IMRE CORP, 10-K/A, 1996-04-08

IMRE CORP
10-K/A, 1996-04-08
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 1995

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______

Commission File No. 0-12943

IMRE CORPORATION
(Exact Name of registrant as specified in its charter)
_______________

DELAWARE 22-2389839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

401 QUEEN ANNE AVENUE NORTH
SEATTLE, WASHINGTON 98109
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (206) 298-9400
__________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
__________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK $.02 PAR VALUE

COMMON STOCK PURCHASE WARRANTS

UNITS CONSISTING OF THREE (3) SHARES OF

COMMON STOCK AND ONE (1) COMMON STOCK PURCHASE WARRANT
(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

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The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 31, 1996 was $65,395,874.

The number of shares outstanding of the Registrant's Common Stock as of January
31, 1996 was 28,279,297.

DOCUMENTS INCORPORATED BY REFERENCE

None

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IMRE CORPORATION

FORM 10-K

INDEX

PART I

ITEM 1 BUSINESS
Introduction and Overview
Rheumatoid Arthritis
Other Indications
Other Technology
Science Program Process
Marketing and Customers
Distribution Agreement with Baxter Healthcare Corporation
Other
Patents and Proprietary Technology
FDA Regulations Affecting the Company
Competition
Raw Materials Supply
Human Resources
Management Changes
Restructuring Plan
Risk Factors

ITEM 2 PROPERTIES

ITEM 3 LEGAL PROCEDINGS

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5 MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS

ITEM 6 SELECTED FINANCIAL DATA

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Results of Operations

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

ITEM 11 EXECUTIVE COMPENSATION

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K

SIGNATURES

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PART I

ITEM 1. BUSINESS

INTRODUCTION AND OVERVIEW

IMRE Corporation ("IMRE" or the "Company") was incorporated in 1981 to
research, develop, manufacture and market medical devices for the treatment and
diagnosis of select immune-mediated diseases, transplantations, and cancers.
The Company's first product, the PROSORBA-Registered Trademark- column, is a
medical device that treats a patient's defective immune system so that it can
more effectively respond to certain diseases. The Company received marketing
approval from the U.S. Food and Drug Administration ("FDA") in December 1987 to
distribute the PROSORBA-Registered Trademark- column for treatment of idiopathic
thrombocytopenic purpura ("ITP"), an immune-mediated bleeding disorder. Since
1987, the Company has had sales of the PROSORBA-Registered Trademark- column of
approximately $23 million.

The PROSORBA-Registered Trademark- column treats a defective immune system
by modulating the immune system to respond more effectively. The modulation can
result in the clearance of antigens or control of an autoimmune disease. The
Company believes that the PROSORBA-Registered Trademark- column treats a
dysfunctional immune system response rather than treating the disease itself.

The Company's PROSORBA-Registered Trademark- column is a therapeutic,
extracorporeal immunoadsorption device which removes circulating immune
complexes (CIC) and immunoglobulin G (IgG) from a patient's plasma in a
procedure that takes place in an extracorporeal loop (outside the body) and
returns all the other necessary plasma components back to the same patient. CIC
are composed of an IgG antibody bound to an antigen. The PROSORBA-Registered
Trademark- column is a plastic cylinder measuring three inches in diameter and
three and one half inches in height. The cylinder contains a solid binding
matrix composed of protein A bound to dry silica (sand) granules. Protein A, a
molecule produced by the fermentation of a bacterium, specifically binds to both
CIC and IgG, with a preference for CIC. During PROSORBA-Registered Trademark-
column therapy, blood is drawn from one arm of the patient, plasma and red blood
cells are separated, the plasma is filtered through the PROSORBA-Registered
Trademark- column to remove unwanted CIC and IgG, then combined with the red
blood cells and returned to the same patient's other arm.

The FDA considers the PROSORBA-Registered Trademark- column to be a medical
device. The Company produces the PROSORBA-Registered Trademark- column at its
own manufacturing facility which meets FDA good manufacturing practice ("GMP")
regulations for the manufacture of the product in commercial quantities.

The Company believes that a key factor in the Company's commercial
performance will be its ability to improve PROSORBA-Registered Trademark- column
sales for its currently approved indication, obtain FDA marketing approval for
additional disease indications for the PROSORBA-Registered Trademark- column,
and obtain and develop complementary therapeutic and diagnostic technologies.
The Company is seeking opportunities to generate licensing fees and product
development revenue by establishing agreements with corporate sponsors
interested in accessing the Company's technology and products

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in development. The Company's current clinical efforts are focused primarily on
rheumatoid arthritis.

RHEUMATOID ARTHRITIS

Rheumatoid arthritis is a potentially crippling autoimmune disease that is
estimated to affect over 5,000,000 people in North America and Europe. In
rheumatoid arthritis, the body's immune system inappropriately makes antibodies,
called rheumatoid factors, that collect in the joints and surrounding soft
tissue causing inflammation and tissue damage. Joints, typically those in the
hand, become painful and swollen, lose movement, and become deformed. These
individuals not only suffer a significantly reduced quality of life, but also a
shortened life expectancy.

In September 1995, the Company announced the results of its 15 patient
pilot clinical trial that used the PROSORBA-Registered Trademark- column for
therapy in rheumatoid arthritis. The results showed a statistically significant
76% reduction in painful joints and a 70% reduction in swollen joints in 11
patients three months after completing treatment with the PROSORBA-Registered
Trademark- column. The Company believes that these findings confirm the
potential utility of the PROSORBA-Registered Trademark- column in treating
rheumatoid arthritis reported by an earlier independent study published in the
JOURNAL OF RHEUMATOLOGY in May 1994.

Also in September 1995, the Company submitted the final results of the
pilot study as well as a proposed pivotal trial protocol to the FDA. The
protocol submitted to the FDA described a prospective, randomized, multi-center,
double-blind, controlled trial involving 268 patients. The 268 patients are to
be randomly entered into two treatment groups. Approximately 134 patients will
be treated with the PROSORBA-Registered Trademark- column and 134 patients with
a placebo treatment. In November 1995, the Company announced that the FDA had
conditionally approved its application to begin a pivotal trial at 12 centers
using the PROSORBA-Registered Trademark- column in the treatment of patients
with rheumatoid arthritis. A conditional approval grants the Company permission
to begin a trial following approval by the treating institution's institutional
review board provided that the Company agrees to submit information and revise
the protocol as requested by the FDA. The Company currently expects the
commencement of this clinical study to be delayed until 1997. It will be
preceded in 1996, instead, by a smaller controlled study in rheumatoid arthritis
patients to verify the previously observed effects. The Company believes that
favorable results from such a trial will be critical in obtaining the corporate
support required to finance a larger pivotal clinical trial.

OTHER INDICATIONS

While there are multiple additional indications in which the PROSORBA-
Registered Trademark- column has demonstrated some clinical effects, the Company
has most recently dedicated most of its internal resources, apart from
rheumatoid arthritis, toward the indication of kidney transplantation. About
25% of patients awaiting kidney transplantation are ineligible for a transplant
because they have developed antibodies, called alloantibodies, to a variety of
donor tissues. These alloantibodies would immediately recognize a transplanted
kidney as "foreign" and mount an immune attack against it. Prevention of this
acute rejection involves the use of immunosuppressive drugs to reduce the body's
tendency to reject foreign tissue, but drug therapy does not remove the
sensitized

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antibodies. Patients waiting for a transplant are typically on dialysis which
is an expensive medical maintenance procedure which provides no permanent
therapeutic benefit.

In August 1995, the Company began a pilot clinical trial to evaluate the
PROSORBA-Registered Trademark- column as a means to increase the number of
patients eligible for kidney transplantation. The study was designed to
determine if the PROSORBA-Registered Trademark- column treatments will reduce
the level of sensitizing antibodies which cause acute organ rejection and which
prevent a significant portion of the patient population from receiving donor
kidneys. The Company has suspended enrollment of patients in this study and is
in the process of evaluating the merits of continuing the study in light of the
other opportunities available to it.

Additionally, the Company intends over-time to pursue applications for the
use of the PROSORBA-Registered Trademark- column in the treatment of certain
other autoimmune diseases, organ transplantations and cancers. The Company's
Investigational Device Exemptions ("IDEs") which allow the Company to perform
human clinical trials include the following diseases: rheumatoid arthritis,
cancer, myasthenia gravis, systemic lupus erythematosus, multiple sclerosis,
thrombotic thrombocytopenic purpura, and kidney transplantation. Such trials
would be initiated if sufficient financing is obtained and the business
potential of each therapeutic opportunity is consistent with the Company's
goals. The Company is presently unable to predict when, or if, FDA approval for
any such indications will be obtained.

OTHER TECHNOLOGY

In November 1994, the Company's diagnostic division entered into a
licensing agreement under which it has licensed the right to use proprietary
nucleic acid probe technology (a genetic screening test) to predict which
rheumatoid arthritis patients will develop severe disease and hence may benefit
from early aggressive therapy. The test is currently a manually performed
reference laboratory test. In January 1995, the Company obtained the rights to
hybridization and chemical signal generation technology as well as automated
clinical instrumentation which combined could provide the Company with the
opportunity to create an automated laboratory test using the nucleic acid probe
technology.

The diagnostics division was originally formed in 1992 as a majority owned
subsidiary called CELx Corporation ("CELx"). During the quarter ended June 30,
1995, the Company and CELx agreed to the merger of CELx into the Company and the
exchange of shares of CELx held by persons other than the Company into an
aggregate of 312,500 shares of the Company's Common Stock. The dissolution of
CELx resulted in a $625,000 "purchased in process research and development"
expense. The expense was based on the fair market value of the Company's Common
Stocks as of the date of the merger. The diagnostics division was originally
created to employ proprietary immunoassay technology to develop specific assays
that provide greater sensitivity and specificity than presently available in the
market. The diagnostics program is currently under evaluation within the Company
and an active effort to find appropriate partners for the program is underway.

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In 1995, 1994 and 1993, the Company spent approximately $3.22 million,
$2.11 million and $2.06 million, respectively, on research and development.

SCIENCE PROGRAM PROGRESS

Beginning in 1995, the Company created a program to enhance its standing in
the scientific and medical community regarding IMRE's technology, with
particular attention to be focused on its application for rheumatoid arthritis.
The program includes using the services of a scientific advisory board and a
group of consultants. The scientific advisory board's primary function is to
evaluate IMRE's clinical development program.

The scientific advisory board is composed of internationally recognized
rheumatologists including Gerald T. Nepom, Ph.D., M.D., Scientific Director of
the Virginia Mason Research Center in Seattle, Washington, and Harold E. Paulus,
M.D., Professor of Medicine, Division of Rheumatology, UCLA School of Medicine.
In addition, K. Frank Austen, M.D., Director, Inflammation & Allergic Diseases
Research Section, Division of Rheumatology & Immunology, Harvard Medical School,
serves as a consultant to the scientific advisory board.

MARKETING AND CUSTOMERS

DISTRIBUTION AGREEMENT WITH BAXTER

Historically, the PROSORBA-Registered Trademark- column was sold by the
Company's internal sales force to physicians in the fields of immunology,
hematology and oncology. The Company's domestic sales force consisted of 15
sales representatives, all of whom had technical backgrounds and prior sales
experience in the medical products area. The Company's marketing program
included direct mail, telemarketing, journal advertising, trade show
participation, and physician seminars.

In February 1994, the Company entered into a 10-year exclusive distribution
agreement, with certain "take or pay" and purchase commitments, with Baxter
Healthcare Corporation ("Baxter") granting distribution rights of its PROSORBA-
Registered Trademark- column in the United States and Canada for the treatment
of thrombocytopenia and the first right to negotiate for new PROSORBA-Registered
Trademark- column indications. Baxter assumed its sales and distribution
responsibilities in April 1994. Baxter, at its own expense, was to provide
sales and marketing support for the sale of the product during the term of the
agreement. The Company was to provide significant marketing and promotional
support to Baxter for the first three years of the agreement. The Company no
longer maintains a domestic internal sales force.

The "take or pay" commitments and purchase minimums were primarily subject
to the Company having FDA marketing approval for immune thrombocytopenic purpura
and the lack of any new significant competitive technology being introduced
before October 1995 to the thrombocytopenia therapy marketplace. The Company
received a response from the FDA in January 1995 to a PMA supplement filed in
March 1993 requesting the name of the Company's approved indication be changed
from idiopathic thrombocytopenic purpura to immune

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thrombocytopenic purpura. The request was made by the Company as it believes
the two names are used interchangeably by the medical community. The FDA's
response denied the Company's request for such a change.

As a result of the FDA action, Baxter exercised its right to re-negotiate
minimums in February 1995. In March 1995, the two companies amended the
agreement whereby Baxter: (a) made a take-or-pay payment for the first sales
year of $3.0 million on March 31, 1995 compared to the original $3.5 million
due, (b) agreed to purchase $1.0 million of product during the second quarter of
1995, (c) released the Company from its obligation to provide marketing and
promotional support for the second and third years of the agreement, (d) gave
the Company the right to co-market with Baxter, (e) relinquished its first right
to negotiate for new PROSORBA-Registered Trademark- column indications, and (f)
agreed under certain circumstances to provide advance payments to the Company
for Baxter's 1996 purchases. The Company agreed to eliminate purchase
minimums and the take-or-pay concept included in the original agreement and has
freed Baxter to pursue competing thrombocytopenia therapies.

On March 18, 1996, the Company and Baxter entered into a termination
agreement, terminating the exclusive distribution agreement. Under the
termination agreement, effective May 1, 1996, the Company may, among other
things, sell its PROSORBA-Registered Trademark- columns directly to customers
who had previously purchased PROSORBA-Registered Trademark- columns through
Baxter as well as to any other potential customers who wish to purchase the
PROSORBA-Registered Trademark- columns.

OTHER

In the international arena, the Company has entered into exclusive
agreements for distribution of the PROSORBA-Registered Trademark- column in
Spain, Korea, Mexico, Brazil, Argentina, and Hong Kong. However, sales to
international customers represent less than 10% of the Company's product sales.

Generally, in the United States the cost of treatment for ITP using the
PROSORBA-Registered Trademark- column has been reimbursed by third-party payers.

No customer represented more than 10% of the Company's annual sales during
the year ended December 31, 1993. For the years ended December 31, 1994 and
1995, sales to Baxter represented approximately 70% and 91% respectively, of the
Company's sales.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company believes that its success depends primarily on the experience,
capabilities, and skills of its personnel. Notwithstanding this fact, however,
the Company seeks to protect its intellectual property rights by a variety of
means, including patents, maintaining trade secrets and proprietary know-how,
and technological innovation to develop and maintain its competitive position.
There can be no assurance that the Company will be able to obtain additional
patents either in the United States or in foreign jurisdictions or that, if
issued, such patents will provide sufficient protection or be of commercial
benefit to the Company. Insofar as the Company relies on trade secrets and
unpatented proprietary know-how, there can be no assurance that others will

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not independently develop similar technology or that secrecy will not be
breached. Finally, there can be no assurance that the Company will be able to
develop further technological innovations.

The Company presently owns nine issued U.S. patents and four foreign
patents which expire during 2004 to 2009. The process used in manufacturing the
PROSORBA-Registered Trademark- column is covered by one of these patents. The
Company has an exclusive license for a U.S. patent for a genetic screening test
to predict which rheumatoid arthritis patients will develop severe disease. In
addition, the Company has an exclusive license for a U.S. patent for treating
cellular Fc receptor-mediated hypersensitivity immune disorders.

There can be no assurance that the Company's patents will afford
commercially significant protection of its proprietary technology or have
commercial application. There has been no judicial determination of the
validity or scope of its proprietary rights. Moreover, the patent laws in
foreign countries may differ from those of the United States, and the degree of
protection afforded by foreign patents may be different.

