rate of 10% to NationsBank collateralized by
a first priority security interest in the Company's accounts receivable,
chattel paper, equipment and intangibles, and due in equal monthly payments
of principal and interest of $2,235 through December 1996................... $ -- $ -- $ 25,468
Term note payable at an interest rate of 9.195% to Crestar Bank collateralized
by a first priority security interest in the Company's accounts receivable,
chattel paper, equipment and intangibles, and due in equal monthly payments
of principal and interest of $2,144 through March 2002...................... 98,701 -- --
Term note payable at an interest rate of 9% to Crestar Bank, collateralized by
a security interest in a Company vehicle, and due in equal monthly payments
of principal and interest of $455 through August 2002....................... 23,177 -- --
</TABLE>

F-9

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- PROPERTY AND EQUIPMENT -- (CONTINUED)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- --------- --------
(UNAUDITED)
<S> <C>
Term note payable at an interest rate of 8.75% to Crestar Bank, collateralized
by a security interest in the Company's accounts receivable, chattel paper,
equipment and intangibles, and due in equal monthly payments of principal
and interest of $4,150 through October 2001................................. 178,033 192,980 --
Enterprise Zone incentive loan payable to the City of Richmond, collateralized
by equipment and due in ten annual installments of $3,000 plus interest at
3% beginning in September 1997. Enterprise Zone incentive loans provide for
an alternative means of repayment in lieu of cash. Each year, any increase
over 1996 in real estate, machinery and tools, and business licenses taxes
will directly curtail, on a dollar for dollar basis, the interest and then
principal payments on the loan.............................................. 30,000 30,000 --
----------- --------- --------
329,911 222,980 25,468
Less -- current portion of long-term debt..................................... (59,455) (37,293) (25,468)
----------- --------- --------
$ 270,456 $ 185,687 $ --
----------- --------- --------
----------- --------- --------
</TABLE>

NOTE 4 -- LONG-TERM DEBT

Five-year maturities of long-term debt are as follows at December 31, 1996:

<TABLE>
<S> <C>
1997................................................................................ $ 37,293
1998................................................................................ 40,417
1999................................................................................ 43,826
2000................................................................................ 47,545
2001................................................................................ 38,899
Thereafter.......................................................................... 15,000
--------
$222,980
--------
--------
</TABLE>

NOTE 5 -- DEMAND NOTE PAYABLE

The Company has a demand note payable to Crestar Bank in the amount of
$42,000 at June 30, 1997. The note bears interest at the rate of prime plus 1%.
Interest is payable monthly. The note is unsecured.

NOTE 6 -- CAPITAL LEASE OBLIGATIONS

The Company acquired, in January 1994, certain computer equipment for its
laboratory from Hewlett Packard Company under a capital lease in the amount of
$104,500. The lease terms called for monthly lease payments of $2,049 to be made
through December 1998 at an implicit lease rate of 8.44%. The lease was paid off
during 1996. Accumulated depreciation and depreciation expense on the assets
previously subject to capital lease amounted to $41,800 at December 31, 1996 and
$20,900 for 1996, respectively.

F-10

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- COMMITMENTS AND CONTINGENCIES

LEASES

During 1996 and 1995, the Company was engaged in a noncancellable operating
lease for its laboratory and office space from the Virginia Biotechnology
Research Park in Richmond, Virginia as a sub-landlord for the City of Richmond.
The monthly rental payment through the culmination of the lease at June 30, 1997
is $691.

Beginning July 1, 1997, the Company will lease its current laboratory and
office space, directly from the City of Richmond. The monthly rental payment
will increase to $3,222. The initial term of the lease will extend through June
30, 2000, however, either party may cancel the lease with nine months notice.

The Company also leases certain of its office equipment under a
noncancelable lease agreement which expires in October 1999.

Future minimum payments under these noncancelable operating leases at
December 31 are as follows:

1997............................................................. $27,354
1998............................................................. 13,542
1999............................................................. 11,199
-------
$52,095
-------
-------

Total rent expense for all operating leases for each of the years ended
December 31, 1996 and 1995 was $8,291.

SALES COMMITMENTS

In December 31, 1996, the Company entered into a contract with one customer
to perform structural studies on a proprietary protein product totaling
approximately $200,000. As of December 31, 1996, no services have been rendered
pursuant to this contract.

At December 31, 1996, the Company is performing under contract with several
companies. These companies include Insmed Pharmaceuticals (Richmond, Virginia),
Bayer Corporation (Clayton, North Carolina, Raleigh, North Carolina, West Haven,
Connecticut and Berkley, California), Breastek, Inc. (Charleston, South
Carolina) and Somatix Therapeutics Corporation (Alameda, California). The
Company is the major biochemistry subcontractor to a grant issued by the
University of New Mexico, Department of Chemical and Nuclear Engineering at
Albuquerque, New Mexico.

SPONSORED RESEARCH CONTRACT AND CONSULTING AGREEMENT

The Company entered into a sponsored research agreement (the "Agreement")
with Virginia Commonwealth University (the "University") on November 15, 1992.
Unless canceled by written notification by either party, the Agreement
automatically renews annually. The Agreement allows CBI personnel access to
equipment located within the academic laboratories of certain professors, who
are also officers of the Company. The laboratories are located on the campus of
the Medical College of Virginia (an affiliate of the University). The Agreement
carries a fee for service schedule, which allows for payment to the University
for use of the equipment. The Company has since purchased its own equipment and
reduced its dependence on the University's equipment to a level that total
payments made to the University are approximately $1,200 per calendar quarter.

NOTE 8 -- RETIREMENT PLAN

Effective October 1, 1996, the Company adopted an employee 401(k)
retirement plan. Qualified employees may contribute up to 15% of their gross pay
to the plan. Employee contributions are limited to amounts established by law.
The Company may make matching contributions to the plan as determined by the
Board of Directors subject to the limitations under the Internal Revenue Code.
The Company made no contributions to the Plan during the six-month period ended
June 30, 1997 (unaudited), or in 1996 or 1995.

F-11

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- MAJOR CUSTOMERS

The Company had the following revenue concentrations that exceeded 10% for
any of the periods presented:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C>
Bayer Pharmaceuticals, AG..................................................... $ 200,000 $ -- $ --
Small Business Technology Transfer Research Grant Phase I..................... -- -- 39,000
Small Business Technology Transfer Research Grant Phase II.................... 98,450 63,773 --
Small Business Technology Transfer Research 2 Grant Phase I................... -- 90,766 6,460
Small Business Technology Transfer Research 3 Grant Phase I................... 53,096 26,025 --
University of New Mexico Grant................................................ 96,873 124,423 64,359
----------- -------- --------
$ 448,419 $304,987 $109,819
----------- -------- --------
----------- -------- --------
</TABLE>

These research revenues represent 42.34%, 30.81% and 29.74% of total
revenue for the six months ended June 30, 1997 (unaudited) and for the years
ended December 31, 1996 and 1995, respectively.

NOTE 10 -- COMPENSATION AND BENEFIT COSTS

Compensation and benefit costs are included in the statements of operations
as follows:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C>
Cost of services.............................................................. $ 119,982 $104,703 $ 21,346
Selling, general and administrative expenses.................................. 91,834 106,954 95,724
Research and development costs................................................ 142,848 176,444 50,672
----------- -------- --------
$ 354,664 $388,101 $167,742
----------- -------- --------
----------- -------- --------
</TABLE>

NOTE 11 -- PRIVATE PLACEMENT AND PROPOSED INITIAL PUBLIC OFFERING ("IPO")

On June 24, 1997, the Company declared a 93.78-for-1 stock split which has
been retroactively reflected in the accompanying financial statements.

On June 25, 1997, the Company sold 60 convertible subordinated notes
("notes"), with a principal amount of $50,000, in a private placement offering
at an offering price of $50,000 per note. Each note bears interest at the rate
of 20% and is payable upon the conversion of the note into shares of the
Company's common stock. Interest will be paid through the date of the conversion
in the form of additional shares of common stock that will be issued based on a
conversion price of $6.00 for each share of common stock. Each note will be
automatically converted into a minimum of 8,333.33 shares of the Company's
common stock, upon the earlier of the closing of the Company's proposed IPO, or
on June 25, 1998, the maturity date. Upon conversion, the actual number of
shares issued will equal the principal amount of the notes plus accrued interest
divided by the stated conversion price of $6.00. The Company received net
proceeds of $2,626,269, after underwriting and other offering costs of $373,731.

Upon the closing of the private placement offering, the Company issued
warrants to members of Management for the purchase of 100,000 shares of common
stock. The warrants were issued to the management team at $.001 per share, and
will be exercisable for a period of ten years at an exercise price of $9.90 per
share.

The Company intends to file a Form SB-2 Registration Statement with the
Securities and Exchange Commission for the sale of 1,015,000 shares of common
stock. The proceeds are expected to be used to acquire laboratory equipment,
additional personnel, expand existing facilities, expand marketing and
advertising and fund working capital.

F-12

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12 -- STOCK COMPENSATION

The Company adopted its Incentive Plan (the "Plan") on June 24, 1997. The
Incentive Plan provides for the granting to employees, officers, directors,
consultants and certain non-employees of the Company of options to purchase
shares of common stock. The maximum number of shares of common stock that may be
issued pursuant to options under the Plan is 410,000. This amount is subject to
adjustment in the event of a stock split, stock dividend or other change in the
common stock or capital structure of the Company. Of the maximum number of
shares to be issued under the Plan, 270,000 will be reserved for incentive
awards to be granted to the four founders of the Company, and 140,000 shares
will be reserved for incentive awards to be granted to other persons.

Incentive awards may be in the form of stock options, restricted stock,
incentive stock or tax offset rights. In the case of incentive stock options or
non-qualified stock options, the exercise price will not be less than 100% of
the fair market value of shares covered at the time of the grant. Options
granted under the Plan vest immediately at the date of grant and are exercisable
for ten years, except that the term may not exceed five years for incentive
stock options granted to persons who own more than 10% of the Company's
outstanding common stock.

The Company applies APB Opinion No. 25 and related accounting
interpretations in accounting for its Plan and, accordingly, no compensation
cost has been recognized. Had compensation cost for the Company's Plan been
determined based on the fair value at the grant dates for awards under the Plan
consistent with the method prescribed by FASB No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, the Company's net income and earnings per share would
have been reduced to the proforma amounts indicated below as if the Plan had
been in effect for the periods presented:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
<S> <C>
(UNAUDITED)
Net income As previously reported $ 286,287 $110,088
As previously reported to include proforma
tax effect from conversion to C
Corporation.............................. $ 161,634 $ 60,437
Proforma application of FASB 123, as if
included with C Corporation conversion... $ 113,813 $ 12,616
Earnings per common and common equivalent As previously reported to include proforma
share tax effects from conversion to C
Corporation.............................. $ 0.32 $ 0.12
Proforma application of FASB 123 to include
C Corporation conversion................. $ 0.22 $ 0.02
</TABLE>

Under FASB No. 123, the fair value of each Management Warrant is estimated
on the date of grant using the Black-Scholes option pricing model. The following
assumptions were used for the grant made on June 24, 1997. The expected dividend
yield is 0%, since the Company does not presently plan to pay dividends in the
foreseeable future. The risk-free interest rate used was 6.4%, and the expected
life of the warrrants is ten years. As provided for by FASB No. 123, volatility
does not have to be considered for calculating the fair value of the Management
Warrants, since the Company is not yet publicly traded.

