MEDICAL DEVICE TECHNOLOGIES INC, S-1/A, 1996-05-23

MEDICAL DEVICE TECHNOLOGIES INC
S-1/A, 1996-05-23
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996

REGISTRATION NO. 333-02727
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1

TO
REGISTRATION STATEMENT

FORM S-1
UNDER
THE SECURITIES ACT OF 1933

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MEDICAL DEVICE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

UTAH 3841 58-1475517
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NO.)
ORGANIZATION)

9171 TOWNE CENTRE DRIVE, SUITE 355
SAN DIEGO, CA 92122
(619) 455-7127

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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

M. LEE HULSEBUS
CHIEF EXECUTIVE OFFICER
9171 TOWNE CENTRE DRIVE, SUITE 355
SAN DIEGO, CA 92122
(619) 455-7127

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(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

CLIFFORD A. BRANDEIS, ESQ. LAWRENCE B. FISHER, ESQ.
ZUKERMAN GORE & BRANDEIS, LLP ORRICK, HERRINGTON & SUTCLIFFE
900 THIRD AVENUE 666 FIFTH AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10103
(212) 223-6700 (212) 506-5000

Approximate date of commencement of proposed sale to the public: as soon as
practicable after the effective date of this registration Statement.

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<PAGE>

CALCULATION OF REGISTRATION FEES
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
OFFERING PRICE
PER SHARE OF
PREFERRED STOCK,
COMMON STOCK PROPOSED
AMOUNT AND REDEEMABLE MAXIMUM
TITLE OF EACH CLASS OF TO BE COMMON STOCK AGGREGATE AMOUNT OF
SECURITIES TO BE OFFERED PURCHASE OFFERING REGISTRATION
REGISTERED REGISTERED WARRANT(1) PRICE(1) FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Cumulative Convertible
Series A Preferred Stock,
par value $.001 per
share.................... 1,680,000 $5.00 $ 8,400,000 $2,896.55
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% Cumulative Convertible
Series A Preferred Stock,
par value $.001 per
share.................... 247,500 $5.00 $ 1,237,500 $ 426.72
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% Cumulative Convertible
Series A Preferred Stock,
par value $.001 per
share(2)................. 252,000 $5.00 $ 1,260,000 $ 434.48
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% Cumulative Convertible
Series A Preferred Stock,
par value $.001 per
share(3)................. 168,000 $6.00 $ 1,008,000 $ 347.59
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Redeemable Common Stock
Purchase Warrants........ 1,680,000 $ .10 $ 168,000 $ 57.93
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Common Stock, par value
$.15 per share(4)....... 8,400,000 $ .75 $ 6,300,000 $2,172.41
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Redeemable Common Stock
Purchase Warrants........ 247,500 $1.00 $ 247,500 $ 85.34
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Common Stock, par value
$.15 per share(4)....... 1,237,500 $ .75 $ 928,125 $ 320.04
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Redeemable Common Stock
Purchase Warrants........ 252,000 $ .10 $ 25,200 $ 8.69
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Common Stock, par value
$.15 per share(4)(5).... 1,260,000 $ .75 $ 945,000 $ 325.86
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Redeemable Common Stock
Purchase Warrants........ 168,000 $ .12 $ 20,160 $ 6.95
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Common Stock, par value
$.15 per share(4)(6).... 840,000 $ .90 $ 756,000 $ 260.69
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Common Stock, par value
$.15 per share(7)........ $ $ $ -0-(8)
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Common Stock, par value
$.15 per share(9)........ $ $ $ -0-(8)
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TOTAL................................................. $21,295,485 $7,343.27
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Fees Previously Paid.................................. $3,842.59
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Fees Due on Filing.................................... $3,500.68
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Represents shares subject to an option granted to the Underwriters to
cover over-allotments, if any.
(3) Represents shares underlying warrants granted to the Representative and,
pursuant to Rule 416, also covers such additional shares of % Cumulative
Convertible Series A Preferred Stock as may become issuable as a result of
any anti-dilution adjustments made in accordance with the terms of the
Representative's Warrants.

(4) Assumes each Redeemable Common Stock Purchase Warrant entitles the holder
to purchase five (5) shares of Common Stock.
(5) Represents Redeemable Common Stock Purchase Warrants subject to option
granted to Underwriters to cover over-allotments, if any.

(6) Represents shares underlying Redeemable Warrants contained in the
Representative's Warrant.

(7) Represents shares issuable upon conversion of the % Cumulative
Convertible Series A Preferred Stock.

(8) No fee pursuant to Rule 457(i).

(9) Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
registration statement also covers such additional shares of Common Stock as
may become issuable (i) upon the conversion of the % Cumulative
Convertible Series A Preferred Stock, (ii) as a result of any anti-dilution
adjustments made in accordance with the terms of the Redeemable Warrants,
(iii) pursuant to any stock dividend declared on the % Cumulative
Convertible Series A Preferred Stock, and (iv) as a result of any anti-
dilution adjustments made in accordance with the terms of the
Representative's Warrants.

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<PAGE>

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The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.

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<PAGE>

MEDICAL DEVICE TECHNOLOGIES, INC.

PURSUANT TO ITEM 501(B) OF REGULATION S-K

CROSS REFERENCE SHEET
(SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION)

<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
---------------------------- ----------------------
<S> <C> <C>
1. Forepart of Registration Statement and Out-
side Front Cover Page of Prospectus....... Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio
of Fixed Charges to Earnings.............. Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution................................... Risk Factors; Dilution
7. Selling Security Holders................... Outside Front Cover Page of Prospectus;
Concurrent Offering
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Concurrent Offering; Underwriting
9. Description of Securities to be Registered. The Offering; Description of Securities;
Concurrent Offering; Underwriting
10. Interest of Named Experts and Counsel...... Legal Matters; Experts
11. Information with Respect to the Registrant. Outside Front Cover Page; Prospectus
Summary; Risk Factors; The Company;
Dividend Policy; Concurrent Offering;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal Shareholders;
Description of Securities; Shares
Eligible For Future Sale; Underwriting;
Financial Statements
12. Disclosure of Commission Position on Indem-
nification for Securities Act Liabilities.. Not Applicable
</TABLE>
<PAGE>

EXPLANATORY NOTE

This registration statement (the "Registration Statement") contains two
prospectuses: one related to this offering of 1,400,000 shares of %
Cumulative Convertible Series A Preferred Stock (the "Preferred Stock") and
1,400,000 redeemable common stock purchase warrants (the "Redeemable
Warrants") by Medical Device Technologies, Inc. (the "Company") and the shares
of Common Stock issuable upon the conversion of such Preferred Stock and the
exercise of such Redeemable Warrants, plus 210,000 shares of Preferred Stock
and 210,000 Redeemable Warrants to cover over-allotments, if any (the
"Prospectus"); and one relating to the offering of 247,500 shares of Preferred
Stock and 247,500 Redeemable Warrants issued by the Company in connection with
a private placement completed in January, 1996 and the shares of Common Stock
issuable upon the conversion of such Preferred Stock and the exercise of such
Redeemable Warrants (the "Selling Shareholder Prospectus"). Following the
Prospectus are certain substitute pages of the Selling Shareholder Prospectus,
including alternate front outside and back outside cover pages, an alternate
"The Offering" section of the "Prospectus Summary" and sections entitled
"Concurrent Offering" and "Plan of Distribution." Each of the alternate pages
for the Selling Shareholder Prospectus included herein is labeled "Alternate
Page for Selling Shareholder Prospectus" or "Additional Page for Selling
Shareholder Prospectus." All other sections of the Prospectus, other than
"Underwriting" and "Concurrent Offering," are to be used in the Selling
Shareholder Prospectus. In addition, cross-references in the Prospectus will
be adjusted in the Selling Shareholder Prospectus to refer to the appropriate
sections.
<PAGE>

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

SUBJECT TO COMPLETION, DATED MAY 23, 1996
PROSPECTUS

LOGO

1,400,000 SHARES OF % CUMULATIVE CONVERTIBLE

SERIES A PREFERRED STOCK AND

1,400,000 REDEEMABLE WARRANTS
----------

Medical Device Technologies, Inc. (the "Company") hereby offers 1,400,000
shares of % Cumulative Convertible Series A Preferred Stock, par value $.01
per share (the "Preferred Stock") and 1,400,000 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 , 1996, [120 days from the date of this Prospectus] (the
"Initial Conversion Date") into shares of the Company's common stock, par
value $.15 per share (the "Common Stock"), at a conversion price of $ per
share of Common Stock (the "Conversion Price"). Unless earlier converted, the
Preferred Stock automatically will convert into Common Stock on , 1997,
[thirteen (13) months after the date of this Prospectus] (the "Automatic
Conversion Date"). See "Description of Securities-- % 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 % 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-- % Cumulative Convertible
Series A Preferred Stock--Dividends."

Each Redeemable Warrant entitles the holder to purchase [50% of the
number of shares issuable upon conversion of the Preferred Stock] shares of
Common Stock at an exercise price of $3.75 per Redeemable Warrant ($ [150% of
the Conversion Price] per share of Common Stock), subject to adjustment in
certain circumstances, commencing , 1997 [13 months from the date of this
Prospectus] until , 1999 [36 months from the date of this Prospectus] and
is redeemable by the Company at a redemption price of $.05 per Redeemable
Warrant at any time after , 1997, [sixteen (16) months from the date of
this Prospectus,] 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 $ [200% of
the Conversion Price], 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 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."

It is currently anticipated that the shares of Preferred Stock and the
Redeemable Warrants will be included 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
May 17, 1996, the closing bid price of the Common Stock, as reported on the
Nasdaq SmallCap Market, was $.69 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 7 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.

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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(/1/) COMPANY(/2/)
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<S> <C> <C> <C>
Per Share................................ $5.00 $ $
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Per Redeemable Warrant................... $ .10 $ $
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Total (3)............................ $7,140,000 $ $
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</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 $ 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 210,000 additional shares of Preferred Stock
and/or 210,000 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 $ , $ , and
$ , 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 , 1996.

FIRST ALLIED SECURITIES, INC.
LOGO

JUNE , 1996
<PAGE>

The Company is currently a reporting company under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and furnishes its shareholders
with annual reports containing audited financial statements after the close of
each fiscal year.

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

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

2
<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, and its 1-6
reverse stock split in January, 1994. In addition, unless otherwise expressly
set forth herein to the contrary, (i) all references to the Company's % Series
A Cumulative Convertible 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 %
Series A Cumulative Convertible Preferred Stock on a one-for-one basis on the
date hereof and (ii) assumes that all of the investors in the Private Placement
have agreed to extend the date of automatic conversion of such shares of Series
I Preferred Stock into Common Stock, in exchange for the issuance of one
Redeemable Warrant for each share of Series I Preferred Stock purchased in the
Private Placement. 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.

3
<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.

4
<PAGE>

THE OFFERING

Securities Offered........... 1,400,000 shares of % Cumulative Convertible
Series A Preferred Stock and 1,400,000
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 % per annum, payable semi-
annually on June 30 and December 31, commencing
June 30, 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-- % Cumulative
Convertible Series A Preferred Stock--
Dividends."

Conversion Rights........... Convertible into shares of Common Stock
commencing on , 1996, [120 days from the
date of this Prospectus], at a rate of
shares of Common Stock for each share of
Preferred Stock (a Conversion Price of $ per
share of Common Stock). See "Description of
Securities-- % Cumulative Convertible Series
A Preferred Stock--Right to Convert." Unless
previously converted, on , 1997, [thirteen
(13) months after the date of this Prospectus]
(the "Automatic Conversion Date") the Preferred
Stock will automatically convert into shares
of Common Stock. See "Description of
Securities-- % 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-- % 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 [50% of the number of shares issuable
upon conversion of the Preferred Stock] shares
of Common Stock at an exercise price of $3.75
per Redeemable Warrant ($ per share of Common
Stock [150% of the Conversion Price]) and,
subject to redemption, will be exercisable
commencing , 1997 [13 months after the date

5
<PAGE>

of this Prospectus] until , 1999 [36 months
after the date of this Prospectus]. 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 , 1997 [16 months after the date
of this Prospectus] 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 $ [200% of the
Conversion Price]. See "Description of
Securities--Redeemable Warrants."

Securities Outstanding
Subsequent to the Offering:
(1)
Common Stock............. 9,015,839
Preferred Stock (2)...... 1,647,500
Redeemable Warrants (3).. 1,647,500

Use of Proceeds............... Market the Company's first medical device
product, conducting the clinical trials for and
completing the development of the Company's
second and third medical devices, repayment of
indebtedness and working capital purposes. 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
(Proposed)(4)........... MEDDP
Redeemable Warrants..... MEDDW
(Proposed)(4)...........

- --------

(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 1,400,000 shares of Preferred Stock offered hereby, shares of
Common Stock; (ii) up to an additional 210,000 shares of Preferred Stock
issuable upon exercise of the Over-Allotment Option, and up to an
additional shares of Common Stock issuable upon the conversion of the
Preferred Stock included in the Over-Allotment Option; (iii) upon the
exercise of 1,400,000 Redeemable Warrants offered hereby, shares of
Common Stock; (iv) up to an additional shares of Common Stock upon the
exercise of up to an additional 210,000 Redeemable Warrants included in the
Over-Allotment option; (v) 2,147,500 shares of Common Stock reserved for
issuance pursuant to outstanding warrants having a weighted average
exercise price of approximately $.89 per share, subject to adjustment; (vi)
625,000 shares of Common Stock reserved for issuance to officers, employees
and consultants; (vii) upon the exercise of warrants granted to the
Representative in connection with this offering, 140,000 shares of
Preferred Stock, 140,000 Redeemable Warrants and the shares of Common
Stock into which such Preferred Stock is convertible and such Redeemable
Warrants are exercisable; (viii) an additional 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) 327,360 shares of
Common Stock issuable under the 1996 Stock Compensation Plan; and (x) an
additional 50,000 shares of Common Stock to be issued.

6
<PAGE>

(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) The Company has applied to include the Preferred Stock and the Redeemable
Warrants on the Nasdaq SmallCap System commencing on the effective date of
this offering.

7
<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...... $ (1.47) $ (1.02) $ (.47) $ (.11) $ (.21)
Weighted Average Shares
Outstanding............. 1,208,144 3,032,813 6,714,168 5,557,070 8,641,410
</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) $ 3,751,369
Total assets............ 2,905,356 2,452,388 2,514,934 2,749,997 3,049,997 6,688,797
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 $ 5,658,823
</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 241,500 shares of Common Stock issued by the
Company in exchange for services subsequent to March 31, 1996, and (ii) an
additional 50,000 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 assumed 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."

8
<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.

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."

9
<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 $76,000 of interest through June 15, 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 15, 1996, and to implement its
current business plan. The Company presently anticipates spending
approximately 24.5% and 25.9% 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
35.6%, 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
25.9%, 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

10
<PAGE>

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

11
<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.

12
<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."

13
<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 166,667 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 2,000,000 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 166,667 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 2,000,000 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.

14
<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.

15
<PAGE>

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; Consulting 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 May 17, 1996, the closing bid
price of the Company's Common Stock was $.69. 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

16
<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 %
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

17
<PAGE>

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, beginning
16 months after the date of this Prospectus 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

18
<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 $ ,
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 $ per share of Common Stock, or
approximately % dilution. See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE

Of the 9,015,839 shares of Common Stock outstanding upon the completion of
this offering, 1,205,336 shares of Common Stock are "restricted securities" as
that term is defined by Rule 144 of the Securities Act, 342,380 of which are
currently eligible for resale in compliance with Rule 144 of the Securities
Act. Of these shares, 5,336 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 shares of
Common Stock issuable upon the conversion of 1,647,500 shares of Preferred
Stock and the exercise of 1,647,500 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

19
<PAGE>

Prospectus. The Company has also issued an aggregate of 2,147,000 warrants,
subject to adjustment, which shall vest and become exercisable from time to
time. Of these non-public warrants, 850,000, 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 1,205,336 shares of restricted Common Stock outstanding, approximately
342,380 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."

20
<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 71,430 shares of Common Stock and
25,000 3-year warrants to purchase 25,000 shares of Common Stock. The warrants
are exercisable for $1.00 per share of Common Stock. The Company also issued
to the broker-dealer which assisted the Company in effecting the 1995 Private
Placement 56,250 2-year warrants to purchase 56,250 shares of Common Stock at
an exercise price of $1.00 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 2.5 shares of
Common Stock for each $1.00 of indebtedness, or an aggregate of 687,500 shares
of Common Stock (the "Debt Shares"). In connection with the issuance of the
Convertible Debt, the Company also issued an aggregate of 137,500 warrants
exercisable for 137,500 shares of Common Stock at $.60 per share. The warrants
expire 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. The Company has requested that
each investor in the Private Placement agree 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. The Company believes that it will be able to obtain
such agreement from all of the investors in the Private Placement and
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.

21
<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 150,000 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 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."

22
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the
1,400,000 shares of Preferred Stock, and 1,400,000 Redeemable Warrants after
deducting underwriting discounts and estimated offering expenses, are
estimated to be approximately $5,711,800 ($6,643,570 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)........................ $2,035,000 35.6%
Research and Development............................. 1,400,000 24.5%
Sales and Marketing.................................. 800,000 14.0%
Working Capital...................................... 1,476,800 25.9%
---------- -----
Total.............................................. $5,711,800 100.0%
========== =====
</TABLE>
- --------
<TABLE>
<S> <C>
</TABLE>

(1) Represents (i) repayment of $1,650,000 of principal and approximately
$76,000 of interest through June 15, 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 150,000 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.

23
<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................................................. $3.00 $1.00
Second Quarter................................................ $2.19 $ .88
Third Quarter................................................. $2.22 $1.06
Fourth Quarter................................................ $1.25 $ .88
1995
First Quarter................................................. $1.00 $ .56
Second Quarter................................................ $1.44 $ .38
Third Quarter................................................. $1.63 $ .75
Fourth Quarter................................................ $1.06 $ .63
1996
First Quarter................................................. $ .88 $ .50
Second Quarter (through May 17, 1996)......................... $ .91 $ .69
</TABLE>

On May 17, 1996, the closing bid and asked prices of Common Stock as
reported by the Nasdaq SmallCap Market were $.69 and $.88 per share,
respectively.

On May 17, 1996, there were 1,090 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 % 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
, 1997, [thirteen (13) months after the date of this Prospectus]. 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.

24
<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 assumed 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 241,500 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-
% Cumulative, Convertible Series
A Preferred Stock, 0 shares issued
and outstanding actual and pro
forma, 1,647,500 issued and
outstanding pro forma as
adjusted.......................... $ -0- $ -0- $ 6,208,750
Common Stock, par value $.15,
100,000,000 shares authorized,
8,774,339 shares issued and
outstanding actual, pro forma and
pro forma as adjusted(4).......... $ 1,316,151 $1,316,151 $1,316,151
Common Stock to be issued (50,000
shares)........................... $ 23,440 $ 23,440 $ 23,440
Additional paid in capital......... $ 12,325,983 $ 12,325,983 $ 12,447,783
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 $ 5,658,823
Total capitalization............... $ 528,353 $ 528,353 $ 5,869,653
</TABLE>
- --------
<TABLE>
<S> <C>
</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 241,500 shares of Common Stock issued
subsequent to March 31, 1996.

25
<PAGE>

DILUTION

The pro forma net tangible book value of the Company at March 31, 1996 was
$(1,593,220) or $(.15) 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 shares of Common Stock for each share of Preferred
Stock. After giving effect to the sale of 1,400,000 shares of Preferred Stock
and Redeemable Warrants offered hereby at an assumed initial public offering
price of $5.00 per share, the pro forma net tangible book value of the Company
at December 31, 1995 would have been $ , or $ 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 1,400,000 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 $.
per share to the existing shareholders, and immediate dilution of $. per
share to purchasers of the Preferred Stock in this offering. The following
table illustrates such dilution on a per share basis.

<TABLE>
<S> <C> <C>
Price per share of common stock upon conversion................. $
Pro forma net tangible book value per share before conversion... $
Increase in net tangible book value per share................... $
Pro forma net tangible book value per share after conversion.... $
Dilution per share.............................................. $
======
</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 241,500 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 based upon an initial
public offering price of $ per share and a Conversion Price of $ .

<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..... 9,015,839 % $2,150,482 % $.24
Common Stock issuable
upon conversion.......... % $ % $
--------- ------ ---------- -------- ----
Total.................. 100.00% $ $ 100.00% $
========= ====== ========== ======== ====
</TABLE>

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.

26
<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 for 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.

(1) Summary Consolidated Statement of Operating Data does not include a ratio
of earnings to fixed charges because such amount was not material.

(4) Includes costs related to marketing, promotional and sales activities in
addition to office, administrative and overhead expenses.

(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 241,500 shares of Common Stock issued
by the Company in exchange for services subsequent to March 31, 1996, and
(ii) an additional 50,000 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 assumed 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."

27
<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 ($1.47), ($1.02) and ($.47), respectively, as
compared to ($1.33), ($.95) and ($.43), 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.

28
<PAGE>

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 $0.21 in 1996 as compared to
$0.11 in 1995, representing a 90.9% 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.

29
<PAGE>

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 $0.47
in 1995 as compared to a restated loss of $1.02 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 $1.02 as compared to $1.47 in 1993
representing a decrease of 30.6%. 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

30
<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
71,430 shares of Common Stock and 25,000 3-year warrants to purchase 25,000
shares of Common Stock. The warrants are exercisable for $1.00 per share of
Common Stock. The Company also issued to the broker-dealer which assisted the
Company in effecting the 1995 Private Placement 56,250 2-year warrants to
purchase 56,250 shares of Common Stock at an exercise price of $1.00 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 2.5 shares of Common Stock for each $1.00 of
indebtedness, or an aggregate of 687,500 Debt Shares. In connection with the
issuance of the Convertible Debt, the Company also issued an aggregate of
137,500 warrants exercisable for 137,500 shares of Common Stock at $.60 per
share. The warrants expire 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

31
<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. The Company intends to request that each investor in the Private
Placement agree 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. The Company believes that it will able to obtain such agreement
from all of the investors in the Private Placement and 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 who 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 150,000 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

32
<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.

33
<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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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 200,000
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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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

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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 455,932 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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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 166,667 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 2,000,000 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 166,667 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 2,000,000 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

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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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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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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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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 of
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 9,000,000 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 7,000,000 shares,
and 2,000,000 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 of 1995, the Company
changed its name to Medical Device Technologies, Inc. to reflect the Company's
broadening base of medical products.

EMPLOYEES

As of May 17, 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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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 2,070,000 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.

43
<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.

44
<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.

45
<PAGE>

DIRECTORS' COMPENSATION

The Company compensates each of its outside Directors with shares of Common
Stock at the rate of 15,000 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
12,000 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

46
<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."

47
<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.

48
<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 $71,094 300,000 $0 $0
Chairman of the Board, 1994 54,000 0 0 43,489 200,000 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 22,917 150,000 0 0
1993 75,000 0 0 0 0 0 0
Stephen W. Kenney, Vice 1995 110,000 0 0 41,250 100,000 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.

49
<PAGE>

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................ 300,000 70.6% $ .40/sh 7/31/00
B. Roland Freasier, Jr. (2).... -0- -- -- --
Stephen W. Kenney.............. 75,000 17.6% $1.00/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- 300,000/200,000 $86,250/$0
B. Roland Freasier,
Jr.(2).................. -0- -0- 0/150,000 $0/$0
Stephen W. Kenney....... -0- -0- 0/75,000 $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.

