SELFCARE INC, 424B4, 1997-03-07

SELFCARE INC
424B4, 1997-03-07
LABORATORY ANALYTICAL INSTRUMENTS

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<PAGE> 1
Filed persuant to Rule 424(b)(4)
Registration No. 333-19911

PROSPECTUS

1,800,000 SHARES

[LOGO]

COMMON STOCK

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All of the shares of Common Stock offered hereby are being sold by
Selfcare, Inc. ("Selfcare" or the "Company"). The Common Stock of the Company is
traded on the American Stock Exchange (the "AMEX") under the symbol "SLF." On
March 6, 1997, the closing price of the Common Stock as reported on the AMEX was
$11.50 per share. See "Price Range of Common Stock and Dividend Policy."
------------------------

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.

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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>
<S> <C> <C> <C>
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Underwriting
Price to Discounts Proceeds to
Public and Commissions(1) Company(2)
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Per Share...................... $10.00 $0.60 $9.40
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Total(3)....................... $18,000,000 $1,080,000 $16,920,000
=================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $600,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 270,000 additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $20,700,000,
$1,242,000 and $19,458,000, respectively. See "Underwriting."
------------------------

The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of certificates
for the shares of Common Stock will be made at the offices of Lehman Brothers
Inc., New York, New York, on or about March 12, 1997.
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LEHMAN BROTHERS
DILLON, READ & CO. INC.
A.G. EDWARDS & SONS, INC.
MARCH 7, 1997
<PAGE> 2

[Description of Top Graphic: The graphic depicts the packaging of the Company's
Blood Glucose Test Strips for the ExacTech[Registered trademark] Card and Pen
Sensors, which includes a picture of the test strip. Accompanied by language
substantially similar to the following: "Selfcare's generic glucose test
strip for use with ExacTech[Registered trademark] Sensors currently on the
market. The Company has obtained FDA clearance for this product and intends to
commence marketing it in the U.S. in early 1997." The graphic also contains
reference to certain trademarks.]

[Description of Bottom Graphic: The graphic depicts the use of a prototype of
the Company's blood glucose monitoring system accompanied by text describing the
item depicted in the graphic as a prototype under development by the Company.]

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Except where indicated, the Company's products depicted above have not yet been
approved by the U.S. Food and Drug Administration or any other regulatory
agency for commercial use in the United States or internationally, and there
can be no assurance that these products will receive required regulatory
approvals on a timely basis, if at all.

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<PAGE> 3

[GRAPHICS]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, ON THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

The Company has filed trademark applications in the United States and
Europe for the Company's "Little Man" logo and has filed trademark applications
in Europe for the name Selfcare. This Prospectus also includes trademarks of
companies other than Selfcare.
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Investors should carefully consider the information set forth under the heading
"Risk Factors." Except as otherwise noted, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.

THE COMPANY

Selfcare is engaged in the development, manufacture and marketing of
self-test diagnostic products for the diabetes, women's health and infectious
disease markets. Self-test diagnostic products allow individuals to obtain
accurate information regarding various medical conditions on a confidential,
non-prescription basis, without the expense, inconvenience and delay associated
with physician visits or testing laboratories. This information gives
individuals greater control over their health and their lives, allowing them to
make informed decisions and take action to protect their health, alone or in
consultation with healthcare professionals. The Company's existing and planned
self-test products are targeted at the two largest existing markets for
self-care diagnostics, diabetes management and women's health, as well as the
emerging market for self tests for infectious diseases and agents, including
human immunodeficiency viruses ("HIV"). According to a 1996 study by Clinica
Reports, the worldwide market for home monitoring and diagnostic products was
estimated to be $2.2 billion in 1995, growing at an annual rate of 11%.

On February 19, 1997, the Company acquired the U.S. rights to several
nutritional supplement product lines (the "Nutritional Supplement Lines
Acquisition"). These lines include Stresstabs(R), Ferro-Sequels(R) and
Posture(R), which are targeted primarily at the women's health market. Selfcare
believes that this acquisition will enable it to expand into new product areas
which complement its self-test diagnostic products and utilize the Company's
significant retail sales and distribution capabilities. The Company believes
that these product lines will create new marketing opportunities through
increased shelf space and product visibility at the point of sale and will
provide potentially significant cross-marketing opportunities, particularly for
the women's health market.

The Company's objective is to become a leading international provider of
self-test diagnostic products, while expanding into complementary self-care
product lines and extending its retail distribution capabilities through the
addition of other self-care products targeted primarily at the Company's
principal markets. The Company is pursuing a business strategy which
incorporates the following principal elements:

- Focus on diabetes, women's health and infectious diseases to exploit
growth opportunities in these large and growing markets in the United
States and internationally

- Leverage the Company's technology base to develop new self-test
diagnostic products and to lower production costs

- Promote products used by physicians and laboratories to facilitate market
acceptance of new self tests

- Utilize the Company's broad retail distribution network and strong
customer relationships to launch new products rapidly

- Continue to pursue private label arrangements with major retailers to
increase market penetration

- Target value-conscious consumers with low-cost, high-quality products

- Seek and expand strategic alliances and other transactions to develop or
acquire technologies for new self-test diagnostic and other self-care
products

Selfcare believes that its most important near-term growth opportunities
lie in the market for self-test diagnostic products for the management of
diabetes and in continued expansion of its retail distribution of women's health
products.

As part of its strategy for addressing the diabetes management market, the
Company has entered into an exclusive worldwide alliance and distribution
agreement (the "LifeScan Alliance") with LifeScan, Inc., a subsidiary of Johnson
& Johnson ("LifeScan"). LifeScan has been a leading supplier of blood glucose
monitoring

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systems since the mid-1980s, and in 1995 accounted for over 40% of the market
for these products in the United States. The terms of the LifeScan Alliance
contemplate that Selfcare will manufacture and LifeScan will distribute
Selfcare's proprietary electrochemical blood glucose monitoring system for the
management of diabetes. Although LifeScan is the current leader in the home
blood glucose monitoring market, LifeScan does not currently offer an
electrochemical blood glucose monitoring system. The LifeScan Alliance will
allow LifeScan to add to its product line an electrochemical blood glucose
monitoring system incorporating state-of-the-art features. This system will
incorporate all of the significant features of the leading electrochemical
systems currently on the market, and will also provide several additional
features which the Company believes will make it easier to use. In September
1996, the Company received regulatory clearance from the U.S. Food and Drug
Administration (the "FDA") for the system. In conjunction with LifeScan, the
Company subsequently undertook certain enhancements to the user interface
features for the system. The underlying chemistry and function of the disposable
strips for the system, however, were not changed from those of the prior version
originally reviewed by the FDA. The Company plans to submit in early 1997 a
pre-market clearance notification (a "Section 510(k) Notification") to the FDA
pursuant to Section 510(k) of the Federal Food, Drug and Cosmetics Act, as
amended (the "FDC Act"), seeking permission from the FDA ("FDA Clearance") to
begin commercial distribution of the enhanced version of the system (hereinafter
referred to as the "New System"). Selfcare currently believes that it can
complete development, receive FDA Clearance and commence shipments of the New
System as early as the first half of 1997, although there can be no assurance
that this will be the case. See "Risk Factors -- Risks Related to the LifeScan
Alliance."

In addition to supplying the New System to LifeScan, the Company plans to
commence commercial production and marketing of disposable generic test strips
which can be used in electrochemical blood glucose monitoring systems currently
sold by certain other leading manufacturers. On June 28, 1996, the Company
obtained FDA Clearance for its first generic test strip, which is compatible
with the ExacTech(TM) system sold by MediSense, Inc., a subsidiary of Abbott
Laboratories ("MediSense"). The Company has commenced marketing this product in
certain European countries and intends to commence marketing this product in the
United States in 1997. In addition, the Company is developing generic test
strips for use with other systems such as Bayer Corporation's Glucometer
Elite(TM) and Boehringer Mannheim Corporation's Accu-Chek(R) Advantage(TM), as
well as MediSense's Companion 2(TM). In addition, through a wholly-owned
subsidiary, Selfcare is party to an agreement with A. Menarini Industrie
Farmaceutical Riunite S.R.L. of Florence, Italy ("Menarini") which provides that
the Company will be a principal supplier to Menarini of blood glucose test
strips for blood glucose meters distributed by Menarini in selected markets in
Europe and certain countries in other parts of the world. Under the agreement,
Menarini is obligated to make certain minimum purchases of products from
Selfcare. Selfcare expects shipments under this agreement to commence in the
second half of 1997.

Selfcare has developed a sophisticated, but simplified, manufacturing
process for generic test strips which the Company believes is comprised of fewer
elements than those of the current manufacturers of branded test strips,
resulting in lower manufacturing costs. The Company also expects to realize a
cost advantage on its generic test strips because it intends to distribute such
strips through its existing, low-overhead distribution network, which the
Company currently utilizes to sell other self-test diagnostic products in the
United States and Europe. As a result, the Company believes that, in most cases,
it will be able to produce and sell high-quality generic electrochemical blood
glucose test strips at a cost which is as low as, or lower than, those of the
current manufacturers of branded test strips.

In the women's health market, Selfcare is currently marketing home
pregnancy and ovulation prediction tests under the Selfcare brand name and under
various private labels. Pregnancy products packaged and distributed by Selfcare
are currently available on a private label basis or under the Selfcare brand in
approximately 55% of U.S. pharmacy chain outlets, including CVS/pharmacy, Eckerd
Drug, Osco Drug, Revco Pharmacy and Target Stores. On February 19, 1997,
pursuant to the Nutritional Supplement Lines Acquisition, the Company acquired
for consideration totaling $36.0 million from American Home Products Corporation
("AHP") the U.S. rights to several nutritional supplement product lines (the
"Nutritional Supplement Lines"), which had domestic sales of approximately $24.0
million in 1996. Included in these product lines are Stresstabs (a B-complex
vitamin with folic acid), Stresstabs plus iron, Ferro-Sequels (an iron
supplement) and Posture (a calcium supplement), which are targeted primarily at
the women's health market. The Stresstabs, Allbee(R) and Z-Bec(R) product lines
included in the Nutritional Supplement Lines currently represent, according to
industry sources, approximately a 29% share of the B-complex vitamin category
sold through U.S. drug, food and mass merchandising retail chains. The Company
will

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market the Nutritional Supplement Lines through its existing retail distribution
channels, and will seek to expand sales through trade allowances, increased
advertising and promotion, and cross-merchandising with other Selfcare products.
The Company also plans to reposition the brands which address specific women's
nutritional needs through redesigned packaging and increased emphasis on the
products' self-care benefits for women. The Company expects to continue to
expand its women's health product line with products supplied by or co-developed
with third party manufacturers, as well as products developed by the Company.

Through its wholly-owned Irish subsidiary, Cambridge Diagnostics Ireland
Ltd. ("Cambridge Diagnostics"), the Company is currently producing diagnostic
test kits primarily for detecting antibodies to HIV, which are associated with
Acquired Immune Deficiency Syndrome ("AIDS"). In addition, the Company is
actively pursuing development of a self-test version of its professional HIV
test which will be incorporated in a comprehensive, educational, counseling and
testing program to be called CarePlan(TM). Unlike currently available mail-in
HIV testing services, CarePlan is designed to provide immediate at-home test
results. The Company currently intends to introduce this HIV self test in
certain European countries in late 1997, subject to regulatory approval. The
Company also produces other tests for the detection of hepatitis and Lyme
disease infections.

The Company plans to expand its research, manufacturing and marketing
capabilities for infectious disease diagnostic products by acquiring the capital
stock of Orgenics Ltd. ("Orgenics"), an Israeli company (the "Orgenics
Acquisition"). Selfcare has acquired a 57.1% direct and indirect equity interest
in Orgenics for approximately $9.1 million and, upon completion of this
offering, expects to acquire direct and indirect ownership of the balance of the
outstanding capital stock of Orgenics. Orgenics develops, manufactures and
markets self-contained diagnostic test kits for the professional market which
detect antibodies and/or infectious disease agents, including those associated
with AIDS and chlamydia (a sexually transmitted disease which may impair
fertility). The Company plans to use the expertise and know-how of Orgenics to
develop self-test versions of certain of these products, including a chlamydia
self test. The Company intends to rationalize the operations of Orgenics and
Cambridge Diagnostics to increase production efficiency, as well as combine
distribution operations in some global regions. The Company also intends to
develop or acquire additional self-test and professional diagnostic products for
infectious diseases, as well as for other types of diseases and medical
conditions.

In August 1996, the Company completed an initial public offering in which
it sold 1,495,000 shares of Common Stock (the "Initial Public Offering").

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered.......................... 1,800,000 shares
Common Stock to be outstanding after the
offering:
Actual...................................... 7,888,313 shares
Fully-diluted............................... 15,179,126 shares(1)
Use of proceeds............................... To fund a portion of the consideration payable
in the Orgenics Acquisition; for possible
repayment of certain indebtedness incurred in
connection with the Nutritional Supplement
Lines Acquisition; and for working capital and
other general corporate purposes, including
research and development and possible
additional acquisitions.
American Stock Exchange symbol................ SLF
</TABLE>

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(1) Includes (i) 6,197,020 shares of Common Stock issuable pursuant to certain
rights and upon the exercise of outstanding stock options and warrants as of
March 1, 1997 with a weighted average exercise price of $3.89 per share,
(ii) 278,572 shares of Common Stock the Company expects to issue in the
future in connection with the LifeScan Alliance, (iii) 393,537 shares of
Common Stock representing the approximate number of shares the Company
anticipates issuing in connection with completion of the Orgenics
Acquisition, and (iv) 421,684 shares of Common Stock representing the number
of shares issuable upon conversion of the remaining 4,800 outstanding shares
of the Company's Series A Convertible Preferred Stock ("Series A Preferred
Shares"), assuming an average market price of $11.60 per share at the time
of conversion, resulting in a conversion price of $11.60 per share. See
"Management -- Executive Compensation," "Business -- Strategic
Transactions -- LifeScan Alliance," " -- Orgenics Acquisition,"
" -- Cambridge Diagnostics Acquisition," "Description of Capital Stock" and
"Shares Eligible for Future Sale."
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3) AS ADJUSTED(3)(4)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 16,459 $ 32,779 $ 21,625
Working capital.......................................... 9,863 26,183 5,030
Total assets............................................. 41,089 57,409 88,646
Deferred revenue, net of current portion................. 4,786 4,786 4,786
Long term debt, net of current portion................... 5,896 5,896 26,896
Total liabilities........................................ 26,057 26,057 57,057
Mandatorily redeemable preferred stock................... 1,754 1,754 1,754
Accumulated deficit...................................... (43,319) (43,319) (46,622)
Stockholders' equity..................................... 12,079 28,399 29,750
</TABLE>

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(1) In October 1996, Selfcare acquired a 57.1% direct and indirect equity
interest in Orgenics, as a result of the conversion of a $1.0 million
debenture issued by Orgenics (the "Orgenics Debenture") and purchases of
outstanding shares of Orgenics and Orgenics International Holdings, B.V.
("Orgenics International"), a Dutch holding company whose only material
asset is its investment in Orgenics. Selfcare expects to complete the
Orgenics Acquisition upon completion of this offering, pursuant to the terms
of certain option agreements (the "Option Agreements") between the Company
and all the holders of the remaining shares in Orgenics and Orgenics
International. Pursuant to the Option Agreements, the Company has an option
to call the Orgenics and Orgenics International shares and, in certain
circumstances (including the completion of this offering), each Orgenics
stockholder has the option to put its Orgenics shares to Selfcare. Selfcare
intends to exercise its call options in connection with this offering. The
Company has paid approximately $7.0 million in cash and converted the
Orgenics Debenture for its existing ownership interest and expects to pay
additional consideration totaling $9.3 million in cash and Common Stock for
substantially all of the remaining shares in Orgenics and Orgenics
International pursuant to the exercise of the Option Agreements. If the
Option Agreements are not exercised by the Company prior to March 10, 1997,
this amount would increase to approximately $10.6 million. Each of the
Orgenics and Orgenics International stockholders may elect to receive the
purchase price entirely in cash, entirely in the Common Stock, or 50% in
cash and 50% in Common Stock. See "Business -- Strategic
Transactions -- Orgenics Acquisition." Assuming that all Orgenics and
Orgenics International stockholders were to elect to receive the
consideration in the form of 50% cash and 50% Common Stock, and assuming
that the options under the Option Agreements are exercised by the Company
prior to March 10, 1997, the Company would pay approximately $4.7 million in
cash and issue approximately 393,537 shares of Common Stock (based on an
average market price of $11.825 per share of Common Stock and Orgenics'
revenues for the four fiscal quarters ended December 31, 1996). In addition,
the Company has granted options to purchase up to 85,800 shares of Common
Stock having a fair market value of approximately $1.1 million, and will
incur direct acquisition costs of approximately $100,000.

On February 19, 1997, pursuant to the terms of the Nutritional Supplement
Lines Acquisition, the Company acquired the Nutritional Supplement Lines
from AHP for consideration totaling $36.0 million. The purchase price was
financed with a $25.0 million term loan (the "AHP Term Loan) and a $5.0
million bridge loan (the "AHP Bridge Loan") made by Fleet National Bank
("Fleet") and a $6 million one-year promissory note (the "AHP Note") issued
by the Company to AHP. The Company intends to apply $5.0 million from the
proceeds of this offering to pay the AHP Bridge Loan; however, the Company
may elect to refinance the AHP Bridge Loan from other sources. See "Use of
Proceeds."

The pro forma statement of operations data reflects the combined results of
the Company, Orgenics and the Nutritional Supplement Lines as if the Initial
Public Offering, this offering, the Orgenics Acquisition, and the
Nutritional Supplement Lines Acquisition had occurred on January 1, 1996.
The pro forma amounts give effect to (i) amortization expenses relating to
certain intangible assets, (ii) interest expense related to the bank debt
associated with the Nutritional Supplement Lines Acquisition and (iii)
estimated incremental costs associated with the Nutritional Supplement Lines
Acquisition. The pro forma amounts do not give effect to the expensing of
the estimated fair values of certain in process research and development
projects upon consummation of the Orgenics Acquisition. The pro forma
statement of operations is not necessarily indicative of future results of
operations or what results would have been for the combined companies. See
Notes to the Pro Forma Combined Condensed Statement of Operations for
information as to the basis of computing the pro forma net loss per common
and common equivalent shares used in this computation.

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(2) Computed on the basis described in Note 2g of Notes to Consolidated
Financial Statements.

(3) Adjusted to give effect to the sale of 1,800,000 shares of Common Stock
offered hereby after deducting the underwriting discounts and commissions
and estimated offering expenses and the receipt of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

(4) Adjusted to give pro forma effect to the Company's existing and planned
purchases of the Orgenics and Orgenics International shares and the purchase
of the Nutritional Supplement Lines from AHP and the incurrence of the
related bank debt. See Note 1 above and Notes to Unaudited Pro Forma
Combined Condensed Balance Sheet for additional information regarding
purchase price adjustments in connection with the Orgenics Acquisition and
the Nutritional Supplement Lines Acquisition.

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This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainty. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors" as well as those discussed
elsewhere in this Prospectus.

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RISK FACTORS

The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby.

RISKS RELATED TO THE LIFESCAN ALLIANCE

The Company's future results of operations depend to a substantial degree
on the successful completion of the receipt of FDA Clearance for, the
commencement of shipments of, and LifeScan's ability to market and sell the New
System. No assurance can be given that these events will occur or will not be
delayed. A material delay in or the non-occurrence of any of these events would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- No Assurance of FDA Clearance,"
"-- Comprehensive Government Regulation," "-- Dependence on Patents and
Proprietary Technology" and "Business -- Strategic Transactions -- LifeScan
Alliance."

RISKS RELATED TO THE NUTRITIONAL SUPPLEMENT LINES ACQUISITION

On February 19, 1997, the Company acquired the Nutritional Supplement Lines
from AHP for consideration totaling $36.0 million. As part of its plans for
maintaining and expanding sales of these products, the Company expects to incur
substantial marketing and promotional expenses and allowances in 1997 and
thereafter. There can be no assurance that these expenditures and allowances
will allow the Company to increase or maintain the existing revenue levels from
the Nutritional Supplement Lines. The Company's product focus to date has been
on diagnostic tests of various kinds and the Company has not previously marketed
nutritional supplements, nor has the Company conducted a national advertising
campaign of the scope or magnitude of that which it plans for the Nutritional
Supplement Lines. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview, and -- Liquidity and Capital
Resources," and "Business -- Strategic Transactions -- Nutritional Supplement
Lines Acquisition."

MANAGING AND MAINTAINING GROWTH

The Company is currently experiencing a period of rapid growth and
expansion, which is expected to accelerate further upon the consummation of the
Nutritional Supplement Lines Acquisition. This growth and expansion has placed,
and could continue to place, a significant strain on the Company's management,
customer service and support, operations, sales and administrative personnel and
other resources. In order to serve the needs of its existing and future
customers, the Company has increased and will continue to increase its
workforce, which requires the Company to attract, train, motivate and manage
qualified employees. The Company's ability to manage its planned growth depends
upon the Company's success in continuing to expand its operating, management,
information and financial systems, which may significantly increase its
operating expenses. If the Company fails to achieve its growth as planned or is
unsuccessful in managing its anticipated growth, there could be a material
adverse effect on the Company. See "Business -- Strategic Transactions."

RISKS RELATED TO NEW PRODUCT DEVELOPMENT

The Company is at an early stage in its development. With the exception of
certain professional diagnostic products for infectious diseases, its women's
health products produced by third-party manufacturers, and the Nutritional
Supplement Lines, all of the Company's products are in various stages of
research and development, and the Company has generated no revenue from the
commercialization of these products under development. Many of the Company's
products will require substantial additional development, pre-clinical and
clinical testing and investment prior to their commercialization. There can be
no assurance that the Company's research and development efforts will be
successful, that any of the Company's products under development will prove to
be safe or effective in clinical trials, that the Company will be able to obtain
regulatory approval to market any of its products, that any of its products can
be manufactured at acceptable cost and with appropriate quality, or that any of
its products, if and when approved, can be successfully marketed.

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<PAGE> 10

NO ASSURANCE OF FDA CLEARANCE

The Company plans to submit in early 1997 a Section 510(k) Notification
with the FDA with respect to the New System. Following submission of a Section
510(k) Notification, a manufacturer may not place the device into commercial
distribution until an order is issued by the FDA. The FDA has no specific time
limit within which it must respond to a Section 510(k) Notification. After
review of a Section 510(k) Notification, the FDA will either agree with the
manufacturer that the proposed device is "substantially equivalent" to another
legally marketed device and allow the device to be marketed in the United
States, or determine that the proposed device is not substantially equivalent
and not allow such marketing. The FDA may also require that further information,
such as additional clinical test data or analysis or test results, be submitted
before the FDA is able to make a determination regarding substantial
equivalence. Although the Company has received FDA Clearance for the prior
version of the New System, there can be no assurance that the Company will
receive FDA Clearance for the New System. Failure to obtain FDA Clearance for
the New System would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, delays in obtaining
FDA Clearance for the New System could have a material adverse effect on the
Company's business, financial condition and results of operations.

COMPREHENSIVE GOVERNMENT REGULATION

Self-Test Products

The Company's research, development and clinical programs, as well as its
manufacturing and marketing operations, are subject to extensive regulation by
numerous governmental authorities in the United States and other countries. Most
of the Company's self-test products, including those licensed by the Company
from third parties, require governmental approvals for commercialization that
have not yet been obtained and are not expected to be obtained for several
years. Pre-clinical and clinical trials and manufacturing and marketing of many
of the Company's products will be subject to the rigorous testing and approval
process of the FDA and corresponding foreign regulatory authorities. The
regulatory process, which includes pre-clinical and clinical testing of many of
the Company's products to establish their safety and efficacy, can take many
years and require the expenditure of substantial financial and other resources.
Data obtained from pre-clinical and clinical activities are susceptible to
varying interpretations that could delay, limit or prevent regulatory approval.
In addition, delays or rejection may be encountered based upon changes in, or
additions to, regulatory policies for device marketing authorization during the
period of product development and regulatory review. Delays in obtaining such
approvals could adversely affect the marketing of products developed by the
Company and the Company's ability to generate commercial product revenues.

The Company is developing an HIV home-test program and plans to develop
other infectious disease self tests in the future. Although the FDA has recently
authorized a number of home collection and mail-in HIV testing and telephone
counseling services, the program being developed by the Company differs in
significant respects from these services. See "Business -- Products and
Technologies -- Infectious Disease Products -- HIV Tests." There can be no
assurance that the FDA will grant clearance for commercialization of the
Company's HIV home test in a timely manner, or at all. There also can be no
assurance that requisite regulatory approvals for the Company's other products
will be obtained within a reasonable period of time, if at all. Moreover, if
regulatory approval of a product is granted, such approval may impose
limitations on the indicated uses, or methods of use, for which such product may
be marketed. Further, even if such regulatory approval is obtained, a marketed
product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections, and later discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on such product or manufacturer, including withdrawal of the
product from the market. Failure to comply with the applicable regulatory
requirements can result in, among other things, fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution.

In addition, the Company is required to meet regulatory requirements in
countries outside the United States, which can change rapidly with relatively
short notice, resulting in the Company's products being banned in certain
countries with consequent loss of revenues and income. Foreign regulatory
agencies could

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<PAGE> 11

also introduce test format changes which, if not quickly addressed by the
Company, could result in restrictions on sales of the Company's products. Such
changes are not uncommon due to advances in basic research and the nature of
certain infectious diseases and agents such as HIV, which is a mutating virus
capable of producing new strains and subtypes. In July 1993, the French Ministry
of Health prohibited the sale in France of certain diagnostic tests for HIV, due
to a concern that the tests did not meet required sensitivity levels. The
Ministry of Health has subsequently imposed a separate ban on a single HIV test
manufactured and sold due to the failure of such test to identify a newly
discovered HIV subtype. There can be no assurance that there will not be similar
actions in the future. See "Business -- Governmental Regulation -- Self-Test
Products."

Nutritional Supplements

The manufacturing, processing, formulation, packaging, labeling and
advertising of nutritional supplements such as the Nutritional Supplement Lines
are subject to regulation by one or more federal agencies, including the FDA,
the Federal Trade Commission ("FTC") and the Consumer Product Safety Commission.
These activities are also regulated by various agencies of the states,
localities and foreign countries in which Nutritional Supplement Lines are now
sold or may be sold in the future. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements, including
vitamins, minerals and herbs, food additives, over-the-counter ("OTC") and
prescription drugs and cosmetics. The regulations that are promulgated by the
FDA relating to the manufacturing process are known as Current Good
Manufacturing Practices ("CGMPs"), and are different for drug and food products.
In addition, the FTC has overlapping jurisdiction with the FDA to regulate the
promotion and advertising of dietary supplements, OTC drugs, cosmetics and
foods.

The Dietary Supplement Health and Education Act of 1994 ("DSHEA") which
amends the FDA Act by defining dietary supplements as a new category of food
separate from conventional food, was enacted on October 25, 1994. The FDA has
proposed but not finalized regulations to implement DSHEA, including those
relating to nutritional labeling requirements. The Company cannot determine what
effect such regulations, when promulgated, will have on its business in the
future. Such regulations are likely to require expanded or different labeling
for the Nutritional Supplement Lines and could, among other things, require the
recall, reformulation or discontinuance of certain products, additional record
keeping, warnings, notification procedures and expanded documentation of the
properties of certain products and scientific substantiation regarding
ingredients, product claims, safety or efficacy. Failure to comply with
applicable FDA requirements could result in sanctions being imposed on the
Company or the manufacturers of its products, including warning letters, product
recalls and seizures, injunctions or criminal prosecution. The Company
anticipates that the FDA will promulgate specific CGMPs to regulate dietary
supplements which are more rigorous than the current CGMPs for food. The Company
believes that the manufacture of the Nutritional Supplement Lines is currently
in compliance with applicable CGMPs for food, but changes may be required in
order for the manufacture of the Nutritional Supplement Lines to comply with the
more rigorous anticipated CGMPs for dietary supplements. See
"Business -- Governmental Regulations -- Nutritional Supplements."

LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT;
UNCERTAIN PROFITABILITY

The Company has incurred operating losses since its inception. As of
December 31, 1996, the Company's accumulated deficit totaled approximately $43.3
million. For the year ended December 31, 1996, the Company had revenues of
approximately $19.1 million and a net loss of approximately $28.6 million. The
continued development of the Company's products will require the commitment of
substantial resources to conduct research and pre-clinical and clinical
development programs, and to establish manufacturing facilities, sales and
marketing capabilities, and additional quality control and regulatory and
administrative capabilities. The Company may incur substantial and increasing
operating losses over the next several years as its product programs expand and
various clinical trials commence. The amount of net losses and the time required
by the Company to reach sustained profitability are highly uncertain since
achieving profitability requires the Company to, among other things,
successfully complete development of its products, obtain regulatory approvals
and establish manufacturing and marketing capabilities. There can be no
assurance that the Company will be able to achieve profitability on a sustained
basis, or at all.

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<PAGE> 12

DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY; TRADEMARKS

Self-Test Products

The medical products industry, including the diagnostic testing industry,
places considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes, and the Company's success will
depend, in part, on its ability to obtain patent protection for its products and
manufacturing processes, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties.

The Company holds certain patent rights, has certain patent applications
pending, and expects to seek additional patents in the future, but there can be
no assurance as to its success or timeliness in obtaining any such patents or as
to the breadth or degree of protection that any such patents will afford the
Company. The patent position of medical products and diagnostic testing firms is
often highly uncertain and usually involves complex legal and factual questions.
There is a substantial backlog of patents at the U.S. Patent and Trademark
Office. No consistent policy has emerged regarding the breadth of claims covered
in medical products patents. Accordingly, there can be no assurance that patent
applications relating to the Company's products or technology will result in
patents being issued or that, if issued, such patents will afford adequate
protection to the Company's products or, if patents are issued to the Company,
that its competitors will not be able to design around such patents. In
addition, the medical products industry, including the diagnostic testing
industry, has been characterized by extensive litigation regarding patents,
licenses and other intellectual property rights. The Company could incur
substantial costs in defending itself against patent infringement claims or in
asserting such claims against others. If the outcome of any such litigation is
adverse to the Company, the Company's business could be materially adversely
affected. To determine the priority of inventions, the Company may also have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office, which could also result in substantial costs to the Company.
See "-- Risks Related to Certain Licensing Arrangements."

