NU TECH BIO MED INC, 10KSB40, 1997-04-09

NU TECH BIO MED INC
10KSB40, 1997-04-09
MEDICAL LABORATORIES

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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------

FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER 0-11772

NU-TECH BIO-MED, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

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<S> <C>
DELAWARE 25-1411971
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)

55 ACCESS ROAD, WARWICK, RHODE ISLAND 02886
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

Issuer's telephone number, including area code: (401) 732-6520

Securities registered pursuant to Section 12(b) of the Act:

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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Common Stock, $.01 par value Boston Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]

Issuer's revenues for its most recent fiscal year: $1,065,000. Included in
revenues for the most recent fiscal year are revenues for a 44 day period of
approximately $836,000 of Medical Science Institute ("MSI") acquired by the
Registrant on November 18, 1996, and transferred on February 26, 1997 to
Physicians Clinical Laboratory, Inc. ("PCL"), a company in which Registrant is
to become a majority shareholder. The revenues of the Registrant without MSI
were approximately $229,000.

On April 4, 1997, the aggregate market value of the voting stock of Nu-Tech
Bio-Med, Inc. held by nonaffiliates of the registrant was approximately
$24,453,075 based on the average of the high bid and low asked prices of such
stock as reported by The Nasdaq Stock Market on such date. For calculation
purposes only, in determining "market value", the Registrant has included on an
"as converted basis" 14,000 shares of its Series A Convertible Preferred Stock
convertible into 6,327,683 shares of Common Stock as of April 4, 1997 calculated
pursuant to the conversion calculation of such Preferred Stock, as provided for,
which calculation will change based upon prevailing closing prices for the 5-day
period prior to actual conversion.

The number of shares of Common Stock outstanding as of April 4, 1997:
2,427,368

Documents Incorporated by Reference -- NONE

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PART I

ITEM 1. BUSINESS

ORGANIZATION

Nu-Tech Bio-Med, Inc. (hereinafter sometimes referred to as "Nu-Tech" or
the "Company") was originally organized under the laws of the State of Delaware
in September 1981 under the name "Applied DNA Systems, Inc." On November 16,
1994, the Company changed its name to its present name. One of the Company's
wholly-owned operating subsidiaries, Analytical Biosystems Corp. ("ABC"), was
organized under the laws of the State of Delaware in August, 1985. On October
21, 1996, the Company through a newly organized wholly-owned subsidiary, NTBM
Billing Services Inc. ("NTBM"), acquired substantially all of the medical
billing service assets of Prompt Medical Billing, Inc. Unless the context
otherwise requires, all references to the Company include ABC and NTBM. ABC
maintains its administrative offices and clinical laboratory and research
facilities at 55 Access Road, Suite 700, Warwick, Rhode Island 02886, and its
telephone number is (401) 732-6520. Nu-Tech maintains its executive offices at
500 Fifth Avenue, Suite 2424, New York, New York 10110, telephone number (212)
391-2424. NTBM maintains a place of business at 9090 SW 87th Street, Miami,
Florida 33176, and its telephone number is (305) 273-1288.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Certain statements in this Form 10-KSB, including information set forth
under Item 6 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" constitute or may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Act"). Nu-Tech Bio-Med, Inc. (the "Company") desires to avail itself of certain
"safe harbor" provisions of the Act and is therefore including this special note
to enable the Company to do so. Forward-looking statements included in this Form
10-KSB or hereafter included in other publicly available documents filed with
the Securities and Exchange Commission, reports to the Company's stockholders
and other publicly available statements issued or released by the Company
involve known and unknown risks, uncertainties, and other factors which could
cause the Company's actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) achievements expressed or implied by such forward looking statements.
Such future results are based upon management's best estimates based upon
current conditions and the most recent results of operations. These risks
include, but are not limited to risks associated with recently consummated
acquisitions, potential acquisitions (including Physicians Clinical Laboratory
("PCL") and indirectly Medical Science Institute ("MSI")) uncertainty of market
acceptance of Analytical Biosystem's FCA, dependence on reimbursement by third
party payers, uncertainty of eligibility for Medicare/Medicaid reimbursement,
need for additional capital, certain patent and technology considerations,
health care reform, competition and technological changes, limited facilities,
governmental regulations, dependence upon key personnel, professional and
product liability, uncertainty of the completion of the acquisition of PCL, the
ability of the Company and/or PCL to obtain additional debt or equity financing
to fund ongoing operations of PCL and MSI and other risks detailed in the
Company's Securities and Exchange Commission filings, each of which could
adversely affect the Company's business and the accuracy of the forward looking
statements contained herein. In addition the report of the Company's independent
auditors on the consolidated financial statements of the Company for the year
ended December 31, 1996 contains an explanatory paragraph that there are certain
conditions that raise substantial doubt about the ability to continue as a going
concern. The Company to date has been materially dependent upon the efforts of
its President and Chief Executive Officer, Mr. J. Marvin Feigenbaum. The loss of
Mr. Feigenbaum's services may have a materially adverse effect upon the business
or operations of the Company. Risk factors and investment considerations which
may materially affect the Company, impact upon any forward looking statements,
and which otherwise should carefully be considered, include the following:

Historical Losses and Accumulated Deficit of Nu-Tech;
Going Concern Qualification of Independent Auditors Report

Through the third quarter ended September 30, 1996, the Company was
classified as a development-stage company for financial accounting purposes by
reason of the fact that it has not generated significant revenues from
operations prior to such date. As a result of the acquisition of Prompt Medical,
and the indirect majority ownership interest in MSI by reason of the pending
acquisition of a majority interest in PCL,

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the Company ceased to be classified as a development-stage company as of
December 31, 1996. Since 1990, the Company's principal business has been
conducted through its wholly-owned subsidiary, ABC. Prior to 1990, the Company,
through other subsidiary corporations, had engaged in other unrelated businesses
which have been discontinued. Since inception (February 1, 1982) through
December 31, 1996, the Company has incurred an accumulated deficit of
approximately $21,664,000. For the fiscal years ended December 31, 1996, 1995
and 1994, the Company incurred net losses of approximately $7,788,000,
$2,089,000 and $1,394,000, respectively. The amount of stockholders equity at
December 31, 1996 was approximately $12,762,000. The amount of its working
capital deficit at December 31, 1996 was approximately $1,667,000. It is
anticipated that the Company will continue to incur losses until such time, if
ever, that ABC and NTBM attain revenues in amounts sufficient to support their
respective operations and/or the operations of MSI and PCL (assuming the PCL
acquisition is consummated) can be stabilized and returned to profitability.
There can be no assurance that the Company will be able to successfully
implement its marketing strategy, generate significant revenues or achieve
profitable operations in the future. In addition the report of the Company's
independent auditors on the consolidated financial statements of the Company for
the year ended December 31, 1996 contains an explanatory paragraph that there
are certain conditions that raise substantial doubt about the ability to
continue as a going concern. See Consolidated Financial Statements and Notes
thereto.

Acquisition of Majority Interest in Physicians Clinical Laboratory, Inc.

Physicians Clinical Laboratory, Inc. ("PCL") is currently operating under
Chapter 11 of the United States Bankruptcy Code. The Company and PCL have
submitted a plan to the United States Bankruptcy Court to acquire a 52.6%
majority interest in PCL which is incurring ongoing and significant losses which
the Company believes is at the rate of approximately $20,000,000 per year.
Additionally, PCL is also in default on approximately $80,000,000 in senior
secured debt and approximately $40,000,000 in subordinated debt. The Company
purchased approximately $13,300,000 of PCL Senior Debt in advance of submission
of the PCL Plan to the bankruptcy court. There can be no assurance the PCL
acquisition will be consummated or that the PCL Plan as submitted to the
bankruptcy court will be approved as submitted. Under such circumstances, in the
event the PCL Plan is not approved, the Company will be a creditor of PCL
holding Senior Debt in default.

At May 31, 1996, the last date for which PCL filed reports with the
Securities and Exchange Commission, PCL had total current liabilities of
approximately $256,658,000 and net losses of approximately $4,997,800. PCL has
continued to operate at a loss since May 31, 1996. There can be no assurance
that upon consummation of the PCL Plan that it will operate profitably even if
confirmation of the PCL Plan results in a decrease of liabilities.

In addition to the risks associated with the businesses of the Company and
of PCL and MSI on an individual basis, the combined entity will present
additional risks solely by virtue of the combination of the companies through
affiliation. Assuming the acquisition of PCL is completed, the Company's size
will increase substantially and its operations will expand from one geographical
area to three states located on opposite ends of the country. There can be no
assurance that the PCL acquisition (and the indirect acquisition of MSI) will be
consummated in accordance with the PCL Plan, if at all.

The Company anticipates that PCL and MSI will each require further funds to
stabilize their respective operations following the proposed acquisition. There
can be no assurance that these funds will be available to either the Company,
PCL or MSI. See "General Business Developments Within Most Recent Fiscal Year --
Proposed Physicians Clinical Laboratory Acquisition" and "Acquisition and
Disposition of Medical Science Institute".

Acquisition of Medical Science Institute

The Company, on November 18, 1996, completed the acquisition of Medical
Science Institute ("MSI") which had been operating under Chapter 11 of the
Bankruptcy Code since 1995. The completion of the acquisition of MSI was
effected with the intent to resell and transfer such ownership to PCL on a pass
through basis, which occurred on February 26, 1997. MSI incurred losses of
approximately $617,000 during the 44 day period ending December 31, 1996. There
can be no assurance that the PCL acquisition, which would include MSI as a
subsidiary of PCL, will result in additional profits to the Company.

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Need for Additional Funds

The Company anticipates it may need additional capital for the operations
of its ABC and Prompt Medical subsidiaries and for the operations of PCL and
MSI, if not otherwise obtainable elsewhere, assuming they are acquired pursuant
to the PCL Plan. The Company has no ongoing funding obligations with respect to
either PCL or MSI. The Company, in the future, will also need additional funds
from loans and/or the sale of equity securities. No assurance can be given that
such funds will be available or, if available, will be on commercially
reasonable terms satisfactory to the Company. In the event such funds are not
available for the operations of the Company, the Company and its wholly-owned
subsidiaries may be forced to curtail operations, or, in an extreme situation,
cease operations. If such funds are not available to either PCL or MSI, such
entities may be required to curtail their respective operations.

Risk Factors Associated with Medical Laboratory Business

In light of its proposed acquisition of a majority ownership in PCL (which
will include indirect majority ownership of MSI), the Company is presently, and
will continue to be after the consummation of the PCL acquisition, subject to
numerous risks associated with the medical laboratory business.

Competition.

Competition in the clinical laboratory industry is intense. Each of MSI and
PCL competes with other independent clinical laboratories as well as
laboratories located in physicians' offices and in hospitals. Several regional
and national independent clinical laboratories are larger and have greater
financial resources than either MSI or PCL. Each of MSI or PCL may encounter
more intense and varying levels of competition from other independent clinical
laboratory companies in the future. In addition, changes in the regulatory
environment in which each of MSI and PCL operates could affect the basis for
competition in the industry, and could thereby have a material adverse effect on
each of MSI and PCL's results of operations. There is also competition in the
industry for acquisition candidates, and there can be no assurance that such
candidates will be available to the Company, MSI or PCL on favorable terms, or
at all.

The Stark Bill and Other Restrictions Referral.

Each of ABC, MSI and PCL are subject to certain self-referral prohibitions
of Federal law, commonly known as the "Stark Bill". The Stark Bill, which became
effective January 1, 1992, generally prohibits MSI and PCL from billing the
Medicare program if the physician ordering the test (or an immediate family
member of such physician, as defined by the Stark Bill) has an ownership or
investment interest in the Company, MSI or PCL or a compensation arrangement
with the Company. Ownership interests would include ownership of shares of
Common Stock purchased in the open market or otherwise. In the event that a
significant number of either MSI or PCL's referring physicians who, in the
aggregate, refer to either MSI or PCL a significant portion of their respective
Medicare-billed testing were to acquire and maintain ownership or investment
interests in either MSI or PCL, or enter into compensation agreements with
either MSI or PCL, and in such case, either the Company, MSI or PCL were to
continue to perform testing services for such physicians comprising a
significant portion of either Nu-Tech, MSI or PCL's Medicare-billed testing,
then either MSI or PCL's inability to bill the Medicare program for tests
ordered by such physicians would have a material adverse effect on their
respective revenues. There can be no assurance that physicians have complied or
in the future will comply with these requests or accurately represent ownership
of any Common Stock. The Stark Bill also requires MSI and PCL to comply with
certain reporting requirements relating to physicians who have an ownership
interest in the Company and physicians who order tests from, and have a
compensation arrangement with, the Company. There can be no assurance that
either the Company, MSI or PCL will be able to obtain adequate information
concerning its physician stockholders to enable it fully to comply with these
reporting obligations. Proposed regulations implementing the Stark Bill also
would prohibit the Company, MSI and PCL from offering a physician price
discounts for laboratory services as an inducement for obtaining Medicare
referrals. Those regulations also would prohibit the purchase by the Company of
a physician-owned laboratory unless, for a period of one year before the
transaction and one year after the transaction, the physician had not had any
other financial relationship with the Company, MSI or PCL. Violations of the
Stark Bill could subject the Company to significant civil penalties or exclusion
from the Medicare program.

In August, 1993, Congress passed and the President signed the Omnibus
Budget Reconciliation Act of 1993 ("OBRA '93"), which amended certain important
provisions of the Stark Bill. OBRA '93 extended the

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prohibition on physician self-referrals to all Medicare- and Medicaid-billable
clinical laboratory services, prohibiting the billing of such services to
Medicare, Medicaid or any other State plan. Under the amendments, physician
ownership of shares in a publicly traded corporation in which the average
stockholder equity either at the end of the corporations' most recent fiscal
year or an average over the prior three fiscal years exceeds $75 million will
not be considered ownership or an investment interest subject to the
prohibition. While this exception is not relevant to the ownership of shares in
the Company at present, it may apply in the future.

In July, 1993, the California Legislature passed, and the Governor of
California signed, a comprehensive workers' compensation reform package. One of
the statutes prohibits the referral by a physician of workers' compensation
medical services to a clinical laboratory in which the physician or his or her
family has a financial interest. The term "financial interest" is defined very
broadly, covering many forms of direct or indirect payments, and includes
interests which are created or transferred to avoid the prohibition. The
legislation exempts referrals under the following circumstances: (1) when the
physician's practices in a rural area and there is no alternative site within a
reasonable distance, (2) when the financial interest is a loan made on
commercially reasonable terms and the terms are not affected by referrals or
volume of services, (3) when the financial interest is a lease made on
commercially reasonable terms and the terms are not affected by referrals or
volume of services, (4) when the interest is ownership of securities in a public
company for which distribution or transfers for value are not based on referrals
and which has gross assets over $100 million (a condition which presently is not
met by the Company), (5) when the physician is not compensated for the referral
or a university employed physician refers to a university owned laboratory and
(6) when the laboratory is owned by the physician's group practice to a
multi-specialty clinic. The law also requires disclosure to the patient of any
financial interest of the physician in the facility to which the referral is
made. Violation of law, which is a misdemeanor, could subject MSI or PCL to
fines and disciplinary action, including license revocation.

Prohibitions Relating to the Mark-up of Laboratory Services. Clinical
laboratories, physicians, hospitals and other health care providers in
California are subject to Section 655.5 of the California Business and
Professions Code. This statute prohibits those subject to the statute, including
MSI and PCL, in billing patients or third-party payers, from marking up charges
for any clinical laboratory services actually not rendered by the provider. Each
of PCL and MSI derive a significant portion of their revenues which are subject
to these regulations. In the event that either PCL or MSI are found in violation
of these regulations, they may be subject to fines and/or sanctions.

Antikickback Laws.

The Medicare/Medicaid antikickback statute prohibits laboratories from
paying remuneration as inducement for referrals of patients or specimens to
third parties for testing and contains severe penalties for violating testing
services reimbursed by the Medicare or Medicaid (referred to in California as
"MediCal") programs. Nu-Tech, PCL and MSI believe that their existing business
relationships do not violate this statute. Court decisions and an administrative
decision suggest that any direct or indirect payment conferred upon one who
refers Medicare or Medicaid patients by or on behalf of the referral recipient
may violate the statute if any part of the purpose of such benefits is to
provide an incentive for such referrals. In addition, a provider convicted of
violating such laws would be excluded from participation in the Medicare and
MediCal programs. The Office of Inspector General of the United States
Department of Health and Human Services has issued "safe harbor" regulations,
which identify certain payment practices which do not violate the antikickback
statute. Although these regulations protect certain types of investment
interests, they do not protect investments by physicians or hospitals in
Nu-Tech, PCL or MSI or the purchase of clinical laboratories from persons in a
position to refer business to the laboratory after the purchase occurs.

California law also prohibits the receipt or acceptance by licensed
physicians of various forms of consideration, including rebates, refunds,
discounts or preferences as compensation or inducement for referring patients,
clients or customers to any other person (including a clinical laboratory),
irrespective of any ownership which the physician may have in the entity to
which the referral is made or the source of payment of other services.
Laboratories that violate the California antikickback laws may be subject to
loss of licensure and substantial fines. In addition, a provider convicted of
violating such laws would be excluded from participation in the Medicare and
MediCal programs. Each of PCL and MSI believe that it satisfies the requirements
of California law with respect to its relationship with its physician-owners.

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Medicare/MediCal Reimbursement.

Laboratories are required to bill Medicare or MediCal directly for services
and supplies provided to patients under these programs, and to accept Medicare
or MediCal reimbursements as payment in full. In 1984, Congress established a
reimbursement fee schedule for clinical laboratory testing performed for
Medicare beneficiaries (excluding hospital in-patients). State Medicaid
programs, including MediCal, are prohibited from paying more than the Medicare
fee schedule stipulates for testing for Medicaid beneficiaries. When initially
established, the Medicare fee schedules were set at 60% of prevailing local
charges. Medicare reimbursement rates for clinical laboratory testing
subsequently have been reduced several times pursuant to Congressional mandate.
The reductions in Medicare reimbursement rates have been offset to some extent
by increases in both the national cap and the local fee schedules tied to the
Consumer Price Index ("CPI"). Further decreases in such fee schedules, however,
could have a material adverse effect on businesses and operations of PCL and
MSI. Proposals that would reduce the amounts reimbursable to and other
independent testing laboratories under the Medicare program are continuously
under consideration by Congress and the Executive Branch.

Management Information Systems.

MSI's and PCL's testing operations and the level of service provided by
each of PCL and MSI to its clients are dependent upon the accurate and effective
operation of their respective management information systems. Any difficulty
associated with or failure of such systems even for a short period of time, or
any inability to expand processing capacity or develop and maintain networking
capability when needed, could have a material adverse effect upon MSI's and
PCL's results of operations.

Litigation and Liability Insurance Coverage.

Although no significant liability has been imposed to date, each of MSI,
PCL, ABC and Nu-Tech could be subject to legal actions arising out of the
performance of its testing services, which could entail significant costs and
liabilities. There can be no assurance that Nu-Tech, ABC, MSI or PCL will not at
some time in the future incur significant liability arising out of such actions
or any other actions relating to past or future testing services. While each of
Nu-Tech, ABC, MSI and PCL currently maintains liability insurance, there can be
no assurance that such coverage is sufficient, that each of Nu-Tech, ABC, MSI
and PCL will be able to maintain such coverage with appropriate policy limits at
an acceptable cost or that each of Nu-Tech, ABC, MSI and PCL will have other
resources sufficient to satisfy any liability or litigation expense that may
result from any insured or underinsured claims.

OTHER RISKS

Uncertainty of Market Acceptance of Analytical Biosystems' FCA

Since 1986, ABC has performed over 4,300 assays on solid mass tumors
collected from over 260 different institutions and physicians. To date, however,
ABC has attempted only limited marketing of the FCA. Demand for and market
acceptance of the FCA is subject to a high degree of uncertainty, and there can
be no assurance that the FCA will ever achieve a sufficient level of market
acceptance to enable ABC to become profitable. The commercial success of ABC is
materially dependent upon its ability to educate the medical community
generally, and oncologists, surgeons, hospitals and HMOs in particular, of the
benefits and applications of ABC's assay, and to distinguish ABC's technology
from existing technology in the field and assays marketed by others. The process
of educating the physician regarding the use and benefits of a new technology
such as the FCA is, in the Company's opinion, difficult. No assurance can be
given that ABC will be able to successfully recruit experienced sales personnel
or successfully implement its proposed sales and marketing programs. In
addition, as part of ABC's research and development and to enhance the ability
of ABC to proceed with its intended sales and marketing of the FCA, ABC is
seeking to develop new protocols to conduct new randomized prospective clinical
trials. While the clinical trials which the Company anticipates conducting are
not required as a condition to use or market the FCA, the Company believes that
the results will have a material effect upon the acceptance of the Company's
assay and the ultimate success of the Company's business, in that such results
would, if they demonstrate the efficacy of the FCA, be an added sales and
marketing tool. There is no assurance as to the results of such anticipated
non-mandatory clinical trials or the time over which such trials will be
completed.

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Dependence on Reimbursement by Third Party Payors

The success of ABC in being able to market its FCA, in addition to
educating potential users, will be dependent upon its ability to obtain routine
reimbursement approval from third party payors. Additionally, the businesses of
both MSI and PCL are dependent upon reimbursement for services. Reimbursement
for diagnostic tests is typically determined by reference to whether such tests
are generally accepted as standard medical practice by each third party payor,
how the charges for such tests compare to charges for established tests for
similar indications, and whether the charges are within the range of usual and
customary services. Such determinations are independently made by each third
party payor. Third party payors also consider whether a test will further the
general objective of health care cost containment and enhance the potential for
the reduction of treatment costs. ABC has recently received an expanded license
from the State of Rhode Island which allows ABC to utilize existing CPT codes
for portions of its laboratory services and which will enable ABC to obtain
reimbursement for certain of its services. There can be no assurance that the
Company will be able to maintain reimbursement approval on a routine basis from
enough additional third party payors so as to have a significant impact on the
marketing of the FCA. In the absence of third party reimbursement, the Company
will be dependent upon direct patient payment. Such dependence may affect the
amount and collectability of receivables of ABC.

Certain Patent and Technology Considerations

Prior to the acquisition of Prompt Medical and MSI, the Company's primary
business was the FCA being marketed through Analytical Biosystems. ABC is the
owner of three patents granted by the United States Patent Office relating to
the FCA and its integral technology, as well as foreign patents which are
founded upon its United States patents. The Company views ABC's patents as being
material to ABC's business, its future success, and its ability to compete. The
three United States patents were originally issued in 1985, 1988 and 1990, and
the protection afforded the Company by virtue of such patents will expire in the
years 2002, 2005 and 2007, respectively. On and after the respective dates of
the expiration of the Company's patents, the Company's patented technology may
become generally available to the marketplace.

ABC's success will depend in part on its ability to defend its patents,
maintain trade secrets and operate without infringing upon the proprietary
rights of others, both in the United States and in foreign countries. In
addition, there can be no assurance that any patents issued to ABC will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will afford ABC protection from competitive products or processes. Furthermore,
there can be no assurance that ABC or the Company will have the financial or
other resources necessary to enforce or to defend a patent infringement or
proprietary rights violation action. Neither ABC nor Nu-Tech is aware of any
objection or challenge to its patents or of any asserted claim of patent
infringement.

The Company also relies on certain proprietary trade secrets and know-how,
which are not patentable, and on certain ancillary technologies which are not
patentable or proprietary and are therefore available to the Company's
competitors. Although the Company has taken steps to protect its unpatented
trade secrets and know-how, there can be no assurance that the Company's trade
secrets will not otherwise become known or be independently developed or
discovered by competitors.

The ability of ABC to obtain patents and similar rights and the nature,
extent and enforceability of the intellectual property rights that may be
obtained as a result of ABC's research efforts involve complex legal and factual
concerns. Discoveries made or developed by the Company may not qualify for
patents or if qualified, may be subject to challenge or to protracted
proceedings. In addition, other public or private concerns, including
universities, may hold or have filed patent applications and have been issued
patents on inventions or otherwise possess proprietary rights to technology
which may be necessary to commercially implement the Company's inventions. The
extent to which the Company may be required to license other patents or
proprietary rights, and the cost and availability of such licenses, are
presently unknown. There can be no assurances that others may not independently
develop similar technology or otherwise obtain access to the Company's know-how.

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Health Care Reform

The Clinton Administration and various Congressional and private parties
have proposed various plans to continue the reform of health care. Numerous
alternatives are under consideration, including mandated basic health care
benefits, controls on health care spending, price controls, the creation of
large insurance purchasing groups and fundamental changes in the health care
delivery system. In addition, several states have passed and implemented, or are
considering, various health care reform proposals. The various proposals and
plans may affect the businesses and operations of each of Nu-Tech, MSI, NTBM and
ABC, as well as PCL. Although ABC believes its FCA to be cost-effective in
overall chemotherapy treatment, changes in the level of support by federal and
state governments of health care services, the methods by which such services
may be delivered and the prices for such services may all have a materially
adverse impact on the Company's ability to achieve and sustain a profit. Health
care reform could also reduce the profitability of certain medical institutions
and, in turn, adversely impact the fees Nu-Tech, MSI, PCL, NTBM and ABC are able
to charge for their services. The Company cannot predict which, if any, health
care reform plan might be adopted or, if adopted, the effect on these
businesses.

Competition and Technological Changes

At the present time, there are several companies which commercially market
chemoresistant assays in addition to general oncology related laboratory
services. The Company believes that it is the only company currently marketing,
though on a limited basis, a patented chemosensitivity assay in the United
States. ABC believes that it competes based upon its patented technology, the
high evaluability rate (i.e. the ability to successfully test the tumor) for
most types of human solid tumors, and the positive and negative predictive
accuracy of ABC's FCA assay. There can be no assurance that ABC's competitors
will not succeed in developing technologies and services that are more accurate
and effective than ABC's FCA or any other assay which may be developed by ABC or
that would render the Company's technology and services obsolete or
noncompetitive. In addition, in the event of the future development and approval
of chemotherapeutic drugs which are not capable of being assayed by the FCA and
such drugs become commonly used, such event may materially affect the ability of
Analytical Biosystems to market the FCA.

In addition, there are many public and private companies, including several
well-known pharmaceutical companies and specialized biotechnology companies,
universities and research centers, engaged in developing therapeutic and
diagnostic products for the treatment of cancer. Many of ABC's competitors have
substantially greater financial and technological resources than the Company of
ABC, and have significantly greater experience in sales and marketing and
research and development. Such companies may be more successful in developing
alternate methods to predict the effectiveness or non-effectiveness of
chemotherapeutic drugs on an individual cancer patient.

Limited Facilities for FCA Services

ABC currently has limited laboratory facilities at which to perform its FCA
services. Since 1986, the Company has performed over 4,300 assays and currently
is performing approximately 10 assays per month. The Company believes that ABC's
present facilities are adequate to allow ABC to perform up to approximately 900
assays per month. No assurance may be given that the Company will have adequate
or sufficient cash resources to fund necessary expansion of facilities and
equipment to fully accommodate its future needs, or that additional capital for
such purposes will be available to it. Such circumstances would have an adverse
effect upon ABC's ability to maximize its business potential.