50
<PAGE>

MANAGEMENT EMPLOYMENT AGREEMENTS; CONSULTING 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 two
hundred fifty thousand (250,000) 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 200,000 common stock purchase warrants which
are exercisable over a five (5) year period ending August 31, 1999 at $1.00
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 200,000 shares of
the Company's Common Stock on August 31, 1996 and 150,000 common stock
purchase warrants, which expire on August 31, 1999 and are exercisable at a
price of $1.00 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 75,000
common stock purchase warrants which are exercisable, from August 31, 1998
through August 31, 2001, at a price of $.40 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 one hundred
thousand (100,000) shares of the Company's Common Stock on August 31, 1996 and
is entitled to receive warrants to purchase seventy-five thousand (75,000)
shares of the Company's Common Stock at $1.00 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 fifty thousand (50,000)
shares of the Company's Common Stock; 25,000 shares of Common Stock will vest
each on March 15, 1997 and the remaining 25,000 shares will vest on March 15,
1998. In addition, Mr. Sloan is entitled to receive warrants to purchase
seventy-five thousand (75,000) shares of the Company's Common Stock at $.40
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

51
<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 twenty-five
thousand (25,000) shares of the Company's Common Stock; 12,500 shares of
Common Stock will vest on March 15, 1997 and the remaining 12,500 shares will
vest on March 15, 1998. In addition, Mr. Hall is entitled to receive warrants
to purchase fifty thousand (50,000) shares of the Company's Common Stock at
$.40 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. Although the Company's Board
of Directors presently intends to adopt such a plan prior to this offering, to
date the Company's Board of Directors has not yet proposed or adopted a stock
option plan.

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 950,000 registered
shares of Common Stock to employees, directors, consultants and other third
parties in exchange for services. As of May 17, 1996, 622,640 shares of Common
Stock have been issued pursuant to the 1996 Plan. The remaining 327,360 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
500,000 and 1,750,000 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.

52
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth information as of May 17, 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 nominees and executive
officers as a group. None of the Company's officers, directors, director
nominees 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......................... 379,225(/3/) 4.07% %
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Dr. Arthur Bradley...................... 105,950 1.18% %
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Thomas Glasgow.......................... 270,555(/5/) 2.96% %
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Don Arnwine............................. 66,250(/6/) * (/4/) %
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92112
William A. Clarke(/7/).................. 0 * (/4/) %
c/o Medical Device Technolgies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92112
Edward C. Hall.......................... 3,825 * (/4/) %
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Richard E. Sloan........................ 4,730 * (/4/) %
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Steven W. Kenney........................ 36,000(/8/) * (/4/) %
c/o Medical Device Technologies, Inc.
9171 Towne Centre Drive
Suite 355
San Diego, CA 92122
Virgil McDonald......................... 771,440(/9/) 8.37% %
13410 Romana Dr.
Whittier, CA 90602
All officers, directors and director 866,535 9.13% %
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

53
<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 300,000 warrants exercisable at $.40 per share to acquire 300,000
shares of Common Stock.
(4) Holdings represent less than 1% of the Company's issued and outstanding
Common Stock.

(5) Includes 31,250 warrants, 25,000 of which are exercisable at $1.00 per
share to acquire 25,000 shares of Common Stock, 6,250 of which are
exercisable at $.60 per share to acquire 6,250 shares of Common Stock and
100,000 warrants, subject to adjustment, exercisable at $ per share
to acquire 100,000 shares of Common Stock.

(6) Includes 6,250 warrants exercisable at $.60 per share to acquire 6,250
shares of Common Stock and 12,500 warrants, subject to adjustment,
exercisable at $ per share to acquire 12,500 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 25,000 warrants exercisable at $1.00 per share to acquire 25,000
shares of Common Stock.

(9) Includes 200,000 warrants exercisable at $1.00 per share to acquire
200,000 shares of Common Stock.

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CERTAIN TRANSACTIONS

In June, 1994, the Company issued 700,000 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 16,667 shares of the Company's
Common Stock. The 700,000 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. Glasglow 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 100,000 and 12,500 warrants to purchase shares of Common
Stock, subject to adjustment, respectively, on the same terms and conditions
as all of the warrants issued in connection with the Short Term Debt. The
other two lenders of the remaining $75,000 of the Short Term Debt are
unaffiliated with the Company. 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.

% 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 Designation (the "Certificate of
Designation") 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.

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 Designation.

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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
% per annum of the Liquidation Preference of the Preferred Stock. The
dividend is payable semi-annually on June 30 and December 31 of each year,
commencing June 30, 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) [ ]% of the Liquidation Preference 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 $1.50 per share or be less than $.70 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 , 1996, [120 days from the
date of this Prospectus] (the "Initial Conversion Date"). Each share of
Preferred Stock will be convertible into [ ] 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 $[ ] (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 , 1997 [13 months from the date of this Prospectus]
(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.

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

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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 1,647,500 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 140,000
Redeemable Warrants or the Representative's Over-Allotment Option to purchase
up to an additional 210,000 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 [50% of the number
of shares issuable upon conversion of the Preferred Stock] shares of Common
Stock at a price of $3.75 per Redeemable Warrant ($ per share of Common
Stock [150% of the Conversion Price]) (the "Exercise Price") commencing ,
1997 [13 months after the date of this Prospectus] and ending , 1999 [36
months after the date of this Prospectus] (the "Expiration Date"), and is
redeemable by the Company at a redemption price of $.05 at any time after ,
1997 [16 months after the date of this Prospectus] 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 $ [200% of the Conversion Price]. The Redeemable
Warrants will be entitled to the benefit of adjustments in the Exercise Price
and in the number of shares of Common Stock and/or

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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 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.

On or 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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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 one-hundredth (1 1/100) 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 one-
hundredth (1 1/100) 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
$5.00 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 $5.00, shares of
Common Stock with a market value of $10.00 (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
$5.00 Exercise Price, the common stock of the acquiror company having a market
value of $10.00 (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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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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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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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 9,015,839 shares of Common Stock outstanding upon the completion of
this offering, 1,205,336 are "restricted securities" as that term is defined
by Rule 144 of the Securities Act, 342,380 of which are currently eligible for
resale in compliance with Rule 144 of the Securities Act. Of these shares,
5,336 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 shares of Common Stock
issuable upon the conversion of 1,647,500 shares of Preferred Stock and the
exercise of 1,647,500 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 2,147,500 warrants, subject to adjustment, to
purchase an aggregate of 2,147,500 shares of Common Stock which shall vest and
become exercisable from time to time. Of these warrants, 850,000, 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.

62
<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."

63
<PAGE>

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. ..........................
--------- ---------
Total................................................. 1,400,000 1,400,000
========= =========
</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 $ per share of
Preferred Stock and $ per Redeemable Warrant. Such dealers may reallow a
concession not in excess of $ per share of Preferred Stock and $
per Redeemable Warrant to other dealers. 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 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 210,000 shares of Preferred Stock and/or up to an additional
210,000 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

64
<PAGE>

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 $1,000 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 140,000 shares of Preferred Stock (or shares of
Common Stock issuable upon conversion of such shares of Preferred Stock)
and/or up to 140,000 Redeemable Warrants. The Representative's Warrants are
initially exercisable for shares of Preferred Stock at a price of $
[120% of the initial public offering price per share of Preferred Stock] per
share of Preferred Stock, and are initially exercisable for Redeemable
Warrants at a price of $ [120% of the initial public offering price 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. In addition, the Company granted the Representative,
for a period of three (3) years, a right of first refusal to be the managing
underwriter or placement agent for any securities to be offered by the
Company.

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

65
<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

66
<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.

67
<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 and 16 which are as of
May 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
4,289,963, 8,393,199 and 8,774,339
outstanding)........................ 643,495 1,258,980 1,316,151
Stock to be issued (1,096,875, 50,000
and 50,000 shares).................. 796,250 23,440 23,440
Additional paid-in capital........... 9,716,485 12,146,899 12,325,983
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 7)............. (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 8)............... (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............. $ (.90) $ (.47) $ (.11) $ (.21)
Loss from disposal of
oil and gas operations. (.12) -- -- --
----------- ----------- ------------- ---------------
Net loss................ $ (1.02) $ (.47) $ (.11) $ (.21)
=========== =========== ============= ===============
Weighted average shares
outstanding............ 3,032,813 6,714,168 5,557,070 8,641,410
=========== =========== ============= ===============
</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......... -- $ -- 2,859,017 $ 440,008 $4,252,058
Common stock issued for:
Cash........................ -- -- 717,667 96,494 462,450
Research and development and
services................... -- -- 455,932 68,390 359,046
Patent and licensing costs.. -- -- 350,000 52,500 78,750
Prepaid market research..... -- -- 1,150,000 172,500 258,750
Stock to be issued............ -- -- -- -- 163,958
Net loss from June 1 through
December 31, 1992............ -- -- -- -- --
------ -------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1992.... -- -- 5,532,616 829,892 5,575,012
------ -------- --------- ---------- ----------
Common stock issued for:
Cash........................ -- -- 625,500 93,825 237,400
Patent and licensing costs.. -- -- 1,000,000 150,000 639,000
Research and development,
compensation, and services. -- -- 725,000 108,750 705,294
Stock to be issued............ -- -- -- -- --
Net loss for 1993............. -- -- -- -- --
------ -------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1993.... -- $ -- 7,883,116 $1,182,467 $7,156,706
====== ======== ========= ========== ==========
</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............. 75,000 -- -- 238,958
Net loss from June 1 through
December 31, 1992............. -- -- (791,994) (791,994)
-------- ----- ----------- -----------
BALANCE, DECEMBER 31, 1992..... 75,000 -- (4,498,696) 1,981,208
-------- ----- ----------- -----------
Common stock issued for:
Cash......................... (75,000) -- -- 256,225
Patent and licensing costs... -- -- -- 789,000
Research and development,
compensation, and services.. -- -- -- 814,044
Stock to be issued............. 42,000 -- -- 42,000
Net loss for 1993.............. -- -- (1,779,841) (1,779,841)
-------- ----- ----------- -----------
BALANCE, DECEMBER 31, 1993..... $ 42,000 $ -- $(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.. -- $ -- 7,883,116 $1,182,467 $ 7,156,706
Reverse stock split....... -- -- (6,569,121) (985,368) 985,368
Common stock issued for:
(Note 6)
Cash.................... -- -- 769,640 115,446 368,816
Research and
development,
compensation and
services............... -- -- 1,211,828 181,774 949,074
Patent and licensing
costs.................. -- -- 900,000 135,000 218,333
Conversion of debt...... -- -- 94,500 14,175 38,189
Stock to be issued........ -- -- -- -- --
Accrued stock issuance
(Note 5)................. -- -- -- -- --
Net loss for 1994......... -- -- -- -- --
------- -------- ---------- ---------- -----------
BALANCE, DECEMBER 31,
1994..................... -- -- 4,289,963 643,494 9,716,486
------- -------- ---------- ---------- -----------
Stock to be issued (Note
6)....................... -- --
Common stock issued for:
(Note 6)
Cash.................... -- -- 86,000 12,900 17,100
Patent and licensing
costs.................. -- -- 40,000 6,000 44,000
Purchases, research and
development,
compensation, and
services............... -- -- 1,807,561 271,135 1,291,995
Conversion of debt...... -- -- 687,500 103,125 171,875
Private placement....... -- -- 1,482,175 222,326 752,443
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 8,393,199 $1,258,980 $12,146,899
======= ======== ========== ========== ===========
</TABLE>

<TABLE>
<CAPTION>
DEFERRED RETAINED
STOCK COMPEN- DEFICIT
TO BE ISSUED SATION (RESTATED) TOTAL
------------ -------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994...... $ 42,000 $ -- $ (6,278,537) $ 2,102,636
Reverse stock split........... -- -- -- --
Common stock issued for: (Note
6)
Cash........................ (42,000) -- -- 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............ 796,250 -- -- 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.... 796,250 66,406 (9,366,833) 1,855,803
--------- -------- ------------ -----------
Stock to be issued (Note 6)... 201,959 -- -- 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........... (974,769) -- --
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.... $ 23,440 $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 8,393,199 $1,258,980 $12,146,899
Common stock issued for:
(Note 6)
Purchases, research and
development, compensation,
and services (unaudited).. -- -- 381,140 57,171 179,084
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 8,774,339 $1,316,151 $12,325,983
======= ======== ========= ========== ===========
</TABLE>

<TABLE>
<CAPTION>
DEFERRED RETAINED
STOCK COMPEN- DEFICIT
TO BE ISSUED SATION (RESTATED) TOTAL
------------ -------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996...... $23,440 $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).................. $23,440 $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. 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 2,000,000 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
2,000,000 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 12,000 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 250,000 shares of common stock to
be granted at the end of two years of employment. The agreement also provides
for 200,000 warrants, exercisable after the earlier of August 31, 1996 or a
public offering of stock, through August 31, 1999 at an exercise price of
$1.00 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 250,000
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 200,000 shares of common
stock to be granted at the end of two years of employment. The agreement also
provided for 150,000 warrants, exercisable after the earlier of August 31,
1996 or a public offering stock, through August 31, 1999 at an exercise price
of $1.00 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 200,000
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 200,000 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 75,000 shares of common stock at $.40 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 150,000 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 100,000 shares of
common stock to be issued on August 31, 1996. The agreement also provides for
25,000 warrants at an exercise price of $1.00 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 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
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 25,000
shares of common stock which vest on March 15, 1997 and 25,000 shares of
common stock which vest on March 15, 1998. The agreement also provides for
18,750 warrants at an exercise price of $.40 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 50,000 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 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 12,500 warrants
at an exercise price of $.40 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.

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 1,096,875 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
200,000 shares were sold. During the second quarter of 1995, the shares were
issued. As the Company decided to reduce the purchase price from $.80 per
share to $.70 per share, an additional 185,300 shares were issued, for a total
of 1,482,175 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 687,500 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 86,000 and 769,640 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.................... 460,000 $1.00 8/98
Granted Officers............................. 350,000 $1.00 8/99
Granted Noteholder........................... 10,000 $1.00 9/99
---------
December 31, 1994.............................. 820,000
Granted Public relations firm................ 300,000 $1.00-$2.00 6/96
Granted Officer.............................. 300,000 .40 7/00
Granted Officer.............................. 75,000 $1.00 1/03
Granted Convertible debentures............... 137,500 .60 5/96
Granted Private placement.................... 58,750 $1.00 8/98
Granted Consultant........................... 56,250 $1.00 2/00
Granted Employee............................. 25,000 $1.00 8/00
Granted Employee............................. 25,000 $1.00 12/00
---------
December 31, 1995.............................. 1,797,500
Granted Employee............................. 50,000 $.40 3/05
Granted Employee............................. 75,000 $.40 3/05
Granted Former employee...................... 75,000 $.40 8/01
---------
March 31, 1996................................. 1,997,500
=========
</TABLE>

In regards to the issuance of 300,000 warrants to an officer at $.40 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 $.40 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 500,000 shares under the 1994 Plan. At December 31, 1994, all 500,000
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 1,750,000 shares under the 1995 Plan. Shares may be awarded under the 1995
Plan until December 31, 1996. At December 31, 1995, all 1,750,000 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 950,000 shares under the 1996 Plan.
Shares may be awarded under the Plan until January 10, 1998. As of May 17,
1996, 622,640 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 700,000 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 16,667 shares of the
Company's common stock. The 700,000 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 $.10 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 $.02 to ($.45).

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
TO DECEMBER
31, 1995
YEARS ENDED DECEMBER 31, 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........... (.07) (.03) --
Effect on discontinued operations and
disposal of oil and gas operations....... -- -- --
Effect on net loss........................ (.07) (.03) --
</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>

[INSIDE BACK COVER PAGE]

[ART]
<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 THE PERSONS MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary......................................................... 3
The Offering............................................................... 5
Summary Consolidated Financial Data........................................ 8
Risk Factors............................................................... 9
The Company................................................................ 21
Use of Proceeds............................................................ 23
Market Price for the Common Stock and Dividends............................ 24
Capitalization............................................................. 25
Dilution................................................................... 26
Selected Consolidated Financial Data....................................... 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 28
Business................................................................... 34
Management................................................................. 44
Executive Compensation..................................................... 49
Management Employment Agreements; Consulting Agreements.................... 51
Option Plans............................................................... 52
Principal Shareholders..................................................... 53
Certain Transactions....................................................... 55
Description of Securities.................................................. 55
Certain Federal Income Tax Considerations.................................. 60
Shares Eligible for Future Sale............................................ 62
Underwriting............................................................... 64
Legal Matters.............................................................. 66
Change in Accountants...................................................... 66
Experts.................................................................... 66
Additional Information..................................................... 66
Index to Financial Statements.............................................. F-0
</TABLE>

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

MEDICAL DEVICE TECHNOLOGIES, INC.

1,400,000 SHARES OF % CUMULATIVE
CONVERTIBLE SERIES A PREFERRED STOCK

AND 1,400,000 REDEEMABLE WARRANTS

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

PROSPECTUS

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

FIRST ALLIED SECURITIES, INC.
[LOGO APPEARS HERE]

JUNE , 1996

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

(ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS)

SUBJECT TO COMPLETION DATED MAY 23, 1996
PROSPECTUS

MEDICAL DEVICE TECHNOLOGIES, INC.
247,500 SHARES OF % CUMULATIVE CONVERTIBLE SERIES A PREFERRED STOCK

AND 247,500 REDEEMABLE WARRANTS

This Prospectus relates to (i) 247,500 shares of % Cumulative Convertible
Series A preferred stock, par value $.01 per share (the "Preferred Stock"), of
Medical Device Technologies, Inc. (the "Company"), which were issued in
connection with a private placement completed in January of 1996 (the "Private
Placement"), and (ii) 247,500 redeemable common stock purchase warrants (the
"Redeemable Warrants") to be issued on the date of this Prospectus to the
investors in such private placement. This Prospectus also relates to shares of
common stock, par value $.15 per share (the "Common Stock"), which are
issuable upon the conversion of such shares of Preferred Stock and the
exercise of such Redeemable Warrants (the holders of all of the foregoing
securities are sometimes hereinafter collectively referred to as the "Selling
Shareholders"). The Preferred Stock and the Redeemable Warrants (which are
sometimes hereinafter collectively referred to as the "Securities") held by
the Selling Shareholders may be sold from time to time by the Selling
Shareholders, provided that a current registration statement with respect to
the Securities is then in effect and subject to the prior written consent of
the Underwriter of a concurrent public offering of the Company (described
below) permitting such securities to be sold if sold within 13 months from the
date of this Prospectus. See "Concurrent Offering" and "Plan of Distribution."

The distribution of the shares of Preferred Stock, and the Redeemable
Warrants offered hereby by the Selling Shareholders hereof may be effected in
one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately negotiated transactions or
through sales to one or more dealers for sale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary
or specifically negotiated brokerage fees or commissions may be paid by the
Selling Shareholders.

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

SEE "RISK FACTORS" LOCATED ON PAGE 7 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PREFERRED
STOCK AND COMMON STOCK OFFERED HEREBY.

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

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

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

The Selling Shareholders and intermediaries through whom such securities are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act") with respect to the shares of
Preferred Stock and Common Stock offered, and any profits realized or
commissions received may be deemed underwriting compensation.

The Company will not receive any of the proceeds from the sale of the shares
of the Preferred Stock, the Redeemable Warrants or the shares of Common Stock
by the Selling Shareholders. Expenses of this offering, other than fees and
expenses of counsel to the Selling Shareholders and selling commissions, will
be paid by the Company. See "Plan of Distribution."

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. It is currently anticipated that the initial public
offering prices of the Preferred Stock and the Redeemable Warrants will be
$5.00 and $.10 respectively and that the shares of Preferred Stock and the
Redeemable Warrants will be included on the Nasdaq SmallCap Market under the
symbols "MEDDP" and "MEDW", respectively. The Common Stock is quoted on the
Nasdaq SmallCap Market under the symbol "MEDD."

On the date of this Prospectus, a registration statement including a
prospectus of even date filed under the Securities Act with respect to an
underwritten public offering by the Company of 1,400,000 shares of Preferred
Stock and up to an additional 210,000 shares of Preferred Stock to cover over-
allotments, if any, was declared effective by the Securities and Exchange
Commission (the "Commission"). The Company will receive net proceeds of
approximately $5,711,800 from the sale of the shares of Preferred Stock
included in the underwritten public offering, and will receive approximately
$931,770 in additional net proceeds if the over-allotment option is exercised
in full after payment of underwriting discounts and commissions and estimated
expenses of the underwritten public offering. Sales of Preferred Stock or the
Redeemable Warrants by the Selling Shareholders, or even the potential of such
sales, would likely have an adverse effect on the market price of the
Preferred Stock. See "Concurrent Offering."

, 1996

<PAGE>

(ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS)

CONCURRENT OFFERING

On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company
of 1,400,000 shares of Preferred Stock and 1,400,000 Redeemable Warrants and
up to an additional 210,000 shares of Preferred Stock and 210,000 Redeemable
Warrants to cover over-allotments, if any, [was declared effective] by the
Securities and Exchange Commission. Sales of Preferred Stock or Common Stock
by the Company and the Selling Shareholders, or even the potential of such
sales, would likely have an adverse effect on the market price of the Common
Stock. See "Risk Factors--Shares Eligible for Future Sale."

A-2
<PAGE>

(ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS)

THE OFFERING

Securities Offered............ 1,400,000 shares of % Cumulative Convertible
Series A Preferred Stock and 1,400,000
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 % per annum, payable semi-
annually on June 30 and December 31, commencing
June 30, 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-- % Cumulative
Convertible Series A Preferred Stock--
Dividends."

Conversion Rights....... Convertible into shares of Common Stock
commencing on , 1996, [120 days from the
date of this Prospectus], at a rate of
shares of Common Stock for each share of
Preferred Stock (a Conversion Price of $ per
share of Common Stock). See "Description of
Securities-- % Cumulative Convertible Series A
Preferred Stock--Right to Convert." Unless
previously converted, on , 1997, [thirteen
(13) months after the date of this Prospectus]
(the "Automatic Conversion Date") the Preferred
Stock will automatically convert into
shares of Common Stock. See "Description of
Securities-- % 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-- % 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 [50% of the number of shares issuable
upon conversion of the Preferred Stock]
shares of Common Stock at an exercise price
of $3.75 per Redeemable Warrant ($ per share
of Common Stock [150% of the Conversion Price])
and, subject to redemption, will be exercisable
commencing , 1997 [13 months after the date
of this Prospectus] until , 1999 [36

A-3
<PAGE>

(ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS)

months after the date of this Prospectus].
Under certain circumstances the Redeemable
Warrants may be redeemable by the Company at a
price of $.05 per Redeemable Warrant at any
time after , 1997 [16 months after the date
of this Prospectus] if the market price of the
Common Stock, for a period of 20 consecutive
days ending within 10 days prior to the date of
the notice of redemption delivered by the
Company, equals or exceeds $ [200% of the
Conversion Price]. See "Description of
Securities--Redeemable Warrants."

Securities Outstanding Subsequent to the Offering: (1)
<TABLE>
<S> <C>
Common Stock...................... 9,015,839
Preferred Stock (2)............... 1,647,500
Redeemable Warrants (3)........... 1,647,500
</TABLE>

Use of Proceeds......... Market the Company's first medical device
product, conducting the clinical trials for and
completing the development of the Company's
second and third medical devices, repayment of
indebtedness and working capital purposes. See
"Use of Proceeds."

Risk Factors............ The Preferred Stock offered hereby involves a
high degree of risk. See "Risk Factors."
Nasdaq SmallCap Symbols:
<TABLE>
<S> <C>
Common Stock............................................................. MEDD
Preferred Stock (Proposed)(4)............................................ MEDDP
Redeemable Warrants (Proposed)(4)........................................ MEDDW
</TABLE>

- --------

(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 1,400,000 shares of Preferred Stock offered hereby, shares of
Common Stock; (ii) up to an additional 210,000 shares of Preferred Stock
issuable upon exercise of the Over-Allotment Option, and up to an additional
shares of Common Stock issuable upon the conversion of the Preferred Stock
included in the Over-Allotment Option; (iii) upon the exercise of 1,400,000
Redeemable Warrants offered hereby, shares of Common Stock; (iv) up to an
additional shares of Common Stock upon the exercise of up to an
additional 210,000 Redeemable Warrants included in the Over-Allotment option;
(v) 2,147,500 shares of Common Stock reserved for issuance pursuant to
outstanding warrants having a weighted average exercise price of
approximately $.89 per share, subject to adjustment; (vi) 625,000 shares of
Common Stock reserved for issuance to officers, employees and consultants;
(vii) upon the exercise of warrants granted to the Representative in
connection with this offering, 140,000 shares of Preferred Stock, 140,000
Redeemable Warrants and the shares of Common Stock into which such
Preferred Stock is convertible and such Redeemable Warrants are exercisable;
(viii) an additional 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) 327,360 shares of Common Stock issuable under the 1996
Stock Compensation Plan; and (x) 50,000 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) The Company has applied to include the Preferred Stock and the Redeemable
Warrants on the Nasdaq SmallCap System commencing on the effective date of
this offering.