In November 1995, a complaint was filed with the United States District
Court, Northern District of California, claiming that the Company's PROSORBA-
Registered Trademark- column allegedly infringes a patent issued to David S.
Terman, M.D. which was assigned in July 1993 to DTER-ENT, Inc., a California
corporation. The Company first received notice of a claim of infringement from
DTER-ENT, Inc. in July 1993. The Company has disclosed this claim in its public
filings for the past two years. The Company has reviewed this matter with
patent counsel and has been advised that the claims of the patent allegedly
infringed are invalid or unenforceable or that the PROSORBA-Registered
Trademark- column does not infringe the claims. Although the Company intends to
vigorously contest the claim, there can be no assurances that the Company will
be successful.

Opinions of patent counsel are based upon certain facts and information
available at the time such opinions are rendered. The prosecution and defense
of validity and infringement issues before the forums in which such issues may
be raised are complicated, and it is not possible to predict the outcome with
certainty. Opinions of patent counsel are not binding on such forums.

Various scientific personnel of the Company in the past have been
associated with non-profit research or educational institutions that typically
require researchers to execute agreements giving such institutions broad rights
to inventions created or developed during the period that the scientist is
associated with such institution. The Company's Chairman of the Board and Chief
Scientific Officer Dr. Frank R. Jones have been parties to such agreements in
the past. While no such institution has to date asserted rights to the
Company's technology, such assertions may be made in the future. If such
assertions are made, the Company may be forced to litigate to protect its rights
to such technology.

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PROSORBA-Registered Trademark- column is a registered trademark of the
Company.

FDA REGULATIONS AFFECTING THE COMPANY

The PROSORBA-Registered Trademark- column is regulated by the FDA as a
Class III device. The regulatory approval of a Class III device in the United
States intended for therapeutic use in humans involves many steps including
preclinical and clinical testing. Preclinical evaluation of a Class III device
includes testing to demonstrate that in clinical studies with human subjects the
product would not present an unreasonable hazard. Preclinical evaluation of the
PROSORBA-Registered Trademark- column was conducted as part of the approval
process for treatment of patients with ITP.

For each additional disease that the Company wants to treat with the
PROSORBA-Registered Trademark- column, clinical testing must be conducted.
Before such clinical testing can begin, an investigational device exemption
("IDE") application must be prepared and filed with the FDA. This application
consists of (i) information on the composition of the product, (ii)
manufacturing data, (iii) results of all preclinical safety and effectiveness
studies, and (iv) a design of the study and protocol. If the application has
not been denied or if additional information has not been requested by the FDA
within 30 days of submission, the applicant may then begin clinical trials.

The clinical testing of a device may consist of a preliminary feasibility
study leading to a larger study of safety and effectiveness, or it may consist
of only the larger safety and effectiveness study. Upon completion of the study
and compilation of the data, a pre-market approval ("PMA") application can be
filed. The FDA is required to respond to the PMA submission within 180 days,
although the FDA may not and often does not adhere to this schedule and further
review may take additional time. After the FDA completes its review of the PMA
application, the clinical study data is reviewed by an advisory panel of medical
experts who are not part of the FDA. The applicant is required to answer
questions posed by this panel. Based on its review of the data, the advisory
panel may make a recommendation of approval or nonapproval to the FDA. The FDA
usually follows the recommendation of the panel but is not required to.
Assuming the advisory panel recommends approval of the PMA, the FDA may approve
the application and the product may then be commercially distributed.

The manufacture and distribution of medical devices are subject to
continuing FDA regulation. In addition to the requirement that the device be
marketed only for its approved uses, applicable law requires compliance with the
FDA's good manufacturing practices ("GMP") regulations. Failure to comply with
the GMP regulations or with other applicable legal requirements can lead to
federal seizure of volatile products, injunctive actions brought by the federal
government, and potential criminal liability on the part of the Company and of
the officers and employees of the Company who are responsible for the activities
that lead to the violations.

Even though the Company has received marketing approval from the FDA for
the treatment of ITP with the PROSORBA-Registered Trademark- column, there can
be no assurance that any marketing clearances for other diseases or products
will be granted on a timely basis, or at all, or that it will be economically
feasible to commercialize the PROSORBA-Registered Trademark- column for these
other diseases. The FDA may also require post-marketing testing and
surveillance programs to monitor the

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effectiveness and safety of the Company's products. Product marketing approvals
may be withdrawn for noncompliance with regulatory standards or the occurrence
of unforeseen problems following initial marketing.

The PROSORBA-Registered Trademark- column is commercially distributed under
a PMA that was approved by the FDA in 1987. Changes to the product and its
manufacturing process, and certain types of labeling changes must be approved by
the FDA prior to implementation. The Company currently has one supplement to
the PMA pending with the FDA for a labeling change, such change dealing with the
use of ancillary equipment during the use of the PROSORBA-Registered Trademark-
column. The FDA has indicated to the Company that the PMA supplement would be
approvable if certain additional information is provided. There can be no
assurance that any future supplements will be approved by the FDA.

COMPETITION

The PROSORBA-Registered Trademark- column, as well as other products which
may be developed by the Company in the future, are intended to compete with
conventional methods of treatment which generally consist of surgery, drug, or
radiation therapy and which have been accepted by the medical community as
classical treatment methods. In addition, the Company intends to compete with
methods of treatment focusing on the artificial stimulation and/or modification
of the human immune system by material or synthetic drugs or genetically
engineered compounds which are being pursued by numerous biotechnology and
medical companies and research institutions. Many of the Company's potential
competitors have significantly greater resources than the Company. The
PROSORBA-Registered Trademark- column as well as the other products currently
under consideration for development by the Company represent a different
approach to the treatment of immune-related diseases inasmuch as they focus on
the removal of CIC that are suppressive to the body's immune system. The
Company is aware of a select number of other companies which are known to be
pursuing approaches to disease treatment similar to the Company's methodology.
In addition, it is always possible that established companies and research
institutions with greater resources may develop other treatment methods for
various diseases.

The Company believes that its success will depend primarily on, among other
things, the market acceptance of its therapeutic approach, its scientific
expertise, the PROSORBA-Registered Trademark- column's performance measured
against competing products, adequate funding, and on its ability to develop,
protect, and market products in the future.

The Company's competitive success will also depend on its continued ability
to attract and retain skilled and experienced personnel, to develop and secure
the rights to advanced proprietary technology and to commercially exploit its
technology prior to the development of competitive products by others.

RAW MATERIALS SUPPLY

The Company believes that raw materials and other components are available
in sufficient quantities to meet production requirements for the PROSORBA-
Registered Trademark- column. Sale of the PROSORBA-Registered Trademark- column
is not subject to seasonal fluctuation.

<PAGE>

HUMAN RESOURCES

In early January 1996, the Company notified approximately twenty employees,
which was slightly greater than half of its work force, that their positions
were being terminated immediately as part of a restructuring. Such positions
were from all departments of the Company. As of January 31, 1996, the Company
employed approximately 20 full-time employees, including seven who have
doctorate degrees and three who are registered nurses.

None of the Company's employees is covered by a collective bargaining
agreement, and the Company considers its employee relations to be excellent.

MANAGEMENT CHANGES

In December 1995, Martin D. Cleary resigned as Chief Executive Officer
and a member of the Board of Directors of the Company. Mr. Cleary's
resignation was a result of the Company's determination that it would best be
served by having senior management resident on the West Coast near the
Company's principal executive offices and other operations. Because Mr.
Cleary was unable to relocate from the East Coast, he agreed to resign as
Chief Executive Officer and as a director. Also in December 1995, Harvey J.
Hoyt resigned as Executive Vice President and a member of the Board of
Directors of the Company. Dr. Hoyt's resignation was a result of the
appointments of new members of senior management and the restructuring of the
Company, which restructuring eliminated Dr. Hoyt's position. Jay D.
Kranzler, M.D., Ph.D. was appointed as Chief Executive Officer and Vice
Chairman of the Board of Directors and Debby Jo Blank, M.D. was appointed as
President, Chief Operating Officer and a member of the Board of Directors.
Frank R. Jones, Ph.D. serves as the Company's Chief Scientific Officer and
Chairman of the Board of Directors.

RESTRUCTURING PLAN

The Company is in the process of implementing a substantial
restructuring plan. The restructuring plan is intended to reduce the
Company's overhead and recurring costs by reducing the Company's work force
and consolidating its two manufacturing facilities into one central
manufacturing facility located in Redmond, Washington. By eliminating
approximately 20 positions, the Company expects to realize an annual salary
savings in excess of $1.0 million. In addition, although the Company
estimates that it will incur approximately $1.0 million in capital
expenditures associated with the consolidation of its manufacturing
operations, the Company believes such consolidation will result in a
reduction of overhead expenses.

Furthermore, the restructuring plan includes relocating all of the
Company's operations, except manufacturing, from Seattle, Washington to San
Diego, California by the end of 1996. The Company believes that relocating
its operations to San Diego, recognized as the fourth largest biotechnology
center in the United States, will provide the Company with greater exposure
within the industry and better position the Company to market its products.
In addition, in the event that the Company wishes to expand staffing, San
Diego's highly skilled work force will provide significant resources from
which the Company may draw upon to fill any future staffing needs.

RISK FACTORS

Except for the historical information contained herein, the following
discussion contains forward-looking statements within the meaning of Section
21E of the Exchange Act that involves risks and uncertainties. The Company's
actual results could differ materially from those discussed below and
elsewhere in this Report. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and
elsewhere in this Report. In analyzing the Company and its business, investors
should carefully consider, among other things, the following risk factors:

NEED FOR ADDITIONAL CAPITAL.

The Company is actively seeking opportunities to raise additional capital
through the private equity market or corporate partners. Such capital would be
used primarily to support research and development activities, including
funding clinical trials for rheumatoid arthritis and certain platelet disorders.
The amount of required capital is primarily dependent upon the following:
results of clinical trials, results of current research and development efforts,
the FDA regulatory process, potential competitive and technological advances,
and levels of product sales. Because the Company is unable to predict the
outcome of the previously noted factors, some of which are

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beyond the Company's control, the Company is unable to estimate, with certainty,
its mid- to long-term total capital needs. If the Company is unable to obtain
additional financing, however, it may be required to delay, scale back or
eliminate some or all of its activities, to license to third parties
technologies that the Company would otherwise seek to develop itself, to seek
financing through the debt market and/or to seek additional methods of
financing.

HISTORY OF OPERATING LOSSES.

The Company has operated at a loss since its formation in October, 1981.
In the years ended December 31, 1994 and 1995, the Company had revenues of
$4,918,126 and $4,104,224 and net losses of $6,151,312 and $6,826,252,
respectively. As of December 31, 1995, the Company had an accumulated
deficit of $44,041,634. The ability of the Company to achieve profitability
is dependent upon successful completion of anticipated clinical trials and
obtaining FDA marketing approval of the PROSORBA-Registered Trademark- column
for the treatment of additional diseases in a timely manner, among other
factors. The Company would have to significantly scale back its plans,
curtail clinical trials, and limit its present operations in order to become
profitable or operate on a break-even basis if it does not receive marketing
approval from the FDA for the PROSORBA-Registered Trademark- column for the
treatment of diseases in addition to idiopathic thrombocytopenic purpura
("ITP"). There can be no assurance that the Company will meet applicable
regulatory standards or successfully market its products to generate
sufficient revenues to render the Company profitable.

MANAGEMENT CHANGES; RESTRUCTURING PLAN; DEPENDENCE UPON KEY PERSONNEL.

The Company has recently undergone changes in senior management and new
management is in the process of developing and implementing a substantial
restructuring plan. The restructuring plan has not been completed and there can
be no assurance that it will be completed. Even if such a restructuring plan is
completed, there can be no assurance that the restructuring will be successfully
implemented. The Company's success is dependent upon certain key management and
technical personnel, including the new senior management members. The loss of
the services of any of these key employees could have a material adverse effect
on the Company. The Company does not currently maintain any key employee
insurance coverage. See "Management Changes" and "Restructuring Plan."

FDA APPROVAL AND REGULATIONS.

The Company is currently planning to conduct a controlled clinical trial of
the PROSORBA-Registered Trademark- column for treatment of rheumatoid arthritis.
Although the FDA has approved the commercial sale of the PROSORBA-Registered
Trademark- column for the treatment of ITP, there can be no assurance that
current or future clinical trials will produce data satisfactory to the FDA to
establish the effectiveness of the PROSORBA-Registered Trademark- column for
treatment of diseases other than ITP, such as rheumatoid arthritis,
transplantations and certain cancers, or that the FDA will approve the PROSORBA-
Registered Trademark- column for treatment of such diseases in a timely manner,
if at all.

The PROSORBA-Registered Trademark- column is commercially distributed under
a pre-market approval ("PMA") application that was approved by the FDA in 1987.
Changes to the product and its manufacturing process, and certain types of
labeling changes must be approved by the FDA prior to

14
<PAGE>

implementation. The Company currently has one supplement to the PMA pending
with the FDA for a labeling change dealing with the use of ancillary equipment
during the use of the PROSORBA-Registered Trademark- column. The FDA has
indicated to the Company that the PMA supplement would be approvable if certain
additional information is provided. There can be no assurance that the Company
will receive approval of its pending PMA supplement or any future PMA
supplements will be approved by the FDA.

Even if FDA approval is granted to market a product for treatment of a
particular disease, subsequent discovery of previously unknown problems may
result in restrictions on the product's future use or withdrawal of the product
from the market. In addition, any other products developed in the future will
require clinical testing and FDA marketing approval before they can be
commercially exploited in the United States. Such approval process is typically
very lengthy and there is no assurance that approvals will be obtained.

The manufacture and distribution of medical devices are subject to
continuing FDA regulation. In addition to the requirement that the device be
marketed only for its approved use, applicable law requires compliance with the
FDA's good manufacturing practices ("GMP") regulations. Failure to comply with
the GMP regulations or with other applicable legal requirements can lead to
federal seizure of non-complying products, injunctive actions brought by the
federal government, and potential criminal liability on the part of the Company
and of the officers and employees of the Company who are responsible for the
activities that lead to the violations.

COMPETITIVE ENVIRONMENT; TECHNOLOGICAL CHANGE; EFFECTIVENESS OF PRODUCTS.

The field of medical devices in general and the particular areas in which
the Company will market its products are extremely competitive. In developing
and marketing medical devices to treat immune-mediated diseases and cancers, the
Company competes with other products, therapeutic techniques and treatments
which are offered by national and international healthcare and pharmaceutical
companies, many of which have greater marketing, human and financial
resources than the Company.

The immunological therapies market is characterized by rapid technological
change and potential introductions of new products or therapies. To respond to
these changes, the Company may be required to develop or purchase new products
to protect its technology from obsolescence. There can be no assurance that the
Company will be able to develop or obtain such products, or, if developed or
obtained, that such products will be commercially viable. In addition, there
can be no

15
<PAGE>

assurance that the Company's products will prove effective in the treatment of
diseases other than ITP.

DEPENDENCE OF THIRD PARTY ARRANGEMENTS.

The Company's commercial sale of its proposed products and its future
product development may be dependent upon entering into arrangements with
corporate partners and other third parties for the development, marketing,
distribution and/or manufacturing of products utilizing the Company's
proprietary technology. While the Company is currently seeking collaborative
research and development arrangements and joint venture opportunities with
corporate sponsors and other partners, there can be no assurance that the
Company will be successful in entering into such arrangements or joint ventures
or that any such arrangements will prove to be successful.

EXCLUSIVE AGREEMENT WITH BAXTER.

In February 1994, the Company entered into a 10-year exclusive distribution
agreement, with Baxter Healthcare Corporation ("Baxter") granting to Baxter
distribution rights of its PROSORBA-Registered Trademark- column in the United
States and Canada for the treatment of thrombocytopenia and the first right to
negotiate for new PROSORBA-Registered Trademark- column indications. The
distribution agreement also contained certain "take or pay" and minimum
purchase committments. Baxter, at its own expense, was to provide sales and
marketing support for the sale of the product during the term of the agreement.
Baxter assumed the Company's sales and distribution responsibilities in April
1994. The Company was to provide significant marketing and promotional support
to Baxter for the first three years of the agreement. The Company no longer
maintains a domestic sales force.