NOTE 13 -- EMPLOYMENT AGREEMENTS

On June 24, 1997, the Company entered into employment agreements with its
four founders. Each of the agreements has a term of five years with specified
base salaries and provide for successive one-year terms. In addition, the
employment agreements provide the Company's executive officers with annual
bonuses equal to, in the aggregate, 15% of the Company's pre-tax net income for
the preceding fiscal year. The bonuses for the Company's executive officers for
the fiscal year ending December 31, 1997 will equal the greater of 15% of the
Company's pre-tax net income or $150,000.

In connection with the aforementioned employment agreements, the Company
has recognized the fair value for services rendered by its founders in its
financial statements. The financial statement recognition is achieved by
reflecting a charge

F-13

<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- EMPLOYMENT AGREEMENTS -- (CONTINUED)

against income for contributed services and a contribution to additional paid-in
capital for all of the periods presented. The fair value of the charges have
been established based on the approximate number of hours worked by the
Company's founders annually, and application of a base hourly rate that
increases approximately 5% annually to the approximate hourly rate reflected in
the agreement applied at July 24, 1997.

The contributed services charged against income for the six-months ended
June 30, 1997 (unaudited), June 30, 1996 (unaudited), and for the years ended
December 31, 1996 and 1995 was $36,346, $34,529, $69,058 and $65,604,
respectively. Of the these amounts, the charges allocated to sales, general and
administrative expenses for the six-months ended June 30, 1997 (unaudited), June
30, 1996 (unaudited), and the years ended December 31, 1996 and 1995 were
$33,173, $31,514, $63,029 and $59,877, respectively. The contributed services
allocated to research and development costs for the six-months ended June 30,
1997 (unaudited), June 30, 1996 (unaudited), and the years ended December 31,
1996 and 1995 were $3,173, $3,015, $6,029 and $5,727, respectively.

F-14

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

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MAKE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATED ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------

TABLE OF CONTENTS

PAGE
----
Prospectus Summary............................. 5
Risk Factors................................... 8
Special Note Regarding Forward-Looking
Statements................................... 12
Use of Proceeds................................ 12
Dividend Policy................................ 13
Dilution....................................... 13
Capitalization................................. 14
Selected Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 19
Management..................................... 25
Principal Shareholders......................... 30
Certain Relationships and Related
Transactions................................. 31
Description of Capital Stock................... 32
Shares Eligible for Future Sale................ 34
Selling Securityholders........................ 35
Plan of Distribution for
Selling Securityholders...................... 37
Underwriting................................... 38
Legal Matters.................................. 39
Experts........................................ 39
Available Information.......................... 39
Glossary....................................... 40
Index to Financial Statements.................. F-1

Until , 1997, all dealers effecting transactions in the
registered securities, whether or not participating in the distribution, may be
required to deliver a prospectus. This is in addition to the obligations of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.

1,015,000 SHARES

[INSERT LOGO]

COMMON STOCK

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

ANDERSON & STRUDWICK
INCORPORATED

, 1997

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

<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article VI of the Company's Articles of Incorporation provides as follows:

The Corporation shall indemnify(a) any person who was, is or may become a
party to any proceeding, including a proceeding brought by a shareholder in the
right of the Corporation or brought by or on behalf of shareholders of the
Corporation, by reason of the fact that he is or was a director or officer of
the Corporation, or (b) any director or officer who is or was serving at the
request of the Corporation as a director, trustee, partner or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability incurred by him in connection with such
proceeding unless he engaged in willful misconduct or a knowing violation of
criminal law. A person is considered to be serving an employee benefit plan at
the Corporation's request if his duties to the Corporation also impose duties
on, or otherwise involve securities by, him to the plan or to participants in or
beneficiaries of the plan. The Board of Directors is hereby empowered, by a
majority vote of a quorum of disinterested Directors, to enter into a contract
to indemnify any Director or officer in respect of any proceedings arising from
any act or omission, whether occurring before or after the execution of such
contract.

Section 8 of the Underwriting Agreement, filed as Exhibit 1.1 hereto
provides for reciprocal indemnification between the Registrant and the
Underwriter against certain liabilities in connection with the Offering,
including liabilities under the Securities Act.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock being registered, other than the Underwriter's selling commissions.
All of the following expenses will be paid by the Company.

Commission Filing Fee...................................... $ 3,435.00
Nasdaq SmallCap Fee........................................ $ 7,843.00
NASD Filing Fee............................................ $ 1,633.00
Blue Sky Fees and Expenses................................. $ 10,000.00
Printing and Engraving Expenses............................ $ 20,000.00
Accounting Fees and Expenses............................... $ 45,000.00
Legal Fees and Expenses.................................... $ 100,000.00
Transfer Agent and Registrar Fees.......................... $ 5,000.00
Miscellaneous Fees and Expenses............................ $ 7,089.00
------------
Total (Estimated)................................ $ 200,000.00
------------
------------

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

Since October 13, 1994, the Company has sold and issued the following
unregistered securities:

On June 25, 1997, the Company sold subordinated convertible notes in an
aggregate principal amount of $3,000,000 to 42 accredited investors in an
offering exempt from registration pursuant to Rule 506 of Regulation D
promulgated under the Securities Act. Such notes accrue interest from June 25,
1997 through the date of conversion at a rate of 20% per annum and are payable
in shares of Common Stock at a rate of $6.00 per share. The Underwriter served
as placement agent in connection with such private placement and received a
$240,000 placement fee.

On June 25, 1997, the Company issued the Management Warrants to four
executive officers of the Company for $.001 per warrant. Each Management Warrant
entitles the holder to purchase one share of Common Stock at an exercise price
of $9.90 per share. The Management Warrants are exercisable for a period of ten
years following the issuance thereof.

The Company believes that all of the transactions noted above that were
entered into with officers, directors and principal shareholders were made or
will be made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal shareholders will be approved
in accordance with the Virginia law by a majority of the Board, including a
majority of the independent and

II-1

<PAGE>
disinterested directors of the Board, and will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.

The sales and issuance of the securities in the above transactions were
deemed to be exempt under the Securities Act by virtue of Section 4(2) thereof
as transactions not involving any public offering. The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends were affixed to
the certificates issued in such transactions.

ITEM 27. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -------------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement, as amended**
1.2 Form of Selected Dealers Agreement*
1.3 Form of Escrow Agreement, as amended*
3.1 Amended and Restated Articles of Incorporation of Registrant*
3.2 Amended and Restated Bylaws of Registrant*
4.1 Form of Common Stock Certificate*
4.2 Form of Subordinated Convertible Note*
4.3 Form of Underwriter's Warrant, as amended*
4.4 Form of Management Warrant, as amended*
5.1 Opinion of LeClair Ryan, A Professional Corporation*
10.1 Placement Agreement between the Company and the Underwriter relating to the Private Placement*
10.2 Warrant Agreement between the Company and the Underwriter relating to the Offering, as amended*
10.3 Warrant Agreement between the Company and Richard J. Freer, as amended*
10.4 Warrant Agreement between the Company and Thomas R. Reynolds, as amended*
10.5 Warrant Agreement between the Company and Gregory A. Buck, as amended*
10.6 Warrant Agreement between the Company and Robert B. Harris, as amended*
10.7 Employment Agreement for Richard J. Freer*
10.8 Employment Agreement for Thomas R. Reynolds*
10.9 Employment Agreement for Gregory A. Buck*
10.10 Employment Agreement for Robert B. Harris*
10.11 Executive Severance Agreement for Richard J. Freer*
10.12 Executive Severance Agreement for Thomas R. Reynolds*
10.13 Executive Severance Agreement for Gregory A. Buck*
10.14 Executive Severance Agreement for Robert B. Harris*
10.15 1997 Stock Incentive Plan, as amended*
10.16 Form of Incentive Stock Option Agreement*
11.1 Statement re: computation of per share earnings*
23.1 Consent of Goodman & Company, L.L.P.**
23.2 Consent of LeClair Ryan, A Professional Corporation (included in Exhibit 5.1 hereto)*
24.1 Power of Attorney*
27.1 Financial Data Schedule*
</TABLE>

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

* Previously filed

** Filed herewith

ITEM 28. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of

II-2

<PAGE>
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee"table in the effective registration
statement; and

(iii) Include any additional or changed material information on the
plan of distribution.

Provided, however, that paragraphs 1 (i) and 1 (ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment of
any of the securities being registered which remain unsold at the termination of
the offering.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer 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 small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer 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 Securities Act and will be governed by the final adjudication
of such issue.

The registrant hereby undertakes that:

(1) For the purpose 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 is declared effective.

(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 this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

The undersigned small business issuer undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.

II-3

<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act, the Registrant
certifies that has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the in the City of Richmond,
Commonwealth of Virginia, on October 14, 1997.

COMMONWEALTH BIOTECHNOLOGIES, INC.

By: /s/ RICHARD J. FREER, PH.D.
----------------------------
RICHARD J. FREER, PH.D.,
CHAIRMAN OF THE BOARD

Pursuant to the requirement of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:

<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ ---------------------------------------- -------------------

<S> <C>
* Chairman of the Board (Principal October 14, 1997
- ------------------------------------------------------ Executive Officer) and Director
RICHARD J. FREER, PH.D.

/S/ ROBERT B. HARRIS, PH.D. President and Director October 14, 1997
- ------------------------------------------------------
ROBERT B. HARRIS, PH.D.

* Secretary, Vice President and Director October 14, 1997
- ------------------------------------------------------
GREGORY A. BUCK, PH.D.

* Vice President and Director October 14, 1997
- ------------------------------------------------------
THOMAS R. REYNOLDS

* Director October 14, 1997
- ------------------------------------------------------
CHARLES A. MILLS, III

* Director October 14, 1997
- ------------------------------------------------------
PETER C. EINSELEN

* Chief Operating Officer (Principal October 14, 1997
- ------------------------------------------------------ Financial Officer)
CHESTER M. TRZASKI

/S/ ROBERT B. HARRIS, PH.D.
- ------------------------------------------------------
ROBERT B. HARRIS, PH.D.
ATTORNEY-IN-FACT
</TABLE>

II-4

<PAGE>
EXHIBIT INDEX

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

* Previously filed

** Filed herewith

COMMONWEALTH BIOTECHNOLOGIES, INC.
(a Virginia corporation)

1,015,000 Shares of Common Stock

($6.00 per share)

UNDERWRITING AGREEMENT

________ ___, 1997

Anderson & Strudwick, Incorporated
1108 E. Main Street
Richmond, Virginia 23219

Ladies and Gentlemen:

The undersigned, Commonwealth Biotechnologies, Inc., a Virginia
corporation (the "Company"), hereby confirms its agreement with you as follows:

1. Introduction. This Agreement sets forth the understandings and
agreements between the Company and you whereby, subject to the terms and
conditions herein contained, you will offer to sell, on a best efforts
all-or-none basis on behalf of the Company as provided in Section 4.(a) (the
"Offering"), at an offering price of $6.00 per share, 1,015,000 shares of common
stock (the "Common Stock"), to be issued by the Company (the "Shares").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to them in the Prospectus prepared by the Company and dated
_________ ___, 1997 (the "Prospectus").

