MEDICAL DEVICE TECHNOLOGIES INC, 424B1, 1996-06-25

MEDICAL DEVICE TECHNOLOGIES INC
424B1, 1996-06-25
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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<PAGE>

PROSPECTUS

LOGO
1,500,000 SHARES OF 6% CUMULATIVE CONVERTIBLE
SERIES A PREFERRED STOCK AND
1,500,000 REDEEMABLE WARRANTS
---------------
Medical Device Technologies, Inc. (the "Company") hereby offers 1,500,000
shares of 6% Cumulative Convertible Series A Preferred Stock, par value $.01
per share (the "Preferred Stock") and 1,500,000 redeemable common stock
purchase warrants (the "Redeemable Warrants"). The Preferred Stock and the
Redeemable Warrants (sometimes hereinafter collectively referred to as the
"Securities") may be purchased separately and will be separately tradeable
immediately upon issuance.
Each share of Preferred Stock is convertible by the holder, at any time
commencing October 22, 1996, (the "Initial Conversion Date") into four (4)
shares of the Company's common stock, par value $.15 per share (the "Common
Stock"), at a conversion price of $1.25 per share of Common Stock (the
"Conversion Price"). Unless earlier converted, the Preferred Stock
automatically will convert into Common Stock on July 24, 1997 (the "Automatic
Conversion Date"). See "Description of Securities--6% Cumulative Convertible
Series A Preferred Stock--Right to Convert", and "--Automatic Conversion."
The Preferred Stock has a liquidation preference equal to $5.00, plus any
accrued but unpaid dividends (the "Liquidation Preference"). Dividends on the
Preferred Stock are payable solely in Common Stock at the rate of 6% of the
Liquidation Preference per annum, are payable semi-annually, when, as and if
declared by the Board of Directors of the Company out of funds legally
available therefor. See "Description of Securities--6% Cumulative Convertible
Series A Preferred Stock--Dividends."
Each Redeemable Warrant entitles the holder to purchase two (2) shares of
Common Stock at an exercise price of $3.75 per Redeemable Warrant ($1.875 per
share of Common Stock), subject to adjustment in certain circumstances,
commencing July 24, 1997 until June 23, 1999, and is redeemable by the Company
at a redemption price of $.05 per Redeemable Warrant at any time after October
23, 1997, upon not less than 30 days' prior written notice, provided that the
average closing bid quotation of the Common Stock as reported on the over-the-
counter market or the closing sale price, if listed on a national securities
exchange, for a period of 20 consecutive trading days ending within 10 days
prior to the notice of the redemption, equals or exceeds $2.50, subject to
adjustment in certain circumstances. See "Description of Securities--
Redeemable Warrants."
Prior to this offering, there has been no public market for the Preferred
Stock or the Redeemable Warrants and there can be no assurance that such a
market will develop after the completion of this offering, or if developed,
that it will be sustained. Concurrently, 247,500 shares of Preferred Stock,
247,500 Redeemable Warrants and 1,485,000 shares of Common Stock issuable upon
the conversion of such shares of Preferred Stock and the exercise of such
Redeemable Warrants are being registered at the Company's expense for sale by
the selling shareholders (the "Selling Shareholders") pursuant to a separate
prospectus. The Company will not receive any of the proceeds from the sale of
the Securities by the Selling Shareholders, although it will receive proceeds
from the exercise of Redeemable Warrants by the Selling Shareholders. See "The
Company--Concurrent Offering."
The shares of Preferred Stock and the Redeemable Warrants have been approved
for quotation on the Nasdaq SmallCap Market under the symbols "MEDDP" and
"MEDDW," respectively. The Common Stock is quoted on the Nasdaq SmallCap
Market under the symbol "MEDD." For information regarding the factors
considered in determining the offering price and terms of the Preferred Stock
and the Redeemable Warrants, see "Risk Factors" and "Underwriting." On June
21, 1996, the closing bid price of the Common Stock, as reported on the Nasdaq
SmallCap Market, was $1.25 per share. See "Market Price for the Common Stock
and Dividends."
---------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 HEREOF.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(/1/) COMPANY(/2/)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $5.00 $.45 $4.55
- ----------------------------------------------------------------------------------
Per Redeemable Warrant................... $ .10 $.009 $ .091
- ----------------------------------------------------------------------------------
Total (3)............................ $7,650,000 $688,500 $6,961,500
- ----------------------------------------------------------------------------------
</TABLE>
(1) Does not include additional compensation to First Allied Securities, Inc.
(the "Representative") in the form of a non-accountable expense allowance.
In addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Representative and other
compensation payable to the Representative.
(2) Before deducting estimated expenses of $729,500 payable by the Company,
including the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Representative an option (the "Over-
Allotment Option") exercisable within 45 days after the date of this
Prospectus, to purchase up to 225,000 additional shares of Preferred Stock
and/or 225,000 additional Redeemable Warrants, upon the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such Over-Allotment Option is exercised in full, the total Price to
Public, Underwriting Discounts, and Proceeds to Company will be
$8,797,500, $791,775, and $8,005,725, respectively. See "Underwriting."
---------------
The Preferred Stock and the Redeemable Warrants are being offered by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to approval of certain legal matters by their
counsel and subject to certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify this offering and to reject any order in
whole or in part. It is expected that delivery of the Preferred Stock and the
Redeemable Warrants offered hereby will be made against payment therefor in
New York, New York on or about June 27, 1996.

FIRST ALLIED SECURITIES, INC.
LOGO
JUNE 24, 1996
<PAGE>

PROSPECTUS SUMMARY

Unless otherwise expressly set forth herein to the contrary, all per share
data in this Prospectus gives effect to the Company's 1-5 reverse stock split
in September, 1981, its 1-30 reverse stock split in November, 1990, its 1-6
reverse stock split in January, 1994, and its 1-2 reverse stock split in June,
1996. In addition, unless otherwise expressly set forth herein to the contrary,
all references to the Company's 6% Cumulative Convertible Series A Preferred
Stock assumes the conversion of all 247,500 shares of the Company's Series I
Convertible Preferred Stock issued in the Company's 1996 Private Placement into
247,500 shares of the Company's 6% Cumulative Convertible Series A Preferred
Stock on a one-for-one basis on the date hereof. See "Business--Corporate
History" and "The Company--Recent Financings--1996 Private Placement."

THE COMPANY

Medical Device Technologies, Inc. (the "Company") is a development stage
company engaged in identifying, developing and bringing to market patented
technologies in the medical device field. The Company's strategy is to identify
technologies that it believes have commercial viability, license or acquire the
technologies, complete product development, obtain regulatory clearances and
initiate marketing and sales. The Company directs its efforts towards patented
technologies that it believes can be commercially developed into medical
devices which are innovative, represent improvements over existing products, or
are responsive to a presently unfulfilled need in the market place.

To date, the Company has licensed the exclusive worldwide rights to
commercialize three medical devices:

(1) the PERSONAL ALARM SYSTEM ("PAS"), which is designed to immediately
alert healthcare professionals when their surgical gloves and garments are
torn or punctured or become saturated with fluids and therefore no longer
effectively provide protection from infection. The spread of the Human
Immunodeficiency Virus ("HIV") that causes Acquired Immune Deficiency
Syndrome ("AIDS"), and the spread of Hepatitis and other infections
transmitted through bodily fluids has increased the need to protect health
care workers and patients, especially in emergency and operating rooms. The
Company received clearance from the Food and Drug Administration ("FDA") to
sell the PAS in August of 1995, and commenced manufacturing and marketing
the PAS in January of 1996;

(2) the CELL RECOVERY SYSTEM ("CRS"), which is an automated biopsy brush
system that collects specimen cells for cancer diagnosis, offers two
distinct advantages over current techniques: it is minimally invasive and
is less costly to administer. On March 20, 1996, the Company received
clearance from the FDA to market the CRS for the urology market. The
Company intends to launch the CRS in the fourth quarter of 1996. Prior to
the market launch of the CRS, the Company intends to complete certain
clinical trials for a follow-up submission to the FDA to establish that the
device assists with the detection of certain urological diseases, such as
bladder cancer, and at the same time commence manufacturing for the
system's instrumentation and disposables; and

(3) the INTRACRANIAL PRESSURE MONITORING SYSTEM ("ICP"), which is a
diagnostic device that monitors pressure inside the human skull without
having to drill holes in the skull. Presently, the only method by which
intracranial pressure can be monitored is to drill a hole in the skull. The
Company's development strategy for the ICP involves two specific versions
of the device. The first generation ICP device will monitor the direction
and rate of change in intracranial pressure. The second generation of the
ICP will provide categories of intracranial pressure levels as well. It is
presently anticipated that clinical trials for the first generation ICP
device will continue through the third quarter of 1996 and clinical trials
for the second generation of the device will continue through the third
quarter of 1997. The Company believes there exists non-overlapping markets
for each generation of the device.

<PAGE>

At present, the Company does not intend to engage in the manufacture of its
products, and in January 1996, it engaged a third party to manufacture the
first PAS systems. The Company is currently exploring two strategies in
connection with the marketing of its medical devices. The Company will either
assemble a network of independent distributors who have proven to be effective
in introducing new products in the medical device field, or form an alliance
with a strategic corporate partner with a strong presence in the applicable
medical device market.

The Company was incorporated on February 6, 1980 under the laws of the State
of Utah and is located at 9171 Towne Centre Drive, Suite 355, San Diego,
California 92122, telephone number (619) 455-7127.

2
<PAGE>

THE OFFERING

Securities Offered....... 1,500,000 shares of 6% Cumulative Convertible
Series A Preferred Stock and 1,500,000 Redeemable
Warrants. The Preferred Stock and Redeemable
Warrants may be purchased separately and will be
separately tradeable immediately upon issuance.
TERMS OF THE SECURITIES:

Preferred Stock:

Dividends............... Cumulative from the date of original issuance at
the rate of 6% per annum, payable semi-annually on
June 30 and December 31, although the first
dividend payment will be on August 31, 1996, when
as and if declared by the Board of Directors out of
funds legally available therefor. Dividends are
payable solely in shares of Common Stock. See
"Description of Securities--6% Cumulative
Convertible Series A Preferred Stock--Dividends."

Conversion Rights....... Convertible into shares of Common Stock commencing
on October 22, 1996, at a rate of four (4) shares
of Common Stock for each share of Preferred Stock
(a Conversion Price of $1.25 per share of Common
Stock). See "Description of Securities--6%
Cumulative Convertible Series A Preferred Stock--
Right to Convert." Unless previously converted, on
July 24, 1997, (the "Automatic Conversion Date")
the Preferred Stock will automatically convert into
four (4) shares of Common Stock. See "Description
of Securities--6% Cumulative Convertible Series A
Preferred Stock--Automatic Conversion."

Voting Rights........... Each holder of shares of Preferred Stock will be
entitled to vote together with, and on all matters
submitted to, the holders of Common Stock on an as-
converted basis assuming conversion based upon the
Conversion Price. See "Description of Securities--
6% Cumulative Convertible Series A Preferred
Stock--Voting Rights."

Liquidation Preference.. In the event of the liquidation, dissolution or
winding up of the Company, holders of shares of
Preferred Stock will receive a Liquidation
Preference of $5.00 per share, plus any accrued but
unpaid dividends, before any distribution to
holders of Common Stock or another class of capital
stock junior to the Preferred Stock. See
"Description of Securities--Preferred Stock--
Liquidation Preference."

Redeemable Warrants..... Each Redeemable Warrant entitles the holder to
purchase two (2) shares of Common Stock at an
exercise price of $3.75 per Redeemable Warrant
($1.875 per share of Common Stock) and, subject to
redemption, will be exercisable commencing July 24,
1997 until June 23, 1999. The Redeemable Warrants
may be redeemed by the Company upon 30 days prior
written notice, at a price of $.05 per Redeemable
Warrant at any time after October 23, 1997 if the
market price of the Common Stock, for a period of
20 consecutive trading days ending within 10 days
prior to the date of the notice of redemption
delivered by the Company, equals or exceeds $2.50.
See "Description of Securities--Redeemable
Warrants."

3
<PAGE>

Securities Outstanding
Subsequent to the
Offering: (1)

Common Stock.......... 4,670,420
Preferred Stock (2)... 1,747,500
Redeemable Warrants 1,747,500
(3)...................

Use of Proceeds.......... Repayment of indebtedness, research and
development, sales and marketing, and working
capital. See "Use of Proceeds."

Risk Factors............. The Preferred Stock offered hereby involves a high
degree of risk. See "Risk Factors."

NASDAQ SMALLCAP SYMBOLS:

Common Stock............. MEDD
Preferred Stock.......... MEDDP
Redeemable Warrants...... MEDDW

- --------
(1) Unless otherwise indicated herein to the contrary, all share and per share
information does not give effect to the issuance of: (i) upon conversion of
the 1,500,000 shares of Preferred Stock offered hereby, 6,000,000 shares of
Common Stock; (ii) up to an additional 225,000 shares of Preferred Stock
issuable upon exercise of the Over-Allotment Option, and up to an
additional 900,000 shares of Common Stock issuable upon the conversion of
the Preferred Stock included in the Over-Allotment Option; (iii) upon the
exercise of 1,500,000 Redeemable Warrants offered hereby, 3,000,000 shares
of Common Stock; (iv) up to an additional 450,000 shares of Common Stock
upon the exercise of up to an additional 225,000 Redeemable Warrants
included in the Over-Allotment Option; (v) 830,000 shares of Common Stock
reserved for issuance pursuant to outstanding warrants having a weighted
average exercise price of approximately $2.21 per share, subject to
adjustment; (vi) 312,500 shares of Common Stock reserved for issuance to
officers, including a former officer, employees and consultants; (vii) upon
the exercise of warrants granted to the Representative in connection with
this offering, 150,000 shares of Preferred Stock, 150,000 Redeemable
Warrants and the 900,000 shares of Common Stock into which such Preferred
Stock is convertible and such Redeemable Warrants are exercisable; (viii)
an additional 1,485,000 shares of Common Stock issuable by the Company upon
the conversion of 247,500 shares of Preferred Stock and exercise of 247,500
Redeemable Warrants to be issued to the Selling Shareholders on the date of
this Prospectus; (ix) 163,680 shares of Common Stock issuable under the
1996 Stock Compensation Plan; and (x) an additional 25,000 shares of Common
Stock to be issued.

(2) Includes an additional 247,500 shares of Preferred Stock that are being
registered for sale on behalf of the Selling Shareholders in the Concurrent
Offering.

(3) Includes an additional 247,500 Redeemable Warrants that are being
registered for sale on behalf of the Selling Shareholders in the Concurrent
Offering.

4
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

The statement of operations data set forth below with respect to the years
ended December 31, 1993, 1994 and 1995, and the balance sheet data at December
31, 1993, 1994 and 1995, are derived from, and are qualified by reference to,
the audited financial statements included elsewhere in this Prospectus. The
statement of operating data set forth below with respect to the three months
ended March 31, 1995 and 1996 are derived from unaudited financial information
prepared on the same basis as the audited financial statements. In the opinion
of management, all unaudited financial information includes all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
information presented. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the results to be expected for
the entire year.

STATEMENT OF OPERATING DATA(1):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31, JUNE 1, 1992 TO
------------------------------------- ---------------------- MARCH 31, 1996(3)
1993(2) 1994(2) 1995 1995 1996 (CUMULATIVE)
----------- ----------- ----------- --------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ -- $ --
Operating Expenses
Research and
development........... 307,819 778,468 943,510 170,657 173,445 2,229,949
General and
administrative (4).... 1,390,758 1,916,895 2,194,393 467,322 1,095,506 6,862,114
Net loss.............. $(1,779,841) $(3,088,296) $(3,140,828) $(638,582) $(1,785,284) $(10,586,243)
Net loss per share...... $ (2.95) $ (2.04) $ (.94) $ (.23) $ (.41)
Weighted Average Shares
Outstanding............. 604,072 1,516,407 3,357,084 2,778,535 4,320,705
</TABLE>
- --------
(1) Summary Consolidated Statement of Operating Data does not include a ratio
of earnings to fixed charges because such amount was not material.
(2) Represents restated financial information as a consequence of the Company
changing the amortization of its patent license agreements. See "Risk
Factors--Restatement of Amortization of Patent License Agreements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) For purposes of presenting the Company's consolidated cumulative financial
information, June 1, 1992 is deemed to be the date the Company commenced
its current business activities related to the medical device business and
became a development stage company.
(4) Includes costs related to marketing, promotional and sales activities in
addition to office, administrative and overhead expenses.

BALANCE SHEET DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31, 1996
-------------------------------------- ---------------------------------------------
PRO FORMA
1993(1) 1994(1) 1995 ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
----------- ----------- ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Working capital......... $ 107,008 $ (109,574) $ (417,120) $ (1,661,931) $ (1,661,931) $ 4,271,569
Total assets............ 2,905,356 2,452,388 2,514,934 2,749,997 3,049,997 7,167,997
Total long-term
liabilities............. 650,301 3,400 1,755 210,830 210,830 210,830
Accumulated deficit..... (6,278,537) (9,366,833) (12,507,661) (14,292,945) (14,292,945) (14,663,445)
Shareholders' equity ... $ 2,102,636 $ 1,855,803 $ 1,553,533 $ 317,523 $ 317,523 $ 6,179,023
</TABLE>
- --------
(1) Represents restated financial information as a consequence of the Company
changing the amortization of its patent license agreements. See "Risk
Factors--Restatement of Amortization of Patent License Agreements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) Pro forma to give effect to borrowings of $300,000 pursuant to six month
unsecured promissory notes at 12% per annum, provided, however, at no point
will the Company pay less than 3% interest on the notes. Does not give
effect to (i) an aggregate of 120,750 shares of Common Stock issued by the
Company in exchange for services subsequent to March 31, 1996, (ii) an
aggregate of 162,500 shares of Common Stock issued by the Company upon the
exercise of warrants subsequent to March 31, 1996, and (iii) an additional
25,000 shares of Common Stock to be issued. See "The Company--Recent
Financings--1996 Private Placement" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(3) Pro forma as adjusted to give effect to (i) the sale of the Preferred Stock
and Redeemable Warrants offered hereby at the initial public offering
prices of $5.00 and $.10, respectively and the initial application of the
net proceeds therefrom, (ii) remaining non-recurring charges to interest
expense in the amounts of $42,000, $247,500 and $72,000, respectively, for
the interest, original issue discount and loan origination fees related to
the Private Placement, and (iii) a non-recurring interest expense of $9,000
in connection with $300,000 of short term debt incurred by the Company in
April and May 1996. See "The Company" and "Use of Proceeds."

5
<PAGE>

RISK FACTORS

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT IN THE SECURITIES,
SHOULD CAREFULLY CONSIDER, THE FOLLOWING RISK FACTORS, AMONG OTHERS, RELATING
TO THE COMPANY AND THIS OFFERING.

DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT;
UNCERTAINTY OF FUTURE PROFITABILITY

The Company was exclusively engaged in oil and gas activities until June
1992, when it entered into its first license agreement and commenced its
current operations in the medical device business. The Company subsequently
entered into two additional licenses for medical devices and in April of 1994
discontinued entirely its oil and gas operations. The Company commenced the
limited manufacture and marketing of its first medical device, the PAS, in
January of 1996, although to date, the Company has not yet realized any
significant sales of the PAS device. The Company is currently developing its
other two medical devices, the Cell Recovery System and the Intracranial
Pressure Monitoring System. Consequently, the Company is still a development
stage company with respect to the medical device business. At March 31, 1996,
partially as a result of its unsuccessful oil and gas activities, the Company
had an accumulated deficit of $14,292,945. The Company expects losses to
continue until such time, if ever, as the Company's medical devices can
successfully be brought to market and generate sufficient operating revenues.
Although the Company has commenced marketing the Personal Alarm System, the
Company needs to conduct additional development activities with respect to its
other products, which include clinical testing and establishing manufacturing
with respect to the Cell Recovery System, and substantial clinical testing and
obtaining regulatory clearance with respect to the Intracranial Pressure
Monitoring System. Although the Company received FDA marketing clearance of
the Company's second device, the CRS, on March 20, 1996, the Company intends
to complete certain clinical trials for a follow-up submission to the FDA to
establish that the device assists with the detection of certain urological
diseases, such as bladder cancer. There can be no assurance that the Company
will receive 510(k) clearance from the FDA for such additional claims or that
the FDA will not require the Company to submit a pre-market approval
application for such claims which would substantially delay marketing
clearance. There can also be no assurance that the Company will be successful
in establishing manufacturing of the system's instrumentation and disposables.
The Company's third device, the ICP, is still undergoing clinical trials
solely with respect to the first generation ICP device that the Company
intends to develop. It is currently anticipated that clinical trials for the
second generation ICP will not begin until the end of 1996. The Company's
intent to establish volume manufacturing and undertake clinical testing with
respect to the CRS and the extensive clinical testing and regulatory clearance
still required with respect to the ICP, together with projected general and
administrative expenses and projected marketing costs related to the PAS and
launch of the CRS, are expected to result in continuing losses until such time
as the Company achieves significant sales from one or more of its products.
The Company's ability to achieve profitability depends upon its ability to
successfully market the PAS and to develop and successfully market the CRS and
ICP, of which there can be no assurance. In addition, the Company will
continue to seek to license additional medical products for development and
commercialization, although there can be no assurances that the Company will
be able to identify any additional products that it deems suitable for
development and commercialization, or that if it does identify such products
that any of them will be successfully developed and commercialized. See
"Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Financial Statements.

AUDITORS' GOING CONCERN REPORT

The Company's independent certified accountants' report on the Company's
financial statements for the year ended December 31, 1995 includes an
explanatory paragraph that the Company's recurring losses from operations,
negative working capital, and limited capital resources raise substantial
doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. See "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

6
<PAGE>

DEPENDENCE ON OFFERING PROCEEDS; NEED FOR ADDITIONAL FINANCING; POSSIBLE
ISSUANCE OF ADDITIONAL SECURITIES; FUTURE DILUTION

The Company's cash requirements are significant. The Company is dependent on
the net proceeds of this offering to repay the $1,650,000 of principal
indebtedness, plus approximately $83,000 of interest through June 30, 1996,
incurred by the Company in connection with the Private Placement that the
Company completed in January 1996, to repay $300,000 of short term
indebtedness incurred in April and May of 1996 by the Company, plus
approximately $9,000 of interest through June 30, 1996, and to implement its
current business plan. The Company presently anticipates spending
approximately 22.5% and 31.9% of the net proceeds of this offering on research
and development and for working capital purposes, respectively, within the
first twelve (12) months after the completion of this offering. The Company
may, however, encounter unexpected costs in connection with the implementation
of its business plan and as a consequence, require additional financing to
continue to effect its business plan. Based on the Company's current proposed
business plan, the Company believes that the net proceeds of this offering and
anticipated revenues from the PAS device will be sufficient to sustain the
Company for 12 months following completion of this offering. There can be no
assurances, however, that prior to the expiration of such 12 month period or
thereafter that the Company will generate sufficient revenues from sales of
the PAS device or the CRS device (which it intends to commence marketing in
the fourth quarter of 1996), or that the Company will not encounter unexpected
costs such that the Company will be required to seek additional financing. The
Company has no current arrangements with respect to such additional financing
and there can be no assurance that any such additional financing can be
obtained on terms acceptable to the Company, or at all. Failure by the Company
to obtain additional financing either from a public or private offering of its
securities, a strategic joint venture or partnership, or otherwise, would have
a material adverse effect on the Company. Further, in the event that the
Company obtains any additional financing, such financings will most likely
have a dilutive effect on the holders of the Company securities. See "Risk
Factors--Use of Proceeds for Repayment Debt," "Dilution," "Business,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," "Use of Proceeds," and the Financial Statements.

USE OF PROCEEDS FOR REPAYMENT OF DEBT

A substantial portion of the net proceeds of this offering, approximately
32.8%, will be used to repay indebtedness, including an aggregate principal
amount of $225,000 plus interest owed to two Directors of the Company. See
"Use of Proceeds" and "Certain Transactions."

BROAD MANAGEMENT DISCRETION IN APPLICATION OF PROCEEDS

A substantial portion of the net proceeds of this offering, approximately
31.9%, will be applied to working capital of the Company. The Company's
management will therefore have broad discretion with respect to the
application of the proceeds of this offering in order to accommodate changing
circumstances. See "Use of Proceeds."

UNCERTAINTY OF PRODUCT DEVELOPMENT; CORPORATE INEXPERIENCE

Development of the Company's medical devices will be subject to all of the
risks associated with new product development generally, including
unanticipated delays, expenses, technical problems, or other difficulties that
could result in abandonment or substantial change in the proposed
commercialization of the Company's medical devices. Given the uncertainties
inherent in new product development generally, and the Company's inexperience
in the business of commercializing medical devices, there can be no assurances
that the Company will be successful in developing its products. Investors
should be aware of the potential problems, delays and difficulties often
encountered by any inexperienced company. As a consequence, problems may arise
that may be beyond the experience or control of management and accordingly,
the Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by development stage companies in the
establishment of a new business in a highly competitive and highly regulated
industry. The Company only recently commenced the marketing of one of its
products, the PAS, and it is not currently possible to predict the

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demand and market acceptance for the PAS or any of the Company's other
products. Accordingly, there can be no assurance that the Company's
development and commercialization activities will be successful, that the
Company will receive FDA clearance for any of its other products, or that any
of the Company's devices will be commercially viable and successfully
marketed, or that the Company will ever achieve significant levels of revenue
or profits, if any.

DEPENDENCE ON THIRD PARTY MANUFACTURING; LIMITED MARKETING CAPABILITIES

The Company has no current manufacturing capabilities and will not have any
such capabilities for the foreseeable future. As a consequence, the Company
will be forced to rely on third parties to manufacture its products. The
Company must be able to effect the manufacture of its Personal Alarm System,
and any other devices that it will seek to commercialize, in sufficient
quantities and at acceptable costs. Further, the Company and third-party
manufacturers will need to comply with FDA and other regulatory requirements
in connection with its manufacturing activities and facilities, including FDA
Good Manufacturing Practices ("GMP") regulations. The Company entered into an
agreement with a third party manufacturer, effective as of December 15, 1995,
for the manufacture of the PAS. The Company believes this manufacturer
satisfies the FDA's GMP regulations, however, there can be no assurance that
the manufacturer will continue to satisfy such regulations. In the event that
the Company experiences substantial sales of its PAS device, of which there
can be no assurance, the Company may have to identify other third party
manufacturers in connection with additional manufacturing of the PAS. Further,
the Company presently anticipates that it will engage other third party
manufacturers in connection with the manufacture of the CRS and ICP devices.
There can be no assurance that such other manufacturers can be identified on
commercially acceptable terms, or at all, or that such other manufacturers, if
identified, will be adequate for the Company's long-term needs, or that they
can meet all relevant regulatory requirements. Moreover, there can be no
assurance that the Company's manufacture of products on a limited scale basis
means that the Company can effect the successful transition to commercial,
large-scale production. Finally, changes in methods of manufacture, including
commercial scale-up, can, among other things, require the performance of new
clinical studies under certain circumstances. See "Business--Manufacturing."

The Company currently has a limited sales and marketing staff and does not
presently intend to establish its own sales force. The Company is presently
seeking to engage independent regional distributors of medical devices to
effect the sale of its PAS device. At a future date the Company may also form
a marketing alliance with a strategic corporate partner with respect to the
PAS device, although there can be no assurance that it will be able to do so.
Similarly, the Company presently intends to engage independent distributors of
medical devices or form marketing alliances with strategic corporate partners
to effect sales of its other two medical devices. As a consequence, the
Company's current marketing and sales strategy will substantially rely on
unaffiliated third parties to effect the sales of its products. There can be
no assurance that the Company will be able to rely on unaffiliated third
parties to successfully effect sales of its products or that the Company will
not have to incur significant additional expenditures, which may include the
employment of sales personnel, in order to successfully effect the sales of
its products. See "Business--Sales, Distribution and Marketing Strategy."

NO ASSURANCE OF MARKET FOR PAS DEVICE; NEED FOR CERTAIN MINIMUM PAS SALES

Although the Company commenced the marketing of the PAS device in January
1996, to date the Company has not effected any significant sales of the PAS
device. The Company currently believes that before the PAS will experience any
significant sales, the Company will have to convince the medical community of
the potential unreliability of infection control barriers such as latex
surgical gloves, particularly in the absence of obvious breaches, punctures or
tears of the gloves. In order for the PAS to be successful, the Company must
demonstrate that fluid contact between health care professionals and patients
occurs as a routine matter as a result of the "fluid-saturation" of latex
surgical gloves even when such gloves have not been punctured or torn.

The Company also needs to establish that when fluid contact does occur
between health care professionals and patients as a result of fluid-saturated
but otherwise non-damaged latex gloves, that pathogens (which are disease
producing organisms) are transmitted between the health care professional and
the patient, thus resulting

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<PAGE>

in a health risk to both parties. There can be no assurance that the Company
will be able to convince the medical community of the need for a device like
the PAS and consequently, there can be no assurance that a market will develop
for the PAS device. The failure of the Company to establish a market for the
PAS device and effect significant sales of the PAS device would have a
material adverse effect on the Company. Further, in the event that the Company
does not effect certain minimum sales of the PAS device in 1996 the Company
will require additional capital in order to sustain itself for the 12 months
following completion of this offering. See "Risk Factors--Dependence on
Offering Proceeds; Need for Additional Financing; Possible Issuance of
Securities; Further Dilution," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Use of Proceeds."

NO ASSURANCE OF MARKET FOR CRS DEVICE

The Company received marketing clearance for the CRS device with respect to
urological procedures on March 20, 1996. Nevertheless, the Company will not
commence marketing the CRS until the fourth quarter of 1996 so that the
Company can complete certain clinical trials for a follow-up 510(k) submission
to the FDA to establish that the device assists with the detection of certain
urological diseases, such as bladder cancer. There can be no assurance that
the Company will receive 510(k) clearance from the FDA for such additional
claims or that the FDA will not require the Company to submit a pre-market
approval ("PMA") application for such claims that would substantially delay
marketing clearance. Although there can be no assurance that the Company will
be able to do so, the Company also intends to commence manufacturing of the
system's instrumentation and disposables prior to a scheduled marketing launch
of the CRS in the fourth quarter of 1996. The Company currently believes that
before the CRS will experience any significant sales that the device's
capabilities in assisting with the detection of certain diseases, such as
bladder cancer, particularly in comparison to current cell sampling methods,
will have to be established. There can be no assurance that the Company will
be able to establish to the medical community that the CRS device is more
effective in assisting in the detection of bladder cancer and consequently,
there can be no assurance that a market will develop for the CRS device
relative to the detection of bladder cancer. Further, since the Company has
not yet commenced adaptation of the CRS device for any other procedures, there
can be no assurance that there will be a market for any other procedures for
which the Company may attempt to adopt the CRS device. The failure of the
Company to establish a market for the CRS device and effect significant sales
of the CRS device in the urological field or any other field could have a
material adverse effect on the Company. See "Business--The Company's
Products--the Cell Recovery System--Potential Market for the CRS device."