A-4
<PAGE>

(ADDITIONAL PAGE FOR SELLING SHAREHOLDER PROSPECTUS)

PLAN OF DISTRIBUTION

The shares of Preferred Stock, and the Redeemable Warrants offered hereby
are being offered directly by the Selling Shareholders, subject to the
agreement with the Representative of the concurrent public offering that such
Securities may not be sold for thirteen (13) months from the date of this
Prospectus without the prior written consent of the Representative and then
only to or through the Representative. Such Securities will be freely
tradeable provided that when the they are released by the Representative, a
current registration statement with respect to such Securities is then in
effect. The following table sets forth certain information regarding each of
the Selling Shareholders. Except as set forth below, to the knowledge of the
Company, there is no position, office or other material relationship between
any of the Selling Shareholders and the Company, nor have any such material
relationships existed within the past three (3) years. Except as indicated in
the footnotes to these tables, the Company believes that the persons named in
the following tables have sole voting and investment power with respect to the
shares of Preferred Stock and Common Stock indicated.

A-5
<PAGE>

<TABLE>
<CAPTION>
SHARES OF SHARES OF
PREFERRED REDEEMABLE PREFERRED REDEEMABLE
STOCK WARRANTS SHARES OF REDEEMABLE STOCK WARRANTS
BENEFICIALLY BENEFICIALLY PREFERRED WARRANTS BENEFICIALLY BENEFICIALLY
OWNED OWNED STOCK BEING BEING OWNED AFTER OWNED
UPON THIS UPON THIS OFFERED OFFERING THIS AFTER THIS
NAME(1) OFFERING (2) OFFERING (2) FOR SALE (2) FOR SALE (2) OFFERING (2) OFFERING (2)
------- ------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dora Birn............... 1,875 1,875 1,875 1,875 0 0
Donald N. and Donna
Cohen JTWROS(3)......... 1,875 1,875 1,875 1,875 0 0
Morris & Selma Cohen
JTWROS(3)............... 1,875 1,875 1,875 1,875 0 0
Continental Stock
Transfer and Trust
Company................. 7,500 7,500 7,500 7,500 0 0
Dorigol ................ 15,000 10,000 15,000 15,000 0 0
First Comet Corp........ 7,500 7,500 7,500 7,500 0 0
Ralph Forgacs........... 1,875 1,875 1,875 1,875 0 0
Alexander Futernik...... 1,875 1,875 1,875 1,875 0 0
Brian Gell.............. 3,750 3,750 3,750 3,750 0 0
Arthur L. Goldberg IRA . 3,750 3,750 3,750 3,750 0 0
Susan F. Goldberg....... 3,750 3,750 3,750 3,750 0 0
Richard Grobman......... 3,750 3,750 3,750 3,750 0 0
Donald Gross............ 7,500 7,500 7,500 7,500 0 0
Alan Grotenstein........ 3,750 3,750 3,750 3,750 0 0
Jerry Heymann........... 3,750 5,750 3,750 3,750 0 0
Holistica International. 15,000 15,000 15,000 15,000 0 0
Mohammad & Hasina
Hossain JTWROS(3) ...... 1,875 1,875 1,875 1,875 0 0
Key Ring Limited........ 11,250 11,250 11,250 11,250 0 0
Michael & Shoshana
Margolin................ 7,500 7,500 7,500 7,500 0 0
Sandy Mayerson & Manuel
Mayerson................ 5,625 5,625 5,625 5,625 0 0
Regina Miakinkoff....... 1,875 1,875 1,875 1,875 0 0
Richard Miller.......... 1,875 1,875 1,875 1,875 0 0
Natper Ltd.............. 1,875 1,875 1,875 1,875 0 0
Ronald & Carolyn Nilsen. 1,875 1,875 1,875 1,875 0 0
Omotsu Holdings, Inc.... 22,500 22,500 22,500 22,500 0 0
Richard G. Ornstein..... 3,750 3,750 3,750 3,750 0 0
Dr. Natu Patel and
Daksha Patel............ 3,750 3,750 3,750 3,750 0 0
Esther Purjes........... 7,500 7,500 7,500 7,500 0 0
Gholam Rahman & Zeenat
Rahman.................. 1,875 1,875 1,875 1,875 0 0
Mark A. Rydell.......... 3,750 3,750 3,750 3,750 0 0
Fredda Sheib............ 11,250 11,250 11,250 11,250 0 0
Gerald E. Snow.......... 5,625 5,625 5,625 5,625 0 0
Judy W. Solely.......... 3,750 3,750 3,750 3,750 0 0
David and Joseph Soucek
JTWROS (3).............. 7,500 7,500 7,500 7,500 0 0
Evan Stern.............. 7,500 7,500 7,500 7,500 0 0
Francis Stephens ....... 1,875 1,875 1,875 1,875 0 0
Darwin Ting............. 7,500 7,500 7,500 7,500 0 0
Richard Titley.......... 7,500 7,500 7,500 7,500 0 0
Tournier Investments
LTD..................... 7,500 7,500 7,500 7,500 0 0
Robert S. Trump......... 11,250 11,250 11,250 11,250 0 0
Leonard Vitullo ........ 1,875 1,875 1,875 1,875 0 0
Peter J. Wasserman...... 3,750 3,750 3,750 3,750 0 0
Solomon & Leah
Werzberger.............. 1,875 1,875 1,875 1,875 0 0
Daniel P. Weiner........ 3,750 3,750 3,750 3,750 0 0
David M. Wiener......... 3,750 3,750 3,750 3,750 0 0
------- ------- ------- ------- --- ---
TOTAL................. 247,500 247,500 247,500 247,500 0 0
------- ------- ------- ------- --- ---
</TABLE>
- --------

(1) None of such persons owned five percent (5%) or more of the outstanding
Preferred Stock. Each such person also holds Notes issued pursuant to the
Private Placement, all of which Notes will be repaid with accrued interest
from the net proceeds of the Concurrent Offering. See "Use of Proceeds."
(2) Assumes all shares of Preferred Stock and all Redeemable Warrants being
registered will be sold.
(3) Held as joint tenants with right of survivorship.

A-6
<PAGE>

(ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS)

The Company will not receive any of the proceeds from the sale of any of the
Securities by the Selling Shareholders although the Company will receive
proceeds from the exercise of the Redeemable Warrants. The sale of the
Securities may be effected by the Selling Shareholders from time to time in
transactions in the over-the-counter market, on the Nasdaq SmallCap Market, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale,
at prices related to prevailing market prices or at negotiated prices. The
Selling Shareholders may effect such transactions by selling the Securities to
or through the Representative, who may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of the Securities for whom it may act as agent or to whom it sells
as principal, or both (which compensation might be in excess of customary
commissions).

In order to comply with the securities laws of certain states, if
applicable, the Securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
Securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by the Company and
the Selling Shareholders.

The Selling Shareholders and any broker-dealers, agents or underwriters that
participate with the Selling Shareholders in the distribution of the shares
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act of 1933, and any shares purchased by them may be deemed to be
underwriting commissions or discounts under the Act.

Under applicable rules and regulations under the Securities Exchange Act of
1934 (the "Exchange Act"), any person engaged in the distribution of the
shares may not simultaneously engage in market-making activities with respect
to the Securities for a period of two business days prior to the commencement
of such distribution. In addition and without limiting the foregoing, each
Selling Shareholder will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including without limitation,
Rules 10b-6, 10b-6A and 10b-7, which provisions may limit the timing of the
purchases and sales of Securities by the Selling Shareholders.

The Company has agreed to pay all fees and expenses incident to the
registration of the shares, except selling commissions and fees and expenses
of counsel or any other professionals or other advisors, if any, to the
Selling Shareholders.

A-7
<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 SELLING
SHAREHOLDER. 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 IF THE PERSONS MAKING
SUCH OFFER OR SOLICITATION ARE NOT QUALIFIED TO DO SO OR TO ANY PERSON TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary......................................................... 3
The Offering............................................................... 4
Summary Consolidated Financial Data........................................ 6
Risk Factors............................................................... 7
The Company................................................................ 19
Use of Proceeds............................................................ 21
Market Price for the Common Stock and Dividends............................ 22
Capitalization............................................................. 23
Dilution................................................................... 24
Selected Consolidated Financial Data....................................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 26
Business................................................................... 32
Management................................................................. 42
Executive Compensation..................................................... 47
Management Employment Agreements; Consulting Agreements.................... 49
Option Plans............................................................... 50
Principal Shareholders..................................................... 51
Certain Transactions....................................................... 52
Description of Securities.................................................. 52
Certain Federal Income Tax Considerations.................................. 57
Shares Eligible for Future Sale............................................ 59
Underwriting............................................................... 61
Legal Matters.............................................................. 63
Change in Accountants...................................................... 63
Experts.................................................................... 63
Additional Information..................................................... 63
Index to Financial Statements.............................................. F-1
</TABLE>

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

MEDICAL DEVICE TECHNOLOGIES, INC.

247,500 SHARES OF % CUMULATIVE
CONVERTIBLE SERIES A PREFERRED STOCK

AND 247,500 REDEEMABLE WARRANTS

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

PROSPECTUS

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

JUNE , 1996

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

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The Company estimates that expenses in connection with the offering of the
Preferred Stock described in this Registration Statement (other than
underwriting discounts and commissions and the Underwriter's non-accountable
expense allowance) will be as follows:

<TABLE>
<S> <C>
SEC filing fee.............................................. $ 7,343.27
NASD filing fee............................................. 2,629.55
NASDAQ filing fee........................................... 1,000.00
Accounting fees and expenses*............................... 75,000.00
Legal fees and expenses*.................................... 200,000.00
Blue Sky fees and expenses*................................. 35,000.00
Printing and engraving*..................................... 92,657.41
Transfer Agent's and Registrar fees*........................ 5,000.00
Miscellaneous expenses*..................................... 91,369.77
-----------
Total...................................................... $500,000.00
===========
</TABLE>
--------
* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Articles of Incorporation provides for indemnification of
personal liability of the Directors of the Corporation to the fullest extent
permitted by Subsections (1)-(3) of Section 16-10a-902 of the Utah Revised
Business Corporation Act.

Article VIII of the By-Laws of the Company ("By-Laws"), which is set forth
below in its entirety, provides for indemnification of officers, directors,
employees and agents substantially to the extent permitted under the Utah
Revised Business Corporation Act.

Article VIII of the By-Laws provides as follows:

"ARTICLE VIII"

INDEMNIFICATION

Section 1. Any person made a party to or involved in any civil, criminal or
administrative action, suit or proceeding by reason of the fact that he or his
testator or intestate is or was a Director, officer, or employee of the
Corporation, or of any corporation which he, the testator, or intestate served
as such at the request of the Corporation, shall be indemnified by the
Corporation against expenses reasonably incurred by him or imposed on him in
connection with or resulting from the defense of such action, suit, or
proceeding and in connection with or resulting from any appeal thereon, except
with respect to matters as to which it is adjudged in such action, suit or
proceeding that such officer, Director, or employee was liable to the
Corporation, or to such other corporation, for negligence or misconduct in the
performance of his duty. As used herein the term "expense" shall include all
obligations incurred by such person for the payment of money, including,
without limitation, attorneys' fees, judgments, awards, fines, penalties, and
amounts paid in satisfaction of judgment or in settlement of any such action,
suit, or proceedings, except amounts paid to the Corporation or such other
corporation by him.

A judgment or conviction whether based on plea of guilty or nolo contendere
or its equivalent, or after trial, shall not of itself be deemed an
adjudication that such Director, officer or employee is liable to the
Corporation,

II-1
<PAGE>

or such other corporation, for negligence or misconduct in the performance of
his duties. Determination of the rights of such indemnification and the amount
thereof may be made at the option of the person to be indemnified pursuant to
procedure set forth, from time to time, in the By-laws or by any of the
following procedures:

(a) order of the Court or administrative body or agency having
jurisdiction of the action, suit or proceeding

(b) resolution adopted by a majority of the quorum of the Board of
Directors of the Corporation without counting in such majority any
Directors who have incurred expenses in connection with such action, suit
or proceeding

(c) if there is no quorum of Directors who have not incurred expenses in
connection with such action, suit or proceeding, then by resolution adopted
by the majority of the committee of stockholders and Directors who have not
incurred such expenses appointed by the Board of Directors

(d) resolution adopted by a majority of the quorum of the Directors
entitled to vote at any meeting; or

(e) order of any Court having jurisdiction over the Corporation.

Any such determination that a payment by way of indemnification should be
made will be binding upon the Corporation. Such right of indemnification shall
not be exclusive of any other right which such Directors, officers and
employees of the Corporation and the other person above mentioned may have or
hereafter acquire, and without limiting the generality of such statement, they
shall be entitled to their respective rights of indemnification under any By-
law, Agreement, vote of stockholders, provision of law, or otherwise in
addition to their rights under this Article. The provisions of this Article
shall apply to any member of any committee appointed by the Board of Directors
as fully as though each person had been a Director, officer or employee of the
Corporation.

Reference is made to Section 7 of the Underwriting Agreement that provides
for indemnification of the officers and directors of the Underwriter under
certain circumstances.

ITEM 15. Recent Sales of Unregistered Securities.

In February of 1993 through October of 1993, the Company sold 86,748
unregistered shares of Common Stock for which it received aggregate gross
proceeds of $86,748. There were no discounts or commissions paid with respect
to the issuance of these securities. Such sale of Common Stock was made
pursuant to Section 4(2) of the Securities Act in compliance with Rule 506 of
Regulation D promulgated thereunder and all of the purchasers were accredited
investors, and there was no general solicitation or advertising with respect
to any of these sales.

In April through August of 1994, the Company issued an aggregate of 670,914
unregistered shares of Common Stock pursuant to Regulation S promulgated under
the Securities Act for aggregate gross proceeds of $421,678.83.

In June of 1994, the Company issued 700,000 unregistered shares of Common
Stock to an affiliated entity to reacquire certain sales and marketing rights
with respect to one of the Company's medical products. Such sales and
marketing rights were valued at $233,334 and the issuance of such shares of
Common Stock was made pursuant to Section 4(2) of the Securities Act.

In June of 1994, the Company issued 40,000 unregistered shares of Common
Stock to a single purchaser in a private transaction for aggregate gross
proceeds of $20,000. Such sale of securities was effected pursuant to Section
4(2) of the Securities Act.

In August of 1994, the Company sold 100,000 unregistered shares of Common
Stock for aggregate gross proceeds of $55,000 to a single purchaser in a
private transaction. Such transaction was effected pursuant to Section 4(2) of
the Securities Act.

II-2
<PAGE>

In September of 1994, the Company issued 200,000 unregistered shares of
Common Stock to an individual in connection with the acquisition of a license
for one of its medical devices, the value of which was $120,000. Such shares
were issued pursuant to Section 4(2) of the Securities Act.

In May of 1995, the Company sold an aggregate of 20.75 units at the purchase
price of $50,000 per unit to nineteen (19) investors for which it received
aggregate gross proceeds of $1,037,500. Each unit consisted of 71,429
unregistered shares of Common Stock and 25,000 3-year warrants, each warrant
to purchase a share of Common Stock for $1.00 per share. In connection
therewith, the Company also issued 56,250 2-year warrants, each warrant to
purchase a share of Common Stock at an exercise price of $1.00 per share to
the broker-dealer who facilitated the sale of the units. The sale of these
securities was made pursuant to Section 4(2) of the Securities Act in
compliance with Rule 506 of Regulation D promulgated thereunder and all of the
investors were accredited investors and there was no general solicitation or
advertisement with respect to same.

In June of 1995, the Company sold 86,000 unregistered shares of Common Stock
to a consultant to the Company in a private transaction for an aggregate
proceeds of $30,100. Such sale was pursuant to Section 4(2) of the Securities
Act in compliance with Rule 506 of Regulation D promulgated thereunder.

In June and July of 1995, the Company issued an aggregate of $275,000 of
short-term convertible debt, which matured in six months, if not converted
into Common Stock, and bore interest at the rate of 48% per annum. In
connection with the issuance of convertible debt, the Company also issued an
aggregate of 137,500 warrants, each warrant to purchase a share of Common
Stock for $.60 per share. The warrants expire ten days after the effective
date of a registration statement on Form S-3 relating to shares of Common
Stock underlying the warrants. These securities were sold pursuant to Section
4(2) of the Securities Act in compliance with Rule 506 of Regulation D
promulgated thereunder and all of the purchasers were accredited investors,
and there was no general solicitation or advertising with respect thereto.

In July of 1995, the Company entered into a placement agent agreement with
the Representative to act as placement agent with respect to a "best efforts"
private placement of a minimum of $400,000 and a maximum of $1,650,000 of the
Company's securities. On January 26, 1995, the Company completed the private
placement pursuant to which it sold 33 units for aggregate gross proceeds of
$1,650,000. Each unit consisted of (i) secured one-year 10% $50,000 promissory
note, and (ii) 7,500 shares of the Company's Series I convertible preferred
stock. The Series I preferred stock does not pay dividends and is
automatically convertible into the Preferred Stock being sold in this offering
provided that the effective date of this registration statement is on or
before June 15, 1996. In the event that this offering is not effected before
June 15, 1996, the Series I preferred stock shall automatically convert into
Common Stock on the basis of 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 80% of the average of the closing bid and asked
price of the Common Stock on June 14, 1996. The private placement was made
pursuant to Section 4(2) of the Securities Act in compliance with Rule 506 of
Regulation D promulgated thereunder and all of the purchasers were accredited
investors, and there was no general solicitation or advertising with respect
thereto. The Representative received a commission equal to 10% of the gross
proceeds plus $15,000 for expenses.

In December of 1995, the Company issued 20,665 unregistered shares of Common
Stock to its landlord in a private transaction in settlement of rent payments
of $20,665. Such issuance is pursuant to Section 4(2) of the Securities Act.

In April and May of 1996 the Company borrowed an aggregate of $300,000 from
four (4) individuals, two (2) of who 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 90
days interest with respect to the notes regardless when they are repaid. In
connection with issuing the notes the Company also issued an aggregate of
150,000 three year warrants, subject to adjustment, exercisable at the lower
of a 15% discount from the average of the bid and asked price as of the date
of the notes or the lowest five day average market price during the actual
term the note is outstanding. Such sale of securities was pursuant to Section
4(2) of the Securities Act in compliance with Rule 506 promulgated thereunder
and all of the investors were accredited investors and there was no general
solicitation or advertisement with respect to same.

II-3
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS

<TABLE>
<C> <S> <C>
EXHIBIT NO. DESCRIPTION PAGE PAGE
----------- ---------------- ----
**1.1 Revised Form of Underwriting Agreement by and between the
Company and the Representative
**1.5 Certificate of Designation with respect to the %
Cumulative Convertible Series A Preferred Stock
*3.1 Articles of Incorporation of Gold Probe, Inc. a Utah
corporation, filed February 6, 1980
*3.2 Certificate of Amendment to the Articles of Incorporation
of Gold Probe, Inc. filed January 27, 1982
*3.3 Certificate of Amendment to the Articles of Incorporation
of Hailey Energy Corporation filed October 26, 1986
*3.4 Certificate of Amendment to the Articles of Incorporation
of Hailey Energy Corporation Incorporation of Hailey Energy
Corporation filed November 2, 1990
*3.5 Certificate of Amendment to the Articles of Incorporation
of Hailey Energy Corporation filed November 17, 1992
***3.6 Certificate of Amendment to the Articles of Incorporation
of Cytoprobe Corporation filed May 18, 1995
***3.7 Certificate of Amendment to the Articles of Incorporation
of Medical Device Technologies, Inc. filed December 14,
1995
****3.8 Certificate of Amendment to the Articles of Incorporation
of Medical Device Technologies, Inc. filed January 17, 1996
****3.9 Certificate of Amendment to the Articles of Incorporation
of Medical Device Technologies, Inc. filed January 19, 1996
*3.10 By-Laws of Medical Device Technologies, Inc.
**4.1 Specimen certificate for % Cumulative Convertible Series A
Preferred Stock
**4.2 Revised Form of Representative's Warrant Agreement,
including form of Specimen Certificate for Representative's
Warrant.
**4.3 Redeemable Warrant Agreement by and between the Company and
Continental Stock Transfer and Trust Company, including a
form of specimen certificate for the Redeemable Warrants
**5 Opinion of Zukerman Gore & Brandeis, LLP
*10.1 Manufacturing Agreement dated January 31, 1996 by and
between the Company and Scitronix, Inc.
*10.2 Termination Agreement and Release of All Claims dated March
29, 1996 by and between the Company and B. Roland Freasier,
Jr.
*10.3 Employment Agreement, effective March 15, 1996, by and
between the Company and Richard Sloan
*10.4 Employment Agreement, effective March 15, 1996, by and
between the Company and Edward C. Hall
+10.5 Employment Agreement, effective August 31, 1994, by and
between the Company and M. Lee Hulsebus
+10.6 Severance Agreement, effective August 31, 1994, by and
between the Company and M. Lee Hulsebus
+10.7 Employment Agreement effective, January 4, 1995, by and
between the Company and Stephen W. Kenney
*10.8 Form of Financial Advisory Agreement to be entered into by
the Company and the Representative
</TABLE>

II-4
<PAGE>

<TABLE>
<C> <S> <C>
EXHIBIT NO. DESCRIPTION PAGE PAGE
----------- ---------------- ----
+10.9 Lease for Company's executive offices at 9171 Towne Centre
Drive, Suite 355, as amended
+11.1 Computation of the Common Stock loss per share
**24 Consent of Zukerman Gore & Brandeis, LLP
+24.1 Consent of Davis Bujold & Streck
+24.2 Consent of Strasburger & Price
+24.3 Consent of Hyman, Phelps & McNamara P.C.
+24.4 Consent of King & Isaacson
+24.5 Consent of William A. Clarke
+24.6 Consent of BDO Seidman, LLP
+24.7 Consent of Robert Early & Company
</TABLE>
- --------

+ Filed herewith.
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-1, Registration No. 33-32727, dated April 23, 1996.
** To be filed by amendment.
*** Incorporated by reference from the Company's Form 8-K Report dated January
15, 1996 (File No. 0-12365).
**** Incorporated by reference from the Company's Form 8-K Report dated January
31, 1996 (File No. 0-12365).

(B) FINANCIAL STATEMENT SCHEDULES.

None.

ITEM 17. UNDERTAKINGS.

II-5
<PAGE>

A. The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

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

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
change in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fees" table in the effective registration statement; and

(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.

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

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

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

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

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

II-6
<PAGE>

SIGNATURES

IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, THE REGISTRANT, CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE
THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-1 AND AUTHORIZED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE
CITY OF SAN DIEGO, STATE OF CALIFORNIA ON MAY, 1996.

MEDICAL DEVICE TECHNOLOGIES, INC.

/s/ M. Lee Hulsebus
By: _________________________________
M. LEE HULSEBUS, CHAIRMAN OF
THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT

IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES STATED.

SIGNATURE TITLE DATE

/s/ M. Lee Hulsebus Chairman of the May , 1996
- --------------------------------- Board, Chief
M. LEE HULSEBUS Executive Officer
and President

/s/ Don Arnwine Director May , 1996
- ---------------------------------
DON ARNWINE

/s/ Dr. Arthur Bradley Director May , 1996
- ---------------------------------
DR. ARTHUR BRADLEY

/s/ Thomas Glasgow Director May , 1996
- ---------------------------------
THOMAS GLASGOW

/s/ Edward C. Hall Chief Financial May , 1996
- --------------------------------- Officer
EDWARD C. HALL

II-7
<PAGE>

EXHIBIT INDEX

<PAGE>

+ Filed herewith.

* Previously filed as an exhibit to the Company's Registration Statement on
Form S-1, Registration No. 33-32727, dated April 23, 1996.
** To be filed by amendment.
*** Incorporated by reference from the Company's Form 8-K Report dated January
15, 1996 (File No. 0-12365).
**** Incorporated by reference from the Company's Form 8-K Report dated January
31, 1996 (File No. 0-12365).