2. Representations and Warranties of the Company. The Company makes the
following representations and warranties to you. Certain exceptions to the
representations and warranties are set forth in the disclosure schedule attached
hereto as Exhibit A (the "Disclosure Schedule"), and no matter set forth in the
Disclosure Schedule shall constitute a breach of the representations and
warranties for any purpose of this Agreement.

(a) Registration Statement and Prospectus. The Company
has prepared and filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (File No. 333-31731) (as
defined below, the "Registration Statement") conforming to the requirements of
the Securities Act of 1933, as amended (the

<PAGE>

"1933 Act"), and the applicable rules and regulations (the "Rules and
Regulations") of the Commission. Such amendments to such Registration Statement
as may have been required prior to the date hereof have been filed with the
Commission, and such amendments have been similarly prepared. Copies of the
Registration Statement, any and all amendments thereto prepared and filed with
the Commission, and each related Preliminary Prospectus, and the exhibits,
financial statements and schedules, as finally amended and revised, have been
delivered to you for review.

The term "Registration Statement" as used in this
Agreement shall mean the Company's Registration Statement on Form SB-2,
including the Prospectus, any documents incorporated by reference therein, and
all financial schedules and exhibits thereto, as amended on the date that the
Registration Statement becomes effective. The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Shares in the form in which
it was filed with the Commission pursuant to Rule 424(b) of the 1933 Act or, if
no filing pursuant to Rule 424(b) of the 1993 Act is required, shall mean the
form of the final prospectus included in the Registration Statement when the
Registration Statement becomes effective. The term "Preliminary Prospectus"
shall mean any prospectus included in the Registration Statement before it
becomes effective. The terms "effective date" and "effective" refer to the date
the Commission declares the Registration Statement effective pursuant to Section
8 of the 1933 Act.

(b) Adequacy of Disclosure. Each Preliminary Prospectus filed
on or after _______________, 1997, at the time of filing thereof, conformed in
all material respects to the requirements of the 1933 Act and the Rules and
Regulations, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by you expressly for use in
the Registration Statement. When the Registration Statement shall become
effective, when the Prospectus is first filed pursuant to Rule 424(b) of the
Rules and Regulations, when any amendment to the Registration Statement becomes
effective, when any supplement to the Prospectus is filed with the Commission
and on the Closing Date (as hereinafter defined), (i) the Registration
Statement, the Prospectus and any amendments thereof and supplements thereto
will conform in all material respects with the applicable requirements of the
1933 Act and the Rules and Regulations, and (ii) neither the Registration
Statement, the Prospectus nor any amendment or supplement thereto will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by you expressly
for use in the Registration Statement.

<PAGE>

(c) No Stop Order. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus with respect to
the Shares, and no proceedings for that purpose have been instituted or
threatened by the Commission or the state securities or blue sky authority of
any jurisdiction.

(d) Company: Organization and Qualification. The Company has
been duly incorporated and is validly existing in good standing as a corporation
under the laws of the Commonwealth of Virginia with all requisite corporate
power and authority to enter into this Agreement, to conduct its business as now
conducted and as proposed to be conducted, and to own and operate its
properties, investments and assets, as described in the Registration Statement
and Prospectus, and is qualified to do business and in good standing as a
foreign corporation in each other jurisdiction in which the failure so to
qualify could reasonably be expected to have a material adverse effect on the
Company. Except as set forth on the Disclosure Schedule, the Company is not in
violation of any provision of its articles of incorporation, bylaws or other
governing documents and is not in default under or in breach of, and does not
know of the occurrence of any event that with the giving of notice or the lapse
of time or both would constitute a default under or breach of, any term or
condition of any material agreement or instrument to which it is a party or by
which any of its properties, investments or assets is bound, except as disclosed
in the Registration Statement and Prospectus. The Company does not own or
control, directly or indirectly, any other corporation, association, or other
entity. The Company has furnished to you copies of its articles of incorporation
and bylaws, as amended, and all such copies are true, correct and complete and
contain all amendments thereto through the Closing Date.

(e) Validity of Shares. The Shares have been duly and validly
authorized by the Company, and upon issuance, will be validly issued, fully paid
and nonassessable, with no personal liability attaching to the ownership
thereof, and will conform to the description thereof contained in the
Prospectus. The preferences, rights and limitations of the Shares are set forth
in the Prospectus under the caption "Description of Capital Stock". No party has
any preemptive rights with respect to any of the Shares or any right of
participation or first refusal with respect to the sale of the Shares by the
Company. No person or entity holds a right to require or participate in the
registration under the 1933 Act of the Shares pursuant to the Registration
Statement except for those persons and entities whose shares of Common Stock or
other securities are being so registered in the Registration Statement; and,
except as set forth in the Prospectus, no person holds a right to require
registration under the 1933 Act of any Common Stock of the Company at any other
time. The form of certificates evidencing the Shares complies with all
applicable requirements of Virginia law.

(f) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under the caption
"Description of Capital Stock." All of the issued and outstanding shares of
Common Stock of the Company have been duly authorized, validly issued, fully
paid and are non-assessable. Except as disclosed in the

<PAGE>

Prospectus or as set forth on the Disclosure Schedule, there is no outstanding
option, warrant or other right calling for the issuance of, and no commitment,
plan or arrangement to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable for capital stock of the Company.

(g) Full Power: Company. The Company has full legal right,
power, and authority to enter into this Agreement and the Escrow Agreement among
the Company, Crestar Bank (the "Escrow Agent") and you (the "Escrow Agreement"),
to issue and deliver the Shares as provided herein and in the Prospectus and to
consummate the transactions contemplated herein and in the Prospectus. Each of
this Agreement and the Escrow Agreement have been duly authorized, executed, and
delivered by the Company and constitutes a valid and binding agreement of the
Company, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
liquidation, reorganization, or similar laws affecting creditors' rights
generally, regardless of whether such enforceability is considered in equity or
at law, (ii) general equity principles, and (iii) limitations imposed by federal
and state securities laws or the public policy underlying such laws regarding
the enforceability of indemnification or contribution provisions.

(h) Disclosed Agreements. All agreements between or among the
Company and third parties expressly referenced in the Prospectus are legal,
valid, and binding obligations of the Company, enforceable in accordance with
their respective terms, except to the extent enforceability may be limited by
(i) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar
laws affecting creditors' rights generally, regardless of whether such
enforceability is considered in equity or at law, (ii) general equity principles
and (iii) limitations imposed by federal or state securities laws or the public
policy underlying such laws regarding the enforceability of indemnification or
contribution provisions.

(i) Consents. Except as disclosed in the Registration
Statement and Prospectus or as set forth on the Disclosure Schedule, each
consent, approval, authorization, order, license, certificate, permit,
registration, designation or filing by or with any governmental agency or body
or any other third party necessary for the valid authorization, issuance, sale
and delivery of the Shares, the execution, delivery and performance of this
Agreement and the consummation by the Company of the transactions contemplated
hereby and by the Registration Statement and Prospectus, except such as may be
required under the 1933 Act, the Securities Exchange Act of 1934, as amended
(the "1934 Act"), or under state securities laws has been made or obtained and
is in full force and effect.

(j) Litigation. There is not pending or, to the knowledge of
the Company, threatened or contemplated, any action, suit, proceeding, inquiry,
or investigation before or by any court or any federal, state, or local
governmental authority or agency to which the Company may be a party, or to
which any of the properties or rights of the Company may be

<PAGE>

subject, that is not described in the Registration Statement and Prospectus and
(i) that may reasonably be expected to result in any material adverse change in
the condition (financial or otherwise) or business of the Company; or (ii) that
may reasonably be expected to materially adversely affect any of the material
properties of the Company; or (iii) that may reasonably be expected to adversely
affect the consummation of the transactions contemplated by this Agreement, nor,
to the knowledge of the Company, is there any meritorious basis therefor.

(k) Financial Statements. The financial statements of the
Company together with related schedules and notes included in the Registration
Statement and Prospectus present fairly the financial position of the Company as
of the dates indicated and the results of operations and cash flows for the
periods specified. Such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
during the periods involved. The financial statement schedules included in the
Registration Statement and the amounts in the Prospectus under the captions
"Prospectus Summary-Summary Financial Information" and "Selected Financial Data"
fairly present the information shown therein and have been compiled on a basis
consistent with the financial statements included in the Registration Statement
and the Prospectus. No other financial statements or schedules are required by
Form SB-2 or otherwise to be included in the Registration Statement, the
Prospectus or any Preliminary Prospectus. The unaudited pro forma financial
information (including the related notes) included in the Prospectus or any
Preliminary Prospectus complies as to form in all material respects to the
applicable accounting requirements of the 1933 Act and the Rules and
Regulations, and management of the Company believes that the assumptions
underlying the pro forma adjustments are reasonable. Such pro forma adjustments
have been properly applied to the historical amounts in the compilation of the
information and such information fairly presents with respect to the Company the
financial position, results of operations and other information purported to be
shown therein at the respective dates and for the respective periods specified.

(l) Independent Accountants. Goodman & Company, L.L.P., the
accountants that have expressed an opinion on the financial statements that are
included in the Registration Statement and Prospectus are, and Goodman &
Company, L.L.P. was during the periods covered by their Reports included in the
Registration Statement and Prospectus, with respect to the Company, to the
Company's knowledge, independent public accountants as required by the 1933 Act
and the Rules and Regulations.

(m) Disclosed Liabilities. The Company has not sustained,
since December 31, 1996, any material loss or interference with its business
from fire, explosion, flood, hurricane, accident, or other calamity, whether or
not covered by insurance, or from any labor dispute or arbitrators' or court or
governmental action, order, or decree, otherwise than as set forth or
contemplated in the Registration Statement and Prospectus; and, since the
respective dates as of which information is given in the Registration Statement
and Prospectus, and except as otherwise stated in the Registration Statement and
Prospectus or as set forth on the

<PAGE>

Disclosure Schedule, there has not been (i) any material change in the capital
stock, long-term debt, obligations under capital leases, or short-term
borrowings of the Company, (ii) any material adverse change, or any development
that could be reasonably be seen as involving a prospective material adverse
change in or affecting the business, prospects, properties, assets, results of
operations or condition (financial or other) of the Company, (iii) any liability
or obligation, direct or contingent, incurred or undertaken by the Company that
is material to the business or condition (financial or other) of the Company,
except for liabilities or obligations incurred in the ordinary course of
business, (iv) any declaration or payment of any dividend or distribution of any
kind on or with respect to the capital stock of the Company, or (v) any
transaction that is material to the Company, except transactions in the ordinary
course of business or as otherwise disclosed in the Registration Statement and
Prospectus.