NO ASSURANCE OF IDENTIFICATION, ACQUISITION OR COMMERCIALIZATION OF ADDITIONAL
TECHNOLOGIES

From time to time, if the Company's resources allow, the Company intends to
explore the acquisition and subsequent development and commercialization of
additional patented technologies in the medical device field. There can be no
assurance, however, that the Company will be able to identify any additional
technologies and, even if suitable technologies are identified, there can be
no assurance that the Company will have sufficient funds to commercialize any
such technologies or that any such technologies will ultimately be viable.

GOVERNMENT REGULATIONS

The Company's medical device products are subject to extensive government
regulations in the United States and in other countries. In order to
clinically test, produce, and market its devices, the Company must satisfy
numerous mandatory procedures, regulations, and safety standards established
by the FDA, and comparable state and foreign regulatory agencies. Typically,
such standards require that the products be cleared by the government agency
as safe and effective for their intended use prior to being marketed for human
applications. The clearance process is expensive and time consuming. Other
than with respect to the Company's Personal Alarm System and the Cell Recovery
System, no assurance can be given that clearances will be granted for any
expanded claims for the CRS or for the sale of the ICP or any other future
products, if any, or that the length of time for clearance will not be
extensive, or that the cost of attempting to obtain any such clearances will
not be prohibitive.

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<PAGE>

The FDA employs a rigorous system of regulations and requirements governing
the clearance processes for medical devices, requiring, among other things,
the presentation of substantial evidence, including clinical studies,
establishing the safety and efficacy of new medical devices. The principal
methods by which FDA clearance is obtained are pre-market approval, which is
for products that are not comparable to any other product in the market, or
filing a pre-market notification under Section 510(k) of the Federal Food,
Drug and Cosmetic Act (a "510(k)") which is for products that are similar to
products that have already received FDA clearance. Although both methods may
require clinical testing of the products in question under an approved
protocol, because PMA clearance relates to more unique products, the PMA
procedure is more complex and time consuming. Applicants under the 510(k)
procedure must prove that the products for which clearance is sought are
substantially equivalent to products on the market prior to the Medical Device
Amendments of 1976, or products approved thereafter pursuant to the 510(k).
The review period for a 510(k) application is approximately one hundred fifty
(150) days from the date of filing the application, although there can be no
assurance that the review period will not extend beyond such a period.

Under the PMA procedure, the applicant is required to conduct substantial
clinical testing to determine the safety, efficacy and potential hazards of
the product. The review period under a PMA application is one hundred eighty
(180) days from the date of filing, and the application is not automatically
deemed cleared if not rejected during that period. The preparation of a PMA
application is significantly more complex, expensive and time consuming than
the 510(k) procedure. Further, the FDA can request additional information,
which can prolong the clearance process.

In order to conduct human clinical studies for any medical procedure
proposed for the Company's products, the Company could also be required to
obtain an Investigational Device Exemption ("IDE") from the FDA, which would
further increase the time before potential FDA clearance. In order to obtain
an IDE, the Company would be required to submit an application to the FDA,
including a complete description of the product, and detailed medical
protocols that would be used to evaluate the product. In the event an
application were found to be in order, an IDE would ordinarily be granted
promptly thereafter.

The Company may be required to use the PMA process for the Intracranial
Pressure Monitoring System or for expanded claims for the CRS in order to be
granted FDA clearance. The clearance process can take from a minimum of six
(6) months to several or more years, and there can be no assurance that FDA
clearance will be granted for the commercial sale of the Intracranial Pressure
Monitoring System or expanded claims for the CRS device.

The FDA also imposes various requirements on manufacturers and sellers of
medical devices under its jurisdiction, such as labeling, manufacturing
practices, record keeping and reporting requirements. The FDA may also require
post-market testing and surveillance programs to monitor a product's effect.
There can be no assurance that the appropriate clearance from the FDA will be
obtained, that the process to obtain such clearance will not be excessively
expensive or lengthy, or that the Company will have sufficient funds to pursue
such clearances. Moreover, failure to receive requisite clearance for the
Company's products or processes would prevent the Company from commercializing
its products as intended, and would have a material adverse effect on the
business of the Company.

Even after regulatory clearance is obtained, any such clearance may include
significant limitations on indicated uses. Further, regulatory clearances are
subject to continued review, and later discovery of previously unknown
problems may result in restrictions with respect to a particular product or
manufacturer, including withdrawal of the product from the market, or
sanctions or fines being imposed on the Company.

Distribution of the Company's products in countries other than the United
States may be subject to regulation in those countries. There can be no
assurance that the Company will be able to obtain the approvals necessary to
market its medical devices outside of the United States. See "Business--
Patents and Intellectual Property Rights."

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<PAGE>

POTENTIAL FOR INCREASED ROYALTIES WITH RESPECT TO THE ICP DEVICE

In addition to the license agreements that the Company has entered into with
respect to the ICP, the Company also entered into an agreement with respect to
the ICP device on November 23, 1992 with Hampton Morgan Holdings, S.A., a
Panamanian company ("Hampton Morgan"), which was controlled by a shareholder
of the Company (the "Hampton Morgan Agreement"). The Company had previously
retained the consulting services of Hampton Morgan in June of 1992 in
connection with the CRS device. The Hampton Morgan Agreement provided, among
other things, for (i) a payment of 83,334 shares of Common Stock to Hampton
Morgan as a finder of the ICP device, (ii) royalties to Hampton Morgan equal
to 8% of gross sales of the ICP, and (iii) the issuance of 1,000,000 shares of
Common Stock to Hampton Morgan upon the Company achieving gross sales of
$10,000,000 with respect to the ICP. The Company issued the 83,334 shares to
Hampton Morgan as a finder in 1992, but the Company, on the advice of counsel,
believes that the balance of the Hampton Morgan Agreement is not enforceable
because Hampton Morgan has failed to make certain required payments to the
Company under the Hampton Morgan Agreement. Consequently, the Company does not
intend to pay the 8% royalty or 1,000,000 shares of Common Stock to Hampton
Morgan. In the event that the Company is incorrect and has to pay some or all
of the royalty payments and/or shares of Common Stock to Hampton Morgan under
the Hampton Morgan Agreement, it would have a material adverse effect on the
potential profitability of the ICP and could have a material adverse effect on
the Company as a whole. See "Business--The Intracranial Pressure Monitoring
System--License Arrangements."

PATENTS AND INTELLECTUAL PROPERTY RIGHTS

The Company has entered into exclusive license agreements with respect to
each of the patents underlying the Company's first three products: the
Personal Alarm System; the Cell Recovery System; and the Intracranial Pressure
Monitoring System. There can be no assurance, however, that such patents will
provide the Company with significant protection from competitors. Patent
protection relative to medical devices is generally uncertain, and involves
complex legal and factual questions. To date, there has emerged no consistent
policy regarding the breadth of claims allowed in connection with the patent
protection of medical devices. Furthermore, legislation is being considered
which, in the future, might prevent the patenting or enforcement of a patent
covering certain surgical or medical procedures. Accordingly, there can be no
assurance that any patents licensed by the Company will afford protection
against competitors with similar technologies. Finally, there can be no
assurance that the Company will have the financial resources necessary to
enforce its patent rights.

Even though the Company has been licensed under patents, under the terms of
the Company's license agreements, the Company is responsible for defending
against charges of infringement of third party patents by the Company's
products. Challenges may be instituted by third parties as to the validity,
enforceability and infringement of the patents. Further, the cost of the
litigation to defend any challenge to the Company's licensed patents or to
uphold the validity and enforceability and prevent infringement of the
Company's licensed patents could be substantial.

The Company may be required to obtain additional licenses from others to
continue to refine, develop, manufacture, and market new products. There can
be no assurance that the Company will be able to obtain any such licenses on
commercially reasonable terms or at all or that the rights granted pursuant to
any licenses will be valid and enforceable.

Notwithstanding the Company's exclusive license with respect to the patents
underlying the PAS, CRS and ICP, there can be no assurance that others will
not independently develop similar technologies, or design around the patents.
If others are able to design around the patents, the Company's business will
be materially adversely affected. Further, the Company will have very limited,
if any, protection of its proprietary rights in those jurisdictions where it
has not effected any patent filings or where it fails to obtain patent
protection despite filing therefor.

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<PAGE>

enforceability of the patents. The Company is not presently aware of any
challenges to the patents. Similarly, the Company may also have to institute
legal actions in order to protect infringement of the patents by third
parties. The Company is not presently aware of any such infringements. The
costs of litigation or settlement in connection with the defense of any third
party challenges relative to the validity and enforceability of its patents
and/or to prevent any infringement of the patents by third parties, which
pursuant to the license agreements with respect to the patents are the
Company's responsibility, could be substantial. Moreover, in the event that
the Company was unsuccessful in any such litigation, the Company could be
materially adversely affected.

In addition to relying on patent protection for its products, of which there
is no assurance, the Company will also attempt to protect its products,
processes and proprietary rights by relying on trade secret laws and non-
disclosure and confidentiality agreements, as well as exclusive licensing
arrangements with persons who have access to its proprietary materials or
processes, or who have licensing or research arrangements exclusive to the
Company. Despite these protections, no assurance can be given that others will
not independently develop or obtain access to such materials or processes, or
that the Company's competitive position will not be adversely affected
thereby. To the extent members of the Company's Scientific Advisory Board have
consulting arrangements with, or are employed by, a competitor of the Company,
such members might encounter certain conflicts of interest, and the Company
could be materially adversely affected by the disclosure of the Company's
confidential information by such Scientific Advisors. See "Business."

RESTATEMENT OF AMORTIZATION OF PATENT LICENSE AGREEMENTS

Effective as of the fourth quarter of the fiscal year ended December 31,
1995, the Company changed its method of amortizing its license agreements from
commencement of product shipment to the estimated useful life of the license
agreement, which is ten years. As a consequence, the combined stated values of
the Company's patent agreements at December 31, 1993, 1994 and 1995, were
reduced by 11.9%, 18.6% and 28.2%, respectively, of their combined stated
values prior to the reduction. Also, as a result of this reduction, the
Company's net losses for the years ended December 31, 1993, 1994 and 1995 (as
restated) and its cumulative net loss for the period from June 1, 1992 to
December 31, 1995 (as restated) increased by 10.9%, 6.9%, 7.6% and 7.7%,
respectively.

The Company will continue to monitor the markets for its products, the
emergence of competitive products and technologies and associated events, and
will adjust the lives of its patent licenses accordingly. As a consequence,
the Company may deem it necessary or appropriate to make additional
adjustments the results of which may include further reductions in the stated
values of the Company's patent license agreements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

COMPETITION; PRODUCT OBSOLESCENCE

The medical device industry is intensely competitive, particularly in terms
of price, quality and marketing. Most of the Company's competitors are better
established and have substantially greater financial, marketing and other
resources than the Company. Further, most of the Company's competitors have
been in existence for a substantially longer period of time and may be better
established in those markets where the Company intends to sell its devices.
Although the Company is not presently aware of any competitor that
commercially manufactures and sells any medical devices with the same
technological advantages as those the Company presently intends to sell, the
Company is aware that several technologies similar to the Personal Alarm
System are being developed and tested. Due to the Company's relative lack of
experience, financial, marketing and other resources there can be no assurance
that the Company will be able to market this device successfully, or develop
and market any of its other medical devices, or compete in the medical device
industry in general.

Moreover, competitors may develop and successfully commercialize medical
devices that directly or indirectly accomplish what the Company's medical
devices are designed to accomplish in a superior and/or less expensive manner.
As a consequence, such competing medical devices may render the Company's
medical devices obsolete. There can be no assurance that, either prior to or
after the Company has developed, commercialized and marketed any of its
medical devices that such devices will not be rendered obsolete by competing
medical devices. See "Business--Competition."

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HEALTH CARE REFORM AND RELATED MEASURES; UNCERTAINTY OF PRODUCT PRICING AND
REIMBURSEMENT

The levels of revenue and profitability of sales of medical devices may be
affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of health care through various means and the
initiatives of third party payors with respect to the availability of
reimbursement. For example, in certain foreign markets, pricing or
profitability of medical devices is subject to government control. In the
United States there have been, and the Company expects that there will
continue to be, a number of federal and state proposals to implement similar
governmental control. Although the Company cannot predict what legislative
reforms may be proposed or adopted or what actions federal, state or private
payors for health care products may take in response to any health care reform
proposals or legislation, the existence and pendency of such proposals could
have a material adverse effect on the Company in general.

Whether a medical procedure is subject to reimbursement from third party
payors impacts upon the likelihood that a medical product associated with such
a procedure will be purchased. Third party payors are increasingly challenging
the prices charged for medical products. Two of the Company's three products,
the CRS and the ICP involve a medical procedure. There can be no assurance
that any of the Company's products, or the procedures that accompany the CRS
and ICP, will be reimbursable. To the extent any or all of the Company's
medical products, and any accompanying medical procedures, are not
reimbursable by third party payors the Company's ability to sell its products
on a competitive basis will be adversely affected, which could have a material
adverse effect on the Company.

DEPENDENCE ON KEY PERSONNEL

The Company's success will depend to a large extent upon its ability to
retain Mr. M. Lee Hulsebus, its Chief Executive Officer and Chairman of the
Board. In August 1994, the Company entered into an exclusive employment
agreement with Mr. Hulsebus and subsequently obtained a term "key man life
insurance policy" in the amount of $1,000,000 with respect to Mr. Hulsebus of
which the Company is the sole beneficiary in the event of his death. The loss
or unavailability of the services of Mr. Hulsebus would have a material
adverse effect on the business and operations of the Company. See "Management
Employment Agreements."

NEED FOR ADDITIONAL PERSONNEL

In the event that the Company receives FDA clearances for expanded
diagnostic claims with respect to the Cell Recovery System or Intracranial
Pressure Monitoring System, or there is significant commercial demand for the
Personal Alarm System or Cell Recovery System as currently cleared by the FDA,
the Company will need to hire additional administrative and sales and
marketing personnel. These demands are expected to require the addition of new
management personnel and the development of additional expertise by existing
management personnel. There can be no assurance that the Company will be able
to hire and retain the additional personnel that it will require. Failure to
do so could have a material adverse effect on the Company.

CONTINUED NASDAQ SMALLCAP LISTING

The Company's Common Stock is presently listed on the Nasdaq SmallCap
Market. The National Association of Securities Dealers Automated Quotation
System has established certain standards for the initial listing and continued
listing of a security on the Nasdaq SmallCap Market. The maintenance standards
require, among other things, that an issuer have total assets of at least
$2,000,000, capital and surplus of at least $1,000,000, a minimum bid price
for the listed securities of $1.00 per share, and that the minimum market
value of the "public float" be at least $1,000,000. It is anticipated that
upon consummation of this offering the Company's Common Stock will continue to
be listed on the Nasdaq SmallCap Market. As of June 21, 1996, the closing bid
price of the Company's Common Stock was $1.25. However, there can be no
assurance that the Company will continue to satisfy the minimum price per
share or other standards required for the continued Nasdaq SmallCap Market
listing of its Common Stock. If the Company's Common Stock were excluded from
the Nasdaq SmallCap Market it would materially adversely affect the price and
liquidity of the Common Stock, the Preferred Stock and the Redeemable
Warrants. In the event that the Company is unable to satisfy the Nasdaq

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<PAGE>

SmallCap Market's maintenance requirements, it is anticipated that trading
would be conducted in the over-the-counter market National Quotations Bureau
("NQB") "pink sheets" or the OTC's Electronic Bulletin Board. As a
consequence, trading with respect to the Company's Common Stock would be
subject to the so-called "penny stock" rules. Unless an exception is
available, the penny stock rules require, among other things, the delivery to
a prospective purchaser, prior to any transaction involving a penny stock, of
a disclosure schedule explaining the penny stock rules and the risks
associated therewith. If the Company's Common Stock was subject to the
regulations on penny stocks, the market liquidity for the Common Stock would
be severely affected by limiting the ability of broker/dealers to sell the
Common Stock in the public market. There is no assurance that trading in the
Company's securities will not be subject to these or other regulations that
would materially adversely affect the market for such securities.

VOLATILITY OF THE COMPANY'S COMMON STOCK PRICES

The market price of the Company's Common Stock has experienced significant
volatility. Various factors and events, including announcements by the Company
or its competitors concerning patents, proprietary rights, technological
innovations or new commercial products, as well as public concern about the
safety of medical devices in general, may have a significant impact on the
Company's business and the price of the Company's Common Stock.

NO DIVIDENDS WITH RESPECT TO COMMON STOCK

The Company has not paid any cash dividends with respect to its Common
Stock, and it is unlikely that the Company will pay any dividends on its
Common Stock in the foreseeable future. The Company is required to pay a 6%
cumulative, semi-annual dividend with respect to its Preferred Stock in shares
of Common Stock. Earnings, if any, that the Company may realize will be
retained in the business for further development and expansion. See "Market
Price for the Common Stock and Dividends."

PRODUCT LIABILITY AND INSURANCE

The Company's business could, in the future, expose it to product liability
claims for personal injury or death. Such risks are inherent in the testing,
manufacturing and marketing of its products and services. Although the Company
recently obtained product liability insurance, there can be no assurance that
such insurance will provide adequate coverage against potential liabilities or
that it will be able to maintain or, if need be, increase such coverage.

CURRENT PROSPECTUS AND STATE "BLUE SKY" REGISTRATION REQUIRED TO EXERCISE THE
REDEEMABLE WARRANTS

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<PAGE>

upon exercise of the Redeemable Warrants unless and until the Common Stock
issuable upon exercise of the Redeemable Warrants is qualified for sale or
exempt from qualification in jurisdictions in which such persons reside. There
is no assurance that the Company will be able to effect any required
registration or qualification. The value of the Redeemable Warrants could be
adversely affected if a then current prospectus covering the Common Stock
issuable upon exercise of the Redeemable Warrants is not available pursuant to
an effective registration statement or if such Common Stock is not qualified
for sale or exempt from qualification in the jurisdictions in which the
holders of the Redeemable Warrants reside. Under the terms of the agreement
under which the Redeemable Warrants will be issued, the Company is not
permitted to redeem such warrants unless a current prospectus is available at
the time of notice of redemption and at all subsequent times to and including
the date of redemption. See "Description of Securities--Redeemable Warrants."

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF REDEEMABLE WARRANTS; POSSIBLE
EXPIRATION WITHOUT VALUE; EFFECT OF REDEEMABLE WARRANTS AND REPRESENTATIVE'S
WARRANTS ON VALUE OF COMMON STOCK

The Redeemable Warrants are redeemable by the Company in whole or in part,
upon 30 days' prior written notice, for $.05 per Redeemable Warrant, at any
time after October 23, 1997, and provided certain specified market conditions
are met. Redemption of the Redeemable Warrants could force the holders to
exercise the Redeemable Warrants and pay the exercise price at a time when it
may be disadvantageous for the holders to do so, to sell the Redeemable
Warrants at the then current market price when they might otherwise wish to
hold the Redeemable Warrants for possible additional appreciation, or to
accept the redemption price, which is likely to be substantially less than the
market value of the Redeemable Warrants at the time of redemption. In
addition, if the market price of the Common Stock does not exceed the exercise
price of the Redeemable Warrants at the expiration of the exercise period, the
Redeemable Warrants may expire without value. See "Description of Securities--
Redeemable Warrants." The exercise of the Redeemable Warrants and the
Representative's Warrants and the sale of the underlying shares of Common
Stock (or even the potential of such exercise or sale) may have a depressive
effect on the market price of the Company's securities. The exercise of such
warrants also may have a dilutive effect on the interest of investors in this
offering. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected because the holders of the
outstanding warrants can be expected to exercise them, to the extent they are
able to, at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in the warrants. See "Description of Securities" and "Underwriting."
As a result of the Redeemable Warrants and the Representative's Warrants being
outstanding, the Company may be deprived of favorable opportunities to obtain
additional equity capital, if it should then be needed, for its business. It
is also possible that, as long as the Redeemable Warrants (initially
exercisable at $3.75 per Redeemable Warrant) and the Representative's Warrants
remain outstanding, their existence might limit increases in the price of the
Common Stock. See "Risk Factors--Representative's Potential Influence on the
Market" and "--Current Prospectus and State "Blue Sky' Registration Required
to Exercise the Redeemable Warrants," "Description of Securities--Redeemable
Warrants" and "Underwriting."

ANTI-TAKEOVER PROVISIONS; POISON PILL ISSUANCE OF OTHER PREFERRED STOCK; UTAH
ANTI-TAKEOVER PROVISIONS

The Company's Articles of Incorporation, as amended, and By-Laws contain
provisions that may make the acquisition of control of the Company by means of
tender offer, over-the-counter market purchases, a proxy fight or otherwise,
more difficult. This could prevent securityholders from realizing a premium on
their securities of the Company. The Company also adopted a staggered Board of
Directors at its most recent annual meeting of shareholders, which is a
further impediment to a change in control.

The Company has adopted a so-called "poison pill." Specifically, the poison
pill significantly increases the cost to an unwanted party to acquire control
of the company upon the acquisition by such unwanted suitor of 15% of the
outstanding voting power of the Company.

In addition, the Board of Directors may issue one or more series of
preferred stock other than the Preferred Stock being offered hereby without
any action on the part of the shareholders of the Company, the existence

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<PAGE>

and/or terms of which may adversely affect the rights of holders of the Common
Stock. In addition, the issuance of any such additional preferred stock may be
used as an "anti-takeover" device without further action on the part of the
shareholders. Issuance of additional preferred stock, which may be
accomplished through a public offering or a private placement to parties
favorable to current management, may dilute the voting power of holders of
Common Stock and the Preferred Stock (such as by issuing preferred stock with
super voting rights) and may render more difficult the removal of current
management, even if such removal may be in the shareholders' best interests.
See "Description of Securities--Other Preferred Stock" and "--Share Purchase
Plan."

The Company is subject to the provisions of Sections 61-6-1 through 61-6-12
of the Utah Control Shares Acquisition Act, an anti-takeover statute. Sections
61-6-1 through 61-6-12 effectively provide that in the event a person acquires
ownership or the power to effect, directly or indirectly, the exercise of 20%
or more of the voting power of a Utah corporation in connection with the
election of directors, then such person shall only be entitled to vote to the
extent expressly agreed to by the majority of the other shareholders of the
corporation. Accordingly, potential acquirors of the Company may be
discouraged from attempting to effect acquisitions of the Company's voting
securities, thereby possibly depriving holders of the Company's securities of
certain opportunities to sell or otherwise dispose of such securities at
above-market prices.

LITIGATION

The Company is currently involved in a lawsuit that could have a material
adverse effect on the Company. See "Business--Legal Proceedings."

NO PRIOR PUBLIC MARKET FOR PREFERRED STOCK; ARBITRARY DETERMINATION OF
OFFERING PRICE

Prior to this offering, there has been no public market for the Preferred
Stock and there can be no assurance that an active public market for the
Preferred Stock will develop or, if developed, be sustained after this
offering. The terms and initial public offering price of the Preferred Stock,
although related to the market price of the Common Stock on the date of this
offering, were arbitrarily determined by negotiations between the Company and
the Representative and do not necessarily bear any relationship to the
Company's assets, book value, revenues or other established criteria of value,
and should not be considered indicative of the actual value of the Preferred
Stock. See "Underwriting."

DILUTION

Upon completion of this offering, assuming a Conversion Price of $1.25,
purchasers of the Preferred Stock hereby, assuming conversion at the
Conversion Price, will experience immediate dilution in the net tangible book
value of their investment in the Company of $.87 per share of Common Stock, or
approximately 70% dilution per share. See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE

Of the 4,670,420 shares of Common Stock outstanding upon the completion of
this offering, 602,668 shares of Common Stock are "restricted securities" as
that term is defined by Rule 144 of the Securities Act, 541,190 of which are
currently eligible for resale in compliance with Rule 144 of the Securities
Act. Of these shares, 27,253 are owned by current officers and directors of
the Company who have agreed with the Representative not to directly or
indirectly offer, sell, transfer or otherwise encumber or dispose of any of
such shares for a period of thirteen (13) months after the effective date of
this offering. In addition, the Company is registering an additional
10,485,000 shares of Common Stock issuable upon the conversion of 1,747,500
shares of Preferred Stock and the exercise of 1,747,500 Redeemable Warrants
offered hereby, including 247,500 shares of Preferred Stock and 247,500
Redeemable Warrants to be issued on the date of this Prospectus to the Selling
Shareholders, although all of the Selling Shareholders have agreed with the
Representative not to, directly or indirectly, offer, sell, transfer or
otherwise encumber any of their Securities for thirteen (13) months after the
date of this

16
<PAGE>

Prospectus. The Company has also issued an aggregate of 830,000 warrants,
subject to adjustment, which shall vest and become exercisable from time to
time. Of these non-public warrants, 425,000, subject to adjustment, are owned
by officers and directors of the Company who have agreed with the
Representative not to, directly or indirectly, offer, sell, transfer or
otherwise encumber any of these securities, or the underlying Common Stock
into which these securities are exercisable, for thirteen (13) months after
the date of this Prospectus. Rule 144 provides that, in general, a person
holding restricted securities for a period of two (2) years may, every three
(3) months thereafter, sell in brokerage transactions an amount of shares
which does not exceed the greater of one percent (1%) of the Company's then
outstanding Common Stock or the average weekly trading volume of the Common
Stock during the four (4) calendar weeks immediately prior to such sale. Rule
144 also permits, under certain circumstances, the sale of shares without any
quantity limitations by a person who is not an affiliate of the Company and
was not an affiliate at any time during the ninety (90) day period immediately
prior to such sale, and who has satisfied a three (3) year holding period. Of
the 602,668 shares of restricted Common Stock outstanding, approximately
541,190 shares have been held for more than two (2) years and are currently
eligible for sale under Rule 144. Sales of the Company's Common Stock by
shareholders under Rule 144 may have a depressive effect on the market price
of the Company's Common Stock. See "The Company--Concurrent Offering," "Shares
Eligible for Future Sale," "Management--Executive Compensation," "--Management
Employment Agreements; Consulting Agreements," "--Option Plans," "Description
of Securities" and "Underwriting."

17
<PAGE>

THE COMPANY

The Company was incorporated in the State of Utah in February 1980 and
maintains its principal place of business at 9171 Towne Centre Drive, Suite
355, San Diego, CA 92122. The Company's telephone number is (619) 455-7127.

RECENT FINANCINGS

1995 Private Placement

In the second quarter of 1995, the Company completed a private placement
(the "1995 Private Placement") of its securities and received net proceeds of
$974,769 in connection with the sale of 20.75 units at a purchase price of
$50,000 per unit. Each unit consisted of 35,715 shares of Common Stock and
12,500 3-year warrants to purchase 12,500 shares of Common Stock. The warrants
are exercisable for $2.00 per share of Common Stock. The Company also issued
to the broker-dealer which assisted the Company in effecting the 1995 Private
Placement 28,125 2-year warrants to purchase 28,125 shares of Common Stock at
an exercise price of $2.00 per share. All of the shares of Common Stock, and
the shares of Common Stock underlying the warrants issued in the 1995 Private
Placement (including the shares of Common Stock underlying the warrants issued
to the broker-dealer) were included, along with other securities, on the
Company's registration statement on Form S-3 (the "S-3 Registration
Statement") that was declared effective by the Staff of the Securities and
Exchange Commission on May 13, 1996.

The Convertible Debt

In June and July, 1995, the Company issued an aggregate of $275,000 of
short-term convertible debt which, if not converted into Common Stock, was to
mature in six months and bore interest at the rate of 48% per annum (the
"Convertible Debt") payable on maturity. As of December 27, 1995, all of the
Convertible Debt had converted into Common Stock at the rate of 1.25 shares of
Common Stock for each $1.00 of indebtedness, or an aggregate of 343,750 shares
of Common Stock (the "Debt Shares"). In connection with the issuance of the
Convertible Debt, the Company also issued an aggregate of 68,750 warrants
exercisable for 68,750 shares of Common Stock at $1.20 per share. The warrants
expired on May 28, 1996. The Debt Shares and the shares of Common Stock
underlying the warrants, that were issued in connection with the Debt Shares,
among other securities, were included on the S-3 Registration Statement.

1996 Private Placement

On January 24, 1996, the Company completed a private placement pursuant to
which it received net proceeds of $1,470,000 from the sale of 33 units (the
"Units") to non-affiliated, accredited investors (the "Private Placement").
Each Unit consisted of (i) a secured, one year, 10%, $50,000 promissory note
(the "Note"), and (ii) 7,500 shares of the Company's Series I convertible
preferred stock, par value $.01 per share (the "Series I Preferred Stock").
The Series I Preferred Stock does not pay any dividends and was automatically
converted into the Preferred Stock on the effective date of this Prospectus
provided that the effective date of this Prospectus was on or before June 14,
1996. In the event that this offering was not effected before June 15, 1996,
the Series I Preferred Stock automatically converted into Common Stock on the
basis of one (1) share of Series I Preferred Stock for the number of shares of
Common Stock equal to $5.00 (plus any declared and unpaid dividends, if any)
divided by eighty (80%) percent of the average of the closing bid and asked
price of the Common Stock on June 14, 1996. All of the investors in the
Private Placement agreed with the Company to extend the date of automatic
conversion for thirty (30) days in exchange for the issuance to the investors
on the date of this Prospectus of 7,500 Redeemable Warrants for each Unit sold
in the Private Placement. Accordingly, in the event that this offering is not
effected before July 15, 1996, the Series I Preferred Stock will automatically
convert into Common Stock on the basis of one (1) share of Series I Preferred
Stock for the numbers of shares of Common Stock equal to $5.00 (plus any
declared and unpaid dividends if any) divided by eighty (80%) percent of the
average of the closing bid and asked price of the Common Stock on July 14,
1996.