<PAGE>

EXHIBIT 10.5

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is made by and between CYTOPROBE
CORPORATION, a corporation duly organized and existing under the laws of the
State of Utah (the "Company"), having an office and principal place of business
at 9191 Towne Centre Drive, Suite 430, San Diego, California 92122, and LEE
HULSEBUS, an individual residing at 1145 Vintage Club Drive, Duluth, Georgia
30136 (the "Employee").

WHEREAS, the Company wishes to employ the Employee, and the Employee is
willing to accept such employment for the Company on a full time basis upon such
terms and conditions as are hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
hereinafter set forth and the consideration described in this Agreement, the
parties agree as follows:

1. NATURE OF AGREEMENT:
-------------------

1.1. Employment. The Company agrees to employ the Employee, and the
----------
Employee agrees to accept such employment upon the terms and conditions herein;
it being understood that the instant Agreement is entered into contemporaneously
with a companion Severance Agreement between the parties.

1.2. Cancellation of Prior Offers. Any and all prior oral understandings,
----------------------------
offers, and/or representations (if any) with respect to the employment of the
Employee are deemed by the parties to be either void and/or deemed to be merged
into this final written Agreement.

2. TERMS AND DUTIES:
----------------

2.1. Term of Employment. The employment of the Employee under this
------------------
Agreement shall be for a term of four (4) years. The term shall commence on the
31st day of August, 1994 (the "Effective Date"), and shall thereafter terminate
on the 31st day of August 1998 (the "Termination Date").

2.2. Location. The Employee agrees that he shall carry out his duties
--------
and obligations under the terms of this Agreement at the Company's principal
office in San Diego, California.

2.3. Position and Primary Responsibility. It is understood that the
-----------------------------------
Employee shall serve as President and Chief Executive Officer ("CEO") of the
Company. In such capacity, the Employee shall have total overall responsibility
for the Company's worldwide activities (i.e., sales, marketing, financing,
operations, manufacturing, etc.) The Employee's responsibilities may be changed
or modified if the Board of Directors of the Company shall determine that any
<PAGE>

such change(s) would be in the best interests of the Company. The Employee
shall report directly to the Board of Directors of the Company.

2.4. Exclusivity. The Employee agrees to devote his full time, attention,
-----------
energies, and use his "best efforts" solely and exclusively in the performance
of his duties under the terms of this Agreement.

3. COMPENSATION:
------------

3.1. Base Salary. The Employee shall receive a Base Salary of One Hundred
-----------
Sixty-two Thousand Dollars ($162,000) per annum; it being understood that the
Employee's performance will be reviewed by the Company's Board of Directors on
the anniversary date of each year(s) that this Agreement is in force; it being
understood that all such evaluation(s) will be for the purpose of determining
whether or not the Employee's Base Salary should be adjusted upward; it being
further understood that any such evaluation(s) will be based upon
recommendations made to the Board of Directors by the Company's "Executive
Compensation Committee" but subject always to the final approval by a majority
of the Board of Directors.

3.2. Stock. As additional compensation the Employee shall also be granted
-----
a total of Two Hundred Fifty Thousand (250,000) shares of Common Stock of the
Company, as publicly traded and quoted on the Supplemental National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), with such right(s)
to "vest" at the end of two (2) years of the Employee's continuous employment by
the Company; it being understood that such Common Stock will be registered by
the Company at the time it completes an anticipated Private Placement of its
securities; it being further understood that such Common Stock when issued to
the Employee will be subject to a "lock-up" resale restriction to end on August
31, 1996.

3.3. Warrants. As additional compensation, the Employee shall also be
--------
granted a total of Two Hundred Thousand (200,000) Warrant(s) to purchase shares
of the Company's Common Stock. Each Warrant shall entitle the Employee to
purchase one (1) share of Common Stock of the Company at a "strike price" of Two
Dollars ($2.00) per share; it being understood that the Company undertakes to
register the shares of Common Stock underlying the Warrant(s); it being further
understood that such Warrant(s) shall be exercisable over a five (5) year period
commencing from the Effective Date of this Agreement; it being further
understood that the shares of Common Stock underlying the Warrant(s) when
registered shall be subject to a "lock-up" resale restriction to end on August
31, 1996.

3.4. The Employee represents that the Company's securities as aforestated
are taken by the Employee for investment purposes only, and not with a view to
distribution. The Company agrees that the Employee shall have the right, in his
sole discretion, to sell, assign, or otherwise transfer such securities, in
whole or in part, without the prior consent of the Company.

3.5. Payment. All compensation payable to the Employee hereunder shall be
-------
subject to the Company's rules and regulations, and shall also be subject to all
applicable State and
<PAGE>

Federal employment law(s); it being understood that the Employee shall be
responsible for the payment of all tax(es) resulting from a determination that
any portion of the compensation and/or benefit(s) paid/received hereunder is a
taxable event to the Employee; it being further understood that the Employee
shall hold the Company harmless from any governmental claim(s) for tax
liabilities, including interest or penalties, arising from any failure by the
Employee to pay his individual tax(es) when due.

3.6. Bonus Program. The Company shall establish a "Bonus Program" for the
-------------
Employee and other key personnel of the Company prior to January 1, 1995 based
upon a formula to be established by the Company's "Executive Compensation
Committee" subject to the final approval of a majority of the Board of
Directors.

4. BENEFITS:
--------

4.1. The Employee shall be entitled to four (4) week(s) paid vacation after
his successful completion of one (1) year of employment for the Company, and
four (4) weeks paid vacation for each year of employment during the life of this
Agreement.

4.2. Subject to pre-eligibility, and as the Effective Date, the Employee
shall also be entitled to participate in any medical insurance and/or disability
Plan(s) which the Company may establish for its employee(s); it being understood
that the Company shall pay all insurance premium(s) for such insurance(s) for
the benefit of the Employee; it being further understood, however, that until
such time as the Company shall establish such Plan(s), the Company shall
reimburse the Employee for all premium(s) payable by him in order for the
Employee to continue to keep in force his existing family medical health and
disability Policy(ies); it being further understood that the maximum amount
reimbursable by the Company for such insurance Policy(ies) coverage shall be
Eight Hundred Dollars ($800) per month (net to the Employee).

4.3. The Employee shall also be entitled to claim net reimbursement from
the Company for all reasonable expense(s) actually incurred by the Employee and
his family, for the following: (i) two (2) round trip airfares for the Employee
and his wife to travel from Atlanta, Georgia to San Diego, California and return
(including food, lodging and other related expenses) in connection with their
searching for a suitable permanent residence in the San Diego, California area;
(ii) also, the actual cost incurred by the Employee in moving his family and
their personal effects (furniture, automobiles, etc.) from Duluth, Georgia to
the San Diego, California area.

4.4. The Employee shall also be entitled to claim reimbursement from the
Company (net to the Employee) for the actual cost(s) incurred by the Employee
for temporary lodging and living expenses (food, commuting expenses, etc.) while
working for the Company in the San Diego area for a period of up to nine (9)
months after the Effective Date of this Agreement.

4.5. The Employee will also be entitled to receive a car allowance during
the life of this Agreement which shall not be less then the sum of Seven Hundred
Fifty Dollars ($750) per
<PAGE>

month (net to the Employee); it being understood that said car allowance will be
reviewed, and subject to an upward adjustment after two (2) years.

4.6. The Employee agrees that in connection with the benefit(s) provided
for in this Article, he shall fully comply with all of the expense reporting
requirement(s) of the Company as provided in paragraph "7" of this Agreement.

4.7. The Company agrees to indemnify the Employee to the fullest extent
permitted by law and by the Company's By-Laws, and include the Employee as a
named insured in any Directors and Officers Liability Insurance Policy that the
Company may obtain during the life of this Agreement.

5. CONFIDENTIAL INFORMATION AND RECORDS:
------------------------------------

5.1. The Employee represents that his employment with the Company under the
terms of this Agreement will not conflict with any continuing duty(ies) or
obligation(s) the Employee has with any other person(s), firm(s) and/or
entity(ies). The Employee also represents that he has not brought to the
Company (during the period before or after the Effective Date of this Agreement)
any material(s) and/or document(s) of a former or present employer(s), or any
confidential information or property belonging to other(s).

5.2. The Employee also represents to the Company that during the term of
this Agreement, he will not, directly or indirectly, without the express prior
written approval of the Board of Directors of the Company, engage or be
interested in any business that is in competition with the business of the
Company (whether as a principal, stockholder, lender, employee, Officer,
Director,partner, venturer, consultant or otherwise).

5.3. The Employee also represents that during the term of this Agreement,
he will promptly disclose to the Board of Directors of the Company, complete
information concerning any direct interest he holds in any business which
provides service(s) and/or product(s) to the Company (whether as a principal,
stockholder, lender, employee, Director, Officer, partner, venturer, consultant
or otherwise).

5.4. The Employee also represents that he will not disclose to any
person(s) or entity(ies) (other than to the Company's Board of Directors, or to
others as required in the performance of his duties) any confidential or secret
information with respect to the business or affairs of the Company and/or its
product(s).

5.5. The Employee agrees that for a period commencing on the Effective Date
and ending one (1) year after the Termination Date of this Agreement, he will
not, directly or indirectly, disturb, entice or hire away, or in any other
manner persuade an employee(s), consultant(s), dealer(s) or customer(s) of the
Company to discontinue that person's or firm's relationship with the Company.
<PAGE>

5.6. Records. All records, files, documents, and the like, or abstracts,
-------
summaries, or copies thereof, relating to the business of the Company which the
Employee shall prepare or use or come into contact with, shall remain the sole
property of the Company, and shall not be removed by the Employee from the
premises of the Company without the written consent of the Board of Directors of
the Company, and shall be promptly returned to the Company upon the Termination
Date.

6. TERMINATION:
-----------

6.1. Termination of Employment by the Company This Agreement may be
----------------------------------------
terminated, without cost or penalty to the Company, either "for cause"
(hereinafter defined), and/or if the Employee shall suffer a "Disability"
(hereinafter defined). The term "for cause" shall mean any fraudulent or
dishonest conduct in the performance of the Employee's duties and functions,
gross negligence or willful breach by the Employee of his material obligation(s)
under this Agreement, and/or the Employee's disregard of the policies or the
instructions of the Company's Board of Directors. The term "Disability" shall
mean the death of the Employee, or his physical or mental disability or
incapacity which the Board of Directors of the Company, in the good faith
determines, prevents the Employee from performing substantially all of the
duties hereunder during a continuous one hundred eighty (180) day period.

6.2. This Agreement may also be terminated by the Company "without cause,"
but only pursuant to the terms of the companion Severance Agreement.

7. EXPENSES:
--------

7.1. During the term of this Agreement, the Company will also reimburse the
Employee for all reasonable business expense(s) incurred by him on behalf of the
Company in the performance of his duties hereunder, upon presentation by the
Employee of voucher(s), receipt(s) or other written evidence(s) in accordance
with the policies of the Company and the rules of the Internal Revenue Service;
provided, however, that the Employee shall incur no costs that exceed Fifteen
Thousand Dollars ($15,000) without prior authorization of the Board of Directors
of the Company; it being understood that such authorization may be waived in
writing.

8. NONCOMPETITION, NONSOLICITATION:
-------------------------------

8.1. During the term of this Agreement, and for a period of one (1) year
after the Termination Date, the Employee shall not, without both the disclosure
to and the written approval of the Board of Directors of the Company, directly
or indirectly, engage or be interested in (whether as a principal, stockholder,
lender, employee, officer, director, partner, venturer, consultant or otherwise)
any business(es) that is competitive with the business of the Company, its
parent or affiliated companies, without the express written approval of the
Board.

8.2. During the term of this Agreement, the Employee shall promptly
disclose to the Board of Directors of the Company all information concerning any
interests, direct or indirect,
<PAGE>

he holds (whether as a principal, stockholder, lender, employee, officer,
director, partner, venturer, consultant or otherwise) in any business which the
Employee reasonably knows purchases goods or provides services to the Company,
its parent, or affiliates.

9. INVENTIONS, DISCOVERIES AND IMPROVEMENTS:
----------------------------------------

9.1. Any and all invention(s), discovery(ies) and improvement(s), whether
protectible or unprotectible by Patent, trademark, copyright or trade secret,
made, devised, or discovered by the Employee, whether by the Employee alone or
jointly with others, from the time of entering the Company's employ until the
Termination Date of this Agreement, relating or pertaining in any way to the
Employee's employment with the Company, shall be promptly disclosed in writing
to the Board of Directors of the Company, and become and remain the sole and
exclusive property of the Company. The Employee agrees to execute any
assignments to the Company, or its nominee, of the Company's entire right,
title, and interest in and to any such inventions, discoveries and improvements
and to execute any other instruments and documents requisite or desirable in
applying for and obtaining Patents, trademarks or copyrights at the cost of the
Company, with respect thereto in the United States and in all foreign countries,
that may be requested by the Company. The Employee further agrees, whether or
not then in the employment of the Company, to cooperate to the fullest extent
and in the manner that may be reasonably requested by the Company in the
prosecution and/or defense of any suit(s) involving claim(s) of infringement
and/or misappropriation of proprietary rights relevant to Patent(s),
trademark(s), copyright(s), trade secret(s), processes, and/or discoveries
involving the Company's product(s); it being understood that all reasonable
costs and expense thereof shall be paid by the Company. The Company shall have
the sole right to determine the treatment of disclosures received from the
Employee, including the right to keep the same as a trade secret, to use and
disclose the same without a prior Patent Application, to file and prosecute
United States and foreign Patent Application(s) thereon, or to follow any other
procedure which the Company may deem appropriate.

10. CONFIDENTIAL INFORMATION AND TRADE SECRETS:
------------------------------------------

10.1. The Employee hereby acknowledges that all trade, engineering,
production, and technical data, information or "know-how" including, but not
limited to, customer lists, sales and marketing techniques, vendor names,
purchasing information, processes, methods, investigations, ideas, equipment,
tools, programs, costs, product profitability, plans, specifications, Patent
Application(s), drawings, blueprints, sketches, layouts, formulas, inventions,
processes and data, whether or not reduced to writing, used in the development
and manufacture of the Company's products and/or the performance of services, or
in research or development, are the exclusive secret and confidential property
of the Company, and shall be at all times, whether after the Effective Date or
after the Termination Date, be kept strictly confidential and secret by the
Employee.

10.2. Return of Property. The Employee agrees not to remove from the
------------------
Company's office or copy any of the Company's confidential information, trade
secrets, books, records,
<PAGE>

documents or customer or supplier lists, or any copies of such documents,
without the express written permission of the Board of Directors of the Company.
The Employee agrees, at the Termination Date, to return any property belonging
to the Company, including, but not limited to, any and all records, notes,
drawings, specifications, programs, data and other materials (or copies thereof)
pertaining to the Company's businesses or its product(s) and service(s),
generated or received by the Employee during the course of his employment with
the Company.

10.3. Non-Disclosure. The Employee represents and agrees that during the
--------------
term of this Agreement, and after the Termination Date, he will not report,
publish, disclose, use, or transfer to any person(s) or entity(ies) any property
or information belonging to the Company without first having obtained the prior
express written consent of the Company to do so; it being understood, however,
that information which was publicly known, or which is in the public domain, or
which is generally known, shall not be subject to this restriction.

11. INFORMATION OF OTHERS:
---------------------

11.1. The Employee agrees that the Company does not desire to acquire from
the Employee any secret or confidential information or "know-how" of other(s).
The Employee, therefore, specifically represents to the Company that he will not
bring to the Company any material(s), document(s), or writing(s) containing any
such information. The Employee represents and warrants that from the Effective
Date of this Agreement he is free to divulge to the Company, without any
obligation to, or violation of the rights of other(s), information, practices
and/or techniques which the Employee will describe, demonstrate or, divulge or
in any other manner make known to the Company during the Employee's performance
of services. The Employee also agrees to indemnify and hold the Company
harmless from and against any and all liability(ies), loss(es), cost(s),
expense(s), damage(s), claim(s) or demand(s) for any violation of the right(s)
of other(s) as it relates to the Employee's misappropriation of secrets,
confidential information, or "know-how" of other(s).

12. NOTICE:
------

12.1. Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be delivered personally or mailed by registered or
certified mail, return receipt requested, and shall be deemed given when so
delivered or mailed, to a party at his or its address as follows (or at such
other address as a party may designate by notice given hereunder):

If to Employee:

Lee Hulsebus
1145 Vintage Club Drive
Duluth, Georgia 30136
<PAGE>

With an additional copy to:

Lee Hulsebus
c/o Cytoprobe Corporation
9191 Towne Centre Drive
Suite 430
San Diego, California 92122

If to the Company:

Cytoprobe Corporation
9191 Towne Center Drive
Suite 430
San Diego, California 92122

With a Copy to:

Robert E. Meshel, Esq.
c/o Lewis, D'Amato, Brisbois & Bisgaard
601 California Street, Suite 1900
San Francisco, California 94108

13. ARBITRATION:
-----------

13.1. In the event of any dispute arising out of this Agreement or the
Employee's employment with the Company, or the termination of the Employee's
employment, whether such dispute gives rise to a Cause of Action sounding in
contract and/or in tort, and/or whether based on a statute or case law,
including, without limitation, the breach of the covenant of "good faith" and
"fair dealing," or employment discrimination, or otherwise, the parties agree to
submit any and all such dispute(s) (if any) to final and binding arbitration
pursuant to the Rules of the American Arbitration Association with the venue of
all arbitration hearing(s) to be in San Diego, California, or such other
place(s) within the State of California as the parties may agree to in writing.
Any demand for arbitration shall be made in writing to the other party to this
Agreement within six (6) months after the date the claim(s) first arose, but in
no event later than six (6) months from the effective Termination Date of this
Agreement. Any failure of a party to timely demand arbitration hereunder shall
constitute a complete waiver; it being understood that the time limitation
period shall not be subject to any tolling, equitable or otherwise. The parties
further agree that, except as specifically provided otherwise herein, the
exclusive remedy in arbitration for any alleged violation(s) of the terms,
conditions, or covenants of this Agreement, and for any harm alleged in
connection with any dispute subject to arbitration hereunder, shall be a
monetary award not to exceed the amount of actual contract damage less any
proper offset for mitigation of such damages; it being understood that the
foregoing is without prejudice to the rights of the Company to seek injunctive
and/or other equitable relief to enforce the provision(s) of Article(s) "5,"
"8," "10" and "11" of this Agreement.
<PAGE>

14. MISCELLANEOUS
-------------

14.1. Post Termination Obligations. Notwithstanding the termination of
----------------------------
the Employee's engagement hereunder, the provision(s) of Article(s) "5," "8,"
"10" and "11" shall survive any termination.

14.2. Assignment. This Agreement shall be assigned to and inure to the
----------
benefit of, and be binding upon, any successor to substantially all of the
assets and business of the Company as a going concern, whether by merger,
consolidation, liquidation or sale of substantially all of the assets of the
Company or otherwise. The Employee understands and agrees, however, that this
Agreement is exclusive and personal to him only, and, as such, he will neither
assign nor subcontract all or part of his undertaking(s) or obligation(s) under
the terms of this Agreement.

14.3. Entire Agreement. Each party acknowledges that this Agreement
----------------
constitutes the entire understanding between them, and that there are no other
written or verbal agreement(s) or understanding(s) between them other than those
set forth herein; it being understood that no amendment(s) to this Agreement
shall be effective unless reduced to writing and signed by each party hereto.

14.4. Severability. In the event that any provision of this Agreement
------------
shall be determined to be unenforceable or otherwise invalid, the balance of the
provision(s) shall be deemed to be enforceable and valid; it being understood
that all provision(s) of this Agreement are deemed to be severable, so that
unenforceability or invalidity of any single provision will not affect the
remaining provision(s).

14.5. Headings. The Article and paragraph heading(s) in this Agreement
--------
are deemed to be for convenience only, and shall not be deemed to alter or
affect any provision herein.

14.6. Interpretation of Agreement. This Agreement shall be interpreted in
---------------------------
accordance plain meaning of its terms and under the laws of the State of
California.

14.7. Variation. Any change in the salary, or Bonus(es), or other
---------
condition(s) after the Effective Date of this Agreement shall not be deemed to
constitute a new Agreement with all unchanged terms to remain in force and
effect.

14.8. Unenforceability. The unenforceability or invalidity of any
----------------
provision(s) of this Agreement shall not affect the enforceability and/or the
validity of the remaining provision(s).

14.9. Collateral Documents. Each party hereto shall make, execute and
--------------------
deliver such other instrument(s) or document(s) as may be reasonably required in
order to effectuate the purposes of this Agreement.

14.10. Written Policies and Procedures. The Company's written policies and
-------------------------------
procedures, as codified and contained in the Company "Handbook," is incorporated
by reference.
<PAGE>

14.11. Non-Impairment. This Agreement may not be amended or supplemented
--------------
at any time unless reduced to a writing executed by each party hereto. No
amendment, supplement or termination of this Agreement shall affect or impair
any of the rights or obligations which may have matured thereunder.

14.12. Execution. This Agreement may be executed in one or more
---------
counterpart(s), and each executed counterpart(s) shall be considered by the
parties as an original.

14.13. Legal Counsel. The Employee represents to the Company that he has
-------------
either retained legal counsel of his own selection, and/or was given sufficient
opportunity to obtain legal counsel of his own choosing prior to executing this
Agreement. The Employee also represents that he has read the provision(s) of
this Agreement and understands its meaning.

14.14. Other Agreement. Contemporaneously with the execution of this
---------------
Employment Agreement, the parties have also simultaneously entered into a
companion Severance Agreement.

IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
day and year first above written.

ATTEST: CYTOPROBE CORPORATION

By:
- ------------------------- ----------------------------
Name
Title

ATTEST:

- ------------------------- ----------------------------
LEE HULSEBUS

<PAGE>

EXHIBIT 10.6

SEVERANCE AGREEMENT
-------------------

THIS SEVERANCE AGREEMENT ("Agreement") is entered into the 31st day of
August, 1994, by and between CYTOPROBE CORPORATION, a Utah corporation, having
an office and place of business at 9191 Towne Center Drive, Suite 430, San
Diego, California 92122 (the "Company"), and LEE HULSEBUS, an individual
residing at 1145 Vintage Club Drive, Duluth, Georgia 30136 (the "Executive").
This Agreement provides protection to the Executive in the event of termination
of his employment relationship with the Company in certain circumstances as set
forth herein.

W I T N E S S E T H:

The Board of Directors of the Company has determined that it is appropriate
and in the best interests of the Company to provide to the Executive protection
in the event of termination of the Executive's employment relationship with the
Company, and the Executive desires to have such protection;

NOW, THEREFORE, the Company and the Executive agree as follows:

1. DEFINITIONS. For purposes of this Agreement, the following terms shall
-----------
have the following meaning(s):

1.1. "Board of Directors" shall mean the Board of Directors of the
Company.

1.2. "Change in Control" shall mean and be deemed to have occurred if: (i)
there shall be consummated (A) any consolidation or merger of the Company with
or into any other corporation in which the Company is not the continuing or
surviving corporation, or pursuant to which shares of the Company's Common Stock
would be converted into cash, securities or other property, other than a merger
of the Company in which the holders of he Company's Common Stock immediately
prior to the merger have the same proportionate ownership of Common Stock of the
surviving corporation immediately after the consolidation or merger, or (B) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company, provided that there shall be excluded any merger, consolidation or sale
of assets in which the surviving corporation or the purchaser is an entity
controlled in its majority by the present principal stockholders and their
affiliates; or (ii) the Company's stockholders have approved any Plan or
proposal for the liquidation or dissolution of the Company; or (iii) any person
(as such term is used in Section(s) 13(d)(3) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than the present
principal stockholders and their affiliates becomes he beneficial owner, within
the meaning of Rule 13(d)(3) under the Exchange Act of twenty percent (20%) or
more of the Company's outstanding Common Stock; or (iv) during any period of two
(2) consecutive
<PAGE>

years, individual(s) who at the beginning of such period constitute the
Company's entire Board of Directors cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each new Director was approved by a vote of at lease
two-thirds (2/3) of the Director(s) then still in office who were Director(s) at
the beginning of the period.