Pledge of Principal Assets to Secure Existing Loans from the State of Rhode
Island

In connection with a series of loans obtained during 1993 and 1994 by the
Company from the State of Rhode Island Economic Development Small Business Loan
Fund Corporation ("SBLFC") in the principal

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aggregate amount of $791,000, the Company executed two patent security
agreements granting the SBLFC a security interest in ABC's patents to secure
$541,000 of the $791,000 of SBLFC loans (the principal balance of which, as of
December 31, 1996, was approximately $320,000). All of the SBLFC loans,
including those which are subject to the patent security interest, are further
secured by a security interest in the Company's accounts receivable, inventory
and equipment. Each of these loans is for a term of five years from its
respective loan date, bear interest at the rate of 5.4% and, as to each loan,
after the first year is amortized monthly as to principal and interest. The
aggregate amount of monthly loan repayments is approximately $18,000 per month
for the remainder of the loan terms. In the event that the Company, for whatever
reason, is unable to continue to meet its loan repayment obligations, the assets
which are pledged will be subject to the rights of the SBLFC as a secured party.
Further, until the SBLFC loans are repaid, it is unlikely that the Company or
ABC will be able to obtain additional secured financing utilizing this
collateral.

Governmental Regulation

The Company is subject to regulation by the Health Care Financing
Administration ("HCFA"), a division of the United States Department of Health
and Human Services, under the Clinical Laboratories Improvement act of 1988
("CLIA"). Theses regulations mandate that all clinical laboratories be certified
to perform testing on human specimens and provide specific conditions for
certification. These regulations also contain guidelines for the qualification,
responsibilities, training, working conditions and oversight of clinical
laboratory employees. In addition, specific standards are imposed for each type
of test which is performed in a laboratory. CLIA and the regulations promulgated
thereunder are enforced through continuous quality inspections of test methods,
equipment, instrumentation, materials and supplies on a biennial and "spot"
basis. Any change in CLIA or these regulations or in the interpretation thereof
could have a materially adverse effect on the Company's business, prospects,
financial condition or results of operations. To its knowledge, the Company is
in compliance with the currently applicable regulations of HCFA. At the present
time, the United States Food and Drug Administration ("FDA") does not regulate
the FCA. In addition, the extent of potentially adverse government regulations
which might arise from future legislation or administrative action cannot be
predicted.

Dependence Upon Key Personnel

The Company is dependent upon the executive abilities of its Chairman, J.
Marvin Feigenbaum, to implement its present and anticipated future plans and
programs. Mr. Feigenbaum has no background or training as a scientist, nor is
Mr. Feigenbaum a physician. The Company has entered into an employment agreement
with Mr. Feigenbaum for a term ending November 30, 1997 and has obtained, for
its benefit, a policy of key man life insurance on the life of Mr. Feigenbaum in
the amount of $1,000,000. The loss of Mr. Feigenbaum's services may have a
materially adverse effect on the business or prospects of the Company.
Additionally, as a result of the recent acquisitions of Prompt Medical and MSI,
as well as the pending acquisition of PCL, current management, especially Mr.
Feigenbaum, has been unable to devote full-time to operating ABC and the
marketing of the FCA. The Company will be required to hire additional management
or retain existing management at MSI and PCL in order to operate such
businesses. In light of the financial difficulties of both MSI and PCL,
culminating in their bankruptcy filings, it may be difficult for the Company,
MSI or PCL to attract qualified personnel to these businesses. There can be no
assurance that the Company will succeed in retaining current management or
hiring qualified persons to operate these businesses.

Professional and Product Liability

As a clinical laboratory performing assay services and other medical
laboratory services, the Company may be subject to professional and/or product
claims. While no claims have been asserted against or instituted to date arising
out of the performance by the Company of any assay, any such actions in the
future may subject the Company to liability for damages and significant costs
associated with the defense of such action or claim. ABC presently maintains
professional liability insurance in the amount of $1,000,000 per claim and
$3,000,000 aggregate as well as product liability insurance in the amount of
$2,000,000 per occurrence and $4,000,000 aggregate. In addition, both MSI and
PCL maintain professional liability insurance in the amount

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of $10,000,000 per claim and $10,000,000 aggregate, and product liability
insurance in the amount of $1,000,000 per occurrence and $2,000,000 aggregate.
There can be no assurance, however, that this coverage will be adequate to
protect the company, MSI or PCL against future claims or that insurance will be
available to the Company, MSI or PCL in the future on acceptable terms, if at
all, or that a liability or other claim would not materially and adversely
affect the business, prospects, financial condition or results of operations of
the Company, MSI or PCL. The Company intends, however, if feasible, to increase
the amounts of such insurance coverage to such greater amount as management, in
its discretion, may determine having due regard to the cost of such insurance
coverage.

Classified Board of Directors

In November 14, 1994, at a Special Meeting of Stockholders in Lieu of
Annual Meeting, the Company's stockholders authorized and approved an amendment
to the Company's Certificate of Incorporation to provide for a classified Board
of Directors consisting of three classes of directors with terms which currently
expire at the 1997, 1998 and 1999 Annual Meeting of Stockholders. Any further
amendment to the Company's Certificate of Incorporation affecting the classified
Board may only be adopted upon the affirmative vote of not less than 75% of the
issued and outstanding shares entitled to vote thereon.

No Dividends and None Anticipated

Nu-Tech has never declared nor paid a dividend on any shares of its capital
stock and the Board of Directors intends to continue this policy for the
foreseeable future.

Shares Eligible for Resale

The Company currently has 2,427,368 shares of Common Stock issued and
outstanding, of which 1,042,492 shares may be deemed "restricted securities" as
that term is defined under the Securities Act of 1933, as amended. Such
restricted securities may be sold in the future only pursuant to registration
under the Act of an exemption therefrom, including Rule 144 promulgated
thereunder. Of such 1,042,492 shares, the Company has registered for sale
362,881 shares, which will therefore become eligible for immediate resale, and
has additionally registered 1,487,835 shares issuable upon exercise of various
options and warrants. In addition, there are 14,000 shares of its Series A
Convertible Preferred Stock issued and outstanding, convertible into
approximately 6,327,683 shares of Common Stock as of April 4, 1997. The Company
intends to file a registration statement registering for sale all of the shares
of Common Stock issuable upon conversion of the Series A Preferred Stock. The
number of shares of Common Stock to be registered may increase by reason of the
application of the formula for conversion at the actual time of conversion.

Additionally, the Company anticipates filing with the Securities and
Exchange Commission a registration statement to register for sale and additional
563,714 shares of Common Stock of the Company which shares may be issued in
connection with the exercise of options granted or to be granted under the
Company's stock option plans. Sales of such additional shares may have an
adverse effect upon the price of the Company's Common Stock.

SUBSTANTIAL ADDITIONAL CONTEMPLATED DILUTION

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effect upon the market in that there may not be depth or breadth in the market
for the Company's Common Stock to absorb the sale of additional shares that may
come to the marketplace by reason of conversions. Anything to the contrary
notwithstanding, no holder of Preferred Shares is permitted to convert any
portion of the Preferred Shares which would result in the holder being deemed
the beneficial owner of 4.99% or more of the then issued and outstanding Common
Stock of the Company.

The holders of the Preferred Stock are entitled to require the Company,
upon the demand of a majority of the holders of the registrable securities,
to file a registration statement with the Securities and Exchange Commission,
registering for sale the Common Stock which the holders of the Preferred Stock
may receive upon conversion. In the event the Company fails to have a
registration statement declared effective within 120 days of receipt of the
holders' Demand Registration Request, the conversion price is subject to
adjustment by increasing the percentage discount from 25% to 35% and increasing
by an additional 2% for each month for up to six months. In the case of
conversion, in the event that the shares of Common Stock are not converted
within 10 days following the receipt by the Company of a valid conversion
notice, the Company shall pay to the converting Preferred Shareholder an amount,
as liquidated damages, equal to 1% per day of the purchase price of the shares
converted.

The Company had heretofore filed, and withdrew, a registration statement
relating to the shares of its Common Stock issuable upon conversion of the
Preferred Stock. At the time of such filing, the Company believed that it had
not received a valid written demand by a majority of the holders of the
Preferred Stock to require it to proceed with such registration statement. The
Company further believes that, at the time such registration statement was
withdrawn, and through and as of the date hereof, it likewise did not receive a
written demand by the holders of a majority of Preferred Stock to file a
registration statement.

Several Preferred Shareholders have indicated that they intend to commence
an action against the Company arising out of the failure of the Company for its
failure to cause the conversion shares to be registered, seeking unspecified
damages and/or seeking to rescind their purchase of the Preferred Stock. The
Company believes that if any such action is commenced against it, it has good
and meritorious defenses. In the event any such action is brought against the
Company, and the Company does not prevail thereon, and is found to be
responsible for damages or losses, such circumstance would have a material
adverse effect upon the Company. The Company has had, and continues to have
continuous discussions with representatives of the Preferred Shareholders
concerning a resolution of the dispute arising out of the registration of the
shares of the Company's Common Stock issuable upon conversion of the Preferred
Shares. While no assurance may be given that such dispute will be satisfactorily
resolved, the Company intends, however, to prepare and file such registration
statement as soon as practicable to do so. The filing of such registration
statement may not, however, resolve the dispute to the satisfaction of the
Preferred Shareholders, and no assurance may be given that, even if such
registration statement is filed by the Company, that the Preferred Shareholders
may not thereafter commence an action against the Company.

As of April 4, 1997, the Company had 2,427,368 shares of Common Stock
issued and outstanding. Had all 14,000 shares of Series A Convertible Preferred
Stock been converted, the Company would have been obligated to issue
approximately an additional 6,327,683 shares of Common Stock to the holders of
the Preferred Stock who, as a group, would then be in a position to control the
business and affairs of the Company.

PRINCIPAL BUSINESS OF THE COMPANY

As a result of the acquisition of Prompt Medical during 1996 and the
pending acquisition of a majority interest in PCL (which will result in an
indirect majority ownership of MSI), the business of the Company has and will
significantly change and expand. Prior to such acquisitions and pending
acquisition, the Company's sole business activities were through its subsidiary,
ABC.

ABC is a clinical oncology laboratory service and research company which
currently performs and furnishes a patented in vitro chemosensitivity assay
known as the Fluorescent Cytoprint Assay ("FCA") which aids oncologists in
selecting those chemotherapeutic drugs most likely to be effective in treating a
cancer patient's solid mass tumor. The FCA, which was developed by M. Boris
Rotman, Ph.D., Professor of Medical Science at Brown University, Providence,
Rhode Island, is a patented laboratory procedure that measures the effectiveness
of specific chemotherapy drugs in destroying cancer cells retrieved from solid
mass tumors removed from individual patients. Information provided by the test
helps rule out ineffective drugs and assists the oncologists in determining
appropriate chemotherapy.

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ABC also offers an ATPase cell viability assay ("ATP-CVA") which is a
bioluminescent assay utilized for the determination of inhibition of metabolic
activity in cancer cells. The Company uses the non-proprietary ATP-CVA in
conjunction with Analytical Biosystem's FCA for the purpose of expanding the
number of chemotherapeutic drugs which ABC can offer for in vitro drug response
testing. Such expanded drugs include taxol, which is utilized in the treatment
of breast and ovarian cancer. Analytical Biosystems intends that the FCA will be
principally used for the assay of those chemotherapeutic drugs such as
cisplatin, doxorubicin and mitomycin C which have the effect of bursting or
killing cancer cells. With respect to other chemotherapeutic drugs which work in
a different fashion such as taxol and taxotere, the ATP-CVA will detect the
inhibition of metabolic activity. These two latter drugs, which have been
approved by the Food and Drug Administration for the use in the treatment of
breast, lung and ovarian cancer, will be assayed by the Company utilizing the
ATPase assay. In addition, ABC has added navelbine to the chemotherapeutic drugs
which it is capable to assay, which is currently used in the treatment of
non-small cell lung cancer and whose effect is to burst or kill the cancer cells
immediately. This drug is being assayed by Analytical Biosystems utilizing the
FCA. See hereafter "Business -- The Clinical Oncology Laboratory Services of the
Company."

On October 21, 1996, Nu-Tech acquired substantially all of the assets of
Prompt Medical Billing Services, Inc., a Florida corporation, as well as
assuming certain liabilities. Prior to the acquisition Prompt Medical was
engaged in the medical billing business with operations located in Miami,
Florida. The asset acquisition was accomplished through Nu-Tech's newly formed
subsidiary, NTBM Billing Services, Inc. Nu-Tech, through NTBM Billings Services,
intends to retain and expand the medical billings business acquired from Prompt
Medical. See "Recent Events -- Acquisition of Assets of Prompt Medical."

On November 18, 1996, the United States Bankruptcy Court (Central District
of California) approved the reorganization plan of Medical Science Institute, a
California corporation ("MSI") which had been jointly submitted to the court by
Nu-Tech and MSI. MSI had been operating as a debtor-in-possession under Chapter
11 of the United States Bankruptcy Code since October 1995. Pursuant to the
plan, Nu-Tech acquired all of the capital stock of MSI and MSI became a
wholly-owned subsidiary of Nu-Tech. MSI is a full service medical laboratory
facility and its primary executive offices are located in Burbank, California.
The completion of the acquisition of MSI was with the intent to resell and pass
through ownership to PCL so as to result in the Company indirectly owning a
majority interest in MSI through its majority interest in PCL. The transfer of
MSI to PCL was effected on February 26, 1997, and the Company received from PCL
substantially equivalent consideration and value that it paid in acquiring in
MSI. MSI operates throughout the State of California.

On November 8, 1996, Nu-Tech joined with Physicians Clinical Laboratory,
Inc., a Delaware corporation, ("PCL") in submitting a plan of reorganization for
PCL under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") whereby
Nu-Tech will acquire 52.6% of the capital stock of PCL. PCL has been operating
as a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code
since November 8, 1996 and prior to such time suffered significant losses and
was in default of approximately $120,000,000 of debt. PCL is a full service
clinical laboratory which provides a comprehensive battery of testing services.
PCL operates throughout the State of California and its executive offices are
located in Sacramento, California. The plan of reorganization is subject to the
approval of the United States Bankruptcy Court and there can be no assurance
that the plan will be approved by the court or that the acquisition of PCL will
be consummated.

The existing and potential customers of the Company and its subsidiaries
are medical offices, physicians, patients, hospitals, health maintenance
organizations ("HMOs"), community health centers, and third party insurance
companies.

GENERAL BUSINESS DEVELOPMENTS WITHIN MOST RECENT FISCAL YEAR

DECEMBER 1996 PRIVATE PLACEMENT

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75% of the average closing price of a share of Common Stock as reported by
Nasdaq for the five trading days prior to the date of the holders' notice of
conversion. By reason of such conversion provisions, the holders of the
Preferred Stock will have the right, until all of their Preferred Shares are
converted, to always avail themselves of a conversion right at 25% below the
prevailing market price. Therefore, the lower the market price for the Company's
Common Stock, the greater the number of shares that the converting Preferred
Shareholder will be able to receive, and the greater consequent dilution to
existing shareholders. In addition, the issuance of shares of Common Stock by
reason of conversion of the Preferred Stock may have a depressive effect upon
the market in that there may not be depth or breadth in the market for the
Company's Common Stock to absorb the sale of additional shares that may come to
the marketplace by reason of conversions. Anything to the contrary
notwithstanding, no holder of Preferred Shares is permitted to convert any
portion of the Preferred Shares which would result in the holder being deemed
the beneficial owner of 4.99% or more of the then issued and outstanding Common
Stock of the Company.

The holders of the Preferred Stock are entitled to require the Company,
upon the demand of a majority of the holders of the registrable securities, to
require the Company to file a registration statement with the Securities and
Exchange Commission, registering for sale the Common Stock which the holders of
the Preferred Stock may receive upon conversion. In the event the Company fails
to have a registration statement declared effective within 120 days of receipt
of the holders' Demand Registration Request, the conversion price is subject to
adjustment by increasing the percentage discount from 25% to 35% increasing by
2% per month for up to six months thereafter. In the case of conversion, in the
event that the shares of Common Stock are not converted within 10 days following
the receipt by the Company of a valid conversion notice, the Company shall pay
to the converting Preferred Shareholder an amount, as liquidated damages, equal
to 1% per day of the purchase price of the shares converted.

The Company had heretofore filed, and withdrew, a registration statement
relating to the shares of its Common Stock issuable upon conversion of the
Preferred Stock. At the time of such filing, the Company believed that it had
not received valid written demands by a majority of the holders of the Preferred
Stock to require it to proceed with such registration statement. The Company
further believes that, at the time such registration statement was withdrawn,
and through and as of the date hereof, it likewise did not receive a written
demand by the holders of a majority of Preferred Stock to file a registration
statement.

Several Preferred Shareholders have indicated that they intend to commence
an action against the Company arising out of the failure of the Company to cause
the conversion shares to be registered, seeking unspecified damages and/or
seeking to rescind their purchase of the Preferred Stock. The Company believes
that if any such action is commenced against it, it has good and meritorious
defenses. In the event any such action is brought against the Company, and the
Company does not prevail thereon, and is found to be responsible for damages or
losses, such circumstance would have a material adverse effect upon the Company.
The Company has had, and continues to have continuous discussions with
representatives of the Preferred Shareholders concerning a resolution of the
dispute arising out of the registration of the shares of the Company's Common
Stock issuable upon conversion of the Preferred Shares. While no assurance may
be given that such dispute will be satisfactorily resolved, the Company intends,
however, to prepare and file such registration statement as soon as practicable
to do so. The filing of such registration statement may not, however, resolve
the dispute to the satisfaction of the Preferred Shareholders, and no assurance
may be given that, even if such registration statement is filed by the Company,
that the Preferred Shareholders may not thereafter commence an action against
the Company.

Under various agreements related to the sale of the Preferred Stock, the
Company paid to several investment bankers approximately $1,380,000 from the
gross proceeds and agreed to issue up to 60,000 shares of common stock and five
year Common stock purchase warrants to purchase 85,714 shares of common stock
exercisable at $15.00 per share. The Company has engaged certain financial
public relations firms for which such firms have been paid an aggregate of
$1,355,000, which funds were paid from the offering proceeds.

APRIL 1996 PRIVATE PLACEMENT

On April 12, 1996, the Company completed a private offering, under Section
4(2) of the Securities Act and/or Regulation D promulgated thereunder, of
250,000 shares of its Common Stock to 36 investors for an

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aggregate of $2,875,000. The Company paid to the placement agent commissions of
$143,750 (5% of the gross proceeds of the April Offering), an expense allowance
of $20,000, and Common Stock purchase warrants to purchase 75,000 shares of the
Company's Common Stock at an exercise price of $14.50 per share, subject to
adjustment. The Company realized net proceeds of approximately $2,596,000 after
deduction of the placement agent commissions and expenses, legal fees, blue sky
filing fees and other miscellaneous expenses. The proceeds were used for general
working capital purposes as well as certain costs and expenses related to the
PCL, MSI and Prompt Medical acquisition activities.

An aggregate of 250,000 shares of Common Stock were issued to investors in
the April Offering. Investors in the April Offering were granted certain demand
and piggyback registration rights for the shares of Common stock sold in the
April Offering. In satisfaction of certain alleged claims by the investors in
the April Offering that the Company had failed to timely register the Shares
owned by such investors, the Company has agreed to issue one-half share to the
investors for each Share purchased in the April Offering.

PROPOSED ACQUISITION OF MAJORITY INTEREST IN PHYSICIANS CLINICAL LABORATORY

The proceeds of the Series A Preferred Stock offering discussed above were
used in furtherance of, among other things, the acquisition of certain debt
securities of Physicians Clinical Laboratory, Inc., a Delaware corporation
("PCL"), which is a full service clinical laboratory capable of providing a
comprehensive battery of testing services. PCL is a publicly held corporation
which, until recently, filed reports with the Commission under the Securities
Exchange Act of 1934, as amended. PCL is delinquent in its filings with the
Commission and has not filed any reports since the quarter ended May 31, 1996.
PCL has been operating as a debtor-in-possession under Chapter 11 of the
Bankruptcy Code since November 8, 1996. PCL's common stock is traded in the
over-the-counter market of the National Securities Dealers Automated Quotation
System under the symbol "PCLI". PCL reported net revenues of approximately
$111,111,000 and $90,000,000 for the fiscal years ended February 28, 1995 and
February 29, 1996, respectively. PCL had net losses of approximately $67,500,000
for the fiscal year ended February 29, 1996. The Company believes that the loss
of PCL for the year ended February 28, 1997 will be approximately $33,600,000.
PCL has operations throughout the State of California and has been operating
since 1992. PCL is continuing to incur significant ongoing losses and is in
default on approximately $80,000,000 in senior secured debt (the "Senior Debt")
and approximately $40,000,000 in subordinated debt (the "Subordinated Debt").

Nu-Tech has reached an agreement with the holders of the Senior Debt,
Subordinated Debt and the management of PCL whereby Nu-Tech will acquire a 52.6%
interest in PCL. The terms of the agreement provide that PCL would file a plan
of reorganization under Chapter 11 of the United States Bankruptcy Code to
effectuate the agreement (the "PCL Plan"). On November 8, 1996, PCL and the
Company filed the PCL Plan with the U.S. Bankruptcy Court located in the Central
District of California (Case No. SV96-23185-GM). As required by the
aforementioned agreement, the Company purchased approximately $13,300,000 of
Senior Debt for $10,000,000 on November 7, 1996 in advance of the filing of the
PCL Plan with the bankruptcy court. In accordance with the PCL Plan, certain
holdings of Senior Debt contributed $10,000,000 in DIP financing to PCL, which
under the terms of the reorganization, will be forgiven. The PCL Plan also
requires that the Company purchase an additional 17% of the capital stock of PCL
for $5,000,000 upon approval of the PCL Plan. Pursuant to the PCL Plan, and
assuming approval of the PCL Plan by the bankruptcy court, the debt purchased by
Nu-Tech will be converted into 35.6% of the common stock of PCL, which together
with the 17% purchased for $5,000,000, will result in NuTech owning 52.6% of the
outstanding common stock of PCL. The $5,000,000 obligation of the Company will
be satisfied through the satisfaction of the $5,000,000 Note of PCL to the
Company issued in connection with the sale and transfer of MSI by the Company to
PCL. The PCL Plan is subject to the approval of the bankruptcy court and there
can be no assurance such approval will be obtained or that the acquisition will
be consummated. The Company has had, and continues to have continuous
discussions with representatives of the Preferred Shareholders concerning a
resolution of the dispute arising out of the registration of the shares of the
Company's Common Stock issuable upon conversion of the Preferred Shares. While
no assurance may be given that such dispute will be satisfactorily resolved, the
Company intends, however, to prepare and file such registration statement as
soon as practicable to do so. The filing of such registration statement may not,
however, resolve the dispute to the satisfaction of the Preferred Shareholders,
and no assurance may be given that, even if such registration statement is filed
by the Company, that the Preferred Shareholders may not thereafter commence an
action against the Company. There can be no assurance that the Company will be
able to consummate the PCL acquisition or to successfully operate the business
even if the PCL acquisition is consummated. On January 29, 1997, the Bankruptcy
Court having jurisdiction of PCL approved the acquisition by PCL of MSI from the
Company.

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Pursuant to the PCL Plan, J. Marvin Feigenbaum, President and Chief
Executive Officer of the Company, was appointed Chief Operating Officer of PCL.
It is contemplated that Mr. Feigenbaum will serve in such capacity pending the
bankruptcy court's determination of the PCL Plan. Mr. Feigenbaum receives a
salary of approximately $104,000 on an annualized basis from PCL for his
services. In the event the PCL Plan is consummated, Nu-Tech will have the right
to nominate three persons to the five member Board of Directors of PCL. In the
event the PCL Plan is not consummated, Nu-Tech shall not be entitled to nominate
any person to the PCL Board of Directors.

There can be no assurance that the PCL Plan will be consummated, or if
consummated, will be upon the terms as originally submitted to the bankruptcy
court. Should the PCL Plan not be consummated, Nu-Tech will be a creditor of
PCL. Under the terms of the PCL Plan, however, no competing offer for PCL may be
accepted by the bankruptcy court unless (i) such competing offer is at least
$2.5 million higher than the bid by Nu-Tech and (ii) on the effective date of
the competing plan Nu-Tech receives $1.88 million in cash as compensation for
its time and expense in pursuing the PCL Plan.

ACQUISITION AND DISPOSITION OF MEDICAL SCIENCE INSTITUTE

On November 18, 1996, the United States Bankruptcy Court of the Central
District of California (the "Court") (Case No. LA 95-37790 TD) approved the
first Amended Plan of Reorganization (the "MSI Plan") of Medical Science
Institute ("MSI") pursuant to which Nu-Tech acquired all of the capital stock of
MSI. Nu-Tech and MSI submitted the MSI Plan to the court on October 18, 1996.
MSI is engaged in the medical laboratory business primarily in the State of
California and had been operating under Chapter 11 of the U.S. Bankruptcy Code
since October 26, 1995. MSI provides clinical laboratory testing services,
including testing of human tissue and fluid specimens to physicians,
managed-care organizations, hospitals and other health care providers. MSI is a
California corporation with its principal executive offices located in Burbank,
California. The completion of the acquisition of MSI was with the intent of
reselling and passing through such ownership to PCL for consideration and value
substantially equal to that paid by the Company.

In connection with the initial acquisition of Medical Science Institute
("MSI"), by Order of the Bankruptcy Court, Central District of California,
confirming the First Amended Plan of Reorganization of MSI, Fausto Mendez, Jr.,
the sole shareholder of MSI, received shares of Nu-Tech stock having a then
value of $2 million. Based upon the formula provided, Mr. Mendez received
134,228 shares. Mr. Mendez entered into an employment agreement with MSI,
concurred in by Nu-Tech, pursuant to which Mr. Mendez is to receive the sum of
$275,000 in cash through his sale of a portion of the Nu-Tech stock to be issued
to him. In addition, $225,000 of Nu-Tech shares to be issued to Mr. Mendez
(approximately 15,100 shares) was permitted to be transferred by Mr. Mendez to a
putative claimant of an ownership interest in MSI in consideration of a
settlement agreement entered into with such individual and a general release in
favor of MSI.

Pursuant to the MSI Plan, the holders of all of the MSI capital stock
(including any and all options, warrants and other convertible securities)
received 134,228 shares of Common Stock of Nu-Tech based upon the average
closing price of a share of Common Stock on the Nasdaq Small Cap Market for the
15 day period preceding November 18, 1996 ($14.90 per share). The recipients of
Nu-Tech's Common Stock are entitled to "piggyback" registration rights with
respect to such shares. Of the 134,228 shares of the Company's Stock issuable to
Mr. Mendez, 99,228 shares may not be sold prior to November, 1998 without the
consent of the Company. All of such shares have been registered for sale, and
35,000 shares may accordingly be presently sold. In addition, Mr. Mendez
received a loan of $100,000 from the Company repayable in two years and secured
by the shares of the Company's Common Stock received by him.

In addition, Nu-Tech agreed to make certain other payments to creditors of
MSI, and assumed certain obligations under the MSI Plan. These payments include:
(i) approximately $750,000 to pay administrative claims of professionals (ii) an
additional $425,000 to pay professional administrative claims payable over 12
months (iii) approximately $572,000 payable for federal and state payroll taxes
(iv) approximately $2,500,000 to Austin Financial Services, Inc., a secured
creditor of MSI (v) trade payables in the amount of approximately $738,000 (vi)
$75,000 payable to the federal government in satisfaction of certain claims and
(viii) $750,000 payable to general unsecured creditors. At the hearing
confirming the MSI Plan held on

14
<PAGE> 16

November 18, 1996, the Company tendered $2,250,000 to the Court with respect to
such payments. As reported in the Company's Form 8-K/A filed on January 31,
1997, certain adjustments had been made with respect to such payments.