(n) Required Licenses and Permits. Except as disclosed in the
Prospectus, the Company owns, possesses, has obtained or in the ordinary course
of business will obtain, and has made available for your review, all material
permits, licenses, franchises, certificates, consents, orders, approvals, and
other authorizations of governmental or regulatory authorities as are necessary
to own or lease, as the case may be, and to operate its properties and to carry
on its business as presently conducted, or as contemplated in the Prospectus to
be conducted (the "Permits"), and the Company has not received any notice of
proceedings relating to revocation or modification of any such Permits.

(o) Internal Accounting Measures. To the knowledge of the
Company, the Company's system of internal accounting controls taken as a whole
is sufficient to meet the broad objectives of internal accounting control
insofar as those objectives pertain to the prevention or detection of errors or
irregularities in amounts that would be material in relation to the Company's
financial statements; and, to the knowledge of the Company, none of the Company
or any employee or agent thereof, has made any payment of funds of the Company,
or received or retained any funds of the Company, and no funds of the Company
have been set aside to be used for any payment, in each case in violation of any
law, rule, or regulation.

(p) Taxes. The Company has timely filed all required federal
and state tax returns, and has paid all taxes that have become due and have no
tax deficiency asserted against the Company, and the Company does not know of
any tax deficiency that is likely to be asserted against the Company that if
determined adversely to the Company, would, either individually or in the
aggregate, have a material adverse effect on the business, prospects,
properties, assets, results of operations, or condition (financial or otherwise)
of the Company. All tax liabilities are adequately provided for on the books of
the Company.

(q) Compliance with Instruments. Except as set forth on the
Disclosure Schedule, the execution, delivery and performance of this Agreement
and the Escrow Agreement, the compliance with the terms and provisions hereof
and the consummation of the transactions contemplated herein, therein and in the
Registration Statement and Prospectus by

<PAGE>

the Company, do not and will not violate or constitute a breach of, or default
under (i) the articles of incorporation or bylaws of the Company; (ii) any of
the material terms, provisions, or conditions of any material instrument,
agreement, or indenture to which the Company is a party or by which it is bound
or by which its business, assets, investments or properties may be affected; or
(iii) any order, statute, rule, or regulation applicable to the Company, or any
of its business, investments, assets or properties, of any court or any federal,
state or local (to the knowledge of the Company) governmental authority or
agency having jurisdiction over the Company, or any of its business,
investments, properties or assets; and to the knowledge of the Company do not
and will not result in the creation or imposition of any lien, charge, claim, or
encumbrance upon any property or asset of the Company.

(r) Insurance. The Company maintains insurance (issued by
insurers of recognized financial responsibility) of the types and in the amounts
generally deemed adequate for its business and, to the knowledge of the Company,
consistent with insurance coverage maintained by similar companies and similar
businesses, all of which insurance is in full force and effect.

(s) Work Force. To the knowledge of the Company, no
general labor problem exists or is imminent with the employees of the Company.

(t) Securities Matters. The Company and its officers,
directors, or affiliates have not taken and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in or constitute the stabilization or manipulation of any
security of the Company or to facilitate the sale or resale of the Shares.

(u) Environment. To the Company's knowledge, after due
inquiry, the Company has duly complied with, and its business, operations,
assets, equipment, property, leaseholds or other facilities are in compliance
with, the provisions of all federal, state and local environmental, health,
nuclear regulatory and safety laws, codes and ordinances, and all rules and
regulations promulgated thereunder. To the Company's knowledge, after due
inquiry, the Company has been issued, or in the ordinary course of business is
in the process of obtaining, and will maintain all required federal, state and
local permits, licenses, certificates and approvals relating to (1) air
emissions, (2) discharges to surface water or groundwater, (3) noise emissions,
(4) solid or liquid waste disposal, (5) the use, generation, storage,
transportation or disposal of radioactive or otherwise toxic or hazardous
substances or wastes (which shall include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules and regulations
promulgated thereunder as hazardous or potentially hazardous), or (6) other
environmental, health, nuclear regulatory or safety matters. The Company has not
received notice of, and does not know of or suspect facts which might constitute
violations of any federal, state or local environmental, health, nuclear
regulatory or safety laws, codes or ordinances, or any rules or regulations
promulgated thereunder with respect to its business, operations, assets,
equipment, property, leaseholds, or

<PAGE>

other facilities, which could reasonably be expected to have a material adverse
effect on the Company. Except in accordance with a valid governmental permit,
license, certificate or approval, the Company has made no emission, spill,
release or discharge into or upon (1) the air, (2) soils, or any improvements
located thereon, (3) surface water or groundwater, or (4) the sewer, septic
system or waste treatment, storage or disposal system servicing the premises, of
any radioactive or otherwise toxic or hazardous substances or wastes at or from
the premises of the Company. To the knowledge of the Company, there has been no
complaint, order, directive, claim, citation or notice by any governmental
authority or any person or entity with respect to (1) air emissions, (2) spills,
releases or discharges to soils or improvements located thereon, surface water,
groundwater or the sewer, septic system or waste treatment, storage or disposal
systems servicing the premises, (3) noise emissions, (4) solid or liquid waste
disposal, (5) the use, generation, storage, transportation or disposal of
radioactive or otherwise toxic or hazardous substances or waste, or (6) other
environmental, health or safety matters affecting the Company or its business,
operations, assets, equipment, property, leaseholds or other facilities. To the
knowledge of the Company, the Company does not have any indebtedness, obligation
or liability (absolute or contingent, matured or not matured), with respect to
the storage, treatment, cleanup or disposal of any solid wastes, hazardous
wastes or other radioactive or otherwise toxic or hazardous substances
(including without limitation any such indebtedness, obligation, or liability
with respect to any current regulation, law or statute regarding such storage,
treatment, cleanup or disposal).

(v) Investment Company Act. The Company is not, and will not
become as a result of the consummation of the Offering, an "investment company"
or an entity which that "controls" or is "controlled by" an "investment
company," as such terms are defined under the Investment Company Act of 1940, as
amended (the "1940 Act").

(w) Receipt of Commissions and Fees. Except as stated in or
contemplated by the Prospectus, neither the Company nor any affiliate of the
Company has received or is entitled to receive, directly or indirectly, any
compensation or other benefit, including, but not limited to, any finder's fee,
acquisition fee, selection fee, nonrecurring management fee or other fee or
commission, relating to the investments of the Company.

(x) Payment of Commissions and Fees. Except as stated in or
contemplated by the Prospectus, neither the Company nor any affiliate of the
Company has paid or awarded, nor will any such person pay or award, directly or
indirectly, any commission or other compensation to any person engaged to render
investment advice to a potential purchaser of Shares as an inducement to advise
the purchase of Shares.

3. Representations and Warranties of Placement Agent. You
represent and warrant to the Company that:

<PAGE>

(a) You are a member, in good standing, of the National
Association of Securities Dealers, Inc. ("NASD"), and are duly registered as a
broker-dealer under the 1934 Act, and under the laws of each state in which you
propose to offer the Shares, except where such registration would not be
required by law.

(b) This Agreement when accepted and approved will be duly
authorized, executed and delivered by you and is a valid and binding agreement
of you, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
liquidation, reorganization, or similar laws affecting creditors' rights
generally, regardless of whether such enforceability is considered in equity or
at law, (ii) general equity principles, and (iii) limitations imposed by federal
and state securities laws or the public policy underlying such laws regarding
the enforceability of indemnification or contribution provisions.

(c) The consummation of the transactions contemplated by the
Prospectus relating to the Offering will not violate or constitute a breach of,
or default under, your articles of incorporation or bylaws, or any material
instrument, agreement, or indenture to which you are a party, or violate any
order applicable to you of any federal or state regulatory body or
administrative agency having jurisdiction over you or your property.

4. Sale of Shares.

(a) Exclusive Agency. The Company hereby appoints you as its
exclusive agent to offer for sale, and hereby agrees to sell during the Offering
Period (as defined in Section 4.(c)), 1,015,000 Shares of Common Stock, and on
the basis of the representations and warranties herein contained but subject to
the terms and conditions herein set forth, you accept such appointment and agree
to use your best efforts as agent to offer the Shares for sale for the account
of the Company, on a cash basis only at the offering price of $6.00 per Share.
During the Offering Period, the Company will not sell or agree to sell any debt
or equity securities otherwise than through you. Subject to your commitment to
the sell the Shares on a "best efforts all-or-none basis" as provided herein,
nothing in this Agreement shall prevent you from entering into an agency
agreement, underwriting agreement, or other similar agreement governing the
offer and sale of securities with any other issuer of securities, and nothing
contained herein shall be construed in any way as precluding or restricting your
right to sell or offer for sale securities issued by any other person, including
securities similar to, or competing with, the Shares. It is understood between
the parties that there is no firm commitment by you to purchase any or all of
the Shares.

(b) Obligation to Offer Shares. Your obligation to offer the
Shares is subject to receipt by you of written advice from the Commission that
the Registration Statement is effective, is subject to the Shares being
qualified for offering under applicable laws in the states as may be reasonably
designated by you, is subject to the absence of any

<PAGE>

prohibitory action by any governmental body, agency, or official, and is subject
to the terms and conditions contained in this Agreement and in the Registration
Statement.

(c) Offering Termination Date. The "Offering Period" shall
commence on the day that the Prospectus is first made available to prospective
investors in connection with the offering for sale of the Shares and shall
continue until the "Offering Termination Date," which shall be the earlier of
(i) the date all of the Shares offered have been sold, (ii) November 21, 1997,
or (iii) an earlier termination date as determined by you as permitted herein.
The Company and you agree that unless all of the 1,015,000 Shares offered are
sold on or before the Offering Termination Date, the agency between the Company
and you will terminate, and the full proceeds that have been paid for the Shares
will be returned to the purchasers.

(d) Escrow Agent. Prior to the sale of all of the Shares, all
funds received from purchasers of the Shares shall be placed in an escrow
account (the "Escrow Account") with the Escrow Agent pursuant to the Escrow
Agreement, the form of which is attached as Exhibit 1.3 to the Registration
Statement, and all payments of, from or on account of such funds shall be made
pursuant to the Escrow Agreement. In the event that all of the Shares are not
sold on or before the Offering Termination Date, all funds then held in the
Escrow Account shall be returned promptly to the respective purchasers as
provided in the Escrow Agreement.