18
<PAGE>

1996 Short Term Debt

In April and May of 1996 the Company borrowed an aggregate of $300,000 (the
"Short Term Debt") from four (4) individuals, two (2) of whom are Directors of
the Company, pursuant to six (6) month unsecured promissory notes that bear
interest at the rate of 12% per annum and which the Company intends to repay
on the closing of this offering; provided that the Company has agreed that it
will pay at least three (3) months of interest with respect to the Short Term
Debt regardless of when it is repaid. In connection with issuing the notes the
Company also issued an aggregate of 75,000 three-year warrants, subject to
adjustment, to purchase shares of Common Stock exercisable at the lower of a
15% discount from the average of the bid and asked price as of the date of the
Short Term Debt or the lowest five day average market price of the Common
Stock during the actual time the Short Term Debt is outstanding. See "Certain
Transactions."

CONCURRENT OFFERING

The registration statement of which this Prospectus forms a part also
includes a Prospectus with respect to an offering of 247,500 shares of
Preferred Stock, 247,500 Redeemable Warrants and 1,485,000 shares of Common
Stock issuable upon conversion of such shares of Preferred Stock and the
exercise of such Redeemable Warrants, all of which may be sold in the open
market, in privately negotiated transactions or otherwise, directly by the
Selling Shareholders thereof. The Selling Shareholders have agreed with the
Representative not to sell any of such Securities for thirteen (13) months
from the date of this Prospectus without the prior written consent of the
Representative. The Company will not receive any proceeds from the sale of
such Securities. Expenses of the Concurrent Offering, other than fees and
expenses of counsel to the Selling Shareholders and selling commissions, will
be paid by the Company. Sales of such Securities by the holders thereof or the
potential for such sales may have an adverse effect on the market price of the
Preferred Stock offered hereby. See "Risk Factors--Shares Eligible for Future
Sale."

19
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the
1,500,000 shares of Preferred Stock, and 1,500,000 Redeemable Warrants after
deducting underwriting discounts and estimated offering expenses, are
estimated to be approximately $6,232,000 ($7,241,800 if the Over-Allotment
Option granted to the Representative is exercised in full), based on assumed
initial public offering prices of the Preferred Stock and Redeemable Warrants
of $5.00 and $.10, respectively. The Company intends to apply such net
proceeds in approximately the following manner:

<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
AMOUNT OF PERCENTAGE OF
NET PROCEEDS NET PROCEEDS
------------ -------------
<S> <C> <C>
Repayment of Indebtedness (1)........................ $2,042,000 32.8%
Research and Development............................. 1,400,000 22.5%
Sales and Marketing.................................. 800,000 12.8%
Working Capital...................................... 1,990,000 31.9%
---------- -----
Total.............................................. $6,232,000 100.0%
========== =====
</TABLE>
- --------
(1) Represents (i) repayment of $1,650,000 of principal and approximately
$83,000 of interest through June 30, 1996, relating to the Notes, along
with 247,500 shares of Common Stock and 247,500 Redeemable Warrants,
issued in the Private Placement and (ii) $300,000 of principal and $9,000
of interest (which represents 90 days of interest) with respect to the
Short Term Debt incurred by the Company, $225,000 of which was loaned by
Directors of the Company. In connection with the Short Term Debt the
Company also issued 75,000 warrants, subject to adjustment. See "Certain
Transactions."

The allocation of the use of proceeds represents management's estimates
based upon current business and economic conditions. Although the Company does
not contemplate material changes in the proposed allocation of the use of
proceeds, to the extent the Company finds that adjustment is required by
reason of existing business conditions, the amounts shown may be adjusted
among the uses indicated above. The Company believes that the net proceeds of
this offering, together with anticipated revenues from the PAS device, will be
sufficient for the Company to conduct its operations for the 12 month period
following this offering. See "Risk Factors--Dependence on Offering Proceeds;
Possible Need for Additional Financing; Possible Issuance of Securities;
Future Dilution," "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Any net proceeds from the exercise of the Over-Allotment Option will be used
for working capital purposes. The net proceeds of this offering that are not
expended immediately shall be deposited in interest bearing accounts, or
invested in government obligations, certificates of deposit or similar short-
term, low risk investments.

The Company will not receive any of the proceeds from the sale of any of the
securities being offered by the Selling Shareholders in the Concurrent
Offering.

20
<PAGE>

MARKET PRICE FOR THE COMMON STOCK AND DIVIDENDS

The Common Stock is quoted on the Nasdaq SmallCap Market under the symbol
"MEDD". Prior to this offering, there has been no public market for the
Company's Preferred Stock. The following table sets forth, for the periods
indicated, the high and low bid price for the Common Stock, as reported by the
Nasdaq SmallCap Market.

<TABLE>
<CAPTION>
BID PRICE
-----------
HIGH LOW
----- -----
<S> <C> <C>
1994
First Quarter................................................. $6.00 $2.00
Second Quarter................................................ $4.38 $1.75
Third Quarter................................................. $4.44 $2.13
Fourth Quarter................................................ $2.50 $1.75
1995
First Quarter................................................. $2.00 $1.13
Second Quarter................................................ $2.63 $ .75
Third Quarter................................................. $3.13 $1.63
Fourth Quarter................................................ $2.00 $1.25
1996
First Quarter................................................. $1.63 $1.00
Second Quarter (through June 21, 1996)........................ $1.81 $1.25
</TABLE>

On June 21, 1996, the closing bid and asked prices of Common Stock as
reported by the Nasdaq SmallCap Market were $1.25 and $1.63 per share,
respectively.

On June 21, 1996, there were 1,085 holders of record of Common Stock and 45
holders of record of the Company's Series I Preferred Stock.

The Company has not paid any dividends since its inception and does not
intend to pay dividends in the foreseeable future with respect to the Common
Stock. The Company is required to pay a 6% cumulative, semi-annual dividend,
which will be paid solely in shares of Common Stock, with respect to its
Preferred Stock, all of which will convert into Common Stock no later than
July 24, 1997. It is presently anticipated that any earnings which the Company
may realize in the foreseeable future will be retained to finance the growth
of the Company.

21
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at March
31, 1996, (a) actual, (b) pro forma to give effect to the issuance by the
Company subsequent to March 31, 1996 of $300,000 of 6 month 12% unsecured
Notes and (c) pro forma as adjusted to give effect to the sale of the
Preferred Stock and Redeemable Warrants offered hereby at the initial public
offering prices of $5.00 and $.10, respectively, and the application of the
net proceeds therefrom. The following table does not give effect to the
issuance of an additional 283,250 shares of Common Stock subsequent to March
31, 1996.

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA(2) AS ADJUSTED(3)
------------ ------------ -------------
<S> <C> <C> <C>
Short-term notes................... $ 1,402,500 $ 1,702,500 $ -0-
Long term liabilities.............. $ 210,830 $ 210,830 $ 210,830
Preferred stock, par value $.01 per
share, 10,000,000 shares
authorized; Series I Convertible
Preferred Stock, 247,500 shares
authorized, 247,500 shares issued
and outstanding actual, 247,500
authorized, issued and outstanding
pro forma, and 0 issued and
outstanding pro forma as
adjusted.......................... $ 618,750 $ 618,750 $ -0-
6% Cumulative, Convertible Series A
Preferred Stock, 0 shares issued
and outstanding actual and pro
forma, 1,747,500 issued and
outstanding pro forma as
adjusted.......................... $ -0- $ -0- $ 6,718,750
Common stock, par value $.15,
100,000,000 shares authorized,
4,387,170 shares issued and
outstanding actual, pro forma and
pro forma as adjusted(4).......... $ 658,075 $ 658,075 $ 658,075
Common stock to be issued (25,000
shares)........................... $ 23,440 $ 23,440 $ 23,440
Additional paid in capital......... $ 12,984,059 $ 12,984,059 $ 13,116,059
Deferred compensation.............. $ 326,144 $ 326,144 $ 326,144
Accumulated deficit................ $(14,292,945) $(14,292,945) $(14,663,445)
Total shareholders' equity......... $ 317,523 $ 317,523 $ 6,179,023
Total capitalization............... $ 528,353 $ 528,353 $ 6,389,853
</TABLE>
- --------
(1) Net of $618,750 of original issue discount and $180,000 of loan
origination fees attributable to $1,650,000 of Notes and 247,500 shares of
Preferred Stock issued pursuant to the Private Placement completed January
24, 1996, of which $371,250 and $108,000 was amortized in the three months
ended March 31, 1996.

(2) Includes $300,000 Short Term Debt in April and May pursuant to six month
unsecured promissory notes at 12% per year (minimum interest total of 3%).

(3) Includes remaining non-recurring charges to interest expense of $42,000,
$247,500 and $72,000, respectively, for the interest, original issue
discount and loan origination fees related to the repayment of the Notes
issued in the Private Placement and interest of $9,000 on the Short Term
Debt.

(4) Does not include an additional 283,250 shares of Common Stock issued
subsequent to March 31, 1996.

22
<PAGE>

DILUTION

The pro forma net tangible book value before conversion of the Company at
March 31, 1996 was $(1,593,220) or $(.30) per share of Common Stock. "Pro
forma net tangible book value before conversion" per share represents the
amount of total tangible assets of the Company less total liabilities divided
by the number of shares of Common Stock outstanding after giving effect on a
pro forma basis to the issuance by the Company of 247,500 shares of Preferred
Stock in the Private Placement and assuming the conversion thereof into Common
Stock on March 31, 1996 at a rate of four (4) shares of Common Stock for each
share of Preferred Stock. After giving effect to the sale of 1,500,000 shares
of Preferred Stock and Redeemable Warrants offered hereby at the initial
public offering prices of $5.00 per share and $.10 per Redeemable Warrant, the
pro forma net tangible book value of the Company at March 31, 1996 would have
been $4,340,280 , or $.38 per share of Common Stock. "Pro forma net tangible
book value after conversion" represents the amount of the total tangible
assets of the Company less the total liabilities divided by the number of
shares of Common Stock outstanding after giving effect on a pro forma basis to
the conversion of 1,500,000 shares of Preferred Stock offered hereby into
shares of Common Stock based upon the Conversion Price. This represents an
immediate increase in pro forma net tangible book value of $.68 per share to
the existing shareholders, and immediate dilution of $.87 per share to
purchasers of the Preferred Stock in this offering or approximately 70%
dilution per share. The following table illustrates such dilution on a per
share basis.

<TABLE>
<S> <C> <C>
Price per share of common stock upon conversion................. $1.25
Pro forma net tangible book value per share before conversion... $(.30)
Increase in net tangible book value per share................... $ .68
Pro forma net tangible book value per share after conversion.... $ .38
Dilution per share.............................................. $ .87
=====
</TABLE>

The following table sets forth, as of March 31, 1996, the number of shares
of Common Stock purchased from the Company after giving effect to the issuance
by the Company of 283,250 shares of Common Stock subsequent to March 31, 1996
and the total cash consideration paid and the average price per share paid by
existing shareholders and by investors in this offering at the initial public
offering price of $5.00 per share of Preferred Stock and a Conversion Price of
$1.25.

<TABLE>
<CAPTION>
PERCENT PERCENTAGE OF AVERAGE
OF TOTAL CASH TOTAL PRICE
SHARES TOTAL CONSIDERATION CONSIDERATION PER
PURCHASED SHARES PAID PAID SHARE
---------- ------- ------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Present
Shareholders(1)......... 5,660,420 49% $2,425,482 24% $ .43
Common Stock issuable
upon conversion......... 6,000,000 51% $7,500,000 76% $1.25
---------- --- ---------- --- -----
Total................. 11,660,420 100% $9,925,482 100%
========== === ========== ===
</TABLE>
- --------
(1) Gives effect to 900,000 shares of Common Stock issuable upon conversion of
all 247,500 shares of Preferred Stock held by the Selling Shareholders.

The foregoing table assumes no exercise of outstanding Redeemable Warrants
or any other warrants. To the extent that any Redeemable Warrants or other
warrants are exercised, there may be further dilution to the new investors in
this offering.

23
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The statement of operations data set forth below with respect to the years
ended December 31, 1993, 1994 and 1995, and the balance sheet data at December
31, 1993, 1994 and 1995, are derived from, and are qualified by reference to,
the audited financial statements included elsewhere in this Prospectus. The
statement of operating data set forth the below with respect to the three
months ended March 31, 1995 and 1996 are derived from the unaudited financial
information prepared on the same basis as the audited financial statements. In
the opinion of management, all unaudited financial information includes all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the information presented. The information presented below should be
read in conjunction with and is qualified by "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Financial Statements, the related notes thereto and other financial
information included herein. The Results of Operations for the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the entire year.

STATEMENT OF OPERATING DATA(1):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31, JUNE 1, 1992 TO
------------------------------------- ---------------------- MARCH 31, 1996(3)
1993(2) 1994(2) 1995 1995 1996 (CUMULATIVE)
----------- ----------- ----------- --------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ -- $ --
Operating Expenses
Research and
development........... 307,819 778,468 943,510 170,657 173,445 2,229,949
General and
administrative (4).... 1,390,758 1,916,895 2,194,393 467,322 1,095,506 6,862,114
Net loss.............. $(1,779,841) $(3,088,296) $(3,140,828) $(638,582) $(1,785,284) $(10,586,243)
Net loss per share...... $ (2.95) $ (2.04) $ (.94) $ (.23) $ (.41)
Weighted Average Shares
Outstanding............. 604,072 1,516,407 3,357,084 2,778,535 4,320,705
</TABLE>
- --------
(1) Summary Consolidated Statement of Operating Data does not include a ratio
of earnings to fixed charges because such amount was not material.
(2) Represents restated financial information as a consequence of the Company
changing the amortization of its patent license agreements. See "Risk
Factors--Restatement of Amortization of Patent License Agreements" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(3) For purposes of presenting the Company's consolidated cumulative financial
information, June 1, 1992 is deemed to be the date the Company commenced
its current business activities related to the medical device business and
became a development stage company.
(4) Includes costs related to marketing, promotional and sales activities in
addition to office, administrative and overhead expenses.

BALANCE SHEET DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31, 1996
-------------------------------------- ---------------------------------------------
PRO FORMA
1993(1) 1994(1) 1995 ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
----------- ----------- ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Working capital......... $ 107,008 $ (109,574) $ (417,120) $ (1,661,931) $ (1,661,931) $ 4,271,569
Total assets............ 2,905,356 2,452,388 2,514,934 2,749,997 3,049,997 7,167,997
Total long-term
liabilities............. 650,301 3,400 1,755 210,830 210,830 210,830
Accumulated deficit..... (6,278,537) (9,366,833) (12,507,661) (14,292,945) (14,292,945) (14,663,445)
Shareholders' equity ... $ 2,102,636 $ 1,855,803 $ 1,553,533 $ 317,523 $ 317,523 $ 6,179,023
</TABLE>
- --------
(1) Represents restated financial information as a consequence of the Company
changing the amortization of its patent license agreements. See "Risk
Factors--Restatement of amortization of Patent License Agreements" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) Pro forma to give effect to borrowings of $300,000 pursuant to six month
unsecured promissory notes at 12% per annum, provided, however, at no
point will the Company pay less than 3% interest on the notes. Does not
give effect to (i) an aggregate of 120,750 shares of Common Stock issued
by the Company in exchange for services subsequent to March 31, 1996, (ii)
an aggregate of 162,500 shares of Common Stock issued by the Company upon
the exercise of warrants subsequent to March 31, 1996, and (iii) an
additional 25,000 shares of Common Stock to be issued. See "The Company--
Recent Financings--1996 Private Placement" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources."
(3) Pro forma as adjusted to give effect to (i) the sale of the Preferred
Stock and Redeemable Warrants offered hereby at the initial public
offering prices of $5.00 and $.10, respectively and the initial
application of the net proceeds therefrom, (ii) remaining non-recurring
charges to interest expense in the amounts of $42,000, $247,500 and
$72,000, respectively, for the interest, original issue discount and loan
origination fees related to the Private Placement, and (iii) a non-
recurring interest expense of $9,000 in connection with $300,000 of short
term debt incurred by the Company in April and May 1996. See "The Company"
and "Use of Proceeds."

24
<PAGE>

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

The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and the
Notes thereto appearing elsewhere in this Prospectus.

GENERAL

From its incorporation in 1980 until June of 1992, the Company was engaged
exclusively in oil and gas activities. In June 1992 the Company commenced
certain initial activities with respect to the medical device business.
Thereafter, the Company continued to increase its activities in the medical
device field while simultaneously decreasing its oil and gas activities.
Effective as of January 1, 1994, the Company having disposed of all of its oil
and gas interests and ceased all activities related thereto, commenced on a
full time basis its current medical device operations. Accordingly, the
results of the Company's operations prior to 1994 are not necessarily
comparable. On June 1, 1992, the Company was considered, for accounting
purposes, to have re-emerged as a development stage company. Effective as of
the fourth quarter of the fiscal year ended December 31, 1995, the Company
changed its method of amortizing its license agreements from commencement of
product shipment to the estimated useful life of the license agreement, which
is ten years. As a consequence, the combined stated values of the Company's
patent agreements at December 31, 1993, 1994 and 1995, were reduced by
approximately 11.9%, 18.6% and 28.2%, respectively, of their combined stated
values prior to the reductions. Also, as a result of this reduction, the
Company's net losses for the years ended December 31, 1993, 1994 and 1995 (as
restated) and its cumulative net loss for the period from June 1, 1992 to
December 31, 1995 (as restated) increased by 10.9%, 6.9%, 7.6%, and 7.7%,
respectively.

The Company made these adjustments after an assessment of its licensed
patented technologies, the associated markets for its proposed patented
products, relevant competition, the attributes of its products, and the
accounting practices of other medical products companies. The Company will
continue to monitor the markets for its products, the emergence of competitive
products and technologies and associated events and adjust the lives of its
patent licenses accordingly with such new information as it is received.

After taking into account the foregoing adjustments, each of the Company's
patent licenses are amortized over a ten-year period (or the remaining legal
life of the patent underlying the license, if shorter) commencing in the year
in which the Company acquired the license. As a result of these adjustments,
among other things, the restated values of the Company's license agreements at
December 31, 1993, 1994 and 1995, were $1,733,536, $1,770,854 and $1,598,242,
respectively, net of accumulated amortization costs of $205,512, $405,275 and
$627,887, respectively; the Company's net losses for the years ended December
31, 1993, 1994 and 1995 (as restated) were $1,779,841, $3,088,296 and
$3,140,828, respectively; the Company's cumulative loss, as restated, for the
period from June 1, 1992 through December 31, 1995 was $8,800,959. Also, the
Company's primary loss per share for the years ended December 31, 1993, 1994
and 1995 (as restated) was ($2.95), ($2.04) and ($.94), respectively, as
compared to ($2.66), ($1.90) and ($.87), as restated, respectively, prior to
the Company changing its patent license amortization.

As development of these devices concludes, increased marketing and sales
costs will be incurred and the Company's working capital requirements can also
be expected to grow accordingly. The Company's general and administrative
expenses include costs related to marketing, promotional and sales activities
in addition to office, administrative and overhead expenses. The original
issue discount incurred by the Company is a one time charge related to the
Company's Private Placement completed in January 1996. The Company will
recognize an estimated additional charge relating to the remaining interest,
unamortized original issue discount and loan acquisition fees in the aggregate
amount of $385,500 in the second quarter of 1996, relating to the Private
Placement and the Short Term Debt, including the warrants issued in connection
therewith.

The Company, which is still in the development stage with respect to its
current medical device operations, has not been profitable for the last ten
years and expects to incur additional operating losses for the foreseeable
future. The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
Prospectus.

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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996

REVENUES

There were no operating revenues in the first quarters of 1996 or 1995.

OPERATING EXPENSES

Research and Development

Research and development costs in the first quarter of 1996 were $173,445 as
compared to $170,657 in the first quarter of 1995, representing an increase of
1.6%. Reduction of PAS development costs were more than offset by increased
development costs incurred on the CRS and ICP in the first quarter of 1996 as
compared to 1995.

General and Administrative

General and administrative costs were $1,095,506 in the first three months
of 1996, an increase of 134.4% as compared to 1995. This increase was the
result of the expense relating to the termination agreement with a former
officer of $357,667, amortization of patent licenses in the first quarter of
1996, the hiring of two regional sales managers in the second half of 1995,
hiring a vice president of new business development and a chief financial
officer in March 1996, as well as higher auditing, legal and office expenses,
approximately $93,000 of which was related to this offering, in 1996 as
compared to 1995.

Losses

The Company's net loss for the first quarter of 1996 was $1,785,284 which
was 179.6% above 1995. This increased loss was primarily attributable to
accrued interest and the amortization of original issue discount and loan
origination fees of $516,333 in the first quarter of 1996 associated with the
Private Placement and Short Term Debt, in addition to increased other general
and administrative costs. Net loss per share was $0.41 in 1996 as compared to
$.23 in 1995, representing a 78.3% increase in net loss per share.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995

REVENUES

There were no operating revenues in 1995 or 1994.

OPERATING EXPENSES

Research and Development

Research and development costs in 1995 were $943,510 as compared to $778,468
in 1994, representing an increase of 21.2%. This increase was due to a full
year of research and development activities in 1995 as opposed to
approximately nine months of such activities in 1994. Increased research and
development costs were primarily related to engineering costs associated with
further development of the PAS, design and development and FDA submission
costs related to the CRS, and further design changes to the ICP.

General and Administrative

General and administrative costs were $2,194,393 in 1995 as compared to a
restated $1,916,895 in 1994 representing an increase of 14.5%. This increase
was the result of the hiring in 1995 of a vice president of marketing and two
regional sales managers, increased advertising and promotional expenses to
introduce the PAS device, and higher office expenses and rental costs. The
Company's office expenses and rental costs were $116,700 in 1995 as compared
to $78,200 in 1994.

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Losses

The Company's net loss for 1995 was $3,140,828 as compared to a restated
$3,088,296 for 1994 representing an increase of 1.7%. This increase was
primarily attributable to an increase in research and development and general
and administrative costs which exceeded the loss incurred by the Company in
discontinuing its oil and gas operations in 1994. Net loss per share was $0.94
in 1995 as compared to a restated loss of $2.04 in 1994, representing a
decrease of 53.9%. This decrease was primarily attributable to the increase in
the average number of shares outstanding in 1995 as compared to 1994.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994

REVENUES

There were no operating revenues in 1994 or 1993.

OPERATING COSTS

Research and Development

Research and development costs in 1994 were $778,468 as compared to $307,819
in 1993, representing an increase of 152.9%. This increase was attributable
primarily to the Company commencing development activities of its medical
device business on a full-time basis starting in April of 1994.

General and Administrative

General and administrative costs were a restated $1,916,895 in 1994 as
compared to a restated $1,390,758 in 1993, representing an increase of 37.8%.
This increase in general and administrative costs is a result of the Company
substantially increasing its activities in 1994 as it altered its focus from
an oil and gas exploration company to a medical device company. During this
period advertising and promotional costs increased to $456,712 in 1994 from
$195,659 in 1993 reflecting the Company's increasing of its activities in the
medical device field and an increase in the Company's office expenses and
rental costs to $78,220 in 1994 from $26,868 in 1993. This latter increase was
primarily due to lease cancellation costs of $40,265, resulting from the
Company's move during the second quarter of 1993 to its prior offices.

Losses

The Company's net loss for 1994 was a restated $3,088,296 as compared to a
restated $1,779,841 in 1993, representing an increase of 73.5%. This increase
resulted from increased activities in 1994 in connection with the Company
commencing the development of its medical devices on a full-time basis and a
non-recurring charge related to the discontinuance of its oil and gas
activities. Net loss per share in 1994 was a restated $2.04 as compared to a
restated $2.95 in 1993 representing a decrease of 30.9%. The net loss per
share decrease was the result of an increase in the average number of common
shares outstanding during 1994.

LIQUIDITY AND CAPITAL RESOURCES

At May 17, 1996 the Company had cash on hand of approximately $53,708. To
date, the Company has funded its capital requirements for its current medical
device operations from the private sale of debt and equity securities and the
issuance of Common Stock in exchange for services. The Company's cash position
at December 31, 1995 was $306,851 as compared to $483,611 at December 31,
1994, representing a decrease of 36.5%. In 1995, $1,435,445 of net cash was
used for operating activities plus $104,270 was invested in patents, property
and equipment. These amounts were not fully offset by the $1,362,955 received
by the Company in 1995 from financing activities. Net cash used in operating
activities in 1995 consisted principally of a net loss of $3,140,828, plus an
increase in other net assets (excluding cash) of $273,984, the reversal of a
reserve for

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<PAGE>

litigation in the amount of $286,996 which was offset by $1,563,130 in Common
Stock paid for services in lieu of cash, plus depreciation, amortization and
non-cash compensation and recognition of $703,233. Financing activities in
1995 resulted in $1,182,500 of net proceeds from notes payable, plus the
receipt of $231,959 in net proceeds from the issuance of Common Stock. The
Company also repaid $51,504 in principal with respect to outstanding notes and
leases in 1995. The Company's increase in current assets in 1995 of $58,915,
or 12.2%, was offset by an increase in current liabilities of $366,461, or
61.8%, from December 31, 1994 to December 31, 1995. These changes in current
assets and current liabilities resulted in an increase in the Company's
negative working capital position to $417,120 at December 31, 1995 from
$109,574 at December 31, 1994. Management expects to increase working capital
to meet the growing requirements of the Company as it brings its products to
market. The Company plans to fund its working capital needs from the proceeds
of this offering and certain minimum sales of the PAS during 1996.

Due to the Company's recurring losses from operations, negative working
capital and limited capital resources, the Company's independent certified
public accountants have included an explanatory paragraph in their report
stating that these factors raise substantial doubt about the Company's ability
to continue as a going concern. See "Risk Factors--Auditors' Going Concern
Report."

In the event this offering is not completed and the Company does not achieve
certain minimum sales of the PAS device during the next twelve months, the
Company will be required to seek alternative sources of financing, of which
there can be no assurance. In such event, the Company would have to curtail
product as well as research and development plans substantially due to lack of
funds. The long-term viability of the Company is dependent on its ability to
profitably develop and market its current products and to obtain the financing
necessary to fund its anticipated growth.

While the Company had no inventory at December 31, 1994, inventory
consisting solely of parts and materials was $147,593 at December 31, 1995 in
anticipation of the first quarter market launch of the PAS.

In the second quarter of 1995, the Company completed the 1995 Private
Placement and received net proceeds of $974,769 in connection with the sale of
20.75 units at a purchase price of $50,000 per unit. Each unit consisted of
35,715 shares of Common Stock and 12,500 3-year warrants to purchase 12,500
shares of Common Stock. The warrants are exercisable for $2.00 per share of
Common Stock. The Company also issued to the broker-dealer which assisted the
Company in effecting the 1995 Private Placement 28,125 2-year warrants to
purchase 28,125 shares of Common Stock at an exercise price of $2.00 per
share. The Company's S-3 Registration Statement relates to, among other
securities, all of the shares of Common Stock, and the shares of Common Stock
underlying the warrants issued in the 1995 Private Placement (including the
shares of Common Stock underlying the warrants issued to the broker-dealer).

In June and July, 1995, the Company issued an aggregate of $275,000 of
short-term Convertible Debt which, if not converted into Common Stock, was to
mature in six months and bore interest at the rate of 48% per annum payable on
maturity. As of December 27, 1995, all of the Convertible Debt had converted
into Common Stock at the rate of 1.25 shares of Common Stock for each $1.00 of
indebtedness, or an aggregate of 343,750 Debt Shares. In connection with the
issuance of the Convertible Debt, the Company also issued an aggregate of
68,750 warrants exercisable for 68,750 shares of Common Stock at $1.20 per
share. The warrants expired on May 28, 1996. The Company's S-3 Registration
Statement relates to, among other securities, the Debt Shares and the shares
of Common Stock underlying the warrants that were issued in connection with
the Debt Shares.

On January 24, 1996, the Company completed the Private Placement pursuant to
which it received net proceeds of $1,470,000 from the sale of 33 units (the
"Units") to non-affiliated, accredited investors. Each Unit consisted of (i) a
secured, one year, 10%, $50,000 Note and (ii) 7,500 shares of the Company's
Series I Preferred Stock, par value $.01 per share. The Series I Preferred
Stock does not pay any dividends and was automatically convertible into the
Preferred Stock provided that the date of this Prospectus was on or before
June 14, 1996. In the event that this offering was not effected before June
15, 1996, the Series I Preferred Stock automatically

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<PAGE>

converted into Common Stock on the basis of one (1) share of Series I
Preferred Stock for the number of shares of Common Stock equal to $5.00 (plus
any declared and unpaid dividends, if any) divided by eighty (80%) percent of
the average of the closing bid and asked price of the Common Stock on June 14,
1996. All of the investors in the Private Placement agreed with the Company to
extend the date of automatic conversion for thirty (30) days in exchange for
the issuance to the investors on the date of this Prospectus of 7,500
Redeemable Warrants for each Unit sold in the Private Placement. Accordingly,
in the event that this offering is not effected before July 15, 1996, the
Series I Preferred Stock will automatically convert into Common Stock on the
basis of one (1) share of Series I Preferred Stock for the number of shares of
Common Stock equal to $5.00 (plus any declared and unpaid dividends, if any)
divided by eighty (80%) percent of the average of the closing bid and asked
price of the Common Stock on July 14, 1996.

In April and May of 1996 the Company borrowed the Short Term Debt, an
aggregate of $300,000, from four (4) individuals, two (2) of whom are
Directors of the Company, pursuant to six (6) month, unsecured promissory
notes that bear interest at the rate of 12% per annum, and which the Company
intends to repay on the closing of this offering; provided that the Company
has agreed that it will pay at least three (3) months interest with respect to
the Short Term Debt regardless of when it is repaid. In connection with
issuing the notes the Company also issued an aggregate of 75,000 three year
warrants, subject to adjustment, to purchase shares of Common Stock
exercisable at the lower of a 15% discount from the average of the bid and
asked price as of the date of the Short Term Debt or the lowest five day
average market price during the actual term the Short Term Debt is
outstanding. See "Certain Transactions."