Pursuant to Agreement dated February 26, 1997, the Company sold and
transferred to PCL all of its interest in MSI in consideration for PCL paying to
the Company $2,643,000 which represented amounts lent or contributed by the
Company to MSI, and issued a promissory note of PCL in the principal amount of
$5 million this Note will be satisfied by the issuance by PCL of 17% of the
reorganized PCL common stock and will be in full satisfaction of the Company's
$5 million purchase obligation to PCL for such 17% interest.

With respect to the sums payable under the MSI Plan to Austin Financial,
the Company obtained a loan in the principal amount of $2,500,000 from a third
party lender on December 2, 1996 and utilized the loan proceeds to pay off
Austin Financial. The loan bore interest at 15% per annum. All principal and
interest on the loan was payable on January 31, 1997. The loan was secured by
the Company's 16.4447% participation interest in a credit facility dated April
1, 1994 between the lender and Physicians Clinical Laboratory, which
participation represents the Company's purchase of the approximate $13,300,000
of debt securities of PCL. The loan was further secured by a personal guaranty
of the Company's President, J. Marvin Feigenbaum. The third party lender was a
significant creditor of PCL and has agreed to the terms of the PCL Plan. On
January 23, 1997, the Company obtained a new loan from a new third party lender
in the principal amount of $2,000,000. The proceeds of this new loan were used
to repay the remaining balance of the $2,500,000 loan. The new loan bore
interest at 7.5% per annum and was due and payable 60 days from the date of the
loan. The lender also received 5-year Common Stock Purchase Warrants to purchase
100,000 shares of Common Stock of the Company at $11.50 per share. On February
26, 1997, this new loan was repaid. The new loan was secured by a pledge of the
Company's stock ownership in MSI as well as the participation interest referred
to above in the PCL debt. The new third party lender is a significant
stockholder of the Company. The Company repaid the new loan on February 26,
1997. The 100,000 shares underlying the warrants issued to the new lender have
been registered pursuant to a Registration Statement filed with the Securities
and Exchange Commission.

Mr. Mendez, formerly President of MSI, has entered into an employment
agreement with MSI pursuant to which he will be employed at a salary of $182,000
per year. Mr. Mendez also has the right to serve on the Board of Directors of
MSI. Mr. Mendez will also receive options to purchase 10,000 shares of Nu-Tech
Common Stock for every $1,000,000 of annual collectible revenues obtained by MSI
through the acquisition of other businesses by MSI in which Mr. Mendez acted as
the procuring cause. The options to be granted, if any, will bear an exercise
price equal to the fair market value of Nu-Tech's Common Stock at the time of
grant.

ACQUISITION OF BUSINESS ASSETS OF PROMPT MEDICAL BILLING, INC.

On October 21, 1996, the Company, through a newly formed wholly-owned
subsidiary, NTBM Billings Services, Inc. ("NTBM") acquired substantially all of
the medical billing service assets of Prompt Medical Billing, Inc., a privately
owned Florida corporation engaged in the medical billing service business in
Miami, Florida. The Company acquired the assets for a total consideration of
$675,000 consisting of $100,000 in cash and 37,504 shares of restricted common
stock. The number of shares may be subject to increase in the event the fair
market value of the shares at the termination of the two year period is less
than $500,000 or in the event that the holders thereof sell the shares for less
than $500,000. All of the consideration paid by the Company has been placed into
escrow for a period of up to two years, to be released upon attainment of
certain performance levels of NTBM. The Company has filed a registration
statement with the Securities and Exchange Commission registering the 37,504
shares issued to the former shareholders of Prompt Medical for sale. The
escrowed cash consideration will be released from escrow in eight quarterly
installments of $12,500 together with interest. Additionally, NTBM has entered
into a two year $20,000 per annum employment agreement with a former principal
and executive officer of Prompt Medical. NTBM also entered into a consulting
agreement with Health Systems Development Corporation for a term of two years at
approximately $5,000 per month plus commissions on new business brought in by
them.

15
<PAGE> 17

OTHER EVENTS

Termination of Clinical Trials Agreement

On August 14, 1995, ABC entered into an agreement (the "Clinical Trials
Agreement") with a research institution (the "Institution") and certain
individuals (the "Principal Investigators") related to the conduct and
performance of certain proprietary research and development activities to be
performed and/or coordinated on a work for hire basis on behalf of ABC by the
Institution. The Clinical Trials Agreement was terminated by the Company in
August 1996 as a result of the Institution's inability to obtain the requisite
number of accruals and the Company has commenced action against the institution
for return of $54,000 representing the balance of an advance made by the
Company. The Company is discussing new clinical trials with several medical
research institutions. There can be no assurance that the Company will be
successful in reaching agreements with these research institutions or that the
clinical trials will be completed.

Rhode Island Laboratory License

Analytical Biosystems has received approval, effective May 21, 1996, from
the State of Rhode Island Department of Health that its clinical laboratory
license had been expanded to include laboratory testing for routine chemistry,
histopathology and cytology and that the expanded testing approvals had been
added to the CLIA database.

The expansion of the clinical license will allow ABC to provide additional
services to health care providers and to bill third party insurance carriers
under existing CPT codes which are included in these licenses. Management
believes that these changes to its clinical license, and the resultant ability
to utilize existing CPT codes, increases ABC's ability to obtain reimbursement
for its testing procedures.

August 1994 Placement

On August 9, 1994, the Company completed a private offering of its
securities to 15 investors for an aggregate of $620,000. The private placement
was intended to comply pursuant to Section 4(2) under the Act and/or Regulation
D promulgated thereunder. The securities sold by the Company comprised (i)
$400,000 principal amount of 7% Promissory Notes due the earlier of August 1,
1995 or upon the completion of a public offering of Common Stock of the Company
in which the Company receives gross proceeds of not less than $5 million, (ii)
57,143 shares of Common Stock for an aggregate of $200,000, and (iii) 114,286
Common Stock Purchase Warrants for an aggregate of $20,000; each Warrant
representing the right to purchase one share of Common Stock commencing
September 1, 1995 through July 31, 2001 at an exercise price of $7.00 per share.
The Promissory Notes were repaid in full when the Company completed its public
offering in December 1994.

The proceeds of the August 1994 offering were principally intended to fund
and sustain the Company's operations through December 31, 1994 and to fund
expenses to be incurred in connection with the completed public offering.

THE COMPANY HAS FILED A REGISTRATION STATEMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION COVERING THE 57,143 SHARES OF COMMON STOCK AND THE SHARES OF
COMMON STOCK UNDERLYING THE 114,286 WARRANTS SOLD IN THE AUGUST 1994 OFFERING.

April 1995 Placement

On April 27, 1995, the Company, in a private transaction effected with
eight investors, sold an aggregate of 120,000 shares of Common Stock and an
aggregate of 45,714 Common Stock Purchase Warrants (the "Warrants") for an
aggregate of $722,285.70. The private placement was intended to comply pursuant
to Section 4(2) under the Act and/or Regulation D promulgated thereunder. The
Warrants are exercisable at $7.00 per share through July 31, 2001, and the
Warrantholders were accorded certain piggyback registration rights with respect
to the shares of Common Stock underlying the Warrants. The Company has filed a
Registration Statement with the Securities and Exchange Commission covering the
120,000 shares of Common Stock issued in connection with the

16
<PAGE> 18

April 1995 placement. The proceeds received by the Company as a result of the
aforesaid transaction were used for additional working capital purposes.

July 1995 Placement

On July 14, 1995, the Company, in a private transaction effected with seven
investors, sold an aggregate of 93,335 shares of Common Stock and an aggregate
of 35,408 Common Stock Purchase Warrants (the "Warrants") for an aggregate of
$561,780.40. The private placement was intended to comply pursuant to Section
4(2) under the Act and/or Regulation D promulgated thereunder. The Warrants are
exercisable at $7.00 per share through July 31, 2001, and the Warrantholders
were accorded certain piggyback registration rights with respect to the shares
of Common Stock underlying the Warrants. The proceeds received by the Company as
a result of the aforesaid transaction were to make available to the Company
additional working capital.

THE CLINICAL ONCOLOGY LABORATORY SERVICES OF THE COMPANY

ABC is a clinical oncology laboratory service and research company which
principally performs a patented in vitro chemosensitivity assay known as the
FCA. The FCA, which was developed by M. Boris Rotman, Ph.D., Professor of
Medical Science at Brown University, Providence, Rhode Island, measures the
effectiveness of specific chemotherapy drugs in destroying cancer cells
retrieved from solid mass tumors removed from individual patients. The FCA tests
cancer tissue taken from the individual's tumor against many of the
chemotherapeutic agents likely to be used for that tumor type. Information
provided by the test helps rule out ineffective drugs and assists the
oncologists in determining the most appropriate chemotherapy.

The Company also offers an ATP Cell Viability Assay ("ATP-CVA") which is a
bioluminescent assay utilized for the determination of inhibition of metabolic
activity in cancer cells. It is the Company's intention to use the
non-proprietary ATP-CVA in conjunction with the Company's FCA for the purpose of
expanding the number of chemotherapeutic drugs which the Company can offer for
in vitro response testing. The Company's FCA will be principally used for the
assay of those chemotherapeutic drugs which have the effect of bursting or
killing cancer cells. With respect to other chemotherapeutic drugs which work in
a different fashion, the ATP-CVA will detect the inhibition of metabolic
activity. One of the latter drugs to work in this fashion is taxol, which has
been approved by the Food & Drug Administration for the use in the treatment of
breast, lung and ovarian cancer and will be assayed by the Company utilizing the
ATP-CVA assay. In addition, the Company has added to the chemotherapeutic drugs
which it is capable to assay, navelbine, which is currently used in the
treatment of non-small cell lung cancer and whose effect is to burst or kill the
cancer cells. This drug is being assayed by the Company utilizing the FCA.

Background

Chemotherapy is a broad term used to describe the use of cytotoxic drugs in
the treatment of cancer. In treating cancer patients with solid mass tumors,
medical oncologists can currently choose from approximately 50 anticancer agents
approved by the United States Food and Drug Administration. Generally, medical
oncologists administer chemotherapy drugs without knowing whether the individual
cancer patient's tumor is sensitive to the drugs being utilized. This is
primarily due to the fact that cancer is an individual disease, with each
patient having a unique combination of age, sex, health, tumor characteristics
and chemosensitivity. When the use of chemotherapy is indicated for a cancer
patient, a choice is made by the treating physician based in part on historical
data and published protocols indicating the chemotherapy drugs most likely to be
effective for specific solid mass tumor types without prior testing of the drug
selected on a patient's tumor. However, current forms of chemotherapy are only
statistically effective (as measured by reduction of tumor size or relative
extension of life expectancy) to the patient on an average of 40% of the time.
Chemosensitivity testing of a patient's tumor prior to the initiation of
chemotherapy has therefore been a longstanding goal of many research scientists.

The Company's FCA is a laboratory testing procedure which, using a patented
technique and proprietary information, tests cancer tissue taken from an
individual's tumor against many of the chemotherapeutic agents

17
<PAGE> 19

likely to be used for that tumor type (in varying combinations and
concentrations). The FCA provides information to help the doctor rule out
ineffective drugs, and identifies for the doctor those drugs that appear to be
most effective, thereby giving the patient a better chance of success with the
appropriate chemotherapy. Further, a reliable, predictable assay for
chemotherapy can reduce the occurrence of induced resistance of a patient's
cancer to chemotherapeutic drugs. Extensive clinical data has indicated that if
a patient receives the "wrong" drug initially, the chances of responding to the
"right" drug are significantly reduced.

A further salutary benefit of enhancing the ability to initially select a
chemotherapeutic regimen having maximum efficacy is health care cost
containment. The cost of treating a cancer patient with chemotherapy is
substantial. Further costs are added to the health care system when initial
chemotherapy is ineffective. These additional costs include second-line
chemotherapy, radiation therapy, laboratory and radiology studies,
hospitalization and supportive care. These factors, among others, have
highlighted the need to measure the clinical utility of therapies relative to
their costs. The National Cancer Institute has estimated overall costs for
cancer at $104 billion for 1990 (the most recent published data available). The
Company believes that the use of the FCA as a tool in selecting an effective
course of chemotherapeutic treatment could result in a significant benefit to
third-party payors (such as insurance companies and health maintenance
organizations) in their efforts to contain health care costs.

The Development of the Company's FCA

Since the 1950's, scientists and researchers have attempted to culture
tumor cells in vitro (outside of the body) and to test their response to various
chemotherapeutic agents. A number of clonogenic and non-clonogenic assays using
single cells derived from tumors were proposed to predict chemosensitivity in
cancer patients. In a clonogenic assay only stem cells (cells that can form
clones) are utilized. In a non-clonogenic assay all the different types of the
cells of the tumor are utilized. Although single cell based assays are generally
effective in determining whether a tumor will be resistant to a particular
chemotherapy (i.e. negative predictive), they cannot predict whether a
chemotherapy could be successful in treating the tumor (i.e. positive
predictive). M. Boris Rotman, Ph.D., Professor of Medical Science at Brown
University, Providence, Rhode Island, developed a micro-organ culture system
which is a patented portion of the Company's FCA. The FCA, based on technology
that has little in common with single-cell assays, maintains tumor fragments
(micro-organs) in miniaturized organ cultures while they are tested for
responsiveness to therapeutic agents. This method permits assessment of tumor
cultures in a manner more closely approximating the in vivo (in the body) state.
Dr. Rotman, in developing the FCA, arrived at a method of preserving the
architectural integrity of the tumor as well as intercellular contacts so that a
representative sample of the entire tumor cell population can be tested. As a
result, unlike other assays currently being marketed which are only utilized to
predict a patient's resistance to particular drugs, the FCA is able to enhance
the ability of the physician to assess whether a drug will be successful in
treating the tumor.

The Company believes that its FCA represents an advance over single cell
assays. Single cell assays produce cultures of individual, single cells taken
from a tumor, which do not resemble the original tissue taken from the patient.
Another of the advantages of the FCA is the higher evaluability rate (i.e., the
ability to perform the assay on a specimen) as compared to other assays. The
FCA, by utilizing clusters of cells which are able to be cultured in vitro, can
achieve an evaluability rate in excess of 90% of tumors tested. The Company
believes the FCA evaluability rate significantly exceeds the rate for other
non-clonogenic and clonogenic assays.

Unlike single cell assays, which measure the ability of the
chemotherapeutic agent to inhibit rapid cell division -- growth that may not be
duplicated in vivo (in the body) -- the FCA measures the actual ability of a
drug to destroy cancerous tissue. In addition, clonogenic assays typically take
several weeks to produce results -- an obvious problem when time is critical for
the patient. The FCA circumvents these shortcomings and allows results to be
determined within 10 days.

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<PAGE> 20

The FCA Technology

The Company's FCA is founded upon two essential concepts: (1) the use of
fluorochromasia, a process which permits visual assessment of the effect of
chemotherapy on cancer cells without destroying the clusters of cells; and (2)
the isolation of micro-organs of tumor tissue, which retain the
three-dimensional architecture of cancer cells as they exist in the patient.

The process of fluorochromasia was initially described in 1966 in a
scientific paper co-authored by Dr. M. Boris Rotman and Dr. Benjamin W.
Papermaster, who found that a chemical, fluorescein acetate, passes through the
membranes of living cells. Once inside the cell, enzymes cleave the fluorescein
acetate and release free fluorescein. The free fluorescein is retained in the
living cell for up to two hours. When illuminated under blue light, living
cells, which retain the free fluorescein, are visible, while dead cells, which
do not retain the dye, are not. This technique allows for the visual assessment
of cell death. Fluorochromasia, therefore, can be used to determine when living
cells have been killed by a chemotherapeutic agent.

In order to utilize fluorochromasia, however, it was necessary for Dr.
Rotman to devise a method that would produce samples of cancerous tissue
suitable for laboratory testing. The second phenomena he observed was that by
shaking small pieces of human tumor, in the presence of a mild enzyme solution,
clusters of malignant cells could be separated from non-cancerous connective
tissue. Many of the natural adhesions between the tumor cells are not disrupted
by this procedure. As a result, greater than 90% of the tumors survived and
could be tested.

This patented laboratory method for micro-organ preparation results in
clusters of 50 to 500 cells composed almost entirely of viable tumor cells,
preserving the structure and function of the original tumor. The samples of
tumor, called "micro-organs," when maintained in special cultures, will maintain
themselves while preserving the actual three dimensional architecture of the
tumor. The high assay evaluability rate and the clinical correlation are due
primarily to the fact that the tumor architecture is retained through the
process.

The FCA technology is applicable to all solid mass tumors. Solid mass
tumors comprise between 80 and 90 percent of all new cancer cases. The remainder
are hematological malignancies such as leukemia that do not form solid masses.

Since 1986, the Company has performed over 4,300 assays from over 260
different hospitals and physicians. The Company has correlated data, both
retrospective and prospective, from 365 case studies collected from institutions
such as Roswell Park Memorial Institute, Hoag Cancer Center, and Memorial
Sloan-Kettering Cancer Center, as well as data from other physicians using the
assay to treat their patients. To date, the overall experience of the Company is
that the FCA has been 92% accurate in predicting resistance and 76% accurate in
predicting sensitivity (whether a drug will be effective in destroying cancer
cells). See "Business -- Market Information" for further information regarding
future prospective clinical trials.

The following table details the types of tumors assayed by the Company from
1986 through December 31, 1996:

<TABLE>
<S> <C>
Gynecological........................................ 864
Breast............................................... 689
Gastroenterological.................................. 613
Pulmonary............................................ 381
Head and Neck........................................ 322
Sarcoma (all types).................................. 272
Neurological......................................... 207
Melanoma............................................. 182
Genitourinary Tract.................................. 159
Lymphoma............................................. 149
Unknown Primary...................................... 171
Miscellaneous Other.................................. 314
-----
Total........................................... 4,323
=====
</TABLE>

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<PAGE> 21

The Assay Procedure

Freshly excised tumor specimens are transported to the Company's laboratory
in a cold culture medium (below 10 degrees C) and processed within 48 hours of
surgery. The patient's doctor advises the Company which chemotherapeutic agents
to test. A 500-mg biopsy specimen is sufficient to test 10 drugs at different
levels of concentration. Partial digestion of minced viable tumor tissue in a
mild enzyme solution liberates micro-organs consisting of viable malignant
cells. The fluorescein monoacetate easily penetrates the lipid bi-layer of the
cell membrane. Once within the cell, the fluorescent monoacetate transforms to
fluorescein which, if the cell membrane is intact and the cell is viable,
accumulates for a short time within the cell rendering it strongly fluorescent
when viewed in a light source that excites fluorescein. On the other hand, a
dead or dying cell's membrane is "leaky" and permeable to fluorescein, which
therefore does not accumulate. Since accumulated fluorescein does diffuse slowly
(in about two hours) out of viable cells and brief exposure to fluorescein is
not cytostatic or cytotoxic, cell viability testing can be repeated several
times during the course of the assay in the same culture.

The micro-organs are immobilized in collagen-impregnated cellulose and
placed on the culture plate. The pattern ("cytoprint") of fluorescent
micro-organs is recorded by computer imaging. After a 24-hour incubation,
anti-cancer drugs are added to the culture, which is then incubated for an
additional 48 hours. The culture medium is then replaced by a drug-free medium;
after a further 96 hours of incubation, tumor kill is assessed by repeating the
fluorescent cytoprint procedure. Accordingly, results are generally available
from seven-ten days after receipt of the tumor specimen.

Drug induced cytotoxicity in these micro-organs is assessed by comparing
computer processed images of fluorescent cytoprints taken before and after drug
treatment. The disappearance of fluorescent micro-organs from the cytoprint of
the drug-treated culture, as compared to the cytoprint of the initial culture,
is used to assess drug toxicity. Thus, each culture acts as its own baseline.

The following are the chemotherapy drugs presently available for testing:

<TABLE>
<S> <C> <C>
Actinomycin D Doxorubicin Mitoxantrone Navelbine
Bleomycin Etoposide (VP 16) Streptozocin ThioTEPA
Carboplatin 5-Fluorouracil Taxol
Carmustine FUDR Vinblastine
Cisplatin Gemcitabine Vincristine
Cyclophosphamide(Analog) Lomustine Melphalan
</TABLE>

While there are approximately 50 anti-cancer agents for solid tumors, the
above drugs constitute the predominant agents currently utilized in chemotherapy
treatment for solid mass tumors.

Image Processing and Management for the FCA

In 1995 the Company entered into an agreement with Loats Associates who
were engaged for the purpose of evaluating, redesigning, configuring, assembling
and installing a new and improved version of the imaging system currently
utilized by ABC in connection with the quantitative evaluation of assays
performed utilizing the FCA. The project was completed by Loats Associates in
December, 1995. The Company's goal, which was accomplished by Loats Associates,
was to implement an automated system which would provide stable, reproducible
evaluation of FCA fluorescent cytoprint images and generate hard copy reports of
chemosensitivity results for transmission to physicians. The improved version of
the imaging system also allows the transference of data to and from front office
functions such as order entry, receiving and billing, and provides the Company
with the capability for data-basing patient outcome results. The system's
enhanced software applications provide the Company with the capability to:

(i) identify and warn the technicians of possible outcome failures;

(ii) normalize quantitative measures;

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<PAGE> 22

(iii) record fluorescence changes in micro-organ images during the
assay procedure and to correct for such changes; and

(iv) assess the percent cell kill as a measure of chemosensitivity.

The new system consists of a video image acquisition system, a robotic
specimen plate delivery mechanism and software to analyze and evaluate the video
images of the FCA micro-organ cultures, calculate chemosensitivity results,
control the specimen plate delivery robot and track and database data related to
the entire FCA procedure. The proprietary software allows the Company to verify
and document proper and repeatable operation of video image acquisition
equipment according to required laboratory protocols relating to the
verification of accuracy, linearity and repeatability. Management believes that
the upgraded imaging system, which allows for computerized quantification of the
Company's FCA, has eliminated human judgment from the interpretation of the
assay results. This substantially improves the validity of the FCA procedure and
streamlines the process.

Patents

Integral to the Company's business is its FCA. The United States Patent
Office has granted ABC three patents covering the FCA, the methodology of the
cell culturing and related apparatus. The Company has also been granted European
patents covering this technology in the designated states of France, Germany,
Italy and the United Kingdom. In Canada, one patent has been granted on the
"Methods for Separating" in the FCA. ABC also has been granted two patents, one
for "Cytotoxicity Assays in Cell Culturing Devices" and one for "Cell Culturing
Methods and Apparatus" in Japan. A Japanese patent application for "Methods of
Separating" is still pending. The following summarizes the status of the
Company's granted patents and pending patent applications:

PATENT 1. CYTOTOXICITY ASSAYS IN CELL CULTURING DEVICES

<TABLE>
<S> <C>
U.S. Patent No. 4,559,299 Issued: December 17, 1985
Expires: December 17, 2002
European Patent No. 0138833 Granted: November 6, 1991
Expires: January 12, 2004
Japanese Patent Application No. 59-500699 Granted: August 9, 1994
Expires: January 12, 2004
</TABLE>

This patent is the core FCA patent and covers the sensitivity of tumor
explants (i.e. tumor specimens that have been removed from the body and placed
in an artificial medium for growth) to chemotherapeutic drugs and the use of
fluorescent molecules to determine the survival of cells in the presence of the
drugs.

PATENT 2. CELL CULTURING METHODS AND APPARATUS

<TABLE>
<S> <C>
U.S. Patent No. 4,734,372 Issued: March 29, 1988
Expires: March 29, 2005
European Patent No. 0171896 Granted: November 27, 1991
Expires: June 21, 2005
Japanese Patent Application No. 60-134451 Granted: March 29, 1994
Expires: June 21, 2005
</TABLE>

This patent discloses further devices and methods for the FCA, as well as
an improved protocol for conducting cytotoxicity assays with fluorochromatic
detection techniques.

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<PAGE> 23

PATENT 3. METHODS FOR SEPARATING MALIGNANT CELLS FROM CLINICAL SPECIMENS

<TABLE>
<S> <C>
U.S. Patent No. 4,937,187 Issued: June 26, 1990
Expires: June 26, 2007
Canadian Patent No. 1,293,216 Issued: December 17, 1991
Expires: December 17, 2008
European Patent No. 0277837 Granted: August 4, 1993
Expires: February 5, 2008
Japanese Patent Application No. 63-021434 Pending
</TABLE>

This patent covers methods for preparing tumor biopsies for
chemosensitivity assays by mechanically and enzymatically dissociating the
tissues into micro-organs and removing non-aggregated cells (particularly blood
cells) from the preparation.

The Company's success will depend in part on its ability to defend its
patents, maintain trade secrets and operate without infringing upon the
proprietary rights of others, both in the United States and in foreign
countries. In addition, there can be no assurance that any patents issued to the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will afford the Company protection from competitive products
or processes. In addition, there can be no assurance that the Company will have
the financial or other resources necessary to enforce or defend a patent
infringement or proprietary rights violation action. The Company is not aware of
any objection or challenge to its patents or of any asserted claim of patent
infringement.

The Company also relies on certain proprietary trade secrets and know-how,
which are not patentable, and on certain ancillary technologies which are not
patentable or proprietary and are therefore available to the Company's
competitors. Although the Company has taken steps to protect its unpatented
trade secrets and know-how, in part through the use of confidentiality
agreements with substantially all of its employees, there can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently developed or discovered by competitors.

The ability of the Company to obtain patents and similar rights and the
nature, extent and enforceability of the intellectual property rights that may
be obtained as a result of the Company's research efforts involve complex legal
and factual concerns. Discoveries made or developed by the Company may not
qualify for patents or, if qualified, may be subject to challenge or to
protracted proceedings. In addition, other public or private concerns, including
universities, may hold or have filed patent applications and may have been
issued patents on inventions, or otherwise possess proprietary rights to
technology which may be necessary to commercially implement the Company's
technology. With respect to future developments, the Company may be required to
license other patents or proprietary rights, and the cost and availability of
such licenses, are presently unknown. While the Company has not conducted an
infringement study with respect to any of its patents or proprietary technology,
the Company is not aware of the need to obtain a license from any other party in
order to practice its existing technology. There can be no assurances that
others may not independently develop similar technology or otherwise obtain
access to the Company's know-how.

Government Regulation; Licenses

ABC and its principal product, the FCA, is subject to regulation by a
division of the U.S. Department of Health and Human Services, Health Care
Finance Administration ("HCFA") under the Clinical Laboratories Improvement Act
of 1988 ("CLIA"). These regulations mandate that all clinical laboratories be
certified to perform testing on human specimens and provide specific conditions
for certification. These regulations also contain guidelines for the
qualification, responsibilities, training, working conditions and oversight of
clinical laboratory employees. In addition, specific standards are imposed for
each type of test which is performed in a laboratory. CLIA and the regulations
promulgated thereunder are enforced through continuous quality inspections of
test methods, equipment, instrumentation, materials and supplies on a biennial
and "spot" basis; the most recent of which occurred on April 9, 1996. Any change
in CLIA or these regulations or in the

22
<PAGE> 24

interpretation thereof could have a materially adverse effect on the Company's
business, prospects, financial condition or results of operations. To its
knowledge, the Company is in compliance with the currently applicable
regulations of HCFA. At the present time, the U.S. Food and Drug Administration
("FDA") does not regulate the FCA.

ABC holds a clinical laboratory license from the State of Rhode Island and
a federal laboratory registration certificate to permit the interstate shipment
of tumors and billing. The Company also holds a wastewater discharge permit from
the Warwick, Rhode Island Sewer Authority.