(e) Closing Date. As and when the closing of the Offering is
effected, which shall be on or before the Offering Termination Date, and
proceeds from the Shares sold are received and accepted, on such date (the
"Closing Date") and at such time and place as determined by you (which
determination shall be subject to the satisfaction on such date of the
conditions contained herein), the funds received from purchasers will be
delivered by the Escrow Agent to the Company, by wire transfer of immediately
available funds, except for the Selling Commissions payable to you and to
selected dealers on your behalf ("Selected Dealers") on the Closing Date
pursuant to the provisions of Section 4.(f) of this Agreement (which Selling
Commissions shall be delivered to you by the Escrow Agent on behalf of the
Company on the Closing Date).

(f) Selling Commissions. In consideration for your execution
of this Agreement and for the performance of your obligations hereunder, the
Company agrees to pay you, as provided in Section 4.(e) of this Agreement, by
wire transfer of immediately available funds on the Closing Date, if any, a
Selling Commission computed at the rate of eight percent (8.0%) of the public
offering price of the Shares sold by you. With respect to Shares sold by
Selected Dealers, the Escrow Agent shall pay the Selected Dealer on your behalf
a Selling Commission computed at the rate of four percent (4%) of the public
offering price per Share and shall pay you a Selling Commission of four percent
(4%) of the public offering price per Share. In addition, on the Closing Date,
we will issue to you a warrant for the purchase of

<PAGE>

101,500 additional shares of Common Stock, substantially in the form of Exhibit
B attached to this Agreement.

(g) Finder's Fees. Except as set forth in the Registration
Statement or Prospectus, neither you nor the Company, directly or indirectly,
shall pay or award any finder's fee, commission, or other compensation to any
person engaged by a potential purchaser for investment advice as an inducement
to such advisor to advise the purchase of the Shares or for any other purpose.

(h) Delivery of Share Certificates. Delivery of certificates
in definitive form representing the Shares shall be made at the offices of
Newbridge Securities, Inc. or at such other place as shall be agreed upon by the
Company and you, on such date as you may request (the "Date of Delivery"). The
certificates representing the Shares shall be in such denominations and
registered in such names as you may request in writing at least three full
business days before the Date of Delivery. The certificates representing the
Shares will be made available for examination and packaging at the offices of
Newbridge Securities, Inc. or at such other place as shall be agreed upon by the
Company and you, not later than at least two (2) full business days prior to
each Date of Delivery.

5. Covenants.

(a) Covenants of the Company. The Company covenants with
you as follows:

(i) Notices. The Company immediately will
notify you, and confirm such notice in writing, (A) of any fact that would make
inaccurate any representation or warranty by the Company, and (B) of any change
in facts on which your obligation to perform under this Agreement is dependent.

(ii) Effectiveness of Registration Statement.
The Company will use its best efforts to cause the Registration Statement to
become effective (if not yet effective at the date and time this Agreement is
executed and delivered by the parties hereto). If the Company elects to rely
upon Rule 430A of the Rules and Regulations or the filing of the Prospectus is
otherwise required under Rule 424(b) of the Rules and Regulations, and subject
to the provisions of Section 5.(a)(iii) of this Agreement, the Company will
comply with the requirements of Rule 430A and will file the Prospectus, properly
completed, pursuant to the applicable provisions of Rule 424(b) within the time
prescribed. The Company will notify you immediately, and confirm the notice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement, shall have become effective, or any supplement to
the Prospectus, or any amended Prospectus shall have been filed, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission to amend the Registration Statement or amend or supplement the
Prospectus or for additional

<PAGE>

information, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus or the suspension
of the qualification of the Shares for offering or sale in any jurisdiction, or
of the institution or threatening of any proceeding for any such purposes. The
Company will use all reasonable efforts to prevent the issuance of any such stop
order or of any order preventing or suspending such use and, if any such order
is issued, to obtain the withdrawal thereof at the earliest possible moment.

(iii) Amendments to Registration Statement
and Prospectus. The Company will not at any time file or make any amendment to
the Registration Statement, or any amendment or supplement (i) to the
Prospectus, if the Company has not elected to rely upon Rule 430A, or (ii) if
the Company has elected to rely upon Rule 430A, to either the Prospectus
included in the Registration Statement at the time it becomes effective or to
the Prospectus filed in accordance with Rule 424(b), in either case if you shall
not have previously been advised and furnished a copy thereof a reasonable time
prior to the proposed filing, or if you or your counsel shall reasonably object
to such amendment or supplement; provided, however, that if you shall have
objected to such amendment or supplement, you shall cease your efforts to sell
the Shares until an amendment or supplement is filed.

(iv) Delivery of Registration Statement. The
Company has delivered to you or will deliver to you, without expense to you, at
such locations as you shall request, as soon as the Registration Statement or
any amended Registration Statement is available, such number of signed copies of
the Registration Statement as originally filed and of amended Registration
Statements, if any, copies of all exhibits and documents filed therewith, and
signed copies of all consents and certificates of experts, as you may reasonably
request.

(v) Delivery of Prospectus. The Company will
deliver to you at its expense, from time to time, as many copies of each
Preliminary Prospectus as you may reasonably request, and the Company hereby
consents to the use of such copies for purposes permitted by the 1933 Act. The
Company will deliver to you at its expense, as soon as the Registration
Statement shall have become effective and thereafter from time to time as
requested during the period when the Prospectus is required to be delivered
under the 1933 Act, such number of copies of the Prospectus (as supplemented or
amended) as you may reasonably request. The Company will comply to the best of
its ability with the 1933 Act and the Rules and Regulations so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and in the prospectus. If the delivery of a prospectus is required at any time
prior to the expiration of nine months after the time of issue of the Prospectus
in connection with the offering or sale of the Shares and if at such time any
events shall have occurred as result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made when such Prospectus is
delivered not misleading or, if for any reason it shall be

<PAGE>

necessary during the same period to amend or supplement the Prospectus in order
to comply with the 1933 Act, the Company will notify you and upon your request
prepare and furnish without charge to you and to any dealer in securities as
many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus that will correct such statement or
omission or effect such compliance, and in case you are required to deliver a
prospectus in connection with sales of any of the Shares at any time after
__________________, upon your request but at your expense, the Company will
prepare and deliver to you as many copies as you may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the 1933 Act.

(vi) Blue Sky Qualification. The Company, in
good faith and in cooperation with you, will use its best efforts to qualify the
Shares for offering and sale under the applicable "blue sky" or securities laws
of such jurisdictions as you from time to time may reasonably designate and to
maintain such qualifications in effect until the date on which the Company
ceases to be obligated to maintain the effectiveness of the Registration
Statement, as provided in Section 5.(a)(xvi) below; provided, however, that the
Company shall not be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to make any undertakings in
respect of doing business in any jurisdiction in which it is not otherwise so
subject. The Company will file such statements and reports as may be required by
the laws of each jurisdiction in which the Shares have been qualified as above
provided.

(vii) Financial and Other Information.

(A) Earnings Statement. The Company
will make generally available to its securityholders, in the manner specified in
Rule 158(b) under the 1933 Act and deliver to you as soon as practicable and in
any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earnings statement meeting the requirements of Rule 158(a) under the
1933 Act covering a period of at least twelve consecutive months beginning after
the effective date of the Registration Statement.

(B) Annual and Quarterly Reports. The
Company will furnish to its securityholders, as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year. For a period
through and including ___________, 2002, the Company will furnish to you: (i)
concurrently with the date on which the same shall be sent to the
securityholders of the Company, if applicable, and in any event not later than
sixty (60) days after the end of each fiscal quarter of the Company, statements
of operations of the Company for each of the first three quarters in the form
furnished to the Company's securityholders; (ii) concurrently with the date on
which the same shall be sent to the securityholders of the Company, if
applicable, and in any event not later than one hundred twenty (120) days after
the end of each fiscal year

<PAGE>

of the Company, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of cash flows, and of
securityholders' equity of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent public accountants;
(iii) as soon as they are available, copies of all reports (financial or
otherwise) mailed to securityholders; and (iv) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange, or the NASD. During the period through and
including ___________, 2002, the foregoing financial statements shall be made on
a consolidated basis to the extent that the accounts of the Company are
consolidated with any subsidiaries, and shall be accompanied by similar
financial statements for any significant subsidiary that is not so consolidated.

(C) Press Releases. For a period
through and including ______________, 2002, the Company will furnish to you,
concurrently with the release thereof, one copy of every press release to be
issued and every material news item and article in respect of the Company or its
affairs to be released by the Company; and promptly, such additional documents
and information with respect to the Company and its affairs as you from time to
time may reasonably request.

(D) Other Information. For a period
through and including ____________, 2002, the Company will furnish to you any
additional information of a public nature concerning the Company or its business
that you may reasonably request in writing.

(E) Notice of Major Events. Until the
Offering Termination Date, the Company will notify you in writing promptly, but
in any event not later than two (2) business days after any officer of the
Company becomes aware of the occurrence of any of the following events:

(1) Material Litigation. The
Company shall have become a party to one or more suits, actions or proceedings
which, if adversely determined, could have a material adverse effect on the
business, properties, operations or condition, financial or otherwise, of the
Company taken as a whole;

(2) Defaults. The Company has
received notice of any default or failure to perform any covenant or failure to
maintain any representation or warranty by the Company under any agreement
relating to indebtedness for money borrowed to which the Company is a party;

(3) Material Adverse Change.
Any condition shall exist (i) which would cause the representations and
warranties set forth herein to not be true and correct in all material respects
or (ii) which has resulted in or which is likely, in the reasonable judgment of
the Company, to result in a material adverse change in the business, properties,
operations or condition, financial or otherwise, of the Company taken as a
whole.

<PAGE>

(viii) Application of Net Proceeds. The
Company will apply the net proceeds received from the sale of the Shares in all
material respects as set forth in the Prospectus under the caption "Use of
Proceeds."

(ix) Solicitation of Purchasers; Right of First
Refusal.

(A) Except as hereinafter specified, the
Company will not, and will not permit any of its affiliates or agents to, (1)
engage in any offering or placement of any debt or equity security or long-term
debt other than in a commercial lending transaction, or pursuant to a stock
incentive plan, or in a transaction that would result in a change in control as
defined in the Incentive Plan for a period of three (3) years from the Closing
Date for which you are not acting as the underwriter or sales or placement
agent, unless you shall have failed to exercise a right of first refusal to act
as the underwriter or sales agent for the proposed offering within fifteen (15)
days of a notice from the Company of the proposed terms of the offering, (2)
solicit the purchasers of Shares in connection with any other offering of any
security for a period of three (3) years from the Closing Date, unless you shall
have been given a right of first refusal to conduct such solicitation or you are
notified and compensated therefor in an amount equal to 8.0% of the purchase
price of any securities purchased by any such purchaser, or (3) furnish the
names of such purchasers or of other potential investors obtained through you to
any person other than as may be required in connection with the normal and usual
conduct by the Company of its business or required by court order or law.