In addition, the Company may be required to obtain licenses to patents or
other proprietary rights of third parties to market its products. No assurance
can be given that licenses required under any such patents or proprietary rights
would be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays in product
market introductions while it attempts to design around such patents or other
rights, or be unable to develop, manufacture or sell such products in certain
countries or at all. Under the distribution agreement entered into pursuant to
the LifeScan Alliance, Selfcare has agreed to indemnify LifeScan for any claims
that the New System infringes any patents. See "Business -- Strategic
Transactions -- LifeScan Alliance."

The Company also seeks to protect its proprietary technology, including
technology that may not be patented nor patentable, in part through
confidentiality agreements and, if applicable, inventors' rights agreements with
its collaborators, advisors, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise be disclosed to, or discovered by, competitors. Moreover, the Company
may from time to time conduct research through academic advisors and
collaborators who are prohibited by their academic institutions from entering
into confidentiality or inventors' rights agreements. See "Business -- Patents
and Proprietary Rights" and "Business -- Legal Proceedings."

Nutritional Supplements

In connection with the Nutritional Supplement Lines Acquisition, the
Company acquired certain trademarks which, the Company believes, are valuable
assets and are very important to the marketing of the Nutritional Supplement
Lines. Substantially all of these trademarks have been registered with the U.S.
Patent and Trademark Office. There can be no assurance, however, that such
registrations will afford adequate protection to the Company and not be
challenged as unenforceable or invalid, or not be infringed. In addition, the
Company could incur substantial costs in defending suits brought against it or
in prosecuting suits in which the Company asserted rights under such
registrations. If the outcome of such litigation were adverse to the Company,
the Company's business and results of operations could be materially adversely
affected.

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<PAGE> 13

COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE

Self-Test Products

The medical products industry, including the diagnostic testing industry,
is rapidly evolving and developments are expected to continue at a rapid pace.
Competition in this industry is intense and expected to increase as new products
and technologies become available and new competitors enter the market. The
Company's competitors in the United States and abroad are numerous and include,
among others, diagnostic testing and medical products companies, universities
and other research institutions. The Company's success depends upon developing
and maintaining a competitive position in the development of products and
technologies in its area of focus. The Company's competitors may also succeed in
developing technologies and products that are more effective than any that have
been or are being developed by the Company or that render the Company's
technologies or products obsolete or noncompetitive. The Company's competitors
may also succeed in obtaining patent protection or other intellectual property
rights that would prevent the Company from developing its potential products, or
in obtaining regulatory approval for the commercialization of their products
more rapidly or effectively than the Company. Finally, many of the Company's
existing or potential competitors have or may have substantially greater
research and development capabilities, clinical, manufacturing, regulatory and
marketing experience and financial and managerial resources than the Company.

The Company is seeking to develop and market generic test strips which are
compatible with other manufacturers' electrochemical blood glucose monitoring
systems. If the Company succeeds in these efforts, others may attempt to enter
this market with similar products. In addition, the introduction of lower-priced
generic test strips could lead the manufacturers of the systems with which such
test strips are compatible to lower their own test strip prices, thereby
reducing or eliminating the price advantage enjoyed by the generic test strip
producers. On June 28, 1996, the Company obtained FDA Clearance for its first
generic test strip, to be sold under the name "Excel(TM)", which is compatible
with the ExacTech system sold by MediSense. The Company intends to commence
marketing this product in the United States in 1997. Although the Company
believes that its Excel generic test strip will be priced lower than the strips
produced by MediSense for the ExacTech System and therefore will compete
effectively with the MediSense product, there can be no assurance that MediSense
will not institute price cuts and thereby reduce or eliminate any price
advantage which the Company's product may enjoy.

The Company is also aware of several of its competitors who are attempting
to develop a non-invasive blood glucose monitoring technology. Non-invasive
blood glucose monitoring involves methods for measuring blood glucose levels
without the need to draw blood and, in certain proposed configurations, without
the need to utilize disposable components, such as test strips. The Company
believes that manufacturers are pursuing a number of different technological
approaches to non-invasive blood glucose monitoring. These include near-infrared
spectroscopy, which involves shining a beam of nearinfrared light to penetrate
the skin and determine the amount of glucose in the blood, and reverse
iontophoresis, which utilizes a "patch" system to extract glucose through the
skin for measurement by an external meter. In addition, several manufacturers
are pursuing minimally invasive approaches to blood glucose monitoring, such as
using a fine needle to withdraw a small sample of interstitial fluid which is
analyzed by use of mid-infrared spectroscopy. The development and successful
introduction of any such products could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Competition."

Nutritional Supplements

The market for the sale of vitamins and nutritional supplements such as the
Nutritional Supplement Lines is highly competitive. Competition is based
principally upon price, quality of products, customer service and marketing
support. There are numerous companies in the vitamin and nutritional supplement
industry selling products to retailers such as mass merchandisers, drug store
chains, independent drug stores, supermarkets and health food stores. Most of
these companies are privately held and the Company is unable to precisely assess
the size of such competitors. However, a number of the Company's competitors,

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particularly manufacturers of nationally advertised brand name products, are
substantially larger than the Company and have greater financial resources. See
"Business -- Competition."

DEPENDENCE ON THIRD-PARTY DISTRIBUTION NETWORK

The Company markets and distributes its products primarily through
independent retail brokers and distributors. The Company generally has written
agreements with such brokers and distributors, although it also has a limited
number of oral arrangements. In general, these brokers and distributors are not
subject to minimum purchase requirements and may discontinue marketing the
Company's products with little or no notice. Certain of the Company's retail
brokers and distributors also market products which compete with the Company's
products and which may, from time to time, offer greater sales incentives than
the Company's products. The loss of, or a significant reduction in sales volume
through, one or more of the Company's retail brokers or distributors could have
a material adverse effect on the Company's business, financial condition or
results of operations. See "Business -- Marketing and Sales."

DEPENDENCE ON CERTAIN SUPPLIERS

The Company currently has no facilities to manufacture the Nutritional
Supplement Lines. The Company has entered into supply agreements with AHP
pursuant to which AHP will supply the products for the Nutritional Supplement
Lines for a period of up to one year after the closing of the Nutritional
Supplement Lines Acquisition. Thereafter the Company will be required to enter
into new arrangements for the supply of these products. If the Company were
unable to contract for a sufficient supply of such products, or if it should
encounter delays or other difficulties in the supply of such products from third
parties, including AHP, these interruptions could have a material adverse effect
on the Company's result of operations and result in significant
quarter-to-quarter fluctuations. In addition, contract manufacturers that the
Company may use to supply products for the Nutritional Supplement Lines must
adhere to CGMP regulations. Failure to do so could result in the withdrawal of
FDA approval of such manufacturers and consequent interruptions in the supply of
products to the Company. In addition, the Company has assumed responsibility for
all marketing and sales functions for the Nutritional Supplement Lines as well
as certain administrative functions, including customer service. The Company
will also become responsible for other administrative functions, including order
receipt, billing and collection, and distribution of all the products on May 20,
1997. Assumption of these activities could place a significant strain on the
Company's resources and personnel, and will require the Company to devote
significant additional resources and personnel to these areas. Failure by the
Company to successfully assume these services could have an adverse impact on
the Company's ability to support the Nutritional Supplement Lines and could have
a material adverse affect on the Company's results of operations.

The Company has entered into a manufacturing agreement with Nova Biomedical
Corporation ("Nova") to supply Selfcare with electrochemical blood glucose
meters. The meters manufactured by Nova, together with the Company's test
strips, will form the New System. The Company's ability to ship the New System
on time and in accordance with LifeScan's requirements is highly dependent upon
receipt of an adequate supply of electrochemical blood glucose meters. There can
be no assurance that the Company's supply of electrochemical blood glucose
meters will not be interrupted, or that if such supply were interrupted, that
the Company would be able to contract with another supplier on a timely or
satisfactory basis. If such supply were interrupted, the Company could incur
set-up costs and delays in manufacturing the New System which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If any such delay were to occur, and were to result in
the Company being unable to supply LifeScan with certain required amounts of
meters for the New System under the LifeScan Alliance, LifeScan would
automatically receive a license to manufacture, or to have manufactured on its
behalf, the New System, subject to payment of a royalty to the Company. In such
event, the Company could begin supplying the New System to LifeScan again at any
time, but would be required to reimburse LifeScan for certain expenses incurred
by LifeScan to produce the New System. See "Business -- Strategic
Transactions -- LifeScan Alliance."

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RISKS RELATED TO CERTAIN LICENSING ARRANGEMENTS

Selfcare acquired Cambridge Diagnostics (formerly known as Cambridge
Biotech Limited) in November 1994 from Cambridge Biotech Corporation ("Cambridge
Biotech"), which at that time was operating in Massachusetts under Chapter 11 of
the U.S. Bankruptcy Code. Prior to the acquisition (the "Cambridge Diagnostics
Acquisition"), Cambridge Biotech licensed from Pasteur Sanofi Diagnostics
(formerly known as Diagnostics Pasteur), certain HIV 1/2 immunoassay
technologies relating to patents and proprietary rights held by Institut Pasteur
(the "Pasteur HIV Technologies"), and required for production of HIV test kits,
including the Selfcare HIV test kits manufactured by Cambridge Diagnostics.
Under the terms of Cambridge Biotech's license agreements with Pasteur Sanofi
Diagnostics, Cambridge Biotech could not assign or sublicense its rights with
respect to the Pasteur HIV Technologies to Selfcare or to Cambridge Diagnostics.
In order to allow Selfcare and Cambridge Diagnostics to have access to such
technologies, Selfcare and Cambridge Biotech formed Cambridge Affiliate
Corporation ("Cambridge Affiliate"), 51% owned by Cambridge Biotech, and 49%
owned by Selfcare, but managed by Cambridge Diagnostics. The establishment of
Cambridge Affiliate and the terms of the arrangements relating thereto were
considered and approved by both U.S. and Irish bankruptcy courts in connection
with the approval of the sale of Cambridge Diagnostics by such courts. Cambridge
Affiliate maintains its own accounts and records and makes payments of royalties
due under the Pasteur Sanofi Diagnostics licenses to Cambridge Biotech.

The licenses of the Pasteur HIV Technologies to Cambridge Biotech are
non-exclusive and cover diagnostic test kits in finished form embodying the
Pasteur HIV Technologies. The territorial scope of the licenses is worldwide,
with the exception of exclusive rights which Pasteur Sanofi Diagnostics asserted
to have granted in the Pasteur HIV Technologies to Genetic Systems Corporation
("Genetic Systems") in the United States, Canada, Mexico, Australia, New Zealand
and India (the "Excluded Countries"). However, the licenses provide that, to the
extent that Pasteur Sanofi Diagnostics recovers the right to practice the
patents underlying the Pasteur HIV Technologies in the Excluded Countries,
Cambridge Biotech is entitled to non-exclusive rights in such technology in such
countries. In 1990, Pasteur Sanofi Diagnostics acquired ownership of Genetic
Systems, whereupon Cambridge Biotech commenced selling products incorporating
the Pasteur HIV Technologies in the United States. These activities were
challenged in a patent infringement lawsuit filed in bankruptcy court in March
1995 by Institut Pasteur, the minority stockholders of Pasteur Sanofi
Diagnostics and Genetic Systems. In September 1995, the bankruptcy court ruled
in favor of Cambridge Biotech on this issue, and Institut Pasteur and Genetic
Systems Corporation subsequently filed an appeal in district court. The date for
the appeal hearing is unknown. If the bankruptcy court decision were reversed on
appeal, the territories to which Cambridge Affiliate could sell HIV-related
products would be limited and this could have a material adverse effect on the
Company. See "Business -- Patents and Proprietary Rights."

In May 1996, Cambridge Biotech proposed plans of reorganization under
Chapter 11 that contemplated the sale of its diagnostics business to bioMerieux
Vitek, Inc. ("bioMerieux"). Under the terms of the proposed sale, bioMerieux
would succeed to Cambridge Biotech's interest in Cambridge Affiliate, and
bioMerieux would acquire effective control of rights to practice the patents of
Syva Company ("Syva") and Pasteur Sanofi Diagnostics. Syva and Pasteur Sanofi
Diagnostics objected to confirmation of a plan that would permit Cambridge
Biotech to assume or transfer control of its rights as licensee with respect to
their patents. On July 18, 1996, the Bankruptcy Court confirmed Cambridge
Biotech's Chapter 11 plan over all objections, specifically upholding Cambridge
Biotech's right to assume the Syva and Pasteur Sanofi Diagnostics licenses. Syva
and Pasteur Sanofi Diagnostics immediately appealed the Bankruptcy Court's
order. The Syva appeal was subsequently settled. Pasteur Sanofi Diagnostics,
however, obtained orders staying the Bankruptcy Court's plan-confirmation order
and the proposed sale of stock to bioMerieux pending determination of its
appeal. On September 27, 1996, the United States District Court affirmed the
plan-confirmation order, including Cambridge Biotech's right to assume the
licenses extended to the Cambridge Affiliate. Pasteur Sanofi Diagnostics then
appealed to the Court of Appeals for the First Circuit. Cambridge Biotech and
bioMerieux consummated the sale in October 1996. On January 17, 1997, a
three-judge panel of the First Circuit Court of Appeals ruled that Cambridge
Biotech was entitled to assume its license agreements with Pasteur Sanofi
Diagnostics. Pasteur Sanofi Diagnostics has 90 days from the date of the First
Circuit's ruling in which to seek review by the United States Supreme Court. If
such review is granted and if the Court were to overturn the

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<PAGE> 16

prior decisions in the case, then it would be unclear whether Cambridge Biotech
could continue to extend the license to Cambridge Affiliate. The failure of the
Company to retain such license could have a material adverse effect on the
Company. See "Business -- Strategic Transactions -- Cambridge Diagnostics
Acquisition."

DEBT FINANCING

The Company will be subject to risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest. On a pro forma basis after
giving effect to certain events including the consummation of this offering (and
assuming the application of $5.0 million of the proceeds of this offering to
repay certain indebtedness incurred in connection with such acquisition), the
Company would have approximately $39.8 million of outstanding debt, including
the AHP Term Loan which was used to pay part of the cash portion of the
consideration payable to AHP under the terms of Nutritional Supplement Lines
Acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." This outstanding
indebtedness, together with restrictions in the Company's financing instruments,
may limit the Company's ability to obtain additional debt financing in the
future and to respond to changing business and economic conditions and could
adversely affect its ability to effect its business strategies. In addition,
because certain of the Company's debt, including the AHP Term Loan, bears
interest at floating rates, an increase in interest rates could adversely affect
the Company's ability to meet its debt service obligations. See "Business --
Strategic Transactions -- Nutritional Supplement Lines Acquisition."

RISK OF INADEQUATE FUNDING; FUTURE CAPITAL NEEDS

The Company currently anticipates that its existing capital resources,
including the net proceeds of this offering, together with funds expected to be
generated from operations, will be adequate to satisfy its capital requirements
for at least 12 months. No assurance can be given that additional financing will
be available, or, if available, that it will be available on acceptable terms.
If additional funds are raised by issuing equity securities, further dilution to
then existing stockholders will result. If adequate funds are not available, the
Company may be required to significantly curtail one or more of its research and
development programs, or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies or products which the Company would otherwise pursue on its
own. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

RISKS RELATED TO THE INTEGRATION OF ORGENICS' OPERATIONS

Upon completion of the Orgenics Acquisition, the Company intends to
integrate Orgenics' operations with the Company's current organization in order
to avoid redundancy and to make the most efficient use of Orgenics' assets. No
assurance can be given that such integration will be successful or that the
Company will not incur significant costs associated with such integration, such
as costs associated with the diversion of management resources to integration
issues. See "Business -- Strategic Transactions -- Orgenics Acquisition."

DEPENDENCE UPON KEY PERSONNEL

The Company is highly dependent on the services of Ron Zwanziger, its
Chairman, President and Chief Executive Officer, and certain other members of
its management and scientific staff, and the loss of Mr. Zwanziger or one or
more of such employees could have a material adverse effect on the Company. In
addition, the Company believes that its future success will depend in large part
upon its ability to attract and retain highly skilled scientific, managerial and
marketing personnel, particularly as the Company expands its activities,
including product development and regulatory affairs, research and development
and sales and manufacturing. The Company faces significant competition for such
personnel from other companies, research and academic institutions, government
entities and other organizations. There can be no assurance that the Company
will be successful in hiring or retaining the personnel it requires for
continued growth. The failure to

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<PAGE> 17

hire and retain such personnel could materially and adversely affect the
Company's prospects. See "Management."

DEPENDENCE ON THIRD-PARTY REIMBURSEMENT

In both the United States and elsewhere, sales of some of the Company's
products will be dependent in part on the availability of reimbursement from
third party payors, such as government and private insurance plans. Third party
payors are increasingly challenging the prices charged for medical products and
services. If the Company succeeds in bringing one or more of such products to
market, there can be no assurance that these products will be considered
cost-effective, that reimbursement will be available or, if available, that the
level of reimbursement will be sufficient to allow the Company to sell its
products on a profitable basis. See "Business -- Third-Party Reimbursement."

PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE

The testing, manufacturing and marketing of medical diagnostic devices,
such as the Company's blood glucose monitoring systems and HIV self tests
currently under development, including a home collection and mail-in HIV test
under development by a third party which the Company plans to market under a
license arrangement (see "Business -- Strategic Transactions -- Agreement with
ChemTrak"), entail an inherent risk of product liability claims. In addition,
the marketing of the Nutritional Supplement Lines may cause the Company to be
subjected to various product liability claims, including, among others, that the
Nutritional Supplement Lines have inadequate warnings concerning side effects
and interactions with other substances. Potential product liability claims may
exceed the amount of the Company's insurance coverage or may be excluded from
coverage under the terms of the policy. There can be no assurance that the
Company's existing insurance can be renewed at a cost and level of coverage
comparable to that presently in effect, if at all. In the event that the Company
is held liable for a claim against which it is not indemnified or for damages
exceeding the limits of its insurance coverage, such claim could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Product Liability" and "-- Product and
Technologies -- Infectious Disease Products -- HIV Tests."

EFFECT OF ADVERSE PUBLICITY; SCIENTIFIC RESEARCH

The Nutritional Supplement Lines contain vitamin, minerals, herbs and other
ingredients that the Company generally regards as safe when taken as directed
and that various scientific studies have suggested may offer certain health
benefits. However, because the Company is highly dependent upon consumers'
perception of safety and quality of the Nutritional Supplement Lines as well as
similar products distributed by competitors, the Company could be adversely
affected in the event any of the Nutritional Supplement Lines or similar
products should be asserted or prove to be harmful to consumers. In addition,
the Company believes that the recent growth of the nutritional supplements
market is based on recent scientific research suggesting potential health
benefits from regular consumption of certain vitamins and other nutritional
products and the attention focused on such benefits by the media. The scientific
research to date is preliminary and there can be no assurance of future
favorable scientific results and media attention or of the absence of
unfavorable or inconsistent findings.

RISKS RELATED TO INTERNATIONAL SALES AND OPERATIONS

The Company has manufacturing facilities in Galway, Ireland (the "Galway
Facility") and Inverness, Scotland (the "Inverness Facility") and markets and
sells its products in several international markets. In 1996, approximately 25%
and 2% of the Company's net sales were to customers in Europe and the Middle
East, respectively. If the Company's revenues generated by foreign activities
are not adequate to offset the expense of establishing and maintaining these
foreign activities, the Company's business, financial condition and results of
operations could be materially adversely affected. In addition, there are
certain risks inherent in doing business internationally, such as changes in
applicable laws and regulatory requirements, export and import restrictions,
export controls relating to technology, tariffs and other trade barriers, less
favorable intellectual property laws, difficulties in staffing and managing
foreign operations, longer payment cycles,

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difficulties in collecting accounts receivable, political instability,
fluctuations in currency exchange rates, expatriation controls and potential
adverse tax consequences, which could adversely impact the success of the
Company's international activities. There can be no assurance that one or more
of such factors will not have a material adverse effect on the Company's future
international activities and, consequently, on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing" and
"Business -- Facilities."

The executive offices and production facilities of Orgenics are located in
the State of Israel, and Orgenics is directly affected by political, economic
and military conditions in that country. On many occasions since December 1987,
Israel has experienced severe civil unrest, primarily in the areas that have
been under its control since 1967. No assurance can be given that hostilities or
other political, economic and military conditions in Israel will not have a
material adverse effect on the business and operations of Orgenics. Any such
effect could have a material adverse effect on the business, operations or
financial condition of the Company.

FLUCTUATIONS IN RESULTS OF OPERATIONS

The Company's annual and quarterly operating results may fluctuate due to
factors such as the timing of new product announcements and introductions by the
Company and its competitors, market acceptance of new or enhanced versions of
the Company's products, changes in manufacturing costs or other expenses,
competitive pricing pressures, the gain or loss of significant distribution
outlets or customers, increased research and development expenses and general
economic conditions. In addition, it is possible that in some future periods the
Company's results of operations will be below the expectations of the public
market. In any such event, the market price of the Common Stock could be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

POSSIBLE VOLATILITY OF SHARE PRICE

The market price of the Common Stock may be highly volatile. Quarterly
operating results of the Company, changes in general conditions in the economy,
the financial markets, or the healthcare industry, or other developments
affecting the Company or its competitors, could cause the market price of the
Common Stock to fluctuate substantially. In particular, the stock market may
experience significant price and volume fluctuations which may affect the market
price of the Common Stock for reasons unrelated to the Company's operating
performance.

Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect the prevailing market price for the
Common Stock. In October 1996, the Company sold Series A Preferred Shares to
certain non-U.S. investors yielding net proceeds to the Company of approximately
$5.2 million. Pursuant to a conversion formula contained in their subscription
agreements with the Company, the holders of such shares, among other things, are
entitled to convert their Series A Preferred Shares into shares of Common Stock
in five equal installments over a 120-day period beginning in December 1996. Any
Series A Preferred Shares not previously converted will automatically convert
into shares of Common Stock on October 15, 1998. Accordingly, assuming an
average market price of $11.60 per share of Common Stock (based on the closing
price of the Common Stock on the AMEX on the five trading days during the period
February 27 through March 5, 1997), resulting in a conversion price of $11.60
per share, 421,684 shares of Common Stock will be freely tradeable without
restriction or registration under the Securities Act of 1933, as amended (the
"Securities Act"), as a result of the conversion of the remaining Series A
Preferred Shares. See "-- Shares Eligible for Future Sale" and "Description of
Capital Stock -- Authorized and Outstanding Capital Stock -- Series A Preferred
Shares."

CONTROL BY CERTAIN STOCKHOLDERS

Upon completion of this offering, and without giving effect to the issuance
of any additional shares of Common Stock which may be issued in connection with
the Orgenics Acquisition, the executive officers and directors of the Company
will collectively hold approximately 23.6% of the outstanding shares of Common
Stock (including rights to receive shares of Common Stock but excluding options
and warrants to purchase up to an additional 3,605,176 shares of Common Stock
held by them representing approximately 23.8% of the Common Stock on a
fully-diluted basis and excluding shares, if any, purchased by them in this
offering).

17
<PAGE> 19

Accordingly, these persons may have the ability to control the Company's Board
of Directors, and, therefore, the business, policies and affairs of the Company.
In addition, certain stockholders of the Company, including Mr. Zwanziger, who
will collectively hold approximately 17.3% of the outstanding shares of Common
Stock upon completion of this offering, are parties to a voting agreement
pursuant to which such stockholders have agreed to vote their shares in
accordance with the recommendation of the Company's Board of Directors through
December 31, 1997. See "Principal Stockholders" and "Description of Capital
Stock."

ANTI-TAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS AND
DELAWARE LAW

The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated By-laws (the "By-laws")
contain certain provisions relating to corporate governance and the rights of
stockholders. These provisions may be deemed to have a potential "anti-takeover"
effect since such provisions may delay, defer or prevent a change in control of
the Company. The Certificate of Incorporation provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of Directors
will be elected each year. In addition, the Certificate of Incorporation
provides that stockholders may remove a director only for cause and only by the
vote of the holders of two-thirds of the Common Stock of the Company. This
provision, when coupled with the provision of the Certificate of Incorporation
authorizing only the Board of Directors to fill vacant directorships, will
preclude stockholders from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with their own nominees, and will make more
difficult, and therefore may discourage, a proxy contest to change control of
the Company. These provisions of the Certificate of Incorporation may be changed
only by the affirmative vote of the holders of eighty percent of the Common
Stock of the Company entitled to vote on such matters at a meeting duly called
for such purpose. The Certificate of Incorporation also provides that
stockholder actions may not be taken by written consents.

The By-laws provide that special meetings of stockholders of the Company
may be called only by the Board of Directors. The By-laws also provide that
stockholders seeking to bring business before an annual or special meeting of
stockholders, or to nominate candidates for election as directors at an annual
or special meeting of stockholders, must provide prior written notice thereof,
as set forth in the By-laws. The By-laws may only be amended by the stockholders
by the affirmative vote of at least two-thirds of the votes eligible to be cast,
unless the Board of Directors has approved such amendment, in which case the
affirmative vote of at least a majority of the votes eligible to be cast is
required. See "Description of Capital Stock."

EFFECT OF ISSUANCE OF PREFERRED STOCK

The Company's Board of Directors is currently authorized to issue up to
4,990,000 shares of preferred stock in the future without further stockholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as the Board of Directors may determine. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. In addition, the issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire control of, or of
discouraging acquisition bids for, the Company. This could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. In October 1996, the Board of Directors adopted a resolution authorizing
the Series A Preferred Shares, and the Company subsequently sold 5,500 Series A
Preferred Shares to certain non-U.S. investors. See "Description of Capital
Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, and without giving effect to the issuance
of any additional shares of Common Stock which may be issued in connection with
the Orgenics Acquisition, the Company will have a total of 7,888,313 shares of
Common Stock outstanding. Of these shares, the 1,800,000 shares of Common Stock
offered hereby (2,070,000 shares if the Underwriters' over-allotment option is
exercised in full) and the 1,495,000 shares issued in the Initial Public
Offering will be freely tradable without restriction or registration under the
Securities Act by persons other than "affiliates" of the Company, as that term
is defined in Rule 144 promulgated under the Securities Act ("Affiliates"). In
addition, in October 1996 the Company sold 5,500

18
<PAGE> 20

Series A Preferred Shares to certain non-U.S. investors. The holders of such
shares, among other things, are entitled to convert their Series A Preferred
Shares into shares of Common Stock in five equal installments over a 120-day
period beginning in December 1996. Series A Preferred Shares are generally
convertible at a discount of 14.5% from the average closing bid price per share
of the Common Stock for the five trading days prior to their conversion. See
"Description of Capital Stock -- Authorized and Outstanding Capital Stock." Upon
the election of certain holders of Series A Preferred Shares, the Company issued
in December 1996 and February 1997 an aggregate of 63,951 shares of Common
Stock, all of which are freely tradeable without restriction or registration.
Upon conversion of the remaining 4,800 Series A Preferred Shares into shares of
Common Stock, assuming an average market price of $11.60 per share, resulting in
a conversion price of $11.60 per share, an additional 421,684 shares of Common
Stock will be freely tradeable without restriction or registration under the
Securities Act. In addition, during the period November 1996 through February
1997, the Company issued an aggregate of 149,384 shares of Common Stock in
connection with exercises of employee stock options and purchases under the
Company's Employee Stock Purchase Plan, all of which have been registered and
are freely tradeable. The remaining 4,379,978 shares of Common Stock currently
outstanding will be "restricted securities" as that term is defined by Rule 144.
These restricted securities (the "Restricted Securities") were issued and sold
by the Company in private transactions in reliance upon exemptions from
registration under the Securities Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed Affiliates of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the number of shares of Common
Stock then outstanding (approximately 78,883 shares upon completion of this
offering) or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements, and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, would be entitled to sell such shares under Rule 144(k) without regard to
the requirements described above.

Under Rule 144 (and subject to the conditions thereof), 3,273,231
Restricted Securities will be eligible for sale after completion of this
offering. The remaining Restricted Securities will become eligible for resale in
accordance with Rule 144. The Company, its directors, executive officers and
certain other stockholders have agreed not to offer, sell or otherwise dispose
of any shares of Common Stock (or any securities convertible into or exercisable
for Common Stock) for 120 days after the offering, with certain limited
exceptions, without the prior written consent of Lehman Brothers Inc. on behalf
of the Representatives.

In addition, the Company has granted certain registration rights with
respect to shares of Common Stock which are currently outstanding or which are
issuable in the future, pursuant to which the Company may be required to
register such shares for sale under the Securities Act. See "Shares Eligible for
Future Sale."

MANAGEMENT DISCRETION OVER UNALLOCATED PROCEEDS

The Company has not yet identified specific uses for a portion of the
expected net proceeds of this offering. See "Use of Proceeds." Management of the
Company will have broad discretion over the manner in which these funds are
applied. Pending their use for specific business purposes, the proceeds of this
offering will be invested primarily in government securities or cash
equivalents. Such investment may result in the Company obtaining lower yields on
the funds than might be available in the securities markets generally.

DILUTION

Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value per share of
the Common Stock from the public offering price. See "Dilution."

19
<PAGE> 21

DIVIDENDS

The Company has never paid any dividends to holders of shares of Common
Stock. The Company is not currently generating income from operations and
expects that it will retain its earnings, if any, to finance its operations. The
Company thus does not expect to pay dividends to holders of shares of Common
Stock for the foreseeable future. Holders of Series A Preferred Shares are
generally entitled to receive cumulative quarterly dividends at a rate of 6% per
annum. See "Price Range of Common Stock and Dividend Policy."

20
<PAGE> 22

THE COMPANY

Selfcare was incorporated in Delaware on August 25, 1992 and acquired its
predecessor company, Superior Sensors, Inc. by merger on September 15, 1992. The
Company's principal executive offices are located at 200 Prospect Street,
Waltham, Massachusetts 02154, and its telephone number is (617) 647-3900.

As used in this Prospectus, the terms "Selfcare" and the "Company" refer to
Selfcare, Inc. and its subsidiaries and predecessors, unless the context
otherwise requires.

USE OF PROCEEDS

The net proceeds to Selfcare from the sale of the 1,800,000 shares of
Common Stock offered hereby are estimated to be $16.3 million ($18.9 million if
the Underwriters' over-allotment option is exercised in full) after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company.