Professional and Product Liability

As a clinical laboratory performing assay services, the Company may be
subject to professional and/or product claims. While no claims or actions have
been asserted against or instituted to date arising out of the performance by
the Company of any assay, any such actions in the future may subject the Company
to liability for damages and significant costs associated with the defense of
such action or claim. ABC presently maintains professional liability insurance
in the amount of $1,000,000 per claim and $3,000,000 aggregate as well as
product liability insurance in the amount of $10,000,000 per occurrence and
$10,000,000 aggregate. In addition, both MSI and PCL maintain professional
liability insurance in the amount of $10,000,000 per claim and $10,000,000
aggregate, and product liability insurance in the amount of $1,000,000 per
occurrence and $2,000,000 aggregate. There can be no assurance, however, that
this coverage will be adequate to protect the Company, MSI or PCL against future
claims or that insurance will be available to the Company, MSI or PCL against
future claims or that insurance will be available to the Company, MSI or PCL in
the future on acceptable terms, if at all, or that a liability or other claim
would not materially and adversely affect the business, prospects, financial
condition or results of operations of the Company, MSI or PCL. The Company
intends, however, if feasible, to increase the amounts of such insurance
coverage to such greater amount as management, in its discretion, may determine
having due regard to the cost of such insurance coverage.

Market Information

The Company's potential customers are medical offices surgeons,
oncologists, pathologists, patients, hospitals, health maintenance organizations
("HMOs"), community health centers, and third party insurance companies. The
Company had attempted only limited marketing of the FCA. The commercial success
of the Company is materially dependent upon the ability of the Company to
educate the medical community generally, and oncologists, surgeons, hospitals
and HMOs in particular, of the benefits and applications of the Company's assay,
and to distinguish the Company's technology from existing technology in the
field and assays marketed by others. The process of educating the physician
regarding the use and benefits of a new technology such as the FCA is, in the
Company's opinion, difficult. The success of such education and marketing
efforts will be materially dependent upon the ability of the Company to attract
and assemble a national medical service sales force through which the Company's
assay will be marketed. Upon completion of the PCL acquisition, the Company
intends to market the FCA through PCL and MSI on terms to be negotiated.

In the United States, there are over 16,000 physicians who treat cancer
patients. This group of physicians are broken down into the following
categories: approximately 5,100 medical oncologists and 1,300 surgical
oncologists who treat most general cancers; 300 gynecologic oncologists who
treat advanced cases of cervical and endometrial cancer and most ovarian
cancers; and 9,500 urologists who treat prostate, bladder and testicular
malignancies. This does not include the over 20,000 general surgeons who treat
cancer patients by removing tumors in surgery. (Sources: American Medical
Association and the Society of Surgical Oncology).

Currently, there are approximately 5,300 community hospitals (exclusive of
federal, respiratory, psychiatric or long-term care institutions). Of this
number, approximately 1,300 hospitals have cancer programs approved by the
American College of Surgeons. These hospitals are one of the focuses of the
Company's clinical services business. The Company's services are provided to
oncologists, surgeons and hospital pathologists who submit their patients' tumor
specimen to the Company for testing.

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<PAGE> 25

According to statistical information published by the American Cancer
Society, over 1.1 million new cancer patients will be diagnosed each year. Of
these 1.1 million cancer patients, approximately 80% will have solid tumors. A
portion of those patients (estimated by the Company based upon published
literature to be approximately 25%) will be treated with chemotherapy, and are
therefore candidates for the FCA. In addition, over 2.2 million patients
previously diagnosed with cancer whose first line chemotherapy treatment has
been ineffective or who have experienced a relapse are also candidates for the
FCA. Of these 2.2 million cancer patients, approximately 80% will have solid
mass tumors. A portion of these patients, estimated by the Company based upon
published literature (estimated to be 25%), will be treated with chemotherapy
and will be candidates for the FCA.

Although the Company has collected a substantial amount of clinical data
which supports the efficacy of the FCA (see "Business -- The FCA Technology"),
in order to enhance the ability of the Company to maximize its intended
commercialization of the FCA, the Company believes that additional non-mandatory
prospective clinical trials should be performed. The trials will address both
issues of medical efficacy as well as cost-savings benefit. The Company plans to
incorporate further cost-effective studies into its current clinical trials
concerning medical efficacy. The Company cannot predict when the results of
these new trials will be available, nor can there be any assurance that the
results of such trials will provide data which further supports the FCA.

HMOs and Preferred Provider Organizations (PPOs) are becoming strong
competitors to the larger traditional insurers and are viewed by the Company as
playing a central role in the Company's long term marketing plans. They are
perceived to be the growth segment of the service part of the health care
system. The HMOs and PPOs are having a significant effect on the health care
market, due to their ability to control costs. The FCA is viewed by the Company
as a valuable tool in assisting these health care organizations in containing
their cancer treatment costs by eliminating ineffective expensive chemotherapy.
To date, there is no agreement between the Company and any HMOs or PPOs.

Sales and Marketing

The Company is of the belief that its commercial success is materially
dependent upon its ability to educate the medical community generally, and
oncologists, surgeons, hospitals and HMOs in particular, of the benefits and
applications of the Company's assay, and to distinguish the Company's technology
from existing technology in the field and assays marketed by others. The process
of convincing a physician to use a new testing service is difficult and, in the
Company's view, requires a highly trained sales force to call on and educate the
physician regarding the use and benefits of the new technology. In addition,
management believes that physicians require actual experience with such new
tests before accepting and adopting them into their practice.

Potential Impact of Pending Health Care Reform

Numerous proposals to amend the Medicaid/Medicare Systems are under
consideration in the United States Congress, including mandated basic health
care benefits, controls on health care spending, price controls, the creation of
large insurance purchasing groups and fundamental changes in the health care
delivery system. In addition, several states have passed and implemented, or are
considering, various health care reform proposals. Although the Company believes
its FCA to be cost-effective in overall chemotherapy treatment, changes in the
level of support by federal and state governments of health care services, the
methods by which such services may be delivered and the prices for such services
may all have a materially adverse impact on the Company's ability to achieve and
sustain a profit. Health care reform could also reduce the profitability of
certain medical institutions and, in turn, adversely impact the fees the Company
is able to charge for its laboratory services. The Company cannot predict which,
if any, health care reform plan might be adopted or, if adopted, the effect on
the Company's business.

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<PAGE> 26

Competition

At the present time, there are several companies which commercially market
chemoresistant assays. The Company believes that it is the only company
currently marketing a patented chemosensitivity assay in the United States. The
Company believes that it competes based upon its patented technology, the high
evaluability rate (i.e. the ability to successfully test the tumor) for most
types of human solid tumors, and the positive and negative predictive accuracy
of the Company's FCA assay. There can be no assurance that the Company's
competitors will not succeed in developing technologies and services that are
more accurate and effective than the Company's FCA or any other assay which may
be developed by the Company or that would render the Company's technology and
services obsolete or noncompetitive. In addition, in the event of the future
development and approval of chemotherapeutic drugs which are not capable of
being assayed by the FCA and such drugs become commonly used, such event may
materially affect the ability of the Company to market the FCA.

In addition, there are many public and private companies, including several
well-known pharmaceutical companies and specialized biotechnology companies,
universities and research centers, engaged in developing therapeutic and
diagnostic products for the treatment of cancer. Many of the Company's
competitors have substantially greater financial and technological resources
than the Company, and have significantly greater experience in sales and
marketing and research and development. Such companies may be more successful in
developing alternate methods to predict the effectiveness or non-effectiveness
of chemotherapeutic drugs on an individual cancer patient.

Competition in the clinical laboratory industry is intense. Each of MSI and
PCL competes with other independent clinical laboratories as well as
laboratories located in physicians' offices and in hospitals. Several regional
and national independent clinical laboratories are larger and have greater
financial resources that either MSI or PCL. Each of MSI or PCL may encounter
more intense and varying levels of competition from other independent clinical
laboratory companies in the future. In addition, changes in the regulatory
environment in which each of MSI and PCL operates could affect the basis for
competition in the industry, and could thereby have a material adverse effect on
each of MSI and PCL's results of operations. There is also competition in the
industry for acquisition candidates, and there can be no assurance that such
candidates will be available to Nu-Tech, MSI or PCL on favorable terms, or at
all.

Research and Development

The research, development and patenting of the FCA has been completed. The
Company is currently pursuing its technical efforts mainly on non-mandatory
clinical studies. Additionally, the Company continues to refine its testing
process to prepare for full scale commercialization of the Company's laboratory
as well as to permit use of the FCA to test any new FDA approved drugs.

Research and development activities are conducted by the Company's regular
full-time employees as part of their principal employment functions. It is
impractical for the Company to attempt to quantify or separately segregate the
amount of time and overhead attributable to research and development activities
from all other activities; particularly since existing laboratory and scientific
activities associated with the FCA benefit the Company from a general research
and development point of view. For the years ended December 31, 1996 and 1995,
the Company expended approximately $91,000 and $77,000 respectively for
specifically identifiable research and development activities.

New Product Development

In December of 1990, the Company commenced the development of the
Radiation-Mediated Chemotherapy Enhancement (RMCE), which utilizes technology
protected by the Company's current patents. This project is intended to evaluate
the effectiveness of combined chemotherapy and radiation treatment using the FCA
technology in conjunction with irradiation of the tumor specimen. The research
project is based on the in vivo observation that some cytotoxic drugs are
potentiators (i.e. enhance effectiveness) of radiation treatment. Dr. Rotman and
Brown University completed, in May 1993, a project funded by both Rhode Island
Partnership for Science and Technology (RIPSAT) and the Company, involving
preliminary studies on colon

25
<PAGE> 27

tumors. If the Company successfully concludes research and development on the
RMCE, the Company expects to add this process as an additional laboratory
service. The Company projects that commercialization of the RMCE will not be
ready for several years. Combination therapy using radiation and chemotherapy
together is a new and emerging method of cancer treatment.

The research and development of the RMCE project was carried out under an
agreement dated December 14, 1990 between the Company and RIPSAT under which
Brown University was designated as the research facility. RIPSAT has reimbursed
the Company approximately $320,000 for the project costs, representing 60% of
the project costs; the remaining 40% of the project costs were borne by the
Company through the contribution of assets or property. The funds advanced by
RIPSAT were principally paid by the Company to Brown University. The Company
remains indebted to Brown University in the amount of approximately $66,000 as
of December 31, 1996.

As part of its agreement with RIPSAT, the Company has agreed to maintain a
facility in the State of Rhode Island. In the event that the Company relocates
outside of the State of Rhode Island, the amount of advances by RIPSAT become
due and payable in one year from such relocation, together with interest at 2%
above the prevailing prime rate of interest. The Company does not have the
present intention to relocate its facilities outside of the State of Rhode
Island. Under and pursuant to its agreement with RIPSAT, Brown University was
designated as the research facility, and Dr. Rotman was the principal
investigator. Brown University was to perform the research program in connection
with the RMCE project, for which it was to be reimbursed for its costs, not to
exceed $375,000. As of the date hereof, the research on the RMCE project has not
been completed. Although the term of Brown University's engagement to perform
research services expired on May 31, 1993 and has not been further renewed, it
is the intention of the Company to continue such research at its own facility or
through Brown University or other alternate research facilities. The Company
projects that the development of this technology will be finished with the
conclusion of clinical trials, but that commercialization of the RMCE will not
be ready for several years.

Employees

As of March 1, 1997, the Company had 11 employees, of which 8 were
full-time employees, including its one executive officer, and 3 were part time
employees. None of the Company's employees are represented by a labor union, and
the Company considers its relationship with its employees to be good. PCL and
MSI employ approximately 1,100 and 200 full time employees, respectively.

ITEM 2. PROPERTIES

Nu-Tech maintains offices in New York, New York of approximately 2,000
square feet of office space under a lease for a term of five years and three
months commencing May 31, 1995 and terminating August 31, 2000. The base rent
for this facility is $4,709 per month. ABC maintains its administrative offices
and clinical laboratory in Warwick, Rhode Island. This facility is comprised of
approximately 4,064 square feet of office and laboratory space. The present
facilities are occupied under a month-to-month basis at a rental of $2,030 per
month. NTBM maintains offices in Miami, Florida of approximately 1,100 square
feet of office space on a month-to-month rental of $1,995 per month.

While its present facilities of ABC are adequate for its present needs and
are sufficient to enable ABC to process approximately 900 assays per month, the
Company does not view such premises to be adequate for its anticipated future
needs in the event its planned marketing efforts are successful. In such case,
the Company will require additional laboratory and administrative facilities for
its ABC subsidiary. The Company believes that adequate facilities are readily
available in the greater Providence, Rhode Island area at competitive rentals. A
relocation of the Company's laboratory will require a re-licensing of the new
facility as a clinical laboratory under CLIA and by the State of Rhode Island.
The Company does not view the prospect of re-licensing a new facility as having
to result in a material adverse effect on the Company, though there may be some
temporary interruption in the processing of assays unless the Company overlaps
in relocating from one facility to another.

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<PAGE> 28

ITEM 3. LEGAL PROCEEDINGS

On December 2, 1996, the Company completed a private placement of 14,000
shares of Series A Convertible Preferred Stock (the "Preferred Stock") for an
aggregate purchase price of $14 million. The Preferred Stock, by its terms, is
convertible into shares of Common Stock at the lesser of $17.50 per share or 75%
of the average closing price of a share of Common Stock as reported by Nasdaq
for the five trading days prior to the date of the holders' notice of
conversion. By reason of such conversion provisions, the holders of the
Preferred Stock will have the right, until all of their Preferred Shares are
converted, to always avail themselves of a conversion right at 25% below the
prevailing market price. Therefore, the lower the market price for the Company's
Common Stock, the greater the number of shares that the converting Preferred
Shareholder will be able to receive, and the greater consequent dilution to
existing shareholders. In addition, the issuance of shares of Common Stock by
reason of conversion of the Preferred Stock may have a depressive effect upon
the market in that there may not be depth or breath in the market for the
Company's Common Stock to absorb the sale of additional shares that may come to
the marketplace by reason of conversions. Anything to the contrary
notwithstanding, no holder of Preferred Shares is permitted to convert any
portion of the Preferred Shares which would result in the holder being deemed
the beneficial owner of 4.99% or more of the then issued and outstanding Common
Stock of the Company.

The holders of the Preferred Stock are entitled to require the Company,
upon the demand of a majority of the holders of the registrable securities, to
require the Company to file a registration statement with the Securities and
Exchange Commission, registering for sale the Common Stock which the holders of
the Preferred Stock may receive upon conversion. In the event the Company fails
to have a registration statement declared effective within 120 days of receipt
of the holders' Demand Registration Request, the conversion price is subject to
adjustment by increasing the percentage discount from 25% to 35% increasing by
2% a month for up to six months thereafter. In the case of conversion, in the
event that the shares of Common Stock are not converted within 10 days following
the receipt by the Company of a valid conversion notice, the Company shall pay
to the converting Preferred Shareholder an amount, as liquidated damages, equal
to 1% per day of the purchase price of the shares converted.

The Company had heretofore filed, and withdrew, a registration statement
relating to the shares of its Common Stock issuable upon conversion of the
Preferred Stock. At the time of such filing, the Company believed that it had
not received valid written demand by a majority of the holders of the Preferred
Stock to require it to proceed with such registration statement. The Company
further believes that, at the time such registration statement was withdrawn,
and through and as of the date hereof, it likewise did not receive a written
demand by the holders of a majority of Preferred Stock to file a registration
statement.

Several Preferred Shareholders have indicated that they intend to commence
an action against the Company arising out of the failure of the Company to cause
the conversion shares to be registered, seeking unspecified damages and/or
seeking to rescind their purchase of the Preferred Stock. The Company believes
that if any such action is commenced against it, it has good and meritorious
defenses. In the event any such action is brought against the Company,
and the Company does not prevail thereon, and is found to be responsible for
damages or losses, such circumstance would have a material adverse effect upon
the Company. The Company has had, and continues to have continuous discussions
with representatives of the Preferred Shareholders concerning a resolution of
the dispute arising out of the registration of the shares of the Company's
Common Stock issuable upon conversion of the Preferred Shares. While no
assurance may be given that such dispute will be satisfactorily resolved, the
Company intends, however, to prepare and file such registration statement as
soon as practicable to do so. The filing of such registration statement may not,
however, resolve the dispute to the satisfaction of the Preferred Shareholders,
and no assurance may be given that, even if such registration statement is filed
by the Company, that the Preferred Shareholders may not thereafter commence an
action against the Company.

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

None.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

A. PRINCIPAL MARKET

On December 20, 1994, upon the Company's Registration Statement in
connection with the public offering of shares of its Common Stock being declared
effective by the Securities and Exchange Commission, the Common Stock of the
Company resumed trading on the SmallCap Market of The Nasdaq Stock Market under
the symbol "NTBM". For the period October 17, 1992 to December 20, 1994, the
Common Stock of the Company was traded on the OTC Bulletin Board under the
symbol "NTBM" (November 16, 1994 -- December 20, 1994), and under the symbol
"ADNA" (October 17, 1992 -- November 16, 1994) while the Company was known by
its former name of Applied DNA Systems, Inc. Prior to October 17, 1992, the
Common Stock of the Company had been traded on the Nasdaq Stock Market.

On August 11, 1995, the Company's Common Stock was accepted for listing on
the Boston Stock Exchange under the symbol "NTB".

B. MARKET INFORMATION

The following is the range of actual high bid and low asked prices for such
Common Stock for the periods indicated. The high bid and low asked prices
commencing with the fourth quarter of 1994 reflect a one-for-thirty-five (1:35)
reverse split effected by the Company on November 16, 1994. Such prices have for
all periods subsequent to the third quarter of 1994 been reported by the Nasdaq
SmallCap Market.

<TABLE>
<CAPTION>
YEAR HIGH BID LOW ASKED
-------------------------------------------------------- -------- ---------
<S> <C> <C>
1995
1st Quarter............................................. 8 7/8 7 3/4
2nd Quarter............................................. 9 5/8 8 5/8
3rd Quarter............................................. 12 1/2 9 1/4
4th Quarter............................................. 14 7/8 12 1/2
1996
1st Quarter............................................. 15 1/4 14 1/8
2nd Quarter............................................. 16 1/4 14 7/8
3rd Quarter............................................. 15 5/8 13 3/4
4th Quarter............................................. 15 3/4 11
</TABLE>

The above quotations, reported by Nasdaq and the National Quotation Bureau,
represent prices between dealers and do not include retail mark-up, mark-down or
commissions. Such quotations do not necessarily represent actual transactions.
For certain periods indicated above, high bid and low ask prices were not
expressed in fractions.

The high bid and low asked prices for the Company's common stock on April
4, 1997 as reported by the Nasdaq Stock Market was $3 and $2 5/8. Trading in the
Company's common stock has been volatile.

C. DIVIDENDS

The Company has never paid a dividend, whether cash or property, on its
shares of Common Stock and has no present expectation of doing so in the
foreseeable future.

D. APPROXIMATED NUMBER OF EQUITY SECURITY HOLDERS

The approximate number of record holders of the Company's Common Stock as
of March 21, 1997 was 1,041. Such number of record owners was determined from
the Company's shareholder records, and does not include beneficial owners of the
Company's Common Stock whose shares are held in the names of various

28
<PAGE> 30

security holders, dealers and clearing agencies. The Company believes that the
number of beneficial owners of its Common Stock held by others as or in nominee
names exceeds 3,000 in number.

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

PRELIMINARY NOTE TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS RELATING TO THE ACQUISITION OF MEDICAL SCIENCE
INSTITUTE

On November 18, 1996, Nu-Tech Bio-Med, Inc. (the "Company") acquired all of
the capital stock of Medical Science Institute ("MSI") with the intent to
ultimately sell MSI to Physicians Clinical Laboratory, Inc. ("PCL"). The Company
had acquired MSI upon approval by the United States Bankruptcy Court of the
Central District of California (the "Court") (Case No. LA 95-37790 TD) of the
First Amended Plan of Reorganization (the "MSI Plan") of Medical Science
Institute. MSI is engaged in the medical laboratory business primarily in the
State of California and had been operating under Chapter 11 of the U.S.
Bankruptcy Code since October 26, 1995. MSI provides clinical laboratory testing
services, including testing of human tissue and fluid specimens to physicians,
managed-care organizations, hospitals and other health care providers. MSI is a
California corporation with its principal executive offices located in Burbank,
California.

Pursuant to the Plan, the holders of all of the MSI capital stock
(including any and all options, warrants and other convertible securities)
received 134,228 shares of Common Stock of the Company with an aggregate value
of $2,000,000 based upon the average closing price of a share of Common Stock
for the 15 day period preceding November 18, 1996. The recipient of the
Company's Common Stock is entitled to "piggyback" registration rights with
respect to such shares. The sole holder of all capital stock of MSI was Fausto
Mendez, Jr., the former President of MSI. Mr. Mendez, formerly President of MSI,
has entered into an employment agreement with MSI pursuant to which he will be
employed at a salary of $182,000 per year. Mr. Mendez also has the right to
serve on the Board of Directors of MSI. Mr. Mendez will also receive options to
purchase 10,000 shares of Nu-Tech Common Stock for every $1,000,000 of annual
collectible revenues obtained by MSI through the acquisition of other businesses
by MSI in which Mr. Mendez acted as the procuring cause. The options to be
granted, if any, will bear an exercise price equal to the fair market value of
Nu-Tech's Common Stock at the time of grant.

In addition, the Company agreed to make certain other payments to creditors
and assume certain obligations under the Plan. These payments include (i)
approximately $750,000 to pay administrative claims of professionals, (ii) an
additional $425,000 for professional administrative claims payable over 12
months, (iii) approximately $572,000 payable for federal and state payroll
taxes, (iv) approximately $2,500,000 to Austin Financial Services, Inc., a
secured creditor of MSI, (v) trade payables in the amount of approximately
$738,000, (vi) $75,000 payable to the federal government in satisfaction of
certain claims and (viii) $750,000 payable to general unsecured creditors. At
the hearing confirming the Plan held on November 18, 1996, the Company tendered
$2,250,000 to the Court with respect to such payments.

With respect to the sums payable under the Plan to Austin Financial, the
Company obtained a loan in the principal amount of $2,500,000 from a third party
lender on December 2, 1996. The loan bore interest at 15% per annum. All
principal and interest on the loan was payable on January 31, 1997. On January
23, 1997, the Company obtained a new loan in the principal amount of $2,000,000
from a private lender, the proceeds of which were used to repay the remaining
balance of the $2,500,000 loan. The new loan bore interest at 7.5% per annum and
was due and payable 60 days from the date of the loan. The lender also received
five year common stock purchase warrants to purchase 100,000 shares of Common
Stock at $11.50 per share. On February 26, 1997, the new loan for $2,000,000 was
repaid.

On February 26, 1997, the Company completed the sale of its ownership
interest in MSI to Physicians Clinical Laboratory, Inc., ("PCL"). PCL is
operating as a debtor-in-possession under Chapter 11 of the United States
Bankruptcy Code (United States Bankruptcy Court, Central District of California,
Case No. SV96-23185-GM). The Company sold its interests in MSI to PCL for its
costs of the acquisition aggregating approximately $7,643,000. The Company
received approximately $2,643,000 in cash and a secured promissory note of PCL
in the principal amount of $5,000,000. The note is secured by all of the assets
of PCL but is subordinate to certain other claims and administrative expenses.
The Company used

29
<PAGE> 31

approximately $2,013,000 of the sale proceeds to repay the principal and
interest on the $2,000,000 loan which the Company had incurred to acquire MSI.

In the event the PCL Plan of Reorganization is consummated and such plan
provides that the Company shall become the owner of 52.6% of the outstanding
capital stock of PCL, and, in turn, the indirect owner of 52.6% of MSI, the note
(including all principal and interest) will be forgiven. If the PCL
Reorganization Plan is not consummated by November 9, 1997, the note shall be
payable in full. There can be no assurance that the note will be repaid in full
if the PCL Reorganization Plan is not consummated.

As a result of the above transactions, the Company owned MSI for the 44 day
period ended December 31, 1996. Therefore, Management's Discussion and Analysis
of Financial Condition and Results of Operations relating to the years ended
December 31, 1996, and December 31, 1995, is presented on the basis of the
Company's temporary ownership of MSI.

YEAR ENDED DECEMBER 31, 1996, COMPARED WITH YEAR ENDED DECEMBER 31, 1995

Results of Operations

Total revenues for the twelve months ended December 31, 1996, were
$1,065,472 compared to $163,801 for the twelve months ended December 31, 1995.
The increase in total revenues is primarily due to the inclusion of Medical
Science Institute's ("MSI") total revenues for the 44 day period ended December
31, 1996. Without the inclusion of MSI's transactions, total revenues for the
twelve months ended December 31, 1996 would have been $229,329 as compared to
$163,801 for the twelve months ended December 31, 1995. The increase of $65,528
is primarily due to revenues of $113,932 generated by the Company's medical
billing services subsidiary, NTBM Billing Services, Inc. ("NTBM"), which was
offset by a reduction in assay sales.

Assay sales, net of billing adjustments, from the processing of Analytical
Biosystems Corporation's assay, the Fluorescent Cytoprint Assay, were $115,397
and $161,701 for the twelve months ended December 31, 1996 and 1995,
respectively. The amount of billing adjustments relating to assay sales during
the twelve months ended December 31, 1996 and 1995, were approximately $25,558
and $22,156, respectively. The decrease in net assay sales is primarily due to a
reduced number of assays received for processing.

Laboratory revenues, net of billing adjustments, were $836,143 for the 44
day period ended December 31, 1996, generated by the temporary ownership of MSI.

Medical billing services revenues were $113,932 for the 72 day period ended
December 31, 1996, generated by the acquisition of NTBM.

Total operating costs for the twelve months ended December 31, 1996, were
$6,940,369 compared to $2,378,221 for the twelve months ended December 31, 1995.
The increase in total operating costs includes MSI's total operating costs for
the 44 day period ended December 31, 1996, of $1,453,007. Without the inclusion
of MSI's transactions, total operating costs for the twelve months ended
December 31, 1996, would have been $5,487,362 as compared to $2,378,221 for the
twelve months ended December 31, 1995. The increase is primarily due to a
combination of an increase in public relations expenses of $1,882,000 and an
increase in selling, general and administrative expenses of approximately
$1,141,655. Selling, general and administrative expenses includes compensation
expense of $1,265,124 and $722,376 in 1996 and 1995, respectively, to recognize
the related value of the 1995 grant of 100,000 restricted common stock shares.
On December 2, 1996, the Company agreed to exchange 95,000 unrestricted common
stock shares which were remaining under the 1995 grant of restricted common
stock shares for 300,000 warrants.

Laboratory expenses for the twelve months ended December 31, 1996, were
$1,188,564 compared to $211,377 for the twelve months ended December 31, 1995.
The increase in laboratory expenses is primarily due to the inclusion of MSI's
laboratory expenses for the 44 day period ended December 31, 1996. Without the
inclusion of MSI's transactions, laboratory expenses for the twelve months ended
December 31, 1996, would have been $193,712 as compared to $211,377 for the
twelve months ended December 31, 1995. The decrease of $17,665 is primarily due
to a reduced number of assays received for processing.

Medical billing services expenses were $89,314 for the 72 day period ended
December 31, 1996, as a result of the Company's acquisition of NTBM.