(B) The Company agrees and understands
that a violation of the provisions of Section 5.(a)(ix)(A)(2) or (3) of this
Agreement will cause you irreparable harm and injury and that any money damages
you receive will not compensate you for any breach thereof. Accordingly, the
Company agrees that, in addition to monetary damages, you will be entitled to
all such equitable relief including, without limitation, injunctive relief, as a
court of equity or proper jurisdiction shall deem appropriate in the
circumstances. Such relief shall not be exclusive of any rights you may have at
law or in equity. All of the rights and remedies you have hereunder shall be
cumulative and not alternative. The provisions of this Section shall not limit
your remedies upon the breach by the Company of any other section of this
Agreement.

(x) Cooperation with Your Due Diligence. At all
times prior to the Offering Termination Date, the Company will cooperate with
you in such investigation as you may make or cause to be made of all the
business and operations of the Company in connection with the sale of the
Shares, and will make available to you in connection therewith such information
in its possession as you may reasonably request, all of which you agree to
safeguard as the confidential information of the Company and to refrain from
using for any purpose adverse to the interests of the Company.

<PAGE>

(xi) Transfer Agent. The Company will maintain a
transfer agent and, if necessary under applicable jurisdictions, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.

(xii) Nasdaq. The Company will use its reasonable
best efforts to obtain the approval of its shares of Common Stock for quotation
on the quotation of its shares of Common Stock The Nasdaq Small Cap Market as
soon as practicable, and to maintain such status thereafter.

(xiii) Actions of Company, Officers, Directors, and
Affiliates. The Company will not and will use its best efforts to cause its
officers, directors, and affiliates not to (i) take, directly or indirectly,
prior to termination of the offering contemplated by this Agreement, any action
designed to stabilize or manipulate the price of any security of the Company, or
that may cause or result in, or that might in the future reasonably be expected
to cause or result in, the stabilization or manipulation of the price of any
security of the Company, to facilitate the sale or resale of any of the Shares,
(ii) other than under this Agreement, sell, bid for, purchase, or pay anyone any
compensation for soliciting purchases of the Shares or (iii) pay or agree to pay
to any person any compensation for soliciting any order to purchase any other
securities of the Company.

(xiv) Transactions with Affiliates. The Company will
not, and will not permit any wholly-owned subsidiary to, sell or transfer any
assets or services to, or purchase or acquire any assets or services of, or
otherwise engage in any transaction with, any of their respective affiliates,
except in the ordinary course of business and upon fair and reasonable terms no
less favorable than the Company or such wholly-owned subsidiary could obtain or
could become entitled to in an arm's-length transaction with a person which was
not any such affiliate.

(xv) Nasdaq National Market. The Company will use
its reasonable best efforts to obtain the approval of its shares of Common Stock
for quotation on The Nasdaq National Market as soon as practicable, and to
maintain such status thereafter.

(xvi) Maintenance of Registration. The Company will
maintain the effectiveness of the Registration Statement, and file and use its
best efforts to secure and maintain the effectiveness of all appropriate
post-effective amendments to the Registration Statement, until the earlier to
occur of (A) the sale of all shares of Common Stock and warrants to purchase
Common Stock that are included in the Registration Statement, other than the
Shares (collectively, the "Other Securities"), or (B) your written consent to
remove from registration any of the unsold Other Securities.

(b) Your Covenants. You covenant with the Company as
follows:

(i) Information Provided. You have not provided and
will not provide to the purchasers of Shares any written or oral information
regarding the business of

<PAGE>

the Company, including any representations regarding the Company's financial
condition or financial prospects, other than such information as is contained in
the Prospectus. You further covenant that you will use your best efforts to
comply in the offering of the Shares with such purchaser suitability
requirements as may be imposed by state securities or blue sky requirements.

(ii) Prospectus Supplements. Until the
termination of this Agreement, if any event affecting the Prospectus, the
Company or you shall occur which, in the opinion of counsel to the Company,
should be set forth in a supplement to the Prospectus, you agree to distribute
each supplement of the Prospectus to each person who has previously received a
copy of the Prospectus from you and you further agree to include such supplement
in all future deliveries of the Prospectus. You agree that following notice from
the Company that a supplement to the Prospectus is necessary, you will cease
further efforts to sell the Shares until such a supplement is prepared and
delivered to you.

(iii) Compliance with Laws, Etc. In your
sale of the Shares, you will comply in all material respects with applicable
federal and state laws, rules and regulations and the rules and regulations of
applicable self-regulatory organizations (provided, however, that you shall be
deemed not to have breached this covenant if your failure to so comply is based
on a breach by the Company of any of its representations, warranties or
covenants contained in this Agreement and you shall have complied with Section
5.(b)(ii) above).

6. Payment of Expenses. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, and subject to
the provisions of Section 10 of this Agreement, the Company hereby agrees that
it will pay all fees and expenses incident to the performance of its obligations
under this Agreement (excluding fees and expenses of counsel for you, except as
specifically set forth below), including (a) the preparation, printing and
filing of the Registration Statement (including financial statements and
exhibits), as originally filed and as amended, the Preliminary Prospectuses and
the Prospectus and any amendments or supplements thereto, and the cost of
furnishing copies thereof to you, (b) the preparation, printing, and
distribution of this Agreement, any Selected Dealer Agreement, the certificates
representing the Shares, the Blue Sky Memoranda, and any instruments relating to
any of the foregoing, (c) the issuance and delivery of the Shares, including any
transfer taxes payable thereon, (d) the fees and disbursements of the Company's
counsel and accountants, (e) the qualification of the Shares under applicable
securities laws in accordance with Section 5.(a) of this Agreement and any
filing fee paid in connection with the review of the offering by the NASD,
including filing fees and fees and disbursements made in connection therewith
and in connection with the Blue Sky Memoranda supplied to you by counsel for the
Company, (f) all costs, fees, and expenses in connection with the application
for qualifying the Shares for quotation on the Nasdaq Small Cap Market, (g) the
transfer agent's and registrar's fees and all miscellaneous expenses referred to
in Item 25 of the Registration Statement, (h) costs related to travel and
lodging incurred by the Company and its

<PAGE>

representatives relating to meetings with and presentations to prospective
purchasers of the Shares reasonably determined by you to be necessary or
desirable to effect the sale of the Shares to the public, (i) any escrow
arrangements in connection with the transactions described herein, including any
compensation or reimbursement to the Escrow Agent for its services as such, and
(j) all other costs and expenses incident to the performance of the Company's
obligations hereunder that are not otherwise specifically provided for in this
Section.

7. Conditions of Your Obligations. Your obligations hereunder
shall be subject to, in your discretion, the following terms and conditions:

(a) Effectiveness of Registration Statement. The Registration
Statement shall have become effective not later than 5:30 p.m. on the date of
this Agreement or, at such later time or on such later date as you may agree to
in writing; and as of the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or shall
be pending or, to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of the Commission
for additional information shall have been complied with to the satisfaction of
your counsel.

(b) Closing Date Matters. On the Closing Date, (i) the
Registration Statement and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the Rules and Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the Rules and
Regulations; the Company shall have complied in all material respects with Rule
430A (if it shall have elected to rely thereon) and neither the Registration
Statement nor the Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement, any material adverse
change in the business, prospects, properties, assets, results of operations or
condition (financial or otherwise) of the Company whether or not arising in the
ordinary course of business, (iii) no action, suit or proceeding at law or in
equity shall be pending or, to the Company's knowledge, threatened against the
Company that would be required to be set forth in the Prospectus other than as
set forth therein and no proceedings shall be pending or, to the knowledge of
the Company, threatened against the Company before or by any federal, state or
other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding could materially adversely affect the business,
prospects, assets, results of operations or condition (financial or otherwise)
of the Company other than as set forth in the Prospectus, (iv) the Company shall
have complied with all agreements and satisfied all conditions on their part to
be performed or satisfied on or prior to the Closing Date, and (v) the
representations and warranties of the Company set forth in Section 2 of this
Agreement shall be accurate in all material respects as though expressly made at
and as of the Closing Date. On each Closing

<PAGE>

Date, you shall have received a certificate executed by the President of the
Company, dated as of the Closing Date, to such effect and with respect to the
following additional matters: (A) the Registration Statement has become
effective under the 1933 Act and no stop order suspending the effectiveness of
the Registration Statement or preventing or suspending the use of the Prospectus
has been issued, and no proceedings for that purpose have been instituted or are
pending or, to his knowledge, threatened under the 1933 Act; and (B) he has
reviewed the Registration Statement and the Prospectus and, when the
Registration Statement became effective and at all times subsequent thereto up
to the delivery of such certificate, the Registration Statement and the
Prospectus and any amendments or supplements thereto contained all statements
and information required to be included therein or necessary to make the
statements therein not misleading and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
and, since the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented Prospectus that
has not been so set forth.

(c) Opinions of LeClair Ryan. At the Closing Date, you shall
receive the opinion of LeClair Ryan, a Professional Corporation, counsel for the
Company, in form and substance reasonably satisfactory to you, to the effect of
Exhibit C.

(d) Opinion of Your Counsel. At the Closing Date, you shall
receive the favorable opinion of Willcox & Savage, P.C., your counsel, with
respect to such matters as you may reasonably require, and the Company shall
have furnished to such counsel such documents as they may reasonably request for
the purpose of enabling them to pass on such matters.

(e) Independent Public Accountants. At the time that this
Agreement is executed by the Company, you shall have received from Goodman &
Company, L.L.P. a letter, dated the date hereof, in form and substance
satisfactory to you, confirming that they are independent public accountants
with respect to the Company within the meanings of the 1933 Act and the Rules
and Regulations, and stating in effect that:

(i) in their opinion, the financial statements
and any supplementary financial information and schedule included in the
Registration Statement and covered by their opinion therein comply as to form
and in all material respects with the applicable accounting requirements of the
1933 Act and the Rules and Regulations;

(ii) on the basis of limited procedures (set
forth in detail in such letter and made in accordance with such procedures as
may be specified by you) not constituting an audit in accordance with generally
accepted auditing standards, consisting of (but not limited to) a reading of the
latest available internal unaudited financial statements of

<PAGE>

the Company, a reading of the minute books of the Company, inquiries of
officials of the Company responsible for financial and accounting matters, and
such other inquiries and procedures as may be specified in such letter, nothing
came to their attention to cause them to believe that:

(A) the unaudited financial statements
and supporting schedule and other unaudited financial data of the Company
included in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and the
Rules and Regulations or are not presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement;

(B) any other unaudited income statement
data and balance sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited financial statements from which such data
and items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited financial statements included in the
Prospectus;

(C) any unaudited pro forma financial
information included in the Prospectus does not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the Rules and Regulations or the pro forma adjustments have not been
properly applied to historical amounts in the compilation of that information;

(D) at a specified date not more than
five (5) days prior to the date of such letter, there was any change in the
capital stock or long-term debt or obligations of the Company or there were any
decreases in net current assets or net assets, shareholders' equity, or other
items specified by you from that set forth in the Company's balance sheet at
March 31, 1996, except as described in such letter; and

(E) for the period from ____________,
1997 to a specified date not more than five (5) days prior to the date of such
letter, there were any decreases in revenues or operating income before
interest, depreciation and amortization for the Company, in each case as
compared with the corresponding period of the preceding year, except in each
case for decreases that the Prospectus discloses have occurred or may occur or
that are described in such letter; and

(iii) in addition to the procedures
referred to in clause (ii) above and the examination referred to in their
Reports including in the Registration Statement, they have carried out certain
specified procedures, not constituting an audit in accordance with generally
accepted auditing standards, with respect to certain amounts, percentages, and
financial information specified by you that are derived from the general
accounting records of the

<PAGE>

Company, that appear in the Registration Statement or the exhibits or schedules
thereto and are specified by you, and have compared such amounts, percentages,
and financial information with the accounting records of the Company and with
material derived from such records and have found them to be in agreement.