The Company anticipates that its current resources, together with the net
proceeds of this offering and sales of the PAS, will be sufficient to finance
the Company's currently anticipated needs for operating and capital
expenditures for at least 12 months from the consummation of this offering.
The Company intends to use the net proceeds, for the repayment of indebtedness
incurred in the Private Placement, for marketing purposes in connection with
the Personal Alarm System and for research and development related to the Cell
Recovery System and the Intracranial Pressure Monitoring System. The Company's
working capital and capital requirements will depend upon numerous factors,
including progress of the Company's research and development programs;
preclinical and clinical testing; timing and cost of obtaining regulatory
clearances; levels of resources that the Company devotes to the development of
manufacturing and marketing capabilities; and technological advances. Until
required for operations, the Company's policy is to keep its cash reserves in
bank deposits, certificates of deposit, commercial paper, corporate notes,
U.S. Government instruments and other investment-grade quality instruments.
See "Use of Proceeds," "Risk Factors--Development Stage Company; Accumulated
Deficit; History of Operating Losses; Uncertainty of Future Profitability" and
"--Dependence on Offering Proceeds; Need for Additional Financing; Possible
Issuance of Securities; Future Dilution."

NET OPERATING LOSS CARRYFORWARDS

As of December 31, 1995, the Company had net operating loss carryforwards
under Section 172 of the Internal Revenue Code, as amended (the "Code"), of
approximately $13,168,000 and $4,361,200 for Federal and state income tax
purposes, respectively, which may be used to offset future taxable income.

Under Section 382 of the Code ("Section 382"), however, the utilization of
net operating loss carryforwards is limited after an ownership change, as
defined in Section 382, to an annual amount equal to the market value of the
loss corporation's outstanding stock immediately before the date of the
ownership change multiplied by the highest federal long-term tax exempt rate
in effect for any month in the three (3) calendar month period ending with the
calendar month in which the ownership change occurred. Prior issuances of
equity securities by the Company may be deemed to be, and the issuance of the
Preferred Stock in this offering will be, an ownership change for purposes of
Section 382. Consequently, the Company will be subject to an annual limitation
on the use of its net operating losses. Therefore, in the event that the
Company achieves profitability

29
<PAGE>

in excess of the annual limitation amount, such limitation would have the
effect of increasing the Company's tax liability and reducing the net income
and available cash resources of the Company in such year. The dollar value of
such limitation is indeterminable at this time. In addition, the Company
provides a valuation allowance for a deferred tax asset when it is more likely
than not, based on available evidence, that some portion or all of the
deferred tax asset will not be realized. In management's opinion, it cannot
determine if it is more likely than not that the Company will generate
sufficient future taxable income before 2010, the year after which all current
available net operating loss carryforwards expire, to utilize all of the
Company's deferred tax asset. A valuation allowance has been recognized for
the full amount of the deferred tax asset of $5,179,950 at December 31, 1995.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December
15, 1995. The new standard establishes guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. The Company does not expect adoption of SFAS No. 121 to
have a material effect on its financial position or results of operations.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123) recently issued by FASB is effective for
specific transactions entered into after December 15, 1995, while the
disclosure requirements of SFAS No. 123 are effective for financial statements
for fiscal years beginning no later than December 15, 1995. The new standard
establishes a fair value method of accounting for stock-based compensation
plans and for transactions in which an entity acquires goods or services from
nonemployees in exchange for equity instruments. At the present time, the
Company has not determined if it will change its accounting policy for stock
based compensation or only provide the required financial statement
disclosures. As such, the impact on the Company's financial position and
results of operations is currently unknown. The Company does not expect
adoption of SFAS No.123 to have a material effect on its financial position or
results of operations.

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<PAGE>

BUSINESS

OVERVIEW AND STRATEGY

Effective as of January 1, 1994, the Company has been engaged full time in
identifying, developing and bringing to market medical devices which the
Company believes are innovative, represent improvements over existing
products, or are responsive to a presently unfulfilled need in the
marketplace. The Company's strategy consists of: (i) identifying patented
technologies in the medical device field that it believes have potential
commercial viability but still require refinement and regulatory clearance,
(ii) providing the necessary funds to develop and obtain the requisite
regulatory clearance of such products in exchange for the acquisition, license
or some other right to commercialize such technologies, and (iii) attempting
to commercialize or sublicense such technologies by entering into agreements
with one or more entities for clinical development, manufacturing and
marketing of such products. Through this strategy, the Company believes that
it can play a role in bridging the gap between viable patented technologies
and their commercialization. Pursuant to this strategy, the Company has
identified and acquired three licenses to develop products, the Personal Alarm
System, the Cell Recovery System and the Intracranial Pressure Monitoring
System, all of which the Company believes have commercial viability. The
primary focus of the Company's activities for the foreseeable future will be
the marketing of the PAS and the CRS and completing the regulatory and
development process relative to the ICP so that the Company can also bring
this product to market. Nevertheless, the Company also receives opportunities
from time to time to license other patented technologies in the medical device
field. The Company is generally afforded these opportunities on an unsolicited
basis primarily as a result of Mr. Hulsebus' experience and contacts in the
medical device industry. Depending on the specific device and other
circumstances, such as the Company's then current financial and operating
situation, the Company may pro-actively attempt, on a limited basis, to
identify and license additional patented technologies in the medical device
field.

THE COMPANY'S PRODUCTS

THE PERSONAL ALARM SYSTEM

The PAS is a device that monitors the integrity of infection control
barriers, such as surgical gloves and gowns worn during medical procedures.
The PAS is designed to provide notification of fluid contact between the
health care professional and patient and thus decrease the probability of
transmission of fluid-borne infectious agents, such as Human Immunodeficiency
Virus ("HIV"), the virus that causes Acquired Immune Deficiency Syndrome
("AIDS"), Hepatitis B and C viruses, and Staphylococcus ("Staph"). The Company
received FDA clearance to market its Personal Alarm System in August of 1995,
although it did not commence production and marketing of the product until it
received the necessary funds to do so upon the closing of the Private
Placement in January, 1996. The Company believes that fluid contact between
health care professionals and patients occurs not only when barriers such as
latex surgical gloves and gowns are breached by tearing or puncture but also
when such barriers are fluid-saturated. Further, the Company believes that all
latex surgical gloves, at some point in time, become fluid-saturated,
potentially permitting microorganisms contained in bodily fluids to pass
between the health care professionals and the patients. See "Risk Factors--No
Assurance of Market for PAS Device" and "Business--Potential Market for PAS
Device."

Hospital regulations as well as good medical practice requires that
defective or compromised barriers be replaced as quickly as feasible. The
immediate awareness of fluid contact between the health care professional and
patient is designed to decrease the probability of transmission of fluid-borne
infectious agents. Defective or fluid-saturated gloves represent a potential
danger for both the worker and the patient. Regulations promulgated by the
U.S. Government's Occupational Safety and Health Administration ("OSHA")
require a user of sterile barriers to be aware of the status of his or her
protective barriers at all times during a surgical procedure. The user of
sterile barriers is required to change any portion of those barriers when they
have been compromised. The Company believes that the PAS provides users with a
high degree of accuracy and reliability in becoming aware of compromised
infection barriers such as latex surgical gloves.

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<PAGE>

Presently health care professionals rely on visual observations or "feel" to
determine whether their protective barriers have been compromised. While this
approach may be effective for punctures or tears, it is not reliable when the
integrity of protective barriers are breached due to unnoticed defects or
fluid-saturation. In the case of surgeons' latex gloves, which are frequently
covered with blood and are sweaty inside, visual observation and inspection is
difficult and unreliable. Thus, the Company believes that its PAS device will
enable health care professionals to immediately recognize with a high degree
of accuracy when a protective barrier has been compromised.

The PAS is designed to be worn similar to a pager, and provides two types of
immediate warnings in order to indicate either fluid-saturation or a small
hole or a tear in a health care worker's glove. The PAS consists of a battery-
powered electronic pager-like device that is simultaneously tethered to the
patient and the health care professional that can sense the flow of extremely
small electrical currents when a fluid contact is made between the patient and
the health care professional. When the PAS senses a current flow
characteristic of a tear, major puncture or fluid saturation, the PAS device
generates a continuous 5-second vibration. Alternatively, when a current flow
characteristic of a small puncture or partial fluid saturation is detected,
the PAS device will vibrate in brief intermittent bursts.

The Company presently intends that the PAS will be sold for $500.00 each to
distributors, who in turn may resell or lease the PAS device to end users.

Potential Market for PAS Device

The Company believes that the potential market for the PAS includes all
hospitals, physicians' offices, dental offices, emergency rooms, and other
medical facilities. Given the limited resources of the Company, its initial
strategy will be to focus on those markets where the need for the PAS is
greatest. Consequently, the Company will initially introduce the PAS to
hospital operating rooms and out-patient surgical centers. Further, the
Company believes that it needs to convince the medical community of the
unreliability of infection control barriers such as latex surgical gloves,
particularly in the absence of obvious breaches of the gloves' integrity,
before it can effect substantial sales of the PAS device. The Company has
contracted with two independent laboratories to conduct studies with respect
to the fluid-saturation of latex surgical gloves and the subsequent infection
that may occur from the resulting exchange of bodily fluids. In addition, the
Company is also seeking the endorsement of or a mandate from either the Center
for Disease Control in Atlanta, Georgia (the "CDC") or OSHA that a device like
the PAS should be used in connection with all surgical and other medical
procedures where the possibility exists for fluid contact between health care
professionals and patients. There is no assurance that the Company will be
able to convince the medical community of the need for a device like the PAS
whether or not the CDC or OSHA endorses or mandates such a device, of which
there can be no assurance, and thus, there can be no assurance that a market
will develop for the PAS device. See "Risk Factors--No Assurance of Market for
PAS Device."

License Agreement

The Company obtained the rights to the PAS effective June 1, 1994, pursuant
to a license agreement (the "PAS License Agreement") with Robert Lee Thompson,
d/b/a Thompson Medical, whereby Mr. Thompson granted to the Company the
exclusive worldwide license to manufacture, use, sell or otherwise dispose of
the PAS. To date, the Company has paid Mr. Thompson $75,000 and issued 100,000
shares of the Company's Common Stock pursuant to the PAS License Agreement.
Under the PAS License Agreement, Mr. Thompson is also entitled to receive
royalty payments equal to 5% of the net sales proceeds from the PAS, with
quarterly minimum royalty payments of $7,813.00 which began on August 1, 1995,
and 25% of any payments received by the Company from sublicensing the PAS. The
PAS License Agreement is for a term of 10 years and may be extended for an
additional 10 years, at the election of the Company for no additional
consideration. Other than by breach, the PAS License Agreement cannot be
terminated by the Company prior to the expiration of the 10 year term. In May
1995, the Company also entered into an exclusive license agreement with
Dietmar P.

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<PAGE>

Rabussay, Ph.D., a consultant to the Company, for the Signal Modulation
Barrier Monitor (the "SMBM"), which is a component part of the PAS device.
Pursuant to this license agreement the Company is obligated to pay royalties
equal to 1% of the average retail sales price on the net sales of all PAS
devices. The invention disclosure for the SMBM has been filed with the Patent
and Trademark Office and the Company presently intends to file a patent
application for the SMBM during the third quarter of 1996. See "Management--
Consultants."

THE CELL RECOVERY SYSTEM

The Company's Cell Recovery System is a cell "brushing" and retrieval system
using an automated brush for the collection of specimen cells from an organ's
internal surface for diagnostic purposes, primarily (but not limited to)
cancer detection. Presently, in order to obtain diagnostically significant
tissue cells from an organ's internal surface an excisional biopsy is
necessary, i.e. the patient must check into a hospital for a $5,000--$7,000
procedure that requires general anesthesia and the endoscopic surgical removal
of tissue from the patient's internal organ. In contrast, the CRS device is a
non-surgical procedure that can be performed on an outpatient basis without
general anesthesia, although local anesthesia is required.

The first application for the CRS device is intended to be to the urology
market. Currently, the preliminary test for bladder cancer is to test a
patient's urine sample, which has a very high incidence of producing "false
negatives." As a consequence, in most instances where there are persistent
symptoms, physicians who receive a negative result from a urine sample when
testing for bladder cancer will then conduct a visual, in-office examination
using a cystoscope, which is a catheter-type instrument. Even if a visual
examination with the cystoscope does not reveal cancer polyps on the bladder
wall, the physician may then require an excisional biopsy to test if cancer
cells are present in suspect areas. The Company believes that its CRS device
provides a reliable alternative, and complement to, today's standard biopsy
procedure and will be the first automated brush system able to successfully
retrieve cell samples. Although products that utilize a manual, but not
automated, brushing technique for obtaining organ cells are currently
available, the Company believes that there is no automated device that
accomplishes the same tasks the CRS is designed to perform. Manual brushing is
awkward and, unlike the CRS, does not include a system by which the cells that
are "brushed" off the wall of the internal organ are simultaneously and
selectively retrieved. As an alternative to a biopsy, the CRS device, which
can be used in an outpatient (office) setting, is intended to save time, and
also give the physician an option that does not include the increased expense
of general anesthesia and an overnight stay in the hospital, thus representing
reduced cost and risk to the patient. Accordingly, as the CRS automated
brushing and retrieval system is significantly less expensive than excisional
biopsy. The Company also believes that the CRS procedure is reimbursable,
although there can be no such assurances. See "Risk Factors--Health Care
Reform and Related Measures; Uncertainty of Product Pricing and
Reimbursement." In addition, the CRS can also be used for the follow-up care
that bladder cancer patients require.

The Company received marketing clearance from the FDA for the CRS device for
use in the urology market in March, 1996. The Company intends to launch the
CRS in the fourth quarter of 1996. Prior to the market launch of the CRS, the
Company intends to complete certain clinical trials for a follow-up 510(k)
submission to the FDA to establish that the device assists with the detection
of certain urological diseases, such as bladder cancer, and at the same time
commence manufacturing for the system's instrumentation and disposables. There
can be no assurance that the Company will receive 510(k) clearance from the
FDA for such additional claims or that the FDA will not require the Company to
submit a pre-market approval application for such claims which would
substantially delay marketing clearance. There can also be no assurance that
the Company will be successful in establishing volume manufacturing of the
system's instrumentation and disposables.

The Company has not presently determined the price of or manner in which the
CRS device will be marketed and sold.

Potential Market for CRS Device

The Company believes that in order to successfully market the CRS device,
the Company will have to establish the device's capabilities in assisting with
the detection of certain urological diseases, such as bladder

33
<PAGE>

cancer, particularly in comparison to current cell sampling methods. In order
to do so, the Company has received commitments to begin clinical studies of
the CRS from a leading urologist and a leading pathologist. The Company has
also contacted five other leading urologists who each have expressed an
interest in completing clinical studies of the CRS. Furthermore, the Company
also presently intends to begin the testing and FDA clearance process for
other applications of the technologies underlying the CRS device. No assurance
can be given that the Company will be successful in obtaining FDA clearance or
approval for such other applications. The Company believes that the
technologies underlying the CRS device can readily be applied to, and adapted
for, other diagnostic procedures with relatively minor modifications.
Specifically, the Company believes that the technologies underlying the CRS
will be applicable to a large number of diagnostic procedures amenable to
endoscopy, such as bronchoscopy (lung examination), laparoscopy (abdominal and
pelvic organ examination), and gastro-intestinal endoscopy.

License Agreement

The Company entered in August 1992 into an exclusive license agreement, as
amended, (the "CRS License Agreement") with Robert Langdon, Nancy Bush and Dr.
Max Willscher for the exclusive worldwide rights to develop, manufacture and
market the CRS and any other device based upon the underlying patent. The CRS
License Agreement is for a term equal to the currently remaining life of the
patent relating to the CRS, which is approximately 14 years. Under the CRS
License Agreement, the Company is obligated to pay Mr. Langdon a total of
$300,000 in three payments beginning in January 1996 and to be completed in
the third quarter of 1996. Furthermore, the Company is obligated to pay to Ms.
Bush and the estate of Dr. Willscher a royalty equal to 5% of the average
retail sales price on all net sales, plus $100,000 in 20 equal quarterly
installments of $5,000, commencing January 1, 1997. Through December 31, 1995
the Company has paid $300,000 and issued 227,966 shares of Common Stock
pursuant to the original CRS License Agreement. The Company can terminate the
CRS License Agreement with 90 days written notice, at which time all of the
Company's patent rights in the CRS device will cease.

THE INTRACRANIAL PRESSURE MONITORING SYSTEM

The Intracranial Pressure Monitoring System is a device that non-invasively
monitors pressure inside the human skull. Increased intracranial pressure
generally results from either fluid build-up, or swelling or abnormal tissue
growth of the brain, thereby cutting off blood flow to the brain, resulting in
increased risk of cell death. This cell death results in brain damage, and in
severe cases, can cause patient death. Presently, intracranial pressure can
only be determined by surgically drilling a hole into or removing a section of
the skull and inserting a catheter pressure transducer to measure the
pressure. Thereafter, if a high level of intracranial pressure is found to be
present, then the same surgical drilling procedure is often used in an attempt
to relieve the pressure. Due to the invasive nature of such a procedure, the
current practice of drilling a hole in or removing a section of the skull is
considered risky and expensive, and cannot be used for routine monitoring and
examinations. The Company believes that the ICP, when developed, can be a
valuable diagnostic tool and will greatly assist health care professionals in
assessing when surgical drilling is necessary to relieve intracranial
pressure.

The ICP's non-invasive system utilizes a process of imparting a small known
force on the surface of the skull and sensing resulting low frequency (0 to
approximately 100 Hz.) wave signals at different points on the skull surface.
The characteristics of the resulting wave signals are a function of the
pressure within the skull and change when the intracranial pressure increases
or decreases. The Company presently anticipates that it will commercialize two
distinct versions of the ICP device. The first generation ICP device will
measure changes in the direction and rate of change in intracranial pressure.
The second generation ICP device, which will effectively be an upgrade of the
software used in the first generation will be able to assess ranges of
intracranial pressure levels as well. The Company believes non-overlapping
markets exist for each generation of the device. The ICP system makes use of
proprietary wave form analysis software developed by Scientific-Atlanta, Inc.,
with whom the Company has entered into a teaming agreement as more fully
described below.

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<PAGE>

Potential Market for the ICP Device

The Company believes that the potential market for both the first and second
generation ICP device is primarily hospitals that perform intracranial
procedures. Management believes that the initial users of the first generation
ICP will be neurosurgeons in connection with diagnostic procedures. Management
believes that the second generation ICP will be used not only by neurosurgeons
but also by emergency room personnel for patients who have suffered traumas to
the head, as well as by physicians to monitor and record the intracranial
pressure of individuals as a standard diagnostic procedure, similar to
measuring an individual's blood pressure. Clinical testing with respect to the
first generation ICP is currently ongoing and is expected to be finished in
the third quarter of 1996. The Company presently intends to make its first
submission to the FDA prior to the end of 1996. It has not been established if
the initial submission will take the form of a 510(k) or a PMA.
Contemporaneously, at the end of 1996 the Company intends to commence clinical
trials for the second generation ICP which the Company presently anticipates
will be concluded in the third quarter of 1997. The Company believes that
there is no product or system presently on the market or under development
which has similar technological advantages as those of the ICP device.

License Arrangements

The Company's majority-owned subsidiary, the ICP Corporation, has the
exclusive right to the ICP. The ICP Corporation entered into an agreement in
January, 1993 with Medys, Inc., a New Hampshire corporation (the "Medys
Agreement"), whereby the ICP Corporation obtained the right to acquire the
worldwide, exclusive, non-transferable license to develop, manufacture and
market the ICP until the year 2009, which is when the patent relating to the
ICP expires. Under the terms of the agreement, the ICP Corporation is
obligated to pay Medys, Inc. royalties equal to 10% of the net sales proceeds
from the ICP with a minimum payment of $90,000 due for the year ended December
31, 1996 and $200,000 for all subsequent years through the life of the patent.
With respect to the royalties due for the year ended December 31, 1996,
$15,000 was prepaid on December 31, 1995. Further, under the Medys Agreement
the Company is responsible for clinical testing of the ICP and obtaining all
required FDA and other required regulatory clearances. The Company can
terminate the Medys Agreement with 90 days written notice at which time all of
the Company's patent rights in the ICP device will cease.

In addition to the Medys Agreement that the Company has entered into with
respect to the ICP, the Company also entered into an agreement with respect to
the ICP device on November 23, 1992 with Hampton Morgan Holdings, S.A., a
Panamanian company ("Hampton Morgan"), which was controlled by a shareholder
of the Company (the "Hampton Morgan Agreement"). The Company had previously
retained the consulting services of Hampton Morgan in June of 1992 in
connection with the CRS device. The Hampton Morgan Agreement provided, among
other things, for (i) a payment of 83,334 shares of Common Stock to Hampton
Morgan as a finder of the ICP device, (ii) royalties to Hampton Morgan equal
to 8% of gross sales of the ICP, and (iii) the issuance of 1,000,000 shares of
Common Stock to Hampton Morgan upon the Company achieving gross sales of
$10,000,000 with respect to the ICP. The Company issued the 83,334 shares to
Hampton Morgan as a finder in 1992, but the Company, on the advice of counsel,
believes that the balance of the Hampton Morgan Agreement is not enforceable
because Hampton Morgan has failed to make certain required payments to the
Company under the Hampton Morgan Agreement. Consequently, the Company does not
intend to pay the 8% royalty or 1,000,000 shares of Common Stock to Hampton
Morgan. In the event that the Company is incorrect and has to pay some or all
of the royalty payments and/or shares of Common Stock to Hampton Morgan under
the Hampton Morgan Agreement, it would have a material adverse effect on the
potential profitability of the ICP and could have a material adverse effect on
the Company as a whole.

Scientific-Atlanta Agreement

In February 1993, the Company entered into a teaming agreement (the "Teaming
Agreement") with Scientific-Atlanta, Inc. ("S-A") to provide equipment,
technical expertise and experience directly related to the computer software
which provides the signal/data processing and modal analysis techniques in
developing the ICP. Under the Teaming Agreement, the Company is obligated to
use S-A exclusively as its supplier for signal/data processing and modal
analysis techniques, equipment and software for the first twelve (12) months

35
<PAGE>

after it commences sales of the ICP and thereafter only if S-A's prices are as
low as those offered by any other third party. The Teaming Agreement is for a
term of the earlier of five years or a date of two years following initial
product sale, unless sooner terminated.

MANUFACTURING

The Company has no manufacturing capabilities and does not intend to
establish any such capabilities in the foreseeable future. The Company intends
to rely on third party original equipment manufacturers ("OEMs") to produce
the Company's medical devices. Any such OEMs will have to comply with FDA and
other regulatory requirements for their facilities, including FDA Good
Manufacturing Practice regulations. The Company entered into an agreement with
a third party manufacturer effective as of December 15, 1995, for the
manufacture of the PAS. The Company believes that this manufacturer satisfies
the FDA's GMP regulations, however, there can be no assurance that the
manufacturer will continue to satisfy such regulations. In the event that the
Company experiences substantial sales of its PAS device, of which there can be
no assurance, the Company may have to identify other third party manufacturers
in connection with additional manufacturing of the PAS. Further, the Company
presently anticipates that it will engage other third party manufacturers in
connection with the manufacture of the CRS and ICP devices. There can be no
assurance that such other manufacturers can be identified on commercially
acceptable terms, or at all, or that such other manufacturers, if identified,
will be adequate for the Company's long-term needs, or that they can meet all
relevant regulatory requirements. Moreover, there can be no assurance that the
Company's manufacture of products on a limited scale basis means that the
Company can effect the successful transition to commercial, large-scale
production.

SALES, DISTRIBUTION AND MARKETING STRATEGY

The Company is exploring a variety of sales and distribution strategies in
connection with the anticipated commercialization of its medical devices. The
precise strategy that the Company eventually adopts may be a combination of
some or all of these strategies. In addition, the Company may also adopt
different strategies for different products. The two fundamental strategies
that currently are being explored are:

. Assembling a network of regional independent distributors who have proven
to be successful in effecting the sale of new medical products in the
market for the particular medical device.

. Forming a strategic alliance with a corporate partner with a strong
presence in the potential market for the applicable medical device.

The Company's form of marketing will be influenced by the sales and
distribution strategies it eventually pursues. Nevertheless, the Company
anticipates that for the next 12 months its marketing efforts will most likely
concentrate on attending trade shows and advertising in trade publications.
The Company's marketing strategy may also include, to a lesser extent, direct
mailings, textual and audio video sales literature, and general advertising
and publicity.

With respect to the PAS system, which the Company began marketing in
January, 1996, the Company intends to initially sell this product through
independent regional distributors. At some later date, the Company may form a
strategic alliance with a corporate partner, who would most likely be a
manufacturer or marketer of latex surgical gloves, although the Company does
not presently have any current prospects. The Company presently intends to
market the PAS, at least during 1996, primarily through trade show appearances
and advertisements in trade publications. The Company will coordinate its
sales and marketing efforts with respect to the PAS through its vice president
of sales and marketing and its two regional sales managers.

Although the Company intends to launch the CRS device in the fourth quarter
of 1996, a specific marketing or sales strategy with respect to the CRS device
has not yet been decided on.

COMPETITION

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<PAGE>

other resources than the Company. Further, most of the Company's competitors
have been in existence for a substantially longer period of time and may be
better established in those markets where the Company intends to sell its
devices. Although the Company is not presently aware of any competitor that
commercially manufactures and sells any medical devices similar to those the
Company presently intends to sell, the Company is aware that several
technologies similar to the Personal Alarm System are being developed and
tested by other companies. Due to the Company's relative lack of experience,
financial, marketing and other resources, even though it has received FDA
clearance for the Personal Alarm System, there can be no assurance that the
Company will be able to market this device successfully, develop and market
any of its other medical devices, or compete in the medical device industry in
general.

PATENTS AND INTELLECTUAL PROPERTY RIGHTS

Even though the patents underlying the Company's three medical devices have
been issued by the United States Patent and Trademark Office, challenges may
be instituted by third parties as to the validity and enforceability of the
patents. The Company is not presently aware of any challenges to the patents.
Similarly, the Company may also have to institute legal actions in order to
protect infringement of the patents by third parties. The Company is not
presently aware of any such infringements. The costs of litigation or
settlement in connection with the defense of any third party challenges
relative to the validity and enforceability of its patents and/or to prevent
any infringement of the patents by third parties, which pursuant to the
license agreements with respect to the patents are the Company's
responsibility, could be substantial. Moreover, in the event that the Company
was unsuccessful in any such litigation, the Company could be materially
adversely affected.

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<PAGE>

disclosure and confidentiality agreements, as well as exclusive licensing
arrangements with persons who have access to its proprietary materials or
processes, or who have licensing or research arrangements exclusive to the
Company. Despite these protections, no assurance can be given that others will
not independently develop or obtain access to such materials or processes, or
that the Company's competitive position will not be adversely affected
thereby. To the extent members of the Company's Scientific Advisory Board have
consulting arrangements with, or are employed by, a competitor of the Company,
such members might encounter certain conflicts of interest, and the Company
could be materially adversely affected by the disclosure of the Company's
confidential information by such Scientific Advisors. See "Business".

GOVERNMENT REGULATIONS

The Company's medical device products are subject to extensive government
regulations in the United States and in other countries. In order to
clinically test, produce, and market its devices, the Company must satisfy
numerous mandatory procedures, regulations, and safety standards established
by the FDA, and comparable state and foreign regulatory agencies. Typically,
such standards require that the products be cleared by the government agency
as safe and effective for their intended use prior to being marketed for human
applications. The clearance process is expensive and time consuming. Other
than with respect to the Company's Personal Alarm System and the Cell Recovery
System, no assurance can be given that clearances will be granted for any
expanded claims for the CRS or for sale of the ICP or any other future
products, or that the length of time for clearance will not be extensive, or
that the cost of attempting to obtain any such clearances will not be
prohibitive.

The FDA employs a rigorous system of regulations and requirements governing
the clearance processes for medical devices, requiring, among other things,
the presentation of substantial evidence, including clinical studies,
establishing the safety and efficacy of new medical devices. The principal
methods by which FDA clearance is obtained are pre-market approval ("PMA"),
which is for products that are not comparable to any other product in the
market, or filing a pre-market notification under Section 510(k) of the
Federal Food, Drug and Cosmetic Act (a "510(k)") which is for products that
are similar to products that have already received FDA clearance. Although
both methods may require clinical testing of the products in question under an
approved protocol, because PMA clearance relates to more unique products, the
PMA procedure is more complex and time consuming. Applicants under the 510(k)
procedure must prove that the products for which clearance is sought are
substantially equivalent to products on the market prior to the Medical Device
Amendments of 1976, or products approved thereafter pursuant to the 510(k).
The review period for a 510(k) application is approximately one hundred fifty
(150) days from the date of filing the application, although there can be no
assurance that the review period will not extend beyond such a period.

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<PAGE>

granted for the commercial sale of the Intracranial Pressure Monitoring System
or expanded claims for the CRS device.

CORPORATE HISTORY

The Company was incorporated on February 6, 1980, under the laws of the
State of Utah, initially under the name of Gold Probe, Inc. In September 1981,
the Company and the Hailey Oil Company, Inc., a Mississippi corporation,
entered into an Agreement and Plan of Reorganization whereby the Company
acquired Hailey Oil Company, Inc. and exchanged 4,500,000 shares of its Common
Stock for all the issued and outstanding shares of Hailey Oil Company, Inc. In
the transaction, Scott F. Hailey and Loyce Hailey received 3,500,000 shares,
and 1,000,000 shares were issued to certain members of the Company's Board of
Directors in exchange for their respective working interests in certain oil
and gas properties then-owned by the Company. Also, pursuant to the
reorganization, in January 1982 the Company changed its name to Hailey Energy
Corporation, effected a one (1) for five (5) reverse split of its Common
Stock, and decreased its authorized number of shares to 25,000,000. In October
1986, the number of authorized shares of the Company was increased to
100,000,000. In November, 1990, the Company effected a one (1) for thirty (30)
reverse split of its Common Stock and increased the par value of its Common
Stock to $0.15 per share. In November 1992, the Company changed its name from
"Hailey Energy Corporation" to "CytoProbe Corporation." The number of
authorized shares (100,000,000) remained unchanged. In January 1994, the
Company effected a one (1) for six (6) reverse split of its Common Stock. The
par value of the Company's Common Stock remained at $0.15 per share and the
number of authorized shares remained unchanged. In May 1995, the Company
changed its name to Medical Device Technologies, Inc. to reflect the Company's
broadening base of medical products. In June 1996 the Company effected a one
(1) for two (2) reverse split of its Common Stock. The par value of the
Company's Common Stock remained at $0.15 per share and the number of
authorized shares remained unchanged.