1.3. "Disability" shall mean any physical or mental ailment that prevents
the Executive from performing the duties incident to his employment as President
and Chief Executive Officer of the Company that is expected to be of permanent
duration.

1.4. "For Cause" shall mean the "Gross Willful Misconduct" of the Employee
(as defined herein).

1.5. "Gross Willful Misconduct" shall mean the Employee's conviction after
appeal of a felony.

1.6. "Involuntary Termination" shall mean the occurrence (without the
Executive's express written consent) of any of the following after a Change in
Control has occurred:

(a) the termination of the Executive's Employment Agreement as
referred to in Paragraph 9.9 of this Agreement;

(b) any change(s) in the terms of the Executive's employment where
such change(s) is undertaken at the initiative of the Executive relating to
any of the following matter(s):

(i) any material reduction and/or adverse change in the duties,
position, and/or authority or reporting responsibilities of the
Executive from that in effect immediately prior to a Change in
Control;

(ii) any reduction by the Company in the Executive's "Base
Salary" and/or "Benefit(s)" as set forth in the companion Employment
Agreement;

(iii) the relocation of the Executive to any office other than
the Company's principal place of business, or the office at which the
Executive was located prior to a Change in Control;

(iv) any reduction in the number of paid vacation day(s) to which
the Executive was entitled under the terms of the companion Employment
Agreement prior to a Change in Control;

(v) any failure(s) by the Company to continue to provide the
Executive with the benefit(s) set forth in the companion Employment
Agreement;
<PAGE>

(vi) any failure(s) by the Company to obtain from any successor
entity an assumption of the Company's obligations to the Executive
under this Agreement and/or the companion Employment Agreement;

(vii) any purported termination by the Company of the
Executive's employment other than a termination For Cause.

1.7. "Voluntary Termination" shall mean the Executive's termination of
employment with the Company, for any reason other than the Executive's
Involuntary Termination.

2. SEVERANCE BENEFITS UPON INVOLUNTARY TERMINATION OR CHANGE IN CONTROL.
--------------------------------------------------------------------
If the Executive's employment with the Company is terminated as the result of
the Involuntary Termination, and/or a Change in Control, the Executive shall
receive "Severance Benefits" as follows:

2.1. Three (3) Years' Base Salary. The Company shall pay to the Executive
----------------------------
an amount equal to three (3) years' Base Salary, as provided for in the
companion Employment Agreement, and at the rate in effect at the date of the
Executive's Involuntary Termination and/or a Change in Control. The Company
shall pay this amount to the Executive in thirty-six (36) equal monthly
installment(s), commencing on the first day of the month next following the
"Termination Date" as defined in the companion Employment Agreement, and
continuing on the first day of each succeeding month until all thirty-six (36)
payment(s) have been made.

2.2. Three (3) Years' Bonus. The Company shall also pay to the Executive
----------------------
an amount equal to three (3) times the amount of the Bonus paid or payable to
the Executive as provided for in the companion Employment Agreement, or as may
be established by the Company's "Executive Compensation Committee" and/or its
Board of Directors. The Company shall pay this amount to the Executive in
thirty-six (36) equal monthly installment(s), commencing on the first day of the
month next following the date of termination of the Executive's employment and
continuing on the first day of each succeeding month until all thirty-six (36)
payment(s) have been made.

2.3. Stock Rights. The Executive's rights to receive Two Hundred Fifty
------------
Thousand (250,000) shares of the Common Stock of the Company as provided for in
paragraph "3.2" of the companion Employment Agreement shall "vest" immediately.

2.4 Exercise of Stock Options. The Executive will also be permitted to
-------------------------
exercise, during the four (4) year period following the Termination Date, any
Warrant(s) and/or stock option(s) held by him or granted to him, either under
the terms of the companion Employment Agreement and/or any Stock Option Plan
that may be implemented by the Company; it being understood that the Executive
shall be entitled to exercise such right(s) in the same manner as if his
employment with the Company had continued for the entire four (4) year term.
<PAGE>

2.5. Health and Disability Insurance. The Company shall also provide to
-------------------------------
the Executive, for a period of at least three (3) years after the Termination
Date, health and disability insurance benefits at least equivalent to those
provided for in the companion Employment Agreement on the date of the
Involuntary Termination and/or a Change in Control. If the Executive becomes
employed by another employer during the three (3) year period during which
benefits are to be continued under this Section, and the new employer provides
benefit(s) to the Executive that are at least as great as the benefit(s) to be
provided hereunder, then the benefit(s) under this Section shall cease. If,
however, the level of insurance benefit(s) from the new employer is less than
that to be provided under this Section, then the Company shall provide
sufficient benefit(s) (or the cash equivalent) so that, in the aggregate, the
level of health insurance benefits to which he would be entitled under this
Agreement absent his new employment.

3. DISABILITY OF EMPLOYEE.
----------------------

3.1. Disability Benefits. If the Executive shall suffer a Disability
-------------------
while employed by the Company, as defined herein and/or in the companion
Employment Agreement, the Executive may elect to terminate his employment upon
thirty (30) days' prior written notice to the Company, in which event the
Executive will be eligible for "Disability Benefits" which shall include the
following:

(a) Payment to the Executive by the Company, in a single lump sum, and
within ten (10) days after the date of Termination Date, in an amount equal
to: (i) the amount described in Section 2.1, minus (ii) the amount that
it is anticipated will be received by the Executive under any then existing
long term disability Plan of the Company during the thirty-six (36) month
period following the Termination Date.

(b) Payment to the Executive by the Company, in a single lump sum, and
within ten (10) days after the Termination Date, in an amount equal to the
amount described in Section "2.2."

(c) The Company shall issue to the Executive Two Hundred Fifty
Thousand (250,000) shares of the Common Stock of the Company as referred to
in paragraph "3.2" of the companion Employment Agreement, with such shares
to "vest" upon the effective Termination Date.

(d) The Company shall also provide to the Executive, for a period of
at least three (3) years after the Termination Date, health and disability
insurance benefit(s) at least equivalent to the benefit(s) available to the
Executive under the companion Employment Agreement, and/or as may be
established by the Company at some future time.

(e) The Executive will also be permitted to exercise, during the
three (3) year period following the Termination Date, any Warrant(s) and/or
stock option(s) held by
<PAGE>

him or granted under any employee Stock Option Plan established by the
Company, in the same manner as if his employment with the Company had
continued through that three (3) year period, except that this provision
will not extend the maximum term of any such option.

4. DEATH BENEFITS IF EXECUTIVE DIES WHILE EMPLOYED. If the Executive dies
-----------------------------------------------
while employed by the Company, his representative and/or beneficiary(ies) shall
receive "Death Benefits" payable as follows:

4.1. Monthly Payments. The Company shall pay to the person or persons
----------------
designated by the Executive as his beneficiary (by a beneficiary designation
form) an amount equal to:

(a) the sum of: (i) an amount equal to three (3) years' salary at
the rate of Base Salary in effect at the date of death plus (ii) an amount
equal to three (3) times the amount of the Bonus paid or payable to the
Executive for the Company's last complete fiscal year ended before the date
of the Executive's death; minus

(b) the amount of life insurance proceeds payable as a result of the
Executive's death under the terms of any life insurance policy to the
extent that those proceeds re allocable to premium payments made by the
Company.

(c) the Company shall issue to the Executive's beneficiary or
beneficiaries Two Hundred Fifty Thousand (250,000) shares of Common Stock
of the Company as referred to in paragraph "3.2" of the companion
Employment Agreement, with such shares to "vest" upon the death of the
Executive.

The Company shall pay this amount to the Executive's beneficiary or
beneficiaries in thirty-six (36) equal monthly installments, commencing on the
first day of the month next following the date of the Executive's death, and
continuing on the first day of each succeeding month until all payment(s) have
been made.

4.2. Health Insurance. The Company shall also provide to the Executive's
----------------
family, for a period of at least three (3) years after the date of the
Executive's death, health insurance benefits at least equivalent to the health
insurance benefit(s) that would have been available to the Executive's family
under the companion Employment Agreement and/or the Company's applicable health
insurance benefit Plan(s) in effect on the date of the Executive's death.

4.3. Exercise of Stock Options. The Executive's Estate (or beneficiary)
-------------------------
will be permitted to exercise, during the three (3) year period following the
date of the Executive's death, any stock options granted to or held by the
Executive upon his death that were granted under the terms of the companion
Employment Agreement, and/or any Employee Stock Option Plan established by the
Company, in the same manner as if the Executive had survived and
<PAGE>

continued in the Company's employ for three (3) years beyond the date of his
death, except that this provision will not extend the maximum term of any such
option.

5. DEATH OF EXECUTIVE AFTER SEVERANCE. If the Executive dies after he
----------------------------------
becomes entitled to severance payment(s) under Section(s) 2 or 3 hereof, and
before any such severance payment(s) have been paid and provided, the Company
shall continue: (a) to make any remaining severance payment(s) to the
Executive's beneficiary or beneficiaries; to provide health insurance benefits
to the Executive's family; and (c) to allow the Executive's Estate (or
beneficiary) to exercise the stock options held by the Executive upon his death,
all in the same manner and to the same extent as if the Executive had survived
for at least three (3) years following the termination of his employment with
the Company.

6. NOTICE OF TERMINATION OF EMPLOYMENT. The Executive shall give the
-----------------------------------
Company at least thirty (30) days prior written notice of either his Voluntary
Termination of employment and/or his claim of Involuntary Termination of
employment initiated by the Executive as a result of actions by the Company
described in Section 1 hereof. Failure of the Executive to provide such notice
in the case of any such Involuntary Termination of employment shall not relieve
the Company of its obligation to pay and provide severance payment(s) and/or
benefit(s) to the Executive following the Involuntary Termination. The Company
shall give the Executive not less than thirty (30) days prior written notice of
the Involuntary Termination of the Executive's employment at the initiative of
the Company, except that, at the Company's option, the Executive may be relieved
of his duties and authorities immediately upon the Company's giving the
Executive such notice of the Involuntary Termination of his employment.

7. NO SEVERANCE BENEFITS FOLLOWING TERMINATION FOR CAUSE OR VOLUNTARY
------------------------------------------------------------------
TERMINATION. If the Executive's employment is terminated either For Cause or
- -----------
because of the Executive's Voluntary Termination, no severance payment(s) and/or
benefit(s) shall be payable under this Agreement either upon that termination or
at any time thereafter.

8. RELATIONSHIP TO OTHER BENEFITS.
------------------------------

8.1. No Forfeiture of Certain Payments and Benefits. Neither the
----------------------------------------------
eligibility for, nor the receipt of, benefits under this Agreement, nor the
termination of Executive's employment under circumstances described in Section
7, shall be deemed to affect the right of the Executive upon his termination of
employment, whether Voluntary or Involuntary, and whether or not For Cause, to
all accrued but unpaid amounts of salary, Bonus, deferred compensation, vacation
pay, and benefits all of which will be paid to the Executive up to the
Termination Date, nor shall it affect any calculable amounts of supplemental
pension retirement benefits and amounts payable under other future unfunded
benefit programs.

8.2. Benefits Hereunder Treated as Minimums. The payments and benefits
--------------------------------------
under this Agreement are intended to be minimum projections for the Executive,
and are not intended to
<PAGE>

duplicate other benefits provided for the Executive. By way of clarification,
and not of limitation, the following rules shall apply:

(a) the amount of any severance payments determined as a multiple of
Base Salary and Bonus shall be reduced by the amount of any lump sum cash
payments or periodic payments payable, during the three (3) year period
following termination of the Executive's employment by the Company, to the
Executive, or his beneficiary(ies), under any employment or similar
agreement or unfunded retirement program due to termination of the
Executive's employment;

(b) the amount of any severance payments determined as a multiple of
Base Salary and Bonus shall not be reduced by the amount of any tax
qualified retirement benefits, deferred compensation, stock appreciation
rights, or periodic benefits (other than disability benefits as provided in
Section 3 or payments or benefits described in Section 8; and

(c) to the extent that health and disability insurance benefits are
provided to the Executive and his family under the companion Employment
Agreement or any Plan or Plans of the Company, the other source(s) shall be
considered as additional benefits.

8.3. Payment of Cash Equivalent in Certain Instances. If continued health
-----------------------------------------------
benefits coverage for the Executive or his family would jeopardize the tax
benefits of any health benefits Plan or arrangement for any other employees of
the Company, or for the Company itself, the Company may, in its discretion,
either provide the health benefits on an individual basis or provide cash
compensation equivalent to the benefit that otherwise would have been provided
so that the Executive and his family shall suffer no financial loss whatsoever
(whether from extra taxes or otherwise) due to the substitution. If continued
disability insurance coverage or ability to exercise Warrant(s) and/or stock
option(s) similarly jeopardizes the tax benefits of other employees of the
Company, the Company shall have the same option to provide to the Executive, his
family, and his beneficiaries, as the case may be, cash compensation that will
put the Executive, his family, and his beneficiaries, in at least as good an
after tax position financially as if the substitution had not been made.

9. MISCELLANEOUS.
-------------

9.1. No Assignment Without Consent of Company. Except as set forth
----------------------------------------
herein, no rights of any kind under this Agreement shall, without the express
written consent of the Company, be transferable or assignable by the Executive,
his spouse or any other person, or be subject to alienation, encumbrance,
garnishment, attachment, execution, or levy of any kind, voluntary or
involuntary. This Agreement shall be binding upon and shall inure to the
benefit of the Company and its successors and assigns.
<PAGE>

9.2. Savings Clause. If any provision or part of a provision of this
--------------
Agreement is held to be void or not enforceable for any reason, the remainder of
the provision not so held void and all other provisions of this Agreement shall
remain in full force and effect to the fullest extent possible.

9.3. No Rights in Any Property of Company. The undertakings of the
------------------------------------
Company herein constitute merely the unsecured promise of the Company to make
the payments as provided for herein. No property of the Company is or shall, by
reason of this Agreement, be held in trust for the Executive, his spouse, or any
other person, and neither the Executive nor his spouse or any other person shall
have, by reason of this Agreement, any rights, title, or interest of any kind in
or to any property of the Company.

9.4. Governing Law. This Agreement is executed in and shall be construed
-------------
in accordance with and governed by the laws of the State of California.

9.5. Employment of Executive by the Company. Nothing herein shall be
--------------------------------------
construed as an offer or commitment by the Company to continue the Employee's
employment with the Company for any period of time.

9.6. Facility of Payment. If the Company shall find that any person to
-------------------
whom any amount is payable hereunder is unable to care for his or her affairs,
any payment due (unless a prior claim therefor hall have ben made by a duly
appointed guardian, committee, or other legal representative) may be paid to any
person deemed by the Company to have incurred expense for such person otherwise
entitled to payment, in such manner and proportions as the Company may
determine.

9.7 Gender. A pronoun in the masculine, feminine, or neuter gender shall
------
be deemed, where appropriate, to include also the masculine, feminine, or neuter
gender.

9.8. Amendment. This Agreement may only be amended in a writing signed by
---------
the Executive and the Company.

9.9. Other Agreement. Contemporaneously with the execution of this
---------------
Agreement, the parties have also simultaneously entered into a companion
Employment Agreement effective the 31st day of August, 1994. Such Employment
Agreement is deemed incorporated by reference.
<PAGE>

IN WITNESS WHEREOF, the Company, by a duly authorized officer, and the
Executive have executed this Agreement on the day and year first above written.

ATTEST: CYTOPROBE CORPORATION

By:
- ---------------------------------- --------------------------------
Name
Title

ATTEST:

- ---------------------------------- --------------------------------
LEE HULSEBUS

<PAGE>

EXHIBIT 10.7

OHS DRAFT
4/22/96

FINANCIAL ADVISORY AND CONSULTING AGREEMENT
-------------------------------------------

This Agreement is made and entered into as of the ____ day of
__________, 1996 [the effective date of the Registration Statement], by and
between MEDICAL DEVICE TECHNOLOGIES, INC., a Utah corporation (the "Company"),
and FIRST ALLIED SECURITIES, INC. (the "Consultant").

In consideration of and for the mutual promises and covenants contained
herein, and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:

1. Purpose. The Company hereby retains the Consultant during the
-------
term specified in Section 2 hereof to render consulting advice to the Company as
-------
an investment banker relating to financial and similar matters, upon the terms
and conditions as set forth herein.

2. Term. Subject to the provisions of Sections 8, 9 and 10 hereof,
---- --------
this Agreement shall be effective for a period of sixty (60) months commencing
__________, 1996 [the effective date of the Registration Statement].

3. Duties of Consultant. During the term of this Agreement, the
--------------------
Consultant will provide the Company with such regular and customary consulting
advice as is reasonably requested by the Company, provided that the Consultant
shall not be required to undertake duties not reasonably within the scope of the
consulting advisory service contemplated by this Agreement. In performance of
these duties, the Consultant shall provide the Company with the benefit of its
best judgment and efforts. It is understood and acknowledged by the parties
that the value of the Consultant's advice is not measurable in any quantitative
manner, and that the Consultant shall be obligated to render advice, upon the
request of the Company, in good faith, but shall not be obligated to spend any
specific amount of time in doing so. The Consultant's duties may include, but
will not necessarily be limited to:

A. Providing sponsorship and exposure in connection with the
dissemination of corporate information regarding the Company to the investment
community at large under a systematic planned approach.

B. Rendering advice and assistance in connection with the preparation
of annual and interim reports and press releases.

C. Arranging, on behalf of the Company and its representatives, at
appropriate times, meetings with securities analysts of major regional
investment banking firms.

D. Assisting in the Company's financial public relations, including
discussions between the Company and the financial community.
<PAGE>

E. Rendering advice with regard to internal operations, including:

(1) advice regarding the formation of corporate goals and their
implementation;

(2) advice regarding the financial structure of the Company and
its future divisions or subsidiaries, if any, or any programs and
projects of such entities;

(3) advice concerning the securing, when necessary and if
possible, of additional financing through banks, insurance
companies and/or other institutions; and

(4) advice regarding corporate organization and personnel.

F. Rendering advice with respect to any acquisition program of the
Company.

G. Rendering advice regarding a future public or private offering of
securities of the Company or of any future subsidiary.

4. Relationships with Others. The Company acknowledges that the
-------------------------
Consultant and its affiliates are in the business of providing financial service
and consulting advice (of all types contemplated by this Agreement) to others.
Nothing herein contained shall be construed to limit or restrict the Consultant
or its affiliates from rendering such services or advice to others.

5. Consultant's Liability. In the absence of gross negligence or
----------------------
willful misconduct on the part of the Consultant or the Consultant's breach of
this Agreement, the Consultant shall not be liable to the Company, or to any
officer, director, employee, shareholder or creditor of the Company, for any act
or omission in the course of or in connection with the rendering or providing of
advice or services hereunder. Except in those cases where the gross negligence
or misconduct of the Consultant or the breach by the Consultant of this
Agreement is alleged and proven, the Company agrees to defend, indemnify and
hold the Consultant harmless from and against any and all reasonable costs,
expenses and liability (including, but not limited to, attorneys' fees paid in
the defense of the Consultant) which may in any way result from services
rendered by the Consultant pursuant to or in any connection with this Agreement.

6. Expenses. The Company, upon receipt of appropriate supporting
--------
documentation, shall reimburse the Consultant for any and all reasonable out-of-
pocket expenses incurred by the Consultant in connection with services rendered
by the Consultant to the Company pursuant to this Agreement, including, but not
limited to, hotel, food and associated expenses, all charges for travel and
long-distance telephone calls and all other expenses incurred by the Consultant
in connection with services rendered by the Consultant to the Company pursuant
to this Agreement. Expenses payable under this Section 6 shall not include
---------
allocable overhead expenses of the Consultant, including, but not limited to,
attorneys' fees, secretarial charges and rent.

2
<PAGE>

7. Compensation. As compensation for the services to be rendered by
------------
the Consultant to the Company pursuant to Section 3 hereof during the term set
-------
forth in Section 2 hereof, the Company shall pay the Consultant a financial
-------
consulting fee of one thousand dollars ($1,000) per month, all of which (an
aggregate of sixty thousand dollars ($60,000)) shall be paid by the Company on
__________, 1996 [the closing date of the IPO].

8. Other Advice. In addition to the duties set out in Section 3
------------ -------
hereof, the Consultant agrees to furnish advice to the Company in connection
with the acquisition of and/or merger with other companies, joint ventures with
any third parties, license and royalty agreements and any other financing (other
than the private or public sale of the Company's securities for cash),
including, but not limited to, the sale of the Company itself (or any
significant percentage, subsidiaries or affiliates thereof).

In the event that any such transactions are directly or indirectly
originated by the Consultant for a period of five (5) years from the date
hereof, the Company shall pay fees to the Consultant as follows:
<TABLE>
<CAPTION>

Legal Consideration Fee
------------------- ---
<S> <C>

$0 - $3,000,000 5% of legal consideration
(with a minimum fee of $25,000)

$3,000,001 - $4,000,000 4% of excess over $3,000,000

$4,000,001 - $5,000,000 3% of excess over $4,000,000
over $5,000,000 2% of excess over $5,000,000
</TABLE>

For the purposes of this Agreement, "Legal Consideration" shall mean
the total market value on the day of closing of stock ,cash, assets and all
other property (real or personal) exchanged or received, directly or indirectly
by the Company or any of its security holders in connection with any
transaction, including without limitation any amounts paid by the Company or any
person or entity to holders of warrants, stock purchase rights, straight or
convertible securities of the Company, whether or not vested, and to holders of
any other securities of any kind whatsoever of the Company, or pursuant to any
employment agreement, consulting agreement, covenant not to compete, earn-out or
contingent payment right or similar arrangement, agreement or understanding,
whether oral or written.

In the event the Consultant originates a line of credit with an
institutional lender, the Company and the Consultant will mutually agree on a
satisfactory fee and the terms of payment of such fee; provided, however, that
in the event the Company is introduced to a corporate partner in connection with
a merger, acquisition or financing and a credit line develops directly as a
result of the introduction, the appropriate fee shall be the amount set forth in
the schedule above. In the event the Consultant introduces the Company to a
joint venture partner or customer and sales develop as a result of the
introduction, the Company agrees to pay a fee of five percent (5%) of total
sales generated directly from this introduction during the first two years
following the date of the first sale. Total sales shall mean cash receipts less
any applicable refunds, returns, allowances, credits and shipping charges and
monies paid by the Company by

3
<PAGE>

way of settlement or judgment arising out of claims made or threatened against
the Company. Commission payments shall be paid on the 15th day of each month
following the receipt of customer's payment. In the event any adjustments are
made to the total sales after the commission has been paid, the Company shall be
entitled to an appropriate refund or credit against future payments due under
this Agreement.

9. Sales or Distributions of Securities. (a) If the Consultant acts
------------------------------------
as an underwriter or placement agent in the sale or distribution of securities
to the public or in a private transaction by the Company (an "Offering") or
directly or indirectly introduces a third party to the Company, the Consultant
shall receive, as compensation for services rendered, a cash payment equal to
ten percent (10%) of the aggregate Consideration received by the Company and
warrants to purchase an amount of securities of the Company equal to ten percent
(10%) of the total amount sold by the Company in such Offering.

(b) In the event the Consultant does not act as underwriter or
placement agent in such Offering, then the Consultant shall be entitled to
receive an aggregate cash payment equal to one and one half percent (1 1/2%) of
the aggregate Consideration received by the Company and warrants to purchase an
amount of securities of the Company equal to one and one half percent (1 1/2%)
of the total amount of the securities sold by the Company in such offering.

(c) Fees and expenses payable to the Consultant with regard to fairness
opinions and valuations, will be determined by mutual agreement at such time as
the nature and terms of such financing are affirmed.