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<PAGE> 32

Selling, general and administrative expenses for the twelve months ended
December 31, 1996 were $3,689,588 compared to $2,089,778 for the twelve months
ended December 31, 1995. The increase is primarily due to an increase in
compensation expense of $1,265,124 and $722,376 in 1996 and 1995 respectively
to recognize the related value of the 1995 grant of 100,000 restricted common
stock shares. On December 2, 1996, the Company agreed to exchange 95,000
unrestricted common stock shares which were remaining under the 1995 grant of
restricted common shares for 300,000 warrants.

Public relations expenses for the twelve months ended December 31, 1996
were $1,882,000. In September 1996, the Company entered into an agreement with
certain financial public relations firms for which firms have been paid
$1,355,000 in cash and warrants with a fair value of $527,000.

Research and development expenses for the twelve months ended December 31,
1996 were $90,903 compared to $77,066 for the twelve months ended December 31,
1995. The increase of $13,837 is primarily due to preliminary costs incurred to
conduct non-mandatory clinical trials.

Operating loss for the twelve months ended December 31, 1996 and 1995, was
$5,874,897 compared to $2,214,420, respectively. The increase in operating loss
includes MSI's operating loss for the 44 day period ended December 31, 1996, of
$616,864. Without the inclusion of MSI's transactions, operating loss for the
twelve months ended December 31, 1996 and 1995, would have been $5,258,033 as
compared to $2,214,420, respectively. The increase is primarily due to a
combination of an increase in public relations expenses of $1,882,000 and an
increase in selling, general and administrative expenses of approximately
$1,141,655. Selling, general and administrative expenses includes compensation
expenses of $1,265,124 and $722,376 in 1996 and 1995 respectively to recognize
the related value of the 1995 grant of 100,000 restricted common stock shares.
On December 2, 1996, the Company agreed to exchange 95,000 unrestricted common
stock shares which were remaining under the 1995 grant of restricted common
shares for 300,000 warrants.

Finance expense for the twelve months ended December 31, 1996, was
$1,422,500. In settlement of certain alleged claims by the investors in the
Company's April 1996 private placement of securities that the Company had failed
to timely register the shares owned by such investors, the Company agreed to
issue one-half share to the investors for each share purchased in the April
offering.

Deferred acquisition expenses charged off for the twelve months ended
December 31, 1996 were $218,914. As a result of management's due diligence
review of the business and operations of a potential acquisition, management
determined not to pursue and terminated further negotiations and, as a result,
charged off the related expenses incurred in these efforts.

Investment and interest income for the twelve months ended December 31,
1996 was $161,871 compared to $158,977 for the twelve months ended December 31,
1995.

Interest expense for the twelve months ended December 31, 1996, was $60,351
compared to $33,514 for the twelve months ended December 31, 1995. The increase
of $26,837 was primarily due to interest relating to the $2,500,000 loan
obtained on December 2, 1996, to repay Austin Financial Services, Inc. under the
MSI plan.

Net loss for the twelve months ended December 31, 1996, was $7,787,655
compared to $2,088,957 for the twelve months ended December 31, 1995. The
increase in net loss is primarily due to increases in selling, general and
administrative expenses, public relations expenses, finance expenses, the write
off of remaining goodwill and patent amortization and deferred acquisition
assets charged off. Additionally, net loss includes MSI's net loss for the 44
day period ended December 31, 1996, of $616,864.

Net loss per share of Common Stock for the twelve months ended December 31,
1996, was $5.66 compared to $1.33 for the twelve months ended December 31, 1995.
This increase is primarily due to an increase in net loss and a deemed dividend
associated with the conversion feature of the Series A Preferred Stock. Weighted
average shares were 1,961,078 and 1,570,498 for the twelve months ended December
31, 1996 an 1995, respectively.

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<PAGE> 33

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

Results of Operations

Total revenues for the twelve months ended December 31, 1995 were $163,801
compared to $214,443 for the twelve months ended December 31, 1994. The decrease
in total revenues is primarily due to a decrease in other revenues.

Assay sales, net of billing adjustments, from the processing of ABC's
assay, the Fluorescent Cytoprint Assay, were $161,701 and $157,973 for the
twelve months ended December 31, 1995 and 1994, respectively. The amount of
billing adjustments relating to assay sales during the twelve months ended
December 31, 1995 and 1994 were approximately $22,156 and $76,932, respectively.

Other revenues for the twelve months ended December 31, 1995 were $2,100
compared to $56,470 for the twelve months ended December 31, 1994. Other
revenues represent revenues from various pharmaceutical and drug development
organizations to test new chemotherapy compounds using the FCA. Payments
received are recorded as deferred income and are recognized as other revenue
according to the percent or work completed.

Selling, general and administrative expenses for the twelve months ended
December 31, 1995 increased to $2,089,778 compared to $1,364,422 for the twelve
months ended December 31, 1994. The increase was principally due to the
incurrence of $722,376 related to the grant of 100,000 restricted shares granted
to J. Marvin Feigenbaum on June 8, 1995, as well as an increase in the Company's
use of consultants which resulted in greater consultant fees and expenses
related to the Company's efforts to improve reimbursement for the FCA.

Laboratory expenses for the twelve months ended December 31, 1995 and 1994
were $211,377 and $200,313, respectively. The increase is due to general
increases in the supplies, repairs and maintenance costs associated with the
operation of the laboratory.

Research and development expenses for the twelve months ended December 31,
1995 were $77,066. These expenses were incurred in connection with the
reconfiguration of ABC's image system and the implementation of a laboratory
procedure designed to complement the FCA.

Total operating costs for the twelve months ended December 31, 1995 and
1994 were $2,378,221 and $1,564,735, respectively. This increase was primarily
due to an increase in selling, general and administrative expenses.

Operating loss for the twelve months ended December 31, 1995 and 1994 was
$2,214,420 and $1,345,982 respectively. The increase was primarily due to an
increase in total operating costs.

Interest expense for the twelve months ended December 31, 1995 and 1994 was
$33,514 and $51,370, respectively. This decrease was due to the reduction of
principal outstanding for loans from the Small Business Loan Fund Corporation.
In addition, 7% Promissory Notes issued in the August 9, 1994 private placement
were repaid on December 28, 1994.

Investments and interest income for the twelve months ended December 31,
1995 and 1994 was $158,977 and $3,831, respectively. This increase is primarily
due to the receipt by the Company of approximately $159,000 of interest income
during 1995, which interest income was derived from the deposit of the proceeds
of the Company's December 1994 public offering as well as private sales of
securities completed in April and July 1995.

Net loss for the twelve months ended December 31, 1995 and 1994 was
$2,088,957 and $1,393,521, respectively. The increase in net loss is primarily
due to an increase in total operating costs.

Net loss per share of Common Stock for the twelve months ended December 31,
1995 decreased to $1.33 as compared to $2.15 for the twelve months ended
December 31, 1994. Weighted average shares were 1,570,498 and 647,501 for the
twelve months ended December 31, 1995 and 1994, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company had approximately $1,690,538 in cash and cash equivalents at
December 31, 1996.

Total current assets at December 31, 1996 and 1995 were $3,743,997 and
$2,747,836, respectively. This increase of approximately $996,161 was due
primarily to the inclusion of MSI's net accounts receivable of $1,674,384 at
December 31, 1996. Without the inclusion of MSI's transactions, total current
assets would have decreased $1,111,025. This decrease was primarily due to the
utilization of cash during the period to support operating activities and the
payment and reduction of current liabilities.

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<PAGE> 34

Accounts receivable, net of allowances for doubtful accounts at December
31, 1996 and 1995 were $1,751,230 and $67,480, respectively. This increase of
approximately $1,683,750 was due primarily to the inclusion of MSI's net
accounts receivable of $1,674,384 at December 31, 1996. Without the inclusion of
MSI's transactions, net accounts receivable would have increased $9,366.

Inventory at December 31, 1996 and 1995 was $219,428 and $12,219,
respectively. This increase of approximately $207,209 is due primarily to the
inclusion of MSI's inventory of $209,173. Without the inclusion of MSI's
transactions, inventory would have decreased $1,964.

Net investment in Physicians Clinical Laboratory, Inc. ("PCL") at December
31, 1996, was $9,424,439. This represents a $10,000,000 investment in the Senior
Debt of Physicians Clinical Laboratory, Inc. with an offset from the receipt of
a distribution of $575,561. The Company reached an agreement (the "PCL Plan")
with the holders of the Senior Debt, Subordinated Debt and management of PCL
whereby the Company will acquire a 52.6% interest in PCL. The terms of the
agreement provide that PCL would file a plan to effectuate the agreement. As
required by the aforementioned agreement, the Company purchased approximately
$13,300,000 of Senior Debt for $10,000,000 on November 7, 1996. The PCL Plan
also requires that the Company purchase an additional 17% of capital stock of
PCL for $5,000,000 upon the approval of the PCL Plan. This obligation will be
satisfied by the Note of PCL for $5,000,000 issued by PCL to the Company as part
of the consideration in the acquisition of MSI from the Company being satisfied.
Pursuant to the PCL Plan, the debt purchased by the Company will be converted
into 35.6% of the common stock of PCL, which together with the 17% purchased for
$5,000,000, will result in the Company owning 52.6% of the outstanding common
stock of PCL.

Equipment and leasehold improvements, net of accumulated depreciation and
amortization, at December 31, 1996 and 1995 were $1,766,842 and $471,517,
respectively. This increase of $1,295,325 is due primarily to the inclusion of
MSI's net equipment and leasehold improvements of $1,387,145. Without the
inclusion of MSI's transactions, net equipment and leasehold improvements would
have decreased $91,820, as a result of additional depreciation and amortization.

Goodwill, net of accumulated amortization at December 31, 1996 and 1995 was
$6,352,860 and $308,816, respectively. This increase of $6,044,044 is due
primarily to the goodwill related to the acquisition of MSI and Prompt Medical
Billing, Inc. by the Company.

At December 31, 1996, all patent assets have been written off.

Deferred acquisition costs at December 31, 1996 and 1995 were $1,028,524
and $129,846, respectively. This increase of $898,678 is due primarily to costs
associated with the pending acquisition of Physicians Clinical Laboratory, Inc.

Total assets at December 31, 1996 and 1995 were $22,405,766 and $3,818,575,
respectively. This increase of approximately $18,587,191 is primarily due to the
combination of the Company's net investment in Physicians Clinical Laboratory,
Inc. and the resulting goodwill from the acquisitions of Prompt Medical Billing,
Inc. and Medical Science Institute.

Current liabilities at December 31, 1996 and 1995 were $5,410,663 and
$877,172, respectively. This increase of approximately $4,533,491 is primarily
due to the combination of the current portion of long-term debt of $1,953,605
remaining on the $2,500,000 loan obtained on December 2, 1996, an increase in
accounts payable of $1,470,982 and an increase in accrued expenses of $834,545,
of which a total of $1,572,315 is attributable to MSI. Without the inclusion of
MSI's transactions, total current liabilities would have increased $2,650,106.

Total liabilities increased approximately $8,413,502 from December 31,
1995. The increase is primarily due to the increase in current liabilities of
$4,533,491 and liabilities to be paid with common stock totaling $3,422,500.

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<PAGE> 35
At December 31, 1996, the Company had approximately $24,500,000 in tax net
operating loss carryforwards and no tax benefits were recorded. Approximately
$3,100,000 of these losses relate to a subsidiary of the Company that are
limited in usage. In addition, utilization of the net operating loss
carryforwards may be subject to limitations pursuant to Section 382 of the Tax
Code.

Plan of Operations

The consolidated financial statements of the Company have been prepared on
the basis that the Company will continue as a going concern. These conditions
have raised substantial doubt about the Company's ability to continue as a going
concern. Through December 31, 1996, the Company has expended cash in excess of
cash generated from operations and has not achieved sufficient revenues to
support future operations. During 1996, the Company generated net cash from
financing activities of approximately $16,407,000, which was principally
utilized by the Company in connection with the purchase of approximately
$13,300,000 of senior secured debt of PCL for $10,000,000 in connection with the
proposed acquisition by the Company of a majority interest in PCL; cash payments
in connection with its acquisition of MSI; acquisition costs of Prompt Medical
Billing Inc.; and general working capital purposes, including cash used from
operations of the Company and its principal subsidiaries Analytical Biosystems
Corporation, NTBM and cash used by MSI for a 44 day period of approximately
$2,159,000. At December 31, 1996, the Company had remaining cash and cash
equivalents of approximately $1,700,000, and as of March 3, 1997, the Company's
cash position was approximately $1,100,000. The Company anticipates that it will
need additional cash resources of approximately $1,000,000 to sustain itself
through December 31, 1997. The ability of the Company to obtain additional
financing or to achieve an adequate level of sales is dependent upon future
events, the outcome of which is presently not determinable. No assurance may be
given that the Company's Analytical Biosystems Corporation and NTBM Billing
subsidiaries will be able to generate adequate and sufficient revenues from
operations to supplement the Company's cash requirements. While the Company will
seek to raise additional funds through debt or equity financing, no assurance
may be given that the Company will be able to do so or, if that such financing
is available, that same will be on terms acceptable to the Company. The Company
will seek, during the balance of the calendar year 1997, to decrease its costs
of operations and thereby decrease the amount of additional cash resources that
it may require. However, no assurance may be given that such decreases in costs
can be implemented at sufficient levels.

Effects of Inflation

The Company does not view the effects of inflation to have a material
effect upon its business.

ITEM 7. FINANCIAL STATEMENTS

See Index to Financial Statements attached hereto.

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

Not Applicable

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

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PART III

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

The Directors and Executive Officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- -----------------------------------------------------
<S> <C> <C>
J. Marvin Feigenbaum(1)........ 46 Chairman of the Board of Directors, President, Chief
Executive and Chief Financial Officer of the Company;
Chairman of the Board of Directors, Chief Executive,
President and Chief Financial Officer of ABC.
Edmond E. Charrette, M.D.(1)... 61 Director of the Company.
Leonard Green(1)(2)(3)......... 70 Director of the Company.
David A. Sterling(2)........... 40 Secretary and Director of the Company.
Chriss W. Street(2)(3)......... 46 Director of the Company.
Robert B. Fagenson(3).......... 47 Director of the Company.
Patricia A. Meitner, Ph.D...... 55 Vice President of Science and Laboratory Director of
ABC.
</TABLE>

- ---------------
(1) Member of the Audit Committee.

(2) Member of the Stock Option Committee.

(3) Member of the Compensation Committee.

The number of directors comprising the entire Board of Directors is such
number as determined in accordance with the By-Laws of the Company. The
Company's By-Laws provide for the number of directors to be not less than three
or more than eleven in number. The Company's Certificate of Incorporation
provides for a classified or "staggered" Board of Directors. The classified or
"staggered" Board of Directors is comprised of three classes of directors
elected for three (3) year terms. By reason of the classified Board of
Directors, one class of the Board comes up for re-election each year. Any
further amendment to the Company's Certificate of Incorporation affecting the
classified Board may only be adopted upon the affirmative vote of not less than
75% of the issued and outstanding shares entitled to vote thereon.

At the Annual Meeting of Stockholders held on August 27, 1996, Messrs.
David A. Sterling and Leonard Green were elected Class 2 Directors to serve
until the 1999 Annual Meeting of Stockholders. The terms of Messrs. Street and
Charrette expire at the 1998 Annual Meeting, and the terms of Messrs. Feigenbaum
and Fagenson expire at the 1997 Annual Meeting.

The Underwriting Agreement entered into between the Company and the
Underwriters of the Company's public offering completed in December 1994
provides that the Company will use its best efforts for a period of five years
to nominate and have elected to its Board of Directors one nominee designated by
Starr Securities, Inc., ("Starr") to whom the Company has no reasonable
objection, or to permit a designee of Starr to serve as an observer at meetings
of the Company's Board of Directors. In connection with the August, 1995 Annual
Meeting, Starr advised the Company that its designee would be Robert Fagenson.
Mr. Fagenson was elected as a director at the Annual Meeting.

All officers of the Company, ABC and NTBM serve at the discretion of their
respective Boards of Directors. The following sets forth certain biographical
information for each Director and Officer:

J. Marvin Feigenbaum. Mr. J. Marvin Feigenbaum was first elected to the
Board of Directors in June 1994, at which time he was also elected to the Board
of Directors of ABC and appointed Chief Executive Officer of the Company and of
ABC. From August 1993 to June 1994, Mr. Feigenbaum served as a consultant to the
Company, primarily with respect to the Company's business development and plans
and programs relating to the marketing and exploitation of the Company's
laboratory and medical testing services. From 1987 to June 1994, Mr. Feigenbaum
acted as an independent consultant in the medical and health care industry. He
has over 25 years of experience in the health care industry. Prior to being an
independent consultant, Mr. Feigenbaum, from 1982 to mid-1987, served as
Chairman, President and Chief Executive

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<PAGE> 37

Officer of Temco Home Health Care Products, Inc., a durable medical equipment
manufacturer. Mr. Feigenbaum presently serves as a member of the Board of
Directors and Vice-Chairman of Comprehensive Care Corp., a publicly owned
company engaged in the health care business, which is listed on the New York
Stock Exchange. On February 24, 1995, a group of holders of CompCare 7 1/2%
Convertible Subordinated Debentures filed an involuntary petition against
CompCare under Chapter 7 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Texas, Fort Worth Division.
This petition was dismissed by the Court on March 7, 1995 upon the joint motion
of CompCare and petitioners.

Edmond E. Charrette, M.D. Dr. Edmond Charrette, was elected a Director on
May 4, 1993. Dr. Charrette is board certified in Internal Medicine and Medical
Oncology. From 1981 to 1985, Dr. Charrette served as Senior Vice President of
AdvantageHEALTH Corporation in Woburn, Massachusetts, a publicly traded
corporation. Currently, Dr. Charrette serves as the Executive Vice President and
Chief Medical Officer of AdvantageHEALTH Corporation. Dr. Charrette is the
immediate past Chairman of the American Congress of Rehabilitation
Medicine -- Task Force for Cancer Rehabilitation. He is cofounder and member of
the Board of Directors of Health Resources.

Leonard Green. Mr. Leonard Green was elected to the Board of Directors in
September 1994. Mr. Green has been the President and Chief Executive Officer of
Green Management and Investment Co., a New York private investment firm, since
1985. From 1980 to 1985, Mr. Green was President and Chief Executive Officer of
Yuma Management Corp. Prior to such time, from 1972 to 1980, Mr. Green served as
Chairman and Chief Executive Officer of Quality Care, Inc. Mr. Green received
his Bachelor of Science degree from George Washington University. Mr. Green also
serves on the Board of Directors of Apria Healthcare, Inc. and OrNda Health
Corp.

David A. Sterling. Mr. David A. Sterling was elected to the Board of
Directors on December 6, 1994. Mr. Sterling, for in excess of seven years, has
been President of Sterling & Sterling, Inc., a general insurance agency. Mr.
Sterling holds a BBA Degree from Hofstra University, New York.

Chriss W. Street. Mr. Chriss W. Street, is a Class 3 Director of the
Corporation. Mr. Street is the President of Chriss Street and Company, Inc., a
financial advisory firm which provides a wide variety of financial advisory and
research services. Mr. Street founded the firm in 1992. Prior thereto, and from
1987 to 1992, Mr. Street was a Managing Director of Seidler Amdec Securities,
Inc. Mr. Street has, since 1993, served as Chairman and, since 1994, has
additionally served as President and Chief Executive Officer of Comprehensive
Care Corporation ("CompCare"), a behavioral health care company listed on the
New York Stock Exchange. On February 24, 1995, a group of holders of CompCare
7 1/2% Convertible Subordinated Debentures filed an involuntary petition against
CompCare under Chapter 7 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Texas, Fort Worth Division.
This petition was dismissed by the Court on March 7, 1995 upon the joint motion
of CompCare and petitioners. Mr. Street is Chief Financial Officer of Hacienda
Village Modernization Corp., which is a joint venture construction firm founded
by Mr. Street in 1994 to bid for federally funded construction contracts
rehabilitating housing projects in Los Angeles, California inner city
neighborhoods. In addition, in March 1995, he was elected as a Director of
Micropolis Corporation, a company traded on the Nasdaq Stock Market.

Robert B. Fagenson. Mr. Robert B. Fagenson, is a Class 1 Director as the
nominee of Starr Securities, Inc., the Corporation's investment banking firm.
Under the terms of its underwriting agreement with Starr Securities entered into
in December 1994 in connection with the Corporation's public offering, the
Corporation agreed to use its best efforts for a period of five years to
nominate and have elected to its Board of Directors one nominee of Starr
Securities. Mr. Fagenson has, for more than the past five years, been President
and a Director of Fagenson & Co., Inc., a registered broker-dealer, and
Vice-President and Director of Starr Securities Inc., a registered
broker-dealer. Mr. Fagenson is a Director of the New York Stock Exchange. He is
also a Director of The Microtel Franchise and Development Company, a developer
of economy lodging facilities; Autoinfo, Inc., a dealer in computerized products
and services for after-market motor vehicle parts; Rent-Way, Inc., a multi store
retail chain in the rent-to-own industry; and Healthy Planet Products, Inc., a
publicly-held greeting card company listed on the American Stock Exchange.

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<PAGE> 38

Patricia A. Meitner, Ph.D. Dr. Patricia A. Meitner joined ABC in April
1988 as Product Manager and Laboratory Director. In December 1991, she was
elected as Vice President of Science. Dr. Meitner has a Ph.D. in Physiological
Chemistry from the University of Birmingham, England, and has been involved in
the cancer research field for over 20 years.

Indemnification of Directors and Officers

The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative in nature,
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
and, in a proceeding not by or in the right of the corporation, judgments, fines
and amounts paid in settlement, actually and reasonably incurred by him in
connection with such suit or proceeding, if he acted in good faith and in a
manner believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reason to believe his conduct was unlawful. Delaware law further provides that a
corporation will not indemnify any person against expenses incurred in
connection with an action by or in the right of the corporation if such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for the expenses
which such court shall deem proper.

The By-Laws of the Company provide for indemnification of officers and
directors of the Company to the greatest extent permitted by Delaware law for
any and all fees, costs and expenses incurred in connection with any action or
proceeding, civil or criminal, commenced or threatened, arising out of services
by or on behalf of the Company, providing such officer's or director's acts were
not committed in bad faith. The By-Laws also provide for advancing funds to pay
for anticipated costs and authorizes the Board to enter into an indemnification
agreement with each officer or director.

In accordance with Delaware law, the Company's Certificate of Incorporation
contains provisions eliminating the personal liability of directors, except for
(i) breaches of a director's fiduciary duty of loyalty to the Company or to its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, and (iii) any
transaction in which a director receives an improper personal benefit. These
provisions only pertain to breaches of duty by directors as such, and not in any
other corporate capacity, e.g., as an officer. As a result of the inclusion of
such provisions, neither the Company nor its stockholders may be able to recover
monetary damages against directors for actions taken by them which are
ultimately found to have constituted negligence or gross negligence, or which
are ultimately found to have been in violation of their fiduciary duties,
although it may be possible to obtain injunctive or equitable relief with
respect to such actions. If equitable remedies are found not to be available to
stockholders in any particular case, stockholders may not have an effective
remedy against the challenged conduct.

The Company has entered into Indemnification Agreements with each of its
directors and officers (the "Indemnitees") pursuant to which it has agreed to
provide for indemnification, to the fullest extent permitted by law and the
Company's By-Laws, against any and all expenses, judgments, fines, penalties and
amounts paid in settlement arising out of any claim in connection with any
event, occurrence or circumstance related to such individual serving as a
director or officer of the Company. Such indemnification includes the advance of
expenses to the Indemnitees (including the payment of funds in trust therefor
under certain circumstances) and is subject to there not having been determined
that the Indemnitee would not be permitted to be indemnified under applicable
law. The rights of indemnification are in addition to any other rights which the
Indemnitees may have under the Company's Certificate of Incorporation, By-Laws,
the Delaware General Corporation Law or otherwise.

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<PAGE> 39

obligations to its officers and directors and is intended to establish a
mechanism to assure a source of funding for any payments the Company may be
required to make under such Indemnification Agreements. Accordingly, the Company
established the Trust in the amount of $250,000. In the event an indemnitee has
requested an indemnification payment from the Company, and has not received
same, such indemnitee may apply to the Trustee for payment subject to his
entering into a repayment agreement whereby any sums advanced shall be repaid to
the Company in the event it is ultimately determined that such individual is not
entitled to indemnification.

Section 16 Reporting

No person who, during the fiscal year ended December 31, 1996, was a
director, officer or beneficial owner of more than ten percent of the Company's
Common Stock (which is the only class of securities of the Company registered
under Section 12 of the Securities Exchange Act of 1934 (the "Act") (a
"Reporting Person") failed to file on a timely basis, reports required by
Section 16 of the Act during the most recent fiscal year or prior years. The
foregoing is based solely upon a review by the Company of Forms 3 and 4 during
the most recent fiscal year as furnished to the Company under Rule 16a-3(d)
under the Act, and Forms 5 and amendments thereto furnished to the Company with
respect to its most recent fiscal year, and any representation received by the
Company from any reporting person that no Form 5 is required.

Medical and Scientific Advisory Board

The Company has established a Medical and Scientific Advisory Board
consisting of knowledgeable individuals in the fields of medical and surgical
oncology, cancer research, micro and cellular biology, pathology and general
medicine. The individuals comprising the Scientific Advisory Board may vary from
time to time depending upon the availability of such individuals and the
addition or substitution of individuals on the Board. Individuals serving on the
Scientific Advisory Board will have no obligation or responsibility for the
Company's management, business, plans, programs or finances. They will, however,
be available to consult and assist the Company's senior management and Directors
and officers with respect to various scientific aspects of the Company's
business. The Company has adopted a compensation policy pursuant to which
members of its Scientific Advisory Board are to receive the sum of [$1,500] for
each Scientific Advisory Board meeting attended. The individuals who presently
serve as Scientific Advisory Board members are as follows:

James F. Holland, M.D. Dr. Holland is Professor of Neoplastic Diseases,
Mount Sinai School of Medicine, New York. Dr. Holland received his M.D. at
Columbia University College of Physicians and Surgeons. He formerly served as
the first Director of the Derald H. Ruttenberg Cancer Center at Mount Sinai
Medical Center. Dr. Holland has served as President of the American Association
for Cancer Research and as President of the American Society of Clinical
Oncology.

Emil Frei, III, M.D. Dr. Frei is Physician-in-Chief, Emeritus, of the
Dana-Farber Cancer Institute (Harvard Medical School affiliated), Boston. He
received his M.D. at Yale University School of Medicine. Dr. Frei had ten years
experience at the National Cancer Institute, Bethesda, Maryland, as Chief of the
Medicine Branch and Associate Scientific Director for Experimental Therapeutics.
He and Dr. Holland are the senior editors of Cancer Medicine, the prime text in
the field.

J. Dirk Iglehart, M.D. Dr. Iglehart is Associate Professor of Surgery and
Assistant Professor of Cell Biology at Duke University Medical Center, Durham,
North Carolina. He received his M.D. at the Harvard University School of
Medicine, Boston, Massachusetts. Dr. Iglehart is Chairman of the Clinical Cancer
Committee of Duke Comprehensive Cancer Center and Director of the Duke Breast
Oncology Clinic.

Anne W. Hamburger, Ph.D. Dr. Hamburger is Head, Division of Cell and
Molecular Biology, Professor, Department of Pathology and Program of Oncology at
University of Maryland Cancer Center. She received her Ph.D. in Biology at New
York University. Dr. Hamburger is a pioneer in cancer research in the area of in
vitro chemosensitivity assays. She co-developed the Hamburger/Salmon test (a
stem cell assay), published in the New England Journal of Medicine, which
measures the growth of tumor cells and their response to chemotherapy.