The Company estimates that it will use approximately $4.7 million of the
net proceeds to pay the cash portion of the consideration payable under
agreements relating to the Orgenics Acquisition. The actual amount may be less
or more (but not in excess of $9.3 million) depending upon elections made by the
other parties to those agreements. See "Business -- Strategic
Transactions -- Orgenics Acquisition." The Company intends to apply
approximately $5.0 million of the net proceeds of this offering to repay the AHP
Bridge Loan used to fund a portion of the purchase price paid in connection with
the Nutritional Supplement Lines Acquisition. The remaining $31.0 million of the
purchase price was funded with the AHP Term Loan and the AHP Note. See
"Business -- Strategic Transactions -- Nutritional Supplement Lines
Acquisition." However, the Company may instead elect, either prior to or after
the completion of this offering, to refinance the AHP Bridge Loan from other
sources, including the proceeds of a possible private placement of subordinated
debt. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview," and "-- Liquidity and Capital Resources."

The Company currently intends to reserve the balance of the net proceeds of
this offering (including an additional approximately $2.5 million if the
Underwriters' over-allotment option is exercised in full) primarily for working
capital and other general corporate purposes, including expansion of the
Company's product research and development and sales and marketing efforts, and
potential acquisitions.

Based on the foregoing, the Company's expected uses of the net proceeds of
this offering are as follows:

<TABLE>
<CAPTION>
PERCENT OF TOTAL
USE OF PROCEEDS AMOUNT(1) NET PROCEEDS
-------------------------------------------------- ----------- ----------------
<S> <C> <C>
To fund a portion of the consideration payable in
the Orgenics Acquisition........................ $ 4,700,000(2) 29%
For possible repayment of certain short term debt
incurred in connection with the Nutritional
Supplement Lines Acquisition.................... $ 5,000,000 31%
Working capital and other general purposes........ $ 6,620,000 40%
----------- ---
Total................................... $16,320,000 100%
===========
</TABLE>

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

(1) Does not include additional proceeds of approximately $2.5 million which
will be received by the Company if the Underwriters' over-allotment option
is exercised in full.

(2) Estimated amount assuming that all Orgenics and Orgenics International
stockholders were to elect to receive the purchase price of their Orgenics
shares in the form of 50% cash and 50% Common Stock and based on an average
market price of $11.825 per share of Common Stock and Orgenics' revenues for
the four fiscal quarters ended December 31, 1996. Actual amount may be less
or more depending upon elections made by the Orgenics and Orgenics
International stockholders pursuant to the Option Agreements. In addition,
if the Option Agreements were not exercised by the Company prior to March
10, 1997, the total purchase price for the shares would be approximately
$10.6 million (or $5.3 million in cash, assuming that all the Orgenics and
Orgenics International shareholders elected to receive 50% of the purchase
price in cash). See "Business -- Strategic Transactions -- Orgenics
Acquisition."

21
<PAGE> 23

The amounts actually expended by the Company for working capital purposes
will vary significantly depending upon a number of factors, including future
revenue growth, the amount of cash generated by the Company's operations and the
progress of the Company's product research and development efforts. In addition,
the Company may make one or more acquisitions of complementary technologies,
products or businesses which broaden or enhance the Company's current product
offerings. However, the Company has no specific agreements or commitments, and
is not currently engaged in any material negotiations with respect to any such
acquisition. Pending the uses described above, the net proceeds will be invested
in short-term, interest-bearing, investment-grade securities.

Based upon its current operating plan, the Company believes that its
existing capital resources, together with the proceeds of this offering and the
interest earned thereon, will be adequate to satisfy its capital requirements
for at least 12 months. See "Risk Factors -- Risk of Inadequate Funding; Future
Capital Needs" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the AMEX under the symbol "SLF."
The following table sets forth, for the periods indicated, the high and low sale
prices of the Common Stock on the AMEX. The Initial Public Offering of the
Common Stock at $8.50 per share was completed on August 6, 1996.

<TABLE>
<CAPTION>
PRICE RANGE
-------------------
HIGH LOW
------- -------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
3rd Quarter (commencing August 7, 1996)................................ $17.750 $ 8.500
4th Quarter............................................................ 18.000 11.500

YEAR ENDED DECEMBER 31, 1997
1st Quarter (through March 5, 1997).................................... $13.625 $10.000
</TABLE>

On March 6, 1997, the last reported sale price per share of the Common
Stock on the AMEX was $11.50 per share. At March 6, 1997, there were
approximately 140 holders of record of Common Stock.

The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, on the Common Stock will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion. Holders of Series A
Preferred Shares are generally entitled to receive cumulative quarterly
dividends payable in cash at the rate of 6% per annum. See "Description of
Capital Stock -- Authorized and Outstanding Capital Stock -- Series A
Convertible Preferred Stock."

22
<PAGE> 24

CAPITALIZATION

The following table sets forth as of December 31, 1996: (i) the actual
capitalization of the Company, (ii) the capitalization of the Company as
adjusted to reflect the issuance and sale of 1,800,000 shares of Common Stock
offered hereby and receipt and application of the net proceeds therefrom, after
deducting the underwriting discounts and commissions and estimated offering
expenses and (iii) on a pro forma basis to give effect to the events described
in Note (2) below. The debt presented below does not reflect actual current
liabilities of $15,374,498 or pro forma as adjusted current liabilities of
$25,374,498, nor does it reflect actual and pro forma as adjusted deferred
revenue net of current portion of $4,786,347. See "Use of Proceeds." This table
should be read in conjunction with the Company's Consolidated Financial
Statements and the Pro Forma Combined Condensed Financial Statements and the
Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED AS ADJUSTED(1)
------------ ------------ --------------
<S> <C> <C> <C>
Long term debt, net of current portion............... $ 5,895,701 $ 5,895,701 $ 26,895,701
Mandatorily redeemable preferred stock of a
subsidiary......................................... 1,753,928 1,753,928 1,753,928
Stockholder's equity (deficit):
Series A preferred stock............................. 5 5 5
Common stock, $.001 par value --
Authorized -- 40,000,000 shares
Issued -- 5,975,263 shares actual, 7,775,263 shares
as adjusted and 8,168,800 shares pro forma as
adjusted(2)..................................... 5,975 7,775 8,169
Additional paid-in capital........................... 55,233,847 71,552,047 76,205,223
Less -- Treasury stock, at cost, 15,600 shares in
1996............................................... (15,200) (15,200) (15,200)
Accumulated deficit.................................. (43,318,898) (43,318,898) (46,622,198)
Cumulative translation adjustment.................... 173,565 173,565 173,565
------------ ------------ -------------
Total stockholders' equity................. $ 12,079,294 $ 28,399,294 $ 29,749,564
------------ ------------ -------------
Total capitalization....................... $ 19,728,923 $ 36,048,923 $ 58,399,193
============ ============ =============
</TABLE>

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

(1) Adjusted to give pro forma effect to the Company's existing and planned
purchases of the Orgenics and Orgenics International shares and the purchase
of the Nutritional Supplement Lines from AHP and the incurrence of the
related bank debt. See Notes to Unaudited Pro Forma Combined Condensed
Financial Statements for additional information regarding purchase price
adjustments in connection with the Orgenics Acquisition and the Nutritional
Supplement Lines Acquisition.

(2) Excludes an aggregate of 6,197,020 shares of Common Stock issuable pursuant
to certain rights and upon exercise of options and warrants outstanding as
of March 1, 1997.

23
<PAGE> 25

DILUTION

The net tangible book value of the Company as of December 31, 1996, was
$4,504,585 or $0.75 per share of Common Stock. "Net tangible book value"
represents the amount of the Company's total tangible assets reduced by the
amount of its total liabilities and divided by the total number of shares of
Common Stock outstanding. Without taking into account any other changes in such
net tangible book value after December 31, 1996, other than to give effect to
the receipt by the Company of the net proceeds from the sale of the 1,800,000
shares of Common Stock offered hereby after deducting the underwriting discounts
and commissions and estimated offering expenses, the net tangible book value of
the Company as of December 31, 1996 would have been $20,824,585, or $2.68 per
share. This represents an immediate increase in net tangible book value of $1.93
per share to existing stockholders and an immediate dilution in net tangible
book value of $7.32 per share to new investors purchasing Common Stock in this
offering. The following table illustrates this per-share dilution:

<TABLE>
<S> <C> <C>
Price to public...................................................... $10.00
Net tangible book value per share at December 31, 1996......... 0.75
Increase per share attributable to new investors............... 1.93
----
Net tangible book value per share after this offering................ 2.68
------
Dilution per share to new investors.................................. $ 7.32
======
</TABLE>

The foregoing computations assume no exercise of stock options or warrants
or issuance of shares of Common Stock after December 31, 1996. As of such date,
there were 6,277,442 shares of Common Stock issuable upon the exercise of
outstanding options and warrants at a weighted average exercise price of $3.36
per share. As of the date hereof, there are 4,173,061 shares of Common Stock
reserved for future issuance under the Company's stock option plans. In the
event that any shares available for issuance upon exercise of outstanding
warrants or options are issued, there will be further dilution to investors in
this offering. See "Capitalization," "Management -- Executive Compensation,"
"Certain Transactions" and "Description of Capital Stock." The calculations
described above also do not give effect to the Company's existing and planned
purchases of the Orgenics and Orgenics International shares, or to the purchase
of the Nutritional Supplement Lines from AHP and the incurrence of the related
bank debt. See Notes to Unaudited Pro Forma Combined Condensed Financial
Statements for additional information regarding purchase price adjustments in
connection with the Orgenics Acquisition and the Nutritional Supplement Lines
Acquisition. After giving effect to these purchases, pro forma net tangible book
value after the offering would be $(20,429,372), or ($2.50) per share and
dilution per share to new investors would be $2.50.

24
<PAGE> 26

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected financial data presented below as of December 31, 1994, 1995,
and 1996 and for each of the three years in the period ended December 31, 1996,
are derived from the Company's Consolidated Financial Statements, included
elsewhere in this Prospectus, which have been audited by Arthur Andersen LLP,
independent public accountants.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996
-------------------------
1994 1995 ACTUAL PRO FORMA(1)
------- -------- -------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net product sales............................................................ $ 2,089 $ 6,723 $ 14,067 $ 48,789
Grants and other revenue..................................................... 233 516 4,996 4,996
------- -------- -------- --------
Net revenues................................................................. 2,322 7,239 19,063 53,785
Cost of sales................................................................ 1,560 5,565 10,958 22,013
------- -------- -------- --------
Gross profit................................................................. 762 1,674 8,105 31,772
Operating expenses
Research and development................................................... 584 1,532 6,643 8,012
Charge for in-process research and development............................. -- -- 4,397 --
Selling, general and administrative........................................ 2,963 5,650 10,518 26,641
Non-cash compensation...................................................... 60 52 4,195 4,195
------- -------- -------- --------
Total operating expenses................................................. 3,607 7,234 25,753 38,848
------- -------- -------- --------
Operating loss............................................................... (2,845) (5,560) (17,648) (7,076)
Interest expense, net........................................................ (7) (4,481) (10,752) (13,039)
Equity in net loss of affiliate.............................................. -- -- (200) (200)
------- -------- -------- --------
Loss before minority interest in subsidiary's loss and dividends and
accretion on preferred stock of a subsidiary............................... (2,852) (10,041) (28,600) (20,315)
Minority interest in subsidiary's loss....................................... 67 -- 132 --
Dividends and accretion on mandatorily redeemable preferred stock of a
subsidiary................................................................. -- (56) (110) (110)
------- -------- -------- --------
Net loss................................................................. $(2,785) $(10,097) $(28,578) $(20,425)
======= ======== ======== ========
Net loss per common and common equivalent share(2)........................... $ (0.52) $ (1.66) $ (4.70) $ (2.47)
======= ======== ======== ========
Weighted average number of common and common equivalent shares
outstanding(2)............................................................. 5,379 6,072 6,083 8,276
======= ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------
1996
--------------------------------------------
AS PRO FORMA
1994 1995 ACTUAL ADJUSTED(3) AS ADJUSTED(3)(4)
------- -------- -------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 1,762 $ 7,395 $ 16,459 $ 32,779 $ 21,625
Working capital (deficit)............................... (221) 4,318 9,863 26,183 5,030
Total assets............................................ 5,331 13,692 41,089 57,409 88,646
Deferred revenue, net of current portion................ 1,197 3,123 4,786 4,786 4,786
Long-term debt, net of current portion.................. -- 8,167 5,896 5,896 26,896
Total liabilities....................................... 5,248 17,279 26,057 26,057 57,057
Mandatorily redeemable preferred stock.................. -- 1,644 1,754 1,754 1,754
Accumulated deficit..................................... (4,579) (14,676) (43,319) (43,319) (46,622)
Stockholders' equity (deficit).......................... 83 (5,230) 12,079 28,399 29,750
</TABLE>

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

(1) In October 1996, Selfcare acquired a 57.1% direct and indirect equity
interest in Orgenics, as a result of the conversion of the Orgenics
Debenture and purchases of outstanding shares of Orgenics and Orgenics
International. Selfcare expects to complete the Orgenics Acquisition upon
completion of this offering, pursuant to the terms of the Option Agreements
between the Company and all the holders of the remaining shares in Orgenics
and Orgenics International. Pursuant to the Option Agreements, the Company
has an option to call the Orgenics and Orgenics International shares and, in
certain circumstances (including the completion of this offering), each
Orgenics stockholder has the option to put its Orgenics shares to Selfcare.
Selfcare intends to exercise its call options in connection with this
offering. The Company has paid approximately $7.0 million in cash and
converted the Orgenics Debenture for its existing ownership interest and
expects to pay additional consideration totaling $9.3 million in cash and
Common Stock for substantially all of the remaining shares in Orgenics and
Orgenics International pursuant to the exercise of the Option Agreements. If
the Option Agreements are not exercised by the Company prior to March 10,
1997, this amount would increase to approximately $10.6 million. Each of the
Orgenics and Orgenics International stockholders may elect to receive the
purchase price entirely in cash, entirely in the Common Stock, or 50% in
cash and 50% in Common Stock. See "Business -- Strategic

25
<PAGE> 27

Transactions -- Orgenics Acquisition." Assuming that all Orgenics and
Orgenics International stockholders were to elect to receive the
consideration in the form of 50% cash and 50% Common Stock, and assuming
that the Option Agreements are exercised by the Company prior to March 10,
1997, the Company would pay approximately $4.7 million in cash and issue
approximately 393,537 shares of Common Stock (based on an average market
price of $11.825 per share of Common Stock and Orgenics' revenues for the
four fiscal quarters ended December 31, 1996). In addition, the Company has
granted options to purchase up to 85,800 shares of Common Stock having a
fair market value of approximately $1.1 million, and will incur direct
acquisition costs of approximately $100,000.

(2) Computed on the basis described in Note 2g of Notes to Consolidated
Financial Statements.

26
<PAGE> 28

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

OVERVIEW

Selfcare is engaged in the development, manufacture, and marketing of
self-test diagnostic products for the diabetes, women's health and infectious
disease markets. During 1995 and 1996, the Company derived approximately 35% and
39%, respectively, of its revenues from the sale of home pregnancy and ovulation
prediction tests. The balance of the Company's revenues during these periods
were from the sale of diagnostic tests for the professional markets which
accounted for 58% and 35% of the Company's revenues in 1995 and 1996
respectively, the amortization of deferred revenue principally related to grants
received by the Company, accounting for approximately 7% and 5% of the Company's
revenue in 1995 and 1996 respectively, and the recognition of $4 million of a $7
million success fee received in 1996 which accounted for 21% of revenues for
1996. The Company expects that, as a result of the Orgenics Acquisition, the
Company's revenues derived from professional test products will increase.
Orgenics had sales of $10.2 million and $12.3 million in 1995 and 1996,
respectively. See "Business -- Strategic Transactions -- Orgenics Acquisition."
Based on its strategic focus, the Company expects sales of self-test diagnostic
products to become the largest source of its revenues. Although no assurances
can be given as to whether regulatory authorizations necessary to enable the
Company to commercialize new self tests will be obtained, the Company
anticipates that significantly increased expenditures on research and
development, manufacturing, sales and marketing will be required to support such
commercialization.

The Company's existing and planned products are targeted at the two largest
existing markets for self-care diagnostics, diabetes management and women's
health, as well as the emerging market for self tests for infectious diseases
and agents, including HIV. An important part of the Company's business strategy
is to enter into strategic alliances, joint ventures and licensing arrangements
with third parties, primarily medical products companies, for the development,
manufacture, and distribution of certain products. The Company is also pursuing
a strategy of selective acquisitions of companies, assets and technologies which
it believes will enhance its ability to deliver innovative diagnostic products
to the marketplace at a low cost. The Company has completed two such
transactions, the acquisition of Cambridge Diagnostics and the Company's
investment in Inverness Medical Ltd. ("Inverness").

In October 1996, Selfcare and LifeScan entered into the Distribution
Agreement with respect to the New System. As contemplated by November 10, 1995
agreements between Selfcare and LifeScan, LifeScan paid Selfcare a $7.0 million
success fee, and Johnson & Johnson Development Corporation ("JJDC"), an
affiliate of LifeScan, converted its previous cash advances to Selfcare of
approximately $13.7 million into 201,622 shares of Common Stock upon the
consummation of the Distribution Agreement. In addition, JJDC will also receive,
for no additional consideration, shares of Common Stock equal to 5% of all
Common Stock issued by the Company pursuant to options and warrants that were
outstanding as of November 10, 1995. The Company estimates that JJDC will
ultimately receive approximately an additional 278,572 shares of Common Stock.
The Company plans to submit in early 1997 a Section 510(k) Notification to the
FDA seeking permission to begin commercial distribution of the New System.
Selfcare currently believes that it can complete development, receive FDA
Clearance and commence shipments of the New System as early as the first half of
1997. However, no assurance can be given that these events will occur or will
not be delayed. A material delay in or the non-occurrence of any of these events
would have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company also plans to expand its research, manufacturing, and marketing
capabilities for infectious disease diagnostic products by acquiring the capital
stock of Orgenics. In October 1996, Selfcare acquired a 57.1% direct and
indirect equity interest in Orgenics, as a result of the conversion of the
Orgenics Debenture

27
<PAGE> 29

and purchases of outstanding shares of Orgenics and Orgenics International.
Selfcare expects to complete the Orgenics Acquisition upon completion of this
offering, pursuant to the terms of the Option Agreements between the Company and
substantially all the holders of the remaining shares in Orgenics and Orgenics
International. Pursuant to the Option Agreements, the Company has an option to
call the Orgenics and Orgenics International shares and, in certain
circumstances (including the completion of this offering), each Orgenics
stockholder has the option to put its Orgenics shares to Selfcare. Selfcare
intends to exercise its call options in connection with this offering. The
Company's interests in Orgenics and Orgenics International were acquired for a
total of approximately $7.0 million in cash, plus the conversion of the Orgenics
Debenture, and the Company expects to pay consideration totaling $9.3 million in
cash and Common Stock for substantially all the remaining shares in Orgenics and
Orgenics International pursuant to the exercise of the Option Agreements. If the
Option Agreements were not exercised by the Company prior to March 10, 1997,
this amount would increase to approximately $10.6 million. Each of the Orgenics
and Orgenics International stockholders may elect to receive the purchase price
entirely in cash, entirely in Common Stock, or 50% in cash and 50% in Common
Stock. See "Business -- Strategic Transactions -- Orgenics Acquisition."
Assuming that all Orgenics and Orgenics International stockholders were to elect
to receive the consideration in the form of 50% cash and 50% Common Stock, and
assuming that the Option Agreements are exercised by the Company prior to March
10, 1997, the Company would pay approximately $4.7 million in cash and issue
approximately 393,537 shares of Common Stock (based on an average market price
of $11.825 per share of Common Stock and Orgenics' revenues for the four fiscal
quarters ended December 31, 1996). In addition, the Company has granted options
to purchase up to 85,800 shares of Common Stock having a fair market value of
approximately $1.1 million, and will incur direct acquisition costs of
approximately $100,000.

The Company's results of operations for the year ended December 31, 1996
include certain significant noncash charges which became final upon the
consummation of the Initial Public Offering and certain agreements entered into
with certain holders of promissory notes issued by the Company (see "Strategic
Transactions -- Cambridge Diagnostics Acquisition"). For the year ended December
31, 1996, the total non-cash charge for compensation relating to options granted
to the Company's Chief Executive Officer was $3.2 million. The Company has also
recorded approximately $10.6 million of non-cash interest expense relating to
warrants granted to noteholders in connection with the acquisition of Cambridge
Diagnostics. All non-cash charges were computed as being the difference between
the fair market value of the Common Stock and the exercise price of the
security, less charges previously recorded.

RECENT DEVELOPMENT -- NUTRITIONAL SUPPLEMENT LINES ACQUISITION

On February 19, 1997, pursuant to the terms of the Nutritional Supplement
Lines Acquisition, the Company acquired the Nutritional Supplement Lines from
AHP for consideration totaling $36.0 million. The purchase price was financed
with the AHP Term Loan, the AHP Bridge Loan and the AHP Note. As part of its
plans for maintaining and expanding sales of these products, the Company expects
to incur substantial marketing expenses in 1997 and thereafter. These
initiatives are expected to result in significant increases in the Company's
selling, general and administrative expense. In addition, the Company's efforts
to increase the sales of the Nutritional Supplement Lines may result in lower
margins than experienced by AHP for these products. See "Risk
Factors -- Nutritional Supplement Lines Acquisition," "-- Liquidity and Capital
Resources," and "Business -- Strategic Transactions -- Nutritional Supplement
Lines Acquisition."

28
<PAGE> 30

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the percentage
relationship that certain statement of operations items bear to net revenues.

<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
FOR
--------------------------
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net product sales............................................. 90% 93% 74%
Grants and other revenues..................................... 10 7 26
Net revenues................................................ 100 100 100
Gross profit.................................................. 33 23 43
Research and development expense.............................. 25 21 35
Charge for in process research and development................ -- -- 23
Selling, general and administrative expense................... 127 78 55
Non-cash compensation expense................................. 3 1 22
Total operating expense....................................... 155 100 135
Interest income (expense)..................................... -- (62) (57)
Minority interest in subsidiary's income...................... 2 -- --
Dividends and accretion on
preferred stock of a subsidiary............................. -- -- (1)
Net loss...................................................... (120) (139) (150)
</TABLE>

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

Net Revenues. Net revenues increased $11.8 million or 163% to $19.1 million
from $7.2 million in 1995. Net product sales increased $7.3 million or 109% to
$14.1 million from $6.7 million in 1995. Two significant factors contributed to
the increase. The first was the acquisition of 57.1% of Orgenics on October 24,
1996, which accounted for $2.0 million of the sales in 1996. The second was the
increased demand in the United States for the Company's pregnancy and ovulation
prediction products. Net product sales for the Company's U.S. operations for
1996 were $6.6 million, an increase of $4.5 million or 218% from net product
sales of $2.1 million in 1995. The Company also recognized $4.0 million of
revenue related to a $7.0 million success fee received from LifeScan in October
1996. Approximately $722,000 of the revenues for 1996 was attributable to the
amortization of deferred revenue associated with certain development and capital
grants relating to the Inverness Facility. There was approximately $216,000 of
revenue recognized in connection with these grants for 1995.

Gross Profit. Gross profit for 1996 increased $6.4 million or 384% to $8.1
million from $1.7 million in 1995. Gross profit as a percentage of net revenues
increased to 43% for 1996 from 23% in 1995. The increase in gross profit was
primarily attributable to the revenue related to the success fee from LifeScan
and the amortization of deferred revenue of certain development and capital
grants relating to the Inverness Facility. Gross profit on product sales was 16%
for both years.

Research and Development Expense. Research and development expense for 1996
increased $5.1 million or 333% to $6.6 million from $1.5 million in 1995. The
increase was primarily due to expenses incurred in connection with the
development of the Company's New System and generic electrochemical blood
glucose test strips. These development activities accounted for $4.0 million of
the increase in 1996. In addition, the Company continues to allocate research
and development resources to the areas of women's health products and infectious
diseases, principally those related to the detection of HIV. The Company expects
to continue to spend significant amounts on research and development throughout
1997.

Charge for In Process Research and Development. A portion of the purchase
price of the Company's 57.1% interest in Orgenics was allocated to in process
research and development projects that did not achieve technological feasibility
and did not have future alternative uses.

Selling, General and Administrative Expense. Selling, general and
administrative expense increased $4.9 million or 86% to $10.5 million from $5.6
million in the 1995. The increase was primarily attributable to expansion of the
Company's marketing efforts in the United States and Europe and the hiring of
additional staff to support the Company's operations. Selling, general and
administrative expense, as a percentage of net revenues, decreased during 1996
as compared to 1995. Selling, general and administrative expense were 55% of net
revenues for 1996 compared to 78% for 1995.

29
<PAGE> 31

Non-Cash Compensation Expense. Substantially all of the non-cash
compensation expense for 1996 related to certain stock options granted to
certain employees of the Company. For 1996 the non-cash compensation expense
related to a stock option granted to the Company's Chief Executive Officer in
August 1995 was $3.2 million. Non-cash compensation expense of $680,000 for 1996
related to stock options granted to certain employees that were contingent on
certain goals which have now been met. In accordance with SFAS No. 123,
Accounting for Stock Based Compensation, the Company recorded non-cash
compensation expense of $76,000 for stock options granted to outside
consultants. The remaining $199,000 of non-cash compensation expense for 1996
relates to the amortization of deferred compensation pertaining to the grant of
certain stock options to employees.

Interest and Other Income (Expense). In 1996, the Company recognized $10.6
million of non-cash interest expense relating to certain warrants issued in
connection with the acquisition of Cambridge Diagnostics. The charge relates to
the increase in the fair market value of the underlying Common Stock at December
31, 1996 as compared to the estimated fair market value at December 31, 1995.
Excluding the non-cash interest expense relating to the warrants, interest
expense was $662,000 for 1996 as compared to $283,000 for 1995. Interest income
increased by $505,000 for 1996 as compared to last year, primarily due to larger
cash balances. The Company's subsidiary in Inverness, Scotland accrued $110,000
for 1996, representing a 6% dividend payable on its outstanding cumulative
redeemable preference shares, as compared to $56,000 for 1995. The Company also
recognized a $200,000 loss related to its 28.9% equity in the net loss of
Enviromed and an allocation of $133,000 minority interest in Orgenics.

Foreign Currency Transactions. Fluctuations in foreign currency did not
significantly impact revenue performance measured in U.S. dollars for 1996.
Substantially all sales are paid in the functional currency of the selling
entity.

Net Loss. Net loss for 1996 was approximately $28.6 million or ($4.70) per
common and common equivalent share as compared to $10.1 million or ($1.66) per
common and common equivalent share in 1995. Excluding the previously described
non-cash interest expense of $10.6 million, non-cash compensation expense of
$4.2 million, non-cash charge for in process research and development of $4.4
million and equity in the net loss of Enviromed of $200,000 in 1996 and non-cash
interest expense of $4.2 million in 1995 results in a net loss of $9.2 million
or ($1.51) per common and common equivalent share in 1996 as compared to $5.8
million or ($0.96) per common and common equivalent share for 1995. These losses
reflect increased spending on research and development as well as expansion of
the Company's sales and marketing efforts and the hiring of additional staff to
support the Company's operations.

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

Net Revenues. Net revenues increased $4.9 million, or 212%, to $7.2 million
in 1995 from $2.3 million in 1994. Approximately $3.7 million of the increase in
net revenues was contributed by Cambridge Diagnostics which was acquired by the
Company in November 1994. Approximately $500,000 of the increase in net revenues
was due to net sales generated by Selfcare Europe Ltd. and Selfcare
International GmbH, neither of which had net sales in 1994. An additional
$216,000 of the income was attributable to the amortization of deferred revenue
relating to certain development grants relating to the Inverness Facility. The
remaining increase in net revenues in 1995 was attributable to the introduction
of new private label products and increased sales of the Company's pregnancy and
ovulation prediction products in the United States.

Gross Profit. Gross profit increased $912,000, or 120%, to $1.67 million in
1995 from $762,000 in 1994. Gross profit as a percentage of net sales decreased
from 33% in 1994 to 23% in 1995. The decrease in gross profit as a percentage of
net sales was primarily due to higher overhead costs associated with the
Company's acquisition of Cambridge Diagnostics. The Company manufactures
infectious disease tests at Cambridge Diagnostics which require more extensive
quality control than the Company's other products. In addition, the Company's
Galway Facility is not currently used at full capacity. This excess capacity
will allow production of an HIV self test if and when such a test is approved by
the FDA or foreign regulatory agencies, as well as the manufacture of certain
generic test strips at the Galway Facility. The excess capacity at Cambridge
Diagnostics contributed to the increase in the Company's overhead costs and
consequent decrease in gross profit.

30
<PAGE> 32

Research and Development Expense. Research and development expense
increased $948,000, or 162%, to $1.5 million in 1995 from $584,000 in 1994, but
decreased as a percentage of net sales to 21% in 1995 from 25% in 1994 as a
result of increased net sales. The Company's primary research and development
activities relate to the development of the New System and generic
electrochemical blood glucose test strips. In addition, the Company continues to
apply research and development resources to the development of infectious
disease products, principally those relating to the detection of HIV, and to
pregnancy and ovulation prediction products.

Selling, General and Administrative Expense. Selling, general and
administrative expense increased $2.6 million, or 91%, to $5.6 million in 1995
from $3.0 million in 1994, but decreased as a percentage of net sales to 78% in
1995 from 128% in 1994 as a result of increased net sales. The increase in
selling, general and administrative expense was primarily attributable to
expansion of the Company's sales and marketing efforts in Europe and to the
Company's investment in administrative infrastructure to support operations at
the Galway Facility and the Inverness Facility.

Non-Cash Compensation Expense. Non-cash compensation expense in 1995 was
$52,000 and was related to the amortization of deferred compensation pertaining
to the grant of certain stock options to employees. Non-cash compensation
expense in 1994 was $60,000 and was related to the issuance of Common Stock in
connection with certain consulting agreements.

Interest Income (Expense). Interest income increased from zero in 1994 to
$38,000 in 1995, resulting from interest earned on higher cash balances.
Interest expense increased to $4.5 million in 1995 from $7,000 in 1994. This
increase was attributable to interest expense associated with bonds and warrants
issued by the Company to refinance a portion of the acquisition of Cambridge
Diagnostics. Approximately $4.2 million of the interest expense relates to a
non-cash charge relating to the grant of warrants and represents the difference
between the fair market value of the underlying Common Stock and the exercise
price of the warrants.