As a result of the FDA action, in February 1995 Baxter exercised its right
to re-negotiate the minimum purchase commitments. In March 1995, the two
companies amended the agreement whereby Baxter: (a) made a take-or-pay payment
for the first sales year of $3.0 million on March 31, 1995 compared to the
original $3.5 million due, (b) agreed to purchase $1.0 million of product
during the second quarter of 1995, (c) released the Company from its obligation
to provide marketing and promotional support for the second and third years of
the agreement, (d) gave the Company the right to co-market with Baxter, (e)
relinquished its first right to negotiate for new PROSORBA-Registered Trademark-
column indications, and (f) agreed under certain circumstances to provide
advance payments to the Company for Baxter's 1996 purchases. The Company has
agreed to eliminate purchase minimums and the take-or-pay concept included in
the original agreement and freed Baxter to pursue competing thrombocytopenia
therapies.

On March 18, 1996, the Company and Baxter entered into a termination
agreement, terminating the exclusive distribution agreement. Under the
termination agreement, effective May 1, 1996, the Company may, among other
things, sell its PROSORBA-Registered Trademark- column directly to customers
who had previously purchased PROSORBA-Registered Trademark- columns through
Baxter, as well as to any other potential customers who wish to purchase
PROSORBA-Registered Trademark- columns.

16
<PAGE>

No assurance can be given that prior to May 1, 1996, Baxter will
maximize the Company's potential sales in North America, or that Baxter will
be successful in marketing the Company's PROSORBA-Registered Trademark-
column. There can be no assurances that the Company will be able to develop a
sales force by May 1, 1996, if at all, to sell its PROSORBA-Registered
Trademark- column directly to customers. In addition, even if the Company can
establish a sales force for its PROSORBA-Registered Trademark- column, there
can be no assurance that the Company will be successful in selling its
PROSORBA-Registered Trademark- columns directly to any new customers or to
any customers who previously purchased PROSORBA-Registered Trademark- columns
through Baxter.

UNCERTAINTY OF PATENT PROTECTION AND CLAIMS TO TECHNOLOGY.

The Company currently holds nine United States and four foreign patents
relating to its technology, and has also filed other patent applications. In
addition, the Company has an exclusive license for a U.S. patent for a genetic
screening test to predict which rheumatoid arthritis patients will develop the
severe form of the disease. Neither the protection afforded by these patents
nor their enforceability can be assured. Furthermore, there can be no assurance
that additional patents will be obtained either in the United States or in
foreign jurisdictions or that, if issued, such additional patents will provide
sufficient protection to the Company's technology or be of commercial benefit
to the Company. Insofar as the Company relies on trade secrets and unpatented
proprietary know-how, there can be no assurance that others will not
independently develop similar technology or that secrecy will not be breached.
There can also be no assurance that the Company will be able to develop further
technological innovations.

Others have filed applications for, or have been issued, patents and may
obtain additional patents and other proprietary rights relating to products or
processes competitive with those of the Company. The scope and validity of such
patents is presently unknown. If existing or future patents are challenged in
litigation or interference proceedings, the Company may become subject to
significant liabilities to third parties or be required to seek licenses from
third parties. There can be no assurance that such licenses would be available
or, if available, obtainable on acceptable terms.

In addition, various scientific personnel of the Company were previously
associated with non-profit research or education institutions that typically
require researchers to execute agreements giving such institutions broad rights
to inventions created or developed during the period that the scientist is
associated with such institution. Dr. Frank R. Jones, Chairman of the Board and
Chief Scientific Officer of the Company, has been a party to such agreements in
the past. While no such institution has to date asserted rights to the
Company's technology, such assertions may be made in the future, and if made,
there can be no assurances that the Company will be successful in any such
litigation.

17
<PAGE>

CONCENTRATION OF OWNERSHIP.

Allen & Company Incorporated beneficially owns approximately 18.1% of the
outstanding Common Stock of the Company and is the largest stockholder of the
Company.

SALES AND MARKETING.

In addition to marketing through Baxter, the Company also conducts limited
marketing of the PROSORBA-Registered Trademark- column outside the United States
through foreign distributors. Sales to foreign distributors have not been
material to the Company's results from operations. There can be no assurance,
however, that such domestic sales efforts or foreign sales arrangements will
become material to the Company's results of operations.

INSURANCE REIMBURSEMENT.

Successful commercialization of a new medical product, such as the
PROSORBA-Registered Trademark- column depends, in part, on reimbursement by
public and private health insurers to health care providers for use of such
product. The availability of such reimbursement is subject to a variety of
factors, many of which could affect the Company as it commercializes use of the
PROSORBA-Registered Trademark- column. Although, the Company has been generally
successful in assisting health care providers in arranging reimbursement for the
use of the PROSORBA-Registered Trademark- column in the treatment of ITP, there
can no assurance that public and private insurers will continue to reimburse for
the use of the PROSORBA-Registered Trademark- column.

UNCERTAINTY OF HEALTH CARE REFORM.

There are widespread efforts to control health care costs in the U.S. and
worldwide. Various federal and state legislative initiatives regarding health
care reform and similar issues continue to be at the forefront of social and
political discussion. These trends may lead third-party payors to decline or
limit reimbursement for the Company's product, which could negatively impact
the pricing and profitability of, or demand for, the Company's product. The
Company believes that government and private efforts to contain or reduce health
care costs are likely to continue. There can be no assurance concerning the
likelihood that any such legislative or regulatory initiative will be enacted,
or market reform initiated, or that, if enacted such reform or initiative will
not result in a material adverse impact on the business, financial condition or
results of operations of the Company.

PRODUCT LIABILITY.

The use of the PROSORBA-Registered Trademark- column involves the
possibility of adverse effects occurring to end-users that could expose the
Company to product liability claims. The Company believes that its product
liability insurance coverage is adequate in light of the Company business.
However, although the Company currently maintains product liability insurance
coverage, there can be no assurance that such coverage or any increased amount
of coverage will be adequate to protect the Company and there can be no
assurance that the Company will have sufficient resources to pay any liability
resulting from such a claim.

18
<PAGE>

POSSIBLE VOLATILITY OF STOCK PRICE; ABSENCE OF DIVIDENDS.

There has been a history of significant volatility in the market prices of
securities of biotechnology companies, including the Company's Common Stock.
Factors such as announcements by the Company or others of technological
innovations, results of clinical trials, new commercial products, regulatory
approvals or proprietary rights developments, coverage decisions by third-party
payers for therapies and public concerns regarding the safety and other
implications of biotechnology all may have a significant impact on the Company's
business and market price of the Company's Common Stock. No dividends have been
paid on the Common Stock to date, and the Company does not anticipate paying
cash dividends on the Common Stock in the foreseeable future.

HAZARDOUS MATERIAL.

The Company's research and development programs involve the controlled use
of biohazard materials, such as viruses including the HIV virus that causes
AIDS. Although the Company believes that its safety procedures for handling
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.

LIMITATION OF NET OPERATING LOSS CARRY FORWARDS.

The Company's sale of Common Stock in November 1990, September 1991, April
1993, and January 1996 when taken together with prior issuances, caused the
limitation of Section 382 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), to be applicable. This limitation will allow the
Company to use only a portion of the net operating losses which it has
accumulated in any future year to offset future taxable income, if any, for
federal income tax purposes. Based on the limitations of Section 382 and before
consideration of the effect of the sale of securities offered hereby, the
Company may be allowed to use no more than approximately $3,700,000 of such
losses each year to reduce taxable income, if any. To the extent not utilized
by the Company, unused losses will carry forward subject to the limitations to
offset future taxable income, if any, until such unused losses expire. All
unused net operating losses will expire 15 years after any year in which they
were generated. The years in which such expiration will take place range from
1998-2010.

ITEM 2. PROPERTIES

In October 1991, the Company entered into an eight-year lease for 14,400
square feet of production, laboratory and administrative facilities in Seattle,
Washington. The Company assembles the PROSORBA-Registered Trademark- column at
these facilities.

The Company leases 8,000 square feet for its raw materials manufacturing
facility in Redmond, Washington. The facility is used to produce commercial
quantities of both protein A

19
<PAGE>

and the chemically coated silica matrix used in the manufacture of the PROSORBA-
Registered Trademark- column. The Company's lease expires in 2004.

Both of the Company's manufacturing facilities comply with the FDA's GMP
regulations.

In 1996, the Company intends to combine the manufacturing operations in its
Redmond facility and seek a tenant to assume its lease for the facility in
Seattle. The Company believes that the combined facility will be adequate to
meet the foreseeable manufacturing requirements of the Company. The Company
intends to occupy office space in San Diego, California for its administrative,
research and medical personnel.

ITEM 3. LEGAL PROCEEDINGS

On February 15, 1994, the Company issued a press release announcing the
restatement of its results of operations for the third quarter ended September
30, 1993. The Company filed a Current Report on Form 8-K, dated June 23, 1994,
with the Securities and Exchange Commission with respect to changing the
Company's certifying accountant. On August 16, 1994, the Company received a
letter from the Commission notifying the Company that the Commission was
conducting a preliminary inquiry into the restatement of the Company's results
of operations and the change in the Company's certifying accountant and
requesting certain information. The Company has cooperated with the Commission.
In January 1996, Commission staff notified the Company that it intended to
propose that the Commission initiate proceedings to seek injunctive relief
against the Company enjoining it from future violations of the federal
securities laws. The Commission staff further advised the Company that it
intended to seek similar injunctive relief and civil penalties against Alex P.
de Soto, the Chief Financial Officer of the Company. The Commission invited
both the Company and Mr. de Soto to prepare and file with the Commission a Wells
Submission to provide the Commission with any additional relevant information
prior to formal action by the Commission. The Company is fully cooperating
with the Commission staff in order to resolve the matters as expeditiously as
possible.

In November 1995, a complaint was filed with the United States District
Court, Northern District of California, claiming that the Company's
PROSORBA-Registered Trademark- column allegedly infringes a patent issued to
David S. Terman, M.D. which was assigned in July 1993 to DTER-ENT, Inc., a
California corporation ("DTER-ENT"). The Company first received notice of a
claim of infringement from DTER-ENT in July 1993. The Company has disclosed
this claim in its public filings for the past two years. The Company has
reviewed this matter with its patent counsel, Townsend and Townsend and
Crew, and has been advised by such patent counsel that the claims of the
patent allegedly infringed are invalid or unenforceable or that the
PROSORBA-Registered Trademark- column does not infringe the patent rights of
DTER-ENT.

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

As of December 15, 1995, the Company had received written consents from the
holders of 10,154,722 shares of Common Stock, representing 54.66 percent of the
18,579,148 shares of Common Stock outstanding on November 6, 1995, the record
date for the consent solicitation,

<PAGE>

authorizing an amendment to the Certificate of Incorporation of the Company to
authorize a new class of "blank check" preferred stock and give the Board of
Directors the authority to fix by resolution or resolutions any of the
designations and the powers, preferences and rights and the qualifications,
limitations or restrictions thereof, of series of preferred stock of the
Company.

21
<PAGE>

PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

a) The Company's Common Stock is traded on the Nasdaq Small Cap Market.
The principal market for the Company's Common Stock is the over-the-
counter market. Set forth below are the high and low closing bid
prices for the Company's Common Stock for each quarter of 1995 and
1994 as reported by the Nasdaq Stock Market, Inc.

1995 High Bid Low Bid
---- -------- -------
<S> <C> <C>
First Quarter . . . . . . . . . . . . 2 1/8 1 1/4
Second Quarter . . . . . . . . . . . . 2 1/8 1 7/16
Third Quarter . . . . . . . . . . . . 4 1/2 1 7/8
Fourth Quarter . . . . . . . . . . . . 3 5/8 1 3/4

1994 High Bid Low Bid
---- -------- -------

First Quarter . . . . . . . . . . . . 3 15/16 3 1/4
Second Quarter . . . . . . . . . . . . 3 1/4 2 3/8
Third Quarter . . . . . . . . . . . . 2 7/16 1 3/4
Fourth Quarter . . . . . . . . . . . . 2 1/2 1 15/16
</TABLE>

The above quotations are interdealer prices, without retail mark-up, mark-
down, or commission and may not necessarily represent actual transactions.

b) At January 31, 1996, there were approximately 1,100 holders of
record of the Company's Common Stock.

c) The Company has never paid cash dividends on its Common Stock.

22
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues $ 4,104,224 $ 4,918,126 $ 5,410,530 $ 4,076,021 $ 2,712,120
Interest income 118,994 71,986 134,483 363,539 192,526
------------ ------------ ------------ ------------ ------------
4,223,218 4,990,112 5,545,013 4,439,560 2,904,646
Costs and expenses
Production costs 2,041,422 2,571,168 1,582,986 1,166,025 458,832
Sales and marketing 819,907 3,550,037 4,758,427 3,952,481 1,987,141
Research and development 3,219,324 2,107,694 2,059,129 1,506,742 920,993
General and administrative 2,626,817 2,694,489 2,105,743 1,279,077 988,046
Interest 261,958 218,036 7,659 16,721 4,441
------------ ------------ ------------ ------------ ------------
8,969,428 11,141,424 10,513,944 7,921,046 4,359,453
------------ ------------ ------------ ------------ ------------

Purchase of in process research
and development 625,000
Debt conversion expense 810,386
Restrucuring expense 644,656
------------ ------------ ------------ ------------ ------------
11,049,470 11,141,424 10,513,944 7,921,046 4,359,453
------------ ------------ ------------ ------------ ------------

Loss from operations (6,826,252) (6,151,312) (4,968,931) (3,481,486) (1,454,807)
Minority interest in loss 47,711 38,260 1,435
------------ ------------ ------------ ------------ ------------

Net loss $(6,826,252) $(6,151,312) $(4,921,220) $(3,443,226) $(1,453,372)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net loss per share $ (0.39) $ (0.40) $ (0.33) $ (0.25) $ (0.14)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------

Weighted average number
of shares for the year
ended December 31 17,598,735 15,243,860 14,716,472 14,030,224 10,159,938
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------

Total assets at December 31 $ 4,563,709 $ 7,721,013 $ 7,761,598 $ 8,441,703 $ 11,109,825
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------

Convertible Debentures and
Other Long Term Liabilities $ 1,539,722 $ 4,247,759 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------

Working capital at December 31 $ (688,771) $ 4,360,749 $ 3,787,412 $ 6,902,330 $ 10,135,987
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------

</TABLE>

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS

Except for the historical information contained herein, the following
discussion contains forward looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as in
Item 1 and Item 2 contained herein.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital as of December 31, 1995, 1994 and 1993 was a
deficit of $0.69 million, and a positive balance of $4.36 million and $3.79
million, respectively. The $5.05 million decrease in working capital in 1995 is
principally attributable to the $6.83 million loss from operations for the year
ended December 31, 1995 and $0.71 million of capital expenditures which were
partially offset by $2.50 million of expenses which did not impact working
capital. The $0.57 million increase in working capital in 1994 is principally
attributable to $4.25 million of proceeds from the April 1994 issuance of 7%
Convertible Debentures due March 31, 2001, (the "7% Convertible Debentures") and
$2.63 million of proceeds from a private placement of common stock in December
1994, offset by the $6.15 million loss from operations for the year ended
December 31, 1994.