10. Form of Payment. All fees due to the Consultant pursuant to
---------------
Section 8 or Section 9 hereof are due and payable to the Consultant, in cash or
- ------- -------
by certified check, at the closing or closings of any transaction specified in
such Section 8 or Section 9 or as otherwise shall mutually be agreed between the
------- -------
parties hereto; provided, however, that in the case of license and royalty
-------- -------
agreements specified in Section 8 or Section 9 hereof, the fees due the
------- -------
Consultant in respect of such license and royalty agreements shall be paid as
and when license and/or royalty payments are received by the Company. In the
event that this Agreement shall not be renewed for a period of at least twelve
(12) months at the end of the five (5) year period referred to in Section 8
-------
hereof or if terminated for any reason prior to the end of such five (5) year
period, then, notwithstanding any such non-renewal or termination, the
Consultant shall be entitled to the full fee for any transaction contemplated
under Section 8 hereof which closes within twelve (12) months after such non-
-------
renewal or termination.

11. Limitation Upon the Use of Advice and Services.
----------------------------------------------

(a) No person or entity, other than the Company or any of its
subsidiaries, shall be entitled to make use of or rely upon the advice of the
Consultant to be given hereunder, and the Company shall not transmit such advice
to others, or encourage or facilitate the use or reliance upon such advice by
others, without the prior consent of the Consultant.

4
<PAGE>

(b) It is clearly understood that the Consultant, for services rendered
under this Agreement, makes no commitments whatsoever to make a market in the
securities of the Company or to recommend or advise its clients to purchase the
securities of the Company. Research reports or corporate finance reports that
may be prepared by the Consultant will, when and if prepared, be done solely on
the merits or judgment of analysts of the Consultant or senior corporate finance
personnel of the Consultant.

(c) The use of the Consultant's name in any annual report or other
report of the Company, or any release or similar document prepared by or on
behalf of the Company, must have the prior approval of the Consultant unless the
Company is required by law to include the Consultant's name in such annual
report, other report or release, in which event the Consultant will be furnished
with a copy of such annual report, other report or release using the
Consultant's name in advance of publication by or on behalf of the Company.

(d) Should any purchases of securities be requested to be effected
through the Consultant by the Company, its officers, directors, employees or
other affiliates, or by any person on behalf of any profit sharing, pension or
similar plan of the Company, for the account of the Company or the individuals
or entities involved, such orders shall be taken by a registered account
executive of the Consultant, shall not be subject to the terms of this
Agreement, and the normal brokerage commission as charged by the Consultant will
apply in conformity with all rules and regulations of the New York Stock
Exchange, the National Association of Securities Dealers, Inc. or other
regulatory bodies. Where no regulatory body sets the fee, the normal
established fee as used by the Consultant shall apply.

(e) The Consultant shall not disclose confidential information which it
learns about the Company as a result of its engagement hereunder, except for
such disclosure as may be required for Consultant to perform its duties
hereunder.

12. Indemnification. Since the Consultant will be acting on behalf of
---------------
the Company in connection with its engagement hereunder, the Company and
Consultant have entered into a separate indemnification agreement substantially
in the form attached hereto as Exhibit A and dated the date hereof, providing
---------
for the indemnification of Consultant by the Company. The Consultant has
entered into this Agreement in reliance on the indemnities set forth in such
indemnification agreement.

13. Severability. Every provision of this Agreement is intended to be
------------
severable. If any term or provision hereof is deemed unlawful or invalid for
any reason whatsoever, such unlawfulness or invalidity shall not affect the
validity of the remainder of this Agreement.

14. Miscellaneous.
-------------

(a) Any notice or other communication between the parties hereto shall
be sent by certified or registered mail, postage prepaid, if to the Company,
addressed to it at 9171 Towne Centre Drive, Suite 355, San Diego, California
92122, Attention: M. Lee Hulsebus, President and Chief Executive Officer, with
a copy to Zukerman Gore & Brandeis, LLP, 900 Third Avenue, New York, New York,
10022, Attention: Clifford A. Brandeis, Esq. or, if to

5
<PAGE>

the Consultant, addressed to it at 200 Park Avenue, 24th Floor, New York, New
York 10166, Attention: Scott A. Weisman, Esq., with a copy to Orrick,
Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention:
Lawrence B. Fisher, Esq., or to such address as may hereafter be designated in
writing by any of such entities to the others. Such notice or other
communication shall be deemed to be given on the date of receipt.

(b) If, during the term hereof, the Consultant shall cease to do
business, the provisions hereof relating to the duties of the Consultant and the
compensation by the Company as it applies to the Consultant shall thereupon
cease to be in effect, except for the Company's obligation of payment for
services rendered prior thereto. This Agreement shall survive any merger of,
acquisition of, or acquisition by the Consultant and, after any such merger or
acquisition, shall be binding upon the Company and the corporation surviving
such merger or acquisition.

(c) This Agreement embodies the entire agreement and understanding
between the Company and the Consultant and supersedes any and all negotiations,
prior discussions and preliminary and prior agreements and understandings
related to the central subject matter hereof.

(d) This Agreement has been duly authorized, executed and delivered by
and on behalf of the Company and the Consultant.

(e) This Agreement shall be construed and interpreted in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws principals.

(f) This Agreement and the rights hereunder may not be assigned by
either party (except by operation of law) and shall be binding upon and inure to
the benefit of the parties and their respective successors, assigns and legal
representatives.

6
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date hereof.

MEDICAL DEVICE TECHNOLOGIES, INC.

By:
_________________________________________________
M. Lee Hulsebus
President and Chief Executive Officer

FIRST ALLIED SECURITIES, INC.

By:
_________________________________________________
Name:
Title:

7
<PAGE>

EXHIBIT A

___________, 1996

FIRST ALLIED SECURITIES, INC.
200 Park Avenue
New York, New York 10166

Gentlemen:

In connection with our engagement of FIRST ALLIED SECURITIES, INC.
(the "Consultant") as our financial advisor and investment banker, we hereby
agree to indemnify and hold the Consultant and its affiliates, and the
directors, officers, partners, shareholders, agents and employees of the
Consultant (collectively the "Indemnified Persons"), harmless from and against
any and all claims, actions, suits, proceedings (including those of
shareholders), damages, liabilities and expenses incurred by any of them
(including, but not limited to, fees and expenses of counsel) which are (A)
related to or arise out of (i) any actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
us, or (ii) any actions taken or omitted to be taken by any Indemnified Person
in connection with our engagement of the Consultant pursuant to the Financial
Advisory and Consulting Agreement, of even date herewith, between the Consultant
and us (the "Consulting Agreement"), or (B) otherwise related to or arise out of
the Consultant's activities on our behalf pursuant to the Consultant's
engagement under the Consulting Agreement, and we shall reimburse any
Indemnified Person for all expenses (including, but not limited to, fees and
expenses of counsel) incurred by such Indemnified Person in connection with
investigating, preparing or defending any such claim, action, suit or proceeding
(collectively a "Claim"), whether or not in connection with pending or
threatened litigation in which any Indemnified Person is a party. We will not,
however, be responsible for any Claim which is finally judicially determined to
have resulted exclusively from the gross negligence or willful misconduct of any
person seeking indemnification hereunder. We further agree that no Indemnified
Person shall have any liability to us for or in connection with the Consultant's
engagement under the Consulting Agreement except for any Claim incurred by us
solely as a direct result of any Indemnified Person's gross negligence or
willful misconduct.

We further agree that we will not, without the prior written consent
of the Consultant, settle, compromise or consent to the entry of any judgment
in any pending or threatened Claim in respect of which indemnification may be
sought hereunder (whether or not

A-1
<PAGE>

any Indemnified Person is an actual or potential party to such Claim), unless
such settlement, compromise or consent includes a legally binding,
unconditional, and irrevocable release of each Indemnified Person hereunder from
any and all liability arising out of such Claim.

Promptly upon receipt by an Indemnified Person of notice of any
complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution, but failure
to so notify us shall not relieve us from any obligation we may have hereunder,
unless, and only to the extent that, such failure results in the forfeiture by
us of substantial rights and defenses, and such failure to so notify us will not
in any event relieve us from any other obligation or liability we may have to
any Indemnified Person otherwise than under this Agreement. If we so elect or
are requested by such Indemnified Person, we will assume the defense of such
Claim, including the employment of counsel reasonably satisfactory to such
Indemnified Person and the payment of the fees and expenses of such counsel. In
the event, however, that such Indemnified Person reasonably determines in its
sole judgment that having common counsel would present such counsel with a
conflict of interest or such Indemnified Person concludes that there may be
legal defenses available to it or other Indemnified Persons that are different
from or in addition to those available to us, then such Indemnified Person may
employ its own separate counsel to represent or defend it in any such Claim and
we shall pay the reasonable fees and expenses of such counsel. Notwithstanding
anything herein to the contrary, if we fail timely or diligently to defend,
contest, or otherwise protect against any Claim, the relevant Indemnified Party
shall have the right, but not the obligation, to defend, contest, compromise,
settle, assert crossclaims or counterclaims, or otherwise protect against the
same, and shall be fully indemnified by us therefor, including, but not limited
to, for the fees and expenses of its counsel and all amounts paid as a result of
such Claim or the compromise or settlement thereof. In any Claim in which we
assume the defense, the Indemnified Person shall have the right to participate
in such defense and to retain its own counsel therefor at its own expense.

We agree that if any indemnity sought by an Indemnified Person
hereunder is held by a court to be unavailable for any reason, then (whether or
not the Consultant is the Indemnified Person) we and the Consultant shall
contribute to the Claim for which such indemnity is held unavailable in such
proportion as is appropriate to reflect the relative benefits to us, on the one
hand, and the Consultant, on the other, in connection with the Consultant's
engagement by us under the Consulting Agreement, subject to the limitation that
in no event shall the amount of the Consultant's contribution to such Claim
exceed the amount of fees actually received by the Consultant from us pursuant
to the Consultant's engagement under the Consulting Agreement. We hereby agree
that the relative benefits to us, on the one hand, and the Consultant, on the
other, with respect to the Consultant's engagement under the Consulting
Agreement shall be deemed to be in the same proportion as (a) the total value
paid or proposed to be paid or received by us or our shareholders as the case
may be, pursuant to the transaction (whether or not consummated) for which the
Consultant is engaged to render services bears to (b) the fee paid or proposed
to be paid to the Consultant in connection with such engagement.

A-2
<PAGE>

Our indemnity, reimbursement and contribution obligations under this
Agreement shall be in addition to, and shall in no way limit or otherwise
adversely affect any rights that any Indemnified Party may have at law or at
equity.

Should the Consultant, or any of its directors, officers, partners,
shareholders, agents or employees, be required or be requested by us to provide
documentary evidence or testimony in connection with any proceeding arising from
or relating to the Consultant's engagement under the Consulting Agreement, we
agree to pay all reasonable expenses (including, but not limited to, fees and
expenses of counsel) in complying therewith and one thousand dollars ($1,000)
per day for any sworn testimony or preparation therefor, payable in advance.

We hereby consent to personal jurisdiction and service of process and
venue in any court in which any claim for indemnity is brought by any
Indemnified Person.

It is understood that, in connection with the Consultant's engagement
under the Consulting Agreement, the Consultant may be engaged to act in one or
more additional capacities and that the terms of the original engagement or any
such additional engagement may be embodied in one or more separate written
agreements. The provisions of this Agreement shall apply to the original
engagement and any such additional engagement and shall remain in full force and
effect following the completion or termination of the Consultant's
engagement(s).

Very truly yours,

MEDICAL DEVICE TECHNOLOGIES, INC.

By:_____________________________
Name:
Title:

CONFIRMED AND AGREED TO:

FIRST ALLIED SECURITIES, INC.

By:_____________________________
Name:
Title:

A-3

<PAGE>

EXHIBIT 10.9

OFFICE SPACE LEASE

THIS LEASE is made as of the 5th day of July, 1994, by and between La Jolla
Gateway, Ltd., a California limited partnership, hereafter called "Landlord,"
and CYTOPROBE CORPORATION, a Utah corporation, hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS

Each reference in this Lease to the "Basic Lease Provisions" shall mean and
refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.

1. Tenant's Trade Name: N/A

2. Premises: Suite No. 430 (the Premises are more particularly
described in Section 2.1).

Address of Office Building: 9191 Towne Centre Drive, San Diego, CA 92122
Project: La Jolla Gateway

3. Use of Premises: General office and for no other use.

4. Commencement Date: August 1, 1994

5. Lease Term: Thirty-Six (36) months, plus such additional days as
may be required to cause this Lease to terminate on the final day of the
calendar month.

6. Basic Rent: Two Thousand Seven Hundred Twenty-Two Dollars ($2,722.00)
per month, based on $1.35 per rentable square foot.
Date of First C.P.I. Adjustment to Basic Rent (Section 4.3): N/A
Other Rental Adjustments:

Commencing on the first day of the thirteenth month of the Lease Term, the
Basic Rent shall be Three Thousand Twenty-Four Dollars ($3,024.00) per
month, based on $1.50 per rentable square foot.

Commencing on the first day of the twenty-fifth month of the Lease Term, the
Basic Rent shall be Three Thousand Three Hundred Twenty-Seven Dollars
($3,327.00) per month, based on $1.65 per rentable square foot.

7. Operating Expense Allowance: The Operating Expenses per rentable square foot
actually incurred by Landlord during the calendar year ending December 31,
1994.

Expense Recovery Period: Every 12 month period during the Term (or portion
thereof for the first and last lease years) commencing January 1 and ending
December 31

8. Floor Area of Premises: approximately 2,016 rentable square feet

9. Security Deposit: $8,166.00

10. Broker(s): None

11. Plan Approval Date: N/A

12. Address for Payments and Notices:

LANDLORD TENANT

9171 Towne Centre Drive CYTOPROBE CORPORATION
Suite 310 9191 Towne Centre Drive
San Diego, CA 92122 Suite 430
Attention: Building Manager San Diego, CA 92122

with a copy of notices to:

TOOLEY & COMPANY
3303 Wilshire Blvd., Suite 1200
Los Angeles, CA 90010
Attention: Bruce Beatty

13. Parking: Two (2) Reserved and Six (6) Unreserved vehicle parking spaces

14. Tenant's Construction Representative: N/A Telephone: N/A

-1-
<PAGE>

ARTICLE II. PREMISES

SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant rents
from Landlord the premises shown in Exhibit A (the "Premises"), containing
approximately the floor area set forth in Item 8 of the Basic Lease Provisions
and known by the suite number identified in Item 2 of the Basic Lease
Provisions. The Premises are located in the office building identified in Item 2
of the Basic Lease Provisions (which together with the underlying real property,
is called the "Office Building"), and is a portion of the project described in
Item 2 (the "Project"). If, upon completion of the space plans for the Premises,
Landlord's architect or space planner determines that the rentable square
footage of the Premises, as computed in accordance with the American National
("BOMA") Standard, differs from that set forth in the Basic Lease Provisions,
then Landlord shall so notify Tenant and the Basic Rent (as shown in Item 6 of
the Basic Lease Provisions) shall be promptly adjusted in proportion to the
change in square footage. Within five (5) days following Landlord's request, the
parties shall memorialize the adjustments by executing an amendment to this
Lease prepared by Landlord, provided that the failure or refusal by either party
to execute the amendment shall not affect its validity.

SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises or the Office Building or the suitability
or fitness of either for any purpose, except as set forth in this Lease. The
taking of possession or use of the Premises by Tenant for any purpose other than
construction shall conclusively establish that the Premises and the Office
Building were in satisfactory condition and in conformity with the provisions of
this Lease in all respects, except for those matters which Tenant shall have
brought to Landlord's attention on a written punch list. The list shall be
limited to any items required to be accomplished by Landlord under the Work
Letter (if any) attached as Exhibit X, and shall be delivered to Landlord within
ten (10) days after the term ("Term") of this Lease commences as provided in
Article III below. If there is no Work Letter, or if no items are required of
Landlord under the Work Letter, by taking possession of the Premises Tenant
accepts the improvements in their existing condition, and waives any right or
claim against Landlord arising out of the condition of the Premises except that
Landlord shall paint the Premises using building standard materials and clean
the carpet in the Premises. Nothing contained in this Section shall affect the
commencement of the Term or the obligation of Tenant to pay rent. Landlord shall
diligently complete all punch list items of which it is notified as provided
above.

SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Office Building and/or the
Project as any part of Tenant's corporate or trade name. Landlord shall have the
right to change the name, number or designation of the Office Building or
Project without liability to Tenant.

ARTICLE III. TERM

SECTION 3.1. (a) GENERAL. The Term shall be for the period shown in Item 5
of the Basic Lease Provisions. The Term shall commence ("Commencement Date") on
the Commencement Date as set forth in Item 4 of the Basic Lease Provisions.

(b) EARLY OCCUPANCY. Landlord agrees that Tenant shall be
permitted to take early occupancy of the Premises in the event the Premises are
ready for occupancy prior to the Commencement Date set forth in Item 4 of the
Basic Lease Provisions, as determined by Landlord. Tenant's occupancy of the
Premises prior to the Commencement Date shall be subject to all of the
provisions of this Lease, excluding the obligation to pay Basic Rent.

ARTICLE IV. RENT AND OPERATING EXPENSES

SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset a Basic Rent for the Premises
in the total amount shown (including subsequent adjustments, if any) in Item 6
of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be
deemed to occur on the specified monthly anniversary of the Commencement Date,
whether or not that date occurs at the end of a calendar month. The rent shall
be due and payable in advance commencing on the Commencement Date (as prorated
for any partial month) and continuing thereafter on the first day of each
successive calendar month of the Term. No demand, notice or invoice shall be
required. An installment of rent in the amount of one (1) full month's Basic
Rent at the initial rate specified in Item 6 of the Basic Lease provisions shall
be delivered to Landlord concurrently with Tenant's execution of this Lease and
shall be applied against the Basic Rent first due hereunder.

-2-
<PAGE>

SECTION 4.2. OPERATING EXPENSE INCREASE.

(a) Commencing as of the first day of the thirteenth month of the
Lease Term, Tenant shall reimburse Landlord, as additional rent, for Tenant's
proportionate share of "Operating Expenses", as that term is defined below,
incurred by Landlord in the operation of the Office Building and Project.
Tenant's proportionate share of Operating Expenses shall equal the product of
the rentable floor area, of the Premises multiplied by the difference of (i)
Operating Expenses per rentable square foot less (ii) the Operating Expense
Allowance set forth in Item 7 of the Basic Lease Provisions. Tenant acknowledges
Landlord's rights to make changes or additions to the Office Building and/or
Project from time to time pursuant to Section 6.5 below, in which event the
total rentable square footage within the Office Building and/or Project may be
adjusted.

(b) Commencing prior to the start of the first full "Expense Recovery
Period" of the Lease (as set forth in Item 7 of the Basic Lease Provisions), and
prior to the start of each full or partial Expense Recovery Period thereafter,
Landlord shall give Tenant a written estimate of the amount of Tenant's
proportionate share of Operating Expenses for the Expense Recovery Period or
portion thereof. Commencing as of the first day of the thirteenth month of the
Lease Term, Tenant shall pay the estimated amount to Landlord in equal monthly
installments, in advance, with Basic Rent. If Landlord has not furnished its
written estimate for any Expense Recovery Period by the time set forth above,
Tenant shall continue to pay cost reimbursements at the rates established for
the prior Expense Recovery Period, if any; provided that when the new estimate
is delivered to Tenant, Tenant shall, at the next monthly payment date, pay any
accrued cost reimbursements based upon the new estimate.

(c) Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Operating Expenses incurred by Landlord
during the period, and the parties shall within thirty (30) days thereafter make
any payment or allowance necessary to adjust Tenant's estimated payments, if
any, to Tenant's actual proportionate share as shown by the annual statement.
Any amount due Tenant shall be credited against installments next coming due
under this Section 4.2, and any deficiency shall be paid by Tenant together with
the next installment. If Tenant has not made estimated payments during the
Expense Recovery Period, any amount owing by Tenant pursuant to subsection (a)
above shall be paid to Landlord in accordance with Article XVI. If actual
Operating Expenses allocable to Tenant during any Expense Recovery Period are
less than the Operating Expense Allowance, Landlord shall not be required to pay
the differential to Tenant. Should Tenant fail to object in writing to
Landlord's. Landlord's determination of actual Operating Expenses within sixty
(60) days following delivery of Landlord's expense statement, Landlord's
determination of actual Operating Expenses for the applicable Expense Recovery
Period shall be conclusive and binding on the parties.

(d) Even though the Lease has terminated and the Tenant has vacated
the Premises, when the final determination is made of Tenant's share of
Operating Expenses for the Expense Recovery Period in which the Lease
terminates, Tenant shall upon notice pay the entire increase due over the
estimated expenses paid. Conversely, any overpayment made in the event expenses
decrease shall be rebated by Landlord to Tenant.

(e) If, at any time during any Expense Recovery Period, any one or
more of the Operating Expenses are increased to a rate(s) or amount(s) in excess
of the rate(s) or amount(s) used in calculating the estimated expenses for the
year, then Tenant's estimated share of Operating Expenses shall be increased for
the month in which the increase becomes effective and for all succeeding months
by an amount equal to Tenant's proportionate share of the increase. Landlord
shall give Tenant written notice of the amount or estimated amount of the
increase, the month in which the increase will become effective, Tenant's
monthly share thereof and the months for which the payments are due. Tenant
shall pay the increase to Landlord as a part of Tenant's monthly payments of
estimated expenses as provided in paragraph (b) above, commencing with the month
in which effective.

(f) The term "Operating Expenses" shall include all expenses of
operation and maintenance of the Office Building and the Project, together with
all appurtenant Common Facilities (as defined in Section 6.2), and shall include
the following charges by way of illustration but not limitation: water and sewer
charges; taxes; insurance premiums or reasonable premium equivalents should
Landlord elect to self-insure any risk that Landlord is authorized to insure
hereunder; license, permit, and inspection fees; heat; light; power; janitorial
services; air conditioning; supplies; materials; equipment; tools; programs
instituted to comply with transportation management requirements; tenant
services; amortization of capital investments reasonably intended to produce a
reduction in operating charges or energy conservation; amortization of capital
investments necessary to bring the Office Building into compliance with
applicable laws and building codes enacted subsequent to the completion of
construction of the Office Building; labor; reasonably allocated wages and
salaries, fringe benefits, and payroll taxes for administrative and other
personnel directly applicable to the Office Building and/or Project, including
both Landlord's personnel and outside personnel; any expense incurred pursuant
to Sections 6.1, 6.2, 6.4, 7.2, and 10.2 and Exhibits B and C below; and a
reasonable overhead/management fee. It is understood that Operating Expenses
shall include competitive charges for direct services provided by any subsidiary
or division of Landlord. The term "taxes" as used herein shall include the
following: (i) all real estate taxes or personal property taxes, as such
property taxes may be reassessed from time to time; and (ii) other taxes,
documentary transfer fees, charges and assessments which are levied with respect
to this Lease or to the Office Building and/or the Project, and any
improvements, fixtures and equipment and other property of Landlord located in
the Office Building and/or the Project, except that general net income and
franchise taxes imposed against Landlord shall be excluded; and (iii) any tax,
surcharge or assessment which shall be levied in addition to or in lieu of real
estate or personal property taxes, other than taxes covered by Article VIII; and
(iv) costs and expenses incurred in contesting the amount or validity of any tax
by appropriate proceedings. A copy of Landlord's unaudited statement of expenses
shall be made available to Tenant upon request. The Operating Expenses may be
extrapolated by Landlord to reflect at least ninety-five percent (95%) occupancy
of the rentable area of the Office Building.

SECTION 4.3. COST OF LIVING INCREASE. The amount of Basic Rent shall be
adjusted as of the date specified in Item 6 of the Basic Lease provisions and
each twelve (12) month period thereafter to reflect any increase in the cost of
living. The adjustment, if any, shall be calculated utilizing the United States
Department of Labor, Bureau of Labor Statistics, Consumer Price Index of Urban
Wage Earners and Clerical Workers, Los Angeles-Anaheim-Riverside Area Average,
all items (1982-84-100) (the "Index"). The Index as of ninety (90) days prior to
the Commencement Date shall be considered the "Base Index." At each

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annual adjustment date, the initial Basic Rent shall be adjusted by the
percentage increase, if any, between the index published and in effect ninety
(90) days preceding the adjustment date and the Base Index; provided, however,
that the Basic Rent shall never be less than the amount of Basic Rent for the
month preceding the adjustment date. When the new Basic Rent is determined,
Landlord shall give Tenant written notice indicating how the new Basic Rent
figure was computed. Should the Index figures not be available at the time of
any annual adjustment, the adjustment shall be made as soon as the figures
become available and Tenant shall promptly pay to Landlord an amount equal to
the sum of rental deficiencies caused by the delay. If at any rental adjustment
date the Index shall not exist, Landlord may substitute another reasonable index
published by any governmental agency.