Foreign Currency Transactions. Fluctuations in foreign currency did not
significantly impact the Company's financial performance in 1995 because 1995
was the first year in which the Company generated significant net sales from its
foreign operations. Substantially all sales of the Company's products were
invoiced and paid in the functional currency of the selling entity.

Net Loss. The net loss for 1995 was approximately $10.1 million or ($1.66)
per common and common equivalent share. The loss increased by approximately $7.3
million or ($1.14) per share from the 1994 loss of approximately $2.8 million or
($0.52) per common and common equivalent share. In addition to the previously
described non-cash interest expense of approximately $4.2 million, this loss
reflects increased spending on research and development as well as expansion of
the Company's sales and marketing efforts in Europe and the Company's investment
in administrative infrastructure to support operations at the Galway Facility
and the Inverness Facility.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations primarily through the funds it has
received in connection with the Initial Public Offering, funds received in
connection with the LifeScan Alliance, private placements of debt and equity
securities, a bank line of credit and other borrowings, cash from product sales
and grants from government development agencies. With regard to the total
financing provided by these sources, the following table presents, for the
periods indicated, the portion of funds derived from each source:

<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Initial Public Offering......................................... -- -- 23%
LifeScan Alliance............................................... -- 34% 31%
Private placements of debt...................................... -- 14% 8 %
Private placements of equity.................................... 47% 9 % 12%
Bank line of credit and other borrowings........................ 31% -- --
Product sales................................................... 22% 32% 24%
Grants from government development agencies..................... -- 11% 2 %
---- ---- ----
Total...................................................... 100% 100% 100%
==== ==== ====
</TABLE>

31
<PAGE> 33

In connection with the Initial Public Offering, on August 6, 1996, the
Common Stock began trading on the AMEX. The proceeds from the Initial Public
Offering were approximately $11.8 million after deducting the underwriters'
commission. The Company incurred approximately $1.4 million of expenses relating
to the Initial Public Offering. Therefore, the total net proceeds from the
Initial Public Offering were approximately $10.4 million.

In November 1995, in connection with the closing of an investment agreement
between JJDC and the Company, Selfcare received an advance of $7.0 million from
JJDC. The Company received an additional $6.7 million advance in May 1996 in
connection with the Company's filing of a Section 510(k) Notification with
respect to the prior version of the New System and the acceptance for the filing
by the FDA on May 21, 1996 of such notification. In September 1996, the Company
received FDA Clearance for the prior version of the New System. In conjunction
with LifeScan, the Company subsequently undertook certain enhancements to the
user interface features for the prior version of the New System. The underlying
chemistry and function of the disposable strips of the New System, however, were
not changed from those of the prior version of the New System. On October 22,
1996 the Company announced that it had entered into the Distribution Agreement
with LifeScan pursuant to which LifeScan will distribute the New System. The
Company intends to file in early 1997 a Section 510(k) Notification with the FDA
with respect to the New System. The New System must receive FDA Clearance before
sales of the product can commence in the United States. As contemplated by
November 10, 1995 agreements between Selfcare and LifeScan, LifeScan paid
Selfcare in October 1996 a $7.0 million success fee and JJDC converted its
previous cash advances to Selfcare of approximately $13.7 million into 201,622
shares of Common Stock upon the consummation of the distribution agreement with
the Company. In addition, JJDC will also receive, for no additional
consideration, additional shares of Common Stock equal to 5% of all Common Stock
issued by the Company pursuant to options and warrants that were outstanding as
of November 10, 1995. The Company estimates that JJDC will ultimately receive
approximately an additional 278,572 shares of Common Stock.

The Company financed a portion of the acquisition of Cambridge Diagnostics
in 1994 by utilizing a bank line of credit. In 1995, the Company paid the
outstanding balance on the line of credit in full with a portion of the proceeds
of the issuance of $3.0 million of promissory notes (the "Cambridge Diagnostics
Notes") and warrants (the "Cambridge Diagnostics Warrants") to purchase Common
Stock. In order for the Company to obtain approval for listing of the Common
Stock on the AMEX in connection with the Initial Public Offering, the Company
entered into agreements with holders of $2.75 million in principal amount of the
Cambridge Diagnostics Notes. Pursuant to such agreements, the principal amount
of the notes were to be automatically converted into shares of Common Stock if
the Company's stockholders' equity as of November 30, 1996 were determined to be
less than $4.0 million. The Company stockholders' equity as of such date was
$14.9 million; as a result, the Company became obligated to repay such notes on
or about December 31, 1996. On December 31, 1996, the Company entered into
agreements with holders of substantially all of the Cambridge Diagnostics Notes
pursuant to which such holders agreed to defer repayment of the principal amount
of their notes until January 15, 1998. In consideration of this postponement,
the Company agreed to issue warrants to purchase an aggregate of 54,090 shares
of Common Stock to such holders.

The Company received $1.6 million in June 1995 from an investment by
Inverness & Nairn Local Enterprise Corporation ("INLEC"), a development agency
funded by the government of the United Kingdom, in redeemable preferred stock of
Inverness to finance a portion of the start-up costs relating to the facility in
Inverness, Scotland. In addition, the Company has received $3.6 million in
deferred grants from Highlands and Islands Enterprise ("HIE"), an affiliate of
INLEC.

In March 1996, the Company entered into an agreement with Princeton
BioMeditech Corporation ("Princeton"), pursuant to which the Company provided
$500,000 to finance the purchase of equipment which will remain the property of
the Company, to be used in Princeton's production of certain products. The
Company is obligated to purchase certain minimum amounts of those products over
the course of three years. The Company has paid all of the aforementioned
$500,000 financing as of December 31, 1996. The aggregate minimum amount of such
purchases over the course of the three-year period will be $6.9 million.

At December 31, 1996, the Company had cash and cash equivalents of $16.5
million, a $9.1 million increase from December 31, 1995. This was primarily due
to the net proceeds of approximately $10.4 million

32
<PAGE> 34

from the Initial Public Offering, a $6.7 million investment by JJDC, and a $7.0
million success fee payment from LifeScan. Cash used for operations in 1996 was
$6.6 million due largely to net losses of $28.6 million in 1996. However, the
net loss for 1996 included $19.4 million of non-cash items. The non-cash
expenses included the interest charge of $10.6 million related to the Cambridge
Diagnostics Warrants, compensation expense of $4.2 million related to certain
stock options granted to the Company's Chief Executive Officer, certain
employees and outside consultants, a charge of $4.4 million for in process
research and development related to the acquisition of a 57.1% interest in
Orgenics and $200,000 related to the Company's 28.9% equity in the net loss of
Enviromed. Other uses of cash in operating activities included an increased
funding of accounts receivable of $1.9 reflecting the Company's increase in
sales. Prepaid and other current assets increased $215,000 due primarily to an
increase in value added taxes (VAT) receivable. Cash was provided for operations
in part by an increase in accounts payable, accrued expenses, and other current
liabilities of $4.6 million.

During 1996, the Company used $4.7 million to purchase property and
equipment. Approximately $3.3 million of the purchased property and equipment
was for the Inverness Facility.

Financing activities provided approximately $26.4 million in 1996. The most
significant financing activities were the Initial Public Offering of 1,495,000
shares at $8.50 per share, for which the net proceeds after deducting offering
costs were $10.4 million, and the $6.7 million investment by JJDC. In October
1996, the Company received net proceeds of approximately $5.2 million from the
private placement of 5,500 Series A Preferred Shares to certain non-U.S.
investors.

The Company intends to invest substantially in development, property and
equipment at the Inverness Facility so that it can manufacture glucose strips
for the diabetes market in connection with the LifeScan Alliance and the
Company's supply agreement with Menarini. Although the Company does not have any
material contractual obligations for capital expenditures as of December 31,
1996, the Company plans to purchase $2.4 million of property and equipment for
this purpose. Based upon its current operating plan, the Company believes that
its existing capital resources, together with the proceeds of this offering and
the interest earned thereon, will be adequate to satisfy its capital
requirements for at least the next 12 months. The Company currently plans to
continue its research and development of new technologies and pursue the
acquisition of new products and technologies, whether through licensing
arrangements, business acquisitions, or otherwise. The Company anticipates that
it will be required to raise substantial additional funds for such projects or
strategies. There can be no assurance that any such additional capital will be
available on terms acceptable to the Company, or at all.

As of December 31, 1996, the Company had approximately $4.4 million and
$30.9 million of domestic and foreign net operating loss carryforwards,
respectively, and approximately $61,000 of research and development tax credit
carryforwards, which expire at various dates through 2010. These losses and tax
credits are available to reduce federal taxable income and federal income taxes,
respectively, in future years, if any. These losses and tax credits are subject
to review and possible adjustment by the Internal Revenue Service and may be
limited in the event of certain cumulative changes in ownership interests of
significant shareholders over a three-year period in excess of 50%. The Company
believes that it may experience a change in ownership in excess of 50% upon
completion of this offering. However, the Company does not believe that these
changes in ownership will significantly impact the Company's ability to utilize
its net operating loss carryforwards. The Company has recorded a 100% valuation
allowance against these deferred tax assets, as the realization of such assets
is uncertain.

In October 1996, Selfcare acquired a 57.1% direct and indirect equity
interest in Orgenics, as a result of the conversion of the Orgenics Debenture
and purchase of outstanding shares of Orgenics and Orgenics International.
Selfcare expects to complete the Orgenics Acquisition upon completion of this
offering, pursuant to the terms of the Option Agreements between the Company and
substantially all the holders of the remaining shares in Orgenics and Orgenics
International. Pursuant to the Option Agreements, the Company has an option to
call the Orgenics and Orgenics International shares and, in certain
circumstances (including the completion of this offering), each Orgenics
stockholder has the option to put its Orgenics shares to Selfcare. Selfcare
intends to exercise its call options in connection with this offering. The
Company has paid approximately $7.0 million of cash and converted the Orgenics
Debenture for its existing ownership interest

33
<PAGE> 35

and expects to pay consideration totaling $9.3 million in cash and Common Stock
for substantially all the remaining shares in Orgenics and Orgenics
International pursuant to the exercise of the Option Agreements. If the Option
Agreements were not exercised by the Company prior to March 10, 1997, this
amount would increase to approximately $10.6 million. Each of the Orgenics and
Orgenics International stockholders may elect to receive the purchase price
entirely in cash, entirely in Common Stock, or 50% in cash and 50% in Common
Stock. See "Business -- Strategic Transactions -- Orgenics Acquisition."
Assuming that all Orgenics and Orgenics International stockholders were to elect
to receive the consideration in the form of 50% cash and 50% Common Stock, and
assuming that the options under the Option Agreements are exercised by the
Company prior to March 10, 1997, the Company would pay approximately $4.7
million in cash and issue approximately 393,537 shares of Common Stock (based on
an average market price of $11.825 per share of Common Stock and Orgenics'
revenues for the four fiscal quarters ended December 31, 1996.) In addition, the
Company has granted options to purchase up to 85,800 shares of Common Stock
having a fair market value of approximately $1.1 million and will incur direct
acquisition costs of approximately $100,000.

In October 1996, the Company entered into an agreement with EN PLC (the "EN
PLC Agreement") pursuant to which the Company purchased 7,961,386 shares of
Enviromed held by EN PLC, representing 28% of the outstanding shares of
Enviromed, for approximately $3.8 million. On January 1, 1997, the Company and
EN PLC entered into an amendment to the EN PLC Agreement pursuant to which the
Company agreed to issue two promissory notes, in principal amounts of
approximately $2.8 million and $1.0 million respectively, evidencing the
purchase price under the EN PLC Agreement. Each note bears interest at the
annual rate of the Bank of Boston prime rate plus 1.5 percent, payable quarterly
over the two-year term of the note. The principal amount of the $1.0 million
promissory note is payable in eight quarterly installments commencing in January
1997; the first four installments are $85,897 each and the second four
installments are $171,794 each. Approximately $1.4 million of the principal
amount of the $2.8 million promissory note is payable in January 1998, followed
by three equal quarterly installments of the remaining principal. In
consideration of the amendment, the Company agreed to issue to EN PLC a warrant
to purchase 15,401 shares of Common Stock at an exercise price of $12.875 per
share. The warrant is exercisable at any time prior to January 1, 2002.

On January 17, 1997, at a meeting of the shareholders of Enviromed called
at the request of Selfcare, the shareholders of Enviromed voted to remove the
existing Board of Directors of Enviromed and to elect as directors four
individuals nominated by Selfcare: Mr. Zwanziger, Mr. Anthony H. Hall
(Selfcare's Chief Financial Officer), Dr. Paul Winson, and Mr. Clifford
Passmore. Dr. Winson is serving as the Managing Director of Enviromed; Messrs.
Zwanziger, Hall and Passmore are serving as non-executive directors. Neither Dr.
Winson nor Mr. Passmore is affiliated with Selfcare. See "Business -- Strategic
Acquisitions -- Acquisition of Shares of Enviromed." Selfcare is currently
considering the possibility of providing a credit enhancement to enable
Enviromed to secure additional borrowing capacity and, to this end, may
determine to guaranty up to approximately $600,000 of Enviromed's bank debt.
Selfcare would be compensated for this guaranty in an amount yet to be
determined. In lieu of this guaranty, Selfcare may elect to make an equity
investment of up to $600,000 in Enviromed.

On February 19, 1997, the Company completed the Nutritional Supplement
Lines Acquisition, pursuant to which a newly-formed subsidiary of the Company
(the "Acquisition Subsidiary") acquired the Nutritional Supplement Lines from
AHP. As consideration for the Nutritional Supplement Lines, the Acquisition
Subsidiary paid to AHP $30.0 million in cash and the Company issued to AHP the
AHP Note. The Company funded the cash portion of the purchase price with the AHP
Term Loan and the AHP Bridge Loan (collectively, the "Acquisition Facility").
The AHP Note will be due on the first anniversary of the closing of the
Nutritional Supplement Lines Acquisition, and bears interest payable quarterly
at the rate of 7.0% per annum.

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<PAGE> 36

AHP Term Loan, at the Company's election, bears interest at an annual floating
rate equal to either LIBOR plus two percent, or Fleet's Prime Rate. The AHP
Bridge Loan is due June 3, 1997, and at the Company's election, bears interest
at an annual floating rate equal to either LIBOR plus 3.5 percent or Fleet's
Prime Rate plus 1.5 percent. If the AHP Bridge Loan has not been repaid or
refinanced by May 3, 1997, Selfcare will be required to maintain a minimum of
$5.0 million in cash or liquid investments. As of December 31, 1996, the Company
had approximately $16.5 million in cash and liquid investments. If the AHP
Bridge Loan has not been repaid or refinanced at maturity, Selfcare would have
the option of extending the loan with cash pledged to collateralize a like
amount.

In connection with the Acquisition Facility, the Acquisition Subsidiary has
obtained from Fleet a $5.0 million revolving credit line (the "Credit Line").
The Credit Line, at the Company's election, bears interest at an annual floating
rate equal to either LIBOR plus 1.75 percent or Fleet's Prime Rate and matures
in three years. The Company has a limited number of LIBOR rate options for the
AHP Term Loan, the AHP Bridge Loan, and the Credit Line. Each LIBOR rate option
must be exercised for a period between one month and 12 months and must cover a
minimum of $1.0 million of the loan. The Acquisition Facility and the Credit
Line are secured by a first priority lien on all the Acquisition Subsidiary's
assets and are guaranteed by the Company, which guaranty is secured by a first
priority lien on substantially all the Company's U.S. assets.

The Acquisition Facility and the Credit Line impose certain financial
covenants on the Acquisition Subsidiary, including (i) requirements to maintain
minimum EBITDA levels of $2.3 million per quarter beginning with the quarter
ended June 30, 1998 and $2.475 million per quarter beginning with the quarter
ended June 30, 1999 and not to exceed certain ratios of total indebtedness to
EBITDA, beginning with the quarter ended December 31, 1997, at which time the
ratio of total indebtedness to EBITDA cannot exceed 3.75 to 1, (ii) limits on
capital expenditures of $250,000 per year, (iii) a requirement to maintain a
ratio of EBITDA to fixed charges of not less than 1.25 for any quarter beginning
with the quarter ending March 31, 1998, and (iv) a requirement of a positive net
income for any quarter. The Acquisition Subsidiary has also agreed to
restrictions on (x) acquisitions, mergers or joint ventures without Fleet's
consent, (y) material asset sales and other payments, and (z) dividends and
distributions. Further, the Company, as guarantor of the Acquisition
Subsidiary's debt under the Acquisition Facility and the Credit Facility, is
subject to a limited number of covenants, none of which are financial
maintenance covenants, including a requirement to provide Fleet with periodic
financial statements and other information and a prohibition on the Company
having other liens on its U.S. assets. The Company also will be limited in its
ability to receive dividends and distributions from the Acquisition Subsidiary.
In addition, an event of default shall be deemed to have occurred under the
Acquisition Facility and the Credit Line if any three of Ron Zwanziger, Kenneth
D. Legg, Richard A. Pinkowitz, Anthony H. Hall and Gary E. Long cease to be
employed by the Company or the Acquisition Subsidiary in positions comparable to
their current positions. Messrs. Zwanziger, Legg, Pinkowitz and Hall are
officers of the Company. See "Management." Mr. Long joined the Company in
February 1997 and has responsibility for the operation of the Nutritional
Supplement lines business. In addition, the Acquisition Subsidiary was required,
at the time of the closing of the Acquisition Facility, to have a proforma
capital base of at least $9.5 million. This requirement was satisfied through a
combination of (i) the Company's obligations under the AHP Note, (ii) a $2.0
million subordinated loan by the Company to the Acquisition Subsidiary and (iii)
the Company's capital contribution of approximately $1.5 million to be used to
pay expenses incurred in connection with the completion of the Nutritional
Supplement Lines Acquisition. The Company and the Acquisition Subsidiary have
paid Fleet fees and expenses totaling approximately $350,000 in connection with
the Acquisition Facility and the Credit Facility.

As of the date hereof, the Acquisition Subsidiary has not drawn down on the
Credit Line. The Company may prepay the AHP Note and the AHP Bridge Loan at any
time. The Company currently intends to pay the AHP Bridge Loan with proceeds
from this offering; however, the Company may elect to refinance the AHP Bridge
Loan from other sources. See "Use of Proceeds."

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<PAGE> 37

BUSINESS

Selfcare is engaged in the development, manufacture and marketing of
self-test diagnostic products for the diabetes, women's health and infectious
disease markets. Self-test diagnostic products allow individuals to obtain
accurate medical diagnoses on a confidential, non-prescription basis, without
the expense, inconvenience and delay associated with physician visits or testing
laboratories. This information gives individuals greater control over their
health and their lives, allowing them to make informed decisions and take
action, alone or in consultation with healthcare professionals. The Company's
existing and planned self-test products are targeted at the two largest existing
markets for self-care diagnostics, diabetes management and women's health, as
well as the emerging market for self-tests for infectious diseases and agents,
including HIV. According to a 1996 study by Clinica Reports, the worldwide
market for home monitoring and diagnostic products was estimated to be $2.2
billion in 1995, and growing at an annual rate of 11%.

BUSINESS STRATEGY

- Focus on diabetes, women's health and infectious diseases to exploit
growth opportunities in these large and growing markets in both the
United States and internationally. The Company is focusing its research
and development efforts on self-test products that serve the needs of
consumers in the diabetes, women's health and infectious disease markets.
The Company believes that the markets for self-test products addressing
diabetes and women's health will continue to grow, and that significant
opportunities exist to capture market share in these areas with products
which (i) incorporate innovative technologies, (ii) are aggressively
priced due to reduced production costs and (iii) incorporate features
which improve the convenience and reliability of the product for the
consumer. The Company also believes that the market for self tests for
infectious diseases, particularly HIV, will begin to expand rapidly in
the next several years as healthcare professionals become more familiar
with such tests and required regulatory approvals are obtained.

- Leverage the Company's technology base to develop new self-test products
and to lower production costs. The Company is developing new products by
leveraging its proprietary products and manufacturing technologies to
meet identified opportunities in its target markets. The Company also
seeks to apply its expertise to reduce the cost of manufacturing
non-proprietary consumer products (such as pregnancy tests and generic
blood glucose test strips) below that of its competitors.

- Promote products used by physicians and laboratories to facilitate market
acceptance of new self tests. The Company believes that a critical factor
in obtaining regulatory approval and consumer market acceptance of new
self-test products is overcoming the concerns of physicians and other
healthcare professionals about the ease-of-use and reliability of these
products. The Company believes that this acceptance was a necessary
initial step in obtaining regulatory approval for the self-test blood
glucose monitoring systems and pregnancy and ovulation prediction self
tests currently on the market. Accordingly, part of the Company's
strategy for expanding the scope of its product offerings, particularly
in the area of infectious diseases, is to provide simple-to-use and
highly reliable tests for

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<PAGE> 38

use in the professional and public health markets as a prelude to
converting these tests to over-the-counter consumer products.

- Utilize the Company's broad retail distribution network and strong
customer relationships to launch new products rapidly. The Company has
devoted substantial time and resources to the development of its retail
distribution network. The Company believes that it has developed an
experienced, well-established group of retail brokers and field sales
personnel, as well as strong customer relationships, and that these will
enable the Company to quickly introduce new products and thereby increase
the likelihood of rapid market acceptance of such products. The Company
plans to use this distribution network and its customer relationships to
expand sales of the Nutritional Supplement Lines.

- Continue to pursue private label arrangements with major retailers to
increase market penetration. The Company's historical revenues have been
derived from packaging and distributing pregnancy products under the
private labels of drug store chains such as CVS/pharmacy and Eckerd Drug,
as well as under the private labels of mass merchandisers such as Target
Stores. The Company intends to leverage its private label merchandising
expertise in marketing new products, including generic blood glucose test
strips and other healthcare products.

- Target value-conscious consumers with low-cost, high-quality
products. Selfcare has established a distribution network for its private
label and branded products which is focused on consumer mass markets and
uses aggressive pricing to reach value-conscious consumers. Selfcare
believes that increased consumer demand for value brands, those which
provide low cost and comparable quality to that of name brands, will play
an increasing role in persuading retailers to offer increased shelf space
and promotion to such brands.

- Seek and expand strategic alliances and other transactions to develop or
acquire technologies for new self-test diagnostic and other self-care
products. An important part of Selfcare's business strategy is to enter
into strategic alliances, joint ventures and licensing arrangements with
third parties, for the development, manufacture and distribution of
certain products. The Company is also pursuing a strategy of selective
acquisitions of companies, assets and technologies which it believes will
enhance its ability to deliver innovative self-test diagnostic products
to the marketplace at low cost. The Company has completed two such
transactions, its 1994 acquisition of Cambridge Diagnostics Ireland Ltd.
("Cambridge Diagnostics") and the Company's investment in Inverness
Medical Limited ("Inverness"). The Company also completed the Nutritional
Supplement Lines Acquisition on February 19, 1997. In addition, the
Company and LifeScan, Inc., a subsidiary of Johnson & Johnson
("LifeScan") are currently engaged in the first phase of an exclusive
worldwide alliance (the "LifeScan Alliance"). The Company also
anticipates it will complete the acquisition (the "Orgenics Acquisition")
of substantially all of the capital stock of Orgenics Ltd. ("Orgenics")
upon completion of this offering. See "-- Strategic Transactions."

OVERVIEW OF MARKETS

Selfcare has targeted three principal markets for its self-test and
professional diagnostic products: diabetes (blood glucose monitoring systems and
generic test strips compatible with such systems), women's health (principally
pregnancy and ovulation prediction self tests) and infectious diseases
(including self tests for HIV, Strep-A and chlamydia).

Diabetes

Diabetes is a serious chronic disease for which there is no known cure,
and, according to a 1996 Frost & Sullivan report, is the fourth leading cause of
death by disease in the United States. Diabetes is a disease in which the body
is unable to control the levels of insulin and glucose. The consequences of
untreated diabetes include cardiovascular disease, stroke, high blood pressure,
blindness, kidney failure, neuropathies which can lead to amputation, dental
disease, and, in mothers with untreated, pre-existing diabetes, malformations in
children as well as deaths in newborns. There are two types of diabetes. Type I,
or insulin-dependent diabetes, is hereditary. Patients with Type I diabetes must
constantly test their blood glucose level and are dependent on

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<PAGE> 39

injections of insulin. Type II, or noninsulin-dependent diabetes, is associated
with a sedentary life style and a diet rich in sugars and fats. The prevalence
of diabetes varies by race, but increases with age in all cultures, leading to
an inevitable increase in the prevalence of the disease as populations age and
as average lifespans increase. The reported prevalence of diabetes is also
expected to increase in the future with improvements in global access to
healthcare, better diagnosis of both Type I and Type II diabetes and uniform
methods for global reporting of the disease.

The Centers for Disease Control and Prevention reports that in the United
States, eight million people have been diagnosed with diabetes, and there are
approximately 1,700 new diagnoses made daily, resulting in approximately 625,000
new diagnoses annually. However, it is estimated that twice the total diagnosed
number, approximately 16 million people, or approximately 6% of the U.S.
population, are currently afflicted with diabetes. Of this number, approximately
14.5 million have Type II diabetes and the remaining 1.5 million have Type I
diabetes. According to a 1996 Frost & Sullivan report, the total cost of
diagnosing and treating the disease in the United States was estimated to be $92
billion in 1996, but according to a 1995 Frost & Sullivan report, the
comprehensive U.S. national cost of diabetes in 1995 was $132 billion, including
direct medical costs and indirect costs such as disability, work loss and
premature mortality. Worldwide, the number of people afflicted with diabetes is
between 100 and 150 million, according to a 1995 estimate by the Juvenile
Diabetes Foundation International and Diabetes Research Foundation.

According to the Diabetes Control and Complications Trial (the "DCCT"),
which was sponsored by the National Institutes of Health and completed in 1993,
the health impact of diabetes can be minimized by the patient. The DCCT, a
ten-year study involving 1,441 volunteers with Type I diabetes, found that if
blood glucose levels are managed and controlled to remain near normal levels,
then the onset and progression of the complications due to diabetes can be
largely delayed. Management of blood glucose levels can be accomplished through
a combination of lifestyle changes and the use of glucose or insulin to bring
blood glucose levels within acceptable levels. The American Diabetes Association
("ADA") recommends that blood glucose levels be monitored at least four times a
day in order to maximize the effectiveness of this therapy. The Company believes
that the DCCT will continue to increase awareness among diabetics of the
benefits of frequent testing and may, therefore, increase demand for blood
glucose monitoring systems. The Company estimates that diabetics, on average,
test their blood glucose levels approximately once per day. Although the DCCT
included only Type I diabetics, the ADA has stated that most Type II diabetics
could also benefit from better control of blood glucose levels.

Blood Glucose Monitoring

Beginning in the late 1970s, the availability of compact, easy-to-use
monitoring systems that provided fast and accurate blood glucose measurements
gave diabetics a tool to manage the disease more effectively and to improve the
quality of care. Worldwide sales of home blood glucose monitoring systems have
increased dramatically since that time. According to a 1996 Frost & Sullivan
report, the market for home blood glucose monitoring products (blood glucose
meters and test strips) in the United States grew from approximately $331
million in 1992 to approximately $483 million in 1995.

Diabetics adjust their treatment in accordance with the results of their
blood glucose tests. They carry the supplies needed for such tests in a small
kit containing lancets, alcohol swabs, an electronic meter and disposable strips
used with the meter. In practice, a patient uses a lancet to prick his or her
finger. A drop of blood is then applied to a disposable strip which is inserted
in and automatically read by the meter. The results of the test are displayed by
the meter in approximately 20 to 60 seconds, depending on the system. After
completion of the test, the strip is discarded. Most meters are capable of
storing a number of test results which patients or their physicians can retrieve
and review.

The test strips use an enzyme, typically glucose oxidase, along with other
reagents, which react with the glucose in the blood. Traditionally,
color-forming reagents have been used to monitor this reaction, and thus
determine the glucose level. When color-forming reagents are used, photometric
detection is employed. Photometric systems represent the majority of existing
blood glucose monitoring systems. More recently, systems have been introduced
which use an electroactive reagent allowing the reaction to be monitored by

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<PAGE> 40

utilizing electrochemical techniques. Electrochemical systems are generally
considered superior to photometric systems in both performance and ease-of-use,
as they typically produce results more rapidly, require smaller blood samples
and employ smaller meters.

Although blood glucose monitoring systems based on photometric detection
still occupy a dominant market share, electrochemical systems are the fastest
growing segment of the home blood glucose monitoring market. Currently, three of
the four major competitors in the blood glucose monitoring field manufacture and
market electrochemical systems: Boehringer Mannheim Corporation ("Boehringer
Mannheim"), Bayer Corporation ("Bayer") and MediSense, Inc. ("MediSense").
However, LifeScan, which is the market leader for blood glucose monitoring
systems in the United States, does not yet offer an electrochemical system.

Women's Health

Self-Test Products. Women's health self-test products currently provide a
means for women to determine if they are pregnant (pregnancy self tests), and
when ovulation is likely to occur (ovulation prediction self tests). There are
numerous pregnancy self tests currently on the market. These urine-based tests
are able to provide results in less than five minutes and are sensitive enough
to indicate pregnancy within one or two days of a missed menstrual period.
Pregnancy self testing has achieved widespread consumer awareness and
acceptance.

Determinations of fertility are generally made using ovulation prediction
tests, most notably those based on luteinizing hormone ("LH"), which are able to
give an indication of impending ovulation. Approximately 15% of couples in the
United States experience fertility problems. The Company believes that increased
awareness of the incidence of infertility, as well as a desire on the part of
couples to plan conception with more certainty, has led to increasing demand for
ovulation prediction tests. LH ovulation prediction urine-based tests are easy
to use, and are becoming widely accepted by professional fertility care
providers and the general public.

According to a 1996 report by Frost & Sullivan, the market for women's
health self-test products is currently comprised mostly of home pregnancy
(approximately 90%) and ovulation prediction (approximately 10%) tests. A 1996
Clinica Reports study estimates that the worldwide market for pregnancy and
ovulation prediction self tests was approximately $592 million in 1995. Frost &
Sullivan estimates that the U.S. market was approximately $255 million in 1995
and is expected to grow to over $415 million by the year 2002. The Company
believes that the accuracy, simplicity, convenience and confidentiality of
consumer pregnancy and ovulation prediction tests are significant factors
contributing to this growth.