The Company expects to incur further operating losses until the Company can
obtain marketing approval from the FDA for additional disease indications for
the PROSORBA-Registered Trademark- column or until sales to the Company's North
American distributor, Baxter Healthcare Corporation, for the PROSORBA-Registered
Trademark- column for its existing indication of idiopathic thrombocytopenic
purpura increase significantly. A controlled clinical trial is planned in 1996
for using the PROSORBA-Registered Trademark- column for rheumatoid arthritis
therapy as a follow on to a successful pilot clinical trial completed in 1995.
The Company believes that a successful clinical trial would be necessary to
attract corporate partners to fund a subsequent pivotal clinical trial. A
successful pivotal clinical trial is necessary to apply for marketing approval
from the FDA.

In September 1995, the Company completed an exchange offering to holders of
its 7% Convertible Debentures. The Company offered to exchange the 7%
Convertible Debentures for common stock at a price of $2.25 per share. Of the
original $4,245,000 outstanding principal amount of the 7% Convertible
Debentures, $2,200,000 was converted pursuant to the exchange offering.
Subsequent to September 1995, an additional $700,000 of 7% Convertible
Debentures has been converted into Common Stock under their original $2.875 per
share conversion price. As of December 31, 1995, there was outstanding
principal of $1,345,000 of the 7% Convertible Debentures.

In March 1996, the Company completed a second exchange offering made to
holders of its 7% Convertible Debentures. The Company offered to exchange the
7% Convertible Debentures for Common Stock of the Company at a price of $2.25
per share. Of the $1,245,000 outstanding principal amount of the 7% Convertible
Debentures, $845,000 was converted into 399,252 shares of Common Stock of the
Company (which amount includes 23,700 shares issued as interest on the 7%
Convertible Debentures), pursuant to the exchange offering.

In December 1995, the Company completed an offering of $1,500,000 of
Senior Convertible Debentures (the "Senior Convertible Debentures") to
certain accredited investors.

In January 1996, the Company completed a private placement of approximately
8.5 million shares of its Common Stock resulting in net proceeds to the Company
of approximately $12.0 million (the "Private Placement"). Upon the closing of
the Private Placement, the Senior Convertible Debentures were automatically
converted into 1,000,000 shares of Common Stock of the Company.

24
<PAGE>

In January 1996, the Company also began implementing a restructuring plan
which includes consolidating its manufacturing facilities to one location in the
state of Washington and moving all other operations of the Company to San Diego,
California. As part of the restructuring plan, the Company, in January 1996,
notified approximately twenty employees, which was slightly greater than half of
its work force, that their positions were being terminated immediately. The
annual salary savings from this reduction in the work force is expected to be in
excess of $1.0 million. The Company estimates it will incur approximately $1.0
million of capital expenditures to consolidate its two Washington manufacturing
facilities. The Company believes that the funds resulting from the Private
Placement coupled with the Company's restructuring will provide the resources
necessary to fund operations, including clinical trials, through the latter half
of 1997.

The Company will require additional financing in order to fund the
completion of a pivotal clinical trial in rheumatoid arthritis, initiate pivotal
clinical trials using the PROSORBA-Registered Trademark- column in other
diseases and apply the Company's technology to applications beyond the PROSORBA-
Registered Trademark- column. The Company is seeking corporate partners to fund
additional clinical trials.

The principal changes in the components of working capital since
December 31, 1994 were a $2.66 million decrease in cash resulting from the
excess of cash expenditures for 1995 over the $1.0 million of proceeds
received from debt financing, a $0.39 million decrease in trade accounts
receivable resulting from the lower amount of sales during the end of 1995
compared to 1994, a decrease of $0.35 million in inventory to reflect the
lower sales demands of Baxter, and a combined increase of $0.54 million in
accounts payable, accrued compensation and accrued liabilities due primarily
to increasing payment cycles to suppliers to preserve the Company's cash
position as of December 31, 1995.

RESULTS OF OPERATIONS

FISCAL 1995 COMPARED TO FISCAL 1994

Effective April 2, 1994, the Company entered into a 10-year exclusive
distribution agreement with Baxter Healthcare Corporation granting distribution
rights for the treatment of thrombocytopenia and the first right to negotiate
for new PROSORBA-Registered Trademark- column indications. The agreement
provided for an annual "take or pay" commitment from Baxter to the Company for
the first two sales years. These minimums were subject to the Company having FDA
product approval for immune thrombocytopenic purpura.

The Company received a response from the FDA in January 1995 to a pre-
market application (PMA) supplement filed in March 1993 requesting the name of
the Company's approved indication be changed from idiopathic thrombocytopenic
purpura to immune thrombocytopenic purpura. The request was made by the Company
as it believed the two names are used interchangeably by the medical community.
The FDA's response denied the Company's request for such a change.

25
<PAGE>

As a result of the FDA action, Baxter exercised its right to re-negotiate
minimums in February 1995. In March 1995, the two companies amended the
agreement whereby Baxter: 1) made a take-or-pay payment for the first sales
year of $3.0 million compared to the original $3.5 million due March 31, 1995,
2) purchased $1.0 million of product during the second quarter of 1995, 3)
released the Company from its obligation to provide marketing and promotional
support for the second and third years of the agreement, 4) gave the Company the
right to co-market with Baxter, 5) relinquished its first right to negotiate for
new PROSORBA-Registered Trademark- column indications, and 6) under certain
circumstances, agreed to provide advance payments to the Company for Baxter's
1996 purchases. The Company agreed to eliminate purchase minimums and the take-
or-pay concept included in the original agreement and freed Baxter to pursue
competing thrombocytopenia therapies. In March 1996, the Company and Baxter
entered into a termination agreement terminating the distribution agreement
effective as of May 1, 1996.

The impact of the revised Baxter agreement referred to above had a variety
of effects on the operations of the Company during the year ended December 31,
1995. The Company's revenue included the $3.0 million take or pay payment made
by Baxter in March 1995 and sales and marketing costs relative to sales
decreased based on Baxter agreeing to assume all marketing and promotional
costs.

Net sales decreased 77.5% from $4.92 million in 1994 to $1.10 million in
1995. Approximately 91% of the 1995 sales were to Baxter, with the remaining 9%
primarily to international customers of the Company. The decrease in net sales
was due primarily to Baxter selling approximately 50% less product to customers
than when the Company sold directly to health care providers. In addition,
there is a lower sales price charged to Baxter than the Company previously
charged to its customers. A substantial amount of the columns shipped by the
Company to Baxter remained in Baxter's ending inventory as of December 31, 1995
because of continued delays by Baxter in fully implementing a sales and
marketing program for the PROSORBA-Registered Trademark- column. The Company is
unable to predict if shipments in 1996 will exceed those of 1995.

Total operating expenses, excluding $2.08 million of non-recurring charges,
decreased 19.5% from $11.14 million in 1994 to $8.97 million in 1995.
Production costs decreased 20.6% from $2.57 million in 1994 to $2.04 million in
1995. The decrease is primarily a result of the decrease in the number of units
shipped in 1995 compared to 1994. The majority of production costs in 1995
represent labor and overhead charges as no significant production occurred
during the last six months of 1995. As a result of the previously discussed
restructuring, the Company is working to reduce its manufacturing overhead,
including a reduction of personnel.

Sales and marketing expenses decreased 76.9% from $3.55 million in 1994 to
$0.82 million in 1995. Such expenses decreased primarily because beginning
April 1, 1995, under the revised distribution agreement, Baxter provided
complete sales and marketing support for the sale of the product. The Company no
longer maintains a sales force and terminated three sales employees in 1995 as
part of the amended Baxter agreement.

26
<PAGE>

Research and development expenses increased 52.7% to $3.22 million in 1995
from $2.11 million in 1994. The increase was primarily a result of the Company
conducting its rheumatoid arthritis clinical trial for 15 patients in 1995 and
the commencement of a pilot clinical trial in kidney transplantation during the
last six months of 1995. In 1994, the Company began its rheumatoid arthritis
clinical trial during the last six months of the year and conducted no other
clinical trials. In January 1996, the Company suspended enrollment of patients
in its kidney transplantation study while it evaluates the merits of continuing
the study in light of other clinical opportunities.

General and administrative expenses decreased 2.5% to $2.63 million in 1995
from $2.69 million in 1994. The decrease is principally a result of a reduction
in investor relations and legal expenses partially offset by an increase in
salary expenses. This increase resulted from $0.40 million of salary expenses
associated with the severance agreement for the Company's former Chief Executive
Officer who resigned in December 1995 and $100,000 of signing bonuses paid to
the Company's new Chief Executive Officer and its new President. General and
administrative salary expenses are expected to increase in 1996 as the Chief
Executive Officer and President positions were held by one person in 1995.

In 1995, the Company and CELx Corporation ("CELx"), the Company's former
majority owned subsidiary, agreed to the merger of CELx into the Company and the
exchange of shares of CELx by persons other than the Company into an aggregate
of 312,500 shares of the Company's common stock. The dissolution of CELx
resulted in a charge of $625,000 recorded as purchased in process research and
development. The charge was based on the fair market value of the Company's
common stock.

The Company recorded a non-cash expense of $0.81 million in 1995 as a debt
conversion expense for the conversion of the 7% Convertible Debentures discussed
above. The expense represents the fair market value of the increased number of
shares issued under the terms of the exchange offering compared to the original
terms of the 7% Convertible Debentures.

In December 1995, the Company recorded a restructuring charge aggregating
$645,000 relating to the Company's restructuring plan. The restructuring charge
includes approximately $350,000 related to write-downs of equipment and
leasehold improvements for the manufacturing facility expected to be vacated in
1996, $200,000 related to abandonment of leases, with the remainder related to a
severance agreement with its former Executive Vice President. Costs related to
the termination of employees in January 1996 as part of the Company's
restructuring plan were $150,000 and will be recorded as a restructuring expense
and charged to operations in the quarter ending March 31, 1996. The annual
salary savings from these terminations is in excess of $1.0 million. The
Company estimates it will incur approximately $0.30 million in costs associated
with moving the administration, research and medical departments to San Diego,
with most costs being attributable to relocation costs of the few members of
management moving to San Diego. Such costs will be expensed as incurred in
1996.

27
<PAGE>

The increase in net loss from $6.15 million in 1994 to $6.83 million in
1995 was primarily a result of the decrease in revenues.

FISCAL 1994 COMPARED TO FISCAL 1993

The impact of the original Baxter agreement referred to above had a variety
of effects on the operations of the Company during the year ended December 31,
1994. The per unit sales price under the Baxter agreement is lower than formerly
charged to end users. The Company began expanding its manufacturing capacity,
however, in the short-term, this resulted in a lower utilization of
manufacturing overhead costs. Thus the gross margin on sales to Baxter was
currently less than the Company received when it sold directly to end users.

Net sales decreased 9.1% from $5.41 million to $4.92 million.
Approximately 70% of the 1994 sales were to Baxter, with the remaining 30%
primarily to domestic customers of IMRE. There were no material sales to
international customers. The decrease in net sales was due primarily to the
lower sales price charged to Baxter than the Company previously charged to its
customers. This lower sales price did not offset the increased number of
PROSORBA-Registered Trademark- columns shipped by IMRE in 1994 as compared to
1993. However, a substantial amount of the columns shipped by IMRE to Baxter
remained in their ending inventory as of December 31, 1994 because of delays by
Baxter in fully implementing a sales and marketing program for the PROSORBA-
Registered Trademark- column in 1994.

Total operating expenses increased 6.0% from $10.51 million in 1993 to
$11.14 million in 1994. Production costs increased 62.7% from $1.58 million in
1993 to $2.57 million in 1994. The increase was primarily a result of an
increase in the number of units shipped in 1994 compared to 1993. Production
costs as a percentage of sales increased to approximately 52.3% in 1994 compared
to 29.3% in 1993 principally because the sales price charged to Baxter for the
nine months ended December 31, 1994 was less than the sales price the Company
formerly charged to end users. In addition, the Company began increasing its
manufacturing overhead in 1994 to meet the original shipment demands of Baxter.

Sales and marketing expenses decreased 25.4% from $4.76 million in 1993 to
$3.55 million in 1994. Such expenses decreased primarily because Baxter
provided partial sales and marketing support for the sale of the product during
1994. Eight sales employees of the Company became employees of Baxter and five
other Company sales employees were terminated as a result of the Baxter
agreement thus resulting in lower salary, commission and travel costs.

Research and development expenses increased 2.4% from $2.06 million in 1993
to $2.11 million in 1994. The increase was less than expected primarily as a
result of the Company not beginning its rheumatoid arthritis clinical trial as
soon as expected. In addition, the Company did not conduct a clinical trial for
the treatment of the classical form of thrombotic thrombocytopenic purpura in
1994 as planned because of difficulties in agreeing upon an acceptable treatment
protocol with the FDA. The conditions mandated by the FDA would make the
clinical trial too costly to perform in relation to potential investment return
from product sales. The increase is

28
<PAGE>

primarily a result of increased payroll costs for senior management hired in
1994 offset by a reduction in treatment data costs.

General and administrative expenses increased 27.5% from $2.11 million in
1993 to $2.69 million in 1994. The increase is principally a result of costs
associated with the development of the Company's diagnostic business plan,
including expenses associated with seeking funding for the development of the
diagnostics technology. Such funding has not been obtained. The increase is
also a result of costs associated with hiring the Company's new Chief Executive
Officer and the annualized payroll cost effect of increasing the number of
management and support personnel in 1993.

Interest expense increased from $8,000 in 1993 to $220,000 in 1994 because
of the issuance in April 1994 of $4.25 million of 7% convertible debentures due
March 31, 2001.

The increase in total operating expenses and the decrease in revenues
resulted in increasing the net loss from $4.92 million in 1993 to $6.15 million
in 1994.

29
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page

Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . 31

Consolidated Balance Sheets, December 31, 1995 and 1994 . . . . . . . 32

Consolidated Statements of Operations for the Years Ended

December 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . 33

Consolidated Statements of Cash Flows for the Years Ended

December 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . 34

Consolidated Statements of Stockholders' Equity for the Years

Ended December 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . 35

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 36

30
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND STOCKHOLDERS
IMRE CORPORATION

We have audited the consolidated balance sheets of IMRE Corporation as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' 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 1995 and 1994 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of IMRE
Corporation as of December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP
Seattle, Washington
January 23, 1996

<PAGE>

IMRE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994

ASSETS 1995 1994
- ------ ------------ -------------
<S> <C> <C>
Current assets:

Cash and cash equivalents $ 1,009,878 $ 3,670,616
Accounts receivable:
Trade 23,850 418,399
Other 533,989 61,398
Inventories 1,148,506 1,494,311
Prepaid expenses 143,755 208,560
---------- ----------
Total current assets 2,859,978 5,853,284
---------- ----------

Property and equipment, net 1,425,020 1,347,532
Convertible debenture issuance costs, net 278,711 520,197
---------- ----------

Total assets $4,563,709 $7,721,013
---------- ----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

Accounts payable $ 892,501 $ 610,478
Accrued compensation 456,939 266,395
Accrued liabilities 672,488 606,609
Senior convertible debentures 1,500,000
Current portion of notes payable 26,821 9,053
---------- ----------
Total current liabilities 3,548,749 1,492,535
---------- ----------

Convertible debentures 1,345,000 4,245,000
Notes payable, net of current portion 25,972 2,759
Accrued compensation 168,750
---------- ----------
5,088,471 5,740,294
---------- ----------

Commitments and contingencies (Note 8)

Stockholders' equity (deficit):
Common stock, $.02 par value; authorized 35,000,000
shares; issued and outstanding, 18,693,595 and
17,000,012 shares at December 31, 1995 and 1994 373,872 340,000
Additional paid-in capital 43,143,000 38,856,101
---------- ----------
43,516,872 39,196,101
Accumulated deficit (44,041,634) (37,215,382)
---------- ----------
(524,762) 1,980,719
----------- -----------
Total liabilities and stockholders' equity (deficit) $4,563,709 $7,721,013
----------- -----------
----------- -----------