38
<PAGE> 40

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following provides certain information concerning all Plan and Non-Plan
(as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded to,
earned by, paid or accrued by the Company during the years ended December 31,
1996, 1995 and 1994 to the Chief Executive Officer and each of the named
executive officers of the Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------
AWARDS
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES PAYOUTS
------------------------- ------------------------ ------------
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY COMPENSATION AWARD(S) OPTIONS COMPENSATION
- -------------------------- ---- -------- ------------ -------- ---------- ------------
($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
J. Marvin Feigenbaum...... 1996 $186,917 $205,686(6) -- 500,000(3)(8) $ 11,952(7)
Chief Executive and 1995 $182,000 $108,000(2) $943,750(3) -- $ 6,000(4)
Chief Financial Officer(1) 1994 $153,250(1) -- $175,000 150,000 $ 6,544(5)
</TABLE>

- ---------------
(1) President, Chief Executive and Chief Financial Officer commencing June 1,
1994. Includes consulting compensation in the amount of $47,667 for portion
of fiscal year from January 1, 1994 to June 1, 1994.

(2) Represents a bonus accrued for 1994 and paid during fiscal year 1995
representing the approximate combined federal and state tax associated
with the grant of 50,000 shares of Common Stock during fiscal 1994.

(3) On June 8, 1995, the Company granted Mr. Feigenbaum 100,000 restricted
shares of Common Stock. Represents the fair market value of the 100,000
shares based upon the market value of the Common Stock of $9.43 per share on
June 8, 1995. The restricted shares vest at the rate of 5,000 per year over
a twenty year period commencing December 31, 1995, subject to certain
performance based acceleration provisions. Under the acceleration
provisions, full vesting was scheduled to occur at December 31, 1996. On
December 2, 1996, the Company agreed to exchange the 95,000 shares that
would have otherwise become fully vested, for warrants to acquire 300,000
shares of Common Stock at $7.00 per share.

(4) Represents automobile allowance paid by the Company.

(5) Represents automobile allowance paid by the Company in the amount of $5,500,
and life insurance premiums in the amount of $1,044.

(6) Includes (i) $25,000 paid to Mr. Feigenbaum for issuing an accommodation
guaranty in the amount of $2.5 million for the benefit of the Company;
(ii) approximately $50,000 tax reimbursement paid to Mr. Feigenbaum for tax
on the value of 5,000 restricted shares of Common Stock which vested on
December 31, 1995, and which amount was paid in 1996; (iii) approximately
$68,000 reimbursement for taxes on taxes associated with the grant of
50,000 shares of Common Stock during fiscal 1994; and (iv) $62,686 withheld
and paid by the Company for taxes on taxes associated with the value of
5,000 restricted shares of Common Stock which vested on December 31, 1995.

(7) Represents automobile allowance, automobile insurance premiums and life
insurance premiums.

(8) On December 6, 1996, the Company granted Mr. Feigenbaum warrants to acquire
200,000 shares of Common Stock at $10.875 per share. Such warrants are
fully vested and exercisable through December 5, 2001.

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
(B) (C)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS (D)
UNDERLYING GRANTED TO EXERCISE OR
(A) OPTIONS/SARS EMPLOYEES IN BASE (E)
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) EXPIRATION DATE
- ------------------------------------ ------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
J. Marvin Feigenbaum................ 300,000(1) 100% $ 7.00 December 1, 2001
200,000 $10.875 December 5, 2001
</TABLE>

- ---------------
(1) Represents options granted upon termination and cancellation of a restricted
stock grant as to 95,000 shares of Common Stock.

39
<PAGE> 41

AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES

The following table summarizes options exercised by the named executive
officers during fiscal year 1996 and the number and value of options held by all
executive officers named in the Summary Compensation Table at year end. The
Company does not have any outstanding stock appreciation rights granted to
executive officers.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS/WARRANTS OPTIONS/WARRANTS
AT FY-END AT FY-END ($)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- -------------------------------------- --------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
J. Marvin Feigenbaum(2)............... -0- -0- 650,000/0 $2,759,375/0
</TABLE>

- ---------------
(1) The average of the closing bid and closing ask prices for the Company's
Common Stock as reported on the Nasdaq SmallCap Market on December 31, 1996,
was $12.4375. Value is calculated on the basis of the difference between the
option exercise price and $12.4375 multiplied by the number of shares of
Common Stock underlying the options.

(2) Mr. Feigenbaum holds options and warrants to purchase 450,000 shares of
Common Stock with an exercise price of $7 per share, and warrants to
purchase 200,000 shares at $10.875.

EMPLOYMENT AGREEMENTS

On June 1, 1994, Mr. J. Marvin Feigenbaum was elected Chairman of the Board
of Directors, Chief Executive and Chief Financial Officer of both the
Corporation and Analytical Biosystems Corporation. Mr. Feigenbaum also serves as
President, Chief Executive and Chief Financial Officer of the Corporation and
Chief Operating Officer of PCL. On September 22, 1994, Mr. Feigenbaum entered
into an Amended and Restated Employment Agreement with the Corporation for a
term of three years and six months commencing June 1, 1994 through November 30,
1997. Mr. Feigenbaum's Employment Agreement provides for a salary at the rate of
$196,000 per annum. In addition, Mr. Feigenbaum is provided with health and
other benefits and a policy of life insurance in the amount of $500,000 payable
to a beneficiary to be named by Mr. Feigenbaum. He also receives an automobile
allowance of $500 per month and reimbursement for expenses incurred on behalf of
the Corporation and in connection with the performance of his duties. In
connection with his Employment Agreement as amended, Mr. Feigenbaum was issued,
in lieu of a cash bonus for past services rendered to the Corporation, while
acting as a consultant to the Corporation, 50,000 shares of Common Stock of the
Corporation which has been valued at $3.50 per share. All of said shares are
immediately vested, and the Corporation paid Mr. Feigenbaum, on April 14, 1995,
a one time cash bonus equal to $108,000 representing the amount of the combined
federal and applicable state and city income tax associated with such stock
grant. In addition, Mr. Feigenbaum was granted options to purchase 150,000
shares of the Corporation's Common Stock exercisable commencing in June, 1995
through December 31, 2002 at an option exercise price equal to the $7.00 per
share. Mr. Feigenbaum's Employment Agreement provides that in the event of a
change in control of the Corporation (as defined), Mr. Feigenbaum will be paid
for the remainder of the unexpired term of his Agreement plus an additional sum
of $196,000.

On June 8, 1995, the Company granted and issued to Mr. J. Marvin
Feigenbaum, 100,000 restricted shares of its Common Stock, $.01 par value (the
"Restricted Shares"). On December 2, 1996, Mr. Feigenbaum agreed to terminate
this grant of Restricted Shares by exchanging 95,000 Restricted Shares for
warrants to purchase 300,000 shares of common stock of the Company at $7.00
per share.

Mr. Feigenbaum additionally receives a salary at the rate of $104,000 per
annum in his capacity as Chief Operating Officer of PCL.

40
<PAGE> 42

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Feigenbaum, the Corporation's Chairman, Chief Executive Officer and a
Class 1 Director, serves as a member of the Board of Directors and Vice-Chairman
of Comprehensive Care Corporation, and is a member of its Compensation
Committee.

Mr. Street, a Class 3 Director, is Chairman, President and Chief Executive
Officer of Comprehensive Care Corporation. Mr. Street serves on the Stock Option
Committee and Compensation Committee of the Board of Directors.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company do not receive any fee in
addition to their regular salary for serving on the Board of Directors.
Directors who are not employees of the Company receive a directors fee of $6,000
per annum, paid quarterly, and an attendance fee of $500 per meeting attended.
In addition, Directors are reimbursed for travel expenses for attendance at
board meetings. Non-Employee Directors are also eligible for an initial and
annual grant of stock options under the Company's Non-Employee Director Stock
Option Plan (see "Non-Employee Director Stock Option Plan" below).

1994 INCENTIVE STOCK OPTION PLAN

In August, 1994, the Board of Directors adopted a 1994 Incentive Stock
Option Plan (the "Plan") which Plan was approved and adopted by the stockholders
of the Company on November 16, 1994. The Plan provides for the issuance of up to
350,000 shares of the Company's Common Stock upon the exercise of options
granted to officers, directors, full time employees and consultants rendering
services to the Company. Under the terms of the Plan, options granted thereunder
will be designated as options which qualify for incentive stock option treatment
("ISO's") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or options which do not so qualify ("Non-ISO's"). Unless sooner
terminated, the Plan will expire on August 1, 2004 and options may be granted at
any time or from time to time through such date. The purpose of the Plan is to
promote the interests of the Company and its stockholders by strengthening the
ability of the Company to attract and retain officers, employees and consultants
by furnishing suitable recognition of their ability to contribute to the success
of the Company and to align their interests and efforts with the long term
interest of the Company. The Plan succeeds the Company's 1992 Incentive Stock
Option Plan, which has been terminated except for options to acquire 13,714
shares thereunder.

The Plan is administered by the Board of Directors or by a Stock Option
Committee designated by the Board of Directors (the "Plan Administrator"). The
Plan Administrator has the discretion to determine the eligible employees and
consultants to whom, and the times and the prices at which, options will be
granted; whether such options shall be ISO's or Non-ISO's; the periods during
which each option will be granted; and the number of shares subject to each
option. The Plan Administrator shall have full authority to interpret the plan
and to establish and amend rules and regulations relating thereto.

Under the Plan, the exercise price of an option designated as an ISO shall
not be less than the fair market value of the Common Stock on the date the
option is granted. However, in the event an option designated as an ISO is
granted to a ten percent stockholder (as defined in the Plan) such exercise
price shall be at least 110% of such fair market value. Exercise prices of
Non-ISO's may not be less than 85% of such fair market value. The aggregate fair
market value of shares subject to an option designated as an ISO for which any
participant may be granted such an option in any calendar year, shall not exceed
$100,000 plus any unused carryovers (as defined in Section 422 of the Code) from
a prior year. The "fair market value" will be the closing Nasdaq bid price or,
if the Company's Common Stock is not quoted by Nasdaq, the low bid as reported
by the National Quotation Bureau, Inc. or a market maker of the Company's Common
Stock or, if the Common Stock is not quoted by any of the above, by the Board of
Directors acting in good faith.

Options may be granted under the Plan for such periods as determined by the
Plan Administrator; provided however that no option designated as an ISO granted
under the Plan shall be exercisable over a period in excess of ten years, or in
the case of a ten percent stockholder, five years. Options may be exercised

41
<PAGE> 43

in whole at any time or in part from time to time. Options are not transferable
except to the estate of an option holder; provided, however, in the case of a
Non-ISO, and subject to Rule 16b-3 promulgated under Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act") and prevailing
interpretations thereunder by the staff of the Securities and Exchange
Commission, a recipient of a Non-ISO may, with the consent of the Plan
Administrator, designate a named beneficiary of the Non-ISO in the event of the
death of such recipient, or assign such Non-ISO.

Except as described below, the Plan Administrator may from time to time
amend the Plan as it deems proper and in the best interests of the Company
without further approval of the stockholders.

The Board of Directors and the Plan Administrator may not amend certain
features of the Plan without the approval of the Company's stockholders to the
extent such approval is required for compliance with Section 422 of the Code
with respect to ISO's, Section 162(m) of the Code with respect to Non-ISO's or
Rule 16b-3 promulgated under Section 16 of the Exchange Act with respect to
awards made to individuals subject to Section 16 of the Exchange Act. Such
amendments would include (a) increasing the maximum number of shares of Common
Stock that may be issued under the Plan, (b) materially modifying the
requirements as to eligibility for participation in the Plan, or (c) otherwise
materially increasing the benefits accruing to participants under the Plan.

Options for a total of 175,900 Shares have been granted under the Plan,
including options for 150,000 shares to Mr. Feigenbaum.

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

In August, 1994, the Board of Directors adopted the Non-Employee Director
Stock Option Plan (the "Director Plan") which Director Plan was approved and
adopted by the stockholders of the Company on November 16, 1994 and amended by
the stockholder of the Company on August 27, 1996. The Director Plan provides
for issuance of a maximum of 200,000 shares of Common Stock upon the exercise of
stock options granted under the Director Plan. Options may be granted under the
Director Plan until August 1, 2004 to the Company's non-employee directors (as
defined). The Director Plan provides that each non-employee director will
automatically be granted an option to purchase 5,000 shares upon joining the
Board of Directors (or, for those persons who are directors on the date of
approval of the Director Plan by the stockholders, on such date), and options to
purchase 8,000 shares on each anniversary of the initial date of service or date
of approval, as the case may be.

Under the terms of the Director Plan, the sum of the number of shares to be
received upon any grant multiplied by the fair market value of each share at the
time of grant may not exceed $75,000. All awards shall be reduced to the extent
they exceed such amount. The exercise price for options granted under the
Director Plan shall be 100% of the fair market value of the Common Stock on the
date of grant. Until otherwise provided in the Director Plan, the exercise price
of options granted under the Director Plan must be paid at the time of exercise,
either in cash, by delivery of shares of Common Stock of the Company or by a
combination of each. The term of each option is five years from the date of
grant, unless terminated sooner as provided in the Director Plan. The Director
Plan is administered by a committee of the Board of Directors composed of not
fewer than two persons who are officers of the Company (the "Committee"). The
Committee has no discretion to determine which non-employee director will
receive options or the number of shares subject to the option, the term of the
option or the exercisability of the option. However, the Committee will make all
determinations of the interpretation of the Director Plan. Options granted under
the Director Plan do not qualify for incentive stock option treatment.

Options for a total of 60,545 shares have been granted under the Director
Plan, including options for 13,309 shares to Dr. Charrette, Mr. Sterling and Mr.
Green, and 10,309 shares to Mr. Street and to Mr. Fagenson.

42
<PAGE> 44

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 21, 1997
with respect to the ownership of Common Stock by (i) the persons (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended), known by the Company to be the beneficial owner of more
than five percent of any class of the Company's voting securities, (ii) each
director and each officer identified in the Summary Compensation Table, and
(iii) directors and executive officers as a group:

<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF AND NATURE PERCENTAGE
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
---------------------------------------------- ----------------------- ----------
<S> <C> <C>
J. Marvin Feigenbaum.......................... 745,316(1) 24.2%
55 Access Road
Warwick, RI 02886
Edmond E. Charrette, M.D...................... 19,975(2) *
304 Cambridge Road
Woburn, MA 01801
Leonard Green................................. 13,309(3) *
55 Access Road
Warwick, RI 02886
David A. Sterling............................. 14,809(3) *
55 Access Road
Warwick, RI 02886
Michael G. Jesselson.......................... 170,382(4) 6.56%
1301 Avenue of Americas
New York, NY
Chriss W. Street.............................. 10,309(5) *
Chriss Street & Company
1111 Bayside Drive Suite 100
Corona del Mar, CA 92625
Robert B. Fagenson............................ 10,309(5) *
19 Rector Street
New York, NY 10006
All Officers and Directors as a Group (5 808,718(1)(2)(3)(5) 25.9%
persons in number)..........................
</TABLE>

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

(1) Includes (i) 9,999 shares of Common Stock owned by Mr. Feigenbaum; (ii)
45,316 shares of Common stock held in a trust for the benefit of a minor
child of Mr. Feigenbaum, as to which shares Mr. Feigenbaum disclaims
beneficial ownership; (iii) 54,500 options owned by the Feigenbaum
Foundation, a charitable foundation, as to which options Mr. Feigenbaum
disclaims a beneficial interest in, (iv) options and warrants to purchase an
aggregate of 595,500 shares of Common Stock.

(2) Includes (i) 3,809 shares of Common Stock, (ii) presently exercisable
options to purchase 2,857 shares of Common Stock and (iii) options to
purchase 13,309 shares of Common Stock granted under the Corporation's
Non-Employee Director Plan.

(3) Includes options to purchase 13,309 shares of Common Stock under the
Corporation's Non-Employee Director Plan.

(4) Represents Common Stock Purchase Warrants owned by several trusts of which
Michael G. Jesselson is a trustee, co-trustee and/or a beneficiary and
therefore holds shared voting power as follows: (i) Michael Jesselson & Lucy
Lang TTEES UIT FBO Yosepha Jesselson -- 8,571 Common Stock Purchase
Warrants; (ii) Michael Jesselson & Linda Jesselson TTEES UIT Fbo Jonathan
Judah Jesselson -- 8,571 Common Stock Purchase Warrants; (iii) Michael
Jesselson & Linda Jesselson TTEES UIT FBO Yaira Jesselson -- 8,571 Common
Stock Purchase Warrants; (iv) Michael Jesselson & Linda Jesselson TTEES UIT
FBO Maya Ariel Ruth Jesselson -- 8,571 Common Stock Purchase Warrants; (v)
Erica Jesselson, Lucy Lang, Claire Strauss,

43
<PAGE> 45

Michael Jesselson & Benjamin Jesselson TTEES UIT FBO Benjamin Jesselson --
12,699 Common Stock Purchase Warrants; (vi) Erica Jesselson , Lucy Lang,
Claire Strauss, Michael Jesselson & Benjamin J. Jesselson TTEES UIT FBO
Michael Jesselson -- 110,700 Common Stock Purchase Warrants; and (vii)
Michael Jesselson, Erica Jesselson, Lucy Lang, Clair Strauss and Benjamin J.
Jesselson, TTEES UIT FBO Grandchildren -- 12,699 Common Stock Purchase
Warrants.

(5) Includes options to purchase 10,309 shares of Common Stock under the
Corporation's Non-Employee Director Plan.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Corporation's subsidiary, ABC, borrowed $150,000 on February 11, 1993
and $100,000 on February 25, 1993 from the Small Business Loan Fund Corporation
("SBLFC"). Both loans bear interest at the rate of 5.4%, are secured by the
Corporation's accounts receivable, inventory and equipment and are to be repaid
over a five year period ending in February 1998. In conjunction with the above
loans, the Corporation issued a warrant to SBLFC for 2,857 shares of Common
Stock at an exercise price of $15.75 per share. Additional debt financing of
$250,000, $166,000 and $125,000 was received from SBLFC on April 19, 1993,
October 22, 1993, and February 14, 1994, respectively. These financings also
bear interest at 5.4%, are secured by the Corporation's accounts receivable,
inventory, equipment, and intangible assets (including patents) and are to be
repaid over five year periods from the respective loan dates. In conjunction
with the April 19, 1993 loan, the Corporation issued to SBLFC a warrant for
42,857 shares of Common Stock at an exercise price of $28.35 per share. The
proceeds of the SBLFC loans were used for working capital.

For information concerning the Employment Agreement of J. Marvin
Feigenbaum, see "Executive Compensation -- Employment Agreements."

In connection with the payments made by the Company to Austin Financial
Services Inc., the Company obtained a secured loan from a third party lender on
December 2, 1996. This loan was personally guaranteed by the Company's
President, J. Marvin Feigenbaum. The lender was a significant creditor of PCL
and had agreed to the terms of the PCL Plan. On January 23, 1997, the Company
obtained a new loan from Michael Jesselson, who, individually and with trusts
for the benefit of members of his family, are significant shareholders of the
Company. This new loan was in the principal amount of $2 million, and the
proceeds were used to repay the remaining balance on the initial loan of $2.5
million, which the Company obtained to pay off Austin Financial. The new loan
bore interest at 7.5% per annum and was due and payable 60 days from the date of
the loan. The lender also received 5-year Common Stock Purchase Warrants to
purchase 100,000 shares of Common Stock at $11.50 per share. On February 26,
1997, the new loan was repaid. The shares underlying these warrants have been
registered by the Company with the Securities and Exchange Commission. See "Item
1. Business -- General Developments Within Most Recent Fiscal Year - Acquisition
and Disposition of Medical Science Institute".

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS

See Index to Financial Statements Attached hereto.

44
<PAGE> 46

2. FINANCIAL STATEMENT SCHEDULES

Not Applicable.

3. EXHIBITS

Incorporated by reference to the Exhibit Index at the end of this Report.

(B) REPORTS ON FORM 8-K

During the last quarter of the period covered by this Report, the following
reports on Form 8-K were filed by the Registrant:

<TABLE>
<CAPTION>
DATE OF REPORT ITEM REPORTED DESCRIPTION OF ITEM
- --------------------- ------------------------------ ------------------------------------------
<S> <C> <C>
November 14, 1996 Item 2. Acquisition or Completion of acquisition of Prompt
(Form 8-K/A amending Disposition of Assets Medical Billing Services, Inc.
Form 8-K dated
September 13, 1996)
Item 7. Financial Statements, Financial Statements required to be filed
Pro Forma Information and pursuant to Item 7 of Form 8-K.
Exhibits
November 18, 1996 Item 2. Acquisition of Assets Acquisition of Medical Science Institute.
Item 5. Other Events Completion of Sale of Series A Convertible
Preferred Stock.
December 3, 1996 Item 2. Acquisition or The Company reported the Order confirming
Disposition of Assets Medical Science Institute's First Amended
Plan of Reorganization dated November 18,
1996 (U.S. Central District of California
Case No. LA 95-37790 TD) together with the
First Amended Disclosure Statement and the
Plan of Reorganization for Medical Science
Institute pursuant to which Nu-Tech
Bio-Med, Inc. acquired all of the capital
stock of MSI.
Item 5. Other Events The Company reported the completion of an
offering of up to 14,000 shares of Series
A Convertible Preferred Stock for a total
aggregate purchase price of $14,000,000.
January 31, 1997 Item 2. Acquisition or Agreement to Sell Ownership Interest in
(Form 8-K/A amending Disposition of Assets Medical Science Institute to Physicians
Form 8-K dated Clinical Laboratory, Inc.
November 18, 1996)
Item 7. Financial Statements, Financial Statements of Medical Science
Pro Forma Information and Institute Pursuant to Item 7 of Form 8-K;
Exhibits Unaudited Pro Forma Combined Balance Sheet
and Statement of Operations
</TABLE>

45
<PAGE> 47

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

NU-TECH BIO-MED, INC.

By /s/ J. MARVIN FEIGENBAUM
------------------------------------
J. Marvin Feigenbaum
Chairman of the Board of Directors,
President,
Chief Executive and Chief
Financial Officer,
and Principal Accounting Officer
Dated: April 9, 1997

In accordance with 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.

<TABLE>
<S> <C> <C>
/s/ J. MARVIN FEIGENBAUM Chairman of the Board, President, April 9, 1997
- ------------------------------------------ Chief Executive and Financial
J. Marvin Feigenbaum Officer, and Principal Accounting
Officer

/s/ CHRISS W. STREET Director April 9, 1997
- ------------------------------------------
Chriss W. Street

/s/ EDMOND E. CHARRETTE Director April 9, 1997
- ------------------------------------------
Edmond E. Charrette, M.D.

/s/ LEONARD GREEN Director April 9, 1997
- ------------------------------------------
Leonard Green

/s/ DAVID A. STERLING Secretary, Director April 9, 1997
- ------------------------------------------
David A. Sterling

Director April , 1997
- ------------------------------------------
Robert B. Fagenson
</TABLE>

46
<PAGE> 48

EXHIBIT INDEX

The exhibits designated with an asterisk (*) have previously been filed
with the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32, are
incorporated by reference to the document referenced in brackets following the
descriptions of such exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
2.1* Asset Purchase Agreement dated September 13, 1996, among Nu-Tech Bio-Med, Inc.,
NTBM Billing Services, Inc., Prompt Medical Services, Inc., Judith Prussin and
Jeffrey Prussin (filed without exhibits or schedules) [filed as Exhibit 2.1 to
Report on Form 8-K filed dated September 31, 1996].
2.2* Order Confirming Medical Science Institute's First Amended Plan of Reorganization
dated November 18, 1996 (US Central District of California Case No. LA 95-37790
ID) together with First Amended Disclosure Statement and Plan of Reorganization
for Medical Science Institute [filed as Exhibit 2.2 to Report on Form 8-K filed
with the Commission on December 3, 1996].
2.3* Disclosure Statement of Physicians Clinical Laboratory as filed with the U.S.
Bankruptcy Court [Central District of California Case No. SV96-23185-GM) [filed as
Exhibit 2.3 to Form S-3 File No. 333-17859].
2.4* Joint Plan of Reorganization of Physicians Clinical Laboratory as filed with the
U.S. Bankruptcy Court [Central District of California Case No. SV96-23185-GM)
[filed as Exhibit 2.4 to Form S-3 File No. 333-17859].
3.1* Amended and Restated Certificate of Incorporation filed with the Secretary of
State of Delaware on November 16, 1994 [Exhibit 3.1.5 to Amendment No. 1 to
Registration Statement on Form SB-2, File No. 33-84622]
3.2* Amended and Restated By-Laws effective November 16, 1994 [Exhibit 3.2.2 to
Registration Statement on Form SB-2, File No. 33-84622]
3.3* Amended Certificate of Designations, Preferences and Rights and Number of Shares
of Series A Preferred Stock as filed with the Secretary of State of Delaware on
October 23, 1996 [filed as Exhibit 3.3 to Report on Form 10QSB for the fiscal
quarter ended September 30, 1996].
3.4* Certificate of Amendment of Amended Certificate of Designations. Preferences and
Rights and Number of Shares of Series A Convertible Preferred Stock as filed with
the Secretary of State of Delaware on November 20, 1996.
4.1* Form of Common Stock Certificate [Exhibit 4.1 to Registration Statement on Form
SB-2, File No. 33-84622]
4.2* Form of Warrant and Warrant Agreement relating to Warrants to purchase an
aggregate of 114,286 shares of Common Stock issued to certain individuals on
August 9, 1994 in connection with a Bridge Financing [Exhibit 4.2 to Registration
Statement on Form SB-2, File No. 33-84622]
4.3* Form of and Warrant Agreement issued to Starr Securities, Inc. and Stein, Shore
Securities, Inc. [Exhibit 4.4 to Registration Statement on Form SB-2, File No.
33-84622]
4.4* Form of Registration Rights Agreement dated August 9, 1994 between the Registrant
and certain individuals in connection with completed Bridge Financing [Exhibit 4.5
to Registration Statement on Form SB-2, File No. 33-84622]
10.1* Amended and Restated Employment Agreement with J. Marvin Feigenbaum [Exhibit 10.2
to Registration Statement on Form SB-2, File No. 33-84622]
10.2* Employment Agreement with Dr. Kenneth E. Blackman as of July 1, 1994 [Exhibit 10.3
to Registration Statement on Form SB-2, File No. 33-84622]
10.3* Patent No. 4,559,299 dated December 17, 1985 [Exhibit 10.4 to Registration
Statement on Form SB-2, File No. 33-84622]
</TABLE>