Nutritional Supplements. The Nutritional Supplement Lines Acquisition
provides Selfcare with the opportunity to expand the scope of its self-care
product offerings for the women's health market. The Company believes that it is
well-positioned to capitalize on the expected growth in the vitamin and
nutritional supplement industry. According to a 1995 Frost & Sullivan report,
manufacturers' revenues for vitamins and nutritional supplements grew from
approximately $1.2 billion in 1991 to $1.7 billion in 1995. The Company believes
that growth in the vitamin and nutritional supplement market is being driven by
several factors, including: (i) national media attention regarding scientific
research suggesting potential health benefits from the regular consumption of
certain vitamins and other nutritional products, (ii) the aging of the U.S.
population (because a larger portion of older age groups use vitamin and
nutritional supplements), (iii) the growing practice of self-care and preventive
medicine in connection with a heightened awareness and understanding of the
connection between diet and health by the general public but especially among
women, and (iv) the favorable efforts of and opportunities presented by the
enactment and implementation of the Dietary Supplement Health and Education Act
of 1994 ("DSHEA").

In the last several years, public awareness of the positive effects of
vitamins and nutritional supplements on health has been heightened by widely
publicized reports of scientific findings. Recent studies have indicated a
correlation between the regular consumption of selected vitamins and nutritional
supplements and reduced incidences of conditions affecting men and women
generally, such as heart disease and cancer, as well as conditions which affect
women to a greater degree or exclusively, such as neural tube birth defects
(NTDs), osteoporosis, and anemia incident to menstruation and other conditions.
The American Dietetic Association

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<PAGE> 41

(the "Dietetic Association") recently concluded that women are at unique risk
for certain major nutrition-related diseases and conditions, such as
osteoporosis and certain cancers. It also noted that fewer than one-third of
women recently surveyed alter their diet to lower their risk of such diseases
and conditions. The Company believes that as women increasingly become aware of
these diseases and conditions and the relationship between such health risks and
good nutrition, they will turn toward nutritional supplements targeted at their
needs. For example, according to the Centers for Disease Control and Prevention,
folic acid has been shown to be important in preventing various NTDs such as
spina bifida and anencephaly. The U.S. Public Health Service recommends that
women of childbearing age who are capable of becoming pregnant should consume
0.4 mg of folic acid per day for the purpose of reducing their risk. In
addition, according to the Dietetic Association, osteoporosis affects more than
25 million women over the age of 45 years in the United States and Canada. A
calcium-rich diet is believed by the Dietetic Association to be the best way to
prevent osteoporosis.

The Company also expects that the aging of the United States population,
together with a corresponding increased focus on preventative health measures,
will result in increased demand for vitamins and nutritional supplement
products. According to the United States Census Bureau, through 2010, the
35-and-older age group of consumers, which the Company believes represents a
substantial majority of regular users of vitamin and nutritional supplements, is
expected to grow significantly faster than the general United States population.
Based on a national survey indicating that only 33% of Americans consumed
vitamins and nutritional supplements on a regular basis in 1995, the Company
believes that there is a large untapped domestic market for vitamins and
nutritional supplements.

The primary channels of distribution in the vitamin and nutritional
supplement industry are: (i) mass market retailers which include mass
merchandisers, drug stores, supermarkets and discount stores; (ii) health food
stores; (iii) direct sales organizations; and (iv) mail order. The national
brand category primarily consists of multivitamins and mineral products marketed
under nationally advertised names such as Centrum(R), One-A-Day(R), Theragran(R)
and StressTabs, one of the Nutritional Supplement Lines.

HIV and Other Infectious Diseases

According to the WorldWatch Institute, infectious diseases are the leading
cause of death worldwide, killing at least 17 million people every year.
According to the Centers for Disease Control and Prevention, deaths attributable
to infectious diseases rose by 58% from 1980 to 1992, and in 1992 accounted for
8% of deaths in the United States (the latest date for which such figures are
available). In 1992, infectious diseases were the third-leading cause of death
in the United States, behind heart disease and cancer.

Infectious diseases are a broad category of contagious bacterial and viral
infections, including food-, water-, air- and insect-borne illnesses, and
diseases transmitted through blood or bodily secretions. Infectious disease
diagnostic tests are currently marketed primarily for professional use by
physicians and other healthcare professionals in hospitals and other
point-of-care sites, and in clinical laboratories. Governmental agencies,
purchasing directly or through international bodies such as the World Health
Organization, are among the largest purchasers of such products. The Company
does not believe that infectious disease self tests, other than recently
introduced mail-in HIV tests, are currently being marketed on a significant
scale.

HIV is a virus generally transmitted by sexual contact, intravenous drug
use and blood transfusions. It is characterized by an asymptomatic phase lasting
up to several years, eventually culminating in the suppression of normal immune
responses leading to AIDS, for which there is no known cure. As of the end of
1996, the World Health Organization estimated that more than 8.4 million people
worldwide had been stricken with AIDS and 30 million people worldwide were
infected with HIV. It is estimated that worldwide there are at least 8,500 new
HIV infections every day, and nearly 60% of those are in developing countries.
According to the Centers for Disease Control and Prevention, as of June 1995,
approximately 1.5 million people were infected with HIV in the United States.
However, it is also estimated that only approximately 18% of U.S. adults have
ever been tested for the HIV infection, and that only 50% of all HIV-positive
Americans have been tested.

In the absence of an effective immunization or treatment, early detection
and subsequent lifestyle changes have become an important strategy for limiting
the spread of HIV. Due to the long delay between

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transmission of HIV and the appearance of symptoms of AIDS (an average of seven
years), an infected person can unknowingly infect many other people. Until
recently, professionally administered tests have been the only means available
for diagnosing the HIV infection approved by regulatory authorities in the
United States, Europe and other major, international markets. See "-- Products
and Technologies -- Infectious Disease Products -- HIV Tests." The Company
believes that many people at risk of infection are reluctant to undergo HIV
testing, due in part to the fear that the test results, or the fact that the
person has been tested, will become known to others without their consent. In
contrast, according to a research program conducted by the Centers for Disease
Control and Prevention in 1992, 29% of adults in the United States would use an
HIV self test.

The mail-in HIV testing services that are currently available, including
those licensed to the Company from a third party, require a user to collect a
sample at home, which is then sent to and analyzed in a laboratory. The patient
must call the laboratory several days later to obtain the results of the test.
By comparison, under the protocol of the Company's HIV self test, called
CarePlan, the test will be performed by a user entirely at home, producing a
randomized, coded result in less than 15 minutes. The user may then immediately
call a toll-free number to have the coded result interpreted. The Company
believes that the availability of immediate test results may give CarePlan a
significant advantage over the mail-in HIV testing services currently marketed
by Home Access Health, Inc. ("Home Access") and Direct Access Diagnostics, an
affiliate of Johnson & Johnson ("Direct Access").

Selfcare believes that significant potential markets exist for self tests
which can be used to screen for the presence of other infectious diseases and
agents, including Strep-A, Lyme disease and chlamydia. Strep-A is a bacterial
infection which causes a severe sore throat and, if not detected and treated
early, can lead to a variety of health problems, such as pneumonia, rheumatic
heart disease and toxic shock syndrome. The Centers for Disease Control and
Prevention estimate that between 25 and 40 million cases of Strep-A infection
occur in North America each year. Lyme disease is an infection transmitted by
the deer tick which causes flu-like symptoms and which, if left untreated, can
cause arthritis and brain damage. According to the Centers for Disease Control
and Prevention, in 1994 there were 13,083 cases of Lyme disease reported by 44
state health departments in the United States, a 58% increase from the 8,257
cases reported in 1993. Chlamydia is a sexually transmitted disease which, if
left untreated, can cause pelvic inflammatory disease and sterility in women.
The World Health Organization estimates that chlamydia strikes 78 million men
and women worldwide each year. Accordingly, the Company is also seeking to
develop new self-test products, either internally or through licensing or
acquisition to address these markets.

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<PAGE> 43

PRODUCTS AND TECHNOLOGIES

The following table summarizes only those products currently marketed, to
be marketed or under development by the Company which the Company considers to
be most significant to its potential growth. The information set forth in the
table is qualified in its entirety by the more detailed information following
the table. In addition to the products described in the table below, the Company
and Orgenics currently market a broad array of professional diagnostic tests for
infectious diseases, primarily HIV, chlamydia and, to a lesser extent,
hepatitis, Lyme disease and others. See "-- Infectious Disease Products."

<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
PRODUCT
---------------------------------
APPLICATION STATUS
---------------------------- ----------------------------
DIABETES PRODUCTS UNDER DEVELOPMENT
New System
Electrochemical blood In final stage of
glucose monitoring system development for worldwide
utilizing disposal test marketing by LifeScan (a
strips subsidiary of Johnson &
Johnson) as a
LifeScan-branded product
Generic Test Strips
Disposable test strips Under development for
designed to be compatible worldwide marketing by the
with other manufacturers' Company as a
electrochemical blood Selfcare-branded generic
glucose monitoring systems product
WOMEN'S HEALTH PRODUCTS
Marketed Products
Pregnancy Self Test
An easy-to-use self test Marketed in the U.S. and
that indicates pregnancy Europe by the Company as a
within three minutes Selfcare-branded product and
in the U.S. under private
labels
Ovulation Prediction Self Test
An easy-to-use self test Marketed in the U.S. and
that gives up to 48 hours Europe by the Company as a
advance notice of ovulation, Selfcare-branded product and
increasing the chances for in the U.S. under private
conception labels
CarePlus
Contraception product Marketed in the U.S. by the
consisting of condoms and Company as a
spermicide inserts, in Selfcare-branded product
packaging designed to appeal
to women
Product under Development
Birth Control Aid
System using disposable test Under co-development by the
strips for monitoring Company and one of its
fertility for purposes of strategic partners for
contraception initial marketing outside
the U.S.
NUTRITIONAL SUPPLEMENTS
Nutritional Supplement Lines
Nutritional supplements sold Marketed in the U.S. by
under various brand names Selfcare
and targeted, in part, at
the women's health market
INFECTIOUS DISEASE PRODUCTS
UNDER DEVELOPMENT
HIV 1/2 Self Test
Single-use, home screening Under development for
test in a rapid, whole blood initial marketing in Europe,
format, with educational and subject to regulatory
consulting materials approvals
HIV Mail-In Test
Single-use, home collection Under development by a third
and mail-in home HIV test, party for initial marketing
with educational and by the Company in Europe,
consulting materials subject to regulatory
approval
Strep-A Self Test
Single-use, home screening Under development by one of
test utilizing a swab in a the Company's third-party
rapid format manufacturers for worldwide
marketing by the Company
- --------------------------------------------------------------------------------------------------------------
</TABLE>

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<PAGE> 44

Product Overview

The products currently marketed by the Company consist primarily of
pregnancy self tests and infectious disease diagnostic test kits for the
professional market. The Company's pregnancy self tests are supplied by
third-party manufacturers, principally Princeton BioMeditech Corporation
("Princeton"), and marketed by the Company in the United States and Europe under
the Selfcare brand name as well as private labels. The Company's infectious
disease diagnostic kits are manufactured and marketed outside the United States,
primarily to healthcare professionals. Selfcare also has several products and
technologies under development which address each of the Company's target
markets and are important to the Company's growth prospects. The Company's
current products as well as products under development are described more fully
below.

Diabetes Products under Development

The New System. The Company's principal product for the diabetes market is
an electrochemical, biosensor-based blood glucose monitoring system to be
distributed by LifeScan. The system consists of an instrument, referred to as a
meter, and a disposable test strip. The meter component of the system
incorporates all of the significant features of the leading systems currently on
the market, including results displayed in less than 30 seconds, a large,
easy-to-read display to assist visually impaired users, and a simple user
interface. The test strips to be used with the system have been improved by the
implementation of careful process control in the manufacturing of such strips
which the Company believes will result in a more consistent product than the
test strips currently on the market. In September 1996, the Company received
regulatory clearance from the U.S. Food and Drug Administration (the "FDA") for
the system. In conjunction with LifeScan, the Company subsequently undertook
certain enhancements to the user interface features for the system. However, the
underlying chemistry and function of the disposable strips for the enhanced
version of the system (hereinafter referred to as the "New System") were not
changed from those of the prior version of the New System.

To operate the New System, a user first calibrates the meter for use with a
particular test strip by a simple push-button operation. The test strip is then
inserted into the meter, which automatically activates in a standby mode. The
user then places a small blood sample obtained by a finger prick on the end of
the test strip, which senses the size of the necessary sample and automatically
runs the test when the necessary amount of blood is available, providing results
in less than 30 seconds.

The Company and LifeScan expect the New System to become one of LifeScan's
principal blood glucose monitoring products, supplementing LifeScan's existing
photometric systems. Although LifeScan is currently the leader in the home blood
glucose monitoring market, with a U.S. market share of over 40% in 1995,
LifeScan does not currently market an electrochemical blood glucose monitoring
system. The Company believes that the addition of the New System to LifeScan's
current product line will allow LifeScan to continue to compete successfully in
the blood glucose monitoring market. According to a recent Frost & Sullivan
report, the U.S. blood glucose monitoring market (including both the home and
professional markets) was approximately $1.1 billion in 1995 and is expected to
grow at a compound annual rate of approximately 19% from 1994 to 2001.

On October 9, 1996, Selfcare and LifeScan entered into a distribution
agreement (the "Distribution Agreement") with respect to the New System,
pursuant to which Selfcare will supply the New System to LifeScan and LifeScan
will be the exclusive, worldwide distributor of the New System. The Company
plans to submit in early 1997 a pre-market clearance notification (a "Section
510(k) Notification") to the FDA pursuant to Section 510(k) of the Federal Food,
Drug and Cosmetics Act, as amended (the "FDC Act"), seeking permission from the
FDA ("FDA Clearance") to begin commercial distribution of the New System.
Selfcare currently believes that it can complete development, receive FDA
Clearance and commence shipments of the New System as early as the first half of
1997. However, no assurance can be given that these events will occur or will
not be delayed. The failure of any of these events to occur would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Risks Related to the LifeScan
Alliance, "-- Strategic Transactions -- LifeScan Alliance," and "-- Marketing
and Sales."

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<PAGE> 45

Generic Test Strips. Many companies in the blood glucose monitoring
industry market products based on an electrochemical, biosensor technology. A
complete system consists of a meter and a disposable test strip. Selfcare plans
to develop, manufacture, and market disposable, electrochemical, biosensor test
strips which can be used in electrochemical blood glucose monitoring meters
currently sold by the other leading manufacturers in the United States and
Europe. Under the terms of the LifeScan Alliance, the Company cannot develop a
generic test strip for the New System. However, the Company is developing
generic test strips for use with several other meters, including MediSense's
ExacTech(TM) and Companion 2(TM), Bayer's Glucometer Elite(TM) and Boehringer
Mannheim's Accu-Chek(R) Advantage(TM). On June 28, 1996, the Company obtained
FDA Clearance for its first generic test strip, which is compatible with the
ExacTech system sold by MediSense.

LOGO

The functions of the principal components of all electrochemical blood
glucose meters are similar. The design of test strips, however, varies in both
dimensions and materials, because some features are unique to each meter. The
general strip design is a multi-layer sandwich of materials that receives a
collected blood sample and allows the sample to be analyzed in a meter which
then provides a reading which can be used by the patient to take actions to
regulate his or her blood glucose level through medication, exercise and diet.

Selfcare believes that it has developed manufacturing technology to enable
it to be the first company to produce high quality generic test strips at a cost
which is as low as, or lower than, those made by most manufacturers of branded
test strips. To achieve this goal, Selfcare has established multi-disciplinary
development teams which are able to work on several products in parallel. The
goal of each team is to design a new test strip configuration for each target
branded product which, while delivering equivalent or superior results, uses
less expensive materials and is simpler to construct. At the same time, the
teams hope to maintain the general similarities among the test strips which may
lead to efficiencies in manufacturing.

The Company intends to sell the generic test strips under the Selfcare
brand name through the low cost distribution channels which Selfcare has already
established for its women's health self-test diagnostic products in the United
States and Europe. See "Marketing and Sales." In the future, the Company may
offer its generic strips to retailers as private label products. The Company
intends to commence marketing its generic test strip designed to be compatible
with MediSense's ExacTech system under the name "Excel(TM)," initially in the
United States in 1997.

The Company currently plans to manufacture future blood glucose-related
products at the Company's facility in Inverness, Scotland (the "Inverness
Facility"), with the exception of the generic strip for the MediSense ExacTech
system, which will be manufactured at the Company's facility in Galway, Ireland
(the "Galway Facility"). See "-- Manufacturing."

In August 1996, the Company, through a wholly-owned subsidiary, Selfcare
International GmbH, entered into a supply agreement with A. Menarini Industrie
Farmaceutical Riunite S.r.L. of Florence, Italy ("Menarini"). The agreement
provides that the Company will be a principal supplier to Menarini of blood

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<PAGE> 46

glucose strips distributed or to be distributed by Menarini in selected markets
in Europe and certain countries in other parts of the world. The blood glucose
test strips will be manufactured at the Inverness Facility. The Company expects
shipments under this agreement to commence in the second half of 1997. Under the
agreement, Menarini is subject to certain minimum purchases of products from the
Company, and the Company has agreed not to supply any third party with such
products in the selected markets for the term of the agreement.

Women's Health Products

Selfcare is currently marketing pregnancy and ovulation prediction self
tests which the Company purchases from third-party manufacturers, principally
Princeton, and then repackages under private labels, as well as under the
Selfcare brand. In order to reduce product costs and ensure quality, Selfcare is
in the process of developing its own manufacturing capabilities for these tests.
The Company believes that pregnancy and ovulation prediction tests to be
manufactured by Selfcare will be of the same quality as the tests that are now
currently obtained from contract suppliers. In September 1996, the Company
entered into an agreement with Nova Biomedical Corporation ("Nova") pursuant to
which Nova agreed to repackage and supply Selfcare with early pregnancy and
ovulation test kits. Under such agreement, the Company has agreed to purchase a
minimum quantity of specified products from Nova. The Company is also developing
a birth control aid for introduction in markets outside the United States.

Pregnancy Products. Selfcare markets a full line of pregnancy self-test
kits from various manufacturers in both stick and cassette versions. The stick
version has an exposed wick which absorbs urine when placed in the urine stream,
while the cassette version requires the user to first collect a urine sample in
a cup and then utilize an enclosed dropper to place the urine sample in the test
well. Both versions employ identical technology enabling the display of visual
results in approximately three minutes.

Ovulation Prediction Products. Selfcare's LH ovulation prediction tests,
marketed as the Early Ovulation Predictor under both the Selfcare brand name and
private labels, provide 24 to 48-hour notice of when ovulation is likely to
occur. By identifying the days when a woman is most fertile, these tests assist
couples in their family planning. The Early Ovulation Predictor has an
easy-to-use and easily read self-test cassette which is used by applying a urine
sample to the sample well with a supplied dropper. Clinically accurate results
are available in approximately three minutes.

Birth Control Aid. The Company is co-developing a birth control aid with
Princeton which will allow a woman to accurately identify the six-day period
when she is likely to be able to conceive. Selfcare's birth control aid is
designed to allow a woman to perform the test at any time during her monthly
cycle, and will yield the information on her fertility status almost immediately
utilizing an easy-to-use and read test device similar to the Company's pregnancy
tests and fertility monitors. The Company's birth control aid will be a
urine-based, estrogen and progesterone test which will give 72-hour notice of
ovulation and also indicate the end of a woman's fertile period. The system will
use a meter to read a test strip, and will have the capability to store previous
test results, as well as to prompt the user to commence testing. To date, the
FDA has not permitted such products to be marketed as a contraceptive aid in the
United States. Accordingly, this product will initially be introduced in
European countries where such claims are permitted. Unilever Corporation
("Unilever") has recently introduced a birth control product in the United
Kingdom which uses a urine strip and an instrument and currently has a similar
product in clinical trials in the United States. Selfcare believes that it may
benefit from Unilever's effort to bring a birth control product to the U.S.
market. However, there can be no assurance that any such product will be
approved for commercialization in the United States.

CarePlus. Selfcare has recently commenced marketing in the United States a
contraceptive product called CarePlus(TM) under the Selfcare brand which
consists of condoms and spermicide inserts, in packaging designed to appeal to
women.

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<PAGE> 47

Nutritional Supplement Lines

Pursuant to the Nutritional Supplement Lines Acquisition, Selfcare acquired
the U.S. rights to the Nutritional Supplement Lines, which had domestic sales of
approximately $24 million in 1996. The Stresstabs, Allbee(R) and Z-Bec(R)
product lines included in the Nutritional Supplement Lines currently represent,
according to industry sources, approximately a 29% share of the B-complex
vitamin category sold through U.S. drug, food and mass merchandising retail
chains. The following table summarizes those Nutritional Supplement Lines which
the Company believes will form an important part of its retail marketing
strategy:

<TABLE>
<CAPTION>
NUTRITIONAL SUPPLEMENT
PRODUCT DESCRIPTION
- ---------------------------- ---------------------------------------------------------------
<S> <C>
Stresstabs* B-complex vitamin with folic acid (daily supplements of folic
acid have been shown to be important in preventing various
neural tube defects (NTDs) such as spina bifida and
anencephaly)
Stresstabs with Iron* B-complex vitamin with folic acid and iron
Stresstabs with Zinc B-complex vitamin with folic acid and zinc
Ferro-Sequels* Iron supplement (iron supplements help prevent anemia
associated with menstruation and other women's health
conditions)
Posture* Calcium supplement (a calcium-rich diet is believed to be the
most effective way of preventing osteoporosis)
Protegra(TM) Antioxidant multivitamin and mineral supplement
Allbee B-complex vitamin with Vitamin E and Vitamin C
Z-Bec B-complex vitamin with Vitamin C, Vitamin E and zinc
</TABLE>

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

* Products formulated to address certain women's health requirements.

In connection with the Nutritional Supplement Lines Acquisition, the
Company and AHP entered into supply agreements, pursuant to which AHP agreed to
supply the Company with the products for the Nutritional Supplement Lines for up
to one year after the closing of the acquisition. The Company will purchase such
products at agreed upon prices from AHP in quantities based on quarterly
forecasts provided by the Company. AHP will manufacture such products itself,
or, in the case of products it does not currently manufacture, obtain them from
third party suppliers. AHP has agreed that the Nutritional Supplement Lines
supplied pursuant to such agreements will conform to agreed upon specifications
and that they will be manufactured in compliance with applicable laws and
regulations, including the FDC Act and CGMPs. After the one-year period lapses,
the Company will be required to establish alternative supply arrangements for
the products. See "Risk Factors -- Dependance on Certain Suppliers."

In addition, the Company assumed responsibility for all marketing and sales
functions for the Nutritional Supplement Lines, as well as certain
administrative functions, including customer service. The Company also will
become responsible for other administrative functions, including order receipt,
billing and collection, and the distribution of all products on May 20, 1997.
The Company is marketing the Nutritional Supplement Lines through its existing
retail distribution channels, and will seek to expand sales through trade
allowances, increased advertising and promotion, and cross-merchandising with
other Selfcare products. The Company will also reposition the brands which
address specific women's nutritional needs through redesigned packaging and
increased emphasis on the products' self-care benefits for women. The Company
expects to continue to expand its women's health product line with products
supplied by or co-developed with third party manufacturers, as well as products
developed by the Company.

Infectious Disease Products

Selfcare is currently marketing a wide array of professional diagnostic
test kits for infectious disease agents, including HIV, hepatitis and Lyme
disease. In addition, the Company is developing self-test products for HIV 1/2
and Strep-A. Orgenics also markets professional diagnostic kits for HIV,
hepatitis and other

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<PAGE> 48

infectious disease agents, including chlamydia, and is developing several
professional diagnostic products in various formats for a variety of other
infectious diseases.

HIV Tests. Selfcare produces two visually-read, rapid test HIV products for
the emergency blood screening and clinical diagnostic markets. The first of
these tests, the rapid test device ("RTD"), is a membrane-based, rapid enzyme
immunoassay ("EIA") test employing recombinant HIV-1 and HIV-2 coated latex
attached to a plastic membrane as an antibody capture mechanism. This product
has been on the market since June 1991 and is registered for sale in India, a
number of European countries, as well as many countries in Africa and the Middle
East. The second test is in a patented format licensed from Cambridge Biotech
Corporation ("Cambridge Biotech") under the trademarked name Capillus(TM).
Capillus is an instrument or visually-read latex agglutination assay employing
an acrylic capillary slide to achieve agglutination. The instrument is a simple,
low cost, battery-run photometer. The World Health Organization regularly
purchases HIV tests for shipment to developing countries, such as India, to be
used in major government AIDS control programs. Currently, approximately 33% of
the Indian government's requirements for HIV rapid tests are purchased from the
Company through the World Health Organization. Approximately the same percentage
of such requirements is purchased from Orgenics; accordingly, upon the
completion of the Orgenics Acquisition, the Company will be the supplier of
approximately two-thirds of these requirements. However, there can be no
assurance that the Company will be able to maintain this market share in the
future.

The Company also produces an HIV 1/2 microtiter plate screening assay that
is used mainly in blood collection and donation centers. Three individual EIA
products are also produced for hepatitis-D antigen, total antibody and IgM in
human blood serum. Sales are mainly under private label to Murex Ltd. and Sanofi
Pasteur.

In January 1997, Selfcare entered into an agreement with ChemTrak
Incorporated ("ChemTrak") pursuant to which ChemTrak appointed Selfcare as its
exclusive distributor in Europe, Scandinavia and certain other countries
formerly comprising the U.S.S.R., including Russia (the "European Territory") of
ChemTrak's home collection and mail-in HIV testing system for which FDA approval
is currently pending. As part of this agreement, Selfcare agreed to pursue
regulatory approval of the system in each country comprising the European
Territory. In addition, Selfcare agreed to establish and operate one or more
central testing facilities and offer counseling services to report results and
offer counseling to users of the system. ChemTrak retains the right to convert
the Company's exclusive distribution rights into non-exclusive rights upon the
occurrence of certain events, including the Company's failure to make certain
regulatory filings and the Company's failure to maintain market share goals.
There can be no assurance that Selfcare will be successful in obtaining the
necessary regulatory approvals in Europe, in establishing satisfactory testing
facilities and counseling services or in successfully commercializing the system
in Europe. See " -- Strategic Transactions -- Agreement with ChemTrak."

The Company believes that a home HIV test program using technology
currently available or under development by the Company may be marketable in
certain European countries in late 1997, although no assurance can be given that
necessary regulatory approvals for such a test will be obtained by such time, or
at all. The Company anticipates that it will develop or acquire HIV self tests
in different formats as necessary for the introduction of such tests in other
countries, including the United States, following the initial marketing of these
tests in Europe. In each case, the Company will be required to obtain certain
regulatory approvals before marketing such tests and no assurance can be given
that such approvals will be obtained.

Selfcare is also developing an educational and testing program called
CarePlan to be used in conjunction with the Company's HIV self tests. The
educational material explains the spread of the virus, risk behavior, and how to
reduce risk and exposure. The Company believes that normal medical channels may
not meet the needs of the population at risk because many people suffer from
embarrassment, fear the loss of confidentiality, or do not have a regular
doctor. In contrast, a research program conducted by the Centers for Disease
Control and Prevention revealed that 29% of adults in the United States would
use a confidential HIV home test.

Accordingly, Selfcare believes that a significant potential market exists
for an easy and completely private HIV self-test method. Home Access and Direct
Access are currently selling home collection and mail-in HIV testing and
telephone counseling services in the United States. These services (and other
tests for which FDA

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<PAGE> 49

authorization is currently being sought), provide a user with instructions and
material for taking a small home-drawn blood sample which the user then mails to
a designated laboratory where the actual test is performed. A week after sending
in the sample, the user telephones the laboratory to obtain the results on an
anonymous basis. If the result is positive, the caller is offered immediate
access to a counselor. By comparison, under the protocol of the CarePlan
educational and testing program being developed by Selfcare, the test will be
performed by the user entirely at home, producing a randomized, coded result in
less than 15 minutes. The user may then immediately call a toll-free number,
report the code anonymously, and be informed whether the result is negative or
inconclusive. If the result is inconclusive, the caller is advised to consult
their physician for a confirmatory test and then, if necessary, to consult with
a counselor. Although the Company believes that the availability of immediate
test results may give CarePlan a significant advantage over the mail-in HIV
testing services of the type for which FDA Clearance has been obtained, there
are substantive regulatory and political obstacles, both in the United States
and abroad, which must be overcome before an HIV self test such as CarePlan can
be commercialized. There can be no assurance that these obstacles can be
overcome in a manner which will allow the Company to successfully market an HIV
self test. See "Risk Factors -- No Assurance of FDA Clearance; Comprehensive
Government Regulation."

Selfcare recognizes that there are significant barriers to the introduction
of HIV self tests such as CarePlan. Despite the fact that many current
recipients of professional clinical laboratory test results do not receive
counseling even if they test positive for HIV, the FDA has expressed concern
about allowing individuals to receive test results without counseling. The
Company's HIV self test is being designed so that if a test result is not
negative, the person will be counseled to see their physician for a confirmatory
test which would lead to appropriate medical and professional treatment and/or
counseling. Such counseling is desirable to stop the possibility of inadvertent
spreading of the disease, to counsel and advise on safe sex practices to stop
the spread of the epidemic, as well as to promote the emotional well being of
the patient. The issue of "error proofing" the home self tests is also a
significant concern. The mail-in HIV testing services that are currently
available require the patient to collect a sample at home, which is then sent to
and analyzed in a laboratory. The FDA has expressed concern about ensuring the
integrity of the collection of the sample and interpretation of results. The
Company believes the FDA will have additional concerns with respect to HIV self
tests which are designed to be interpreted at home. Despite the political and
regulatory barriers in the industrialized world, Selfcare is positioning itself
to compete in the consumer market for HIV self tests, and is already marketing
clinical diagnostic products, including products for use in public health
programs in certain developing countries. Selfcare believes it has the ability
to market HIV self-testing and educational programs, and intends to be poised to
enter the market if regulatory barriers are overcome.

Other Infectious Disease Tests. In addition to its HIV tests, the Company
produces two separate Western Blot kits to distinguish between early and late
infections of Lyme disease which if left untreated can lead to severe arthritis
and brain damage. The Company expects to produce and sell an improved Lyme
disease test kit in 1997. Selfcare will seek to provide other companies with
private label products manufactured by Selfcare which utilize the Western Blot
test technology.