SECTION 4.4. SECURITY DEPOSIT. Concurrently with Tenant's delivery of
this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9
of the Basic Lease Provisions, to be held by Landlord as security for the full
and faithful performance of Tenant's obligations under this Lease (the "Security
Deposit"). Upon any default by Tenant, including specifically Tenant's failure
to pay rent or to abide by its obligations under Sections 7.1 and 15.3 below,
Landlord may apply all or part of the Security Deposit as full or partial
compensation for that default. If any portion of the Security Deposit is so
applied, Tenant shall within five (5) days after written demand by Landlord
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on the Security Deposit. If Tenant fully performs its
obligations under this Lease, the Security Deposit or any balance thereof shall
be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest in this Lease) after the expiration of the Term, provided that
Landlord may retain the Security Deposit until such time as all amounts due from
Tenant in accordance with this Lease have been determined and paid in full.

ARTICLE V. USES

SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions. The parties agree that any
contrary use shall be deemed to cause material and irreparable harm to Landlord
and shall entitle Landlord to injunctive relief in addition to any other
available remedy. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way interfere with the rights of other occupants
of the Office Building or the Project, or use or allow the Premises to be used
for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
permit any nuisance or commit any waste in the Premises or the Project. Tenant
shall not do or permit to be done anything which will invalidate or increase the
cost of any insurance policy(ies) covering the Office Building, the Project
and/or their contents, and shall comply with all applicable insurance
underwriters rules and the requirements of the Pacific Fire Rating Bureau or any
other organization performing a similar function. Tenant shall comply at its
expense with all present and future laws, ordinances and requirements of all
governmental authorities that pertain to Tenant or its use of the Premises,
including without limitation all federal and state occupational health and
safety requirements, and all recorded covenants, conditions and restrictions
affecting the Office Building, whether or not Tenant's compliance will
necessitate expenditures or interfere with its use and enjoyment of the
Premises. Tenant shall not generate, handle, store or dispose of hazardous or
toxic materials, as such materials may be identified in any federal, state or
local law or regulation, in the Premises or Project without the prior written
consent of Landlord, which consent may be refused or conditioned by Landlord in
its discretion. Tenant agrees that it shall promptly complete and deliver to
Landlord any disclosure form regarding hazardous materials that may be required
by any governmental agency. Tenant shall promptly upon demand reimburse Landlord
for any additional insurance premium charged by reason of Tenant's failure to
comply with the provisions of this Section, and shall indemnify Landlord from
any liability and/or expense resulting from Tenant's noncompliance.

SECTION 5.2. SIGNS. Tenant, upon obtaining the approval of Landlord in
writing, may affix a sign (restricted solely to Tenant's name as set forth in
Item 1 of the Basic Lease Provisions or such other name as Landlord may consent
to in writing) adjacent to the entry door of the Premises and shall maintain the
sign in good condition and repair during the Term. The sign shall conform to the
criteria for signs established by Landlord and shall be ordered through
Landlord. Tenant shall not place or allow to be placed any other sign,
decoration or advertising matter of any kind that is visible from the exterior
of the Premises. Any violating sign or decoration may be immediately removed by
Landlord at Tenant's expense without notice and without the removal constituting
a breach of this Lease or entitling Tenant to claim damages.

ARTICLE VI. LANDLORD SERVICES

SECTION 6.1. UTILITIES AND SERVICES. Landlord shall furnish to the
Premises the utilities and services described in Exhibit B, subject to the
conditions and payment obligations and standards set forth in this Lease.
Landlord shall not be liable for any failure to furnish any services or
utilities when the failure is the result of any accident or other cause beyond
Landlord's reasonable control, nor shall Landlord be liable for damage to
Tenant's equipment resulting from power surges. Landlord's failure to furnish
any services or utilities shall not entitle Tenant to any damages, relieve
Tenant of the obligation to pay rent or constitute a constructive or other
eviction of Tenant, except that Landlord shall diligently attempt to restore the
service or utility promptly. Tenant shall comply with all rules and regulations
which Landlord may reasonably establish for the provision of services and
utilities, and shall cooperate with all reasonable conservation practices
established by Landlord. Landlord shall at all reasonable times have free access
to all electrical and mechanical installations of Landlord.

SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON FACILITIES. During the
Term, Landlord shall operate all Common Facilities within the Office Building
and the Project. The term "Common Facilities" shall mean all areas within the
exterior boundaries of the Office Building and other buildings in the Project
which are not held for exclusive use by persons entitled to occupy space, and
all other appurtenant areas and improvements provided by Landlord for the common
use of Landlord and tenants and appurtenant areas and improvements provided by
Landlord for the common use of Landlord and tenants and their respective
employees and invitees, including without limitation parking areas and
structures,

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driveways, sidewalks, landscaped and planted areas, hallways and interior
stairwells not located within the premises of any tenant, common entrances and
lobbies, elevators, and restrooms not located within the premises of any tenant.

SECTION 6.3. USE OF COMMON FACILITIES. The occupancy by Tenant of the
Premises shall include the use of the Common Facilities in common with Landlord
and with all others for whose convenience and use the Common Facilities may be
provided by Landlord, subject, however, to compliance with all rules and
regulations as are prescribed from time to time by Landlord. Landlord shall
operate and maintain the Common Facilities in the manner Landlord may determine
to be appropriate. Landlord shall at all times during the Term have exclusive
control of the Common Facilities, and may restrain any use or occupancy, except
as authorized by Landlord's rules and regulations. Tenant shall keep the Common
Facilities clear of any obstruction or unauthorized use related to Tenant's
operations. Nothing in this Lease shall be deemed to impose liability upon
Landlord for any damage to or loss of the property of, or for any injury to,
Tenant, its invitees or employees. Landlord may temporarily close any portion
of the Common Facilities for repairs, remodeling and/or alterations, to prevent
a public dedication or the accrual of prescriptive rights, or for any other
reason deemed sufficient by Landlord.

SECTION 6.4. PARKING. Landlord hereby leases to Tenant, and Tenant
hereby agrees to lease from Landlord for the Term of this Lease, the number of
vehicle parking spaces as set forth in Item 13 of the Basic Lease Provisions.
The parking spaces shall be provided in accordance with the provisions set forth
in Exhibit C to this Lease.

SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Office Building or the Project, or
to the attendant fixtures, equipment and Common Facilities. Landlord may at any
time relocate or remove any of the various buildings, parking areas, and other
Common Facilities, and may add buildings and areas to the Project from time to
time. No change shall entitle Tenant to any abatement of rent or other claim
against Landlord, provided that the change does not deprive Tenant of reasonable
access to or use of the Premises. Landlord also reserves the right to subdivide
the Project, and Tenant shall cooperate in signing any maps, permits and
certificates to facilitate same, provided that Tenant shall not thereby be
required to incur additional costs.

ARTICLE VII. MAINTAINING THE PREMISES

SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. When and if needed or
whenever requested by Landlord, Tenant as its sole expense shall make all
repairs necessary to keep the Premises in the condition as existed on the
Commencement Date (or on any later date that the improvements may have been
installed), excepting ordinary wear and tear. All repairs shall be at least
equal in quality to the original work, shall be made only by a licensed, bonded
contractor approved in writing in advance by Landlord and shall be made only at
the time or times approved by Landlord. Any contractor utilized by Tenant shall
be subject to Landlord's standard requirements for contractors, as modified from
time to time. Landlord may impose reasonable restrictions and requirements with
respect to repairs, as provided in Section 7.3, and the provisions of Section
7.4 shall apply to all repairs. Alternatively, Landlord may elect to make any
such repair on behalf of Tenant and at Tenant's expense, and Tenant shall
promptly reimburse Landlord for all costs incurred upon submission of an
invoice.

SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR.

(a) Subject to Section 7.1 and Article XI, Landlord shall provide
service, maintenance and repair with respect to any air conditioning,
ventilating or heating equipment which serves the Premises and shall maintain in
good repair the roof, foundations, footings, the exterior surfaces of the
exterior walls of the Office Building, and the structural, electrical and
mechanical systems, except that Tenant at its expense shall make all repairs
which Landlord deems reasonably necessary as a result of the act or negligence
of Tenant, its agents, employees, invitees, subtenants or contractors. Landlord
shall have the right to employ or designate any reputable person or firm,
including any employee or agent of Landlord or any of Landlord's affiliates or
divisions, to perform any service, repair or maintenance function. Landlord need
not make any other improvements or repairs except as specifically required under
this Lease, and nothing contained in this Section shall limit Landlord's right
to reimbursement from Tenant for maintenance, repair costs and replacement costs
as provided elsewhere in this Lease. Tenant understands that it shall not make
repairs at Landlord's expense or by rental offset.

(b) Except as provided in Sections 11.1 and 12.1 below, there shall
be no abatement of rent and no liability of Landlord by reason of any injury to
or interference with Tenant's business arising from making of any repairs,
alterations or improvements to any portion of the Office Building, including
repairs to the Premises, nor shall any related activity by Landlord constitute
an actual or constructive eviction; provided, however, that in making repairs,
alterations or improvements, Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises.

SECTION 7.3. ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Premises without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. If any such improvement
requires approval by or notice to the Lessor of a superior lease or the holder
of a mortgage, no work shall proceed until such approval has been received or
such notice has been given. Landlord may impose, as a condition to its consent,
any requirements that Landlord in its discretion may deem reasonable or
desirable, including but not limited to a requirement that all work be covered
by a lien and completion bond satisfactory to Landlord and requirements as to
the manner, time, and contractor for performance of the work. Landlord may
require that Tenant enter into an agreement with Landlord for the work to be
performed by Landlord's contractor, in which event Tenant shall pay to Landlord,
in advance as additional rent, the cost of construction as estimated by
Landlord, with a final reconciliation payment to be made by the appropriate
party upon completion of the work. Should Landlord authorize Tenant to perform
the work with a contractor approved by Landlord, Tenant shall obtain all
required permits for the work and shall perform the work in compliance with all
applicable laws, regulations and ordinances. In any event, Landlord shall be
entitled to a supervision fee in the amount of seven and one-half percent (7.5%)
of the total cost of the work. Under no circumstances shall Tenant make any
improvement which

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incorporates asbestos-containing construction materials into the Premises. Any
request for Landlord's consent shall be made in writing and shall contain
architectural plans describing the work in detail reasonably satisfactory to
Landlord. Unless Landlord otherwise agrees in writing, all alterations,
additions or improvements affixed to the Premises (excluding moveable trade
fixtures and furniture) shall become the property of Landlord and shall be
surrendered with the Premises at the end of the Term, except that Landlord may,
by notice to Tenant given at the time of Landlord's consent to the alteration or
improvement, require Tenant to remove by the Expiration Date, or sooner
termination date of this Lease, all or any alterations, decorations, fixtures,
additions, improvements and the like installed either by Tenant or by Landlord
at Tenants's request and to repair any damage to the Premises arising from that
removal. Landlord may require Tenant to remove an improvement provided as part
of the initial build-out pursuant to Exhibit X, if any, if and only if the
improvement is a non-building standard item and Tenant is notified of the
requirement prior to the build-out. Except as otherwise provided in this Lease
or in any Exhibit to this Lease, should Landlord make any alteration or
improvement to the Premises for Tenant, Landlord shall be entitled to prompt
reimbursement from Tenant for all costs incurred.

SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly
cause any such lien to be released by posting a bond in accordance with
California Civil Code Section 3143 or any successor statute. In the event that
Tenant shall not, within thirty (30) days following the imposition of any lien,
cause the lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other available remedies, the right to
cause the lien to be released by any means it deems proper, including payment of
or defense against the claim giving rise to the lien. All expenses so incurred
by Landlord, including Landlord's attorneys' fees, shall be reimbursed by Tenant
promptly following Landlord's demand, together with interest from the date of
payment by Landlord at the maximum rate permitted by law until paid. Tenant
shall give Landlord no less than twenty (20) days' prior notice in writing
before commencing construction of any kind on the Premises so that Landlord may
post and maintain notices of nonresponsibility on the Premises.

SECTION 7.5 ENTRY AND INSPECTION. Landlord shall at all times have the
right to enter the Premises to inspect them, to supply services in accordance
with this Lease, to protect the interests of Landlord in the Premises, and to
submit the Premises to prospective or actual purchasers or encumbrance holders
(or, during the last one hundred and eighty (180) days of the Term or when an
uncured Tenant default exists, to prospective tenants), all without being deemed
to have caused an eviction of Tenant and without abatement of rent except as
provided elsewhere in this Lease. Landlord shall at all times have and retain a
key which unlocks all of the doors in the Premises, excluding Tenant's vaults
and safes, and Landlord shall have the right to use any and all means which
Landlord may deem proper to open the doors in an emergency in order to obtain
entry to the Premises, and any entry to the Premises obtained by Landlord shall
not under any circumstances be deemed to be a forcible or unlawful entry into,
or a detainer of, the Premises, or any eviction of Tenant from the Premises.

SECTION 7.6. SPACE PLANNING AND SUBSTITUTION. Landlord shall have the
right, upon providing Tenant sixty (60) days' written notice, to move Tenant to
other comparable space in the Office Building or in the Project. The new space
shall be approximately the same size as the Premises, and provided with
comparable improvements. Landlord shall pay all of Tenant's reasonable moving
expenses following receipt of invoices from Tenant. If Landlord exercises this
right, this Lease shall remain in effect and be deemed applicable to new space
except that the Lease shall be appropriately amended to reflect the new space.

ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY

Tenant shall be liable for and shall pay, at least ten (10) days before
delinquency, all taxes and assessments levied against all personal property of
Tenant located in the Premises. When possible Tenant shall cause its personal
property to be assessed and billed separately from the real property of which
the Premises form a part. If any taxes on Tenant's personal property are levied
against Landlord or Landlord's property and if Landlord pays the same, or if the
assessed value of Landlord's property is increased by the inclusion of a value
placed upon the personal property of Tenant and if Landlord pays the taxes based
upon the increased assessment, Tenant shall pay to Landlord the taxes so levied
against Landlord or the proportion of the taxes resulting from the increase in
the assessment. In calculating what portion of any tax bill which is assessed
against Landlord separately, or Landlord and Tenant jointly, is attributable to
Tenant's fixtures and personal property, Landlord's reasonable determination
shall be conclusive.

ARTICLE IX. ASSIGNMENT AND SUBLETTING

SECTION 9.1. RIGHTS OF PARTIES.

(a) Nothwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all or any part of Tenant's interest in this
Lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not unreasonably
be witheld in accordance with the provisions of Section 9.1.(c). No assignment
(whether voluntary, involuntary or by operation of law) and no subletting shall
be valid or effective without Landlord's prior written consent and, at
Landlord's election, shall constitute a material default of this Lease.
Landlord shall not be deemed to have given its consent to any assignment or
subletting by any other course of action, including its acceptance of any name
for listing in the Office Building directory. To the extent not prohibited by
provisions of the

Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"),
including Section 365(f)(l), Tenant on behalf of itself and its creditors,
administrators and assigns waives the applicability of Section 365(e) of the
Bankruptcy Code unless the proposed assignee of the Trustee for the estate of
the bankrupt meets Landlord's standard for consent as set forth in Section
9.1(c) of this Lease. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, and all monies or other
considerations to be delivered in connection with assignment shall be delivered
to Landlord, shall be and remain in the exclusive property of Landlord and shall
not constitute property of Tenant or of the estate of Tenant within the meaning
of the Bankruptcy Code. Any person or

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entity to which this Lease is assigned pursuant to the provisions of the
Bankruptcy Code shall be deemed to have assumed all of the obligations arising
under this Lease on and after the date of the assignment, and shall upon demand
execute and deliver to Landlord an instrument confirming that assumption.

(b) If Tenant or any guarantor of Tenant ("Tenant's Guarantor") is a
corporation, or is an unincorporated association or partnership, the transfer of
any stock or interest in the corporation, association or partnership which
results in a change in the voting control of Tenant or Tenant's Guarantor, if
any, shall be deemed an assignment within the meaning and provisions of this
Article. In addition, any change in the status of the entity, such as, but not
limited to, the withdrawal of a general partner, shall be deemed an assignment
within the meaning of this Article.

(c) If Tenant desires to transfer an interest in this Lease, it shall
first notify Landlord of its desire and shall submit in writing to Landlord: (i)
the name and address of the proposed transferee; (ii) the nature of any proposed
subtenant's or assignee's business to be carried on in the Premises; (iii) the
terms and provisions of any proposed sublease or assignment; and (iv) any other
information requested by Landlord and reasonably related to the transfer. Except
as provided in Subsection (d) of this Section, Landlord shall not unreasonably
withhold its consent, provided: (1) the use of the Premises will be consistent
with the provisions of this Lease and with Landlord's commitment to other
tenants of the Office Building and Project; (2) seventy-five percent (75%) of
any profit received by the Tenant from the assignment or subletting, whether
during or after the Term of this Lease, shall be paid to Landlord when received;
(3) at Landlord's election, insurance requirements shall be brought into
conformity with Landlord's then current leasing practice; (4) any proposed
subtenant or assignee demonstrates that it is financially responsible by
submission to Landlord of all reasonable information as Landlord may request
concerning the proposed subtenant or assignee, including, but not limited to, a
balance sheet of the proposed subtenant or assignee as of a date within ninety
(90) days of the request for Landlord's consent and statements of income or
profit and loss of the proposed subtenant or assignee for the two-year period
preceding the request for Landlord's consent; (5) any proposed subtenant or
assignee demonstrates to Landlord's reasonable satisfaction a record of
successful experience in business; (6) the proposed assignee or subtenant is not
an existing tenant of the Office Building or Project; and (7) the proposed
transfer will not impose additional burdens or adverse tax effects on Landlord.
If Landlord consents to the proposed transfer, Tenant may within ninety (90)
days after the date of the consent effect the transfer upon the terms described
in the information furnished to Landlord; provided that any material change in
the terms shall be subject to Landlord's consent as set forth in this Section.
Landlord shall approve or disapprove any requested transfer within thirty (30)
days following receipt of Tenant's written request and the information set forth
above.

(d) Nothwithstanding the provisions of Subsection (c) above, in Lieu
of consenting to a proposed assignment or subletting, Landlord may elect to (i)
sublease the Premises (or the portion proposed to be subleased), or take an
assignment of Tenant's interest in this Lease, upon the same terms as offered to
the proposed subtenant or assignee (excluding terms relating to the purchase of
personal property, the use of Tenant's name or the continuation of Tenant's
business), or (ii) terminate this Lease as to the portion of the Premises
proposed to be subleased or assigned with a proportionate abatement in the rent
payable under this Lease, effective on the date that the proposed sublease or
assignment would have become effective. Landlord may thereafter, at its option,
assign or re-let any space so recaptured to any third party, including without
limitation the proposed transferee of Tenant.

(e) Tenant shall pay to Landlord a transfer fee of Five Hundred
Dollars ($500.00) if and when any transfer requested by Tenant is approved. In
addition, should Landlord or its agents procure for Tenant a subtenant, assignee
or new tenant for all or part of the Premises, then Tenant shall pay to
Landlord, concurrently with the execution of the conveyancing documents, a
leasing fee of six percent (6%) of the remaining future gross rentals under this
Lease.

SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or omission by an assignee or subtenant. Each assignee, other than Landlord,
shall be deemed to assume all obligations of Tenant under this Lease and shall
be liable jointly and severally with Tenant for the payment of all rent, and for
the due performance of all of Tenant's obligations, under this Lease. No
transfer shall be binding on Landlord unless any document memorializing the
transfer is delivered to Landlord and both the assignee/subtenant and Tenant
deliver to Landlord an executed consent to transfer instrument prepared by
Landlord and consistent with the requirements of this Article. The acceptance by
Landlord of any payment due under this Lease from any other person shall not be
deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to any transfer. Consent by Landlord to one or more transfers shall not
operate as a waiver or estoppel to the future enforcement by Landlord of its
rights under this Lease.

SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be included in each sublease:

(a) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this lease; provided, however, that until a default occurs in
the performance of Tenant's obligations under this Lease, Tenant shall have the
right to receive and collect the sublease rentals. Landlord shall not, by reason
of this assignment or the collection of sublease rentals, be deemed liable to
the subtenant for the performance of any of Tenant's obligations under the
sublease. Tenant hereby irrevocably authorizes and directs any subtenant, upon
receipt of a written notice from Landlord stating that an uncured default exists
in the performance of Tenant's obligations under this Lease, to pay to Landlord
all sums then and thereafter due under the sublease. Tenant agrees that the
subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have
no right or claim against the subtenant or Landlord for any rentals so paid to
Landlord.

(b) In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no event, shall
Landlord be liable for any previous act or omission by Tenant under

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the sublease or for the return of any advance rental payments or deposits under
the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including without limitation
those pertaining to insurance and indemnification, shall be deemed incorporated
by reference into the sublease despite the termination of this Lease.

(c) Tenant agrees that Landlord may, at its sole option, authorize a
subtenant of the Premises to cure a default by Tenant under this Lease. Should
Landlord accept such cure, the subtenant shall have a right of reimbursement and
offset from and against Tenant under the applicable sublease.

ARTICLE X. INSURANCE AND INDEMNITY

SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.

SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election, provide
any or all of the following types of insurance, with or without deductible and
in amounts and coverages as may be determined by Landlord in its discretion:
"all risk" property insurance, subject to standard exclusions, covering the
Office Building or Project, and such other risks as Landlord or its mortgagees
may from time to time deem appropriate, including leasehold improvements made by
Landlord, and comprehensive public liability coverage. Landlord shall not be
required to carry insurance of any kind on Tenant's property, including
leasehold improvements, trade fixtures, furnishings, equipment, plate glass,
signs and all other items of personal property, and shall not be obligated to
repair or replace that property should damage occur. All proceeds of insurance
maintained by Landlord upon the Office Building and Project shall be the
property of Landlord, whether or not Landlord is obligated to or elects to make
any repairs.

SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by law,
Tenant shall defend, indemnify and hold harmless Landlord, its agents, and any
or all affiliates of Landlord, including, without limitation, any corporations
or other entities controlling, controlled by or under common control with
Landlord, from and against any and all claims, liabilities, costs or expenses
arising either before or after the Commencement Date from Tenant's use or
occupancy of the Premises, the Office Building or the Common Facilities, or from
the conduct of its business, or from any activity, work, or thing done,
permitted or suffered by Tenant or its agents, employees, invitees or licensees
in or about the Premises, the Office Building or the Common Facilities, or from
any default in the performance of any obligation on Tenant's part to be
performed under this Lease, or from any act or negligence of Tenant or its
agents, employees, visitors, patrons, guests, invitees or licensees. Landlord
may, at its option, require Tenant to assume Landlord's defense in any action
covered by this Section through counsel satisfactory to Landlord.

SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord for loss of or damage to any property, or any injury to any
person, or loss or interruption of business or income, resulting from, but not
limited to, fire, explosion, falling plaster, steam, gas, electricity, water or
rain which may leak or flow from or into any part of the Premises or from the
breakage, leakage, obstruction or other defects of the pipes, sprinklers,
wires, appliances, plumbing, air conditioning, electrical works or other
fixtures in the Office Building, whether the damage or injury results from
conditions arising in the Premises or in other portions of the Office Building.
It is understood that any such condition may require the temporary evacuation or
closure of all or a portion of the Office Building. Neither Landlord nor its
agents shall be liable for interference with light or other similar intangible
interests. Tenant shall immediately notify Landlord in case of fire or accident
in the Premises, the Office Building or the Project and of defects in any
improvements or equipment.

ARTICLE XI. DAMAGE OR DESTRUCTION

SECTION 11.1. RESTORATION.