EMPLOYEES

As of June 21, 1996, the Company had 9 full-time employees, 4 of whom were
employed in executive and management capacities, 3 in sales and marketing and
2 in general and administrative capacities. The Company believes that its
relations with its employees are satisfactory.

PROPERTIES

The Company leases its executive offices, which occupy approximately 3,256
square feet, at 9171 Towne Centre Drive, Suite 355, San Diego, CA 92122. The
Company's rent is approximately $5,210 per month through April 20, 1998. The
Company is also responsible for its pro-rata share of increased operating
expenses starting in 1997 predicated upon a 1996 base year.

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<PAGE>

LEGAL PROCEEDINGS

Subsequent to the Company terminating its investment banking relationships
with Chandler Church & Company ("Chandler Church") and the Noir Intertrade
Corporation ("Noir") in early 1994, these entities demanded payment from the
Company of approximately $330,000 for services and/or funds they alleged to
have advanced. Over the previous two years, the Company had issued a
substantial amount of its stock, approximately 1,035,000 shares, to Chandler
Church and its affiliates for services claimed to have been rendered to the
Company. The Company's management is now informed, and now believes, that
these entities are under common control or otherwise affiliated with an
individual who, in 1994, was a substantial shareholder of the Company. The
Company refused to pay the dollar amounts demanded by these entities. These
entities subsequently assigned their claims to Uptown Trust, which in July
1994, filed a complaint regarding such claims in the Superior Court of San
Diego County, California, seeking recovery of these amounts plus interest from
the Company. Upon the Company's motion, this complaint was dismissed.
Subsequently, Chandler Church filed a complaint in the Superior Court of San
Diego County, California, seeking approximately $290,000 from the Company
based on the claims previously asserted by Uptown Trust. The Company has filed
an answer to this complaint in which it denies these claims, and has filed a
cross-complaint against Chandler Church seeking damages in excess of the
amounts claimed by Chandler Church. On April 9, 1996, Chandler Church's
complaint was dismissed by the Superior Court of San Diego County, California.
A default has been entered against Chandler Church on the Company's cross-
complaint against Chandler Church. Damages against Chandler Church on the
cross-complaint have not yet been assessed by the Court and the Company
believes that it has no liability under any of these actions.

In May 1995, a third party filed an involuntary bankruptcy petition
regarding the Company. The Company contested the fraudulent petition and,
subsequently, the Court found in favor of the Company, dismissed the petition,
and rendered a judgment of bad faith against the petitioners.

There are no other legal proceedings to which the Company is a party which
could have a material adverse effect on the Company.

RESEARCH AND DEVELOPMENT

The Company's expenditures for research and development were $943,510 in
1995 and $778,468 in 1994.

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<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The names and ages of the directors and executive officers of the Company
are set forth below.

<TABLE>
<CAPTION>
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
M. Lee Hulsebus(1)(2)..... 57 Chairman of the Board, Chief Executive Officer
and President
Don Arnwine(2)(3)......... 63 Director
Dr. Arthur Bradley........ 62 Director
Thomas Glasgow(1)(2)(3)... 42 Director
Stephen W. Kenney......... 45 Vice President of Sales and Marketing
Edward C. Hall(3)......... 55 Chief Financial Officer and Secretary
Richard E. Sloan.......... 47 Vice President of New Business Development
William A. Clarke(4)...... 57 Director Nominee
</TABLE>
- --------
(1) Member of the Nominating Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
(3) Member of the Audit Committee of the Board of Directors.
(4) Will become a member of the Board of Directors upon completion of this
offering.

There are presently six (6) seats available on the Board, although to date,
management has not yet identified an individual to fill the current vacancy.
In addition, the Representative shall have the right for a period of three
years from the effective date of the Prospectus to designate one (1) director,
subject to the good faith approval of the Company. See "Underwriting."

The Company has a staggered Board of Directors which is divided into three
classes, each class having a term of three (3) years. Mr. Arnwine has been
elected to hold office until the annual meeting of shareholders to be held in
1996. Dr. Bradley and Mr. Glasgow have been elected to hold office until the
annual meeting of shareholders to be held in 1997. Mr. Hulsebus has been
elected and Mr. Clarke has been appointed to hold office until the annual
meeting of shareholders to be held in 1998. The successors of each of the
current Directors are duly elected and qualified until the earlier of
resignation, removal from office or death. As a consequence, only one class of
Directors will be elected at each annual meeting of shareholders.

M. LEE HULSEBUS has been Chairman of the Board, Chief Executive Officer and
President of the Company since August, 1994 and has been in the health care
field for 30 years. From January, 1992 until he joined the Company in August,
1994, he was the President and owner of his own health care consulting firm.
In July 1993, Mr. Hulsebus filed a voluntary petition for relief under Chapter
7 of the United States Bankruptcy Code. The filing was made principally as a
result of obligations arising out of personal guarantees made by Mr. Hulsebus
on behalf of a business operated by a member of his immediate family. Mr.
Hulsebus was granted a discharge by order of the United States Bankruptcy
Court for the District of Georgia in December 1993. From August, 1993 to
November, 1993 Mr. Hulsebus also served as Chief Executive Officer of InCoMed
Corporation, then a small California-based medical products company. From
January, 1990 to January, 1992, Mr. Hulsebus also served as President of
Sports Support, Inc., a sports medicine company. From 1988 until 1990, he
served as Medical Group president for Teleflex, Inc. For 22 years prior to
that, Mr. Hulsebus was employed by Becton-Dickinson & Co. and C.R. Bard, Inc.,
both of which are leading companies in the health care industry.

DON ARNWINE has served as a Director of the Company since March, 1995. Since
1988, Mr. Arnwine has been President of Arnwine Associates of Irving, Texas, a
company that provides advisory services to the health care industry. Mr.
Arnwine served as Chairman and Chief Executive Officer from 1985 until 1988,
of Voluntary Hospitals of America (VHA), a company he joined in 1982. Prior to
joining VHA, Mr. Arnwine served as President and Chief Executive Officer of
Charleston Area Medical Center, a 1000-bed regional facility care center in
the State of West Virginia. Mr. Arnwine holds a B.S. degree in Business
Administration from Oklahoma Central State University and a Masters degree in
Hospital Management from Northwestern University.

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<PAGE>

DR. ARTHUR BRADLEY has been a Director of the Company since 1986. Dr.
Bradley has been a practicing dentist in Hattiesburg, Mississippi since 1961.
Dr. Bradley has been involved for his own account in real estate investments
for twenty years and has been active in oil and gas investments for fifteen
years. Dr. Bradley graduated from the University of Mississippi at Hattiesburg
and obtained his degree in Dentistry from Loyola University Dental School.

THOMAS GLASGOW has been a Director of the Company since November 1994. From
April, 1992 to the present, Mr. Glasgow has been President and co-owner of
Integrated Trade Systems ("ITS"), a Chicago, Illinois company. Mr. Glasgow and
another individual purchased ITS from its parent company in 1992. ITS is a
logistics management company specializing in the development and marketing of
import and export document generation systems. From March, 1994 to the
present, Mr. Glasgow has also been the President and owner of Automation
Information Management, a software applications company. From January, 1989
through March, 1992, Mr. Glasgow was a Vice President with and consultant to
Wharton Resource Group, a strategic management company specializing in the
development of early stage companies. Prior to these activities, he was a
director and Vice President with Federal Express Corporation, a public
company, for 11 years.

WILLIAM A. CLARKE, who will become a Director of the Company upon the
completion of this offering, has since 1967, held various positions with
Johnson & Johnson, Inc., a public medical products company. Most recently,
since 1995, Mr. Clark has served as a consultant to Johnson & Johnson, Inc.
Prior to that time, from 1986 through 1995, Mr. Clark was president of Johnson
& Johnson Medical, Inc., a subsidiary of Johnson & Johnson, Inc., with
approximately 6,000 employees.

EDWARD C. HALL has been the Company's Secretary since April 1996 and its
Chief Financial Officer since March 15, 1996. Mr. Hall has also been a
financial consultant to the Company since March 1995. From 1994 through the
present, Mr. Hall was a consultant to high technology companies in the San
Diego area where he provided strategic, financing, planning, analytical,
administrative, and system design support. Since 1991, he has acted as an
interim chief financial officer and has provided financial and turnaround
consulting services to a wide variety of high technology and other companies
in California and the Southwest. His experience includes positions and
assignments for medical, pharmaceutical, broadband and wireless
communications, specialty and mail order retailing, and aerospace
manufacturing firms.

STEPHEN W. KENNEY has been the Company's Vice President of Sales and
Marketing since January, 1995 and has twenty-one years of health care industry
experience. From December 1993 to November 1994 Mr. Kenney served as chief
operating officer of Cardio Vista, a private medical products company
headquartered in Southern California. From April 1989 to December 1993 he
served as chairman and chief executive officer of AMBIS, Inc., a private
research instrumentation company based in San Diego, California. From 1987 to
1989, Mr. Kenney served as vice president of sales and marketing of
Digivision, Inc., also headquartered in San Diego, California. Prior to that,
Mr. Kenney held various management positions with Ivac Corporation and
American Hospital Supply, both of which are public companies.

RICHARD E. SLOAN has been Vice President of New Business Development since
March 1996. Mr. Sloan was also a consultant to the Company from August 1995 to
March 1996. From March, 1995 to July, 1995, Mr. Sloan served as Chief
Executive Officer of WorldWide Products, Inc., a private Los Angeles based
development and marketing firm that distributes pharmaceutical products to
plastic surgeons and dermatologists. Prior thereto, from March, 1992 to March,
1995, he served as corporate marketing director and general manager for
Industrial Products of UniFET Incorporated, a private company based in San
Diego, California involved in the development of sensor-based medical
products. From December, 1989 through March, 1992, Mr. Sloan managed his own
mergers and acquisition business with First Pacific Group, located in
Carlsbad, CA which provided investment and financial services to privately-
held companies primarily in southern California.

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<PAGE>

DIRECTORS' COMPENSATION

The Company compensates each of its outside Directors with shares of Common
Stock at the rate of 7,500 shares per annum, payable quarterly, all of which
shares are registered from time to time by the Company under its stock
compensation plans. See "Management--Option Plans." The Company also
reimburses all Directors for their travel expenses to attend Directors'
meetings.

INDEMNIFICATION AGREEMENTS

The Company has obtained officers' and directors' liability insurance that
provides for a maximum of $1,000,000 of coverage, subject to a $100,000
corporate reimbursement per occurrence payable by the Company. Any payments
made by the Company under an indemnification agreement which are not covered
by the insurance policy may have an adverse impact on the Company's earnings.

SCIENTIFIC ADVISORY BOARD AND CONSULTANTS

Advisory Board

The Company, in addition to its Board of Directors, has an advisory board
which provides technical oversight, expertise and guidance to the Company. The
Advisory Board does not meet as a group but rather, its members are consulted
from time to time by the Company as and when the Company requires the
particular expertise or guidance of an individual Advisory Board member in
connection with a particular issue. Each member of the Advisory Board receives
6,000 shares of Common Stock per annum, payable semi-annually, all of which
shares are registered from time to time by the Company under its stock
compensation plans. See "Management--Option Plans." The members of the
Advisory Board are:

HOWARD G. GRATZNER, PHD--currently serves as President and Scientific
Director for Oncyte, Inc. in Houston, Texas. Dr. Gratzner holds an
undergraduate degree in microbiology, and a Ph.D. in genetics from Florida
State University, and was a research fellow in genetics at the California
Institute of Technology. Dr. Gratzner has held several professorships and
received grants from various organizations, including the National Institutes
of Health, National Aeronautics and Space Administration, and the National
Foundation--March of Dimes. Dr. Gratzner has written numerous articles in
various medical publications in cytopathology and genetics.

BRYANT H. HUDSON, III, MD--is a urologist in private practice in Montgomery,
Alabama, and also serves as the State Surgeon for the Alabama Army National
Guard. Dr. Hudson holds degrees from the University of Alabama and the Medical
College of Alabama, and has extensive military and civilian experience in both
adult and pediatric urology at several hospitals, including Baptist Medical
Center of Montgomery.

RUTH L. KATZ, MD--is Board certified in anatomic pathology, clinical
pathology, and cytopathology, and currently serves as Professor of Pathology,
Co-Chief of Cytopathology, and Director, Image Cytometric Diagnostic
Laboratory at the University of Texas MD Anderson Hospital. Dr. Katz holds
undergraduate and medical degrees from the University of Witwatesrand in
Johannesburg, South Africa, and is licensed in Texas and in California. Dr.
Katz has published over ninety articles in medical journals, and written
chapters in several pathology textbooks. Dr. Katz is acknowledged as an expert
in cytopathology.

LESTER A. KLEIN, MD--is a Board certified urologist, and currently serves as
urologist at Green Hospital, Scripps Clinic and Research Institute, La Jolla,
CA. Dr. Klein holds medical degrees from the University of California in San
Francisco, Berkeley, and Los Angeles. From 1971 to 1977 he was appointed to
the Harvard Medical School as Assistant Professor of Surgery, and from 1977 to
1988 as Associate Professor of Surgery. During this same period, he served as
Surgeon and Head, Division of Urology, Beth Israel Hospital, Boston. He

43
<PAGE>

serves on numerous committees and has held a variety of teaching positions.
Dr. Klein has published fifty-seven articles in medical publications, and has
presented over thirty abstracts before various scientific meetings around the
world.

WILLIAM E. MAYER, MD--retired as Director of the Department of Mental Health
for the State of California in July 1992. From January 1990 to 1991 he was
Director of the International Forum for AIDS Research at the National Academy
of Sciences. Dr. Mayer served from 1983 to 1990 as Assistant U.S. Secretary of
Defense for Health Affairs, directing a $13 billion annual military health
care system. He also served as Chairman of the Board of Governors of the Armed
Forces Institute of Pathology, and as a trustee on the Board of the Uniformed
Services University of Health Sciences. In 1981 President Reagan appointed Dr.
Mayer Assistant Surgeon General, and Administrator of the Federal Alcohol,
Drug Abuse and Mental Health Administration. He holds undergraduate degrees,
as well as his medical degree from Northwestern University, and has specialty
training in neurology, psychiatry, and neuropathology.

LAWRENCE C. POLLAK, MD--is a Board certified orthopedic surgeon specializing
in total joint replacement. Dr. Pollak joined Sharp Rees-Stealy Medical Group
in 1981 and has held numerous leadership positions with this 270 physician
group, including medical director and community care liaison with Sharp
Healthcare, where he worked on a variety of projects related to managed care
and physician/medical group integration. He received a BA from the Johns
Hopkins University and a MD from the Indiana University School of Medicine.
After a general surgery internship and residency at the Dartmouth-Hitchcock
Medical Center in Hanover, New Hampshire, he completed an orthopedic residency
in Albany, New York. He received fellowship training in arthritis surgery at
the Robert Breck Brigham Hospital in Boston, Massachusetts and at the National
Institutes of Health in Bethesda, Maryland. In addition, Dr. Pollak frequently
works with APM, a national healthcare consulting firm.

RICHARD L. SAUNDERS, MD--has been Professor and Chairman of Neurological
Surgery at Dartmouth School of Medicine since 1981. Board certified in 1972,
he received his B.S. and M.D. from Tufts University and is the Director of the
Dartmouth Neurosurgical Residency Program. He has authored one book, several
book chapters and many journal articles. For all of the past seven years, Dr.
Saunders has received the "Physician's Recognition Award" from the American
Medical Association. Dr. Saunders has been overseeing all aspects of the ICP's
pre-clinical and clinical trials.

Consultants

In an effort to control costs, in lieu of employing full-time engineers, the
Company uses consultants on a regular basis to fulfill its engineering needs
in connection with the development of its products. During 1995, the Company
paid all of its consultants, in the aggregate, an average of approximately
$35,000 per month. The consultants used by the Company are as follows:

DIETMAR P. RABUSSAY, PH.D.--serves in the capacity of technical consultant
to the Company. He has extensive experience with the development of products
in the biomedical field and has assisted emerging growth companies in the
design and development of their technologies. He has many publications and
patents to his credit and continues with research in the development of new
products. Dr. Rabussay received his doctorate from the University of Munich;
his thesis was completed at the Max Planck Institute of Biochemistry. He
served as president and CEO of InCoMed Corporation in 1992 and 1993 and for
the ten years prior to that as a Vice President of Bethesda Research
Laboratories, Inc., and Life Technologies, Inc., respectively. Dr. Rabussay
has taught at Florida State University and the University of Maryland and has
served as a member of a Study Section for the National Institutes of Health.
Dr. Rabussay is the owner of the patent under the license agreement with
respect to the signal modulation barrier monitor, a component of the PAS, for
which the Company is obligated to pay a royalty of 1% of gross sales. See
"Business--The Company's Products--Personal Alarm System--License Agreement."

44
<PAGE>

CHRIS CATSIMANES--is currently involved in developing the CRS for the
Company. His past experience includes design, development, and management in a
variety of engineering fields, including design of control systems, energy
management systems, automated monitoring and diagnostic systems, bindery
automation systems, and electronic warfare systems. Mr. Catsimanes received
his BSEE from the University of Wyoming and his Masters of Engineering from
the University of Florida.

ICRC, INC. (formerly known as CRCI)--is a team of professionals with
management and technical experience which provides consulting services to the
health care industry. ICRC provides an array of services to the Company, the
most critical being the validation of technology and preparation and
documentation of the material required to gain necessary regulatory
clearances. ICRC's professionals have substantial industry experience, and
work frequently with the FDA. They are familiar with all the requirements
ranging from document preparation for the submission of PMA's to the
development of application manuals required for product applications or
submissions.

45
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth the cash compensation paid by the Company to
executive officers of the Company whose total annual salary and bonus exceeded
$100,000 for the years ended December 31, 1993, 1994 and 1995.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ----------------------- --------
OPTIONS/SARS
------------
ALL
OTHER ANNUAL RESTRICTED LTIP OTHER
NAME AND COMPENSATION STOCK PAY-OUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) AWARDS($) (#)(1) ($) ($)
- ----------------------- ---- ------------ --------- ------------ ---------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M. Lee Hulsebus, 1995 $162,000 $0 $0 $71,094 150,000 $0 $0
Chairman of the Board, 1994 54,000 0 0 43,489 100,000 0 0
Chief Executive 1993 0 0 0 0 0 0
Officer and President
B. Roland Freasier, 1995 120,000 0 0 68,750 0 0 0
Jr.(2) 1994 120,000 0 0 22,917 75,000 0 0
1993 75,000 0 0 0 0 0 0
Stephen W. Kenney, Vice 1995 110,000 0 0 41,250 37,500 0 0
President of Marketing
and Sales
</TABLE>
- --------
(1) Includes warrants.
(2) Resigned as a director of the Company in January 1996, and resigned as
executive vice president and an employee in March 1996.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
PERCENT OF
TOTAL
OPTIONS/SARS
GRANTED EXERCISE
TO EMPLOYEES OF
OPTIONS/SARS IN BASE PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR ($/SH)(1) DATE
---- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
M. Lee Hulsebus................ 150,000 70.6% $ .80/sh 7/31/00
B. Roland Freasier, Jr. (2).... -0- -- -- --
Stephen W. Kenney.............. 37,500 17.6% $2.00/sh 1/04/00
</TABLE>

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

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS
ACQUIRED FY-END AT FY-END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE(1)
---- -------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
M. Lee Hulsebus......... -0- -0- 150,000/100,000 $86,250/$0
B. Roland Freasier,
Jr.(2).................. -0- -0- 0/75,000 $0/$0
Stephen W. Kenney....... -0- -0- 0/37,500 $0/$0
</TABLE>
- --------
(1) Includes warrants.
(2) Resigned as a director of the Company in January 1996, and resigned as
executive vice president and an employee in March 1996.

46
<PAGE>

MANAGEMENT EMPLOYMENT AGREEMENTS

EMPLOYMENT AGREEMENTS

In August, 1994, the Company entered into an exclusive four year term
employment agreement with Mr. Lee Hulsebus. Under his employment agreement,
Mr. Hulsebus is to serve as the Company's Chief Executive Officer and receive
a base salary of $162,000 per annum. He is also entitled to receive one
hundred twenty-five thousand (125,000) shares of the Company's Common Stock at
the end of two years of continuous satisfactory employment by the company. In
addition, Mr. Hulsebus received 100,000 common stock purchase warrants which
are exercisable over a five (5) year period ending August 31, 1999 at $2.00
per share.

In addition, in 1994, the Company entered into a severance agreement with
Mr. Hulsebus. The severance agreement provides, among other things, that in
the event a change in control of the Company occurs or Mr. Hulsebus is
involuntarily terminated, suffers a disability while employed by the Company
or dies while employed by the Company, then Mr. Hulsebus is entitled to
receive certain benefits from the Company. Such benefits may include some or
all of the following: an amount based on Mr. Hulsebus' base salary as provided
for in Mr. Hulsebus' employment agreement; an amount based on the bonus paid
or payable to Mr. Hulsebus as provided for in Mr. Hulsebus' employment
agreement; the right to receive Common Stock that shall vest immediately; and
the right to exercise any warrants or stock options held by or granted to Mr.
Hulsebus under Mr. Hulsebus' employment agreement or any stock option plan of
the Company or both, health insurance and disability insurance. Mr. Hulsebus
will not receive any benefits if Mr. Hulsebus voluntarily terminates his
employment with the Company or the Company terminates Mr. Hulsebus "for
cause", which is defined as the conviction of Mr. Hulsebus after appeal of a
felony.

In March 1996, the Company terminated the services of its executive vice
president, B. Roland Freasier, Jr. The Company entered into a termination
agreement with Mr. Freasier which terminated his existing employment and
severance agreements, and also provided for mutual general releases. Under the
termination agreement, Mr. Freasier is entitled to receive 100,000 shares of
the Company's Common Stock on August 31, 1996 and 75,000 common stock purchase
warrants, which expire on August 31, 1999 and are exercisable at a price of
$2.00 per share, after the earlier of August 31, 1996 or the completion of a
public offering of the Company's securities. The termination agreement also
provides for Mr. Freasier to receive 29 monthly payments of $10,000,
commencing on April 1, 1996 and ending August 31, 1998, and 37,500 common
stock purchase warrants which are exercisable, from August 31, 1998 through
August 31, 2001, at a price of $.80 per share.

In January 1995, the Company entered into an exclusive three-year employment
agreement with Mr. Stephen W. Kenney under which he is to serve as the
Company's Vice President of Marketing and Sales. Mr. Kenney receives a base
salary of $110,000 per annum. He is also entitled to receive fifty thousand
(50,000) shares of the Company's Common Stock on August 31, 1996 and is
entitled to receive warrants to purchase thirty-seven thousand five hundred
(37,500) shares of the Company's Common Stock at $2.00 per share. One-third of
the warrants were issued in January, 1996, and one-third (1/3) of the warrants
are to be issued on each of January 4, 1997 and 1998. The warrants are
exercisable for a period of five years from the date of issuance.

In March 1996, the Company entered into an exclusive employment agreement
with Mr. Richard E. Sloan under which he is to serve as the Company's Vice
President of New Business Development. Mr. Sloan receives a base salary of
$108,000 per annum. He is also entitled to receive twenty-five thousand
(25,000) shares of the Company's Common Stock; 12,500 shares of Common Stock
will vest each on March 15, 1997 and the remaining 12,500 shares will vest on
March 15, 1998. In addition, Mr. Sloan is entitled to receive warrants to
purchase thirty-seven thousand five hundred (37,500) shares of the Company's
Common Stock at $.80 per share. One-quarter (1/4) of the warrants are to be
issued on each of March 15, 1997, 1998, 1999 and 2000. The warrants are
exercisable for a period of five years from the date of issuance.

In March 1996, the Company entered into a non-exclusive employment agreement
with Mr. Edward C. Hall under which he is to serve as the Company's Chief
Financial Officer. Mr. Hall receives a base salary of $60,000

47
<PAGE>

per annum based upon a three day work week. In the event that Mr. Hall's
services are required by the Company in excess of three days per week, Mr.
Hall is to be compensated at the same rate as when he was a consultant to the
Company, $600 per day. Mr. Hall is also entitled to receive twelve thousand
five hundred (12,500) shares of the Company's Common Stock; 6,250 shares of
Common Stock will vest on March 15, 1997 and the remaining 6,250 shares will
vest on March 15, 1998. In addition, Mr. Hall is entitled to receive warrants
to purchase twenty-five thousand (25,000) shares of the Company's Common Stock
at $.80 per share. One-quarter (1/4) of the warrants are to be issued on each
of March 15, 1997, 1998, 1999 and 2000. The warrants are exercisable for a
period of five years from the date of issuance.

Under each of their contracts, Messrs. Hulsebus, Kenney, Sloan and Hall may
receive bonuses or other additional compensation consisting of cash, stock or
stock purchase rights as may be determined from time to time by the Board of
Directors.

There are no family relationships among any Directors or executive officers.

OPTION PLANS

STOCK OPTIONS

The Company does not presently have a stock option plan, although it intends
to institute a stock option plan for officers, directors, employees and
consultants to the Company. The purpose of such a stock option plan would be
to encourage stock ownership by current and future officers, directors,
employees and consultants to the Company, and certain other persons judged by
the committee who would administer the plan to be instrumental to the success
of the Company, and to give such persons a greater personal interest in the
Company achieving continued growth and success. The Company's Board of
Directors presently intends to adopt such a plan subsequent to this offering.

STOCK COMPENSATION PLAN

In January 1996 the Company established the 1996 Stock Compensation Plan
(the "1996 Plan") which provides for the issuance of up to 475,000 registered
shares of Common Stock to employees, directors, consultants and other third
parties in exchange for services. As of June 14, 1996, 311,320 shares of
Common Stock have been issued pursuant to the 1996 Plan. The remaining 163,680
shares under the 1996 Plan can be issued any time prior to January 10, 1998.
The Company adopted similar stock compensation plans in 1994 and 1995 covering
250,000 and 875,000 shares of Common Stock, respectively. All of these shares
of Common Stock with respect to each of these other stock compensation plans
were issued in their respective calendar years.

48
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth information as of June 21, 1996 with respect
to the beneficial ownership of the outstanding shares of the Common Stock by:
(i) any holder of more than five percent (5%) of the outstanding shares; (ii)
the named executive officers; (iii) the Company's directors and director
nominee; and (iv) the Company's directors, director nominee and executive
officers as a group. None of the Company's officers, directors, director
nominee or holders of five percent (5%) or more of the outstanding Common
Stock own any shares of Preferred Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
BENEFICIALLY
OWNED(1)
-------------------
NAME AND
ADDRESS AMOUNT BEFORE
OF BENEFICIAL BENEFICIALLY THE AFTER THE
OWNER OWNED(1) OFFERING OFFERING(2)
------------- ------------ -------- ----------
<S> <C> <C> <C>
M. Lee Hulsebus.......................... 189,613(/3/) 3.93% 1.75%
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Dr. Arthur Bradley....................... 52,975 1.13% * (/4/)%
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Thomas Glasgow........................... 135,278(/5/) 2.86% 1.26%
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Don Arnwine.............................. 33,125(/6/) * (/4/) * (/4/)%
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92112
William A. Clarke(/7/)................... 0 * (/4/) * (/4/)%
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92112
Edward C. Hall........................... 1,913 * (/4/) * (/4/)%
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Richard E. Sloan......................... 2,365 * (/4/) * (/4/)%
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Steven W. Kenney......................... 18,000(/8/) * (/4/) * (/4/)%
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Virgil McDonald.......................... 385,720 8.26% 3.61%
13410 Ramona Dr.
Whittier, CA 90602
All officers, directors and director 433,269 8.83% 3.97%
nominees as a group (7)
persons(/3/)(/5/)(/6/)(/7/)(/8/).........
</TABLE>
- --------
(1) The shares of Common Stock owned by each person or by the group, and the
shares included in the total number of shares of Common Stock outstanding,
have been adjusted in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, to reflect the ownership of shares
issuable upon exercise of outstanding options, warrants or other common
stock equivalents which are exercisable within 60 days. As provided in
such Rule, such shares issuable

49
<PAGE>

to any holder are deemed outstanding for the purpose of calculating such
holder's beneficial ownership but not any other holder's beneficial
ownership.
(2) Assumes conversion of all Preferred Stock at the Conversion Price.
(3) Includes 150,000 warrants exercisable at $.80 per share to acquire 150,000
shares of Common Stock.
(4) Holdings represent less than 1% of the Company's issued and outstanding
Common Stock.
(5) Includes 15,625 warrants, 12,500 of which are exercisable at $2.00 per
share to acquire 12,500 shares of Common Stock and 3,125 of which are
exercisable at $1.20 per share to acquire 3,125 shares of Common Stock and
50,000 warrants, subject to adjustment, 37,500 of which are exercisable at
$1.25 per share to acquire 37,500 shares of Common Stock and 12,500 of
which are exercisable at $1.28 per share to acquire 12,500 shares of
Common Stock.
(6) Includes 3,125 warrants exercisable at $1.20 per share to acquire 3,125
shares of Common Stock and 6,250 warrants, subject to adjustment,
exercisable at $1.26 per share to acquire 6,250 shares of Common Stock.
(7) Mr. Clark is a director nominee and will become a member of the Board of
Directors upon the consummation of this offering.
(8) Includes 12,500 warrants exercisable at $2.00 per share to acquire 12,500
shares of Common Stock.