The Company anticipates that it will complete the Orgenics Acquisition upon
completion of this offering. See " -- Strategic Transactions -- Orgenics
Acquisition." Orgenics manufactures professional diagnostic test products based
on several proprietary technological systems including genetic assays,
immunoassays, rapid tests and confirmatory tests using multiple antigens. These
tests, or adaptations of them, are applicable to detecting a wide variety of
infectious diseases and agents, including HIV-1 and HIV-2, hepatitis, and
chlamydia. Orgenics' products are designed to enable small-to-medium-sized
laboratories to analyze low volumes of tests economically. In May 1995, Orgenics
introduced a new product, DoubleCheck(TM), a single sample, compact diagnostic
device which, in its first commercialized application, detects HIV in saliva and
blood serum samples in less than ten minutes, making it suitable for use in
physicians' offices and other patient point-of-care sites. Orgenics is also in
the advanced stages of development of a DoubleCheck test which will detect H.
pylori (a bacterium associated with stomach ulcers and stomach cancer), as well
as a new, easily performed DNA probe-based genetic assay test called
GeneComb(TM), which Orgenics believes will substantially reduce the time
required to perform testing for genetic material, including HIV. Orgenics'
current products are sold in more than 20 countries, principally in Europe,
Latin America, Africa and Asia. Orgenics has

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<PAGE> 50

obtained regulatory approval for sale of its DoubleCheck HIV test in France and
Latin America, has FDA Clearance for ImmunoComb(R) for chlamydia,
cytomegalovirus and toxoplasmosis, and intends to submit a Section 510(k)
Notification for H. pylori. The DoubleCheck and ImmunoComb test formats are
immunoassay-based tests which detect the presence of infectious disease agents.

MARKETING AND SALES

United States

In the United States, Selfcare has created an effective, low overhead sales
network. The Company's network utilizes independent, commissioned retail brokers
in conjunction with the Company's direct sales personnel. The Company's sales
efforts are currently focused on large drug, food and mass merchandising retail
chains, as well as wholesalers who service smaller accounts. The Company
currently contracts with its broker agencies geographically distributed across
the United States. The LifeScan Alliance contemplates that the New System will
be distributed worldwide exclusively by LifeScan, whose marketing resources can
more effectively leverage this technology.

Self-Test Products. Selfcare is taking steps to enter the generic
electrochemical blood glucose test strip market against established, branded
competition. The Company believes that it can produce test strips to be used
with the electrochemical blood glucose monitoring systems marketed by certain
major manufacturers at a lower cost to consumers than branded test strips. On
June 28, 1996, Selfcare obtained FDA Clearance for the first of its generic test
strip products. Selfcare intends to sell its generic blood glucose test strips
through its existing self test distribution network.

The Company currently markets several over-the-counter pregnancy and
ovulation prediction self tests. The Company purchases its pregnancy and
ovulation prediction self tests from third-party manufacturers and repackages
them for sale. These tests are marketed under both the Selfcare label and a
variety of private labels through major drug, food store and mass merchandising
chains. Selfcare pregnancy products are currently available in approximately 55%
of pharmacy chain outlets in the United States and are becoming available in new
outlets. Selfcare has recently commenced marketing CarePlus under the Selfcare
label through major drug, food store and mass merchandising chains in the United
States.

Nutritional Supplements. In connection with the Nutritional Supplement
Lines Acquisition, the Company assumed responsibility for all marketing and
sales functions for the Nutritional Supplement Lines, as well as certain
administrative functions, including customer service. The Company also will
become responsible for other administrative functions, including order receipt,
billing and collection, and the distribution of all products on May 20, 1997.
The Company is permitted to use packaging and labels bearing the names of AHP
and its affiliates for the Nutritional Supplement Lines until AHP's current
inventory of such packaging and labels is exhausted. After such time, the
Nutritional Supplement Lines will bear packaging and labels designed by the
Company and will not contain references to AHP or its affiliates. The Company is
marketing the Nutritional Supplement Lines through its existing retail
distribution channels, and will seek to expand sales through trade allowances,
increased advertising and promotion, and cross-merchandising with other Selfcare
products. The Company will also reposition the brands which address specific
women's nutritional needs through redesigned packaging and increased emphasis on
the products' self-care benefits for women.

International

Initially, the Company's international marketing will focus on developing a
distribution network in Europe. The Company has assembled a ten-person sales and
marketing staff based in Brussels, Belgium and Munich, Germany. The Company
believes that the nature of the distribution of self-test products differs from
country to country. In particular, the distribution of medical products in
Europe is characterized by numerous, small pharmacies and drug store chains as
opposed to large, national retailers. The Company intends to focus its initial
efforts at marketing women's health products and generic blood glucose test
strips in Germany and the United Kingdom.

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<PAGE> 51

In August 1996, the Company entered into an agreement to become a principal
supplier of blood glucose test strips to Menarini which plans to distribute
these strips in selected markets in Europe and certain countries in other parts
of the world.

STRATEGIC TRANSACTIONS

An important part of Selfcare's business strategy is to enter into
strategic alliances and licensing arrangements with third parties, primarily
medical products companies, for the development and distribution of certain
products. The Company also pursues a strategy of selective acquisitions of
companies, assets and technologies which it believes will enhance its ability to
deliver innovative self-test diagnostic products to the marketplace at low cost.

Cambridge Diagnostics Acquisition

In November 1994, Selfcare acquired Cambridge Diagnostics from Cambridge
Biotech, which at that time was operating in Massachusetts under Chapter 11 of
the U.S. Bankruptcy Code. Cambridge Diagnostics, located in Galway, Ireland,
produces three categories of tests for infectious disease as well as packages
products for the Company's European customers, including pregnancy tests, birth
control and other women's health products. At the time of the acquisition,
Cambridge Diagnostics (then known as Cambridge Biotech Limited) was operating
under the protection of a court-appointed examiner in a procedure analogous to a
Chapter 11 reorganization under U.S. bankruptcy law. Pursuant to the acquisition
agreements, the terms of which were approved by the United States Bankruptcy
Court and the Irish High Court, Selfcare acquired all of Cambridge Diagnostics'
issued and outstanding capital stock and, pursuant to certain license
agreements, acquired certain technologies necessary for the production of
Cambridge Diagnostics' HIV 1/2 RTD, Capillus, Rapid Test and Lyme disease test
kits for an aggregate of $2.1 million and the assumption of certain liabilities.
In addition, the Company furnished Cambridge Diagnostics with a $900,000
unsecured working capital line of credit. Under the terms of Cambridge Biotech's
license agreements with Pasteur Sanofi Diagnostics, Cambridge Biotech could not
assign or sublicense its rights with respect to certain of these technologies
directly to the Company. In order to allow the Company to have access to such
technologies, Selfcare and Cambridge Biotech formed an affiliate, Cambridge
Affiliate Corporation ("Cambridge Affiliate"), 51% owned by Cambridge Biotech
and 49% owned by Selfcare. A series of contracts was entered into between
Cambridge Affiliate and Cambridge Diagnostics, pursuant to which Cambridge
Diagnostics manages Cambridge Affiliate and manufactures and sells products on
behalf of Cambridge Affiliate. Cambridge Affiliate is managed and funded
separately from Selfcare and Cambridge Diagnostics. In return for these goods
and services, Cambridge Affiliate pays to Cambridge Diagnostics an aggregate
amount equal to its net revenues from sales of the products, less (i) operating
expenses attributable to such products (including the royalties which Cambridge
Affiliate pays to Cambridge Biotech), and (ii) an amount equal to 10% of the
royalty payments payable by Cambridge Affiliate. The additional 10% of royalties
deducted is designed to create a retention within Cambridge Affiliate to cover
its operating costs. The royalties paid by Cambridge Affiliate to Cambridge
Biotech are equal to the royalties owed by Cambridge Biotech to Pasteur Sanofi
Diagnostics. See Note 12(c) to the Consolidated Financial Statements.

Prior to the Cambridge Diagnostics Acquisition, Cambridge Diagnostics had
received certain capital expenditure and revenue grants from the Industrial
Development Authority of Ireland (the "IDA"). As a condition to retaining the
grants, the IDA requires Cambridge Diagnostics to maintain a certain number of
employees in Ireland. The IDA also prohibits the Company from disposing of
assets or terminating business activities that were funded by the grants within
10 years of such grants. As of December 31, 1996, Cambridge Diagnostics was not
in compliance with the employment provisions of the grants. As a result, the IDA
could require Cambridge Diagnostics to repay capital expenditure and revenue
grants totaling 774,000 Irish pounds (approximately $1.3 million in December
1996). The IDA has not historically pursued its right to recoup these grants
from Cambridge Diagnostics and, as of December 31, 1996, Cambridge Diagnostics
management believes that the IDA is unlikely to do so, provided that Cambridge
Diagnostics does not terminate its operations in Ireland. If the IDA did pursue
its rights to recoup these grants, it could have a material adverse effect on
the Company and Cambridge Diagnostics.

Selfcare financed the acquisition of Cambridge Diagnostics by utilizing a
bank line of credit and subsequently refinanced the amount borrowed through the
issuance of an aggregate of $3.0 million in original

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principal amount of 10% promissory notes (the "Cambridge Diagnostics Notes"),
together with attached warrants having an aggregate purchase price of $30,000
(the "Cambridge Diagnostics Warrants"), to certain individuals, including Ron
Zwanziger, the Company's Chairman and Chief Executive Officer, Dr. David Scott,
Managing Director of Inverness, and Willard Lee Umphrey and John F. Levy, each a
director of the Company. The Cambridge Diagnostics Notes are due March 31, 1998
and bear interest at the rate of 10% per annum. Upon certain events of default
by the Company, the noteholders may demand full or partial payment of the notes
and the accrued interest. See "Certain Transactions -- Cambridge Diagnostics
Transactions." As a fee for placement of the Cambridge Diagnostics Notes,
Selfcare issued an aggregate of 119,834 shares of Common Stock to U.S. Boston
Capital Corporation, an entity owned by Willard Lee Umphrey, a director of the
Company, and Mr. Leon Okurowski. See "Certain Transactions -- Transactions with
U.S. Boston Capital Corporation." Additionally, the Company issued 92,950 shares
of Common Stock to Mr. Zwanziger for his personal guarantee of the Cambridge
Diagnostics Notes.

In July 1996, the Company entered into agreements with holders of $2.75
million in principal amount of the Cambridge Diagnostics Notes in order for the
Company to obtain approval for listing of the Common Stock on the American Stock
Exchange (the "AMEX"). Pursuant to such agreements, the principal amount of the
notes were to be automatically converted into shares of Common Stock if the
Company's stockholders' equity as of November 30, 1996 were determined to be
less than $4.0 million. The Company stockholders' equity as of such date was
$14.9 million (after giving effect to the events occurring since such date which
are described in footnote 2 to the table in "Capitalization," but prior to
giving effect to this offering); as a result, the Company became obligated to
repay such notes on or about December 31, 1996. In December 1996, the Company
entered into agreements (the "First Extension Agreements") with holders of
substantially all of the Cambridge Diagnostics Notes pursuant to which such
holders agreed to defer repayment of the principal amount of their notes until
January 15, 1998. In consideration of such deferral, the Company agreed to issue
warrants to purchase an aggregate of 54,090 shares of Common Stock to such
holders, exercisable at any time within the next five years and at an exercise
price of $12.875 per share. The Company's reason for entering into the First
Extension Agreements was to extend the payment date of the Cambridge Diagnostic
Notes from December 31, 1996 to January 1998, in order to preserve liquidity.

The number of shares of Common Stock issuable pursuant to the Cambridge
Diagnostics Warrants is equal to 69% of the net sales of Cambridge Diagnostics
for the fiscal year preceding the repayment of the Cambridge Diagnostics Notes,
divided by $32.87. Based on this formula and Cambridge Diagnostics' net sales
for fiscal year 1995, had the Cambridge Diagnostics Notes been repaid on
December 31, 1996, all of the Cambridge Diagnostics Warrants would have become
exercisable for an aggregate of 1,142,635 shares of Common Stock. Pursuant to
the First Extension Agreements, such holders agreed that their Cambridge
Diagnostics Warrants would become exercisable as if the Cambridge Diagnostics
Notes had been repaid on December 31, 1996. As a result, the number of shares of
Common Stock issuable pursuant to such Cambridge Diagnostic Warrants will be
based on the net sales of Cambridge Diagnostics in 1995. On December 31, 1996,
the holders of $2.6 million in principal amount of the Cambridge Diagnostics
Notes, including substantially all of the holders who were subject to the First
Extension Agreements, entered into agreements (the "Second Extension
Agreements") to terminate and cancel their Cambridge Diagnostics Warrants, in
exchange for which the Company agreed to transfer to such holders, for no
additional consideration, an aggregate of 990,050 shares of Common Stock on the
earlier of January 15, 2000 or the occurrence of a change in control (as defined
in the Second Extension Agreements) of the Company. Of the holders of the
remaining $400,000 in principal amount of the Cambridge Diagnostics Notes, the
holders of $375,000 in principal amount of such notes remain parties to the
First Extension Agreements. The Company's reason for entering into the Second
Extension Agreements was to amend the terms of the Cambridge Diagnostic
Warrants, in order to fix the terms of the Cambridge Diagnostic Warrants and
eliminate the associated noncash interest charges.

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underlying the Pasteur HIV Technologies in the Excluded Countries, Cambridge
Biotech is entitled to non-exclusive rights in such technology in such
countries. In 1990, Pasteur Sanofi Diagnostics acquired ownership of Genetic
Systems, whereupon Cambridge Biotech commenced selling products incorporating
the Pasteur HIV Technologies in the United States. These activities were
challenged in a patent infringement lawsuit filed in bankruptcy court in March
1995 by Institut Pasteur, the minority stockholders of Pasteur Sanofi
Diagnostics and Genetic Systems. In September 1995, the bankruptcy court ruled
in favor of Cambridge Biotech on this issue, and Institut Pasteur and Genetic
Systems Corporation subsequently filed an appeal in district court. The date for
the appeal hearing is unknown. If the bankruptcy court decision were reversed on
appeal, the territories to which Cambridge Affiliate could sell HIV-related
products would be limited and this could have a material adverse effect on the
Company. See " -- Patents and Proprietary Rights."

Inverness Facility

In May 1995, the Company invested approximately $1.6 million for all of the
shares of voting capital stock in Inverness (formerly Hebocraft Limited), a
corporation organized under the laws of Scotland. A concurrent investment of
approximately $1.6 million, represented by shares of 6% cumulative redeemable
preferred stock of Inverness, was made by Inverness & Nairn Local Enterprise
Corporation ("INLEC"). Inverness has received funds in the amount of
approximately $3.6 million from the government of Scotland for equipment
acquisitions, product development and employee training. The Company has
guaranteed the repayment of those obligations. In addition, in June 1995,
Inverness entered into a lease with Highlands and Islands Enterprises ("HIE"),
an affiliate of INLEC, to rent the Inverness Facility, a 50,000 square foot
production facility occupied by Inverness in December 1995 after having been
constructed by HIE. The annual rent under the Inverness Facility's twenty-year
lease is approximately $520,000 per year, subject to certain increases. The
Company has guaranteed all payments by Inverness under the terms of the lease,
although Inverness is not obligated to pay rent for the first two years of the
lease. The Company is currently configuring the Inverness Facility for
production of the test strips for use in the New System. The Company also plans
to manufacture certain generic blood glucose test strips at the Inverness
Facility including blood glucose test strips for distribution by Menarini. See
" -- Manufacturing."

LifeScan Alliance

In November 1995, the Company entered into the LifeScan Alliance with
LifeScan, a subsidiary of Johnson & Johnson, which gives LifeScan certain rights
to market the New System. See " -- Products and

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Technologies -- Diabetes Products under Development." Under the terms of the
LifeScan Alliance, Johnson & Johnson Development Corporation ("JJDC"), an
affiliate of LifeScan, advanced $7.0 million to the Company at the time the
Company entered into the LifeScan Alliance and $6.7 million in connection with
the filing by the Company on May 20, 1996 of a Section 510(k) Notification with
respect to a prior version of the New System. In September 1996, the Company
received notification of FDA Clearance to begin commercial distribution of the
prior version of the New System. In conjunction with LifeScan, the Company
subsequently undertook certain enhancements to the user interface features for
the prior version of the New System. The underlying chemistry and function of
the disposable strips of the New System, however, were not changed from those of
the prior version of the New System. In October 1996, the Company entered into
the Distribution Agreement with LifeScan pursuant to which LifeScan is to
distribute the New System. The Company intends to file in early 1997 a Section
510(k) Notification with the FDA with respect to the New System. The New System
must receive FDA Clearance before it may be sold in the United States.

As contemplated by the terms of the LifeScan Alliance, in connection with
entering into the Distribution Agreement, LifeScan paid the Company a success
fee of $7.0 million and JJDC converted its approximately $13.7 million in
previous advances to the Company into 201,622 shares of Common Stock which
represents 5% of (i) the Common Stock outstanding as of November 10, 1995, and
(ii) any shares of Common Stock issued prior to such conversion pursuant to the
exercise of rights to acquire Common Stock outstanding as of November 10, 1995.
In addition, under the terms of the LifeScan Alliance, the Company must issue to
JJDC, for no additional consideration, shares of Common Stock equal to 5% of any
additional Common Stock issued pursuant to the exercise of rights to acquire
Common Stock outstanding as of November 10, 1995 (the total of all shares so
issued, the "Conversion Shares"). The precise number of Conversion Shares
depends on the number of shares of Common Stock which the Company is required to
issue in connection with the financing of the Inverness Facility, as discussed
below, as well as the vesting and exercise of options and warrants. However, the
Company estimates that the number of additional Conversion Shares which JJDC
will acquire is approximately 278,572. See "Shares Eligible for Future Sale."

The Distribution Agreement provides that it will remain in effect through
December 31, 2010. It may be terminated earlier by either party upon the
happening of certain events, including a default on the part of the other party
not cured within applicable grace periods. The Distribution Agreement entitles
LifeScan to purchase from the Company the meters, test strips and related
components comprising the New System (collectively, "System Components") after
the Company has notified LifeScan that it is prepared to commence commercial
production of the New System. The Distribution Agreement provides that the
Company will be LifeScan's exclusive supplier of System Components, subject to
certain rights of LifeScan described below to make or obtain System Components
from others if the Company fails to meet its supply obligations. The
Distribution Agreement provides for periodic forecasts by LifeScan of its
planned purchases. If these forecasts exceed certain levels, the Company is
entitled to give notice to LifeScan if the Company anticipates that it will be
required to incur capital expenditures to meet LifeScan's anticipated
requirements of certain System Components. If the Company gives such a notice,
LifeScan must either agree to make certain payments to the Company if its actual
purchases fall short of projections by a specified margin, or the Company will
not be required to supply LifeScan's full forecast of such System Components.

Under the Distribution Agreement, the price per test strip varies depending
on the volumes purchased, while the price for System Components other than test
strips is the Company's cost, including appropriate allocations of overhead. If
the sale of test strips to LifeScan ceases to be profitable for the Company, the
price for test strips shall be such amount as gives the Company a commercially
reasonable profit. If the Company and LifeScan do not agree on this price, it is
subject to arbitration pursuant to a specified procedure. LifeScan is required
to purchase specified amounts of test strips beginning in 1998, subject to
adjustment if the Company has not obtained FDA Clearance by June 1, 1997. If
LifeScan's purchases of test strips fall below a certain level following
calendar year 2001, the Company may terminate the Distribution Agreement. The
Distribution Agreement does not otherwise require LifeScan to make any purchases
from the Company.

The Distribution Agreement prohibits the Company from selling instruments,
test strips or related components which are designed to be used with other
components of the New System to anyone other than LifeScan. This restriction
will cease to apply if LifeScan introduces a competing electrochemical system
for self testing of blood glucose not sourced from the Company prior to January
1, 2000. The Company is also

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prohibited from selling components of a complete electrochemical system to
measure blood glucose, consisting of test strips, instruments and related
components, unless LifeScan either (i) introduces an electrochemical system for
home use testing of blood glucose not sourced from the Company, or (ii) fails to
purchase specified minimum levels of test strips over the life of the
Distribution Agreement. If this restriction on the Company terminates as a
result of LifeScan's failure to purchase specified minimum volumes of test
strips, the Company will remain prohibited from supplying products to any
business in the home use testing market which has sales in excess of a specified
amount. Under certain circumstances, if the Company fails to supply products in
the volumes forecasted and ordered by LifeScan, LifeScan would automatically
become entitled to produce such products itself.

If the Company makes a Section 510(k) Notification on or before May 10,
1998 with respect to certain products relating to diabetes, LifeScan has the
right to require the Company to submit a proposed form of distribution agreement
for the applicable product reflecting certain agreed terms and to negotiate in
good faith with respect to the terms of a distribution agreement for such
product or products. If LifeScan elects to enter into a distribution agreement
for such product or products, LifeScan must pay the Company $3.0 million with
respect to each such product. In addition, if FDA Clearance is obtained for such
product, LifeScan must pay the Company an additional $2.0 million. If the
Company does not obtain written permission from the FDA to begin commercial
distribution of such product within one year after LifeScan has made the $3.0
million payment with respect to the product, LifeScan may require the Company to
repay that amount in eight equal quarterly installments, without interest
(provided payments are made in a timely manner).

If the Company makes a Section 510(k) Notification with respect to a novel
system for the measurement of human blood glucose which does not use test strips
in conjunction with an electronic meter or which does not measure an in vitro
fluid sample, the Company is required to provide LifeScan with the opportunity
to enter into a distribution agreement with respect to such system in accordance
with general terms previously agreed to in connection with the LifeScan
Alliance.

There can be no assurance that the Company will enter into any additional
distribution agreements with LifeScan or that LifeScan will purchase System
Components under the Distribution Agreement. See "Risk Factors -- Risks Related
to the LifeScan Alliance."

Agreement with Princeton

On March 15, 1996, the Company entered into an agreement with Princeton
which provides for the development of certain specific infectious disease tests
by Princeton for marketing by Selfcare on a non-exclusive basis. The agreement
also grants Selfcare an option to market under its own brand name other
infectious disease tests, and certain other types of tests, developed by
Princeton, on terms to be agreed. Pursuant to the agreement, the Company is also
obligated to purchase specified minimum amounts of certain tests kits from
Princeton through 1998 and has provided certain financing for the purchase of
equipment (which will remain the property of the Company) to be used in
producing tests kits for the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The agreement also provides that Selfcare will provide funding for
the development by Princeton of a birth control aid, with respect to which the
Company will have exclusive worldwide marketing rights.

Agreement with Menarini

In August 1996 Selfcare entered into an agreement with Menarini pursuant to
which the Company became a principal supplier of blood glucose test strips for
blood glucose meters distributed or to be distributed by Menarini in selected
markets in Europe and certain countries in other parts of the world which
Menarini currently sources from another supplier. Under the agreement, Menarini
is subject to certain minimum purchases of products from Selfcare, and Selfcare
has agreed not to supply any third party with such products in the selected
markets for the term of the agreement. It is anticipated that distribution of
the blood glucose test strips will be undertaken by the diagnostics division of
Menarini, known as Menarini Diagnostics S.R.L. ("Menarini Diagnostics").
Menarini Diagnostics had 1995 revenues of $120 million, 430 employees, and nine
international subsidiaries. A significant part (approximately 40%) of the
existing business of Menarini Diagnostics is the supply of blood glucose test
strips and meters. Selfcare expects shipments under this

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agreement to commence in the second half of 1997. The blood glucose test strips
to be supplied to Menarini pursuant to this agreement will be manufactured at
the Company's Inverness Facility.

Orgenics Acquisition

In December 1995, the Company entered into an Investment and Loan Agreement
(the "Orgenics Agreement") with Orgenics, pursuant to which the Company invested
$500,000, and two investment limited partnerships, Medica Investment (Israel)
L.P., ("Medica Israel") and Medica Investment (U.S.) L.P., (individually,
"Medica U.S." and, together with Medica Israel, "Medica") collectively invested
$500,000, in a $1.0 million debenture issued by Orgenics (the "Orgenics
Debenture"). On April 25, 1996, the Company exercised its right to acquire
Medica's interest in the Orgenics Debenture for 135,421 shares of Common Stock,
which were issued on May 7, 1996. See "Certain Transactions." Concurrently with
the issuance of the Orgenics Debenture, the Company provided guaranties (in the
form of letters of credit) of $200,000 of the debt of Orgenics' French
subsidiary to two French banks.

In October 1996, the Company made a tender offer to all the holders of the
outstanding shares in Orgenics and Orgenics International Holding, B.V.
("Orgenics International"), a Dutch holding company whose only material asset is
its investment in Orgenics. In addition, on October 24, 1996, the Company
converted the Orgenics Debenture in accordance with its terms into redeemable
preferred shares of Orgenics representing 20% of Orgenics' outstanding share
capital on a fully diluted basis as of February 7, 1996, after giving effect to
the issuance of such preferred shares. The redeemable preferred shares have the
same voting rights as the ordinary shares of Orgenics, and are redeemable by
Orgenics in the event that the Company fails to perform its obligations under
the option agreements hereinafter described. As a result of purchases pursuant
to such tender offer and the conversion of the Orgenics Debenture, the Company
has acquired (on a fully-diluted basis) direct ownership of approximately 26.8%
of the shares of Orgenics, and approximately 59.7% of the shares of Orgenics
International. The purchase price for these interests was approximately $9.1
million (inclusive of the conversion of the Orgenics Debenture). Based on
Orgenics International's ownership of Orgenics shares, Selfcare currently holds
a 57.1% direct and indirect equity interest in Orgenics, and under the terms of
the Orgenics Agreement, has the right to appoint two of the seven members of
Orgenics' board of directors.

The Company is a party to option agreements (the "Option Agreements") with
substantially all the holders of Orgenics and Orgenics International shares (the
"Optionees"). Pursuant to the exercise of the options under the Option
Agreements (as more fully described below), upon the completion of this offering
the Company expects to acquire direct or indirect (through Orgenics
International) ownership of approximately 100% of the outstanding share capital
of Orgenics. Under the terms of the Option Agreements, the Optionees have put
options which require the Company to purchase their shares, and the Company has
a call option to purchase such shares. The Company's call option is exercisable
at any time prior to August 7, 1999. The put options will become exercisable
upon the closing by the Company of this offering.

Upon exercise of the put or call options under the Option Agreements, upon
completion of this offering Selfcare will be required to pay for each share of
Orgenics which it acquires an amount equal to 1.5 times Orgenics' gross revenues
per share (on a fully diluted basis as of the exercise date, and after giving
effect to the conversion of the Orgenics Debenture) during the four fiscal
quarters ending December 31, 1996. However, because certain performance goals
were met by Orgenics during the applicable period, the multiple has increased to
1.75 times. Accordingly, the amount of the consideration payable by the Company
for the Orgenics and Orgenics International shares to be acquired upon
completion of this offering will be approximately $9.3 million. If the Option
Agreements were not exercised by the Company prior to March 10, 1997, the
multiple would increase from 1.75 times to 2.0 times and the amount of
consideration payable for the Orgenics and Orgenics International shares would
increase to approximately $10.6 million.

The consideration for the Orgenics shares purchased pursuant to the Option
Agreements is payable by Selfcare, at the election of each Optionee, entirely in
cash, entirely in Common Stock, or 50% in cash and 50% in Common Stock. For
purposes of determining the number of shares of Common Stock payable under the
Option Agreements, such shares will be valued based on their value as of the
date of exercise. Such value will be the average of the closing prices of the
Common Stock on the AMEX on the ten trading dates immediately preceding the
valuation date.

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The Company has granted certain registration rights with respect to shares
of Common Stock which are issued pursuant to the Option Agreements. See "Shares
Eligible for Future Sale."

When the Orgenics Acquisition is completed, the Company's short-term plans
for the integration of Orgenics into Selfcare include having Cambridge
Diagnostics' and Orgenics' distribution systems sell each other's products in
selected territories; integrating sales and marketing in Europe; improving the
use of the combined manufacturing facilities; and rationalizing research and
development capabilities. In the longer term, Selfcare plans to utilize
Orgenics' relationships in the professional market, particularly in professional
HIV diagnostic tests, to help gain acceptance for the Company's HIV self tests.
Selfcare will also leverage Orgenics' products and technology to develop a
simple self-test format, in particular for the chlamydia test, the first of
several which will meet the needs of consumers for quality, low-cost,
confidential self tests.

Acquisition of Shares of Enviromed

In October 1996, the Company purchased 200,000 common shares of Enviromed,
plc ("Enviromed") an English company whose business activities include the
manufacture and sale of biological enzymes used in diagnostic tests. Enviromed
is a supplier of an enzyme used in blood glucose strips manufactured by
Selfcare. Later in the month, the Company entered into an agreement (the "EN PLC
Agreement") with EN PLC Limited Partnership ("EN PLC"), pursuant to which the
Company agreed to purchase 7,961,386 common shares of Enviromed held by EN PLC
for approximately $3.8 million. On January 1, 1997, the Company and EN PLC
entered into an amendment to the EN PLC Agreement pursuant to which the Company
agreed to issue two promissory notes, in principal amounts of approximately $2.8
million and $1.0 million respectively, evidencing the purchase price under the
EN PLC Agreement. Each note bears interest at the annual rate of the Bank of
Boston prime rate plus 1.5 percent, payable quarterly over the two-year term of
the note. The principal amount of the $1.0 million promissory note is payable in
eight quarterly installments, commencing in January 1997; the first four
installments are $85,897 each and the second four installments are $171,794
each. Approximately $1.4 million of the principal amount of the $2.8 million
promissory note is payable in January 1998, followed by three equal quarterly
installments of the remaining principal. In consideration of the amendment, the
Company agreed to issue to EN PLC a warrant to purchase 15,401 shares of Common
Stock at an exercise price of $12.875 per share. The warrant is exercisable at
any time prior to January 1, 2002. As a result of this purchase, the Company
acquired a 28.5% equity interest in Enviromed. The Company subsequently acquired
an additional 100,000 shares of Enviromed which increased the Company's equity
interest in Enviromed to 28.9%. See "Certain Transactions -- Transactions with
EN PLC Limited Partnership."