47
<PAGE> 49

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
10.4* Patent No. 4,734,372 dated March 29, 1988 [Exhibit 10.5 to Registration Statement
on Form SB- 2, File No. 33-84622]
10.5* Patent No. 4,937,298 dated June 26, 1990 [Exhibit 10.6 to Registration Statement
on Form SB-2, File No. 33-84622]
10.6* Assignment of Patent No. 4,559,299, recorded on March 29, 1993, by Brown
University Research Foundation, in favor of Analytical Biosystems Corporation
[Exhibit 10.7 to Registration Statement on Form SB-2, File No. 33-84622]
10.7* Assignment of Patent No. 4,734,372, recorded on March 29, 1993, by Brown
University Research Foundation, Inc., in favor of Analytical Biosystems
Corporation [Exhibit 10.8 to Registration Statement on Form SB-2, File No.
33-84622]
10.8* Assignment of Patent No. 4,937,187, recorded on March 29, 1993, by Brown
University Research Foundation, Inc. in favor of Analytical Biosystems Corporation
[Exhibit 10.9 to Registration Statement on Form SB-2, File No. 33-84622]
10.9* Consulting Agreement with Starr Securities, Inc. [Exhibit 10.10 to Amendment No. 1
to Registration Statement on Form SB-2, File No. 33-84622]
10.10* Funding Agreement dated December 14, 1990 between Rhode Island Partnership for
Science and Technology and Analytical Biosystems Corporation [Exhibit 10.11 to
Registration Statement on Form SB-2, File No. 33-84622]
10.11* Loan Agreement dated February 11, 1993 between State of Rhode Island Economic
Development Small Business Loan Fund Corporation ("SBLFC") and Analytical
Biosystems Corporation in the amount of $150,000 [Exhibit 10.(iii) to Report on
Form 10-KSB for the fiscal year ended December 31, 1992]
10.12* Loan Agreement dated February 25, 1993 between SBLFC and Analytical Biosystems
Corporation in the amount of $100,000 [Exhibit 10(iii) to Report on Form 10-KSB
for the fiscal year ended December 31, 1992]
10.13* Loan Agreement dated April 19, 1993 between SBLFC and Analytical Biosystems
Corporation in the amount of $250,000 [Exhibit 10(i)(a) to Report on Form 8-K
dated April 30, 1993]
10.14* Loan Agreement dated October 22, 1993 between SBLFC and Analytical Biosystems
Corporation in the amount of $166,666 [Exhibit 10(iii)(d) to Report on Form 10-KSB
for the fiscal year ended December 31, 1993]
10.15* Loan Agreement dated February 17, 1994 between SBLFC and Analytical Biosystems
Corporation in the amount of $125,000 [Exhibit 10(iii)(e) to Report on Form 10-KSB
for the fiscal year ended December 31, 1993]
10.16* Security Agreement dated October 22, 1993 between SBLFC and Analytical Biosystems
Corporation [Exhibit 10.17 to Registration Statement on Form SB-2, File No.
33-84622]
10.17* Patent Security Agreement dated April 19, 1993 between SBLFC and Analytical
Biosystems Corporation [Exhibit 10.18 to Registration Statement on Form SB-2, File
No. 33-84622]
10.18* Patent Security Agreement dated October 22, 1993 between SBLFC and Analytical
Biosystems Corporation [Exhibit 10.19 to Registration Statement on Form SB-2, File
No. 33-84622]
10.19* Form of Indemnification Agreements between Registrant and Registrant's Directors
and Officers [Exhibit 10.20 to Registration Statement on Form SB-2, File No.
33-84622]
10.20* Lease Agreement as of November 1, 1994 for facility located at 55 Access Road,
Warwick, Rhode Island 02886 [Exhibit 10.21 to Amendment No. 1 to Registration
Statement on Form SB-2, File No. 33-84622]
10.21* Consulting Agreement and Warrant with Dr. Elliot Fishkin [Exhibit 10.22 to
Amendment No. 1 to Registration Statement on Form SB-2, File No. 33-84622]
</TABLE>

48
<PAGE> 50

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
10.22* Redacted copy of Clinical Trials Agreement dated August 14, 1995 between
Analytical Biosystems Corporation and research institution and certain individuals
[Exhibit 10.1 to Report on Form 8-K dated August 11, 1995]
10.23* Agreement dated April 10, 1995 between Analytical Biosystems Corporation and Loats
Associates [Exhibit 10.1 to Report on Form 8-K dated April 20, 1995]
10.24* Form of Registration Rights Agreement entered into among the Company and the
holders of the Company's Series A Preferred Stock entered into on December 2,
1996. [Filed as Exhibit 10.24 to Registration Statement on Form S-3 File
333-17857].
10.25* Form of Registration Rights Agreement entered into among the Company and certain
holders of the Company's Common Stock entered into on April 12, 1996 in connection
with private placement offering completed on April 12, 1996. [Filed as Exhibit
10.25 to Registration Statement on Form S-3 File 333-17857].
23.1 Consent of Ernst & Young LLP, independent auditors of Nu-Tech Bio-Med, Inc.
27 Financial Data Schedule
99.1* 1992 Stock Option Plan [Exhibit 28 to Report on Form 10-Q for the quarter ended
March 31, 1992]
99.2* 1994 Incentive Stock Option [Exhibit 99.2 to Registration Statement on Form SB-2,
File No. 33-84622]
99.3* Non Employee Director Stock Option Plan [Exhibit 99.3 to Registration Statement on
Form
SB-2, File No. 33-84622]
99.4* Amended and Restated Non-Employee Director Stock Option Plan [filed as Exhibit to
the Company's Proxy Statement for the Annual Meeting held August 27, 1996].
</TABLE>

49
<PAGE> 51

CONSOLIDATED FINANCIAL STATEMENTS

NU-TECH BIO-MED, INC.

YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE> 52

NU-TECH BIO-MED, INC.

CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995

CONTENTS

<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Stockholders' Equity...................................... F-5
Consolidated Statements of Cash Flows................................................ F-7
Notes to Consolidated Financial Statements........................................... F-8
</TABLE>

F-1
<PAGE> 53

REPORT OF INDEPENDENT AUDITORS

To the Stockholders
Nu-Tech Bio-Med, Inc.

We have audited the accompanying consolidated balance sheets of Nu-Tech
Bio-Med, Inc. as of December 31, 1996 and 1995, 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Nu-Tech Bio-Med, Inc. at December 31, 1996 and 1995, and the consolidated
results of their operations, stockholders' equity and cash flows for the years
then ended, in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that Nu-Tech Bio-Med., Inc. will continue as a going concern. As more
fully described in Note 1, the Company has expended cash in excess of cash
generated from operations and has not achieved sufficient revenues to support
future operations and has a working capital deficiency. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are discussed in Note 1. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.

/s/ ERNST & YOUNG LLP

Providence, Rhode Island
March 12, 1997

F-2
<PAGE> 54

NU-TECH BIO-MED, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 1,690,538 $ 2,538,002
Accounts receivable (net of allowance for doubtful accounts of
approximately $2,823,400 and $16,700 at December 31, 1996
and 1995, respectively).................................... 1,751,230 67,480
Inventory..................................................... 219,428 12,219
Prepaid expenses and other current assets..................... 82,801 130,135
------------ ------------
Total current assets............................................ 3,743,997 2,747,836
Investment in senior debt of Physicians Clinical Laboratory,
Inc........................................................... 10,000,000 --
Less distribution received...................................... (575,561) --
------------ ------------
Net investment in Physicians Clinical Laboratory, Inc........... 9,424,439 --
Equipment and leasehold improvements, net....................... 1,766,842 471,517
Goodwill (net of accumulated amortization of approximately
$833,200 and $441,200 at December 31, 1996 and 1995,
respectively)................................................. 6,352,860 308,816
Patents (net of accumulated amortization of approximately
$73,700 at December 31, 1995,................................. -- 141,596
Deferred acquisition costs...................................... 1,028,524 129,846
Deposits........................................................ 89,104 18,964
------------ ------------
Total assets.................................................... $ 22,405,766 $ 3,818,575
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 1,580,797 $ 109,815
Accrued expenses.............................................. 1,286,035 451,490
Contract payable.............................................. 65,571 105,571
Current portion of long-term debt............................. 2,263,990 197,246
Current portion of capitalized lease obligations.............. 214,270 13,050
------------ ------------
Total current liabilities....................................... 5,410,663 877,172
Long-term debt.................................................. 338,672 319,521
Capitalized lease obligations................................... 471,984 33,624
Liabilities to be paid with common stock........................ 3,422,500 --
------------ ------------
Total liabilities............................................... 9,643,819 1,230,317
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $.01 par value;
1,000,000 shares authorized, 14,000 issued and outstanding
at December 31, 1996 (liquidation preference of $14,000,000
at December 31, 1996)...................................... 140
Common stock, $.01 par value; 12,000,000 shares authorized,
2,089,652 and 1,742,148 shares issued and outstanding at
December 31, 1996 and 1995, respectively................... 20,897 17,422
Capital in excess of par value................................ 34,501,337 17,544,715
Unvested common stock grant................................... -- (946,107)
Deferred consulting expense................................... (96,250) (151,250)
Accumulated deficit........................................... (21,664,177) (13,876,522)
------------ ------------
Total stockholders' equity...................................... 12,761,947 2,588,258
------------ ------------
Total liabilities and stockholders' equity...................... $ 22,405,766 $ 3,818,575
============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 55

NU-TECH BIO-MED, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Assay sales, net................................................ $ 115,397 $ 161,701
Laboratory revenues, net........................................ 836,143 --
Medical billing services revenues............................... 113,932 --
Other........................................................... -- 2,100
----------- -----------
Total revenues, net............................................... 1,065,472 163,801
Operating costs:
Laboratory expenses............................................. 1,188,564 211,377
Medical billing services expenses............................... 89,314 --
Selling, general and administrative expenses.................... 3,689,588 2,089,778
Public relations expenses....................................... 1,882,000 --
Research and development expenses............................... 90,903 77,066
----------- -----------
Total operating costs............................................. 6,940,369 2,378,221
----------- -----------
Operating loss.................................................... (5,874,897) (2,214,420)
Other income (expense):
Finance expense................................................. (1,422,500) --
Write-off of goodwill and patents............................... (372,864) --
Deferred acquisition assets charged off......................... (218,914) --
Investment and interest income.................................. 161,871 158,977
Interest expense................................................ (60,351) (33,514)
----------- -----------
Total other income (expense)...................................... (1,912,758) 125,463
----------- -----------
Net loss.......................................................... $(7,787,655) $(2,088,957)
=========== ===========
Net loss per common share......................................... $ (5.66) $ (1.33)
=========== ===========
Weighted average common shares outstanding........................ 1,961,078 1,570,498
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 56

NU-TECH BIO-MED, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF SERIES A
SHARES OF CONVERTIBLE
SERIES A PREFERRED NUMBER OF UNVESTED
CONVERTIBLE STOCK AT SHARES OF COMMON CAPITAL IN COMMON
PREFERRED $.01 PAR COMMON STOCK AT $.01 EXCESS OF STOCK
STOCK VALUE STOCK PAR VALUE PAR VALUE GRANT
----------- ----------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994............. -- $ -- 1,429,128 $14,291 $14,724,150 $ --
Issuance of unregistered common stock to
investors at $6.00 per share and
45,714 common stock purchase warrants
(net of issuance costs of $53,700).... -- -- 120,000 1,200 668,586 --
Grant of unregistered common stock to
officer at $14.81 per share........... -- -- 100,000 1,000 1,480,200 (1,481,200)
Grants of warrants to consultant at
$7.00 per share....................... -- -- -- -- 165,000 --
Issuance of unregistered common stock to
investors at $6.00 per share and
35,408 common stock purchase warrants
(net of issuance costs of $54,090).... -- -- 93,335 934 506,776 --
Other................................... -- -- (315) (3) 3 --
Amortization of unvested common stock
grant................................. -- -- -- -- -- 535,093
Amortization of deferred consulting
expense............................... -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
------ ------ --------- ------- ----------- -----------
Balances, December 31, 1995............. -- -- 1,742,148 17,422 17,544,715 (946,107)
Issuance of unregistered common stock to
investors at $11.50 per share (net of
cash issuance costs of $278,834)...... -- -- 250,000 2,500 2,593,666 --
Grant of warrants to consultants........ -- -- -- -- 1,243,550 --
Amortization and adjustment to unvested
common stock grant.................... -- -- -- -- (112,765) 876,849
Exchange of unvested common stock grant
for warrants.......................... -- -- -- -- 523,286 69,258
Amortization of deferred consulting
expense............................... -- -- -- -- -- --
Issuance of unregistered Series A
Convertible preferred stock to
investors at $1,000 per share (net of
cash issuance costs of $1,865,000).... 14,000 140 -- -- 12,134,860 --

DEFERRED TOTAL
CONSULTING ACCUMULATED STOCKHOLDERS'
EXPENSE DEFICIT EQUITY
--------- ------------ -------------
<S> <C> <C> <C>
Balances, December 31, 1994............. $ -- $(11,787,565) $ 2,950,876
Issuance of unregistered common stock to
investors at $6.00 per share and
45,714 common stock purchase warrants
(net of issuance costs of $53,700).... -- -- 669,786
Grant of unregistered common stock to
officer at $14.81 per share........... -- -- --
Grants of warrants to consultant at
$7.00 per share....................... (165,000) -- --
Issuance of unregistered common stock to
investors at $6.00 per share and
35,408 common stock purchase warrants
(net of issuance costs of $54,090).... -- -- 507,710
Other................................... -- -- --
Amortization of unvested common stock
grant................................. -- -- 535,093
Amortization of deferred consulting
expense............................... 13,750 -- 13,750
Net loss................................ -- (2,088,957) (2,088,957)
--------- ------------ -----------
Balances, December 31, 1995............. (151,250) (13,876,522) 2,588,258
Issuance of unregistered common stock to
investors at $11.50 per share (net of
cash issuance costs of $278,834)...... -- -- 2,596,166
Grant of warrants to consultants........ -- -- 1,243,550
Amortization and adjustment to unvested
common stock grant.................... -- -- 764,084
Exchange of unvested common stock grant
for warrants.......................... -- -- 592,544
Amortization of deferred consulting
expense............................... 55,000 -- 55,000
Issuance of unregistered Series A
Convertible preferred stock to
investors at $1,000 per share (net of
cash issuance costs of $1,865,000).... -- -- 12,135,000
</TABLE>

F-5
<PAGE> 57
NU-TECH BIO-MED, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>

NUMBER OF SERIES A
SHARES OF CONVERTIBLE
SERIES A PREFERRED NUMBER OF UNVESTED
CONVERTIBLE STOCK AT SHARES OF COMMON CAPITAL IN COMMON
PREFERRED $.01 PAR COMMON STOCK AT $.01 EXCESS OF STOCK
STOCK VALUE STOCK PAR VALUE PAR VALUE GRANT
----------- ----------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>

Issuance of common stock to placement
agent................................. -- -- 60,000 600 (600) --
Issuance of common stock for purchase of
Prompt Medical........................ -- -- 37,504 375 574,625 --
Net loss................................ -- -- -- -- -- --
------ ------ --------- ------- ----------- -----------
Balances at December 31, 1996........... 14,000 $ 140 2,089,652 $20,897 $34,501,337 $ --
====== ====== ========= ======= =========== ===========

DEFERRED TOTAL
CONSULTING ACCUMULATED STOCKHOLDERS'
EXPENSE DEFICIT EQUITY
--------- ------------ -------------
<S> <C> <C> <C>

Issuance of common stock to placement
agent................................. -- -- --
Issuance of common stock for purchase of
Prompt Medical........................ -- -- 575,000
Net loss................................ -- (7,787,655) (7,787,655)
--------- ------------ -----------
Balances at December 31, 1996........... $ (96,250) $(21,664,177) $12,761,947
========= ============ ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 58

NU-TECH BIO-MED, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................... $(7,787,655) $(2,088,957)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 403,199 124,331
Provision for bad debts.......................................... 56,799 --
Finance expense relating to issuance of common stock............. 1,422,500 --
Common stock and warrants charged to compensation................ 1,265,124 535,093
Warrants issued to consultants as compensation, net.............. 700,800 --
Write-off of goodwill and patents................................ 372,864 --
Deferred acquisition costs charged off........................... 218,914 --
Changes in assets and liabilities:
Accounts receivable........................................... 337,565 (37,630)
Prepaids and other current assets............................. 141,861 (89,034)
Inventory..................................................... (56,292) --
Accounts payable and accrued expenses......................... 765,228 (61,213)
----------- -----------
Net cash used in operating activities.............................. (2,159,093) (1,617,410)
INVESTING ACTIVITIES
Capital expenditures............................................... (19,403) (503,278)
Acquisition of Medical Science Institute.......................... (4,951,948) --
Acquisition of assets of Prompt Medical............................ (179,891) --
Investment in senior debt of Physicians Clinical Laboratory,
Inc.............................................................. (10,000,000) --
Cash distribution received on investment in senior debt of
Physicians Clinical Laboratory, Inc.............................. 575,561 --
Deferred acquisition costs......................................... (519,842) (129,846)
----------- -----------
Net cash used in investing activities.............................. (15,095,523) (633,124)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable............................ 2,500,000 --
Repayment of notes payable......................................... (755,239) (192,149)
Repayment of contract payable...................................... (40,000) --
Repayment of capitalized lease obligations......................... (28,775) --
Proceeds from sale of common stock................................. 2,596,166 1,177,496
Proceeds from sale of Series A Convertible preferred stock......... 12,135,000 --
----------- -----------
Net cash provided by financing activities.......................... 16,407,152 985,347
----------- -----------
Net decrease in cash and cash equivalents.......................... (847,464) (1,265,187)
Cash and cash equivalents at beginning of year..................... 2,538,002 3,803,189
----------- -----------
Cash and cash equivalents at end of year........................... $ 1,690,538 $ 2,538,002
========== ==========
Supplemental disclosure of cash flow information: Interest paid.... $ 59,537 $ 33,514
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE> 59

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

1. BASIS OF PRESENTATION

Nu-Tech Bio-Med, Inc. (Nu-Tech or the Company), was originally organized
under the laws of Delaware in September 1981 under the name of "Applied DNA
Systems, Inc." On November 16, 1994, the Company changed its name to its present
name.

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Analytical Biosystems Corporation (ABC), NTBM
Billing Services Inc. (NTBM) and Medical Science Institute (MSI) (see Note 3).
All material intercompany transactions and balances have been eliminated. Where
appropriate, prior year amounts have been reclassified to permit comparison.

ABC is a clinical oncology laboratory service and research company located
in Rhode Island; NTBM is a medical billing service business located in Florida;
MSI is a full service medical laboratory facility which operates throughout the
State of California.

The consolidated financial statements have been prepared on the basis that
the Company will continue as a going concern. The Company has expended cash in
excess of cash generated from operations and has not achieved sufficient
revenues to support future operations and has a working capital deficiency. The
Company anticipates that it will obtain additional debt or equity financing,
generate additional revenues and/or reduce costs, although no assurance may be
given that it will be able to do so. Obtaining additional financing or
achieving adequate revenues is dependent upon future events, the outcome of
which is presently not determinable. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities or any other adjustments that might
be necessary should the Company be unable to continue as a going concern.

Due to the acquisition of MSI and NTBM and their resulting revenues, the
Company ceased reporting as a development stage enterprise in 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

Cash and Cash Equivalents

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

Accounts Receivable

The Company provides services to patients even though they may participate
in programs that do not pay full charges. As a result, the Company is exposed to
certain credit risks. The Company manages such risk by regularly reviewing its
accounts and contracts, and by providing appropriate allowances. Actual results
could differ from those estimates. Significant concentrations of gross accounts
receivable were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Medicare....................................................... 22.7% 8.1%
Medi-Cal....................................................... 15.5% --
Other negotiated contracts..................................... 20.9%
Self-pay and commercial........................................ 40.9% 91.9%
---- ----
100% 100%
---- ----
</TABLE>

Inventory

Inventory, primarily laboratory supplies, is stated at cost, which
approximates market value, on a first-in, first-out (FIFO) basis.

F-8
<PAGE> 60

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Equipment and Leasehold Improvements

Equipment and leasehold improvements are recorded at cost. Depreciation has
been provided using the straight-line method over the estimated useful lives of
the assets ranging from 3-10 years for financial reporting purposes, except for
leasehold improvements which are being amortized over the life of the lease.

Certain equipment has been acquired under capitalized lease obligations.
These assets total $396,700 and $46,700 with related accumulated amortization of
$26,700 and $3,200 at December 31, 1996 and 1995, respectively.

Investment in Physicians Clinical Laboratory, Inc.

The Company has recorded its investment in senior debt of Physicians
Clinical Laboratory, Inc. at cost reduced by distributions received. In view of
the anticipated exchange of senior debt (See Note 4) interest accrued on the
debt has not been recorded.

Fair Values of Financial Instruments

For cash, accounts receivable and accounts payable the carrying amounts
approximate fair value. It was not practicable to estimate the fair value of the
Company's investment in senior debt in Physicians Clinical Laboratory, Inc. (see
Note 3).

Other Assets

In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121 in
the first quarter of 1996. The adoption of this statement had no impact on the
financial position or results of operations of the Company.

The Company accounts for goodwill at the lower of amortized cost or fair
value. On an ongoing basis, management reviews to determine if "impairment
indicators" are present. If impairment indicators are present, the Company
performs a periodic assessment of assets for impairment. This review consists of
the Company reevaluating significant assumptions used in determining the
original cost of the acquired business and related goodwill. These assumptions
include operating results, cash flows and other indicators of value. Based upon
this periodic assessment, management determines whether there has been a
permanent impairment of the value of goodwill and adjusts the carrying value
accordingly. The Company determines fair value based upon independent appraisals
or cash flows discounted at a risk adjusted rate, as appropriate in the
circumstances. As a result of this process, during the fourth quarter of 1996,
the Company charged off the balance of the remaining goodwill and capitalized
patents relating to ABC totaling $372,900.

Amortization of goodwill is provided using the straight-line method over
the estimated useful lives of the assets (10 years).

Stock Based Compensation

The Company grants qualified stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for qualified stock option grants.

For certain non-qualified stock options, restricted stock and warrants
granted to employees, the Company recognizes as compensation expense the excess
of the market value of the common stock issuable upon

F-9
<PAGE> 61

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

exercise of such options over the aggregate exercise price of such options. For
warrants granted to non-employees, the Company recognizes as a charge the deemed
fair value of the warrants or the value of the services provided, whichever is
more reliably measurable. Such charges are amortized over the vesting period of
each option or warrant or the recipient's service period, if shorter.

Income Taxes

The liability method is used to account for income taxes. Deferred tax
assets and liabilities are determined based on differences between financial
reporting and income tax bases of assets and liabilities as well as net
operating loss carryforwards and are measured using the enacted tax rates and
laws that will be in effect when the differences reverse. Deferred tax assets
are reduced by a valuation allowance to reflect the uncertainty associated with
their ultimate realization.

Net Loss Per Common Share

Net loss per common share is computed using the weighted average number of
common shares outstanding during the year. Such loss gives effect to the deemed
dividend associated with the conversion feature of the Series A convertible
preferred stock. Fully-diluted earnings per share, assuming conversion of
outstanding warrants, options and preferred stock are not presented since the
effect would be antidilutive.

Revenues

The Company recognizes revenue as earned on an accrual basis, when
services are performed.

3. ACQUISITIONS AND DISPOSITION

Acquisition and Sale of Medical Science Institute

On November 18, 1996, the United States Bankruptcy Court of the Central
District of California approved the First Amended Plan of Reorganization (the
"MSI Plan") of Medical Science Institute ("MSI") pursuant to which the Company
acquired all of the capital stock of MSI for a total purchase price of
approximately $6,952,000. The acquisition was in the form of a purchase. MSI is
engaged in the medical laboratory business primarily in the State of California
and had been operating under Chapter 11 of the U.S. Bankruptcy Code since
October 26, 1995. MSI is a California corporation with its principal executive
offices located in Burbank, California.

Pursuant to the MSI Plan, the holders of all of the MSI capital stock
(including any and all options, warrants, and other convertible securities) will
receive 134,228 shares of common stock of Nu-Tech with an aggregate value of $2
million recorded as a liability in the accompanying consolidated financial
statements. The number of shares of common stock to be issued under the MSI Plan
are based on the average closing price of a share of common stock on the NASDAQ
SmallCap Market for the 15 day period preceding November 18, 1996. The
recipients of Nu-Tech common stock will be entitled to "piggyback" registration
rights with respect to such shares. The sole holder of all capital stock of MSI
was granted the right to receive up to $275,000 in cash from Nu-Tech with a
concurrent reduction in the number of shares of Nu-Tech's common stock. In
addition, $225,000 value of Nu-Tech's common shares is permitted to be
transferred by the former shareholder in consideration of a settlement agreement
entered into with such creditor and a general release in favor of MSI.

In addition, Nu-Tech agreed to make certain other payments to creditors and
assume certain liabilities under the MSI Plan. These payments include: (a)
approximately $750,000 to pay administrative claims of professionals, (b) an
additional $425,000 for professional administrative claims payable over 12
months, (c) approximately $572,000 payable for federal and state payroll taxes,
(d) approximately $2,500,000 to Austin Financial Services, Inc. ("Austin
Financial"), a secured creditor of MSI, (e) trade payables in the amount of
approximately $738,000, (f) $75,000 payable to the federal government in
satisfaction of certain

F-10
<PAGE> 62

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

claims and (g) $750,000 payable to general unsecured creditors. At the hearing
confirming the MSI Plan held on November 18, 1996, the Company tendered
$2,250,000 to the Court with respect to such payments.

With respect to sums payable under the MSI Plan to Austin Financial,
Nu-Tech obtained a loan in the principal amount of $2,500,000 from a third-party
lender on December 2, 1996, and utilized the loan proceeds to pay off Austin
Financial (see Note 7).

In connection with this acquisition, the Company recorded $5,681,437 of
excess cost over the fair market value of net assets acquired ("goodwill")
related to this transaction and the remainder was allocated to the net assets of
MSI acquired based on their estimated fair value. The Statement of Operations
includes the operations of MSI for the period from November 18, 1996 (the date
of acquisition) through December 31, 1996.

The former sole stockholder and president of MSI has entered into an
employment agreement with MSI. As part of the employment agreement, the employee
has the right to borrow up to $100,000 from the Company, to be secured by the
shares of common stock to be issued to him under the MSI Plan. He will also
receive options to purchase 10,000 shares of Nu-Tech common stock for every
$1,000,000 of annual collectible revenues obtained by MSI through the
acquisition of other businesses by MSI in which he acted as the procuring cause.
The options to be granted, if any, will bear an exercise price equal to the fair
market value of Nu-Tech's common stock at the time of the grant. At December 31,
1996, no options have been granted.

On February 26, 1997, the Company completed the sale of its ownership
interest in MSI to Physicians Clinical Laboratory, Inc. ("PCL") (see Note 4).
The Company sold its interests in MSI to PCL for its costs aggregating
approximately $7.6 million. The Company received approximately $2.6 million in
cash and a secured promissory note of PCL in the principal amount of $5,000,000.
The note is secured by all the assets of PCL but is subordinate to certain other
claims and administrative expenses. The Company used approximately $2 million of
the sale proceeds to repay in full an outstanding secured loan which the Company
had incurred to acquire MSI (see Note 7). In the event the PCL Plan of
Reorganization (see Note 4 ) is consummated and such plan provides that the
Company shall become the owner of 52.6% of the outstanding capital stock of PCL,
the note will be forgiven. If the PCL Plan is not consummated by November 9,
1997, the note shall be payable in full. There can be no assurance that the note
will be repaid in full if the PCL Plan is not consummated.

PCL assumed all other obligations incurred by Nu-Tech in connection with
the MSI acquisition, including Nu-Tech's guarantee of certain remaining
obligations under the MSI Plan.

ACQUISITION OF BUSINESS ASSETS OF PROMPT MEDICAL BILLING COMPANY, INC.