50
<PAGE>

CERTAIN TRANSACTIONS

In June, 1994, the Company issued 350,000 shares of its Common Stock to
SurgiSafe, Inc. ("SurgiSafe") in exchange for SurgiSafe's assignment to the
Company (the "SurgiSafe Assignment") of SurgiSafe's rights under an exclusive
sales agreement entered into with the Company on September 11, 1992 (the
"SurgiSafe Agreement"). Under the SurgiSafe Agreement, SurgiSafe had the
exclusive right to sell the Company's Cell Retrieval System ("CRS") and
Intracranial Pressure Monitoring Device ("ICP") and other present and future
products in a sales territory which included The Department of Defense, The
Veterans Administration, The World Health Organization and the State of
California. Under the SurgiSafe agreement, the Company was obligated to pay
SurgiSafe commissions equal to 20% of the net sales price of sales in the
sales territory and to issue to SurgiSafe 8,334 shares of the Company's Common
Stock. The 350,000 shares of the Company's Common Stock issued to SurgiSafe in
June 1994 pursuant to the SurgiSafe Assignment was distributed in February
1995 to Mr. William E. Mayer, III, the son of William E. Mayer, II, a member
of the Company's Scientific Advisory Board and the sole shareholder of
SurgiSafe, and Mr. B. Roland Frasier, III, the son of B. Roland Freasier, II,
a former Director and Executive Vice President of the Company. Also subsequent
to the SurgiSafe Assignment, Mr. Mayer III was appointed to the Company's
Board of Directors. Mr. Mayer III subsequently resigned as a director in 1995.

Two of the four lenders of the Company's Short Term Debt are Directors of
the Company. Specifically, Mr. Glasgow loaned the Company an aggregate of
$200,000 of the Short Term Debt and Mr. Arnwine loaned the Company $25,000 of
the Short Term Debt. In connection therewith the Company issued to Messrs.
Glasgow and Arnwine 50,000 and 6,250 warrants to purchase shares of Common
Stock, subject to adjustment, respectively. The Short Term Debt, including the
warrants, issued to Messrs. Glasgow and Arnwine were issued on the same terms
and conditions as the Short Term Debt, including the warrants, issued to the
other two lenders of the remaining $75,000 of the Short Term Debt, both of
whom are unaffiliated with the Company. All future transactions, including
loans, between the Company and its officers, directors, principal stockholders
and their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors on
the Board of Directors, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties. See "The Company--1996
Short Term Debt" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

DESCRIPTION OF SECURITIES

COMMON STOCK

Each share of Common Stock is entitled to one vote, either in person or by
proxy, on all matters that may be voted upon by the owners thereof at a
meeting of the shareholders, including the election of directors. The holders
of Common Stock (i) have equal, ratable rights to dividends from funds legally
available therefor, when, as and if declared by the Board of Directors of the
Company; (ii) are entitled to share ratably in all of the assets of the
Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive or redemption provisions applicable thereto; and (iv) are
entitled to one noncumulative vote per share on all matters on which
shareholders may vote at all meetings of shareholders.

All shares of Common Stock issued and outstanding are, and those offered
hereby, when issued, will be fully paid and nonassessable, with no personal
liability attaching to the ownership thereof.

6% CUMULATIVE CONVERTIBLE SERIES A PREFERRED STOCK

Upon the date of this Prospectus, Preferred Stock will be issued, the
designations, rights, powers, preferences, qualifications and limitations of
which shall be set forth in a Certificate of Amendment (the "Certificate of
Amendment") filed with the Secretary of State of the State of Utah amending
the Company's Articles of Incorporation, a form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.

51
<PAGE>

The following is a summary of the terms of the Preferred Stock. This summary
is not intended to be complete and is subject to, and qualified in its
entirety by, reference to the Certificate of Amendment.

Dividends. The holders of the Preferred Stock are entitled to receive if,
when and as declared by the Board of Directors out of funds legally available
therefor, cumulative dividends, payable solely in Common Stock at the rate of
6% per annum of the liquidation value (the "Liquidation Value") of the
Preferred Stock. The dividend is payable semi-annually on June 30 and December
31 of each year, although the first dividend is payable on August 31, 1996.
Dividends shall be paid to the holders of record as of a date, not more than
thirty (30) days prior to the dividend payment date, as may be fixed by the
Board of Directors (the "Dividend Declaration Date"). Dividends accrue from
the first day of the semi-annual period in which such dividend may be payable,
except with respect to the first semi-annual dividend which shall accrue from
the date of issuance of the Preferred Stock. Each holder of Preferred Stock
shall receive such number of shares of Common Stock equal to the quotient of
(i) 6% of the Liquidation Value of the Preferred Stock divided by (ii) the
average ten (10) day moving average closing bid price of the Common Stock
during the thirty (30) trading days immediately prior to the Dividend
Declaration Date (the "Stock Dividend Price"); provided, however, that in no
event shall the Stock Dividend Price exceed $3.00 per share or be less than
$1.20 per share.

No dividends may be paid on any shares of capital stock ranking junior to
the Preferred Stock unless and until all declared but unpaid dividends on the
Preferred Stock have been declared and paid in full.

Right to Convert. Each share of Preferred Stock shall be convertible, at the
option of the holder, at any time commencing on October 22, 1996 (the "Initial
Conversion Date"). Each share of Preferred Stock will be convertible into four
(4) shares of Common Stock (the "Conversion Ratio"), subject to adjustment in
certain circumstances. The conversion price of the Common Stock issuable upon
conversion of the Preferred Stock is $1.25 (the "Conversion Price"), which is
the quotient of the Liquidation Preference divided by the Conversion Ratio.

Automatic Conversion. Unless earlier converted, all outstanding shares of
Preferred Stock will be converted into Common Stock without any action by the
holders thereof, on July 24, 1997 (the "Automatic Conversion Date"). All
accrued but unpaid Common Stock dividends shall be paid upon the conversion.

Procedure for Conversion. To convert Preferred Stock into Common Stock, the
holder thereof must surrender the certificate therefor to the Company's
transfer agent with a conversion notice appropriately completed and signed.
Such notice is not required if the conversion is automatic. The transfer agent
will, as soon as practicable thereafter, issue a certificate for the
appropriate number of shares of Common Stock. Conversion will be deemed to
have been made upon the surrender of the certificate for the shares of
Preferred Stock to be converted. If the conversion would result in the
issuance of a fractional share of Common Stock, the Company will, in lieu of
issuing a fractional share, round up to the nearest whole share.

Adjustment of Conversion Ratio. The number of shares of Common Stock into
which the Preferred Stock is convertible shall be subject to adjustment in
addition to the adjustments set forth above, upon the occurrence of certain
events, including stock dividends, stock splits, combinations or
reclassifications on or of the Common Stock or a merger of the Company with or
into another entity, or sale of all or substantially all of the assets of the
Company. The Company will notify holders of Preferred Stock of such
adjustments.

Voting Rights. Each holder of shares of Preferred Stock will be entitled to
the number of votes equal to the number of shares of Common Stock into which
such holder's shares of Preferred Stock could be converted at the time of the
vote, will have voting rights equal to the voting rights of such number of
shares of Common Stock voting together with the Common Stock as a single class
on all matters submitted to the holders of Common Stock and shall be entitled
to notice of any shareholders' meeting. Any fractional voting rights resulting
from the above formula (after aggregating all shares of Common Stock into
which shares of Preferred Stock held by a single holder are converted) will be
disregarded.

52
<PAGE>

Liquidation Preference. The holders of shares of Preferred Stock will be
entitled to receive, in the event of any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, out of or to the extent
of the net assets of the Company legally available for such distribution,
before any distributions are made with respect to any Common Stock or any
stock ranking junior to the Preferred Stock, $5.00 per share plus any accrued
but unpaid dividends (the "Liquidation Preference"). After payment of the full
amount of the Liquidation Preference, the holders of shares of Preferred Stock
will not be entitled to any further participation in any distribution of
assets by the Company.

Upon any such liquidation, dissolution or winding up, such preferential
amounts with respect to the Preferred Stock and any class or series ranking on
a parity with the Preferred Stock if not paid in full shall be distributed pro
rata in accordance with the aggregate preferential amounts of the Preferred
Stock and such other classes or series of stock, if any. So long as any shares
of Preferred Stock are issued and outstanding, the Company shall not issue any
securities with rights, preferences or provisions senior to the Preferred
Stock.

Restrictions and Limitations. Shares of Preferred Stock acquired by the
Company by reason of purchase, conversion, redemption or otherwise shall be
retired and shall become authorized but unissued shares of Preferred Stock,
which may be reissued as part of a new series of Preferred Stock created under
the Company's Articles of Incorporation.

OTHER PREFERRED STOCK

As of the date hereof, there are no shares of preferred stock other than the
Preferred Stock. The Company's Articles of Incorporation authorizes the
issuance of "blank check" preferred stock in one or more classes or series
with such designations, rights, preferences and restrictions as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors may, without prior shareholder approval, issue preferred stock
with dividend, liquidation, conversion, voting or other rights which could
adversely affect the relative voting power or other rights of the holders of
the Preferred Stock or the Common Stock. Preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present
intention of issuing any shares of preferred stock, there can be no assurance
that it will not do so in the future. If the Company issues preferred stock,
such issuance may have a dilutive effect upon the common shareholders, and the
purchasers of the securities offered hereby.

REDEEMABLE WARRANTS

The Redeemable Warrants will be issued in registered form pursuant to an
agreement, dated the date of this Prospectus (the "Warrant Agreement"),
between the Company and Continental Stock Transfer & Trust Company (the
"Warrant Agent"). Upon completion of the Company Offering, the Company will
have an aggregate of 1,747,500 Redeemable Warrants outstanding, including the
247,500 Redeemable Warrants to be issued to the Selling Shareholders, but
assuming no exercise of the Representative's Warrants to purchase 150,000
Redeemable Warrants or the Representative's Over-Allotment Option to purchase
up to an additional 225,000 Redeemable Warrants. The following discussion of
certain terms and provisions of the Redeemable Warrants is qualified in its
entirety by reference to the detailed provisions of the Warrant Agreement, the
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.

Each Redeemable Warrant entitles the holder to purchase two (2) shares of
Common Stock at a price of $3.75 per Redeemable Warrant ($1.875 per share of
Common Stock) (the "Exercise Price") commencing July 24, 1997 and ending June
23, 1999 (the "Expiration Date"), and is redeemable by the Company at a
redemption price of $.05 at any time after October 23, 1997 on not less than
30 days' prior written notice, provided that the closing sale price of the
Common Stock on the principal exchange on which the Common Stock is traded (if
then listed on a national securities exchange) or the average closing bid
quotation for such shares in the over-the-counter market (if then traded in
the over-the-counter market), for a period of 20 consecutive trading days
ending within 10 days prior to the date of the notice of redemption delivered
by the Company, has been at least $2.50. The Redeemable Warrants will be
entitled to the benefit of adjustments in the Exercise Price and in the number

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<PAGE>

of shares of Common Stock and/or other securities deliverable upon the
exercise thereof in the event of certain stock dividends, stock splits,
reclassifications, reorganizations, consolidations or mergers and upon certain
issuances of shares of Common Stock, or securities convertible into or
exercisable for shares of Common Stock, at a price per share below the
exercise price of the Common Stock. The Company may at any time decrease the
exercise price or change certain of the redemption terms of the Redeemable
Warrants for a period of not less than 30 days on not less than 30 days
written notice to the holders of the Redeemable Warrants and the
Representative.

After the Expiration Date, the Redeemable Warrants will become wholly void
and of no value. The Company may at any time extend the Expiration Date of all
outstanding Redeemable Warrants for such increased period of time as it may
determine. The Redeemable Warrants may be exercised at the office of the
Warrant Agent. If any Redeemable Warrants are called for redemption, such
Redeemable Warrants must be exercised prior to the close of business on the
last day before the date of such redemption or the right to purchase the
applicable shares of Common Stock is forfeited.

No holder, as such, of Redeemable Warrants shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purpose whatsoever until such Redeemable Warrants have been duly exercised and
the Exercise Price has been paid in full.

The Redeemable Warrants provide that the Company shall not be obligated to
issue shares of Common Stock upon exercise of the Redeemable Warrants unless
there is a current prospectus relating to the Common Stock issuable upon the
exercise of the Redeemable Warrants under an effective registration statement
filed with the Commission, and unless such Common Stock is qualified for sale
or exempt from qualification under applicable state securities laws of the
jurisdictions in which the various holders of the Redeemable Warrants reside.
In accordance with the Securities Act, a prospectus ceases to be current nine
months after the date of such prospectus if the information therein (including
financial statements) is more than 16 months old or if there have been other
fundamental changes in the matters discussed in the prospectus. Although the
Company has agreed to use its best efforts to meet such regulatory
requirements in the jurisdictions in which the Securities are sold in this
offering, there can be no assurance that the Company can continue to meet
these requirements. The Securities are not expected to be qualified for sale
or exempt under the securities laws of all states. Although the Redeemable
Warrants will not knowingly be sold to purchasers in jurisdictions in which
the Redeemable Warrants are not registered or otherwise qualified for sale,
purchasers may buy Redeemable Warrants in the secondary market or may move to
jurisdictions in which the shares of Common Stock issuable upon exercise of
the Redeemable Warrants are not so registered or qualified. In this event, the
Company would be unable legally to issue the shares of Common Stock to those
persons desiring to exercise their Redeemable Warrants unless and until the
shares of Common Stock could be qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in such
jurisdiction. No assurances can be given that the Company will be able to
effect any required registration or qualification. The value of the Redeemable
Warrants could be adversely affected if a then current prospectus covering the
Common Stock issuable upon the exercise of the Redeemable Warrants is not
available pursuant to an effective registration statement or if such Common
Stock is not qualified or exempt from qualification in the jurisdictions in
which the holders of the Redeemable Warrants reside. Under the terms of the
agreement under which the Redeemable Warrants will be issued, the Company is
not permitted to redeem such warrants unless a current prospectus is available
at the time of notice of redemption and at all times to and including the date
of redemption. See "Risk Factors--Current Prospectus and State "Blue Sky"
Registration Required to Exercise the Redeemable Warrants" and--"Potential
Adverse Effect of Redemption of Redeemable Warrants; Possible Expiration
Without Value; Effect of Redeemable Warrants and Representative's Warrants on
Value of Common Stock."

As a result of the Redeemable Warrants and the Representative's Warrants
being outstanding, the Company may be deprived of favorable opportunities to
obtain additional equity capital, if it should then be needed, for its
business. See "Risk Factors--Potential Adverse Effect of Redemption of
Redeemable Warrants; Possible Expiration Without Value; Effect of Redeemable
Warrants and Representative's Warrants on Value of Common Stock."

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<PAGE>

SHARE PURCHASE PLAN

The Company has adopted a share purchase plan, the principal terms and
conditions of which are set forth below.

The Rights. Each holder of a share of Common Stock has the right (the
"Right") to purchase one-fiftieth ( 1/50) of a share of the Company's Series I
Preferred Stock (which is unrelated to the Series I Preferred Stock issued to
the Selling Shareholders). The Series I Preferred Stock will be a new series
of the Company's Preferred Stock designed so that each one-fiftieth ( 1/50) of
a share is substantially identical (except as to voting rights, due to
restrictions thereon contained in the Company's Articles of Incorporation) to
a share of Common Stock.

Exercise Price. The exercise price of the Rights (the "Exercise Price") is
$10.00 per share. The Exercise Price was established by the Board based on an
estimate of the reasonable long-term value of the Common Stock over the life
of the Rights. The Rights have customary anti-dilution provisions whereby the
Exercise Price and the number of shares of Series I Preferred Stock which may
be purchased will be adjusted to reflect share issuances and/or
reclassifications by reason of certain transactions including stock splits,
stock dividends, recapitalizations and reorganizations in which the Company
may engage or participate.

How the Rights May be Exercised. As issued, the Rights are represented by,
and will trade with and only with, the Common Stock and are not represented by
separate certificates. However, the Rights will be represented by separate
Right Certificates, trade separately from the shares of Common Stock and
become exercisable at the Exercise Price starting ten (10) days after: (i) it
is publicly announced that any person(s) (other than a Continuing Director, as
hereinafter defined below, an Officer of the Company appointed to such
position with the approval of a majority of the Continuing Directors then in
office, or any affiliate or associate of the foregoing) has, after the Plan is
announced, acquired beneficial ownership of voting stock representing fifteen
percent (15%) or more of the outstanding voting power of the Company (a "15%
Shareholder"), or (ii) any person(s) commences a tender or exchange offer for
such number of shares of Common Stock that would result in such person
becoming a 15% Shareholder.

"Flip-In" Provision. Under the Plan, if at any time, any person or group
becomes a 15% Shareholder (other than a Continuing Director, an Officer of the
Company appointed to such position with the approval of a majority of the
Continuing Directors then in office or any affiliate or associate of the
foregoing), the Rights will "flip-in" and give the holder thereof, other than
any 15% Shareholder and its transferees the right to buy, for $10.00, shares
of Common Stock with a market value of $20.00 (i.e., purchase the Company's
Common Stock at a 50% discount from its market price). Notwithstanding the
foregoing, the Rights will not become immediately exercisable or "flip-in"
under the plan if the continuing Directors determine that the fifteen percent
(15%) threshold has been inadvertently crossed and the 15% Shareholder agrees
to reduce its ownership below 15% within 20 business days and remains below
that level for one year.

The "Flip-Over" Provision. If, after the Rights are exercisable, any merger
or consolidation occurs in which the Company's Common Stock does not remain
outstanding, each Right will be converted into the right to purchase, for the
$10.00 Exercise Price, the common stock of the acquiror company having a
market value of $20.00 (i.e., purchase such stock at a 50% discount from the
market price).

Continuing Directors. The Plan defines a Continuing Director as the
Directors of the Company who are Directors on the date hereof, and Directors
appointed or elected upon the recommendation of the Continuing Directors then
in office but not including nominees of a person triggering either of the
"flip-in" or "flip-over" provisions, described above.

Exchange of the Rights. At any time following the triggering of the "flip-
in" provision, the Continuing Directors may exchange the Rights (other than
those Rights which have become void, as described above, for Common Stock (or
equivalents) at an exchange ratio of one (1) share of Common Stock for each
Right (subject to adjustment).

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<PAGE>

Redemption of the Rights. The Rights may be redeemed by the Continuing
Directors of the Company for $.01 each (payable in cash or securities) at any
time before there is a 15% Shareholder who has triggered the "flip-in"
provision.

Amendment of the Rights. The Plan and any Rights issued under the plan can
be amended by the Continuing Directors prior to the time any person or group
becomes a 15% Shareholder (with the same exceptions as set forth above).
Thereafter, the Continuing Directors can amend the Plan or the Rights only to
eliminate ambiguities or to provide additional benefits to the holders of the
Rights (other than any such holder).

Term of Rights. The Rights have a ten (10) year term, unless sooner redeemed
or terminated.

TRANSFER AGENT AND WARRANT AGENT

The Transfer Agent and Warrant Agent for the Company's Common Stock,
Preferred Stock and Redeemable Warrants shall be, upon a date prior to this
offering, Continental Stock Transfer & Trust Company, 2 Broadway, New York, NY
10004. Previous to such date, the Company's transfer agent for the Common
Stock was Atlas Stock Transfer Corporation, 5899 South State Street, Salt Lake
City, Utah 84107.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a brief description of certain federal income
tax considerations which may be relevant to holders of the Preferred Stock.
This discussion is only a summary and is not intended as a substitute for
careful tax planning.

The discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations, and Internal Revenue Service ("IRS")
rulings and judicial decisions now in effect, all of which are subject to
change at any time by legislative, judicial or administrative action; any such
changes could be retroactively applied in a manner that could adversely affect
a holder of the Preferred Stock. No information or discussion is provided
herein with respect to foreign, state or local tax laws or estate and gift tax
considerations, or non-income tax issues. This information is limited to
investors who will hold the Preferred Stock, and the Common Stock acquired
upon conversion of the Preferred Stock, as a "capital asset" within the
meaning of Section 1221 of the Code. In addition, the tax consequences to a
particular type of holder (including life insurance companies, tax-exempt
organizations, banks, dealers in securities and foreign persons) may be
affected by matters not discussed herein.

ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS, HER OR ITS TAX
ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED STOCK AND THE COMMON
STOCK ACQUIRED UPON CONVERSION OF THE PREFERRED STOCK.

Dividend Payments. The amount of any distribution with respect to the
Preferred Stock will be a dividend, taxable as ordinary income to the holder
thereof, to the extent that the Company has current or accumulated earnings
and profits in the year in which such distribution is made. Similarly, the
amount of any distribution with respect to the Common Stock (other than a
distribution solely of Common Stock) following the conversion of the Preferred
Stock will be a dividend, taxable as ordinary income to the holder thereof, to
the extent that the Company has current or accumulated earnings and profits in
the year in which such distribution is made.

The amount of any distribution described above will be, in the case of a
cash distribution, the amount of cash received and, in the case of a
distribution of shares of Common Stock, the fair market value of the shares
received on the date of distribution. A holder's adjusted basis in the shares
received as a dividend will equal the fair market value of such shares on the
date of distribution, and the holding period for such shares will begin on the
date following the date of the distribution. To the extent that the amount of
any distribution exceeds the Company's allocable current and accumulated
earnings and profits, such excess will first be applied against and

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<PAGE>

reduce the holder's adjusted tax basis in the shares with respect to which
such distribution is made, and second, to the extent that such excess is
greater than the holder's adjusted tax basis, will be treated as capital gain.

Under Section 243 of the Code, dividends received by a corporation may be
eligible for the 70% dividends-received deduction. However, the applicability
of the dividends-received deduction is subject to certain limitations set
forth in Sections 246 and 246A of the Code. Corporate holders of Preferred
Stock also should consider the application of the "extraordinary dividend"
rules of Section 1059 of the Code as well as the possible reduction or
elimination of the benefit of the dividends-received deduction due to the
corporate alternative minimum tax provisions of the Code. Corporate holders
should consult their own tax advisors as to the possible applicability of
these provisions.

Sale or Exchange. Upon the sale or exchange of Preferred Stock, the holder
will recognize gain or loss equal to the difference between the amount
realized and such holder's tax basis in the Preferred Stock. The resulting
gain or loss will be a capital gain or loss and will be a long-term capital
gain or loss if the Preferred Stock was held for more than one year.

Conversion of Preferred Stock. Generally, no gain or loss will be recognized
for federal income tax purposes by holders upon the receipt of Common Stock as
a result of conversion of the Preferred Stock. Income generally will be
recognized by a holder of Preferred Stock, however, only to the extent Common
Stock is received in payment of dividends in arrears. A holder's tax basis in
the Common Stock acquired upon the conversion of the Preferred Stock will be
equal to the holder's tax basis in the Preferred Stock converted (reduced by
the portion of such basis allocable to any fractional shares exchanged for
cash). Provided the Preferred Stock was held as a capital asset, the holding
period of the Common Stock received upon the conversion of the Preferred Stock
(excluding any previously accrued but unpaid dividends paid in common stock on
the conversion of the Preferred Stock) will include the period during which
the Preferred Stock was held by such holder. The foregoing would not apply to
cash received in lieu of fractional shares, which is generally treated as an
amount received in redemption of such shares that is taxed under the sale or
exchange rules described above. As a general rule, a holder's basis in shares
of Common Stock taxed as dividends upon receipt will equal the fair market
value thereof and the holding period for such Common Stock will begin on the
day following the conversion.

Notwithstanding the foregoing, pursuant to Section 305 of the Code, a
conversion of Preferred Stock into Common Stock may result in a taxable
distribution if the conversion is deemed to be pursuant to a plan to
periodically increase the interest of the holders of Preferred Stock in the
assets or earnings of the Company.

Adjustment of Conversion Ratio. Section 305 of the Code and applicable
Treasury regulations provide that under certain circumstances, adjustments in
(or failure to adjust) the conversion ratio of convertible stock and other
similar transactions, including the adjustment of the Conversion Ratio on the
Automatic Conversion Date, may be treated as constructive distributions of
stock taxable as a dividend (which may constitute (and may cause other
dividends, including regular dividends, to constitute) extraordinary dividends
to corporate holders) if (i) as a result of such an adjustment, the
proportionate interest of the holder of such convertible stock in the assets
or earnings and profits of the issuer is increased, and (ii) the adjustment is
not made pursuant to a bona fide, reasonable antidilution formula.

An adjustment in the conversion ratio of the Preferred Stock is allowed only
upon the issuance of Common Stock as a dividend with respect to outstanding
Common Stock, or as a result of any subdivisions, combinations or
reclassifications of Common Stock. The purpose of such an adjustment is to
fairly and equitably preserve the conversion rights of the Preferred Stock.
Accordingly, the adjustments in the conversion ratio for the stock dividends,
subdivisions, combinations or reclassifications should qualify as a reasonable
antidilution formula and should not be taxable as a constructive distribution
of a security taxable as a dividend to the holders of the Preferred Stock.

General Back-Up Withholding. Under Section 3406 of the Code and applicable
Treasury regulations, a holder of Preferred Stock may be subject to back-up
withholding tax at the rate of 31% with respect to dividends

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<PAGE>

paid or on the proceeds of a sale, exchange or redemption of the Preferred
Stock or Common Stock acquired through exercise of the conversion privilege.
The Company will be required to deduct and withhold the tax if (i) the holder
fails to furnish a taxpayer identification number to the Company, (ii) the IRS
notifies the Company that the taxpayer identification number furnished by the
holder is incorrect, (iii) there has been a notified payee under-reporting
with respect to interest, dividends or original issue discount described in
Section 3406(c) of the Code, or (iv) there has been a failure of the holder to
certify under the penalty of perjury that the holder is not subject to
withholding under Section 3406(a)(1)(C) of the Code. As a result, if any one
of the above situations apply, the Company will be required to withhold a tax
equal to 31% from any dividend or redemption payment made with respect to the
Preferred Stock or Common Stock. Any amount withheld from a payment to a
holder under back-up withholding rules is allowable as a credit against such
holder's federal income tax liability, provided that the required information
is furnished to the IRS. Holders should consult their tax advisors regarding
their qualification for exemption from back-up withholding and the procedure
for obtaining any applicable exemption.

Foreign Withholding. Dividends paid to non-United States holders of
Preferred Stock or Common Stock may be subject to a 30% withholding tax on any
dividend paid with respect to Preferred or Common Stock; provided, however, a
non-United States holder will be taxed at ordinary federal income tax rates
(on a net income basis) on dividends that are effectively connected with the
conduct of a trade or business within the United States by such non-United
States holder if such holder files the appropriate forms with the payor and
therefor, will not be subject to the 30% withholding tax described above. The
withholding tax may be decreased below 30% if the holder qualifies for a
reduced withholding rate on dividends under an applicable U.S. tax treaty.
Non-United States holders must comply with certain certification and
disclosure requirements to claim benefits under a U.S. tax treaty or an
exemption from withholding tax under the foregoing rules.

Reporting Requirements. Reports will be made annually or otherwise as may be
required to the IRS and to the holders of record that are not exempted from
such reporting requirements with respect to distributions on the Preferred
Stock or Common Stock acquired through exercise of the conversion privilege.
Such reporting will be made on IRS 1099-DIV or on such other form as may be
prescribed under rules issued by the IRS.

Proposed Legislation. There are various proposals to amend the Code, some of
which will affect the analysis described herein. Each holder of the Preferred
Stock, in particular corporate holders, should consult their own tax advisors
regarding the effect of any proposed legislation on their investment in the
Preferred Stock.

SHARES ELIGIBLE FOR FUTURE SALE

RULE 144

Of the 4,670,420 shares of Common Stock outstanding upon the completion of
this offering, 602,668 are "restricted securities" as that term is defined by
Rule 144 of the Securities Act, 541,190 of which are currently eligible for
resale in compliance with Rule 144 of the Securities Act. Of these shares,
27,253 are owned by current officers and directors of the Company who have
agreed with the Representative not to directly or indirectly offer, sell,
transfer or otherwise encumber or dispose of any of such shares for a period
of thirteen (13) months after the effective date of this offering. In
addition, the Company is registering an additional 10,485,000 shares of Common
Stock issuable upon the conversion of 1,747,500 shares of Preferred Stock and
the exercise of 1,747,500 Redeemable Warrants offered hereby, including
247,500 shares of Preferred Stock and 247,500 Redeemable Warrants to be issued
on the date of this Prospectus to the Selling Shareholders, although all of
the Selling Shareholders have agreed with the Representative not to, directly
or indirectly, offer, sell, transfer or otherwise encumber any of their
Securities for thirteen (13) months after the effective date of this offering.
The Company has also issued 830,000 warrants, subject to adjustment, to
purchase an aggregate of 830,000 shares of Common Stock which shall vest and
become exercisable from time to time. Of these warrants, 425,000, subject to
adjustment, are held by officers and directors, all of whom have agreed with
the Representative not to, directly or indirectly, offer, sell, transfer, or
otherwise encumber any of their securities, for a period of thirteen (13)
months after the date of this Prospectus.

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<PAGE>

Ordinarily, under Rule 144, a person who is an affiliate of the Company (as
that term is defined in Rule 144) and has beneficially owned restricted
securities for a period of two (2) years may, every three (3) months, sell in
brokerage transactions an amount that does not exceed the greater of (i) 1% of
the outstanding class of such securities or (ii) the average weekly trading
volume of trading in such securities on all national exchanges and/or reported
through the automated quotation system of a registered securities association
during the four weeks prior to the filing of a notice of sale by a securities
holder. A person who is not an affiliate of the Company who beneficially owns
restricted securities is also subject to the foregoing volume limitations but
may, after the expiration of three (3) years, sell unlimited amounts of such
securities under certain circumstances.

Potential or actual sales of the Company's outstanding Common Stock by
certain of the present shareholders either under Rule 144, pursuant to the
Concurrent Offering or otherwise, or potential or actual sales of Common
Stock, Preferred Stock, Common Stock, underlying options, warrants or
convertible debt may, in the future, have a depressive effect on the price of
the Common Stock, which may in turn have a depressive effect on the market
price of the Preferred Stock. In addition, in the event the Representative
exercises the Representative's Warrants, any sales of the securities acquired
thereby may have an adverse effect on the then current market price of the
Common Stock, which may in turn have a depressive effect on the market price
of the Preferred Stock. See "The Company--Concurrent Offering,"
"Underwriting," and "Description of Securities."

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UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom First Allied
Securities, Inc. is acting as Representative, have severally agreed, subject
to the terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Company has agreed to sell
to the Underwriters on a firm commitment basis the respective number of shares
of Preferred Stock and Redeemable Warrants set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF REDEEMABLE
UNDERWRITER SHARES WARRANTS
----------- --------- ----------
<S> <C> <C>
First Allied Securities, Inc............................ 950,000 950,000
Josephthal Lyon & Ross Incorporated..................... 100,000 100,000
Southeast Research Partners, Inc. ...................... 100,000 100,000
Baird, Patrick & Co., Inc. ............................. 50,000 50,000
First Equity Corporation of Florida..................... 50,000 50,000
Hampshire Securities Corporation........................ 50,000 50,000
Laidlaw Equities Inc.................................... 50,000 50,000
LT Lawrence & Co., Inc.................................. 50,000 50,000
H.J. Meyers & Co., Inc.................................. 50,000 50,000
Smith, Moore & Co....................................... 50,000 50,000
--------- ---------
Total................................................. 1,500,000 1,500,000
========= =========
</TABLE>

The Underwriters are committed to purchase all shares of the Securities
offered hereby if any of such Securities are purchased. The Underwriting
Agreement provides that the obligations of the several Underwriters are
subject to conditions precedent specified therein.