On January 17, 1997, at a meeting of the shareholders of Enviromed called
at the request of Selfcare, the shareholders of Enviromed voted to remove the
existing Board of Directors of Enviromed and to elect as directors four
individuals nominated by Selfcare: Mr. Zwanziger, Mr. Anthony H. Hall
(Selfcare's Chief Financial Officer), Dr. Paul Winson, and Mr. Clifford
Passmore. Dr. Winson is serving as the Managing Director of Enviromed; Messrs.
Zwanziger, Hall and Passmore are serving as non-executive directors. Neither Dr.
Winson nor Mr. Passmore is affiliated with Selfcare. Selfcare is currently
considering the possibility of providing a credit enhancement to enable
Enviromed to secure additional borrowing capacity and, to this end, may
determine to guaranty up to approximately $600,000 of Enviromed's bank debt.
Selfcare would be compensated for this guaranty, in an amount yet to be
determined. In lieu of this guaranty, Selfcare may elect to make an equity
investment of up to $600,000 in Enviromed.

Agreement with ChemTrak

In January 1997, Selfcare entered into an agreement with ChemTrak pursuant
to which ChemTrak appointed Selfcare as its exclusive distributor in the
European Territory of ChemTrak's home collection and mail-in HIV testing system
for which FDA approval is currently pending. As part of this agreement, Selfcare
agreed to pursue regulatory approval of the system in each country comprising
the European Territory. In addition, Selfcare agreed to establish and operate
one or more central testing facilities and offer counseling services to report
results and offer counseling to users of the system. ChemTrak retains the right
to convert the Company's exclusive distribution rights into non-exclusive rights
upon the occurrence of certain events,

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including the Company's failure to make certain regulatory filings and the
Company's failure to maintain market share goals. There can be no assurance that
Selfcare will be successful in obtaining the necessary regulatory approvals in
Europe, in establishing satisfactory testing facilities and counseling services
or in successfully commercializing the system in Europe.

Nutritional Supplement Lines Acquisition

On February 19, 1997, the Company completed the Nutritional Supplement
Lines Acquisition, pursuant to which a newly-formed subsidiary of the Company
(the "Acquisition Subsidiary") acquired the Nutritional Supplement Lines from
AHP. As consideration for the Nutritional Supplement Lines, the Acquisition
Subsidiary paid to AHP $30.0 million in cash and the Company issued to AHP a
$6.0 million promissory note (the "AHP Note"). The Company funded the cash
portion of the purchase price with a credit facility (the "Acquisition
Facility") consisting of a $25.0 million term loan (the "AHP Term Loan") and a
$5.0 million bridge loan (the "AHP Bridge Loan") made to the Acquisition
Subsidiary by Fleet National Bank ("Fleet"). The AHP Note is due on the first
anniversary of the closing of the Nutritional Supplement Lines Acquisition, and
bears interest payable quarterly at the rate of 7.0% per annum.

The AHP Term Loan has a five-year term, with quarterly amortization of
principal at annual rates ranging from $3.0 million to $5.0 million, and a $6.25
million balloon payment at maturity. In addition to this amortization schedule,
the Acquisition Subsidiary is required to make mandatory prepayments of the AHP
Term Loan at the end of each fiscal year, in an amount equal to 50% of the
excess of (i) its earnings before interest, taxes, depreciation and amortization
("EBITDA") for such fiscal year over (ii) principal payments on the AHP Term
Loan, cash interest and tax expense, capital expenditures and any change in
working capital. These prepayments will be applied in the inverse order of the
established amortization schedule. The AHP Term Loan, at the Company's election,
bears interest at an annual floating rate equal to either LIBOR plus two
percent, or Fleet's Prime Rate. The AHP Bridge Loan is due June 3, 1997, and at
the Company's election, bears interest at an annual floating rate equal to
either LIBOR plus 3.5 percent or Fleet's Prime Rate plus 1.5 percent. If the AHP
Bridge Loan has not been repaid or refinanced by May 3, 1997, Selfcare will be
required to maintain a minimum of $5.0 million in cash or liquid investments. As
of December 31, 1996, the Company had approximately $16.5 million in cash and
liquid investments. If the AHP Bridge Loan has not been repaid or refinanced at
maturity, Selfcare would have the option of extending the loan with cash pledged
to collateralize a like amount.

In connection with the Acquisition Facility, the Acquisition Subsidiary has
obtained from Fleet a $5.0 million revolving credit line (the "Credit Line").
The Credit Line, at the Company's election, bears interest at an annual floating
rate equal to either LIBOR plus 1.75 percent or Fleet's Prime Rate and matures
in three years. The Company has a limited number of LIBOR rate options for the
AHP Term Loan, the AHP Bridge Loan, and the Credit Line. Each LIBOR rate option
must be exercised for a period between one month and 12 months and must cover a
minimum of $1.0 million of the loan. The Acquisition Facility and the Credit
Line are secured by a first priority lien on all of the Acquisition Subsidiary's
assets and are guaranteed by the Company, which guaranty is secured by a first
priority lien on substantially all the Company's U.S. assets.

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from the Acquisition Subsidiary. In addition, an event of default shall be
deemed to have occurred under the Acquisition Facility and the Credit Line if
any three of Ron Zwanziger, Kenneth D. Legg, Richard A. Pinkowitz, Anthony H.
Hall and Gary E. Long cease to be employed by the Company or the Acquisition
Subsidiary in positions comparable to their current positions. Messrs.
Zwanziger, Legg, Pinkowitz and Hall are officers of the Company. See
"Management." Mr. Long joined the Company in February 1997 and has
responsibility for the operation of the Nutritional Supplement lines business.
In addition, the Acquisition Subsidiary was required, at the time of the closing
of the Acquisition Facility, to have a proforma capital base of at least $9.5
million. This requirement was satisfied through a combination of (i) the
Company's obligations under the AHP Note, (ii) a $2.0 million subordinated loan
by the Company to the Acquisition Subsidiary and (iii) the Company's capital
contribution of approximately $1.5 million to be used to pay expenses incurred
in connection with the completion of the Nutritional Supplement Lines
Acquisition. The Company and the Acquisition Subsidiary have paid Fleet fees and
expenses totaling approximately $350,000 in connection with the Acquisition
Facility and the Credit Facility.

In connection with the Nutritional Supplement Lines Acquisition, the
Company entered into supply agreements with AHP to purchase products for the
Nutritional Supplement Lines from AHP. The Company's agreement with AHP provides
that AHP will supply the products for a period of up to one year after the
closing of the acquisition. In addition, the Company assumed responsibility for
all marketing and sales functions concerning the products as well as certain
administrative functions, including customer service. The Company also will
become responsible for other administrative functions, including order receipt,
billing and collection, and distribution of all the products on May 20, 1997.
Assumption of these activities could place a significant strain on the Company's
resources and personnel, and will require the Company to devote significant
additional resources and personnel to these areas. Failure by the Company to
successfully assume these services could have an adverse impact on the Company's
ability to support the Nutritional Supplement Lines and could have a material
adverse affect on the Company's result of operations. See "Risk Factors --
Dependence on Certain Suppliers."

Other Future Transactions

Although the Company is not currently a party to any acquisition agreements
other than those described above, it continues to explore other possible
strategic transactions, including, for example, the acquisition of new products
that would complement or enhance Selfcare's existing and planned product lines.

MANUFACTURING

The Company currently manufactures its existing infectious disease
diagnostic products for the professional market at the Galway Facility and
sources its existing pregnancy and other women's health self-test products from
contract manufacturers. The Company believes that there are multiple qualified
sources for its existing women's health products and for the materials and
components used in the manufacture of its other existing products and therefore
does not consider it necessary to maintain protected supply arrangements with
any supplier. However, the Company has entered into a manufacturing arrangement
with Nova to supply Selfcare with electrochemical blood glucose meters for the
New System.

The Company has expended substantial efforts on the manufacturing scale-up
activities necessary to support the introduction of its planned new products.
Accordingly, in December 1995 the Company opened a new manufacturing facility in
Inverness, Scotland. See "-- Strategic Transactions -- Inverness Facility." The
Inverness Facility has been configured for highly automated, low cost production
of disposable test strips for use with electrochemical blood glucose monitoring
systems. Sophisticated control instrumentation systems will automatically print,
cut and pack strips in vials. The Company is currently producing quantities
sufficient to support clinical trials, and has scheduled the ramp-up of its
production capacity to support commercial sales in the first half of 1997. The
Company plans to commence manufacturing blood glucose test strips for
distribution by Menarini at the Inverness Facility in the second half of 1997.
The Company has implemented a

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program to produce generic electrochemical glucose test strips for one or more
systems at the Galway Facility. There can be no assurance, however, that the
Company will be successful in achieving the production of new products at its
facilities at the volumes or cost levels required to support commercialization
in the United States or abroad. See "Risk Factors -- Risks Related to
International Sales and Operations." The Company anticipates that it will
complete the Orgenics Acquisition upon completion of this offering. Orgenics
manufactures infectious disease diagnostic tests for the professional markets at
a facility in Israel. See "-- Strategic Transactions -- Orgenics Acquisition"
and "-- Facilities."

In connection with Nutritional Supplement Lines Acquisition, AHP has agreed
to supply the Company with the products for the Nutritional Supplement Lines for
a period of up to one year after the Acquisition Closing. Thereafter, the
Company will be required to establish alternative supply arrangements for the
products. See "Risk Factors -- Dependence on Certain Suppliers" and
"-- Strategic Transactions -- Nutritional Supplement Lines Acquisition."

In September 1996, the Company entered into an agreement with Nova pursuant
to which Nova will perform the final packaging of early pregnancy and ovulation
test kits for Selfcare. Under such agreement, the Company has agreed to purchase
a minimum quantity of specified products from Nova.

Medical device manufacturers are subject to various governmental
regulations. See "-- Government Regulation," "-- Facilities," "Risk
Factors -- No Assurance of FDA Clearance," and "Risk Factors -- Comprehensive
Government Regulation."

PATENTS AND PROPRIETARY RIGHTS

Patents and other proprietary rights are crucial to the Company's business
and its competitive position. The Company's strategy to develop and maintain its
competitive position is to file patent applications to protect technology,
inventions and improvements that it believes are important to its business, and
to protect know-how and continuing technological innovation as trade secrets.
The Company's success will depend in part on its ability to maintain patent
protection for its products, to preserve its trade secrets and to operate
without infringing the proprietary rights of third parties.

The Company seeks to maintain the confidentiality of its proprietary
technology, including technology which may not be patented or patentable, by
requiring employees, collaborators, advisors and consultants to sign
confidentiality agreements. There can be no assurance that these agreements will
not be breached, or that the Company will have adequate remedies for breach. The
Company also seeks to preserve the confidentiality of its proprietary
information by limiting access by parties who work outside the Company to such
confidential information. There can be no assurance however, that these measures
will prevent the unauthorized disclosure or use of this information, or that
others will not be able to independently develop such information. Moreover, as
is the case with the Company's patent rights, the enforcement of its trade
secrets can be lengthy and costly, with no guarantee of success. See "Risk
Factors -- Dependence on Patents and Proprietary Technology."

Selfcare, through its subsidiary, Cambridge Diagnostics, holds several
licenses: (i) the worldwide rights to a diagnostic test for hepatitis-D in
humans; (ii) a non-exclusive license for all markets except the U.S. and Canada
with respect to the Capillus rapid test technology, which is based on detecting
envelope proteins with applications to HIV-1 and HIV-2, and a non-exclusive
right to use recombinant technology to manufacture certain purified virus parts
which will react to antibodies of the target disease or condition; (iii) a non-
exclusive license with certain territorial limitations for an enzyme-linked
immunoabsorbent assay ("ELISA") test for HIV 1/2 under the RecombigenTM
tradename; (iv) an exclusive license for all markets except the United States
and Canada for a rapid test for HIV 1/2 under the Recombigen tradename; and (v)
a non-exclusive worldwide license for the Western Blot Lyme disease test kit.

Cambridge Affiliate holds licenses for HIV-2 proteins which are used in its
RTD, Capillus and EIA diagnostic tests for the detection of HIV-2 antibodies.
These tests are manufactured for Cambridge Affiliate at the Galway Facility and
are marketed by Cambridge Diagnostics on behalf of Cambridge Affiliate. The
licenses relating to the HIV-2 proteins extend to any future single-use,
disposable rapid test product for use at home or in a doctor's office, developed
by Cambridge Affiliate using such proteins. See "Risk Factors -- Risk Related to
Certain Licensing Arrangements."

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Selfcare has a number of U.S. patents pending covering systems and products
for blood glucose monitoring. Selfcare also holds two exclusive worldwide
licenses for techniques applicable to non-invasive blood glucose monitoring
systems utilizing non-linear, dialectric spectroscopy. In March 1996, the
Company obtained a license for a near infrared technique under a U.S. patent
held by the University of Iowa and Ohio University and for which an
international patent is pending.

The Company also licenses certain ovulation prediction technology from a
limited partnership, the general partner of which is controlled by Willard Lee
Umphrey, a Selfcare director. See "Certain Transactions -- Transactions with
U.S. Boston Capital Corporation."

In the future, the Company may be required to obtain licenses to patents or
proprietary rights of third parties. No assurance can be given that any licenses
required under such patents or proprietary rights will be made available on
terms acceptable to the Company, if at all. If the Company does not obtain such
licenses, it could encounter delays in product introductions while it attempts
to design around such patent or other rights, or be unable to develop,
manufacture or sell such products. See "Risk Factors -- Dependence on Patents
and Proprietary Technology; Trademarks."

Orgenics holds several patents and licenses with respect to: (i) the use of
EIA methods to enable the diagnosis of special infectious diseases with
applications for ImmunoComb products in Germany, France, Israel, Japan, Spain
and the United States; (ii) the distribution of ImmunoComb products in the
Benelux countries, France, Japan, Spain, Switzerland and Germany; (iii) the use
and distribution of DNA probe products based on Chemi-Probe in the United
States, France, Germany and Japan; (iv) the use and distribution of DoubleCheck,
a device to detect antigens and antibodies to infectious diseases in saliva,
blood serum and other bodily fluids, in the United States and Israel; (v) the
use of GeneComb, a genetic assay system to detect target DNA, in the United
States, Israel and under the World Intellectual Property Organization's Patent
Cooperation Treaty (the "PCT"); and (vi) the use of applications on apparatus
for dry chemical analysis in the United States, Israel, Europe and Japan.

The Company is conducting research and expects to seek additional patents
in the future, but there can be no assurance as to its success, or the
timeliness in obtaining any such patents, or as to the breadth or degree of
protections which any patents will afford the Company. The patent position of
medical products companies is often highly uncertain and usually involves
complex legal and factual questions. There can be no assurance that patent
applications relating to the Company's products or technology will result in
patents being issued or that, if issued, such patents will afford adequate
protection to the Company and not be challenged as unenforceable or invalid, or
not be infringed. In addition, the Company could incur substantial costs in
defending suits brought against it or in prosecuting suits in which the Company
may assert its patents or other proprietary rights against others. If the
outcome of such litigation is adverse to the Company, the Company's business and
results of operations could be adversely affected.

Selfcare has filed applications for registration of several trademarks in
Europe and the United States. Applications for registration of the mark First
Signal for pregnancy products have been filed in Europe, and a registration has
issued in two countries. CarePlan is also the subject of applications for
registration in Europe for use on an HIV self test, and registrations have
issued in several countries. YourTime is the subject of trademark applications
in the United States and Europe for use on fertility-related products. The
YourTime mark has been registered in several European countries. Excel is also
the subject of trademark applications in

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the United States and Europe for use on the Company's disposable test strips
designed to be compatible with MediSense's ExacTech System. CarePlus is also the
subject of trademark applications in the United States for use on contraceptive
products. Selfcare has filed trademark applications in the United States and
Europe for the Company's "Little Man" logo and has filed trademark applications
in Europe for the name Selfcare.

GOVERNMENTAL REGULATION

Self-Test Products

The medical devices manufactured and marketed by the Company are subject to
regulation in the United States by the FDA and, in many instances, by comparable
agencies in foreign countries where these devices are manufactured or
distributed. In their evaluation process, these governmental authorities often
require lengthy and detailed laboratory and clinical testing procedures and
manufacturing data. In addition, the conduct of both animal and clinical testing
is presently covered in many countries by regulations designed to protect
research subjects and to ensure the validity of the test data. Government
regulation may impose costly procedures upon the Company and may delay or
prevent the marketing of certain of the Company's products. Failure to obtain,
or delays in obtaining, such approvals would prevent or delay the commercial
development of such products and could have a material adverse effect on the
business of the Company. If the government regulatory bodies approve the sale of
a product, their regulations generally will apply to manufacturing and marketing
of the product, including product labeling. Furthermore, approval of products by
governmental and other healthcare programs is important for sales in certain
countries. Many countries require that before users will be reimbursed for the
costs of diagnostic products in connection with applicable healthcare programs,
such products must be approved by a governmental agency. Failure to obtain, or
delays in obtaining, such approvals would limit the market for the products in
those countries and consequently reduce or delay revenues to the Company.

U.S. Government Regulation. The manufacture, distribution and sale of
diagnostic products, such as the Company's test kits, require compliance with
regulations which, though complex, are generally considered less difficult to
comply with than those covering therapeutic products. In the United States, test
kits and reagents which are intended for research purposes only, which are
labeled and sold as such and which are not used for the diagnosis of disease,
may be marketed without stringent regulation by the FDA. However, the FDA and
similar agencies in foreign countries have substantial regulations which apply
to the testing, marketing, export and manufacturing of products to be used for
the diagnosis of disease.

Under the FDC Act, as amended by the Safe Medical Devices Act of 1990,
manufacturers of medical devices must comply with applicable provisions thereof
and certain associated regulations governing the testing, manufacturing,
labeling, marketing and distribution of medical devices. The FDC Act requires
certain clearances from the FDA before medical devices, such as the Company's
blood glucose monitoring products, can be marketed.

FDA permission to distribute a new device can be obtained in one of two
ways. If a new or significantly modified device is "substantially equivalent" to
an existing legally marketed device, the new device can be commercially
introduced after submission of a Section 510(k) Notification to the FDA, and
after the subsequent issuance by the FDA of an order permitting commercial
distribution. Changes to existing devices that do not carry the potential to
affect safety or effectiveness can be made by the Company without a 510(k)
Notification.

The second more comprehensive approval process applies to a new device that
is not substantially equivalent to an existing product. First, the Company must
conduct clinical trials in compliance with testing protocols approved by an
institutional review board for the participating research institution. Second,
the Company must submit to the FDA a Premarket Approval ("PMA") Application that
contains, among other things, the results of the clinical trials. The PMA
Application also contains other information required under the FDC Act such as a
full description of the device and its components, a full description of the
methods, facilities and controls used for manufacturing and proposed labeling.
Finally, the manufacturing site for the product subject to the PMA must pass an
FDA pre-approval inspection. This procedure requires much more extensive
pre-filing testing than does the Section 510(k) Notification procedure, and
involves a significantly

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longer FDA review after the date of filing. In addition, after product approvals
are received, they may still be withdrawn if compliance with regulatory
standards is not maintained or if problems occur after the product reaches the
market.

While the Company believes most of its future products will qualify for FDA
Clearance pursuant to the Section 510(k) notification procedures, no assurance
can be given that such clearance will be given. Future products may instead
require PMA clearance. There is no guarantee that regulatory marketing
clearances will be obtained in the future on a timely basis, if at all. Delays
in receiving such clearances could have a significant adverse effect on the
Company's business, financial condition and results of operations.

Following submission of a Section 510(k) Notification, a manufacturer may
not place the device into commercial distribution until an order is issued by
the FDA. The FDA has no specific time limit within which it must respond to a
Section 510(k) Notification. After review of a Section 510(k) Notification, the
FDA will either agree with the manufacturer that the proposed device is
"substantially equivalent" to another legally marketed device and allow the
device to be marketed in the United States, or determine that the proposed
device is not substantially equivalent and not allow such marketing. The FDA may
also require that further information, such as additional clinical test data or
analysis or test results, be submitted before the FDA is able to make a
determination regarding substantial equivalence. There can be no assurance that
the Company will receive FDA Clearance for the New System. Failure to obtain FDA
Clearance for the New System on a timely basis could have a material adverse
effect on the Company's business, financial condition and results of operations.

The Company's facilities are required to comply with the FDC Act and
applicable regulations, in particular, the FDA's Current Good Manufacturing
Practices ("CGMP") regulations. These regulations require that the Company
manufacture its products and maintain its documents in a prescribed manner with
respect to manufacturing, testing and control activities. Further, the Company
is required to comply with various FDA requirements for labeling.

If the FDA believes that the Company is not in compliance with the FDC Act,
or its associated regulations, it can institute proceedings to detain or seize
the Company's products, require a recall, enjoin future violations and assess
civil and criminal penalties against the Company, its directors, officers or
employees. The FDA may also withdraw market approval for the Company's products
or require the Company to repair, replace or refund the cost of any device
manufactured or distributed by the Company. Recently, the FDA has pursued a more
rigorous enforcement program to ensure that regulated firms such as the Company
comply with the provisions of the FDC Act. Although the Company believes that it
is in material compliance with all relevant regulations, the commencement of any
action described above against the Company could have a significant impact on
its business, financial condition and results of operations.

The Company's products for the patient point-of-care market in the United
States may be adversely affected by the Clinical Laboratory Improvement
Amendments of 1988 ("CLIA"), which are intended to ensure the quality and
reliability of medical testing, and may have the effect of discouraging, or
increasing the cost of, testing in physicians' offices. CLIA requires the U.S.
Department of Health and Human Services to establish certification standards for
any laboratory that performs tests on human specimens and issue certificates to
laboratories that meet the standards.

Foreign Government Regulation. Certain other countries require the Company
to obtain clearances for its products prior to marketing the products in those
countries. In addition, certain other countries impose product specifications
that differ from those mandated in the United States. These requirements may
significantly affect the efficiency and timeliness of international market
introduction of the Company's products. Sales of the Company's products outside
the United States are also subject to extensive regulatory requirements, which
vary widely from country to country. The Company generally is unable to predict
the time required to obtain such government approvals.

Due to recent controversies concerning the blood supply in France, the
French Ministry of Health appears to be particularly concerned with blood
testing products and on several recent occasions has required recalls of
specific diagnostic tests upon short notice. In July 1993, the French Ministry
of Health prohibited

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the sale in France of certain diagnostic tests for HIV, due to a concern that
the tests did not meet required sensitivity levels. The Ministry of Health has
subsequently imposed a separate ban on a single HIV test manufactured and sold
due to the failure of such test to identify a newly discovered HIV subtype.
There can be no assurance that there will not be similar actions in the future.
See "Risk Factors -- No Assurance of FDA Clearance; Comprehensive Government
Regulation."

In certain countries, an import license is required for marketing HIV or
hepatitis diagnostic products.

Nutritional Supplements

The manufacturing, processing, formulating, packaging, labeling and
advertising of nutritional supplements such as the Nutritional Supplement Lines
are subject to regulation by one or more federal agencies, including the FDA,
the Federal Trade Commission (the "FTC"), the Consumer Products Safety
Commission, the United States Department of Agriculture, the United States
Postal Service, the United States Environmental Protection Agency and the
Occupational Safety and Health Administration. These activities are also
regulated by various agencies of the states, localities and foreign countries,
in which the Company's products are sold. In particular, the FDA regulates the
safety, manufacturing, labeling and distribution of dietary supplements,
including vitamins, minerals and herbs, food additives, OTC and prescription
drugs and cosmetics. In addition, the FTC has overlapping jurisdiction with the
FDA to regulate the promotion and advertising of dietary supplements, OTC drugs,
cosmetics and foods.

DSHEA was enacted on October 25, 1994. DSHEA amends the Federal Food, Drug
and Cosmetic Act by defining dietary supplements, which include vitamins,
minerals, nutritional supplements, herbs and botanicals as a new category of
food separate from conventional food. DSHEA provides a regulatory framework to
ensure safe, quality dietary supplements and to foster the dissemination of
accurate information about such products. Under DSHEA, the FDA is generally
prohibited from regulating dietary supplements as food additives or as drugs
unless product claims, such as claims that a product may diagnose, mitigate,
cure or prevent an illness, disease or malady, trigger drug status.

DSHEA provides for specific nutritional labeling requirements for dietary
supplements effective January 1, 1997, although final regulations have not been
published and the FDA has indicated that implementation will be delayed. DSHEA
permits substantiated, truthful and non-misleading statements of nutritional
support to be made in labeling, such as statements describing general well-being
resulting from consumption of a dietary ingredient or the role of a nutrient or
dietary ingredient in affecting or maintaining structure or function of the
body. Any statement of nutritional support beyond traditional claims must be
accompanied by disclosure that the FDA has not evaluated such statement and that
the product is not intended to cure or prevent any disease. The Company
anticipates that the FDA will promulgate CGMPs which are specific to dietary
supplements and require at least some of the quality control provisions
contained in the CGMPs for drugs, which are more rigorous than the CGMPs for
foods. The Company believes that the manufacture of the Nutritional Supplement
Lines is currently in compliance with the applicable food CGMPs.

The FDA has proposed but not finalized regulations to implement DSHEA. The
Company cannot determine what effect such regulations, when promulgated, will
have on its business in the future. Such regulations are likely to require
expanded or different labeling for the Company's vitamins and nutritional
supplement products and could, among other things, require the recall,
reformulation or discontinuance of certain products, additional record keeping,
warnings, notification procedures and expanded documentation of the properties
of certain products and scientific substantiation regarding ingredients, product
claims, safety or efficacy. The Company believes that it is in material
compliance with all applicable laws.

DSHEA created two new governmental bodies. The Commission on Dietary
Supplements was established for two years to provide recommendations to the
President and Congress for the regulation of supplement labeling, and health
claims, including procedures for making disease-related claims. Such
recommendations could lead to legislative or regulatory changes. The Office of
Dietary Supplements, established within the National Institute of Health, is
charged with coordinating research on dietary supplements and disease
prevention, compiling research results, and advising the Secretary of Health and
Human Services on supplement regulation, safety and health claims.

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Although the vitamin and nutritional supplement industry is subject to
regulation by the FDA and local authorities, dietary supplements, including
vitamins, minerals, herbs and nutritional supplements, now have been statutorily
affirmed as foods and not as drugs or food additives. Therefore, the regulation
of dietary supplements is less restrictive than that imposed upon manufacturers
and distributors of drugs or food additives. Unlike food additives and new
drugs, which require regulatory approval of formulation safety and labeling and
for drugs, efficacy prior to marketing, dietary supplement companies are
authorized to make substantiated statements of nutritional support and to market
manufacturer-substantiated-as-safe dietary supplement products without such FDA
preclearances. Failure to comply with applicable FDA requirements can result in
sanctions being imposed on the Company or the manufacturers of its products,
including warning letters, product recalls and seizures, injunctions and
criminal prosecutions.

THIRD-PARTY REIMBURSEMENT

Third-party payors such as private insurance companies, self-insured
employers, health maintenance organizations and governmental payors under
Medicare and Medicaid programs are a source of reimbursement to users of blood
glucose monitoring systems and related products, but there is no uniform policy
on reimbursement among third-party payors. The Medicare program reimburses
people with diabetes for one meter and for one box of 50 strips each month. In
1994, the Health Care Financing Administration (the "HCFA"), which sets rates
for the Medicare program, reduced the maximum reimbursement rates for a box of
50 test strips from $63 to between $32 to $37, depending on the state in which
the reimbursement is sought. Presently, the Office of the Inspector General of
the U.S. Department of Heath and Human Services (the "OIG") is conducting a
survey to determine more economical methods of providing blood glucose test
strips to Medicare beneficiaries. Also, in January 1995, the HCFA set a special
payment limit of $58.71 on personal blood glucose meters, down from a maximum
$179 (the special payment limit is $66.95 in Alaska, Hawaii, Puerto Rico and the
Virgin Islands). This payment limit may lead to increased pricing pressures
among manufacturers of blood glucose meters and test strips. Frequent testers
who currently receive reimbursement may seek alternative, lower-cost generic
test strips that are currently on the market for use in photometric systems. The
Company's business, financial condition and results of operations could be
adversely affected by the continuing efforts of governmental and private payors
to reduce the costs of healthcare by lowering reimbursement rates for its
products, particularly test strips.

As a provider of products that are reimbursed by Medicare, Medicaid and
other third-party payors, the Company is subject to the anti-kickback provisions
of the Medicare and Medicaid fraud and abuse laws and similar state laws. These
laws prohibit the exchange of remuneration for referrals of services or products
reimbursed by Medicare, Medicaid or other third-party payors. Violations of
these prohibitions may result in civil and criminal penalties and exclusion from
the Medicare and Medicaid programs. In a December 1992 study of discounts and
rebates offered to consumers by the personal blood glucose monitoring industry,
the OIG concluded that claims for reimbursements for these devices submitted to
the Medicare program often did not reflect manufacturers' rebates. As a result,
OIG recommended that HCFA take appropriate action, including implementing fee
schedules, identifying and addressing abusive practices as well as recovering
Medicare overpayments. The Company believes that it is in substantial compliance
with the federal antikickback statute and related safe harbor regulations
regarding the disclosure of discounts.

Recent healthcare cost containment initiatives in the United States that
have focused on reduction in reimbursement levels may affect the Company
negatively. However, emphasis on preventive measures to reduce the overall costs
to the healthcare system of complications from diabetes could lead to more
frequent testing and use of the Company's test strips. The Company is unable to
predict the outcome or the effect on its business of the current healthcare
reform debate.

The Company does not currently derive any revenue from reimbursements from
third-party payors. However, the Company may, in the future, derive revenue from
third-party payors in connection with certain of the Company's products such as
its generic test strips to be marketed in 1997. The Company is not able to
predict with any certainty future levels of revenues which may be derived from
such reimbursements.

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PRODUCT LIABILITY

The testing, marketing and sale of human healthcare products entails an
inherent risk of products liability claims and there can be no assurance that
products liability claims will not be asserted against the Company. In addition,
the marketing of the Nutritional Supplement Lines may cause the Company to be
subjected to various product liability claims, including, among others, that the
Nutritional Supplement Lines have inadequate warnings concerning side effects
and interactions with other substances. Although the Company maintains products
liability insurance, there can be no assurance that products liability claims
will not exceed such insurance coverage limits or that such insurance will be
available in the future on commercially reasonable terms, if at all. See "Risk
Factors -- Product Liability; Limited Insurance Coverage."