(a) If the Office Building of which the Premises are a part is
damaged, Landlord shall repair that damage as soon as reasonably possible, at
its expense, unless: (i) Landlord reasonably determines that the cost of repair
would exceed ten percent (10%) of the full replacement cost of the Office
Building ("Replacement Cost") and the damage is not covered by Landlord's fire
and extended coverage insurance (or by a normal extended coverage policy should
Landlord fail to carry that insurance); or (ii) Landlord reasonably determines
that the cost of repair would exceed twenty-five percent (25%) of the
Replacement Cost; or (iii) Landlord reasonably determines that the cost of
repair would exceed ten percent (10%) of the Replacement Cost and the damage
occurs during the final twelve (12) months of the Term. Should Landlord elect
not to repair the damage for one of the preceding reasons, Landlord shall so
notify Tenant in writing within (60) days after the damage occurs and this Lease
shall terminate as of the date of that notice.

(b) Unless Landlord elects to terminate this Lease in accordance with
subsection (a) above, this Lease shall continue in effect for the remainder of
the Term; provided that if the damage is so extensive as to reasonably prevent
Tenant's substantial use and enjoyment of the Premises for more than nine (9)
months, then Tenant may elect to terminate this Lease by written notice to
Landlord within the sixty (60) day period stated in subsection (a).

(c) Commencing on the date of any damage to the Office Building, and
ending on the sooner of the date the damage is repaired or the date this Lease
is terminated, the rental to be paid under this Lease shall be abated in the
same proportion that the floor area of the Premises that is rendered unusable by
the damage from time to time bears to the total floor area of the Premises.

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(d) Notwithstanding the provisions of subsections (a), (b) and (c) of
this Section, the cost of any repairs shall be borne by Tenant, and Tenant shall
not be entitled to rental abatement or termination rights, if the damage is due
to the fault or neglect of Tenant or its employees, subtenants, invitees or
representatives. In addition, the provisions of this Section shall not be deemed
to require Landlord to repair any improvements or fixtures that Tenant is
obligated to repair or insure pursuant to any other provision of this Lease.

SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.

ARTICLE XII. EMINENT DOMAIN

SECTION 12.1 TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Office
Building or Project, other than the Premises, is taken or sold in lieu of
taking, and if Landlord elects to restore the Office Building in such a way as
to alter the Premises materially, either party may terminate this Lease, by
written notice to the other party, effective on the date of vesting of title. In
the event neither party has elected to terminate this Lease as provided above,
then Landlord shall promptly, after receipt of a sufficient condemnation award,
proceed to restore the Premises to substantially their condition prior to the
taking, and a proportionate allowance shall be made to Tenant for the rent
corresponding to the time during which, and to the part of the Premises of
which, Tenant is deprived on account of the taking and restoration. In the event
of a taking, Landlord shall be entitled to the entire amount of the condemnation
award without deduction for any estate or interest of Tenant; provided that
nothing in this Section shall be deemed to give Landlord any interest in, or
prevent Tenant from seeking any award against the taking authority for, the
taking of personal property and fixtures belonging to Tenant or for relocation
or business interruption expenses recoverable from the taking authority.

SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed ninety (90)
days.

SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide sufficient
parking to comply with this Lease, Landlord may substitute reasonably equivalent
parking in a location reasonably close to the Office Building; provided that if
Landlord fails to make that substitution within ninety (90) days following the
taking and if the taking materially impairs Tenant's use and enjoyment of the
Premises, Tenant may, at its option, terminate this Lease by written notice to
Landlord. If this Lease is not so terminated by Tenant, there shall be no
abatement of rent and this Lease shall continue in effect.

ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE

SECTION 13.1 SUBORDINATION.

(a) At the option of Landlord, this Lease shall be either superior or
subordinate to all ground or underlying Leases, mortgages and deeds of trust, if
any, which may hereafter affect the Office Building, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
that so long as Tenant is not in default under this Lease, this Lease shall not
be terminated or Tenant's quiet enjoyment of the Premises disturbed in the event
of termination of any such ground or underlying Lease, or the foreclosure of any
such mortgage or deed of trust, to which Tenant has subordinated this Lease
pursuant to this Section. In the event of a termination or foreclosure, Tenant
shall become a tenant of and attorn to the successor-in-interest to Landlord
upon the same terms and conditions as are contained in this Lease, and shall
execute any instrument reasonably required by Landlord's successor for that
purpose. Tenant shall also, upon written request of Landlord, execute and
deliver all instruments as may be required from time to time to subordinate the
rights of Tenant under this Lease to any ground or underlying lease or to the
Lien of any mortgage or deed of trust, or, if requested by Landlord, to
subordinate, in whole or in part, any ground or underlying lease or the lien of
any mortgage or deed of trust to this Lease.

(b) Failure of Tenant to execute any statements or instruments
necessary or desirable to effectuate the provisions of this Article, within ten
(10) days after written request by Landlord, shall constitute a default under
this Lease. In that event, Landlord, in addition to any other rights or remedies
it might have, shall have the right, by written notice to Tenant, to terminate
this Lease as of a date not less than twenty (20) days after the date of
Landlord's notice. Landlord's election to terminate shall not relieve Tenant of
any liability for its default.

SECTION 13.2 ESTOPPEL CERTIFICATE.

(a) Tenant shall, at any time upon not less than ten (10) days prior
written notice from Landlord, execute, acknowledge and deliver to Landlord, in
any form that Landlord may reasonably require, a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of the modification and certifying that this Lease,
as modified, is in full force and effect) and the dates to which the rental,
additional rent and other charges have been paid in advance, if any, and (ii)
acknowledging that, to Tenant's knowledge, there are no uncured defaults on the
part of Landlord, or specifying each default if any are claimed, and (iii)
setting forth all further information that Landlord may reasonably require.
Tenant's statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Office Building or Project.

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(b) Tenant's failure to deliver any estoppel statement within the
provided time shall constitute a default under this Lease and shall be
conclusive upon Tenant that (i) this Lease is in full force and effect, without
modification except as may be represented by Landlord, (ii) there are no uncured
defaults in Landlord's performance, and (iii) not more than one month's rental
has been paid in advance.

ARTICLE XIV. DEFAULTS AND REMEDIES

SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of default
set forth in this Lease, the occurrence of any one or more of the following
events shall constitute a default by Tenant:

(a) The failure by Tenant to make any payment of rent or additional
rent required to be made by Tenant, as and when due, where the failure continues
for a period of three (3) days after written notice from Landlord to Tenant;
provided, however, that any such notice shall be in lieu of, and not in addition
to, any notice required under California Code of Civil Procedure Section 1161
and 1161(a) as amended. For purposes of these default and remedies provisions,
the term "additional rent" shall be deemed to include all amounts of any type
whatsoever other than Basic Rent to be paid by Tenant pursuant to the terms of
this Lease.

(b) Assignment, sublease, encumbrance or other transfer of the Lease
by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord.

(c) The discovery by Landlord that any financial statement provided
by Tenant, or by any affiliate, successor or guarantor of Tenant, was materially
false.

(d) The failure or inability by Tenant to observe or perform any of
the express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Landlord to Tenant; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 and 1161(a) as amended. However,
if the nature of the failure is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences the cure within thirty (30) days, and thereafter
diligently pursues the cure to completion.

(e) (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within sixty (60) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.

SECTION 14.2. LANDLORD'S REMEDIES.

(a) In the event of any default by Tenant, or in the event of the
abandonment of the Premises by Tenant, then in addition to any other remedies
available to Landlord, Landlord may exercise the following remedies:

(i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover from
Tenant:

(1) The worth at the time of award of the unpaid rent and
additional rent which had been earned at the time of termination;

(2) The worth at the time of award of the amount by which
the unpaid rent and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that Tenant
proves could have been reasonable avoided;

(3) The worth at the time of award of the amount by which
the unpaid rent and additional rent for the balance of the Term after the time
of award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;

(4) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would
likely to result from Tenant's default, including, but not limited to, the cost
of recovering possession of the Premises, commissions and other expenses of
reletting, including necessary repair, renovation, improvement and alteration of
the Premises for a new tenant, the unamortized portion of any tenant
improvements and brokerage commissions funded by Landlord in connection with
this Lease, reasonable attorneys' fees, and any other reasonable costs; and

(5) At Landlord's election, all other amounts in addition
to or in lieu of the foregoing as may be permitted by law. The term "rent" as
used in this Lease shall be deemed to mean the Basic Rent and all other sums
required to be paid by Tenant to Landlord pursuant to the terms of this Lease.
Any sum, other than Basic Rent, shall be computed on the basis of the average
monthly amount accruing during the twenty-four (24) month period immediately
prior to default, except that if it becomes

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necessary to compute such rental before the twenty-four (24) month period has
occurred, then the computation shall be on the basis of the average monthly
amount during the shorter period. As used in subparagraphs (1) and (2) above,
the "worth at the time of award" shall be computed by allowing interest at the
rate of ten percent (10%) per annum. As used in subparagraph (3) above, the
"worth at the time of award" shall be computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).

(ii) Landlord may be elect not to terminate Tenants's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the
Premises subject to the reasonable standards for Landlord's consent as are
contained in this Lease.

(b) Landlord shall be under no obligation to observe or perform any
covenant of this Lease on its part to be observed or performed which accrues
after the date of any default by Tenant unless and until the default is cured by
Tenant. The various rights and remedies reserved to Landlord in this Lease or
otherwise shall be cumulative and, except as otherwise provided by California
law, Landlord may pursue any or all of its rights and remedies at the same time.

(c) No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any default by
Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other than
the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by this Lease shall be deemed to be other than a
partial payment on account of the earliest due stipulated rent, nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction and Landlord shall accept the check or payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other remedy
available to it. No act or thing done by Landlord or Landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender shall be valid unless in writing and signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys to the Premises prior to the termination of this Lease, and
the delivery of the keys to any employee shall not operate as a termination of
the Lease or a surrender of the Premises.

SECTION 14.3. LATE PAYMENTS.

(a) Any rent due under this Lease that is not paid to Landlord within
five (5) days of the date when due shall bear interest at the maximum rate
permitted by law from the date due until fully paid. The payment of interest
shall not cure any default by Tenant under this Lease. In addition, Tenant
acknowledges that the late payment by Tenant to Landlord of rent will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult and impracticable to ascertain. Those costs
may include, but are not limited to, administrative, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
ground lease, mortgage or trust deed covering the Premises. Accordingly, if any
rent due from Tenant shall not be received by Landlord or Landlord's designee
within five (5) days after the date due, then Tenant shall pay to Landlord, in
addition to the interest provided above, a late charge in the amount of one
hundred dollars ($100.00) for each delinquent payment. Acceptance of a late
charge by Landlord shall not constitute a waiver of Tenant's default with
respect to the overdue amount, nor shall it prevent Landlord form exercising any
of its other rights and remedies.

(b) Following each second consecutive installment of rent that is not
paid within five (5) days following notice of nonpayment from Landlord, Landlord
shall have the option (i) to require that beginning with the first payment of
rent next due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that Tenant
increase the amount, if any, of the Security Deposit by one hundred percent
(100%). Should Tenant deliver to Landlord, at any time during the Term, two (2)
or more insufficient checks, the Landlord may require that all monies then and
thereafter due from Tenant be paid to Landlord by cashier's check.

SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, other than rent, or fails to perform any
other act on its part to be performed under this Lease, and the failure
continues beyond any applicable grace period set forth in Section 14.1, then in
addition to any other available remedies, Landlord may, at its election make the
payment or perform the other act on Tenant's part. Landlord's election to make
the payment or perform the act on Tenant's part shall not give rise to any
responsibility of Landlord to continue making the same or similar payments or
performing the same or similar acts. Tenant shall, promptly upon demand by
Landlord, reimburse Landlord for all sums paid by Landlord and all necessary
incidental costs, together with interest at the maximum rate permitted by law
from the date of the payment by Landlord. Landlord shall have the same rights
and remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent.

SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.

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SECTION 14.6. EXPENSES AND LEGAL FEES. Should either Landlord or Tenant
bring any action in connection with this Lease, the prevailing party shall be
entitled to recover as a part of the action its reasonable attorneys' fees, and
all other costs. The prevailing party for the purpose of this paragraph shall be
determined by the trier of the facts.

SECTION 14.7. WAIVER OF JURY TRAIL. LANDLORD AND TENANT EACH ACKNOWLEDGES
THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH
RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND
KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER
(AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR
AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY
CLAIM OF INJURY OR DAMAGE.

ARTICLE XV. END OF TERM

SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term, Landlord may, at its option, treat Tenant as a tenant
at sufferance only, commencing on the first (1st) day following the termination
of this Lease and subject to all of the terms of this Lease, except that the
monthly rental shall be the greater of (a) one hundred twenty percent (120%) of
the total monthly rental for the month immediately preceding the date of
termination or (b) the then currently scheduled rent for comparable space in the
Office Building. If Tenant fails to surrender the Premises upon the expiration
of this Lease despite demand to do so by Landlord, Tenant shall indemnify and
hold Landlord harmless from all loss or liability, including without limitation,
any claims made by any succeeding tenant relating to such failure to surrender.
Acceptance by Landlord of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to and do not affect Landlord's right
to re-entry or any other rights of Landlord under this Lease or at law.

SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.

SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without expense to Landlord, remove or cause to be removed
from the Premises all personal property and debris, except for any items that
Landlord made by written authorization allow to remain. Tenant shall repair all
damage to the Premises resulting from the removal, which repair shall include
the patching and filling of holes and repair of structural damage, provided that
Landlord may instead elect to repair any structural damage at Tenant's
expense. If Tenant shall fail to comply with the provisions of this Section,
Landlord may effect the removal and/or make any repairs, and the cost to
Landlord shall be additional rent payable by Tenant upon demand. If requested by
Landlord, Tenant shall execute, acknowledge and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord all right, title
and interest of Tenant in the Premises.

ARTICLE XVI. PAYMENTS AND NOTICES

All sums payable by Tenant to Landlord shall be paid, without deduction or
offset, in lawful money of the United States to Landlord at its address set
forth in Item 12 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30) day
month and a three hundred sixty (360) day year. Any notice, election, demand,
consent, approval or other communication to be given or other document to be
delivered by either party to the other may be delivered in person or by courier
to the other party, or may be deposited in the United States mail, duly
registered or certified, postage prepaid, return receipt requested, and
addressed to the other party at the address set forth in Item 12 of the Basic
Lease Provisions, or if to Tenant, at that address or, from and after the
Commencement Date, at the Premises (whether or not Tenant has departed from,
abandoned or vacated the Premises). Either party may, by written notice to the
other, served in the manner provided in this Article, designate a different
address. If any notice or other document is sent by mail, it shall be deemed
served or delivered twenty-four (24) hours after mailing. If more than one
person or entity is named as Tenant under this Lease, service of any notice upon
any one of then shall be deemed as service upon all of them.

ARTICLE XVII. RULES AND REGULATIONS

Tenant agrees to observe faithfully and comply strictly with the Rules and
Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good
order, or cleanliness of the Premises, Office Building, Project and Common
Facilities. Landlord shall not be liable to Tenant for any violation of the
Rules and Regulations or the breach of any covenant or condition in any lease by
any other tenant. One or more waivers by Landlord of any breach of the Rules and
Regulations by Tenant or by any other tenant(s) shall not be a waiver of any
subsequent breach of that rule or any other. Tenant's failure to keep and
observe the Rules and Regulations shall constitute a default under this Lease.
In the case of any conflict between the Rules and Regulations and this Lease,
this Lease shall be controlling.

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ARTICLE XVIII. BROKER'S COMMISSION

The parties recognize as the broker(s) who negotiate this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Tenant warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent employed
or claiming to represent or to have been employed by Tenant in connection with
the negotiation of this Lease. The foregoing agreement shall survive the
termination of this Lease. If Tenant fails to take possession of the Premises or
if this Lease otherwise terminates prior to the Expiration Date as the result of
failure of performance by Tenant, Landlord shall be entitled to recover from
Tenant the unamortized portion of any brokerage commission funded by Landlord in
addition to any other damages to which Landlord may be entitled.

ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST

In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or deed
of trust to which this lease is or may be subordinate, and no landlord under a
so-called sale-leaseback, shall be responsible in connection with the Security
Deposit, unless the mortgagee or holder of the deed of trust or the landlord
actually receives the Security Deposit. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall, subject to
the foregoing, be binding on Landlord, its successors and assigns, only during
and in respect to their respective successive periods of ownership.

ARTICLE XX. INTERPRETATION

SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.

SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.

SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.

SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.

SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.

SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.

SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.

SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any Term, covenant or condition contained in
this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to have
been waived by Landlord unless the waiver is in a writing signed by Landlord.
The rights and remedies of Landlord under this Lease shall be cumulative and in
addition to any and all other rights and remedies which Landlord may have.

SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent or from the timely performance of any other
obligation under this Lease within Tenant's reasonable control.

-13-
<PAGE>

SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Office Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further effect.
Tenant waives its rights to rely on any representations or promises made by
Landlord or others which are not contained in this Lease. No verbal agreement or
implied covenant shall be held to modify the provisions of this Lease, any
statute, law, or custom to the contrary notwithstanding.

SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all
the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.

SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.

ARTICLE XXI. EXECUTION AND RECORDING

SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.

SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of its board of directors' resolution or partnership agreement or
certificate authorizing or evidencing the execution of this Lease.

SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.

SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.

SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall
be effective unless in writing signed by authorized signatories of Tenant and
Landlord, or by their respective successors in interest. No actions, policies,
oral or informal arrangements, business dealings or other course of conduct by
or between the parties shall be deemed to modify this Lease in any respect.

ARTICLE XXII. MISCELLANEOUS

SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees
that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Office Building or Project, either
directly or indirectly, without the prior written consent of Landlord, provided,
however, that Tenant may disclose the terms to prospective subtenants or
assignees under this Lease.

SECTION 22.2. REPRESENTATIONS BY TENANT. The application, financial
statements and tax returns, if any, submitted and certified to by Tenant as an
accurate representation of its financial condition have been prepared, certified
and submitted to Landlord as an inducement and consideration to Landlord to
enter into this Lease. The application and statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of execution of this Lease by Tenant.
Tenant shall during the Term promptly furnish Landlord with annual financial
statements reflecting Tenant's financial condition upon written request from
Landlord.

SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Office Building, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations of Tenant or materially and adversely
affect the leasehold interest created by this Lease.

SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the
part of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Office
Building whose address has been furnished to Tenant and (b) such beneficiary is
afforded a reasonable opportunity to cure the default by Landlord, including, if
necessary to effect the cure, time to obtain possession of the Office Building
by power of sale or judicial foreclosure provided that such foreclosure remedy
is diligently pursued.

-14-
<PAGE>

SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though the
words specifically expressing or imparting covenants and conditions were used in
each separate provision.

SECTION 22.6. TENANT SERVICES. In the event certain tenant services,
including without limitation child care services, health club facilities, valet
parking, and concierge services, are made available to tenants of the Office
Building by a concessionaire under contract to Landlord or by a tenant under
lease with Landlord (collectively, "Provider"), then Tenant acknowledges and
agrees that Landlord shall not be deemed to have made any representation
regarding the availability, quality or reliability of such service and Tenant
shall have no recourse or claim against Landlord, whether by abatement of rent
or otherwise, for any default or liability on the part of the Provider in
furnishing the service.

LANDLORD: TENANT:

LA JOLLA GATEWAY, LTD., CYTOPROBE CORPORATION,
-----------------------------------
a California limited partnership a Utah corporation
-----------------------------------
By: The Irvine Company,
a Michigan corporation,
as attorney-in-fact for
La Jolla Gateway, Ltd., By: [SIGNATURE NOT LEGIBLE]
and not on its own behalf -------------------------------
Title: Sec
------------------------

By: /s/ Clarence W. Barker By: _______________________________
----------------------------------
Clarence W. Barker, Title: ________________________
President, Irvine Office Company,
a division of The Irvine Company

By: /s/ John C. Tsu
----------------------------------
John C. Tsu,
Assistant Secretary

-15-

<PAGE>

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

EXHIBIT 11
LOSS PER SHARE
=======================================

The computation of the loss per share is as follows:
<TABLE>
<CAPTION>

1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average number
of common shares
outstanding 1,208,144 3,032,813 6,714,168

Loss from continuing
operations $(1,700,712) $(2,716,922) $(3,140,828)
=========== =========== ===========

Loss from disposal of oil and
gas operations $ (79,129) $ (371,374) $ -
=========== =========== ===========

Net loss $(1,779,841) $(3,088,296) $(3,140,828)
=========== =========== ===========

Loss per share from continuing
operations $ (1.40) $ (.90) $ (.47)
=========== =========== ===========

Loss per share from disposal
of oil and gas operations $ (.07) $ (.12) $ -
=========== =========== ===========

Loss per share $ (1.47) $ (1.02) $ (.47)
=========== =========== ===========
</TABLE>

<PAGE>

CONSENT

The undersigned consents to all references to him in the Registration
Statement on Form S-1, Registration Statement No. 33-32727, and the related
Prospectus, of Medical Device Technologies, Inc.

/s/ William A. Clark
------------------------------
William A. Clark

Fort Worth, Texas
May 16, 1996

<PAGE>

DAVIS BUJOLD & STRECK
500 North Commercial Street
Manchester, NH 03101
(603) 624-9220

CONSENT
-------

The undersigned hereby consents to the use of its name under the heading
"Legal Matters" in the Registration Statement and related prospectus of Medical
Device Technologies, Inc., file no. 33-32727.

/s/ Davis Bujold & Streck
--------------------------------
Davis Bujold & Streck

Manchester, New Hampshire
May 8, 1996

<PAGE>

STRASBURGER & PRICE, LLP
901 Main Street, Ste. 4300
Dallas, TX 75202
(214) 651-2308

CONSENT
-------

The undersigned hereby consents to the use of its name under the heading
"Legal Matters" in the Registration Statement and related prospectus of Medical
Device Technologies, Inc., file no. 33-32727.

/s/ Strasburger & Price, LLP
--------------------------------
Strasburger & Price, LLP

Dallas, Texas
May 8, 1996

<PAGE>

HYMAN, PHELPS & McNAMARA, P.C.
700 Thirteenth Street, N.W.
Suite 1200
Washington, DC 20005
(202) 737-5600

CONSENT
-------

The undersigned hereby consents to the use of its name under the heading
"Legal Matters" in the Registration Statement and related prospectus of Medical
Device Technologies, Inc., file no. 33-32727.

/s/ Hyman, Phelps & McNamara, P.C.
----------------------------------
Hyman, Phelps & McNamara, P.C.

Washington, DC
May 14, 1996

<PAGE>

KING & ISAACSON, P.C.
4 Triad Center, Suite 825
Salt Lake City, UT 84180
(801) 532-1700

CONSENT
-------

The undersigned hereby consents to the use of its name under the heading
"Legal Matters" in the Registration Statement and related prospectus of Medical
Device Technologies, Inc., file no. 33-32727.

/s/ King & Isaacson, P.C.
----------------------------------
King & Isaacson, P.C.

Salt Lake City, Utah
May 7, 1996

<PAGE>

BDO SEIDMAN, LLP
ACCOUNTANTS AND CONSULTANTS
1900 AVENUE OF THE STARS, 11TH FLOOR
LOS ANGELES, CA 90067-4301
(310) 557-1777

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------

Medical Device Technologies, Inc.
San Diego, California

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated January 29, 1996, except
for Note 5 which is as of April 9, 1996 and Notes 7 and 16 which are as of
May 17, 1996, relating to the consolidated financial statements of Medical
Device Technologies, Inc. which is contained in that Prospectus. Our report
contains an explanatory paragraph regarding uncertainties as to the Company's
ability to continue as a going concern.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

Los Angeles, California
May 22, 1996

<PAGE>

ROBERT EARLY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
2500 S. WILLIS, SUITE 200
ABILENE, TX 79605
(915) 691-5790

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------

Medical Device Technologies, Inc.
San Diego, California

We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 17, 1995, relating to the consolidated financial
statements of Medical Device Technologies, Inc. and Subsidiary for the year
ended December 31, 1994, and to the reference to our Firm under the caption
"Experts" in the prospectus.

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

Abilene, Texas
May 22, 1996