</TABLE>

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

<PAGE>

IMRE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

For the Year Ended December 31,
--------------------------------------------------
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Revenues (Note 4) $4,104,224 $4,918,126 $5,410,530
Interest income 118,994 71,986 134,483
---------- ---------- ----------
4,223,218 4,990,112 5,545,013
---------- ---------- ----------

Costs and expenses:
Production costs 2,041,422 2,571,168 1,582,986
Sales and marketing 819,907 3,550,037 4,758,427
Research and development 3,219,324 2,107,694 2,059,129
General and administrative 2,626,817 2,694,489 2,105,743
Interest 261,958 218,036 7,659
--------- ---------- ----------
8,969,428 11,141,424 10,513,944

Purchase of in process research
and development (Note 2) 625,000
Debt conversion expense(Note 10) 810,386
Restructuring expense 644,656
----------- ---------- ----------
11,049,470 11,141,424 10,513,944
----------- ---------- ----------
Loss from operations (6,826,252) (6,151,312) (4,968,931)
Minority interest in loss 47,711
----------- ----------- -----------

Net loss $(6,826,252) $(6,151,312) $(4,921,220)
------------ ------------ ------------
------------ ------------ ------------

Net loss per share $ (0.39) $ (0.40) $ (0.33)
------------ ------------ -------------
------------ ------------ -------------

Weighted average number
of shares outstanding
during the year 17,598,735 15,243,860 14,716,472
------------ ----------- -----------
------------ ----------- -----------

</TABLE>

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

<PAGE>

IMRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

-------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Receipts from customers $ 4,486,792 $ 5,629,001 $ 4,987,231
Interest received 118,994 71,986 183,169
Payments to suppliers and employees (7,202,948) (10,539,166) (10,120,964)
Interest paid (322,968) (11,824) (7,659)
-------------- -------------- --------------
Net cash used by operating activities (2,920,130) (4,850,003) (4,958,223)
-------------- -------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of equipment (714,947) (549,486) (563,645)
Proceeds from sale of fixed assets 30,393
Maturity of short-term investments, net 4,438,934
Other 1,329
-------------- -------------- --------------
Net cash (used) provided by investing activities (684,554) (549,486) 3,876,618
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of convertible debentures 1,000,000 4,245,000
Principal payments under capital lease obligation (22,140)
Debt conversion costs (22,102)
Notes payable, net (11,812) (12,853) (14,900)
Net proceeds from issuance of common stock 2,648,228 2,093,409
Debt issuance costs (93,853)
-------------- -------------- --------------
Net cash provided by financing activities 943,946 6,786,522 2,078,509
-------------- -------------- --------------

Net (decrease) increase in cash and cash equivalents (2,660,738) 1,387,033 996,904
Cash and cash equivalents at beginning of year 3,670,616 2,283,583 1,286,679
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 1,009,878 $ 3,670,616 $ 2,283,583
-------------- -------------- --------------
-------------- -------------- --------------
RECONCILIATION OF NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES:

Net loss $ (6,826,252) $ (6,151,312) $ (4,921,220)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 373,306 325,549 162,144
Loss on disposal of fixed assets 23,437
Purchased research and development 625,000
Debt conversion expense 810,386
Restructuring expense 644,656
Common stock issued for services and expenses 248,884 161,078 175,489
Minority interest (3,436) (47,711)
Net change in operating accounts:
Accounts receivable 394,549 2,228,102 (2,075,019)
Other receivables 30,034 (14,634) 39,938
Inventories 345,806 (159,292) (317,241)
Prepaid expenses 64,805 174,232 (9,431)
Accounts payable and accrued expenses 345,259 (1,410,290) 2,034,828
-------------- -------------- --------------
Net cash used by operating activities $ (2,920,130) $ (4,850,003) $ (4,958,223)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

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

34
<PAGE>

IMRE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

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

<TABLE>
<CAPTION>
Per Par Additional Accumulated
Share Shares Value Paid-in Capital Deficit Total
------- -------------- ------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 14,073,343 $281,467 $33,353,430 $(26,142,850) $7,492,047
- ----------------------------------------- -------------- ------------- ---------------- ----------------- --------------
Stock options exercised 2.00 10,000 200 19,800 20,000

Stock warrants exercised 2.00 43,400 868 85,932 86,800

Stock issued for services 1.44 348 7 493 500

Stock issued to match
401(k) contributions 3.10 56,481 1,129 173,860 174,989

Stock issued in
private placement 2.23 888,900 17,778 1,968,831 1,986,609

Net loss (4,921,220) (4,921,220)
- ----------------------------------------- -------------- ------------- ---------------- ----------------- --------------
Balance, December 31, 1993 15,072,472 301,449 35,602,346 (31,064,070) 4,839,725
- ----------------------------------------- -------------- ------------- ---------------- ----------------- --------------
Stock options exercised 2.63 1,000 20 2,605 2,625

Stock warrants exercised 1.88 6,500 130 12,058 12,188

Stock warrants issued
for services 483,000 483,000

Stock issued to match
401(k) contributions 2.30 70,040 1,401 159,677 161,078

Stock issued in
private placement 1.42 1,850,000 37,000 2,596,415 2,633,415

Net loss (6,151,312) (6,151,312)
- ----------------------------------------- -------------- ------------- ---------------- ----------------- --------------
Balance, December 31 1994 17,000,012 340,000 38,856,101 (37,215,382) 1,980,719
- ----------------------------------------- -------------- ------------- ---------------- ----------------- --------------
Stock issued for services 1.43 61,141 1,223 86,322 87,545

Stock issued to match
401(k) contributions 2.48 65,125 1,303 160,036 161,339

Stock issued for minority
interest in CELx 2.00 312,500 6,250 618,750 625,000

Stock issued for
debt conversion 2.75 1,254,817 25,096 3,421,791 3,446,887

Net loss (6,826,252) (6,826,252)
- ----------------------------------------- -------------- ------------- ---------------- ----------------- --------------
Balance, December 31, 1995 18,693,595 $373,872 $43,143,000 $(44,041,634) $(524,762)
- ----------------------------------------- -------------- ------------- ---------------- ----------------- --------------
- ----------------------------------------- -------------- ------------- ---------------- ----------------- --------------
</TABLE>

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

<PAGE>

IMRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

_____________________________

1. FORMATION AND BUSINESS OF THE COMPANY.

IMRE Corporation (the "Company") is engaged in the business of developing,
manufacturing and bringing to market devices and products applicable to the
treatment and diagnosis of certain types of immune-mediated diseases,
transplantations and cancer. The Company commenced business activities in
January 1982.

The U.S. Food and Drug Administration ("FDA") approved the Company's
product, the PROSORBA-Registered Trademark- column, for commercial sale on
December 23, 1987, for the treatment of patients with idiopathic
thrombocytopenic purpura ("ITP"), an immune-related bleeding disorder. The
product is approved for the removal of immunoglobulin G ("IgG") and circulating
immune complexes containing IgG from plasma of patients with ITP with platelet
counts below 100,000/mm3.

The Company continues to devote most of its efforts to obtaining FDA
marketing approval for additional autoimmune diseases, transplantations and
certain cancers. The Company is currently planning in 1996 to conduct a
controlled clinical trial using the PROSORBA-Registered Trademark- column for
therapy for rheumatoid arthritis as a follow on to a pilot clinical trial
completed in September 1995 and clinical trials for certain platelet disorders.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material inter-company accounts and
transactions have been eliminated.

USE OF ESTIMATES

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

36
<PAGE>

CONCENTRATION OF CREDIT RISK

The Company invests its excess cash in money market funds with major
financial institutions. The securities in such money market funds typically
mature within 90 to 180 days and, therefore, bear minimal risk. The Company has
not experienced any losses on these investments.

The PROSORBA-Registered Trademark- column is sold to its exclusive
distributor in North America, Baxter Healthcare Corporation (see Note 4), and a
diverse group of international health-care institutions. The Company has not
experienced any material losses from the collection of its accounts receivable.
Approximately 91% of the Company's sales for the year ended December 31, 1995,
were for shipments to Baxter.

CASH EQUIVALENTS

The Company considers all investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents primarily represent
funds invested in a money market fund whose costs approximate market value.

INVENTORIES

Inventories are stated at average weighted cost, determined on the first-
in, first-out method, but not in excess of net realizable value. The Company
maintains access to adequate sources of supply of raw materials.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is provided by
the straight-line method over useful lives of three to five years, and leasehold
improvements are amortized over the term of the related lease.

CONVERTIBLE DEBENTURE ISSUANCE COSTS

Convertible debenture issuance costs are comprised primarily of the value
assigned to stock warrants issued for placement agent services (see Note 10),
other placement agent fees and legal expenses. Such costs are being amortized
over the life of the related debentures.

STOCK AND STOCK WARRANTS ISSUED FOR SERVICES

Common stock and common stock warrants issued for services rendered to the
Company are generally recorded at the fair market value of the stock or stock
warrant issued or the value of the services rendered, whichever is more clearly
determinable.

37
<PAGE>

STOCK COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Generally stock
compensation, if any, is measured as the difference between the exercise price
of a stock option and the fair market value of the Company's stock at the date
of grant, which is then amortized over the related service period.

REVENUE RECOGNITION

The Company records sales of its product as earned revenue when the product
is shipped.

Revenue resulting from the settlement of the annual take or pay provisions
of the Company's distribution agreement, discussed in Note 4, was recognized at
the end of the sales year period ended March 31, 1995.

ADVERTISING COSTS

Advertising costs are expensed as incurred.

NET LOSS PER SHARE

The computation of net loss per share is based on the weighted average
number of shares of common stock outstanding for each period. Options, warrants
and Convertible Debentures have not been considered in the calculation inasmuch
as they would have the effect of decreasing net loss per share.

3. RESTRUCTURING EXPENSE

In December 1995, the Company recorded a restructuring charge aggregating
$645,000 relating to the Company's plan to consolidate its manufacturing
facilities to one location in the state of Washington and to move all other
operations to San Diego, California. This charge includes approximately
$350,000 related to write-downs of equipment and leasehold improvements for the
manufacturing facility expected to be vacated in 1996, $200,000 related to
abandonment of leases in Seattle and Princeton with the remainder related to a
severance commitment with its former Executive Vice President who resigned on
December 28, 1995.

The Company estimates it will incur approximately $300,000 in costs
associated with moving the administration, research and medical departments to
San Diego, with most costs being attributable to relocation costs of the few
members of management moving to San Diego. Such costs will be recorded as
general and administrative expenses as incurred in 1996. The Company estimates
it will incur approximately $1,000,000 of capital expenditures to consolidate
its two Washington manufacturing facilities.

38
<PAGE>

In January 1996, the Company notified approximately twenty employees, which
was slightly greater than half of its work force, that their positions were
being terminated immediately as part of the restructuring. Such positions were
from all departments of the Company. Costs related to these terminations are
approximately $150,000 and will be recorded as a charge to operations as a
restructuring expense in the quarter ending March 31, 1996.

4. DISTRIBUTION AGREEMENT.

On February 15, 1994, the Company entered into a 10-year exclusive
distribution agreement with Baxter granting distribution rights of its PROSORBA-
Registered Trademark- column in the United States and Canada for the treatment
of thrombocytopenia and the first right to negotiate for new PROSORBA-Registered
Trademark- column indications. Baxter assumed its sales and distribution
responsibilities on April 2, 1994. The agreement provided for an annual "take
or pay"and purchase commitment from Baxter to the Company for the first two
sales years.

Baxter, at its own expense, provides sales and marketing support for the
sale of the product during the term of the Agreement, however, the Company was
to provide significant marketing and promotional support to Baxter for the first
three years of the agreement. During 1994, eight sales and marketing employees
of the Company became employees of Baxter and five other sales and marketing
employees of the Company were terminated. There was no material impact on net
loss associated with these terminations. The Company no longer maintains a
domestic sales force.

The purchase minimums were primarily subject to the Company having FDA
product approval for immune thrombocytopenic purpura and the lack of any new
significant competitive technology being introduced before October 1995 to the
thrombocytopenic therapy marketplace. The Company received a response from the
FDA in January 1995 to a Pre-market Application (PMA) supplement filed in March
1993 requesting the name of the Company's approved indication be changed from
idiopathic thrombocytopenic purpura to immune thrombocytopenic purpura. The
request was made by the Company as it believes the two names are used
interchangeably by the medical community. The FDA's response denied the
Company's request for such a change.

As a result of the FDA action, Baxter exercised its right to re-negotiate
minimums in February 1995. In March 1995, the two companies amended the
agreement whereby Baxter: 1) made a take-or-pay payment for the first sales
year of $3.0 million compared to the original $3.5 million due March 31, 1995,
2) purchased $1.0 million of product during the second quarter of 1995, 3)
released the Company from its obligation to provide marketing and promotional
support for the second and third years of the agreement, 4) gave IMRE the right
to co-market with Baxter, 5) relinquished its first right to negotiate for new
PROSORBA-Registered Trademark- column indications, and 6) under certain
circumstances, would provide advance payments to the Company for Baxter's 1996
purchases. IMRE has agreed to eliminate purchase minimums and the take-or-pay
concept included in the original agreement and has freed Baxter to pursue
competing thrombocytopenia

39
<PAGE>

therapies. The term of the agreement remains ten years and consistent with the
original agreement, both companies have agreed to review the terms at the end of
the third year. Both companies have the right to terminate the agreement as of
September 30, 1997 if the parties are unable to agree on terms for the remainder
of the agreement or based on performance through September 30, 1997.

5. INVENTORIES.
Inventories are comprised of the following as of December 31:

1995 1994
------------ ------------
<S> <C> <C>
Raw materials and components $ 513,883 $ 571,800
Work in progress 557,222 884,373
Finished goods 77,401 38,138
------------ ------------
$ 1,148,506 $ 1,494,311
------------ ------------
------------ ------------
</TABLE>

6. PROPERTY AND EQUIPMENT.
Property and equipment are comprised of the following as of December 31:

1995 1994
------------ ------------
<S> <C> <C>
Laboratory and production equipment $ 602,152 $ 681,149
Office equipment 281,914 498,190
Vehicles 52,097 108,651
Leasehold improvements 48,585 385,565
Construction in progress 976,671 366,309
------------ ------------
1,961,419 2,039,864

Accumulated depreciation and
amortization (536,399) (692,332)
------------ ------------
$ 1,425,020 $ 1,347,532

</TABLE>

7. ACCRUED LIABILITIES.

Accrued liabilities are comprised of the following as of December 31:

1995 1994
------------ ------------
<S> <C> <C>
Accrued clinical trial fees $ 250,858 $ 169,151
Accrued convertible debenture interest 64,200 206,212
Other 357,430 231,246
------------ ------------
$ 672,488 $ 606,609
------------ ------------
------------ ------------
</TABLE>

40
<PAGE>

8. COMMITMENTS AND CONTINGENCIES.

OPERATING LEASES

In October 1991, the Company entered into an eight-year lease for 14,400
square feet of production, laboratory and administrative facilities in Seattle,
Washington. The lease requires the Company to pay the costs associated with
building operations including property taxes, insurance, maintenance and other
operating costs, and provides for scheduled rent increases during the term of
the lease. In connection with the restructuring plan described in Note 3, the
Company is in the process of seeking a tenant to sub-lease this facility. The
Company leases approximately 8,000 square feet of material preparation
facilities in Redmond, Washington. This lease expires in 2004.

The table below indicates future minimum lease payments due over the
remaining life of the leases, under the agreements in place as of December 31,
1995:

1996 $397,000
1997 397,000
1998 397,000
1999 397,000
2000 96,000
Thereafter through 2004 384,000
-----------
$2,068,000
-----------
-----------

Total rental expense was approximately $521,000, $417,000 and $463,000 for
the years ended December 31, 1995, 1994, and 1993, respectively.

DEFINED CONTRIBUTION PENSION PLAN

The Company sponsors a defined contribution pension plan pursuant to
Section 401(k) of the Internal Revenue Code of 1986. This plan covers
substantially all employees who provide more than 1,000 hours of service during
the year.