(f) Updated Comfort Letter. At each Closing Date, you shall
have received from Goodman & Company, L.L.P. a letter, in form and substance
satisfactory to you and dated as of the Closing Date, to the effect that they
reaffirm the statements made in the letter furnished pursuant to Section 7.(e)
above, except that the specified date referred to shall be a date not more than
five (5) days prior to the Closing Date.

(g) Post-Financial Developments. In the event that either of
the letters to be delivered pursuant to Sections 7.(e) and 7.(f) above sets
forth any changes, decreases or increases, it shall be a further condition to
your obligations that you shall have reasonably determined, after discussions
with officers of the Company responsible for financial and accounting matters
and with Goodman & Company, L.L.P., that such changes, decreases or increases as
are set forth in such letter do not reflect a material adverse change in the
capital stock, long-term debt, obligations under capital leases, total assets,
net current assets, or shareholders' equity of the Company as compared with the
amounts shown in the latest consolidated pro forma balance sheet of the Company,
or a material adverse change in the revenues or operating income before
interest, depreciation and amortization for the Company in each case as compared
with the corresponding period of the prior year.

(h) Additional Information. On the Closing Date, you shall
have been furnished with all such documents, certificates and opinions as you
may reasonably request for the purpose of enabling your counsel to pass upon the
issuance and sale of the Shares as contemplated in this Agreement and the
matters referred to in Section 7.(b), and in order to evidence the accuracy and
completeness of, any of the representations, warranties or statements of the
Company, the performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all proceedings taken
by the Company at or prior to the Closing Date in connection with the
authorization, issuance and sale of the Shares as contemplated in this
Agreement, shall be satisfactory in form and substance to you and to your
counsel. The Company will furnish you with such number of conformed copies of
such opinions, certificates, letters and documents as you shall reasonably
request. Any certificate signed by any officer, partner, or other official of
the Company and delivered to you or your counsel shall be deemed a
representation and warranty by the Company to you as to the statements made
therein.

(i) Adverse Events. Subsequent to the date hereof, there
shall not have occurred any of the following: (i) a suspension or material
limitation in trading in securities generally on the New York Stock Exchange or
American Stock Exchange or The Nasdaq National Market, (ii) a general moratorium
on commercial banking activities in Virginia or

<PAGE>

New York declared by either federal or state authorities, as the case may be,
(iii) the outbreak or escalation of hostilities involving the United States or
the declaration by the United States of a national emergency or war if the
effect of any such event specified in this clause (iii) in your reasonable
judgment makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares on the terms and in the manner
contemplated in the Prospectus, or (iv) such a material adverse change in
general economic, political, financial or international conditions affecting
financial markets in the United States having a material adverse impact on
trading prices of securities in general, as, in your reasonable judgment, makes
it impracticable or inadvisable to proceed with the public offering of the
Shares or the delivery of the Shares on the terms and in the manner contemplated
in the Prospectus.

(j) NASD Review. The NASD, upon review of the terms of the
public offering of the Shares, shall not have objected to such offering, the
terms of the offering or your participation in the offering.

If any of the conditions specified in this Section 7 shall not
have been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by you on notice to the Company at any time at or
prior to the Closing Date, and such termination shall be without liability of
any party to any other party, except as provided in Sections 6 and 10.
Notwithstanding any such termination, the provisions of Section 8 shall remain
in effect.

8. Indemnification and Contribution.

(a) Indemnification by the Company. The Company will indemnify
and hold you harmless against any losses, claims, damages, or liabilities, joint
or several, to which you may become subject under the 1933 Act, the 1934 Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any breach of any
representation, warranty or covenant of the Company herein contained or any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse you for any legal or other expenses reasonably incurred by you in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any such amendment or

<PAGE>

supplement, in reliance upon and in conformity with written information
furnished to the Company by you expressly for use therein; provided further,
that the indemnity agreement contained in Section 8.(a) with respect to any
Preliminary Prospectus shall not inure to your benefit if you failed to send or
give a copy of the Prospectus to such person at or prior to the written
confirmation of the sale of such Shares to such person in any case where such
delivery is required by the 1933 Act or the Rules and Regulations and if the
Prospectus would have cured any untrue statement or alleged untrue statement or
omission or alleged omission giving rise to such loss, claim, damage, or
liability. In addition to its other obligations under this Section 8.(a), the
Company agrees that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry, or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 8.(a), it will reimburse you on a monthly basis for
all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry, or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse you
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. Any such interim
reimbursement payments that are not made to you within thirty (30) days of a
request for reimbursement shall bear interest at the prime rate (or reference
rate or other commercial lending rate for borrowers of the highest credit
standing) published from time to time by The Wall Street Journal (the "Prime
Rate") from the date of such request. This indemnity agreement shall be in
addition to any liabilities that the Company may otherwise have. For purposes of
this Section 8, the information set forth in the last paragraph on the front
cover page (insofar as such information relates to you) and under "Underwriting"
in any Preliminary Prospectus and in the Prospectus constitutes the only
information furnished by you to the Company for inclusion in any Preliminary
Prospectus, the Prospectus, or the Registration Statement. The Company will not,
without your prior written consent, settle or compromise or consent to the entry
of any judgment in any pending or threatened action or claim or related cause of
action or portion of such cause of action in respect of which indemnification
may be sought hereunder (whether or not you are a party to such action or
claim), unless such settlement, compromise, or consent includes an unconditional
release of you from all liability arising out of such action or claim (or
related cause of action or portion thereof).

The indemnity agreement in this Section 8.(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls you within the meaning of the 1933 Act or the
1934 Act to the same extent as such agreement applies to you.

(b) Indemnification by You. You will indemnify and hold
harmless the Company against any losses, claims, damages, or liabilities to
which the Company may become subject, under the 1933 Act, the 1934 Act, or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any

<PAGE>

breach of any warranty or covenant by you herein contained or any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that (i) such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement, or the Prospectus or any such amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by you expressly for use therein, or (ii)
you failed to deliver an amendment or supplement to the Prospectus that the
Company made available to you prior to the Closing Date and that corrected any
statement or omission in a Preliminary Prospectus, the Registration Statement or
the Prospectus which forms the basis for a claim against the Company; and will
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such loss, claim,
damage, liability, or action. In addition to its other obligations under this
Section 8.(b), you agree that, as an interim measure during the pendency of any
such claim, action, investigation, inquiry, or other proceeding arising out of
or based upon any statement or omission, or any alleged statement or omission,
described in this Section 8.(b), you will reimburse the Company on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry, or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of your obligation to reimburse the Company for
such expenses and the possibility that such payments might later been held to
have been improper by a court of competent jurisdiction. Any such interim
reimbursement payments that are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement shall be in addition to any
liabilities that you may otherwise have. You will not, without the Company's
prior written consent, settle or compromise or consent to the entry of any
judgment in any pending or threatened action or claim or related cause of action
or portion of such cause of action in respect of which indemnification may be
sought hereunder (whether or not the Company is a party to such action or
claim), unless such settlement, compromise, or consent includes an unconditional
release of the Company from all liability arising out of such action or claim
(or related cause of action or portion thereof).

The indemnity agreement in this Section 8.(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each officer and director of the Company and each person, if any, who controls
the Company within the meaning of the 1933 Act or the 1934 Act to the same
extent as such agreement applies to the Company.

(c) Notices of Claims; Employment of Counsel. Any party that
proposes to assert the right to be indemnified under this Section 8 promptly
shall notify in writing each party against which a claim is to be made under
this Section 8 of the institution of such action

<PAGE>

but the omission so to notify such indemnifying party of any such action shall
not relieve it from any liability it may have to any indemnified party except
(i) to the extent that the omission to notify shall have caused or increased the
indemnifying party's liability, and (ii) that the indemnifying party shall be
relieved of its indemnity obligation for expenses of the indemnified party
incurred before the indemnifying party is notified. Such indemnifying party or
parties shall assume the defense of such action, including the employment of
counsel (satisfactory to the indemnified party) and payment of fees and
expenses. An indemnified party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless the employment of such counsel shall have been
authorized in writing by the indemnifying party or parties in connection with
the defense of such action or the indemnifying party or parties shall not have
employed counsel to have charge of the defense of such action or such
indemnified party or parties reasonably shall have concluded that there may be
defenses available to it or them that are different from or additional to those
available to such indemnifying party or parties (in which case such indemnifying
party or parties shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events such fees
and expenses shall be borne by such indemnifying party or parties. Anything in
this paragraph to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any such claim or action effected without its
written consent.

(d) Arbitration. It is agreed that any controversy arising out
of the operation of the interim reimbursement arrangements set forth in Sections
8.(a) and 8.(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the indemnifying parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing the
arbitration tribunal. In the event the party demanding arbitration does not make
such designation of an arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 8.(a) and 8.(b) hereof and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for expenses
that is created by the provisions of Sections 8.(a) and 8.(b).

(e) Contribution. If the indemnification provided for in
Section 8.(a) or 8.(b) is unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, or liabilities (or
actions in respect thereof) referred to therein, then the Company on the one
hand and you on the other shall contribute to the amount paid or payable as a
result of such losses, claims, damages, or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and you on the other from the offering
of the Shares. If, however, the allocation

<PAGE>

provided by the immediately preceding sentence is not permitted by applicable
law, then the Company and you shall contribute to such amount paid or payable in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and you on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and you on the other shall be deemed to be in the same
proportion as the total net proceeds from the Offering (before deducting
expenses) received by the Company bear to the total selling commissions received
by you in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or allegedly untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or to information with respect to you
and furnished by you respectively, in writing specifically for inclusion in the
Prospectus on the other and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
The Company and you agree that it would not be just and equitable if
contribution pursuant to this Section 8.(e) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to above in this Section 8.(e). The amount
paid or payable as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section 8.(e) shall be
deemed to include any legal or other expenses reasonably incurred by any such
party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) with respect to the transactions giving rise to the
right of contribution provided in this Section 8.(e) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations in this Section 8.(e) for you to contribute
are several in proportion to your respective underwriting obligations and not
joint. For purposes of this Section 8.(e), each person, if any, who controls you
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as you, and each director of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act, shall have the same rights to
contribution as the Company.