The Company has been advised by the Representative that the Underwriters
propose to initially offer the Securities to the public at the public offering
prices set forth on the cover page of this Prospectus and to certain dealers
at such prices less concessions of not in excess of $.30 per share of
Preferred Stock. Such dealers may reallow a concession not in excess of $.10
per share of Preferred Stock. After the commencement of this offering, the
public offering prices, concessions and reallowances may be changed by the
Representative.

The Representative has advised the Company that it does not anticipate sales
to discretionary accounts by the Underwriters to exceed five percent of the
total number of Securities offered hereby.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter an expense allowance on a nonaccountable
basis equal to three percent (3%) of the gross proceeds derived from the sale
of the Preferred Stock and Redeemable Warrants underwritten, of which $25,000
has been paid to date.

The Underwriter has been granted an option by the Company, exercisable
within forty-five (45) days after the date of this Prospectus, to purchase up
to an additional 225,000 shares of Preferred Stock and/or up to an additional
225,000 Redeemable Warrants at the initial public offering price per share of
Preferred Stock and per Redeemable Warrant, respectively, offered hereby, less
underwriting discounts and the expense allowance. Such option may be exercised
only for the purpose of covering over-allotments, if any, incurred in the sale
of the Securities offered hereby. To the extent such option is exercised in
whole or in part, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase the number of the additional shares of
Preferred Stock and Redeemable Warrants proportionate to its initial
commitment.

All of the Company's officers and directors and all of the purchasers of the
Preferred Stock in the Private Placement have agreed not to, directly or
indirectly, offer to sell, transfer, hypothecate or otherwise encumber any of
their securities for thirteen (13) months following the date of this
Prospectus without the prior written consent of the Company and the
Underwriter.

The Company has agreed that, for three (3) years after the effective date of
this Prospectus, the Representative will have the right to designate one
individual to be elected to the Company's Board of Directors. Such individual
may be a director, officer, employee or affiliate of the Representative. In
the event the

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Representative elects not to designate a person to serve on the Company's
Board of Directors, the Representative may designate an observer to attend
meetings of the Board of Directors.

The Company has also agreed to execute a financial advisory and consulting
agreement with the Representative pursuant to which the Company is required to
pay the Representative a fee of $600 a month for a period of sixty (60)
months, which must be prepaid in full upon completion of the Offering.

In connection with this offering, the Company has agreed to sell to the
Representative, for nominal consideration, the Representative's Warrants to
purchase from the Company 150,000 shares of Preferred Stock (or 600,000 shares
of Common Stock issuable upon conversion of such shares of Preferred Stock)
and up to 150,000 Redeemable Warrants. The Representative's Warrants are
initially exercisable for shares of Preferred Stock at a price of $6.00 per
share of Preferred Stock, and are initially exercisable for Redeemable
Warrants at a price of $.12 per Redeemable Warrant for a period of four (4)
years commencing one (1) year from the date of this Prospectus and are
restricted from sale, transfer, assignment or hypothecation for a period of
twelve (12) months from the date hereof, except to officers and principals of
the Representative. The Representative's Warrants also provide for adjustment
in the number of shares of Preferred Stock and Redeemable Warrants issuable
upon the exercise thereof as a result of certain subdivisions and combinations
of the Common Stock. The Representative's Warrants grant to the holders
thereof certain rights of registration for the securities issuable upon
exercise of the Representative's Warrants.

Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Representative,
and to the extent not inconsistent with the guidelines of the NASD and the
Rules and Regulations of the Commission, the Company has agreed to pay the
Representative a commission which shall not exceed five percent (5%) of the
aggregate exercise price of such Redeemable Warrants. However, no compensation
will be paid to the Representative in connection with the exercise of the
Redeemable Warrants if (a) the market price of the Common Stock is lower than
the exercise price, (b) the Redeemable Warrants were held in a discretionary
account, or (c) the Redeemable Warrants are exercised in a transaction not
solicited by the Representative. Unless granted an exemption by the Commission
from Rule 10b-6 under the Securities Exchange Act of 1934, as amended, or
unless otherwise permitted under Rule 10b-6A, the Representative and its
affiliates will be prohibited from engaging in any market-making activities
with regard to the Company's securities for a period of two business days or
nine business days, whichever is applicable (or such other applicable periods
as Rule 10b-6 may provide) prior to any solicitation of the exercise of the
Redeemable Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Representative may have to receive a fee. As a result, the Representative and
its affiliates may be unable to continue to provide a market for the Company's
securities during certain periods while the Redeemable Warrants are
exercisable. If the Representative or any of its affiliates has engaged in any
of the activities prohibited by Rule 10b-6 during the periods described above,
the Representative undertakes to waive unconditionally its right to receive a
commission on the exercise of such Redeemable Warrants.

In connection with the Private Placement, the Company paid the
Representative, as placement agent, $165,000 in cash as a commission and a
nonaccountable expense allowance of approximately $15,000. The Company also
agreed in connection with the Private Placement to indemnify the
Representative against certain liabilities, including liabilities under the
Securities Act, or to contribute to related payments that the Representative
may be required to make.

Prior to this offering, there has been no public market for the Securities.
Consequently, the terms and initial public offering prices of the Securities
and the exercise price, redemption price and other terms of the Redeemable
Warrants have been determined by negotiations between the Company and the
Representative and are not necessarily related to the Company's asset value,
net worth or other established criteria of value. The

61
<PAGE>

factors considered in such negotiations included the history of and prospects
for the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and certain
other factors as were deemed relevant.

LEGAL MATTERS

The validity of the shares of Preferred Stock and Common Stock will be
passed upon for the Company by Zukerman Gore & Brandeis, LLP, New York, New
York. Certain matters regarding Utah corporate law will be passed upon by King
& Isaacson. Certain matters regarding patents and intellectual property rights
will be passed upon for the Company by Davis Bujold & Streck, Manchester, New
Hampshire, and Strasburger & Price, LLP, Dallas Texas. Certain regulatory
matters with respect to the FDA approvals will be passed upon for the Company
by Hyman, Phelps & McNamara, P.C., Washington, D.C. Orrick, Herrington &
Sutcliffe, New York, New York, has acted as counsel to the Underwriters in
connection with this offering.

CHANGE IN ACCOUNTANTS

On January 29, 1996, the Company and Robert Early & Company, P.C. ("Early"),
the Company's independent certified public accountants, by mutual agreement
discontinued the services of Early as the independent public accountant for
the Company. The Company has replaced Early with BDO Seidman, LLP effective as
of such date. The decision to change accountants was approved by the Company's
Board of Directors. Early's report on the financial statements of the Company
for each of years ending December 31, 1993 and 1994 contained no adverse
opinion, or disclaimers of opinion but includes an explanatory paragraph
regarding uncertainties as to the Company's ability to continue as a going
concern. Further, during such periods and any subsequent period preceding such
disengagement, there were no disagreements with Early on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope of procedure, which disagreement, if not resolved to the satisfaction of
Early, would have caused Early to make reference to the subject matter of such
disagreements in connection with its report.

EXPERTS

The financial statements of the Company included in this Prospectus and
elsewhere in the Registration Statement for the periods ended December 31,
1993 and 1994 and June 1, 1992 to December 31, 1994 cumulative have been
audited by Robert Early & Company, independent certified public accountants,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement. Such financial statements have been included in
reliance upon the reports of Robert Early & Company, given upon their
authority as experts in accounting and auditing. The financial statements of
the Company included in this Prospectus and elsewhere in the Registration
Statement for the period ended December 31, 1995 and June 1, 1992 to December
31, 1995 cumulative have been audited by BDO Seidman, LLP, independent
certified public accountants, as set forth in their report appearing elsewhere
herein and in the Registration Statement. Insofar as amounts for the period
June 1, 1992 to December 31, 1994, BDO Seidman, LLP's opinion is based solely
on the report of other auditors. Such financial statements have been included
in reliance upon the reports of BDO Seidman, LLP, given upon their authority
as experts in accounting and auditing. The reports of BDO Seidman, LLP and
Robert Early & Company, P.C. each include an explanatory paragraph that the
Company's recurring losses from operations, negative working capital and
limited capital resources raise substantial doubt about the Company's ability
to continue as a going concern.

ADDITIONAL INFORMATION

The Company has filed with the Commission in Washington, DC a registration
statement on Form S-1 (together with all amendments thereto, the "Registration
Statement"), under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules filed therewith, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. For further information with respect to the Company

62
<PAGE>

and the Preferred Stock offered hereby, reference is hereby made to the
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document referred to are not necessarily complete and, in each
instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
deemed to be qualified in its entirety by such reference. The Registration
Statement, including all exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission, at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, DC 20549, and at the regional
offices of the Commission located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and at Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, DC 20549, upon the payment of prescribed fees.

63
<PAGE>

INDEX TO FINANCIAL STATEMENTS

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants--BDO Seidman, LLP on
behalf of Medical Device Technologies, Inc............................... F-1
Report of Independent Certified Public Accountants--Robert Early &
Company, P.C. on behalf of CytoProbe Corporation......................... F-2
Consolidated Balance Sheets as of December 31, 1994, December 31, 1995 and
March 31, 1996 (unaudited)............................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1994, December 31, 1995, the three months ended March 31, 1995 and March
31, 1996 (unaudited) and the period from June 1, 1992 to March 31, 1996
(Cumulative) (unaudited)................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994 and December 31, 1995, for the three months ended March 31, 1995 and
March 31, 1996 (unaudited), and for the period from June 1, 1992 to March
31, 1996 (Cumulative) (unaudited)........................................ F-8
Summary of Accounting Policies............................................ F-9
Notes to Consolidated Financial Statements................................ F-12
Schedule II--Valuation and Qualifying Accounts............................ S-1
</TABLE>

F-0
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Medical Device Technologies, Inc.
and Subsidiary (formerly Cytoprobe
Corporation)
San Diego, California

We have audited the accompanying consolidated balance sheet of Medical
Device Technologies, Inc. and subsidiary (formerly Cytoprobe Corporation) (a
development stage company) (the "Company") as of December 31, 1995 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. We have also audited the statements of
operations and cash flows for the period from June 1, 1992 through December
31, 1995, except that we did not audit these financial statements for the
period from June 1, 1992 to December 31, 1994; those statements were audited
by other auditors whose report dated February 17, 1995 contained an
explanatory paragraph raising substantial doubt as to the Company's ability to
continue as a going concern. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. Our
opinion, insofar as it relates to the amounts for the period from June 1, 1992
to December 31, 1994, is based solely on the report of other auditors.

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

In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Medical Device Technologies, Inc.
and subsidiary (a development stage company) at December 31, 1995 and the
results of their operations and their cash flows for the year then ended and
for the period June 1, 1992 through December 31, 1995 in conformity with
generally accepted accounting principles.

As discussed in Note 15 to the financial statements, the Company changed its
method of computing amortization in the fourth quarter of 1995.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations, negative
working capital and limited capital resources raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to this matter are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

Los Angeles, California
January 29, 1996, except for Note 5
which is as of April 9, 1996
andNotes 7, which is as of May 17,
1996, and Note 16 which is as of
May 17, 1996 and June 17, 1996.

/s/ BDO Seidman, LLP
By___________________________________
BDO Seidman, LLP

F-1
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
CytoProbe Corporation
La Jolla, California

We have audited the accompanying consolidated balance sheets of CytoProbe
Corporation (a development stage company) and subsidiary as of December 31,
1994 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. We have also audited the statement of operations and cash flows
for the period June 1, 1992 through December 31, 1994. Our responsibility is
to express an opinion on these consolidated 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 consolidated 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 CytoProbe Corporation (a development stage company) and subsidiary at
December 31, 1994, and the consolidated results of its operations and its
consolidated cash flows for the year then ended and the statement of
operations and cash flow for the period June 1, 1992 through December 31,
1994, in conformity with generally accepted accounting principles.

As discussed in Note 15 to the financial statements, the Company changed its
method of computing amortization in the fourth quarter of 1995.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage and has no
operating revenues. This situation raises substantial doubt as to the
Company's ability to continue as a going concern. Management's plans in regard
to this situation are also described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

/s/ Robert Early & Company,
P.C. Robert Early & Company, P.C.

Abilene, Texas
February 17, 1995, except for Note
15 which is as of December 31, 1995

F-2
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ ------------
(RESTATED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 3)
CURRENT ASSETS
Cash................................. $ 483,611 $ 306,851 $ 192,333
Inventory............................ -- 147,593 205,897
Prepaid royalties (Note 5)........... -- 60,000 60,000
Prepaid expenses and other assets.... -- 28,082 101,483
----------- ------------ ------------
Total current assets.............. 483,611 542,526 559,713
----------- ------------ ------------
PROPERTY AND EQUIPMENT:
Furniture and fixtures............... 75,015 112,149 113,263
Machinery and equipment.............. -- 17,136 96,086
Equipment under capital lease........ 5,349 5,349 5,349
----------- ------------ ------------
80,364 134,634 214,698
Less accumulated depreciation........ 16,563 37,309 43,498
----------- ------------ ------------
NET PROPERTY AND EQUIPMENT............ 63,801 97,325 171,200
----------- ------------ ------------
LICENSE AGREEMENTS (net of accumulated
amortization of $405,275 and $627,887
at December 31, 1994 and 1995 and
$687,386 at March 31, 1996) (Note 2). 1,770,854 1,598,242 1,838,743
PREPAID ROYALTIES (Note 5)............ -- 115,000 100,000
LOAN ORIGINATION FEES (Note 3)........ -- 117,500 72,000
PREPAID MARKETING COSTS (net of
amortization of $493,075 at December
31, 1994)............................ 125,781 -- --
OTHER ASSETS.......................... 8,341 44,341 8,341
----------- ------------ ------------
$ 2,452,388 $ 2,514,934 $ 2,749,997
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..................... $ 164,958 $ 276,366 $ 359,301
Accrued expenses..................... 326,640 40,927 60,115
Accrued patent license cost.......... 50,000 -- --
Short-term notes payable, net of
unamortized discount of $384,375 at
December 31, 1995 and $247,500 at
March 31, 1996 (Note 3)............. 50,000 640,625 1,402,500
Accrued license fee payable.......... -- -- 250,000
Current obligation under termination
agreement........................... -- -- 148,000
Current obligation under capital
lease (Note 4)...................... 1,587 1,728 1,728
----------- ------------ ------------
Total current liabilities......... 593,185 959,646 2,221,644
OTHER LIABILITIES
Termination agreement obligation..... -- -- 209,667
Capital lease obligation (Note 4).... 3,400 1,755 1,163
----------- ------------ ------------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY (Note 6)
Series I convertible preferred stock,
247,500 shares authorized, 153,750
and 247,500 issued and outstanding.. -- 384,375 618,750
Preferred stock, 10,000,000 shares
authorized, $.01 par value,
0 shares issued and outstanding .... -- -- --
Common stock, $.15 par value
(100,000,000 shares authorized, and
2,144,982, 4,196,600 and 4,387,170
outstanding)........................ 321,747 629,490 658,075
Stock to be issued (548,438, 25,000
and 25,000 shares).................. 796,250 23,440 23,440
Additional paid-in capital........... 10,038,233 12,776,389 12,984,059
Deferred compensation (Note 5)....... 66,406 247,500 326,144
Accumulated deficit ($5,660,131,
$8,800,959 and $10,586,243,
accumulated during the development
stage through December 31, 1994 and
1995 and March 31, 1996)............ (9,366,833) (12,507,661) (14,292,945)
----------- ------------ ------------
Total stockholders' equity........ 1,855,803 1,553,533 317,523
----------- ------------ ------------
$ 2,452,388 $ 2,514,934 $ 2,749,997
=========== ============ ============
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-3
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
JUNE 1, 1992
TO MARCH 31,
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, 1996
------------------------ ------------------------------ (CUMULATIVE)
1994 1995 1995 1996 (UNAUDITED)
----------- ----------- -------------- --------------- ------------
(RESTATED) (UNAUDITED) (RESTATED)
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and
development.......... $ 778,468 $ 943,510 $ 170,657 $ 173,445 $ 2,229,949
General and
administrative....... 1,916,895 2,194,393 467,322 1,095,506 6,862,114
----------- ----------- ------------- --------------- ------------
LOSS FROM CONTINUING
OPERATIONS............. (2,695,363) (3,137,903) (637,979) (1,268,951) (9,092,063)
OTHER INCOME (EXPENSE):
Interest income....... -- -- -- -- 6,096
Interest expense...... (2,904) (2,925) (603) (516,333) (523,216)
Loss on sale
marketable securities
(Note 8)............. (18,655) -- -- -- (20,790)
Net unrealized loss on
marketable
securities........... -- -- -- -- (64,500)
----------- ----------- ------------- --------------- ------------
LOSS BEFORE DISCONTINUED
OPERATIONS AND DISPOSAL
OF OIL AND GAS
OPERATIONS............. (2,716,922) (3,140,828) (638,582) (1,785,284) (9,694,473)
DISCONTINUED OPERATIONS. -- -- -- -- (520,396)
LOSS FROM DISPOSAL OF
OIL AND GAS OPERATIONS
(Note 9)............... (371,374) -- -- -- (371,374)
----------- ----------- ------------- --------------- ------------
NET LOSS................ $(3,088,296) $(3,140,828) $ (638,582) $ (1,785,284) $(10,586,243)
=========== =========== ============= =============== ============
PRIMARY LOSS PER SHARE:
Loss from continuing
operations............. $ (1.80) $ (.94) $ (.23) $ (.41)
Loss from disposal of
oil and gas operations. (.24) -- -- --
----------- ----------- ------------- ---------------
Net loss................ $ (2.04) $ (.94) $ (.23) $ (.41)
=========== =========== ============= ===============
Weighted average shares
outstanding............ 1,516,407 3,357,084 2,778,535 4,320,705
=========== =========== ============= ===============
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-4
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ----------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1992............ -- $ -- 1,429,508 220,004 4,472,062
Common stock issued for:
Cash........................... -- -- 358,834 48,247 510,697
Research and development and
services...................... -- -- 227,966 34,195 393,241
Patent and licensing costs..... -- -- 175,000 26,250 105,000
Prepaid market research........ -- -- 575,000 86,250 345,000
Stock to be issued............... -- -- -- -- 163,958
Net loss from June 1 through
December 31, 1992............... -- -- -- --
------ -------- --------- ------- ---------
BALANCE, DECEMBER 31, 1992....... -- -- 2,766,308 414,946 5,989,958
------ -------- --------- ------- ---------
Common stock issued for:
Cash........................... -- -- 312,750 46,913 284,312
Patent and licensing costs..... -- -- 500,000 75,000 714,000
Research and development,
compensation, and services.... -- -- 362,500 54,375 759,669
Stock to be issued............... -- -- --
Net loss for 1993................ -- -- --
------ -------- --------- ------- ---------
BALANCE, DECEMBER 31, 1993....... -- $ -- 3,941,558 591,234 7,747,939
====== ======== ========= ======= =========
</TABLE>

<TABLE>
<CAPTION>
DEFERRED RETAINED
STOCK COMPEN- DEFICIT
TO BE ISSUED SATION (RESTATED) TOTAL
------------ -------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, MAY 31, 1992.......... $ -- $ -- $(3,706,702) $ 985,364
Common stock issued for:
Cash......................... -- -- -- 558,944
Research and development and
services.................... -- -- -- 427,436
Patent and licensing costs... -- -- -- 131,250
Prepaid market research...... -- -- -- 431,250
Stock to be issued............. 37,500 -- -- 238,958
Net loss from June 1 through
December 31, 1992............. -- -- (791,994) (791,994)
-------- ----- ----------- -----------
BALANCE, DECEMBER 31, 1992..... 37,500 -- (4,498,696) 1,981,208
-------- ----- ----------- -----------
Common stock issued for:
Cash......................... (37,500) -- -- 256,225
Patent and licensing costs... -- -- -- 789,000
Research and development,
compensation, and services.. -- -- -- 814,044
Stock to be issued............. 21,000 -- -- 42,000
Net loss for 1993.............. -- -- (1,779,841) (1,779,841)
-------- ----- ----------- -----------
BALANCE, DECEMBER 31, 1993..... $ 21,000 $ -- $(6,278,537) $ 2,102,636
======== ===== =========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-5
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.... -- $ -- 3,941,558 $591,234 $ 7,747,939
Reverse stock split......... -- -- (3,284,561) (492,684) 492,684
Common stock issued for:
(Note 6)
Cash...................... -- -- 384,820 57,723 426,539
Research and development,
compensation and
services................. -- -- 605,914 90,887 1,039,961
Patent and licensing
costs.................... -- -- 450,000 67,500 285,833
Conversion of debt........ -- -- 47,250 7,087 45,277
Stock to be issued.......... -- -- -- -- --
Accrued stock issuance (Note
5)......................... -- -- -- -- --
Net loss for 1994........... -- -- -- -- --
------- -------- ---------- -------- -----------
BALANCE, DECEMBER 31, 1994.. -- -- 2,144,981 321,747 10,038,233
------- -------- ---------- -------- -----------
Stock to be issued (Note 6). -- --
Common stock issued for:
(Note 6)
Cash...................... -- -- 43,000 6,450 23,550
Patent and licensing
costs.................... -- -- 20,000 3,000 47,000
Purchases, research and
development,
compensation, and
services................. -- -- 903,781 135,567 1,427,563
Conversion of debt........ -- -- 343,750 51,563 223,437
Private placement......... -- -- 741,088 111,163 863,606
Accrued stock issuance (Note
5)......................... -- -- -- -- --
Issuance of warrants (Note
6)......................... -- -- -- -- 153,000
Issuance of preferred stock
(Note 6)................... 153,750 384,375 -- -- --
Net loss for 1995........... -- -- -- -- --
------- -------- ---------- -------- -----------
BALANCE, DECEMBER 31, 1995.. 153,750 $384,375 4,196,600 $629,490 $12,776,389
======= ======== ========== ======== ===========
</TABLE>

<TABLE>
<CAPTION>
DEFERRED RETAINED
STOCK COMPEN- DEFICIT
TO BE ISSUED SATION (RESTATED) TOTAL
------------ -------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994...... $ 21,000 $ -- $ (6,278,537) $ 2,102,636
Reverse stock split........... -- -- -- --
Common stock issued for: (Note
6)
Cash........................ (21,000) -- -- 442,262
Research and development,
compensation and services.. -- -- -- 1,130,848
Patent and licensing costs.. -- -- -- 353,333
Conversion of debt.......... -- -- -- 52,364
Stock to be issued............ 398,125 -- -- 796,250
Accrued stock issuance (Note
5)........................... -- 66,406 -- 66,406
Net loss for 1994............. -- -- (3,088,296) (3,088,296)
--------- -------- ------------ -----------
BALANCE, DECEMBER 31, 1994.... 398,125 66,406 (9,366,833) 1,855,803
--------- -------- ------------ -----------
Stock to be issued (Note 6)... 100,980 -- -- 201,959
Common stock issued for: (Note
6)
Cash........................ -- -- -- 30,000
Patent and licensing costs.. -- -- -- 50,000
Purchases, research and
development, compensation,
and services............... -- -- -- 1,563,130
Conversion of debt.......... -- -- -- 275,000
Private placement........... (487,385) -- --
Accrued stock issuance (Note
5)........................... -- 181,094 -- 181,094
Issuance of warrants (Note 6). -- -- -- 153,000
Issuance of preferred stock
(Note 6)..................... -- -- -- 384,375
Net loss for 1995............. -- -- (3,140,828) (3,140,828)
--------- -------- ------------ -----------
BALANCE, DECEMBER 31, 1995.... $ 11,720 $247,500 $(12,507,661) $ 1,553,533
========= ======== ============ ===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-6
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996....... 153,750 $384,375 4,196,600 $629,490 $12,776,389
Common stock issued for: (Note
6)
Purchases, research and
development, compensation,
and services (unaudited).... -- -- 190,570 28,585 207,670
Accrued stock and warrant
issuance (Note 5) (unaudited). -- -- -- -- --
Issuance of preferred stock
(Note 6) (unaudited).......... 93,750 234,375 -- -- --
Net loss for the three months
ended
March 31, 1996 (unaudited).... -- -- -- -- --
------- -------- --------- -------- -----------
BALANCES, MARCH 31, 1996
(unaudited)................... 247,500 $618,750 4,387,170 658,075 12,984,059
======= ======== ========= ======== ===========
</TABLE>

<TABLE>
<CAPTION>
DEFERRED RETAINED
STOCK COMPEN- DEFICIT
TO BE ISSUED SATION (RESTATED) TOTAL
------------ -------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996...... $11,720 $247,500 $(12,507,661) $ 1,553,533
Common stock issued for: (Note
6)
Purchases, research and
development, compensation,
and services (unaudited)... -- -- -- 236,255
Accrued stock and warrant
issuance (Note 5)
(unaudited).................. -- 78,644 -- 78,644
Issuance of preferred stock
(Note 6) (unaudited)......... -- -- -- 234,375
Net loss for the three months
ended
March 31, 1996 (unaudited)... -- -- (1,785,284) (1,785,284)
------- -------- ------------ -----------
BALANCES, MARCH 31, 1996
(unaudited).................. $11,720 $326,144 $(14,292,945) $ 317,523
======= ======== ============ ===========
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-7
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
JUNE 1, 1992
YEAR ENDED THREE MONTHS ENDED TO MARCH 31,
DECEMBER 31, MARCH 31, 1996
------------------------ ---------------------- (CUMULATIVE)
1994 1995 1995 1996 (UNAUDITED)
----------- ----------- --------- ----------- ------------
(RESTATED) (UNAUDITED) (RESTATED)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
CASH
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss.............. $(3,088,296) $(3,140,828) $(638,582) $(1,785,284) $(10,586,243)
Adjustments to
reconcile net loss to
net cash provided by
operations:
Loss from
discontinued
operations from
January 1 through
May 31, 1992......... -- -- -- -- (100,599)
Stock paid for
services............. 1,130,848 1,563,130 152,734 236,255 3,758,996
Compensation
recognized relating
to accrued employee
stock grants......... 66,406 181,094 81,875 77,695 325,195
Compensation
recognized relating
to the issuance of
warrants............. -- 153,000 -- 949 153,949
Bad debt expense...... -- -- -- -- 394,720
Depreciation and
amortization......... 603,979 369,139 58,970 65,689 1,348,397
Amortization of loan
origination fees and
original issue
discount............. -- -- -- 479,250 479,250
Loss on disposal of
fixed assets......... 5,804 -- -- -- 102,595
Reversal of
litigation
outstanding at end
of prior year........ -- (286,996) -- -- (286,996)
Loss on sale of
marketable
securities........... 18,655 -- -- -- 48,290
Net unrealized loss
on marketable
securities........... -- -- -- -- 37,000
Loss on disposal of
oil and gas
operations........... 368,894 -- -- -- 368,894
Increase (decrease)
from changes in:
Accounts receivable... 16,906 -- -- -- 2,515
Interest receivable... -- -- -- -- 8,053
Amounts due from
related party........ -- -- -- -- 1,682
Inventory............. -- (147,593) (22,921) (58,304) (205,897)
Prepaid royalties..... -- (175,000) -- 15,000 (160,000)
Prepaid expenses and
other assets......... (8,341) (28,082) (42,757) (73,401) (277,825)
Other assets.......... -- (36,000) -- -- (44,341)
Accounts payable...... 31,519 111,408 (39,121) 82,935 272,219
Termination agreement
liability............ -- -- -- 357,667 357,667
Accrued expenses and
taxes................ 60,750 1,283 -- 19,188 63,015
----------- ----------- --------- ----------- ------------
Net cash used in
operating
activities......... (792,876) (1,435,445) (449,802) (582,361) (3,939,464)
----------- ----------- --------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Patent and marketing
licensing costs...... (89,260) (50,000) (26,940) (50,000) (575,110)
Purchase of property
and equipment........ (39,689) (54,270) -- (44,065) (186,439)
Proceeds from sale of
marketable
securities........... 55,345 -- -- -- 110,671
Loan payments
received............. -- -- -- -- 44,560
Proceeds from sale of
fixed assets......... -- -- -- -- 11,634
Investment by
discontinued
operations........... -- -- -- -- 8,323
----------- ----------- --------- ----------- ------------
Net cash used in
investing
activities......... (73,604) (104,270) (26,940) (94,065) (586,361)
----------- ----------- --------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Net borrowings from
related party........ -- -- -- -- 22,608
Proceeds from notes
payable.............. 50,000 1,182,500 -- 562,500 1,845,000
Principal payments on
notes payable........ -- (50,000) -- -- (50,000)
Proceeds from common
stock to be issued... 754,250 201,959 67,500 -- 1,237,167
Proceeds from issuing
common stock......... 486,627 30,000 -- -- 1,364,052
Capital lease
financing............ 4,987 (1,504) -- (592) 2,891
Advances on private
common stock
placement............ 44,217 -- -- -- 296,440
----------- ----------- --------- ----------- ------------
Net cash provided by
financing
activities......... 1,340,081 1,362,955 67,500 561,908 4,718,158
----------- ----------- --------- ----------- ------------
NET INCREASE (DECREASE)
IN CASH............... 473,601 (176,760) (409,242) (114,518) 192,333
CASH, beginning of
year.................. 10,010 483,611 483,611 306,851 --
----------- ----------- --------- ----------- ------------
CASH, end of period.... $ 483,611 $ 306,851 $ 74,369 $ 192,333 $ 192,333
=========== =========== ========= =========== ============
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-8
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

SUMMARY OF ACCOUNTING POLICIES

Description of Business

Medical Device Technologies, Inc. (the "Company"), is a public company
incorporated in Utah on February 6, 1980 and headquartered in San Diego,
California. The Company currently trades on the Nasdaq SmallCap Market (MEDD).
Prior to 1992, the Company's core business was the exploration and production
of hydrocarbons. As of June 1, 1992, the Company re-entered the development
stage. Effective January 1, 1994, the Company completed the divestiture of all
oil and gas properties, and was no longer in the hydrocarbon business. Since
that time, the Company has been exclusively a medical device company. The
Company changed its name in April 1995, from Cytoprobe Corporation, to reflect
the change of focus.