On October 21, 1996, the Company, through a newly formed wholly owned
subsidiary, NTBM Billing Services, Inc. ("NTBM"), acquired all of the medical
billing service assets of Prompt Medical Billing Services, Inc., a privately
owned Florida corporation engaged in the medical billing service business. The
acquisition was in the form of a purchase. The Company acquired the assets for a
total consideration of $675,000 consisting of $100,000 in cash and 37,504 shares
of restricted common stock of the Company. The number of shares may be subject
to increase in the event the fair market value of the shares at the termination
of the two year period is less than $500,000 or in the event the holders are
unable to sell the shares. All consideration paid by the Company has been placed
into escrow for a period of up to two years, to be released upon the attainment
of certain performance levels. The cash consideration will be released from
escrow in eight quarterly installments of $12,500 together with interest.

In connection with this acquisition, the Company recorded $754,591 of
excess cost over the fair market value of net assets acquired ("goodwill")
related to this transaction. The Statement of Operations includes the operations
of NTBM for the period from October 21, 1996 (the date of acquisition) through
December 31, 1996.

F-11
<PAGE> 63

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pro Forma Disclosures

Pro forma selected financial data, assuming the assets of Prompt Medical
and the stock of Medical Science Institute had been acquired at the beginning of
1995 and 1996, respectively, follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revenues......................................... $ 13,139,000 $19,419,000
============ ===========
Net loss......................................... $(10,366,000) $(4,704,000)
============ ===========
Net loss per common share........................ $ (6.49) $ (2.70)
============ ===========
Weighted average common shares outstanding(1).... 2,109,702 1,742,230
============ ===========
</TABLE>

- ---------------
(1) Adjusted for the issuance of 171,732 shares of the Company included in the
purchase price.

The above pro forma information does not purport to represent what the
Company's results of operations would actually have been had the acquisition of
the assets of Prompt and the stock of MSI in fact occurred at the beginning of
the periods indicated or to project the Company's results for any future
periods.

4. INVESTMENT IN PHYSICIANS CLINICAL LABORATORY, INC.

The Company has acquired certain debt securities of Physicians Clinical
Laboratory, Inc., a Delaware corporation ("PCL"), which is a full-service
clinical laboratory capable of providing a comprehensive battery of testing
services. PCL is a publicly held corporation which, until recently, filed
reports with the Commission under the Securities Exchange Act of 1934, as
amended. PCL is delinquent in its filings with the Commission and has not filed
any reports since the quarter ended May 31, 1996. PCL has been operating as a
debtor-in-possession under Chapter 11 of the Bankruptcy Code since November 8,
1996.

Nu-Tech has reached an agreement (the "PCL Plan") with the holders of the
Senior Debt, Subordinated Debt and the management of PCL whereby Nu-Tech will
acquire a 52.6% interest in PCL. The terms of the agreement provide that PCL
would file a plan to effectuate the agreement. As required by the aforementioned
agreement, the Company purchased approximately $13,300,000 of Senior Debt for
$10,000,000 on November 7, 1996. In accordance with the PCL Plan, certain
holders of Senior Debt contributed $10,000,000 in debtor-in-possession ("DIP")
financing to PCL, which under the terms of the reorganization, will be forgiven.
The PCL Plan also requires that the Company purchase an additional 17% of
capital stock of PCL for $5,000,000 upon the approval of the PCL Plan. Pursuant
to the PCL Plan, the debt purchased by Nu-Tech will be converted into 35.6% of
the common stock of PCL, which together with the 17% purchased for $5,000,000,
will result in Nu-Tech owning 52.6% of the outstanding common stock of PCL.

On February 26, 1997, the Company completed the sale of its ownership
interest in MSI and received, among other things, a $5,000,000 secured note
receivable which may be used to satisfy its remaining $5,000,000 commitment with
PCL (see Note 3).

There can be no assurance that the PCL Plan will be consummated, or if
consummated, will be upon the terms as originally submitted to the bankruptcy
court. Should the PCL plan not be consummated, Nu-Tech will become a creditor of
PCL. Under the terms of the PCL Plan, however, no competing offer for PCL may be
accepted by the bankruptcy court unless (i) such competing offer is at least
$2.5 million higher than the bid by Nu-Tech and (ii) on the effective date of
the competing plan Nu-Tech receives $1.88 million in cash as compensation for
its time and expense in pursuing the PCL Plan.

In December 1996, the Company received a distribution totaling $575,561
which was applied against the Company's investment in senior debt of PCL.

F-12
<PAGE> 64

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consists of the following:

<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Laboratory equipment................................ $ 953,830 $ 454,131
Computer equipment.................................. 397,551 51,451
Office equipment.................................... 271,459 101,764
Leasehold improvements.............................. 499,414 79,114
---------- ---------
2,122,254 686,460
Less accumulated depreciation....................... (355,412) (214,943)
---------- ---------
$1,766,842 $ 471,517
========== =========
</TABLE>

Depreciation expense was approximately $140,500 and $24,500 for the years
ended December 31, 1996 and 1995, respectively.

6. ACCRUED EXPENSES

Accrued expenses are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- --------
<S> <C> <C>
Accrued acquisition fees............................. $ 117,000 $ --
Employee compensation................................ 418,192 280,210
Consulting and professional fees..................... 275,000 137,139
Other................................................ 475,843 34,141
---------- --------
$1,286,035 $451,490
========== ========
</TABLE>

7. DEBT

Debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- --------
<S> <C> <C>
Notes payable due to a third party, interest at 15%, $1,953,605 $ --
all principal and interest due on January 31, 1997;
secured by the Company's investment in Senior Debt
of PCL. The loan was further secured by a personal
guaranty of Nu-Tech's president (see below)........
Notes payable to State of Rhode Island's Small 319,519 516,767
Business Loan Fund Corporation (SBLFC), interest at
5.4%, due in monthly principal and interest
payments of $18,360 through February 1998 and
declining thereafter through February 1999; secured
by virtually all of the assets of the Company......
Other long-term liabilities related to MSI 329,538 --
acquisition (see Note 3)...........................
---------- --------
2,602,662 516,767
Current maturities of long-term debt................. 2,263,990 197,246
---------- --------
Long-term debt, less current maturities.............. $ 338,672 $319,521
========== ========
</TABLE>

F-13
<PAGE> 65

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On January 23, 1997, the Company obtained a new loan from a private lender
in the principal amount of $2,000,000, which funds were used to repay the
outstanding balance of the notes payable due to a third party (see above). All
principal and interest on the new loan is due on March 22, 1997. The new loan is
secured by a pledge of the Company's stock ownership in MSI, as well as the
Company's investment in Senior Debt of PCL. In conjunction with the issuance of
this note payable, the lenders were issued warrants to purchase 100,000 shares
of common stock at an exercise price of $11.50 per share. The new third party
lender is a significant stockholder of the Company. On February 26, 1997, in
connection with the sale of MSI to PCL, the Company repaid the new loan (see
Note 3).

Future principal payments on long-term debt due in each of the next five
years are as follows:

<TABLE>
<S> <C>
1997............................................. $2,263,990
1998............................................. 150,452
1999............................................. 54,864
2000............................................. 53,735
2001............................................. 58,807
Thereafter....................................... 20,814
----------
$2,602,662
==========
</TABLE>

The carrying amount of debt, using the discounted cash flow method,
approximates its fair value.

8. LEASE COMMITMENTS

The Company leases various office and research facilities and certain
equipment under noncancelable operating and capitalized leases. The leases
expire at various times through August 2000, at which time the Company will have
the option to renew leases from one to three years.

The Company's future minimum lease payments under capital and operating
leases are as follows as of December 31, 1996:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- --------
<S> <C> <C>
1997................................................... $326,322 $114,200
1998................................................... 326,322 106,400
1999................................................... 291,734 58,700
2000................................................... 10,863 37,000
---------- ----------
Total minimum lease payments........................... 955,241 $316,300
==========
Less interest.......................................... 268,987
----------
Present value of minimum lease payments................ 686,254
Less capital lease obligations due within one year..... 214,270
----------
Capital lease obligations -- long-term portion......... $471,984
==========
</TABLE>

Rental expense was $168,500 and $25,000 for the years ended December 31,
1996 and 1995, respectively.

9. STOCKHOLDERS' EQUITY

Series A Convertible Preferred Stock

On December 2, 1996, the Company completed a private placement offering
under the Securities Act of 1933 and/or Regulation D promulgated thereunder,
pursuant to which the Company issued a total of 14,000 shares of Series A
Convertible Preferred Stock for a total aggregate purchase price of $14,000,000.
The

F-14
<PAGE> 66

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company realized net proceeds of approximately $12,135,000 after deducting
expenses totaling $1,865,000. In connection with this offering, the Company
issued 60,000 shares of common stock and warrants to purchase 85,714 shares of
common stock exercisable at $15.00 per share.

The Series A Convertible Preferred Stock is convertible, by its terms, into
shares of common stock at the option of the holder commencing on the 45th day
after the issue date. Up to one third of the shares of the Series A Convertible
Preferred Stock may be converted into common stock on each of the 45th day, 75th
day and 105th day after the issue date. Commencing upon the 270th day following
completion of the private placement, the Company has the right, upon 30 days'
prior notice, to cause the Series A Convertible Preferred Stock to be converted
into common stock at the then applicable conversion price. The shares will be
convertible into such number of shares of common stock as shall equal $1,000
divided by a conversion rate equal to the lesser of (i) 75% of the average
closing price of the common stock for the 5 days immediately preceding the date
of the holder's notice of conversion or (ii) $17.50, subject to certain
adjustments.

The holders of a majority of the Series A Convertible Preferred Stock were
granted one "demand" registration right with respect to the common stock
underlying the Series A Convertible Preferred Stock. In the event that the
Company does not file with, and have declared effective by, the Commission, a
registration statement under the Act within 120 days of receipt of the demand
notice of the investors holding the shares of the Series A Convertible Preferred
Stock, the then applicable conversion price of the Series A Convertible
Preferred Stock will be reduced by 10%. Further, for each 30 day period after
the 120 day period that the registration statement has not been declared
effective, the conversion price will be reduced by an additional 2%, up to an
aggregate of 12%.

The Company had heretofore filed and withdrew a registration statement
relating to the shares of its Common Stock issuable upon conversion of the
Preferred Stock. At the time of such filing, the Company believed that it had
not received a valid written demand by a majority of the holders of the
Preferred Stock to require it to proceed with such registration statement. The
Company further believes that, at the time such registration statement was
withdrawn, and through and as of the date hereof, it likewise did not receive a
written demand by the holders of a majority of Preferred Stock to file a
registration statement.

Several Preferred Shareholders have indicated that they intend to commence
an action against the Company arising out of the failure of the Company for its
failure to cause the conversion shares to be registered, seeking unspecified
damages and/or seeking to rescind their purchase of the Preferred Stock. The
Company believes that if any such action is commenced against it, it has good
and meritorious defenses. In the event any such action is brought against the
Company, and the Company does not prevail thereon, and is found to be
responsible for damages or losses, such circumstance would have a material
adverse effect upon the Company's consolidated results of operations and
financial position. The Company has had, and continues to have continuous
discussions with representatives of the Preferred Shareholders concerning a
resolution of the dispute arising out of the registration of the shares of the
Company's Common Stock issuable upon conversion of the Preferred Shares. While
no assurance may be given that such dispute will be satisfactorily resolved, the
Company intends, however, to prepare and file such registration statement as
soon as practicable to do so. The filing of such registration statement may not,
however, resolve the dispute to the satisfaction of the Preferred Shareholders,
and no assurance may be given that, even if such registration statement is filed
by the Company, that the Preferred Shareholders may not thereafter commence an
action against the Company.

Holders of shares of the Series A Convertible Preferred Stock are not
entitled to receive dividends in cash or otherwise. The holders of shares of the
Series A Convertible Preferred Stock are not entitled to voting rights.

Common Stock

In April 1996, the Company completed a private offering of 250,000 shares
of its common stock for an aggregate of $2,875,000. The Company realized net
proceeds of approximately $2,596,000 from the private placement. In connection
with this offering, the Company incurred expenses totaling $278,800 and issued
warrants to purchase 75,000 shares of common stock exercisable at $14.50 per
share.

Investors in the April offering were granted certain "demand and piggyback"
registration rights for the shares sold in the April offering. In settlement of
certain alleged claims by the investors in the April offering that the Company
had failed to timely register the shares owned by such investors, the Company
agreed to issue one-half share to the investors for each share purchased in the
April offering. The Company has

F-15
<PAGE> 67

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expensed the fair value of the shares of common stock issued in February 1997 to
settle the matter resulting in a non-cash charge of $1,422,500 in 1996 and has
recognized a liability in the accompanying consolidated financial statements.

Grant of Restricted Stock

In June 1995, the Company granted 100,000 restricted shares to the
Company's chairman that will vest periodically at a rate of 5,000 shares per
year subject to certain conditions and certain accelerated provisions. The grant
has been accounted for as an increase in common stock and capital in excess of
par value at the fair value of the shares at the date of the grant (and modified
periodically to reflect current valuations) offset by an equal charge to equity
recorded as an Unvested Common Stock Grant. At December 31, 1995, conditions for
acceleration were achieved, subject to one year continued employment. The
Unvested Common Stock Grant was to be amortized over an eighteen-month vesting
period and has been included in selling, general and administrative expenses. In
addition, the Company has agreed to reimburse the officer for income taxes
associated with the grant. Such reimbursements were accrued in accordance with
the vesting schedule.

On December 2, 1996, the Company agreed to exchange 95,000 unvested shares
under the 1995 grant for 300,000 warrants with an exercise price of $7.00 per
share. In connection with the exchange, the Company recognized the excess of the
value ($26,200) of the old grant at the exchange rate (valued at $2,013,700)
over the value of the new grant (valued at $1,987,500) as a reversal of an
expense in 1996.

Stock Option Plans

At December 31, 1995, the Company has three stock option plans as follows:

1994 Plans

The Company has reserved 350,000 shares of common stock under the 1994
Employee Stock Option Plan (the 1994 Plan). Options granted under the 1994 Plan
may be incentive options or nonqualified stock options, and shall be designated
as such at the time of grant. The 1994 Plan permits the granting of incentive
options only to officers and full-time employees of the Company, at no less than
100% of the fair market value of the Company's common stock at the date of the
grant. Nonqualified stock options may be granted to officers, employees,
consultants, and advisors of the Company, as well as to members of the Board of
Directors, at a price determined by the Plan administrator but in no case less
than 85% of the fair market value of the Company's common stock at the date of
the grant. To the extent that any option intended to be an incentive option
shall fail to qualify as such under Section 422 of the Internal Revenue Code of
1986, such options shall be deemed to be nonqualified options. The 1994 Plan is
administered by the Option Committee of the Board of Directors, which has full
power to determine the specific terms of each option granted, subject to the
provisions of the 1994 Plan. As of December 31, 1996, the Company has granted
options for a total of 175,900 shares under this Plan.

The Company has reserved 200,000 shares of common stock under the
Non-Employee Director Stock Option Plan (the Director Plan). Each non-employee
director, upon election of the Company's Board of Directors, shall be granted
options for 5,000 shares of common stock, and each shall be granted on
subsequent annual anniversary dates of the initial grant, additional options for
8,000 shares of common stock. Under the terms of the agreement, the sum of the
number of shares to be received upon any grant multiplied by the fair market
value of each share at the time of the grant may not exceed $75,000. As of
December 31, 1996, the Company has granted options for a total of 60,545 shares
under this Plan.

The exercise price of each option shall be 100% of the fair market value of
the Company's common stock at the date of the grant. The Director Plan is
administered by the Director Plan Committee, which is comprised of not less than
two directors of the Company who are not entitled to participate in the Director
Plan.

F-16
<PAGE> 68

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1992 Plan

The Company has reserved 13,714 shares of common stock under a 1992 Stock
Option Plan (1992 Plan). In August 1994, the 1992 Incentive Plan was terminated
except for then outstanding options and replaced by the 1994 Employee Plan.

OTHER STOCK OPTIONS

The Company also has 15,857 stock options outstanding that were not issued
under any specific plan.

FAS 123 DISCLOSURES

The Company has adopted the disclosure provisions only of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("FAS 123") and will continue to account for its stock option plans in
accordance with the provisions of APB 25, Accounting for Stock Issued to
Employees.

The following table presents the combined activity of its stock option
plans for the years ended December 31, as follows:

<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at January 1................. 239,671 $ 7.41 230,014 $ 7.27
Granted................................ 26,545 14.13 20,500 11.06
Canceled............................... (200) 7.00 (10,843) 12.78
------- ------ ------- ------
Outstanding at December 31............... 266,016 $ 8.08 239,671 $ 7.41
======= ====== ======= ======
Options exercisable at December 31....... 239,471 $ 7.42 220,671 $ 7.07
======= ====== ======= ======
</TABLE>

The Company grants warrants in connection with financing activities, merger
and acquisitions activity, and as a form of compensation to both employees and
consultants. Expiration dates vary on outstanding warrants ranging from April
1998 through December 2001.

The following table presents the combined activity for all warrants issued
for the years ended December 31, as follows:

<TABLE>
<CAPTION>
1996 1995
-------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
WARRANTS EXERCISE PRICE WARRANTS EXERCISE PRICE
--------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at January 1................ 411,265 $ 9.65 227,143 $11.12
Granted............................... 1,065,714 11.43 184,122 7.83
--------- ------ ------- ------
Outstanding at December 31.............. 1,476,979 $10.94 411,265 $ 9.65
========= ====== ======= ======
Warrants exercisable at December 31..... 1,476,979 $10.94 411,265 $ 9.65
========= ====== ======= ======
</TABLE>

F-17
<PAGE> 69

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
---------------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Less than $7.50............. 214,328 5.39 $ 6.91 214,328 $ 6.91
$7.51 - $15.00.............. 51,545 3.80 12.89 25,000 11.59
Greater than $15.00......... 143 .04 20.30 143 20.30
------- -------
266,016 239,471
======= =======
</TABLE>

The following table presents weighted average price and life information
about significant warrant groups outstanding at December 31, 1996:

<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
---------------------------------------- WARRANTS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
---------------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Less than $7.50............. 592,551 4.56 $ 6.99 592,551 $ 6.99
$7.51 -- $15.00............. 738,714 3.52 12.28 738,714 12.28
Greater than $15.00......... 145,714 1.64 20.18 145,714 20.18
--------- ---------
1,476,979 1,476,979
========= =========
</TABLE>

The following are the pro forma net loss and net loss per share for 1996
and 1995, as if the compensation cost for options and warrants granted had been
determined based on the fair value at the grant date for grants in 1996 and
1995, consistent with the provisions of FAS 123:

<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss...................... $(7,787,655) $(9,199,485) $(2,088,957) $(2,169,368)
Net loss per share............ $ (5.66) $ (6.38) $ (1.33) $ (1.38)
</TABLE>

The weighted average fair value per share and exercise price of options and
warrants granted during 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
----------------------------- -----------------------------
FAIR VALUE EXERCISE PRICE FAIR VALUE EXERCISE PRICE
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Share price = Exercise price....... $ 2.93 $12.53 $ 3.98 $11.38
Share price > Exercise price....... $ 8.05 $ 7.80 $ 6.64 $ 7.00
Share price < Exercise price....... $ 1.65 $16.80 -- --
</TABLE>

F-18
<PAGE> 70

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of options and warrants at the date of grant were estimated
using the Black-Scholes model with the following weighted average assumptions:

<TABLE>
<CAPTION>
OPTIONS WARRANTS
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expected life (years)................................... 5 5 1-5 3
Interest rate........................................... 6.09% 6.09% 6.09% 6.09%
Volatility.............................................. 25.7% 25.7% 25.7% 25.7%
</TABLE>

Common Stock Reserved

The Company has reserved 2,056,550 shares of common stock for the exercise
of options and warrants. In addition, the Company has reserved a sufficient
number of common shares to provide for the conversion of the Series A
Convertible Preferred Stock (1,500,838 shares at December 31, 1996). The Company
has also reserved 134,228 shares of common stock to be issued to the former
owner of MSI (see Note 3) and 125,000 shares of common stock to be issued to
certain investors.

10. CONTRACT RESEARCH

Research Funding Agreement

On December 14, 1990, the Company entered into an agreement with the Rhode
Island Partnership for Science and Technology (RIPSAT) to fund research,
development, testing and validation of an in vitro assay to predict the outcome
of x-ray mediated chemotherapy enhancement anticancer therapy (the project) or
radiation mediated chemotherapy enhancement (RMCE; the product).

The project consists of two phases as follows:

Applied research -- RIPSAT will fund operating and capital costs
incurred in the performance of the Applied Research Phase up to a maximum
of $320,338. RIPSAT will not fund more than 60% of the total project cost.
Such research is paid for by the Company and reimbursed by RIPSAT. Through
December 31, 1993, approximately $531,500 of total operating costs have
been expended on this project. These operating costs included $362,255 in
reimbursable costs expended by Brown University of which $320,338 of these
reimbursable costs (the total grant) were reimbursed by RIPSAT. RIPSAT has
been informed and has acknowledged that the Applied Research Phase will not
be completed for an indeterminate period of time.

Commercialization -- During the Commercialization Phase, the Company
will pay amounts to RIPSAT equal to the funds received during the Applied
Research Phase. Payment will begin at the end of the first calendar quarter
in which sales of the product are recorded. Payments will be calculated as
follows (i) 3% of quarterly net sales of the FCA, but not exceeding an
aggregate of $107,000, and (ii) 5% of quarterly net sales of the RMCE. The
3% and 5%, under certain circumstances, may be increased to 6% and 10%,
respectively. At December 31, 1996, the Commercialization Phase has not
commenced.

Research and License Agreement

In May 1991, the Company entered into a Research Agreement with Brown
University (Brown). Under the agreement, the Company will fund Brown for all
direct and indirect costs incurred in the performance of the research which
shall not exceed $375,604 without written authorization from the Company. The
total reimbursable costs expended by Brown University under this agreement
through December 31, 1993, were $362,255, of which $320,338 was reimbursed to
the Company by RIPSAT. Of the $362,255, the Company has paid $296,684 to Brown
leaving a balance of $65,571 at December 31, 1996.

F-19
<PAGE> 71

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the provisions of the agreement, the Company has an option to license
intellectual property developed in the performance of the agreement. The Company
will pay royalties to Brown at a rate of 2% of sales which shall commence two
years from issuance of a patent and extend for the life of the license.

Clinical Trial Agreement

On August 14, 1995, the Company entered into an Agreement with a research
institution to conduct a clinical trial. The cost of this clinical trial was not
to exceed $568,000. In 1996, the Agreement was terminated by the Company as a
result of the institution's inability to obtain the requisite number of
accruals. For the year ended December 31, 1996, the Company recorded expenses
totaling $56,800 under the Agreement. No expenses were incurred under the
agreement in 1995.

11. INCOME TAXES

At December 31, 1996, the Company has net operating loss carryforwards of
approximately $24.5 million for income tax purposes that expire at various times
from 2001 to 2011. Approximately $3,100,000 of these losses relate to a
subsidiary of the Company that are limited in usage. In addition, utilization of
the net operating loss carryforwards may be subject to limitations pursuant to
Section 382. No income tax benefit has been recorded during the years ended
December 31, 1996 and 1995.

The principal components of the Company's deferred tax assets were as follows:

<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 9,829,000 $ 5,732,000
Federal general business tax credits........... 150,000 150,000
Other.......................................... 175,000 25,000
------------- ------------
10,154,000 5,907,000
Valuation allowance.............................. (10,154,000) (5,907,000)
------------- ------------
Net deferred tax assets.......................... $ -- $ --
============= ============
</TABLE>

Net deferred tax assets are reduced by a valuation allowance to reflect the
uncertainty associated with their ultimate realization. The valuation allowance
increased $4,247,000 in 1996, due primarily to the increases in net operating
loss carryforwards and tax credits.

12. ACQUISITION COSTS

On December 14, 1995, the Company signed a letter of intent to acquire a
majority interest in American Cytogenetics, Inc. (ACI). In the 3rd quarter of
1996, the Company expensed $218,914 of deferred acquisition costs for expenses
incurred as a result of management's due diligence review of the business and
operations of ACI which management has determined not to pursue and has
terminated further negotiations.

At December 31, 1996, the Company has $1,028,524 of deferred acquisition
costs. The costs primarily relate to expenses incurred in conjunction with the
Company's proposed acquisition of PCL (see Note 4). Included in the deferred
costs, is investment banking expenses totaling $597,750 relating to the issuance
of 75,000 warrants with an exercise price of $9.50 per share to an investment
banker for work performed relating to the acquisition of PCL. The Company
anticipates payments of an additional $231,350 in cash commissions and an
additional 57,838 warrants upon the consummation of the PCL transaction (see
Note 13).

F-20
<PAGE> 72

NU-TECH BIO-MED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. OTHER AGREEMENTS

In 1995, the Company entered into an agreement with an investment banker
whereby the investment banker can earn cash commissions and up to 200,000
warrants with an exercise price of $9.50 if certain events, as defined, occur.
The agreement expires in June 2000. In 1996, the investment banker earned a cash
transaction fee totaling $300,000 and was granted 75,000 warrants (see Note 12).

In May 1996, the Company entered into agreements with a consultant whereby
the consultant would assist the Company in identifying potential investors and
negotiating and structuring a transaction to provide equity financing, and,
following such financing, providing financial public relations for a period of
two years. No financing was arranged by the consultant and the agreements were
terminated in the 3rd quarter of 1996 resulting in a $40,000 charge to operation
results.

In September 1996, the Company entered into an agreement with certain
financial public relations firms for which firms have been paid an aggregate of
$1,355,000 in cash and 300,000 warrants with exercise prices ranging from $14.00
to $16.80 per share. In connection with the warrants issued, the Company
recorded an expense totaling $527,000. All such consideration has been
expensed in the year ended December 31, 1996.

On March 6, 1997, the Company adopted an Indemnification Trust (the
"Trust") for the benefit of the current officers and directors of the Company.
The Trust is in furtherance of the Company's indemnification obligations to its
officers and directors and is intended to establish a mechanism to assure a
source of funding for any payments the Company may be required to make under
such Indemnification Agreements. Accordingly, the Company plans to fund the
Trust in the amount of $250,000 in 1997.

F-21
<PAGE> 73

EXHIBIT INDEX

<PAGE> 74

<PAGE> 75

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-17859) and related prospectus of Nu-Tech Bio-Med., Inc. of our
report dated March 12, 1997, with respect to the consolidated financial
statements of Nu-Tech Bio-Med., Inc. included in the Annual Report (Form 10-KSB)
for the year ended December 31, 1996.

ERNST & YOUNG LLP

Providence, Rhode Island
April 3, 1997

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,690,538
<SECURITIES> 0
<RECEIVABLES> 4,574,630
<ALLOWANCES> 2,823,400
<INVENTORY> 219,428
<CURRENT-ASSETS> 3,743,997
<PP&E> 2,122,242
<DEPRECIATION> 355,400
<TOTAL-ASSETS> 22,405,766
<CURRENT-LIABILITIES> 5,410,663
<BONDS> 338,672
140
0
<COMMON> 20,897
<OTHER-SE> 12,740,910
<TOTAL-LIABILITY-AND-EQUITY> 22,405,766
<SALES> 1,065,472
<TOTAL-REVENUES> 1,065,472
<CGS> 0
<TOTAL-COSTS> 6,940,369
<OTHER-EXPENSES> 2,014,278
<LOSS-PROVISION> 78,829
<INTEREST-EXPENSE> 60,351
<INCOME-PRETAX> (7,787,655)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,787,655)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,787,655)
<EPS-PRIMARY> (5.66)
<EPS-DILUTED> (5.66)

</TABLE>