9. Representations and Agreements to Survive. Except as the context
otherwise requires, all representations, warranties, covenants and agreements
contained in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by you, or on your behalf, or by any
controlling person, or by or on behalf of the Company, and shall survive until
the fifth anniversary of the Offering Termination Date and the termination of
this Agreement pursuant to Section 10 hereof.

<PAGE>

10. Termination of Agreement.

(a) Termination of Agreement. You shall have the right to
terminate this Agreement at any time prior to the Closing Date (i) if any
representation or warranty of the Company hereunder shall be found to have been
incorrect or misleading in any material respect when made or the Company shall
fail, refuse, or be unable to perform any of its agreements hereunder or to
fulfill any condition of your obligations hereunder, (ii) if there shall have
been since the respective dates as of which information is given in the
Registration Statement, a material adverse change, or any development which
could reasonably be expected to result in a prospective material adverse change,
in or affecting the business, prospects, management, properties, assets, results
of operations, or condition (financial or otherwise) of the Company, whether or
not arising in the ordinary course of business, (iii) if trading on any national
securities exchange shall have been suspended (other than for reasons unrelated
to the securities markets), or minimum or maximum prices for trading generally
shall have been fixed or maximum ranges for prices for all securities shall have
been required on any such exchange by such exchange or by order of the
Commission or any other governmental authority having jurisdiction, (iv) if
there has occurred or accelerated any outbreak of hostilities or other national
or international calamity or crisis or change in economic or political
conditions the effect of which on the financial markets of the United States is
such as to make it, in your reasonable judgment, impracticable to market the
Shares or enforce contracts for the sale of the Shares, (v) if a banking
moratorium has been declared by Virginia, New York or federal authorities, (vi)
any federal or state statute, regulation, rule, or order of any court or other
governmental authority has been enacted, published, decreed, or otherwise
promulgated that in your sole judgment materially adversely affects or will
materially adversely affect the business or operations of the Company, or (vii)
any action has been taken by any federal, state, or local government or agency
in respect of its monetary or fiscal affairs that in your reasonable opinion has
a material adverse effect on the securities markets in the United States. You
shall have no liability to the Company pursuant to this Agreement or otherwise
as a result of any such termination.

(b) Result of Termination.

(i) If the sale of the Shares provided for
herein is not consummated (A) because of any termination of this Agreement
pursuant to Section 10.(a), (B) because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or comply with any
provision hereof other than by reason of your default, (C) by ____________, 1997
due to reasons within the control of the Company or any of its affiliates, or
(D) the Company abandons this Offering and obtains financing from other sources
and you are not retained as a senior investment banker in connection with such
financing, then in addition to its obligations with respect to expenses as set
forth in Section 6, the Company will reimburse you on demand for all your
reasonable out-of-pocket expenses (including the fees and expenses of your
counsel), including disbursements reasonably incurred by you in reviewing the

<PAGE>

Registration Statement and the Prospectus, and in investigating and making
preparations for the marketing of the Shares.

(ii) If the sale of all of the Shares is not
consummated by reason of your inability or failure to sell the Shares within
sixty (60) days of the effective date of the Registration Statement, and if the
inability or failure to sell the Shares is unrelated (A) to any matter giving
rise to a right of termination pursuant to Section 10.(a)(i), (B) to any matter
described in subsections (B) through (D) of Section 10.(b)(i), or (C) to any
significant unforeseen matter concerning the Company detected by you in the
course of your due diligence and other investigations, then you will reimburse
the Company on demand for all of the Company's reasonable out-of-pocket expenses
(including the fees and expenses of its counsel, accountants and the Escrow
Agent), including disbursements reasonably incurred by the Company, incurred in
connection with the Offering.

(iii) If the sale of the Shares provided
for herein is not consummated for any other reason, the Company shall pay
expenses as required by Section 6, and the neither party shall have any
additional liability to the other except for such liabilities, if any, as may
exist or thereafter arise under Section 8.

11. Notices.

(a) Method and Location of Notices. All communications
hereunder, except as herein otherwise specifically provided, shall be in writing
and shall be sent by overnight courier, hand-delivered or telecopied and
confirmed as follows:

To the Company:

Commonwealth Biotechnologies, Inc.
911 East Leigh Street
Richmond, Virginia 23219
Attention: Richard J. Freer, Ph.D.
Telecopier No.: (804) 648-2641

with a copy to:

LeClair Ryan
707 East Main Street, 11th Floor
Richmond, Virginia 23219
Attention: J. Benjamin English, Esquire
Telecopier No.: (804) 783-2294

<PAGE>

To You:

Anderson & Strudwick, Incorporated
1108 E. Main Street
Richmond, Virginia 23219
Attention: Mr. L. McCarthy Downs, III
Telecopier No.: (804) 648-3404

with a copy to:

Willcox & Savage, P.C.
1800 NationsBank Center
Norfolk, Virginia 23510
Attention: James J. Wheaton, Esquire
Telecopier No.: (757) 628-5566

(b) Time of Notices. Notice shall be deemed to be given
by you to the Company or by the Company to you when it is sent by overnight
courier, hand-delivered or telecopied as provided in Section 11.(a).

12. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon you, the Company and the controlling persons referred to
in Section 8, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have a legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained.

13. Governing Law, Construction, and Time. This Agreement shall
be governed by and construed in accordance with the laws of the Commonwealth of
Virginia. Specified time of day refers to United States Eastern Time. Time
shall be of the essence of this Agreement.

14. Description Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.

15. Counterparts. This Agreement may be executed in one or more
counterparts, and if executed in more than one counterpart, the executed
counterparts shall together constitute a single instrument.

<PAGE>

If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.

Very truly yours,

COMMONWEALTH BIOTECHNOLOGIES, INC.

By:
Name:
Title:

Confirmed and accepted as of the date first above written:

ANDERSON & STRUDWICK, INCORPORATED

By:
L. McCarthy Downs, III
Senior Vice President

<PAGE>

EXHIBIT A

Disclosure Schedule

None.

<PAGE>

EXHIBIT B

Form of Warrant

See attached.

<PAGE>

EXHIBIT C

Company's Legal Opinion

(i) The Company has been duly incorporated and
is validly existing in good standing as a corporation under the laws of the
Commonwealth of Virginia with all requisite corporate power and authority to
enter into this Agreement, to conduct its business and to own and operate its
properties, investments and assets as described in the Prospectus. To the actual
knowledge of such counsel, the Company is not in violation of any provision of
its articles of incorporation or bylaws, and is not in material default under or
in breach of any term or condition of any material agreement or instrument of
which such counsel has actual knowledge to which the Company is a party or by
which any of its properties, investments or assets is bound, except as disclosed
in the Prospectus.

(ii) To their actual knowledge, there is not
pending or threatened, any action, suit or proceeding before or by any federal,
state or local court or government authority or agency to which the Company is
or may be a party, or to which any of the investments, properties or assets of
the Company is or may be subject which is not disclosed in the Prospectus that,
if adversely determined, would materially affect the ability of the Company to
carry out and implement the business of the Company as described in the
Prospectus.

(iii) The Shares conform in all material
respects to the descriptions thereof contained in the Prospectus.

(iv) The information in the Prospectus under the
captions "Risk Factors" and "Description of Capital Stock," has been reviewed by
such counsel and, insofar as they contain statements of law or describe legal
documents, such statements are correct in all material respects.

(v) This Agreement has been duly and validly
authorized, executed and delivered by or on behalf of the Company and assuming
due execution and delivery by the other parties thereto constitutes a valid and
binding agreement of the Company enforceable in accordance with its terms,
except to the extent enforceability may be limited by (A) bankruptcy,
insolvency, moratorium, liquidation, reorganization, or similar laws affecting
creditors' rights generally, regardless of whether such enforceability is
considered in equity or at law, (B) general equity principles and (C)
limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification or
contribution provisions.

<PAGE>

(vi) The Shares have been duly and validly
authorized by the Company, and upon issuance, will be validly issued, fully paid
and non-assessable, with no personal liability attaching to the ownership
thereof, and conform to the description thereof contained in the Prospectus. The
form of certificates evidencing the Shares complies with all applicable
requirements of Virginia law.

(vii) The execution and delivery of this
Agreement, the incurrence of the obligations herein set forth, the compliance
with the terms and provisions hereof and the consummation of the transactions
contemplated herein and in the Prospectus do not and will not conflict with or
constitute a breach of, or default under, the articles of incorporation or
bylaws of the Company, or a material breach of or material default under the
terms, provisions or conditions of any other material instrument, agreement or
indenture of which such counsel has actual knowledge to which the Company is a
party or by which it is bound or by which its properties, assets, business or
investments are affected or any statute, order, rule or regulation applicable to
the Company or any of the investments, properties or assets of the Company of
any court or any federal, state or local governmental authority or agency having
jurisdiction over the Company or any of the investments, properties, assets or
business of the Company.

(viii) To their actual knowledge, other
than with respect to the securities or blue sky laws of any jurisdiction, no
authorization, approval or consent of any federal, state or local court or
governmental authority or agency is necessary in connection with the execution
and delivery by the Company of this Agreement, the consummation of the
transactions contemplated herein and in the Prospectus or the issuance and sale
of the Shares.

(ix) All corporate action required to be taken by the
Company as a condition to the sale of the Shares to the purchasers thereof has
been taken. To the knowledge of such counsel, there are no preemptive or other
rights to subscribe for the Shares except such as have been waived.

(x) The Registration Statement has become effective
under the 1933 Act and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or is pending or contemplated
under the 1933 Act. Other than financial statements and other financial and
operating data and schedules contained therein, as to which counsel need express
no opinion, the Registration Statement, when it became effective, the
Prospectus, as of its date and as of the date hereof, comply as to form in all
material respects with the requirements of the 1933 Act and the Rules and
Regulations.

<PAGE>

(xi) Nothing has come to such counsel's attention
that leads it to believe that the Registration Statement, or any further
amendment thereto made prior to the Closing Date, on its effective date,
contained or contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus or any
amendment or supplement thereto made prior to the Closing Date, as of its date
and as of the Closing Date, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (provided that such counsel need express no belief
regarding the financial statements and related schedules and other financial
data contained in the Registration Statement, any amendment thereto, or the
Prospectus, or any amendment or supplement thereto).

(xii) The Company is not, and will not become solely
as a result of the consummation of the Transactions, an "investment company," or
an entity that controls or is "controlled by" an "investment company," as such
terms are defined under the 1940 Act.

In rendering the opinions set forth above, LeClair Ryan may rely as to
matters of fact upon certificates furnished to them by the Company and its
officers. Copies of all certificates so relied upon shall be delivered to you
and your counsel.

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the use in this Form SB-2 Registration Statement of our
auditors' report dated June 10, 1997 (except for Notes 2, 11, 12 and 13, as to
which the date is June 25, 1997), with respect to the financial statements of
Commonwealth Biotechnologies, Inc., for the years ended December 31, 1996 and
1995.

GOODMAN & COMPANY, L.L.P.

7301 Forest Avenue
Richmond, Virginia
October 14, 1997