The Plan provides for matching contributions whereby the Company
contributes common stock to the Plan on behalf of participants in an amount
equal to 100% of the participants' contributions during the six-month periods
ending on the last day of June and December. The Company's contributions will
vest six months after the amount of the contribution is determined if the
employee is still employed by the Company at the end of the vesting period,
except for employees who have been with the Company more than five years for
whom contributions will vest immediately. The expense recognized for shares
contributed on behalf of employees was approximately $161,000, $161,000 and
$175,000 for the years ended December 31, 1995, 1994 and 1993, respectively,
based on the market value of the Company's common stock on the date of the
contribution.

41
<PAGE>

PATENT CONTINGENCY

In November 1995, a complaint was filed claiming the PROSORBA-Registered
Trademark- column infringes an issued patent. The Company first received a
notice of a claim of infringement in July 1993. The Company has reviewed this
matter with two independent outside patent counsel and, in both instances, has
been advised that the claims of patent infringement are invalid or
unenforceable, or not infringed. The Company intends to vigorously contest the
claim. The Company does not expect the resolution of this issue to have a
material impact on its financial position or results of operations.

SEVERANCE AGREEMENT

The Company entered into a severance agreement as of December 28, 1995 with
its former Chief Executive Officer. The terms of the severance agreement were
based primarily on the termination clause of the employment agreement entered
into between the former officer and the Company in September 1994. Such terms
include the payment of $225,000 in 1996 and $168,750 by December 31, 1997. As
of December 31, 1995, the officer had vested in options, under the Company's
Non-Qualified Stock Option Plan, to purchase 500,000 shares of common stock at
$2.1875. Such options will expire on March 30, 1996. The total cost of this
severance agreement of $393,750 has been included in general and administrative
expenses in the 1995 statement of operations.

EMPLOYMENT AGREEMENTS

The Company entered into employment agreements as of December 28, 1995
through December 31, 2000 with a new Chief Executive Officer and a new
President, Chief Operating Officer. The Agreements provide for specified
compensation which include salary, signing bonuses, annual performance bonuses
and a lump sum payment in the event of a termination of employment, without
cause, as defined. Signing bonuses of approximately $100,000 have been included
in general and administrative expenses in the accompanying statement of
operations. An additional $270,000 of bonuses are due upon certain events which
may occur in 1996.

The Agreements provide for the granting of options to purchase 8% and 3%,
respectively, of the fully diluted shares then outstanding, including these
options, at the fair market value of the Company's stock upon the date of grant.
The options were granted in January 1996 upon the closing of the private
placement discussed in Note 15. Options to purchase 25% of the total amount
granted will vest on the date of grant with the remainder to vest daily over a
four year period. Such options will vest immediately upon a merger of the
Company or in the event of a termination of employment without cause, as
defined. The options granted under the agreements are subject to shareholder
approval.

The Company entered into an employment agreement as of December 28, 1995
with its Chief Scientific Officer. The Agreement provides for specified
compensation for 1996 and a lump sum payment equal to one year's salary in the
event of termination of employment in 1996.

<PAGE>

9. INCOME TAXES.

Significant components of the Company's deferred income tax assets as of
December 31, are as follows:

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net operating loss carry forwards $9,139,000 $7,874,000
Other 741,000 448,000
------------- ------------
9,880,000 8,322,000

Valuation allowance (9,880,000) (8,322,000)
------------- ------------

Net deferred income tax assets $ 0 $ 0
------------- ------------
------------- ------------
</TABLE>

As of December 31, 1995 and 1994, the Company has accumulated net operating
loss carry-forwards of approximately $39,100,000 and $35,400,000, respectively,
which expire beginning 1998 through 2010. Additionally, the Company has
research and development tax credit carry-forwards of approximately $400,000 as
of December 31, 1995.

As a result of the Company's sales of common stock in November 1990,
September 1991, April 1993, and January 1996 the utilization of net operating
loss carry-forwards which had accumulated as of those dates will be limited
to a prescribed amount in each successive year. Based on these limitations
the Company may be allowed to use no more than approximately $3,700,000 of
such losses each year to reduce taxable income, if any. Approximately
$12,200,000 of net operating loss carry-forwards are expected to expire prior
to utilization due to the annual Internal Revenue Code Section 382
limitation, accordingly, the tax on this portion of the net operating loss
carry-forwards has been excluded from the above table.

10. 7% CONVERTIBLE DEBENTURES.

On April 22, 1994, the Company completed a private placement of $4,245,000
principal amount of 7% convertible debentures due March 31, 2001 ("7%
Convertible Debentures"). Interest is payable on the 7% Convertible Debentures
in cash or shares of Common Stock at the option of the Company. The conversion
price for the principal amount is $2.875 per share of registered Common Stock,
the fair market value on the date of closing. The conversion price for the
interest is the lower of $4.00 per share of Common Stock or the average closing
price for the 10 days prior to the annual April 30 interest payment date. The
debentures are redeemable by the Company after April 1, 1998 at a redemption
price of 106% of the principal amount reduced to 104% and 102% the following two
years. Allen & Company Incorporated ("Allen & Company"), a shareholder of the
Company, acted as placement agent with respect to a majority of this private
placement and received a five-year warrant valued at $483,000 to purchase
300,000 shares of Common Stock at $2.875 for its services as placement agent.
The cost of issuing the 7% Convertible Debentures, including the cost of the
warrants, is deferred and is reported on the accompanying balance sheet net of
amortization expense being recorded over the term of the 7% Convertible
Debentures. Of the total $4,245,000 principal amount of 7% Convertible
Debentures, $1,000,000 was purchased by Allen & Company.

<PAGE>

In September 1995, the Company completed an exchange offering to holders of
the 7% Convertible Debentures. The Company offered to exchange the 7%
Convertible Debentures for restricted common stock at $2.25 per share. Of the
original $4,245,000 outstanding principal amount, $2,200,000 of the 7%
Convertible Debentures were converted. The Company recorded a non-cash expense
of $810,000 which represents the fair market value of the increased number of
shares issued under the terms of the offering compared to the original
conversion terms. Subsequent to September 1995, an additional $700,000 of 7%
Convertible Debentures were converted into common stock at the original
conversion price. For substantially all 7% Convertible Debentures that were
converted, the interest accrued up to the date of conversion was paid through
the issuance of common stock at either $2.25 per share or $2.875 per share. The
Company also charged $314,000 to additional paid-in capital for the year ended
December 31, 1995 for the unamortized deferred debt issuance costs related to
the converted debentures.

11. SENIOR CONVERTIBLE DEBENTURES.

On December 29, 1995, the Company completed a private placement of
$1,500,000 principal amount of senior convertible debentures due July 1, 1996
("Senior Convertible Debentures") to a group of investors including $500,000
issued to Allen & Company Incorporated, a shareholder of the Company. The
Company received $1,000,000 of cash on December 29, 1995. The remaining
$500,000 was received during the first week of January 1996 and is recorded in
Other Receivables on the accompanying balance sheet. The cost of issuing the
Senior Convertible Debentures was approximately $140,000, including placement
agent fees of $90,000, and is deferred and reported on the accompanying balance
sheet as convertible debenture issuance costs.

In January 1996, the Senior Convertible Debentures, under their original
terms, were automatically converted at $1.50 per share into 1,000,000 shares of
the Company's common stock. The conversion was made simultaneously with the
closing of a private placement of common stock (See Note 15).

12. STOCKHOLDERS' EQUITY.

AUTHORIZED SHARES

In December 1995, the shareholders of the Company authorized 15,000,000
shares of "blank check" preferred stock. Terms and rights of such preferred
stock shall be determined by the Board of Directors when such preferred stock,
if any, is issued. As of December 31, 1995, the Company has not amended its
Articles of Incorporation with the State of Delaware for this authorization.

STOCK OPTIONS

INCENTIVE STOCK OPTIONS. In June 1985, the Company adopted an Incentive
Stock Option and Appreciation Plan. The plan authorizes options to purchase,
and appreciation rights with respect to, the Company's common stock, which may
be granted to such officers and key employees as may be selected by the Board of
Directors or a committee appointed by the Board

<PAGE>

to administer the plan. The plan was amended in June 1992 to increase the number
of shares reserved for issuance to 750,000. The plan expired in 1995, however
options granted under the plan remain effective according to their respective
terms and conditions.

NON-QUALIFIED STOCK OPTIONS. The Company has reserved 2,750,000 shares of
common stock for issuance under its 1988 Non-qualified Stock Option Plan, as
amended in 1992 and 1995 (the "1988" Plan). Under the 1988 Plan, directors,
officers, employees and consultants, may be granted non-qualified stock options
at exercise prices determined by the Board of Directors. Stock options granted
under the 1988 Plan will become exercisable for terms up to 10 years in one or
more installments in the manner and at the times specified by the Board.

STOCK OPTIONS-OTHER. The Company has, at various times, granted to
employees and others options to purchase common stock, other than from under a
formal option plan.

WARRANTS

The Company has issued warrants to purchase common stock as compensation
for services rendered in connection with raising capital. Warrants were also
issued in connection with private placements and the 1991 public offering of
common stock.

In 1991, the Company granted warrants to purchase 749,900 shares of common
stock to certain officers, directors and employees, which are now exercisable at
$1.875 per share. The warrants will expire on June 10, 2001. In September
1991, the Company granted warrants to purchase 1,850,000 shares of common stock
at an exercise price of $2.50 per share in connection with its public offering
of units. The warrants will expire on August 29, 1996, and are now redeemable
by the Company at $0.75 each. The Company issued Allen & Company a five-year
warrant to purchase 300,000 shares of Common stock at $2.875 for its services as
a placement agent for the April 22, 1994 7% Convertible Debenture private
placement (see Note 10).

<PAGE>

The following table summarizes the activity of the Company's stock options
and warrants:

<TABLE>
<CAPTION>
Number of Warrants/Options
------------------------------------------------
Incentive
Stock Non-Qualified Other
Warrants Options Stock Options Options
---------- ---------- ------------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1993 2,643,300 236,000 10,000 590,230
Granted 77,100 75,000 228,605
Exercised (43,400) (10,000)
Canceled (30,200) (96,900) (56,000)
---------- ---------- ------------- --------
Balance, December 31, 1993 2,569,700 216,200 75,000 762,835
Granted 300,000 100,500 810,000 110,000
Exercised (6,500) (1,000)
Canceled (20,300) (5,000)
Expired (65,000) (40,000)
------------------------------------------------
Balance, December 31, 1994 2,842,900 310,700 820,000 832,835
Granted 1,179,000 20,000
Canceled (476,500)
Expired (23,100) (42,100) (177,000)
---------- ---------- ------------- --------
Balance, December 31, 1995 2,819,800 268,600 1,522,500 675,835
---------- ---------- ------------- --------
---------- ---------- ------------- --------
</TABLE>

<TABLE>
<CAPTION>
Incentive
Stock Non-Qualified Other
Warrants Options Stock Options Options
---------- ---------- ------------- --------
<S> <C> <C> <C> <C>
Remaining options/warrants
available to be issued at
12/31/95 0 0 1,227,500 0
Range of exercise price $1.875 to $2.00 to $1.75 to $1.75 to
$2.875 $3.875 $3.375 $3.8125

Exercisable options and
warrants at 12/31/95 2,819,800 255,268 627,500 675,835
</TABLE>

13. SUPPLEMENTARY INFORMATION

The Company incurred advertising expenses of approximately $77,000,
$658,000, and $775,000 for the years ended December 31, 1995, 1994 and 1993,
respectively all of which were substantially for advertising agency costs.

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the balance sheet for cash and cash
equivalents, receivables and accounts payable approximate their fair value.

<PAGE>

As of December 31, 1995 there was $1,345,000 outstanding principal of the
7% Convertible Debentures with a conversion rate of $2.875. The estimated fair
value of these securities is estimated to approximate their carrying value based
on the fair market value of the Company's common stock as of December 31, 1995,
which was $2.8125 per share.

As the conversion price of the Senior Convertible Debentures was based on
the expected offering price of the Company's January 1996 private placement (See
Note 15), the estimated fair value of these securities approximates their
carrying value.

15. SUBSEQUENT EVENT

In January 1996, the Company sold approximately 8,500,000 shares of common
stock for $1.50 per share in a private placement. The shares are to be
registered in February 1996 for re-sale, under the Securities Act of 1933, as
amended. The net proceeds to the Company were approximately $12,000,000, or
$1.41 per share, after placement costs of approximately $800,000. As a result
of this private placement, the Senior Convertible Debentures referred to in Note
11 automatically converted to 1,000,000 shares of common stock. In addition,
upon closing of the private placement, the Company issued stock options to the
new Chief Executive Officer and President aggregating 4,159,824 shares at an
exercise price of $1.50 per share.

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

The information required by Item 304 of Regulation S-K was previously
reported on Form 8-K dated June 23, 1994, filed with the Securities and Exchange
Commission, and is incorporated by reference herein.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Subsequent to the year ended December 31, 1995, Frank R. Jones, a Director
and Chief Scientific Officer of the Company, filed a Form 5 which delinquently
reported the disposition of certain shares in the Company held by his childrens'
trusts, for which Dr. Jones disclaims beneficial ownership. In 1995, Dr. Jones
was late in filing one Form 4 and in reporting four transactions on Form 4.
EXECUTIVE OFFICERS OF THE REGISTRANT

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

Name Age Position
---- --- --------

Jay D. Kranzler, M.D., Ph.D.(1) 38 Chief Executive Officer and
Vice Chairman of the Board of
Directors

DebbyJo Blank, M.D.(1) 44 President, Chief Operating
Officer and Director

Frank R. Jones, Ph.D. 51 Chairman of the Board of
Directors and Chief Scientific
Officer

Alex P. de Soto(1) 33 Vice President, Chief
Financial Officer and
Secretary

Richard M. Crooks, Jr.(2)(3)(4) 56 Director

Philip J. O'Reilly(2)(3)(4) 57 Director

Jack H. Vaughn(2)(4) 75 Director

(1)Member of the 401(k) Plan Committee
(2)Member of Audit Committee
(3)Member of Stock Option Committee
(4)Member of Compensation Committee

Jay D. Kranzler, M.D., Ph.D. was appointed Chief Executive Officer and Vice
Chairman of the Board of Directors of the Company in December 1995. From
January 1989 until August 1995, Dr. Kranzler served as President, Chief
Executive Officer and a Director of Cytel Corporation, a publicly held
biotechnology company. Before joining Cytel, Dr. Kranzler was employed by

<PAGE>

McKinsey & Company, a management consulting firm, as a consultant specializing
in the pharmaceutical industry from 1985 to January 1989. In addition,
Dr. Kranzler has been an adjunct member of the Research Institute of Scripps
Clinic since January 1989.

DebbyJo Blank, M.D., was appointed President, Chief Operating Officer and
Director of the Company in December 1995. Prior to joining IMRE, from 1994 to
December 1995, Dr. Blank was Senior Vice President, Marketing, for Advanced
Technology Laboratories, a publicly-held manufacturer and distributor of
ultrasound equipment. From 1993 to 1994, she was Vice President, U.S. Marketing
for Syntex. From 1989 to 1993, she held various positions at the DuPont Company
and the DuPont Merck Pharmaceutical Company ("Dupont"), including Vice President
Worldwide Marketing, Vice President, New Product Planning & Licensing, and Vice
President, Strategy and Business Development. Before joining DuPont, she was
employed by the management consulting firm, Arthur D. Little, from 1986 to 1989
as a consultant in its pharmaceutical practice.