The Company has developed three innovative medical device products. The
first product, the Personal Alarm System (PAS) is a device which monitors the
integrity of infection control barriers, such as surgical gloves and gowns
worn during medical procedures. The second product, the Cell Recovery System
(CRS) is a cell "brushing" and retrieval system using an automated biopsy
brush for the collection of specimen cells for diagnostic purposes, primarily
(but not limited to) cancer detection. The third product, the Intracranial
Pressure Measuring System (ICP) is a diagnostic device that measures pressure
within the skull non-invasively. The Company received FDA clearance of the PAS
during the year ended December 31, 1995 and received FDA clearance of the CRS
in March, 1996.

Basis of Presentation

The unaudited interim financial statements for the three month periods ended
March 31, 1995 and 1996 included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and, in the opinion of the Company, reflect all
adjustments (consisting only of normal recurring adjustments) and disclosures
which are necessary for a fair presentation. The results of operations for the
three month period ended March 31, 1996 is not necessarily indicative of the
results for the full year.

Inventory

During the year ended December 31, 1995, the Company began preliminary
production of PAS device components. The inventory balance shown is the
accumulated costs of parts and materials at December 31, 1995 and March 31,
1996.

Property and Equipment

Property and equipment are stated at cost. Depreciation is being provided on
a straight line basis over the estimated useful lives of the related assets
which range from three to seven years.

Loan Origination Fees and Original Issue Discount

In conjunction with the Company's private placement of notes payable and
preferred stock (Note 3), the Company incurred $180,000 in loan origination
fees through March 31, 1996 ($117,500 through December 31, 1995). Further, the
Company recorded an original issue discount of $618,750 through March 31, 1996
($384,375 through December 31, 1995). These fees are being amortized over
approximately five months, which is the expected term of the notes payable as
they are to be repaid upon consummation of the proposed public offering of
convertible preferred stock.

F-9
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)

License Agreements

The Company has entered into various license agreements whereby the Company
has acquired the exclusive worldwide rights to commercialize, manufacture, and
sell its three products. In addition, the Company paid finder's fees relating
to two of the three products. These costs, along with legal costs to register
the related patents, have been capitalized and are being amortized over ten
years, which is the estimated useful life.

Income Taxes

Effective January 1, 1994, the Company adopted FAS 109 "Accounting for
Income Taxes." It requires an asset and liability approach for financial
accounting and reporting of deferred income taxes. Generally, FAS 109 allows
for recognition of deferred tax assets in the current period for the future
benefit of net operating loss carryforwards and items for which expenses have
been recognized for financial statement purposes but will be deductible in
future periods. A valuation allowance is recognized, if on the weight of
available evidence it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The adoption of FAS 109 did not have
any effect on the financial statements of the Company.

Cash Flows

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents.

Accounting Estimates

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

Earnings Per Share

Earnings per share data has been computed on the weighted average number of
shares of common stock outstanding each period and includes the effect of the
reverse stock-split at Note 16. Warrants outstanding have not been considered
in the average number of shares since the effect would be anti-dilutive.
Weighted average shares outstanding at December 31, 1994 and 1995 and March
31, 1996 includes the stock to be issued.

New Accounting Pronouncements

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December
15, 1995. SFAS No. 121 establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. The Company does not expect adoption of SFAS No. 121 to
have a material affect on its financial position or results of operations.

Statements of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for

F-10
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

SUMMARY OF ACCOUNTING POLICIES--(CONCLUDED)
financial statements for fiscal years beginning no later than December 15,
1995. The new standard establishes a fair value method of accounting for
stock-based compensation plans and for transactions in which an entity
acquires goods or services from nonemployees in exchange for equity
instruments. At the present time, the Company has not determined if it will
change its accounting policy for stock based compensation or only provide the
required financial statement disclosures. As such, the impact on the Company's
financial position and results of operations is currently unknown. The Company
does not expect adoption of SFAS No. 123 to have a material effect on its
financial position or results of operations.

Fair Value of Notes Payable

The fair value of notes payable is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities.

Reclassifications

Certain reclassifications have been made to conform the prior year's amounts
to the current year's presentation.

F-11
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1995 AND 1996 IS UNAUDITED)

1. GOING CONCERN

These financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has recurring losses from operations,
negative working capital and limited capital resources. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Further, the Company does not have sufficient cash flow to fund completion of
its development programs or current level of expenses or pay $1,650,000 in
notes due in December 1996.

Management plans to raise net proceeds of approximately $5,700,000 in
capital through a public offering of convertible preferred stock during the
second quarter of 1996. There is no assurance that the public offering will be
successful.

The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount of
liabilities that might be necessary should the Company be unable to continue
in existence.

2. LICENSE AGREEMENTS

These assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
USEFUL LIFE 1994 1995 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CRS................................ 10 Years $1,038,624 $1,038,624 $1,338,624
ICP................................ 10 Years 942,505 942,505 942,505
PAS................................ 10 Years 195,000 245,000 245,000
---------- ---------- ----------
2,176,129 2,226,129 2,526,129
Less accumulated amortization...... 405,275 627,887 687,386
---------- ---------- ----------
$1,770,854 $1,598,242 $1,838,743
========== ========== ==========
</TABLE>

3. SHORT-TERM NOTES PAYABLE

Pursuant to a Confidential Private Placement Memorandum dated October 27,
1995, between December 14, 1995 and January 24, 1996, the Company effected a
private placement of notes and 247,500 shares of Series I convertible
preferred stock. Of the $1,650,000 of gross proceeds, $618,750 was allocated
to the preferred stock ($384,375 through December 31, 1995) and represents the
original issue discount on the notes. The proceeds of the private placement
are being used to provide working capital to the Company.

Notes sold in the private placement bear interest at 10% per annum and
mature at the earlier of (i) the expiration of twelve months after their
issuance, (ii) receipt by the Company of at least $3,000,000 in gross proceeds
from (a) a public or private sale of its securities, (b) a joint venture, or
(c) a licensing agreement. The unamortized original issue discount was
$384,375 and $247,500 at December 31, 1995 and March 31, 1996.

F-12
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1995 AND 1996 IS UNAUDITED)

The notes issued are secured by a first priority lien on all assets of the
Company. This security interest will terminate upon repayment of the notes.

The loan origination fees associated with the above private placement
totaled $180,000 ($117,500 through December 31, 1995). The unamortized loan
origination fees were $117,500 and $72,000 at December 31, 1995 and March 31,
1996.

During the year ended December 31, 1995, the Company repaid a note payable
in the principal amount of $50,000 which existed at December 31, 1994.

4. CAPITAL LEASE OBLIGATION

Minimum future lease payments under a capital lease for each of the next two
years and in aggregate are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1996................................................................. $2,214
1997................................................................. 1,660
------
3,874
Less: amount representing interest................................... 391
------
Present value of minimum lease payments.............................. $3,483
======
</TABLE>

5. COMMITMENTS

The Company is currently leasing its offices under a three year operating
lease which ends July, 1997. Future minimum lease payments under this and
other operating leases are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ -------
<S> <C>
1996................................................................. $40,248
1997................................................................. 29,364
1998................................................................. 2,748
1999................................................................. 2,748
2000................................................................. 2,748
-------
$77,856
=======
</TABLE>

Rent expense was $78,220 and $54,642 for the years ended December 31, 1994
and 1995 and $22,963 and $5,079 for the three months ended March 31, 1995 and
1996.

ROYALTY AGREEMENTS

The Company entered into a royalty agreement when it purchased the exclusive
license and technological rights relating to the CRS device. Under the terms
of the agreement, the Company will pay one party an amount of $300,000 under
defined payment terms beginning in January 1996 of which $50,000 was paid
through March 31, 1996 and the balance of which is due in the second quarter
of 1996. Also, the Company will pay royalties to a second party amounting to
5% of the average retail sales price on all net sales, plus $100,000 in twenty
equal quarterly installments of $5,000 beginning January 1, 1997. The Company
can terminate this agreement with 90 days written notice at which time all
patent rights will cease.

F-13
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1995 AND 1996 IS UNAUDITED)

The Company entered into a royalty agreement when it purchased the exclusive
license and received the technology and developments relating to the PAS
device. Under the terms of the agreement, the Company will pay royalties in
the amount of 5% of the net sales price of each product for the life of the
patent. Previous consulting payments made by the Company in the amount of
$160,000 at December 31, 1995 will be deducted from royalties at the rate of
$15,000 per quarter, provided that the minimum royalty payable in each quarter
will be $7,813. In addition, the Company entered into a royalty agreement when
it obtained the exclusive license to the Signal Modulation Barrier Monitor,
which is a component part of the PAS. Pursuant to this license agreement, the
Company will pay royalties of 1% of the average retail sales price on all net
sales, through the life of the future patent, when registered. The Company has
obtained FDA clearance for the PAS and began marketing the device in the first
quarter of 1996.

The Company entered into a royalty agreement when it exercised its option to
enter into an exclusive license agreement for the ICP device. Under the terms
of the agreement, the Company will pay royalties equal to 10% of the net sales
proceeds from the ICP, with a minimum payment of $90,000 for the year ended
December 31, 1996 and $200,000 for all subsequent years through the life of
the patent. With respect to the royalties due in 1996, $15,000 is prepaid at
December 31, 1995. The Company can terminate this agreement with 90 days
written notice, at which time all patent rights will cease.

Further, in accordance with a finder's agreement, the Company is obligated
to pay royalties equal to 8% of the gross sales of the ICP, as well as to
issue an additional 1,000,000 restricted shares of common stock to the finder
when gross sales of the ICP reach $10,000,000. The Company believes, on the
advice of counsel, that it is not obligated to pay the 8% royalty or the
1,000,000 shares of restricted stock based on a breach of contract by the
finder, as the finder failed to reimburse the Company for consulting fees in
accordance with the agreement.

MEDICAL ADVISORY AGREEMENTS

On January 1, 1996, the Company entered into agreements with seven medical
advisors for a two year term. The agreements provide for 6,000 shares of
Common Stock to be issued to each advisor per year, issued semi-annually.

EMPLOYMENT CONTRACTS

Effective August 31, 1994, the Company entered into an employment agreement
with the Chief Executive Officer for a four year term providing for a base
salary of $162,000 per year, in addition to 125,000 shares of common stock to
be granted at the end of two years of employment. The agreement also provides
for 100,000 warrants, exercisable after the earlier of August 31, 1996 or a
public offering of stock, through August 31, 1999 at an exercise price of
$2.00 per share. Compensation expense for the years ended December 31, 1994
and 1995 and the three months ended March 31, 1996 is recorded for the 125,000
shares based on the pro-rata shares earned and the market value of the stock
at the end of the period. No compensation expense was recorded for the
issuance of the warrants since they were not issued below fair market value. A
separate severance agreement provides for severance benefits upon involuntary
termination in the amount of three years' base salary.

Effective August 31, 1994, the Company entered into an employment agreement
with the former Executive Vice President for a four year term providing for a
base salary of $120,000 per year, in addition to 100,000 shares of common
stock to be granted at the end of two years of employment. The agreement also
provided for 75,000 warrants, exercisable after the earlier of August 31, 1996
or a public offering stock, through August 31, 1999 at an exercise price of
$2.00 per share. Compensation expense for the years ended December 31, 1994
and 1995 and the three months ended March 31, 1996 is recorded for the 100,000
shares based on the pro-rata shares earned and the market value of the stock
at the end of the period. No compensation expense was recorded for

F-14
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1995 AND 1996 IS UNAUDITED)
the issuance of the warrants since they were not issued below fair market
value. A separate severance agreement provided for severance benefits upon
involuntary termination in the amount of three years' base salary.

On March 29, 1996, the Company and the former Executive Vice President
entered into a termination agreement which terminated the existing employment
and severance agreement and settled any and all claims between the two
parties. Under the termination agreement, the former Executive Vice President
will receive twenty-nine monthly payments of $10,000, commencing on April 1,
1996 and ending August 31, 1998. Further, the 100,000 shares of common stock
discussed above will be fully vested and available to the former Executive
Vice President as of August 31, 1996. The former Executive Vice President was
also issued warrants to purchase 37,500 shares of common stock at $.80 per
share, which was below the fair market value of the common stock at the date
of grant. Compensation expense was recorded relating to the issuance of these
warrants in the three months ended March 31, 1996. Finally, the provisions
relating to the 75,000 warrants discussed above remain the same.

Effective January 4, 1995, the Company entered into an employment agreement
with the Vice President of Marketing and Sales for a three year term providing
for a base salary of $110,000 per year, in addition to 50,000 shares of common
stock to be issued on August 31, 1996. The agreement also provides for 12,500
warrants at an exercise price of $2.00 per share to be issued on each of
January 4, 1996, 1997 and 1998. Compensation expense for the year ended
December 31, 1995 and the three months ended March 31, 1996 is recorded for
the 50,000 shares based on the pro-rata shares earned and the market value of
the stock at the end of the period. No compensation expense was recorded for
the issuance of the warrants since they were not issued below fair market
value. The agreement also provides for severance benefits upon involuntary
termination in the amount of six month's base salary.

Effective March 15, 1996, the Company entered into an exclusive employment
agreement with the Vice President of New Business Development for a three year
term providing for a base salary of $108,000 per year, in addition to 12,500
shares of common stock which vest on March 15, 1997 and 12,500 shares of
common stock which vest on March 15, 1998. The agreement also provides for
9,375 warrants at an exercise price of $.80 per share to be issued on each of
March 15, 1997, 1998, 1999 and 2000. The warrants are exercisable for a period
of five years from the date of issuance. Compensation expense for the three
months ended March 31, 1996 is recorded for the 25,000 shares based on the
pro-rata shares earned and the market value of the stock at the end of the
period. Compensation expense was also recorded for the issuance of the
warrants since they were issued below fair market value. The agreement also
provides for severance benefits upon involuntary termination in the amount of
six month's base salary.

Effective March 15, 1996, the Company entered into a non-exclusive
employment agreement with the Chief Financial Officer for a three year term
providing for a base salary of $60,000 per year, in addition to 6,250 shares
of common stock which vest on March 15, 1997 and 6,250 shares of common stock
which vest on March 15, 1998. The agreement also provides for 6,250 warrants
at an exercise price of $.80 per share to be issued on each of March 15, 1997,
1998, 1999 and 2000. The warrants are exercisable for a period of five years
from the date of issuance. Compensation expense for the three months ended
March 31, 1996 is recorded for the 12,500 shares based on the pro-rata shares
earned and the market value of the stock at the end of the period.
Compensation expense was also recorded for the issuance of the warrants since
they were issued below fair market value. The agreement also provides for
severance benefits upon involuntary termination in the amount of six month's
base salary.

OTHER COMMITMENTS

The Company is a defendant in a lawsuit filed by Chandler Church & Company
("Chandler Church"). The lawsuit demands payment of approximately $330,000 for
services rendered and/or funds that Chandler Church

F-15
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1995 AND 1996 IS UNAUDITED)
alleged to have advanced. Prior to the lawsuit, the Company had issued a
substantial amount of its stock, approximately 2,070,000 shares, to Chandler
Church & Company and its affiliates for services claimed to have been rendered
to the Company, which the Company is now disputing. These entities assigned
their claims to Uptown Trust, and the case was subsequently dismissed by the
Superior Court of San Diego County. However, after the dismissal, Chandler
Church refiled the same complaint. The Company has filed an answer denying the
claims in the complaint and filed a cross-complaint. On April 9, 1996,
Chandler Church's complaint was dismissed by the Superior Court of San Diego
County, California. A default has been entered against Chandler Church on the
Company's cross-complaint against Chandler Church. Damages against Chandler
Church on the cross-complaint have not yet been assessed by the Court and the
Company believes that it has no liability under any of these actions. The
Company also believes it has meritorious defenses to all such claims. In the
event that the Company does not prevail, the loss could have a material
adverse effect on the financial condition of the Company.

6. STOCKHOLDERS' EQUITY

COMMON STOCK

During the year ended December 31, 1994, the Company issued 548,438 shares
in a private placement offering. This stock was classified as stock to be
issued at December 31, 1994 because the Company did not issue the shares until
the offering was closed. During the first quarter of 1995, an additional
100,000 shares were sold. During the second quarter of 1995, the shares were
issued. As the Company decided to reduce the purchase price from $1.60 per
share to $1.40 per share, an additional 92,650 shares were issued, for a total
of 741,088 shares. Net proceeds from the private placement, after deducting
associated costs, amounted to $974,769.

During June and July 1995, the Company raised $275,000 from the issuance of
convertible debentures. These notes were converted into 343,750 shares of
common stock during December 1995.

During the years ended December 31, 1995 and 1994, the Company received cash
of $30,000 and $484,262 for the issuance of 43,000 and 384,820 shares of
common stock, respectively.

During the years ended December 31, 1994 and 1995 and the three months ended
March 31, 1996, other unregistered stock and stock under Form S-8
registrations were issued for services provided to the Company. An S-8
registration allows the Company to issue free-trading stock to employees,
directors and consultants and advisors for services rendered to the Company.

PREFERRED STOCK

In April of 1995, the Company amended its Articles of Incorporation to
authorize 10,000,000 shares of $.01 par value preferred stock. In December of
1995, the Company further amended its Articles of Incorporation to authorize
187,500 of Series I Convertible Preferred Stock. On January 19, 1996, the
Company amended its Articles of Incorporation to increase the authorized
shares of Series I Convertible Preferred Stock from 187,500 to 247,500. In the
event that the Company fails to effect an offering of common stock within six
months after December 14, 1995, each share of the Series I Convertible
Preferred Stock will convert into common stock based upon the price of the
Company's common stock on June 14, 1996 (less a discount of 20%) in an amount
equal to the number of shares of common stock equal to $5, plus any declared
but unpaid dividends. The Company believes that it will be able to obtain the
agreement from each of the holders of the Series I Convertible Preferred Stock
to extend the date of automatic conversion for thirty days in exchange for
7,500 redeemable warrants.

F-16
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1995 AND 1996 IS UNAUDITED)

Through March 31, 1996, in conjunction with the private placement of short
term notes payable (Note 3), the Company issued 247,500 shares of Series I
convertible preferred stock. The shares were assigned a value of $618,750. As
no consideration was paid for the preferred stock, this amount is considered
an original issue discount and is being amortized to interest expense over
approximately five months, which is the expected term of the notes payable
which are to be repaid upon consummation of Company's contemplated offering of
convertible preferred stock in 1996.

In connection with the private placement which commenced during the year
ended December 31, 1994 and was completed in the second quarter of 1995, and
certain other agreements, the Company agreed to issue warrants, each of which
allowed the holder to purchase one share of the Company's common stock at a
specified price. Details of the warrants are as follows:

<TABLE>
<CAPTION>
NUMBER OF PER SHARE
ISSUED TO WARRANTS EXERCISE PRICE EXPIRES
--------- --------- -------------- -------
<S> <C> <C> <C>
January 1, 1994................................ -- --
Granted Private Placement.................... 230,000 $2.00 8/98
Granted Officers............................. 175,000 $2.00 8/99
Granted Noteholder........................... 5,000 $2.00 9/99
-------
December 31, 1994.............................. 410,000
Granted Public relations firm................ 150,000 $2.00-$4.00 6/96
Granted Officer.............................. 150,000 $.80 7/00
Granted Officer.............................. 37,500 $2.00 1/03
Granted Convertible debentures............... 68,750 $1.20 5/96
Granted Private placement.................... 29,375 $2.00 8/98
Granted Consultant........................... 28,125 $2.00 2/00
Granted Employee............................. 12,500 $2.00 8/00
Granted Employee............................. 12,500 $2.00 12/00
-------
December 31, 1995.............................. 898,750
Granted Employee............................. 25,000 $.80 3/05
Granted Employee............................. 37,500 $.80 3/05
Granted Former employee...................... 37,500 $.80 8/01
-------
March 31, 1996................................. 998,750
=======
</TABLE>

In regards to the issuance of 150,000 warrants to an officer at $.80 per
warrant during the year ended December 31, 1995, compensation expense of
$153,000 was recorded as the difference between the fair market value of the
warrants and the issue price at the measurement date. Compensation was also
recorded for the warrants granted at $.80 during the three months ended March
31, 1996 based on the pro-rata amount of warrants earned. Compensation expense
was not recorded for any other issuances of warrants to officers or employees
as the fair market value of the warrants was below the exercise price.

7. COMPENSATORY STOCK BENEFIT PLANS

During the year ended December 31, 1994, the Company adopted the
Compensatory Stock Benefit Plan (the "1994 Plan") for certain technical and
professional employees and independent third parties who provide services in
connection with the development of the Company's products or otherwise in
connection with its business. The 1994 Plan authorizes the Company to issue up
to 250,000 shares under the 1994 Plan. At December 31, 1994, all 250,000
shares were issued under the 1994 Plan.

F-17
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1995 AND 1996 IS UNAUDITED)

During the year ended December 31, 1995, the Company adopted the
Compensatory Stock Benefit Plan (the "1995 Plan") for certain technical and
professional employees and independent third parties who provide services in
connection with the development of the Company's products or otherwise in
connection with its business. The 1995 Plan authorizes the Company to issue up
to 875,000 shares under the 1995 Plan. Shares may be awarded under the 1995
Plan until December 31, 1996. At December 31, 1995, all 875,000 shares were
issued under the 1995 Plan.

The 1996 Stock Compensation Plan (the "1996 Plan") was established by the
Company effective January 16, 1996. The 1996 Plan allows for issuance of
common stock to certain technical and professional employees and independent
third parties who provide services in connection with the development of the
Company's products or otherwise in connection with its business. The 1996 Plan
authorizes the Company to issue up to 475,000 shares under the 1996 Plan.
Shares may be awarded under the Plan until January 10, 1998. As of May 17,
1996, 311,320 shares were issued under the 1996 Plan.

8. LOSS ON SALE OF MARKETABLE SECURITIES

At January 1, 1994, the Company held 59,200 shares of Golden Triangle
Royalty and Oil stock. This investment had a cost basis of $111,000 and a fair
market value of $74,000. This investment was being carried on the books at the
lower of cost or market which reflected an unrealized loss of $37,000. During
the year ended December 31, 1994, this investment was liquidated at an
additional loss of $18,655.

9. LOSS FROM DISPOSAL OF OIL AND GAS OPERATIONS

Effective January 1, 1994, the Company completed the liquidation of its oil
and gas operations and their related assets and liabilities. These consisted
primarily of a small amount of cash, a note receivable (offset by a deferred
gain allowance), oil and gas leases, and royalty payables. Consideration for
this transaction consisted of the transferee's assumption of the potential
plugging and environmental liabilities associated with these assets and a note
receivable from a third party which proved to be worthless. The Company
recognized a loss of $371,374 as the result of this disposition during the
year ended December 31, 1994.

10. RELATED PARTY TRANSACTIONS

During the year ended December 31, 1995, Mr. Thomas Glasgow, a director of
the Company, received compensation of $25,297 for computer and other general
corporate consulting services.

In June 1994, the Company issued 350,000 shares of its common stock to
Surgisafe, Inc. ("Surgisafe") in exchange for Surgisafe's assignment to the
Company (the "Surgisafe Assignment") of Surgisafe's rights under an exclusive
sales agreement entered into with the Company on September 11, 1992 (the
"Surgisafe Agreement"). Under the Surgisafe Agreement, Surgisafe had the
exclusive right to sell the CRS and ICP, as well as other future products in a
defined sales territory. Under the Surgisafe Agreement, the Company was
obligated to pay Surgisafe commissions equal to 20% of the net sales price of
sales in the sales territory and to issue to Surgisafe 8,333 shares of the
Company's common stock. The 350,000 shares of the common stock issued to
Surgisafe in June 1994 pursuant to the Surgisafe Assignment were distributed
in February 1995 to Mr. William E. Mayer, III, the son of William E. Mayer,
II, a member of the Company's Scientific Advisory Board, and Mr. Roland
Frasier, III, the son of B. Roland Freasier, II, the Executive Vice President
of the Company. Mr. Mayer III was appointed to the Company's Board of
Directors and subsequently resigned in 1995.

F-18
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1995 AND 1996 IS UNAUDITED)

11. INCOME TAXES

The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the net
deferred tax asset and liability, and their approximate tax effects, are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Capital lease liability............................... $ 1,696 $ --
Excess tax depreciation over book..................... (3,871) (9,715)
Investment tax credit carryforward.................... 6,941 6,941
Net operating loss carryforwards...................... 3,508,583 5,182,724
Valuation allowance................................... (3,513,349) (5,179,950)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>

Due to management not being able to conclude that it is more likely than not
that the deferred tax asset will be realized, a valuation allowance has been
recorded for the full amount.

At December 31, 1995, the Company had approximately $13,168,000 of federal
operating loss carryovers and $4,361,200 of state operating loss carryovers to
offset future taxable income; these carryovers will expire in various years
through 2010. As a result of a change in ownership, federal tax rules impose
limitations on the use of net operating losses. The limitation will reduce the
amount of these benefits that will be available to offset future taxable
income each year, starting with the year of ownership change. The dollar
amount of these limitations is indeterminable at this time.

12. FOURTH QUARTER ADJUSTMENTS AND TRANSACTIONS

During the fourth quarter of the year ended December 31, 1995, the Company
recorded net adjustments in the amount of $748,577 relating to the reversal of
an estimated loss accrual for litigation of $286,996, an adjustment to
deferred compensation of $118,969, the recording of prepaid royalties of
$120,000, and the recording of amortization expense of $222,612. The
adjustments decreased net loss by $.20 per share for the year ended December
31, 1995.

13. SUPPLEMENTAL EARNINGS PER SHARE DATA

On December 18, 1995, $275,000 of convertible promissory notes were
converted into common stock. Had this conversion occurred on June 23, 1995,
the date of issuance, the reported net loss per common share for the year
ended December 31, 1995 would have decreased $.04 to ($.90).

14. SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING, INVESTING AND FINANCING
TRANSACTIONS

During the year ended December 31, 1995 and the three months ended March 31,
1996, the Company issued Series I convertible preferred stock valued at
$384,375 and $234,375 in conjunction with notes payable issued in a private
placement (Notes 3 and 6). This amount is recorded as an original issue
discount.

During the years ended December 31, 1995 and 1994, $275,000 and $52,364 of
debt was converted into common stock (Note 6).

F-19
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1995 AND 1996 IS UNAUDITED)

During the years ended December 31, 1994 and 1995 and the three months ended
March 31, 1995, and 1996, deferred compensation expense of $66,406, $181,094,
$81,875 and $78,644 was recorded relating to accrued employee stock grants and
warrants (Note 5).

During the year ended December 31, 1995, $153,000 of compensation expense
was recorded relating to the issuance of warrants with an exercise price below
fair market value at the date of issuance.

During the years ended December 31, 1994 and 1995 and the three months ended
March 31, 1995 and 1996, $1,130,848, $1,563,130, $177,734 and $236,255 of
obligations relating to purchases and services rendered were satisfied through
the issuance of common stock.

During the years ended December 31, 1994 and 1995, $353,333 and $50,000 of
obligations relating to the purchase of patents and marketing licenses were
paid for through the issuance of common stock.

15. CHANGE IN ACCOUNTING PRINCIPLE

In the fourth quarter of 1995, the Company changed its method of amortizing
its license agreements from commencement of product shipment to the estimated
useful life of the license agreement, which is ten years. This method was
adopted because the Company believes it results in a better matching of
expenses with revenues. This change in accounting method has been applied by
retroactively restating the financial statements of the Company for the years
ended December 31, 1994 and 1995 and from June 1, 1992 to December 31, 1995
(cumulative). The effect of the changes on the consolidated statements of
operations is to increase the losses as follows:

<TABLE>
<CAPTION>
JUNE 1, 1992
YEARS ENDED DECEMBER 31, TO DECEMBER
-------------------------- 31, 1995
1994 1995 (CUMULATIVE)
------------ ------------ ------------
<S> <C> <C> <C>
Net loss:
Effect on continuing operations..... $ (199,763) $ (222,612) $(627,887)
Effect on discontinued operations
and disposal of oil and gas
operations......................... -- -- --
Effect on net loss.................. $(199,763) $(222,612) $(627,887)
Primary loss per share:
Effect on continuing operations..... $ (.14) $ (.06) --
Effect on discontinued operations
and disposal of oil and gas
operations......................... -- -- --
Effect on net loss.................. $ (.14) $ (.06) --
</TABLE>

16. SUBSEQUENT EVENTS

F-20
<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(FORMERLY CYTOPROBE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- ---------- ---------- ----------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accumulated amortization
of license agreements
Year ended December 31,
1995............................... $405,275 $222,612 $-- $627,887
1994 (Restated).................... 205,512 199,763 -- 405,275
1993 (Restated).................... 30,732 174,780 -- 205,512
</TABLE>

S-1
<PAGE>

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

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSONS MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary......................................................... 1
The Offering............................................................... 3
Summary Consolidated Financial Data........................................ 5
Risk Factors............................................................... 6
The Company................................................................ 18
Use of Proceeds............................................................ 20
Market Price for the Common Stock and Dividends............................ 21
Capitalization............................................................. 22
Dilution................................................................... 23
Selected Consolidated Financial Data....................................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 25
Business................................................................... 31
Management................................................................. 41
Executive Compensation..................................................... 46
Management Employment Agreements........................................... 47
Option Plans............................................................... 48
Principal Shareholders..................................................... 49
Certain Transactions....................................................... 51
Description of Securities.................................................. 51
Certain Federal Income Tax Considerations.................................. 56
Shares Eligible for Future Sale............................................ 58
Underwriting............................................................... 60
Legal Matters.............................................................. 62
Change in Accountants...................................................... 62
Experts.................................................................... 62
Additional Information..................................................... 62
Index to Financial Statements.............................................. F-0
</TABLE>

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

1,500,000 SHARES OF 6% CUMULATIVE
CONVERTIBLE SERIES A PREFERRED STOCK
AND 1,500,000 REDEEMABLE WARRANTS

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

PROSPECTUS

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

FIRST ALLIED SECURITIES, INC.
LOGO

JUNE 24 , 1996

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