Frank R. Jones, Ph.D., a founder of the Company, is the Company's Chairman
of the Board of Directors and Chief Scientific Officer. He has served as
Chairman of the Board of Directors since 1981, Chief Executive Officer of the
Company from 1981 to September 1994, and President of the Company from 1986 to
November 1989. From 1983 to 1986, Dr. Jones was the director of the Immune
System Response Program of the Pacific Northwest Research Foundation. Dr. Jones
was a Researcher in the Department of Complement and Effector Biology at
Memorial Sloan-Kettering Cancer Center (MSKCC) in New York City from 1980 to
1981 and was a Research Associate in the Laboratory of Veterinary Oncology at
MSKCC from 1981 until 1983. Dr. Jones holds degrees from California State
University (M.A., Bacteriology/Immunology) and the University of Washington
(Ph.D., Biological Structure/ Cellular Immunology).

Alex P. de Soto joined the Company in September 1993 as Vice President,
Chief Financial Officer and Chief Accounting Officer and also was appointed
Secretary of the Company in February 1995. From 1986 through 1993, Mr. de Soto
worked as a certified public accountant in the audit practice of Coopers &
Lybrand in Seattle and London and was an audit manager in its high technology
practice. Mr. de Soto graduated from the University of Southern California.

Richard M. Crooks, Jr. was appointed a Director of the Company in April
1994. Since June 1990, Mr. Crooks has served as President of RMC Consultants, a
financial advisory services firm. Mr. Crooks is also a Director of and
consultant to Allen & Company Incorporated, a privately held investment banking
firm, which is the Company's principal stockholder. Mr. Crooks served as a
Managing Director of Allen & Company Incorporated for more than five years prior
to June 1990. Mr. Crooks is also a Director of Excalibur Technologies
Corporation.

Philip J. O'Reilly a partner in the law firm of O'Reilly, Marsh, Kearney &
Corteselli, P.C., in Mineola, New York, became a Director of the Company in
April 1994. Mr. O'Reilly has been in private practice for the past five years.
Mr. O'Reilly is also a Director of Excalibur Technologies Corporation.

Jack H. Vaughn was appointed a Director of the Company in 1991. Currently,
Mr. Vaughn is Chairman of ECOTRUST, a Portland, Oregon-based foundation
promoting environmentally friendly development in the Pacific Northwest. From
1988 to 1992, he was the U.S. Government's

<PAGE>

Senior Environmental Advisor for Central America. Prior to 1988, Mr. Vaughn was
the founding Chairman of Conversation International, a private foundation
encouraging biological diversity. Mr. Vaughn has been a director of Allegheny &
Western Energy Corporation since 1981 and is a member of its Compensation
Committee.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning compensation for the
fiscal years 1995, 1994 and 1993 for services in all capacities to the Company
by each person who served as Chief Executive Officer of the Company during
fiscal year 1995 as well as those executive officers whose salary and bonus for
fiscal year 1995 exceeded $100,000 (collectively, the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation(1)
--------------------- -----------------
Number of All Other
Fiscal Securities Compensation
Name and Principal Year Salary($) Bonus($) Underlying ($)
Position Options (#)
- ------------------------- ------ --------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Jay D. Kranzler, M.D., 1995 $ - 50,000 - -
Ph.D.(2)
Chief Executive Officer,
Vice Chairman

Martin D. Cleary(3) 1995 $225,000 - - $403,170(4)(5)
Former Chief Executive 1994 $ 56,250 $ 25,000 750,000 -
Officer, President and
Chief Operating Officer,
Director

Frank R. Jones, Ph.D.(6) 1995 $220,000 - - $ 9,240(4)
Chairman and 1994 $215,000 $ 25,000 85,000 $ 9,240(4)
Chief Scientific Officer 1993 $200,000 $ 50,000 90,000 $ 8,994(4)

Harvey J. Hoyt, M.D.(7) 1995 $175,000 - 47,500 $ 94,430(4)(8)
Former Executive Vice
President, Director

DebbyJo Blank, M.D. 1995 $ - 50,000 - $ -
President, Chief Operating
Officer, Director(9)

</TABLE>
(1) The Company's Incentive Stock Option and Appreciation Plan (the "ISO
Plan"), the Plan and other non-formal option plans are intended to further
the interests of the Company by

<PAGE>

providing certain incentives to key employees of the Company. The plans
provide for the granting of options to purchase shares of the Company's
Common Stock at not less than fair market value and the ISO Plan permits
the grant of stock appreciation rights. There were no SARs granted in
1995.
(2) Dr. Kranzler was appointed Chief Executive Officer on December 28, 1995 and
received approximately $20,000 as a consultant during 1995.
(3) Mr. Cleary resigned as Chief Executive Officer, President and Chief
Operating Officer, Director on December 28, 1995.
(4) All Other Compensation includes Company 401(k) contributions in the form of
Company Common Stock.
(5) Includes $393,750 of compensation to be paid in 1996 and 1997 as part of a
severance agreement dated December 28, 1995.
(6) Dr. Jones was Chief Executive Officer until September 30, 1994, at which
time he became Chief Scientific Officer.
(7) Dr. Hoyt resigned as Executive Vice President, Director on December 28,
1995.
(8) Includes $87,500 of compensation to be paid in 1996 as part of a
severance/consulting agreement dated December 28, 1995.
(9) Dr. Blank was appointed President and Chief Operating Officer on December
28, 1995, and received $20,000 as a consultant during 1995.

The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1995, to all of the Named
Executive Officers whom actually received option grants during the fiscal year
ended December 31, 1995. Except as set forth below, no other Named Executive
Officer received option grants during fiscal year ended December 31, 1995.

OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
% of Total Potential Realizable Value at
Number of Options Assumed Annual Rates of
Securities Granted to Exercise Stock Price Appreciation
Underlying Employees in Price for Option Term (4)
Options Fiscal per Expiration -------------------
Name Granted(#) Year Share Date 5% 10%
- ------------------------------------------- -------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Harvey J. Hoyt(1) 5,000 0.5% $ 2.125 09/30/96 $ 398 $ 797
Former Executive 42,500 4.2% $ 1.75 09/30/96 $ 2,789 $ 5,578
Vice President,
Director
</TABLE>

(1) Dr. Hoyt resigned as Executive Vice President, Director on December 28,
1995.
(2) The potential realizable value is based on the assumption that the price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end option term. Actual realizable value,
if any, on stock option exercises is dependent on the future performance of
the Common Stock and overall market conditions, as well as the option
holder's continued employment through the vesting period.

<PAGE>

The following table sets forth certain information as of December 31,
1995, regarding options held by the Named Executive Officers. Except as set
forth below, no other Named Exeuctive Officers held options to purchase
securities of the Company at fiscal year ended December 31, 1995. None of such
individuals exercised any options during the fiscal year ended December 31,
1995. There were no stock appreciation rights outstanding at December 31,
1995.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options at FY-
Options at FY-End(#) End(1)
---------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Martin D. Cleary 500,000 250,000 $312,500 $156,250

Frank R. Jones 705,000 - $466,939 -

Harvey J. Hoyt 47,500 - $ 48,594 -
</TABLE>

(1) Calculation based on $2.8125, the closing price of the Common Stock on the
Nasdaq Small Cap Market on December 31, 1995, less the exercise price.

EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

The Company has entered into a five-year term employment agreement with Dr.
Jay D. Kranzler, the Company's Chief Executive Officer. Dr. Kranzler's annual
compensation consists of base salary of $240,000, performance based bonuses of
up to an additional twenty-five percent (25%) of annual base salary. In
addition, Dr. Kranzler's employment agreement provides for a sign-on bonus of
$185,000, payable in installments upon the occurrence of certain milestone
events achieved by the Company and Dr. Kranzler. As of the date hereof,
approximately $100,000 of the total sign-on bonus has been paid to Dr. Kranzler.

In addition to his base salary and bonus, Dr. Kranzler was granted an
option to purchase eight percent (8%) of the Company's Common Stock on a
fully diluted basis at an exercise price equal to $1.50 per share. The
options vest twenty-five percent (25%) immediately upon grant and thereafter
notably and daily over a four (4) year period. Dr. Kranzler's options shall
fully vest upon the occurrence of any merger, consolidation, corporate
reorganization or transfer of all or substantially all of the assets of the
Company and upon the termination without cause of Dr. Kranzler's employment
with the Company. Such options are subject to stockholder approval.

The Company has entered into a five-year term employment agreement with
Dr. DebbyJo Blank, the Company's President and Chief Operating Officer. Dr.
Blank's annual compensation consists of base salary of $210,000 and
performance based bonuses of up to an additional twenty-five percent (25%) of
annual base salary. In addition, Dr. Blank's employment

<PAGE>

agreement provides for a sign-on bonus of $185,000, payable in installments upon
the occurrence of certain milestone events achieved by the Company and Dr.
Blank. As of the date hereof, approximately $100,000 of the sign-on bonus has
been paid to Dr. Blank.

In addition to her base salary and bonus, Dr. Blank was granted an option
to purchase three percent (3%) of the Company's Common Stock on a fully diluted
basis at an exercise price equal to $1.50 per share. The options vest twenty-
five percent (25%) immediately upon grant and thereafter notably and daily over
a four (4) year period. Dr. Blank's options shall fully vest upon the
occurrence of any merger, consolidation, corporate reorganization or transfer of
all or substantially all of the assets of the Company and upon the termination
without cause of Dr. Blank's employment with the Company. Such options are
subject to stockholder approval.

The Company entered into a one-year employment agreement effective as of
December 28, 1995 with Frank R. Jones, Ph.D., the Company's Chief Scientific
Officer. The employment agreement provides for an annual base salary of
$220,000 and a lump sum severance payment equal to one year's base salary in the
event of termination of employment with or without cause within one year of the
date of the agreement. The employment agreement also provides that in the event
of termination of employment with or without cause prior to December 28, 1996,
previously granted options will be extended or re-issued by the Company so as to
remain exercisable until the applicable expiration of such options.

The Company entered into a six-month employment agreement on January 8,
1996 with Alex P. de Soto, the Company's Chief Financial Officer and Secretary,
which agreement expires by its terms on June 30, 1996, unless otherwise extended
by mutual agreement of the parties. The employment agreement provides that the
Company shall pay Mr. de Soto a base salary of $10,000 per month for the period
January 1, 1996 through March 31, 1996 and $8,000 per month for the period April
1, 1996 through June 30, 1996. In addition to the base salary, Mr. de Soto will
be paid a bonus on April 1, 1996 in the amount of $15,000 in the event he has
not terminated his employment with the Company as of such date. Mr. de Soto is
also entitled to an additional payment equal to $25,000 in the event he
continues his employment with the Company after June 1, 1996. Under the
employment agreement, Mr. de Soto was granted an option to purchase 60,000
shares of the Company's Common Stock (the "Option") at an exercise price of
$1.50 per share, which option shall vest and become exercisable as to 50% of the
shares subject to the option on the date of grant and the remaining 50% of the
shares on June 1, 1996, subject to continued employment on such date. The
Option was issued in exchange for all outstanding options to purchase shares of
the Company's Common Stock previously granted to Mr. de Soto.

<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Company believes that a competitive, goal-oriented compensation policy
is critically important to the creation of value for stockholders. To that end,
the Company has created an incentive compensation program intended to reward
outstanding individual performance.

COMPENSATION PHILOSOPHY

The Company's compensation program is intended to implement the following
principles:

- Compensation should be related to the value created for
stockholders.
- Compensation programs should support the short-term and long-term
strategic goals and objectives of the Company.
- Compensation programs should reflect and promote the Company's
values and reward individuals for outstanding contributions to
the Company's success.
- Short-term and long-term compensation programs play a critical
role in attracting and retaining well-qualified executives.
- While compensation opportunities should be based in part upon
individual contribution, the actual amounts earned by executives
in variable compensation programs should also be based on how the
Company performs.

COMPENSATION MIX AND MEASUREMENT

The Company's executive compensation for the Chief Executive Officer and
all other executives is based upon three components, each of which is intended
to serve the Company's compensation principles:

BASE SALARY

Base salary is targeted at the competitive median for similar companies in
the biotechnology industry. For the purpose of establishing these levels, the
Compensation Committee compares the Company's compensation structure from time
to time to the companies covered in a compensation survey of the biotechnology
industry entitled, BIOTECHNOLOGY COMPENSATION AND BENEFITS SURVEY which is
prepared by Radford Associates and sponsored by the Biotechnology Industry
Organization. Many of the Companies covered in that survey are also included in
the published industry line-of-business index included in the Company's Stock
Price Performance Graph included elsewhere in this Report.

The Committee reviews the salaries of the Chief Executive Officer and other
executive officers each year and such salaries may be increased based upon
(i) the individual's performance and contribution to the Company and
(ii) increases in median competitive pay levels.

<PAGE>

ANNUAL INCENTIVES

The Company has a cash bonus program whereby bonus amounts are determined
based upon the achievement of corporate goals and individual performance. Each
executive officer has a target bonus amount calculated as a percentage of his or
her annual base salary. The bonus percentage is based in part on Company
performance and in part on individual performance. Corporate goals seek
advancements in the areas of business development efforts as well as research
and development activities as they relate to the overall success of the Company.
The Committee believes the target bonus amounts are based upon levels similar to
other companies in the biotechnology industry. Bonuses awarded during 1995 were
less than targeted amounts because of the Company's minimal cash position as of
the end of 1995.

LONG-TERM INCENTIVES

Long-term incentive compensation is provided through grants of options to
purchase shares of the Company's Common Stock to the Named Executive Officers
and others. The stock options are intended to retain and motivate all employees
to improve long-term performance of the Company. It is common in the
biotechnology industry to grant stock options to all employees. As of the
beginning of 1995, stock options had been granted to all employees of the
Company. The Committee believes the amount and value of such grants are based
upon levels similar to other companies in the biotechnology industry.

Stock options are granted with an exercise price equal to prevailing market
value. Generally, the stock options vest in increments over a period of years,
and an employee must be employed by the Company at the time of vesting in order
to exercise his or her options.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

The Company appointed Jay D. Kranzler, M.D., Ph.D. as its new Chief
Executive Officer on December 28, 1995. Accordingly, his compensation was
determined based on biotechnology industry prevailing compensation packages to
attract an individual of Dr. Kranzler's caliber. His compensation includes an
annualized base salary of $240,000, performance cash bonus opportunities and a
signing bonus potential of $185,000. In addition, Dr. Kranzler's employment
agreement provides that the Company issue to him options to purchase that number
of shares of Common Stock of the Company equal to eight percent (8%) of the
equity of the Company on a fully diluted basis. In January 1996, Dr. Kranzler
was granted options to purchase 3,025,327 shares of the Company's
Common Stock at an exercise price of $1.50 per share, subject to stockholder
approval.

Under the Omnibus Budget Reconciliation Act of 1993, beginning in 1994, the
federal income tax deduction for certain types of compensation paid to the Chief
Executive Officer and four other most highly compensated officers of publicly
held companies is limited to $1,000,000 per officer per fiscal year unless such
compensation meets certain requirements. The Committee

<PAGE>

is aware of this limitation and believes that the deductibility of compensation
payable in 1995 will not be affected by this limitation.

STOCK OPTION COMMITTEE COMPENSATION COMMITTEE

Richard M. Crooks, Jr. Richard M. Crooks, Jr.
Philip O'Reilly Philip O'Reilly
Jack H. Vaughn

STOCK PRICE PERFORMANCE GRAPH

COMPARISON OF 5-YEAR CUMULATIVE RETURN

The following Stock Price Performance Graph compares the Company's
cumulative total stockholder return on the Company's Common Stock for the
periods indicated with the cumulative total return of the NASDAQ OTC Index and a
published industry line-of-business index. The Board of Directors approved the
use of the NASDAQ Pharmaceuticals Stock Index. Although the Company previously
used the Coopers & Lybrand Index as its published line-of-business index, it
changed to the NASDAQ Pharmaceuticals Stock Index because of the greater number
of peer companies represented and because the Company believes it is a more
complete representation of the biotechnology industry. The Company has not
declared any dividends since its inception.

<PAGE>

The Board of Directors and its Compensation Committee recognize that the
market price of stock is influenced by many factors, only one of which is
Company performance. The historical stock price performance shown on the Stock
Price Performance Graph is not necessarily indicative of future stock price
performance.

COMPARISON OF FIVE YEAR CUMULATIVE RETURN

AMONG IMRE CORPORATION, NASDAQ OTC, NASDAQ PHARMACUETICAL INDEX
AND COOPERS & LYBRAND INDUSTRY INDEX

<TABLE>
<CAPTION>
Fiscal Year Ended IMRE NASDAQ OTC NASDAQ Coopers &
Corporation Pharmaceutical Lybrand Industry
Index Index
<S> <C> <C> <C> <C>
Measurement Pt.
12/31/90 $100 $100 $100 $100
FYE 12/31/91 $162 $161 $266 $230
FYE 12/31/92 $170 $187 $221 $290
FYE 12/31/93 $225 $215 $197 $285
FYE 12/31/94 $128 $210 $148 $268
FYE 12/31/95 $160 $296 $271 $393
</TABLE>

The above comparison assumes $100 invested in the Company's Common Stock
and each index on December 31, 1990.

COMPENSATION OF DIRECTORS

Messrs. O'Reilly and Vaughn each received $12,000 in cash compensation for
service as a director during fiscal year 1995. Each of Messrs. Crooks, O'Reilly
and Vaughn received options to purchase 10,000 shares of Common Stock for
service as a director during fiscal year 1995. Directors who are employees of
the Company do not receive any fee for their services as directors. None of the
Company's directors receive any compensation for their service on the Board of
Directors or any of its Committees. All of the Company's directors are
reimbursed for their out-of-pocket travel and accommodation expenses incurred in
connection with their service as directors of the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of January 31, 1996 known by
the Company with respect to (i) each stockholder known to the Company to be the
beneficial owner of more than five percent of its outstanding Common Stock,
(ii) each director and nominee, (iii) each of the Named Executive Officers
described in the Summary Compensation Table and (iv) all directors and executive
officers of the Company as a group. Except as set forth below, each of

<PAGE>

the named persons and members of the group has sole voting and investment power
with respect to the shares shown.

Amount and Nature of
Name and Address Beneficial Ownership Percent of Class
---------------- -------------------- ----------------
Allen & Company Incorporated 5,322,462(1) 18.1%
711 Fifth Avenue
New York, New York 10022
Aries Financial Services 1,790,832(2) 6.3%
375 Park Avenue, Suite 1501
New York, New York 10152
Richard M. Crooks, Jr. 1,171,565(3) 4.1%
Frank R. Jones 1,105,411(4) 3.8%
Martin D. Cleary 503,982(5) 1.7%
Jay D. Kranzler 218,881(6) *
DebbyJo Blank 218,881(6) *
Jack Vaughn 56,000(7) *
Philip J. O'Reilly 64,625(8) *
Harvey J. Hoyt 51,683(9) *
All Directors and Named Executive
Officers as a Group (8 persons) 3,149,206(10) 10.6%

________________________
*less than one percent

(1) Includes warrants to purchase 1,060,590 shares of Common Stock. Does not
include 2,303,890 shares of Common Stock and warrants to purchase 31,600
shares of Common Stock owned by certain individuals who may be considered
affiliates of Allen & Company Incorporated. Allen & Company Incorporated
disclaims beneficial ownership of these shares of Common Stock. This
information is derived from a Schedule 13D dated January 22, 1996, filed
by Allen & Company Incorporated.
(2) This information is dervived from a Schedule 13D dated January 22, 1996,
filed by Aries Financial Services.
(3) Includes presently exercisable warrants and options to purchase 30,000
shares of Common Stock. Includes 712,498 shares of Common Stock and
presently exercisable warrants to purchase 26,666 shares of Common Stock
held by Allen & Company for which the director has beneficial interest in
profits upon sale.
(4) Includes presently exercisable warrants and options to purchase 705,000
shares of Common Stock.
(5) Includes presently exercisable options to purchase 500,000 shares of Common
Stock.
(6) Includes 218,881 shares of Common Stock held by the Company's 401(k) plan
for which the officer as co-trustee of the plan has voting rights to such
shares.
(7) Includes presently exercisable options to purchase 55,000 shares of Common
Stock.
(8) Includes presently exercisable warrants and options to purchase 48,825
shares of Common Stock.
(9) Includes presently exercisable options to purchase 22,500 shares of Common
Stock.
(10) Includes warrants and options that are presently exercisable to purchase
1,367,992 shares of Common Stock.

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On December 29, 1995, Allen & Company, the Company's largest
stockholder, purchased through a private placement, $500,000 principal amount
of Senior Convertible Debentures due July 1, 1996 (the "Debentures"). The
Debentures were convertible at $1.50 per share of Common Stock. Allen &
Company acted as non-exclusive placement agent for this private placement and
received 20,000 shares of Common Stock as a placement agent fee.

In January 1996, the Company completed a private placement (the "Private
Placement") of approximately 8,500,000 shares of the Company's Common Stock
with certain accredited investors at a per share sales price of $1.50. The
Debentures held by Allen & Company were converted into 333,333 shares of the
Company's Common Stock on January 22, 1996, in conjunction with the closing of
the Private Placement. Allen & Company acted as a non-exclusive placement
agent for the Company with respect to the Private Placement, receiving a cash
fee of $225,000 or 6% of the gross proceeds attributable to securities actually
placed by Allen & Company.

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) Financial Statements Page
----
Report of Ernst & Young LLP, Independent Auditors. . . 31

Consolidated Balance Sheets, December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . 32

Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993 . . . . . . . . 33

Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 . . . . . . . . 34

Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 . . . . . 35

Notes to Consolidated Financial Statements . . . . . . 36

(2) Financial Statement Schedules

All schedules are omitted because of the absence of the conditions
under which they are required to be reported or because the required
information is included in the Financial Statements and their Notes.

(3) Exhibits

Exhibit No. Description of Exhibit Incorporated by Reference to
----------- ---------------------- -----------------------------
3.1 Certificate of Exhibit 3.1 to this Form 10-K
Incorporation, as for the year ended December
amended 31, 1995 ("1995 Form 10-K")

3.2 By-laws, as amended Exhibit 3.2 to 1995 Form 10-K

4.1 Form of Stock Exhibit 3.1 to Form S-1
Certificate Registration Statement
No. 33-41225 ("Form S-1")

4.2 Form of Common Stock Exhibit 3.1 to Form S-1
Purchase Warrant

<PAGE>

Exhibit No. Description of Exhibit Incorporated by Reference to
----------- ---------------------- ----------------------------

4.3 Incentive Stock Option Exhibit 28.2 to Form S-8
Registration Statement No.
33-20188 ("Form S-8")

4.4 Form of Nonqualified Exhibit 28.2 to Form S-8
Stock Option

4.5 Form of Stock Option - Exhibit 4.5 to Form 10-K for
Other the year ended December 31,
1993 ("1993 Form 10-K")

4.6 Form of Employee Stock Exhibit 10.13 of Form S-1
Warrant

4.7 Form of 7% Convertible Exhibit 10.1 to Form 10-Q for
Debentures the quarter ended March 31,
1994

4.8 Warrant Agreement Exhibit 10.3 to Form 10-Q for
dated as of April 22, the quarter ended March 31,
1994 between IMRE 1994
Corporation and Allen
& Company Incorporated

4.9 Form of 7% Convertible Exhibit 10.4 to Form 10-Q for
Debenture Purchase the quarter ended March 31,
Agreement 1994

4.10 Form of Senior Exhibit 4.10 to 1995 Form 10-K
Convertible Debenture

4.11 Form of Senior Exhibit 4.11 to 1995 Form 10-K
Convertible Debenture
Purchase Agreement

4.12 Form of a Stock Exhibit 4.12 to 1995 Form 10-K
Purchase Agreement for
January 1996 Private
Placement

10.1 Stock Option and Stock Exhibit 28.1 to Form S-8
Appreciation Plan

10.2 1988 Nonqualified Exhibit 28.3 to Form S-8
Stock Option Plan

<PAGE>

Exhibit No. Description of Exhibit Incorporated by Reference to
----------- ---------------------- ----------------------------

10.3 Sub-lease Agreement Exhibit 10.3 to 1993 Form
dated October 11, 1991 10-K

10.4 Lease Agreement dated Exhibit 10.4 to Form 10-K for
April 26, 1994 the year ended December 31,
1994 ("1994 Form 10-K")

10.5 Warrant Agreement Exhibit 99.1 to Form S-3
dated as of August 29, Registration Statement No.
1991 between IMRE 33-71278
Corporation and
Manufacturers Hanover
Trust Company of
California (now known
as Chemical Trust
Company of California)

10.6 Severance Agreement Exhibit 10.6 to 1995 Form
with Martin D. Cleary 10-K

10.7 Consulting Agreement Exhibit 10.7 to 1995 Form
with Harvey J. Hoyt 10-K

10.8 Employment Agreement Exhibit 10.8 to 1995 Form
with Jay D. Kranzler 10-K

10.9 Employment Agreement Exhibit 10.9 to 1995 Form
with DebbyJo Blank 10-K

10.10 Employment Arrangement Exhibit 10.10 to 1995
with Frank R. Jones Form 10-K

10.11 Employment Agreement Exhibit 10.11 to 1995
with Alex P. de Soto Form 10-K

10.12 Baxter Distribution Exhibit 10.1 to Form
Agreement 8-K filed March 18,
1994

10.13 Amendment No. 1 Exhibit 10.1 to Form
dated March 28, 8-K dated March 25, 1995
1995 to Baxter
Distribution Agreement

<PAGE>

Exhibit No. Description of Exhibit Incorporated by Reference to
----------- ---------------------- ----------------------------

11.1 Statement regarding Item 8 of 1995 Form 10-K
computation of per
share loss

16.1 Letter regarding Exhibit 16.1 to 1994 Form 10-K
change in certifying
accountant

23.1 Consent of Ernst Exhibit 23.1 to 1995 Form 10-K
& Young LLP, 1994
and 1995 auditors

23.2 Report of Coopers Exhibit 23.2 to 1995 Form 10-K
& Lybrand LLP,
1993 auditors

23.3 Consent of Coopers Exhibit 23.3 to 1995 Form 10-K
& Lybrand, LLP,
1993 auditors

23.4 Consent of Townsend
and Townsend and Crew

24.1 Powers of Attorney Exhibit 24.1 to 1995 Form 10-K

27.1 Financial Data Schedule Exhibit 27.1 to 1995 Form 10-K

<PAGE>

(b) Reports on Form 8-K

On November 27, 1995, the Company filed a Current Report on Form
8-K which disclosed certain information reported under Item 3.

On January 26, 1996 the Company filed a Current Report on Form
8-K which disclosed certain information under Item 5.

The Company hereby files as part of this Form 10-K the exhibits
listed in Item 14(a)(3) set forth above.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 5, 1996.
--

IMRE Corporation

By: Jay D. Kranzler*
------------------------------------
Jay D. Kranzler, M.D., Ph. D.
Chief Executive Officer,
Vice Chairman of the Board

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

Signature Title Date
--------- ----- ----

Jay D. Kranzler*
_____________________________ April 5, 1996
Jay D. Kranzler, M.D., Ph. D. Vice Chairman of the Board --
Chief Executive Officer

DebbyJo Blank*
_____________________________ April 5, 1996
DebbyJo Blank, M.D. Director, --
President and Chief
Operating Officer

Frank R. Jones*
_____________________________ April 5, 1996
Frank R. Jones, Ph.D. Chairman of the Board --
and Chief Scientific
Officer

/s/ Alex P. de Soto
_____________________________ April 5, 1996
Alex P. de Soto Vice President, --
Chief Financial Officer
and Chief Accounting
Officer

Richard M. Crooks*
_____________________________ Director* April 5, 1996
Richard M. Crooks, Jr. --

Philip J. O'Reilly*
_____________________________ Director* April 5, 1996
Philip J. O'Reilly --

Jack H. Vaughn*
_____________________________ Director* April 5, 1996
Jack H. Vaughn --

*By Alex P. de Soto as attorney-in-fact.

<PAGE>

EXHIBIT INDEX

Sequential
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
3.1 Certificate of Incorporation, as amended

3.2 By-laws, as amended

4.10 Form of Senior Convertible Debentures

4.11 Form of Senior Convertible Debenture Purchase
Agreement

4.12 Form of Stock Purchase Agreement for January 1996
Private Placement

10.6 Severance Agreement with Martin D. Cleary

10.7 Consulting Agreement with Harvey J. Hoyt

10.8 Employment Agreement with Jay D. Kranzler

10.9 Employment Agreement with DebbyJo Blank

10.10 Employment Arrangement with Frank R. Jones

10.11 Employment Agreement with Alex P. de Soto

23.1 Consent of Ernst & Young LLP, 1995 and 1994
auditors

23.2 Report of Coopers & Lybrand LLP, 1993 auditors

23.3 Consent of Coopers & Lybrand LLP, 1993 auditors

23.4 Consent of Townsend and Townsend and Crew

24.1 Powers of Attorney

27.1 Financial Data Schedule

<PAGE>

Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-71276) pertaining to the Warrant Agreement dated as of
August 29, 1991, the Registration Statement (Form S-2 No. 33-49072) pertaining
to stock warrants and options issued to certain directors, officers, employees
and service providers, the Registration Statement (Form S-3 No. 33-64466)
pertaining to resale of 888,900 shares of outstanding common stock, the
Registration Statement (Form S-3 No. 33-79336) pertaining to the Convertible
Debentures issued April 22, 1994, and the Registration Statement (Form S-8
No. 33-20188) pertaining to the Incentive Stock Option and Appreciation Plan
and 1988 Non-qualified Stock Option Plan of IMRE Corporation of our report
dated January 23, 1996, with respect to the consolidated financial statements
of IMRE Corporation as of December 31, 1995 and 1994, and for each year then
ended included in the Annual Report (Form 10-K/A) for the year ended December
31, 1995.

ERNST & YOUNG LLP

Seattle, Washington
April 5, 1996

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in Amendment No. 1 to the
Registration Statement on Form S-3 (Form S-3 No. 333-01071), the Registration
Statement (Form S-3 No. 33-71278) pertaining to the Warrant Agreement dated
as of August 29, 1991, the Registration Statement (Form S-2 No. 33-49072)
pertaining to stock warrants and options issued to certain directors,
officers, employees and service providers, the Registration Statement (Form
S-3 No. 33-64466) pertaining to resale of 888,900 shares of outstanding
common stock, the Registration Statement (Form S-3 No. 33-79336) pertaining
to the Convertible Debentures issued April 22, 1994, and the Registration
Statement (Form S-8 No. 33-20188) pertaining to the Incentive Stock Option
and Appreciation Plan and 1988 Non-qualified Stock Option Plan of IMRE
Corporation of our report dated March 15, 1994 on our audit of the
consolidated statements of operations, cash flows and stockholders' equity of
IMRE Corporation for the year ended December 31, 1993, which report is
included in this Annual Report on Form 10-K, as amended, for the year ended
December 31, 1995.

/s/ Coopers & Lybrand L.L.P

Seattle, Washington
April 4, 1996
--

<PAGE>

Exhibit 23.4

[TOWNSEND AND TOWNSEND AND CREW - LETTERHEAD]

April 4, 1996

The Board of Directors and
Stockholders
IMRE CORPORATION

Re: Consent of Townsend and Townsend and Crew

To Whom It May Concern:

We consent to the reference to our firm under the caption "Legal
Proceedings" and to the use of our name appearing in IMRE Corporation's annual
Report on Form 10-K for the year ended December 31, 1995 and any amendment
thereto.

Townsend and Townsend and Crew

/s/ James M. Heslin

James M. Heslin

[PHONE NUMBERS - FOOTER]