RESEARCH AND DEVELOPMENT

The Company is focusing its research and development efforts primarily on
the development of its diabetes products, including its electrochemical blood
glucose monitoring system and generic test strips. In addition, the Company
utilizes its in-house research and development resources to adapt its existing
technologies and technologies it acquires from third parties into self-test
formats, including formats addressing HIV, chlamydia and Strep-A. The Company
also seeks to develop new technologies which it is not able to obtain from
others. From time to time, the Company engages in co-development projects with
third parties with respect to new diagnostic products the Company may want to
market in the future. The Company may provide financial development assistance
to such parties and may also utilize its own research and development resources
to design certain portions of such products. The research and development
department of the Company together with Orgenics employs 39 full-time
researchers, including 23 Ph.D.s. Total research and development expenses for
the years ended December 31, 1996, 1995 and 1994 were $6.6 million, $1.5 million
and $584,000, respectively.

COMPETITION

Selfcare

Self-Test Products. Competition in the medical products industry in
general, and in the consumer self-diagnostics sector in particular, is based
primarily on product performance (including reliability and ease of use), price,
acceptance by health professionals, patients and other consumers, marketing
support, and distribution. The availability of patent protection and the ability
to obtain FDA Clearance for marketing are also important competitive factors. In
the women's health market, the Company believes that it has already developed a
significant market penetration with its private label and branded pregnancy and
LH tests. In the infectious diseases market, the Company believes that it has
achieved an important degree of acceptance among professional and public health
purchasers, and that the planned Orgenics Acquisition will enhance the Company's
ability to expand its product offerings and distribution for this market. The
Company believes that it can continue to compete effectively in these markets
based on its planned product line expansions, supported by its research and
development capabilities, its advanced manufacturing expertise, and its
established distribution force. The Company believes that these assets will also
enable it to compete effectively in the market for "generic" blood glucose test
strips which can be used with other manufacturers' meters. The Company also
believes that its exclusive distribution alliance with LifeScan and the
proprietary technology incorporated in the New System will prove advantageous to
the Company in competing in the market for self-test blood glucose monitoring
systems.

Notwithstanding these positive factors, however, the Company faces
competition in all of its targeted markets from a large number of competitors,
including major medical products companies such as Johnson & Johnson, Boehringer
Mannheim, Bayer and MediSense (in the market for blood glucose monitoring
systems), Johnson & Johnson, Carter-Wallace, Inc., Warner-Lambert Co., Unilever
and many others (in the women's health self-test market), the Diagnostic
Division of Abbott Laboratories ("Abbott Laboratories") and Johnson & Johnson
(in the markets for professional and consumer tests for infectious diseases). In
August, 1996, Abbott Laboratories acquired MediSense. Abbott Laboratories has
far greater resources than those of the Company and, consequently, the Company
believes that MediSense will be a substantially more

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significant competitor than it is currently. The Company also competes with
numerous other smaller companies which compete directly with the Company's
existing and planned products, such as ChemTrak and Quidel Corporation. Many of
these competitors have substantially greater financial, technical and human
resources than the Company.

If the Company is successful in developing and marketing generic test
strips which are compatible with other manufacturers' electrochemical blood
glucose monitoring systems, others may attempt to enter this market with similar
products. In addition, the introduction of lower-priced generic test strips
could lead the manufacturers of the systems with which such test strips are
compatible to lower their own test strip prices, thereby reducing or eliminating
the price advantage enjoyed by the generic test strip producers. On June 28,
1996, the Company obtained FDA Clearance for its first generic test strip, to be
sold under the name "Excel" which is compatible with the ExacTech system sold by
MediSense. The Company intends to commence marketing this product in the United
States in the first half of 1997. Although the Company believes that its Excel
generic test strip will be priced lower than the strips produced by MediSense
for its ExacTech system and therefore will compete effectively with the
MediSense product, there can be no assurance that MediSense will not institute
price cuts and thereby reduce or eliminate any price advantage which the
Company's product may enjoy. In addition, there can be no assurance that the
Company will be able to maintain the quality of its products relative to those
of its competitors or continue to develop and market new products effectively.
See "Risk Factors -- Competition; Risk of Technological Obsolescence."

The Company is also aware of several competitors, including Cygnus, Inc.,
Biocontrol Technology, Inc., Futrex Medical Instrumentation, Inc., Rio Grande
Medical Technologies, Inc. and Integ, Inc., which are attempting to develop a
non-invasive blood glucose monitoring technology. Non-invasive blood glucose
monitoring involves methods for measuring blood glucose levels without the need
to draw blood and, in certain proposed configurations, without the need to
utilize disposable components, such as test strips. The Company believes that
manufacturers are pursuing a number of different technological approaches to
non-invasive blood glucose monitoring. These include near-infrared spectroscopy,
which involves shining a beam of near-infrared light to penetrate the skin and
determine the amount of glucose in the blood, and reverse iontophoresis, which
utilizes a "patch" system to extract glucose through the skin for measurement by
an external meter. In addition, the Company believes that several manufacturers
are pursuing minimally invasive approaches to blood glucose monitoring, such as
using a fine needle to withdraw a small sample of interstitial fluid which is
analyzed by use of mid-infrared spectroscopy. Although the Company does not
believe that any products utilizing such technologies will be available for
several years, there can be no assurance that such products will not be
developed sooner, and the development and successful introduction of any such
products could have a material adverse effect on the Company's business,
financial condition and results of operations.

Nutritional Supplements. The market for the sale of vitamins and
nutritional supplements is highly competitive. Competition is based principally
upon price, quality of products, customer service and marketing support. There
are numerous companies in the vitamin and nutritional supplement industry
selling products to retailers such as mass merchandisers, drug store chains,
independent drug stores, supermarkets and health food stores. Most companies are
privately held and the Company is unable to precisely assess the size of such
competitors. However, a number of the Company's competitors, particularly
manufacturers of nationally advertised brand name products, are substantially
larger than the Company and have greater financial resources. Notwithstanding
the foregoing, the Company believes that it will be able to compete favorably
with other vitamin and nutritional supplement companies because of the existing
brand recognition and market penetration enjoyed by the Nutritional Supplement
Lines and the Company's planned marketing strategy for these products. The
Nutritional Supplement Lines face competition from a number of major
multivitamin and mineral supplement manufacturers such as Lederle Consumer
Health Products, a division of AHP, Nature's Bounty, Bayer, and Twinlab
Corporation.

Orgenics

The Company anticipates that it will complete the Orgenics Acquisition upon
completion of this offering. See " -- Strategic Transactions -- Orgenics
Acquisition."

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The primary competitors for Orgenics' ImmunoComb line of products are
standard, ELISA systems such as those produced by Organon, Inc., Pasteur Sanofi
Diagnostics, Abbott Laboratories, Boehringher Mannheim and other diagnostic
tests produced by Abbott Laboratories, Ortho Diagnostic Systems, Inc. and
Hybritech, Inc. ELISA tests are generally used by high-volume batch processors
such as blood banks and other centralized laboratories. In addition, there are
other rapid testing systems, generally for HIV, based upon immunoconcentration,
which can provide results in five to ten minutes. In contrast to ImmunoComb, an
immunoassay-based test which can be used to simultaneously test multiple samples
for multiple analytes, the immunoconcentration systems are single sample and
mostly single analyte systems. Based on Orgenics' assertions, the Company
believes that other characteristics of the immunoconcentration systems are that:
(i) the single sample presentation results in production costs per test that are
two to three times more expensive than those of ImmunoComb; and (ii) the
procedure for each immunoconcentration test limits the number of tests that can
be processed at one time resulting in less flexibility in the number of samples
that can be processed at one time. The Company expects that Orgenics'
DoubleCheck HIV test will be competitive with single-analyte immunoconcentration
tests in speed, but will offer greater sensitivity at lower cost.

In the field of DNA probe products, Orgenics competes with, among others,
Molecular Biosystems, Inc., Abbott Laboratories, Roche Molecular Systems, a
division of Hoffman La-Roche, Sanofi Diagnostics, Organon, Inc., Enzo Biochem,
Inc., Gene-Trak Systems, Inc. and Gen-Probe, Incorporated. Several of Orgenics'
competitors use a labeling technology in which precursors of DNA are labeled by
either Biotin or a radioactive marker and incorporated into the DNA probe by an
enzymatic reaction. The use of an enzymatic reaction requires highly-purified
DNA material. It is difficult for most clinical laboratories to achieve high
purification levels without highly-trained personnel. Orgenics' non-enzymatic
Chemi-Probe labeling technology, which does not require highly-purified DNA, is
not subject to these limitations. In addition, the Company believes that
Orgenics' non-enzymatic, genetic assay GeneComb technology provides a simpler,
more rapid assay than do competing detection systems which rely on enzyme
immunoassay methodology.

EMPLOYEES

As of December 1, 1996, the Company, not including Orgenics, had
approximately 201 employees. Of the Company's total work force at that date, 23
employees were engaged in research and development activities, 24 were engaged
in marketing and sales, 134 were devoted to production and distribution, and 20
were responsible for management and administration. Of the Company's 201
employees, 21 hold advanced science degrees. A significant number of the
Company's management and professional employees have prior experience with other
medical products or biotechnology companies. None of the Company's employees are
covered by a collective bargaining agreement. The Company considers its
relations with its employees to be good.

As of December 1, 1996, Orgenics had 82 employees in Israel, of whom
sixteen were employed in research and development, five in marketing and sales,
52 in production and nine in management and administration. Orgenics also
employs an additional 22 employees in France, 11 of whom are engaged primarily
in marketing and sales, three in production and eight in management and
administration. As of December 1, 1996, Orgenics' Brazilian operation (55%
majority owned) had 20 employees, eight of whom were in marketing and sales, and
12 in management and administration. Of Orgenics' 124 total employees, 18 held
advanced degrees. Orgenics considers its relations with its employees to be
good.

Certain provisions of the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of
Economic Organizations (including the Industrialists Association) are applicable
to Orgenics' Israeli employees by order of the Israeli Ministry of Labor. These
provisions concern mainly the length of the work day, minimum daily wages for
professional workers, contributions to a pension fund, insurance for
work-related accidents, procedures for dismissing employees, determination of
severance pay and other conditions of employment. Orgenics generally provides
its employees with benefits and working conditions which exceed the required
minimums. Furthermore, under the collective bargaining agreement, the wages of
most of Orgenics' employees are linked to the Israeli consumer price index,
although the extent of the linkage has been limited.

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<PAGE> 69

FACILITIES

The Company's principal corporate administrative offices are housed in
10,000 square feet of leased space in Waltham, Massachusetts. The lease for this
facility is for a three-year term with a Company option to extend for a two-year
period and provides for monthly rent of $8,333. The Company also leases
facilities in Brussels, Belgium for a marketing and sales office and for
warehousing, and in Munich, Germany for offices and warehouse space. The lease
for the Company's facility in Belgium covers 80 square meters of space, provides
for monthly rent of $800 and is terminable on three months notice. The lease for
the Company's facility in Germany covers 380 square meters of space, provides
for rent of $6,666 per month and is for a term ending May 31, 2000. The Company
believes that its current facilities are adequate for its existing operations
for the foreseeable future, although the Company anticipates expanding its U.S.
facilities to accommodate repackaging and shipping new products.

The Company's manufacturing facilities are located in the United Kingdom
and Ireland. In December 1995, the Company began occupancy of a new 50,000
square foot manufacturing facility in Inverness, Scotland. The Inverness
Facility was designed and constructed to Selfcare's specifications and includes
areas for manufacture, warehousing, research and development, and administrative
offices. The Company plans to produce diabetes products (including generic test
strips and test strips for the New System and blood glucose test strips for
distribution by Menarini) at the Inverness Facility. See "-- Strategic
Transactions -- Inverness Facility." The Inverness Facility lease expires in
2015, with an option to purchase, and is rent-free through 1997. Cambridge
Diagnostics is located in Galway, Ireland in a 40,000 square foot facility
leased from the Industrial Development Agency of Ireland and a private developer
under a lease which expires in 2022. The Galway Facility houses the central
manufacturing, warehousing, research and development, and administrative
functions of Cambridge Diagnostics, which is responsible for the development,
production and distribution of the Company's infectious disease diagnostic
products. In addition, pregnancy, ovulation prediction, birth control and other
women's health self-test products for the European market are packaged at the
Galway Facility. It is also a suitable location for the eventual manufacture of
products for the diabetes and women's health markets.

The FDA regulates companies that manufacture commercial medical devices and
requires that such companies manufacture such devices in a properly designed
environment. The Inverness Facility was designed and constructed, and the Galway
Facility has been upgraded, with the intention of complying with the FDA's GMP
regulations and requirements necessary for approvals and commercial sales within
the United States. The Company is required to register these facilities with the
FDA and to ensure that each meets GMP requirements prior to commercial sales in
the United States. Each registered facility is required to submit to an FDA
inspection no less frequently than every two years. The Company completed ISO
9002 regulation of the Galway Facility in August 1996 and intends to register
the Inverness Facility with the FDA during 1997.

Orgenics houses its executive offices, development and manufacturing in a
leased facility of approximately 21,000 square feet in Yavne, Israel. The lease
for this facility expires in 1999 and carries rent of approximately $17,000 per
month. The facility includes a number of specialized features and equipment,
including environmentally controlled areas, customized production equipment, and
computerized systems for purchasing, inventory, and materials tracking. Orgenics
also maintains small sales offices in Illkirch, France and Sao Paulo, Brazil.
The lease for the French facility runs through June 1997 and carries monthly
rent of approximately $5,955, which is linked to the French building cost index.
The lease for the Brazilian office is for an indefinite term with monthly rent
of approximately $856. Orgenics' management have informed the Company that they
believe the existing facilities are adequate for Orgenics' present level of
operations for the foreseeable future.

LEGAL PROCEEDINGS

From time to time, the Company may be exposed to litigation arising out of
its products and operations. See "Intellectual Property." The Company is not
engaged in any legal proceedings which are expected individually or in the
aggregate to have a material adverse effect on the Company's financial condition
or results of operations.

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<PAGE> 70

Pasteur Sanofi Diagnostics licensed the Pasteur HIV Technology to Cambridge
Biotech and its affiliates, including Cambridge Affiliate, relating to patents
and proprietary rights underlying the Company's HIV-related products. The
licenses of the Pasteur HIV Technologies to Cambridge Biotech are non-exclusive
and cover diagnostic test kits in finished form embodying the Pasteur HIV
Technologies. The territorial scope of the licenses is worldwide, with the
exception of exclusive rights which Pasteur Sanofi Diagnostics asserted to have
granted in the Pasteur HIV Technologies to Genetic Systems Corporation ("Genetic
Systems") in the United States, Canada, Mexico, Australia, New Zealand and India
(the "Excluded Countries"). However, the licenses provide that, to the extent
that Pasteur Sanofi Diagnostics recovers the right to practice the patents
underlying the Pasteur HIV Technologies in the Excluded Countries, Cambridge
Biotech is entitled to non-exclusive rights in such technology in such
countries. In 1990, Pasteur Sanofi Diagnostics acquired ownership of Genetic
Systems, whereupon Cambridge Biotech commenced selling products incorporating
the Pasteur HIV Technologies in the United States. These activities were
challenged in a patent infringement lawsuit filed in bankruptcy court in March
1995 by Institut Pasteur, the minority stockholder of Pasteur Sanofi
Diagnostics, and Genetic Systems. In September 1995, the bankruptcy court ruled
in favor of Cambridge Biotech on this issue, and Institut Pasteur and Genetic
Systems subsequently filed an appeal in district court. The date for the appeal
hearing is unknown. If the bankruptcy court decision were reversed on appeal,
the territories to which Cambridge Affiliate could sell HIV-related products
would be limited and this could have a material adverse effect on the Company.
See "Business -- Patent and Patents and Proprietary Rights."

Pasteur Sanofi Diagnostics has notified Orgenics that as a result of
Orgenics' use of certain peptides, Orgenics may be liable for infringement of
certain patents held by Institut Pasteur, and under which Pasteur Sanofi
Diagnostics holds an exclusive license. Orgenics has informed the Company that
it is not aware of any other threatened litigation that would have a material
adverse effect on Orgenics or its business.

The Company has been involved in a dispute with Enviromed with respect to a
joint venture agreement entered into between the Company and Enviromed in March
1994 and other agreements (collectively, the "Disputed Enviromed Agreements")
entered into between the Company and Enviromed and its wholly-owned subsidiary
Cranfield Biotechnology Ltd. ("Cranfield") and the issuance of shares of Common
Stock to Enviromed in connection therewith. See "Certain Transactions." In
connection with this dispute, the Company has informed Enviromed that, due to
the failure of Enviromed and Cranfield to perform their obligations under the
Disputed Enviromed Agreements, it disputes Enviromed's ownership of the Common
Stock held of record by Enviromed. On July 5, 1996, Enviromed filed suit against
the Company and the representatives of the underwriters of the Initial Public
Offering (the "IPO Representatives") in United States District Court for the
Southern District of New York alleging breach of a registration rights agreement
relating to the Common Stock held of record by Enviromed. Enviromed claimed that
its rights under a registration rights agreement were breached in connection
with the Initial Public Offering and requested damages, injunctive relief and a
declaratory judgment that Enviromed is the lawful owner of the shares. The
Company has filed counterclaims against Enviromed arising out of the failure of
Enviromed and Cranfield to perform their obligations under the Disputed
Enviromed Agreements and is contesting Enviromed's claims vigorously. On October
18, 1996, the case was ordered transferred to the United States District Court
for the District of Massachusetts. The Company is not able to estimate the
amount of damages, if any, which might result from Enviromed's claims against
the Company, but believes that any such damages would not be in an amount which
would have a material adverse effect on the Company. The Company agreed to
indemnify the IPO Representatives for any losses they might incur, including
reasonable attorney's fees and expenses, as a result of the Enviromed lawsuit.
On November 15, 1996, Enviromed filed a dismissal without prejudice of its
claims against the IPO Representatives.

Trinity Biotech plc ("Trinity") and Eastcourt Limited ("Eastcourt") have
filed Schedule 13Ds with the Securities and Exchange Commission (the
"Commission") stating that Enviromed sold the Common Stock held by it of record
to Flambelle Limited ("Flambelle"), a wholly-owned subsidiary of Trinity, and
Eastcourt, an entity owned 50% each by Enviromed and Flambelle, on August 28,
1996. On November 1, 1996, Enviromed announced that it had disposed of its
holding of shares of Eastcourt to Flambelle for consideration of $1.25 million.
In December 1996, Eastcourt filed a Schedule 13D/A and Flambelle filed a
Schedule 13D with the Commission. See "Certain Transactions -- Transactions with
EN PLC Limited Partnership."

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<PAGE> 71

On February 12, 1997 Flambelle and Eastcourt commenced a lawsuit against
the Company in the United States District Court for the District of
Massachusetts, seeking a declaratory judgment that Flambelle and Eastcourt own
the Common Stock held of record by Enviromed and damages for alleged breach of a
registration rights agreement. The Company intends to contest Flambelle's and
Eastcourt's claims vigorously. The Company is not able to estimate the amount of
damages, if any, which might result from Flambelle's and Eastcourt's claims
against the Company, but believes that any such damages would not be in an
amount which would have a material adverse effect on the Company.

On January 17, 1997, at a meeting of the shareholders of Enviromed called
at the request of Selfcare, the shareholders of Enviromed voted to remove the
existing Board of Directors of Enviromed and to elect as directors four
individuals nominated by Selfcare: Mr. Zwanziger, Mr. Anthony H. Hall
(Selfcare's Chief Financial Officer), Dr. Paul Winson, and Mr. Clifford
Passmore. Dr. Winson is serving as the Managing Director of Enviromed; Messrs.
Zwanziger, Hall and Passmore are serving as non-executive directors. See
"Business -- Strategic Acquisitions -- Acquisition of Shares of Enviromed."
Neither Dr. Winson nor Mr. Passmore is affiliated with Selfcare. Selfcare is
currently considering the possibility of providing a credit enhancement to
enable Enviromed to secure additional borrowing capacity and, to this end, may
determine to guaranty up to approximately $600,000 of Enviromed's bank debt. In
lieu of this guaranty, Selfcare may elect to make an equity investment of up to
$600,000 in Enviromed. See "Business -- Strategic Transactions -- Acquisition of
Shares of Enviromed."

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<PAGE> 72

MANAGEMENT

EXECUTIVE OFFICERS, SIGNIFICANT EMPLOYEES AND DIRECTORS

The executive officers, significant employees and directors of the Company
and their ages are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------- --- ------------------------------------------------
<S> <C> <C>
Executive Officers
Ron Zwanziger.................. 42 Chairman and Chief Executive Officer
Anthony H. Hall................ 52 Chief Financial Officer
Kenneth D. Legg, Ph.D.......... 53 Secretary and Vice President, U.S. Operations
Richard A. Pinkowitz, Ph.D..... 52 Vice President, U.S. Sales and Marketing
David Scott, Ph.D.............. 39 Managing Director of Inverness Medical Limited
Otto Wahl...................... 48 Managing Director of Selfcare International GmbH

Significant Employees
Gilbert Daggett................ 47 U.S. National Sales Manager
Detlef Jantos.................. 37 General Manager of Selfcare GmbH for Germany,
Austria and Switzerland
Jerry McAleer, Ph.D............ 40 Director of Development, Inverness Medical
Limited
Piet Moerman, M.D.............. 32 General Manager for the Benelux countries and
France
John O'Meara................... 41 General Manager of Cambridge Diagnostics Ireland
Ltd.
Diane M. Sullivan.............. 41 Director of U.S. Marketing

Other Directors
Jonathan J. Fleming(2)......... 39 Director
Carol R. Goldberg(1)........... 66 Director
John F. Levy................... 49 Director
Edward B. Roberts, Ph.D.(2).... 60 Director
Peter Townsend................. 62 Director
Willard Lee Umphrey(1)......... 55 Director
</TABLE>

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

(1) Member of the Compensation Committee.
(2) Member of Audit Committee.

EXECUTIVE OFFICERS

Ron Zwanziger, Chairman and Chief Executive Officer Mr. Zwanziger has
served as Selfcare's Chairman and Chief Executive Officer of the Company since
its inception. From 1981 to 1991, he was chairman and chief executive officer of
MediSense, a medical device company. He is a non-executive director of
Enviromed, a medical products company.

Anthony H. Hall, Chief Financial Officer Mr. Hall joined Cambridge
Diagnostics as General Manager covering Africa, Asia, the Middle East and Europe
in June 1992, prior to its acquisition by Selfcare. In the early part of 1994,
Mr. Hall was appointed Vice President and General Manager of Cambridge Biotech's
diagnostics business in the United States. Mr. Hall was appointed the Company's
Chief Financial Officer in October 1995. From October 1995 to January 1997, Mr.
Hall served as managing director of Cambridge Diagnostics. Prior to joining
Cambridge Diagnostics, Mr. Hall was managing director of Neuroscience Limited, a
medical instrumentation company, from 1983 to 1992. He is a non-executive
director of Enviromed, a medical products company.

Kenneth D. Legg, Ph.D., Secretary and Vice President, U.S. Operations Dr.
Legg joined the Company as Secretary and Vice President in charge of U.S.
Operations in November 1991. From 1987 to 1991, Dr. Legg was president of K.D.
Legg and Associates, a firm specializing in technical issues in the areas of
biomedical and scientific instrumentation, product development, and strategic
planning.

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<PAGE> 73

Richard A. Pinkowitz, Ph.D., Vice President U.S. Sales and Marketing Dr.
Pinkowitz joined the Company as Vice President U.S. Sales and Marketing in June
1992. Before joining Selfcare, Dr. Pinkowitz was director of business
development at MediSense from 1987 to 1992.

David Scott, Ph.D., Managing Director, Inverness Medical Limited Dr. Scott
has served as Managing Director of Inverness since June 1995. Prior to joining
Selfcare in October 1993, Dr. Scott held several positions at MediSense UK, most
recently as its managing director where he was responsible for managing product
development, as well as the mass manufacture of its principal product, ExacTech.

Otto Wahl, Managing Director, Selfcare International GmbH Mr. Wahl has been
Managing Director of Selfcare International GmbH since November 1995. Prior to
joining Selfcare, Mr. Wahl was the managing director for MediSense in Germany,
Austria and Switzerland and area manager for Eastern Europe.

Max Herzberg, Ph.D. It is contemplated that, upon the anticipated
completion of the Orgenics Acquisition, Dr. Herzberg will be named an executive
officer of the Company. See "Business -- Strategic Transactions -- Orgenics
Acquisition." Dr. Herzberg, a founder of Orgenics, has served as chairman of the
board and chief executive officer of Orgenics since 1983. Dr. Herzberg is also a
director of OIH, Orgenics Takara Co. Ltd. and Biograde Ltd.

SIGNIFICANT EMPLOYEES

Gilbert Daggett, U.S. National Sales Manager Mr. Daggett joined Selfcare in
1994 as U.S. National Sales Director. Mr. Daggett was eastern director of sales
for LifeScan from 1983 to 1992.

Detlef Jantos, General Manager of Selfcare GmbH for Germany, Austria, and
Switzerland Mr. Jantos joined Selfcare as General Manager of Selfcare GmbH for
Germany, Austria and Switzerland in 1995. Prior to joining Selfcare, Mr. Jantos
was employed by MediSense as regional sales manager in 1989 and sales and
marketing manager from 1990 to 1994.

Jerry McAleer, Ph.D., Director of Development, Inverness Medical
Limited Dr. McAleer joined Selfcare as Director of Development of Inverness in
1995 and heads the development of the electrochemical glucose strips. Prior to
joining Selfcare, Dr. McAleer held senior research and development positions at
MediSense from 1985 to 1993 and more recently, at Ecossensors, Inc., an
environmental research company, where he was responsible for the development of
electrochemically based assay systems.

Piet Moerman, General Manager of Selfcare for the Benelux countries and
France Dr. Moerman joined Selfcare as General Manager for the Benelux countries
and France in 1994. Prior to joining the Company, Dr. Moerman held various
positions at MediSense from October 1989 to April 1994, including product
manager (Europe), business development manager and marketing manager
(Europe-West).

John O'Meara, General Manager, Cambridge Diagnostics Ireland Ltd. Mr.
O'Meara joined Selfcare as General Manager of Cambridge Diagnostics in January
1997. Prior to joining Selfcare, Mr. O'Meara was director of manufacturing for
Tambrands Ireland, a feminine hygiene products company.

Diane M. Sullivan, Director of Marketing Ms. Sullivan has served as
Director of Marketing since 1995. From 1991 to 1994, Ms. Sullivan was a
consultant to the Company and other clients. She was marketing manager at
MediSense from 1988 to 1991.

OTHER DIRECTORS

Jonathan J. Fleming, Director Mr. Fleming has served on the Board of
Directors of the Company since April 1995. Since 1987 he has been a partner of
MVP Ventures, a venture capital firm based in Boston, Massachusetts. Mr. Fleming
is also a founder and partner of Medica Investments, a venture capital firm
based in Tel Aviv, Israel and Boston, Massachusetts. He is a director of
Synaptic Pharmaceutical Corporation, a pharmaceutical company.

Carol R. Goldberg, Director Ms. Goldberg has served on the Board of
Directors of the Company since August 1992. Since December 1989, she has served
as president of The AVCAR Group, Ltd., an investment

72
<PAGE> 74

and management consulting firm in Boston, Massachusetts. Ms. Goldberg is a
director of America Service Group, Inc., a managed healthcare company, of
Barry's Jewelers, Inc. a jewelry product company, and of The Gillette Company.

John F. Levy, Director Mr. Levy has served on the Board of Directors of the
Company since August 1996. Since 1993 he has been an independent consultant. Mr.
Levy served as president and chief executive officer of Waban, Inc., a warehouse
merchandising company, from 1989 to 1993. He is a director of National Picture
and Frame, Inc., a consumer products company.

Edward B. Roberts, Ph.D., Director Dr. Roberts has served on the Board of
Directors of the Company since April 1992. He is the David Sarnoff Professor of
Management of Technology at the Massachusetts Institute of Technology, where he
has been a faculty member since 1963. Dr. Roberts was co-founder and chairman of
Pugh-Roberts Associates, an international management consulting firm
specializing in strategic planning and technology management, now a division of
PA Consulting Group. He co-founded and is a director of Medical Information
Technology, Inc., a producer of hospital information systems, and is a director
of Advanced Magnetics, Inc., a medical imaging company, and of Pegasystems Inc.,
a developer of customer service management software.

Peter Townsend, Director Mr. Townsend has served on the Board of Directors
of the Company since August 1996. He is the founder and a director of Festival
of Britain 2000 Limited, a company organized to support early learning
facilities for children. Mr. Townsend served as chief executive officer and a
director of Enviromed, a medical products company, from 1991 to 1995.

Willard Lee Umphrey, Director Mr. Umphrey has served on the Board of
Directors of the Company since December 1991. He is a co-founder, and since 1985
has served as chairman of the Quantitative Group of Funds, an investment
management company. He is also president of U.S. Boston Capital Corporation, a
broker-dealer.

Messrs. Zwanziger, Umphrey and Levy and Ms. Goldberg are among the limited
partners of EN PLC, an entity formed by Mr. Zwanziger and a group of investors
for the purpose of purchasing ordinary shares of Enviromed. In addition, Mr.
Zwanziger shares control of EN PLC's general partner with another individual who
is not affiliated with the Company. See "Certain Transactions -- Transactions
with EN PLC Limited Partnership."

CLASSIFICATION OF THE BOARD OF DIRECTORS

The Board of Directors is divided into three classes, each of whose members
will serve for a staggered three-year term. The Board is comprised of two Class
I Directors (Messrs. Zwanziger and Umphrey), two Class II Directors (Dr. Roberts
and Ms. Goldberg) and three Class III Directors (Messrs. Fleming, Townsend and
Levy). At each annual meeting of stockholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. The terms of the Class I Directors, Class II Directors
and Class III Director will expire upon the election and qualification of
successor directors at the annual meeting of stockholders held following the end
of the calendar years 1996, 1997 and 1998, respectively.

Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of the
Company.

BOARD COMMITTEES

The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation for employees of and consultants to the Company,
establishes and approves salaries and incentive compensation for certain senior
officers and employees and administers the Company's stock option plans. The
Audit Committee reviews the results and scope of the financial audit and other
services provided by the Company's independent public accountants.

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<PAGE> 75

BOARD COMPENSATION

Directors are not entitled to cash compensation in their capacities as
directors. All of the directors are reimbursed for their expenses incurred in
connection with their attendance at Board of Directors and committee meetings.

Under the terms of the Company's Amended and Restated 1996 Stock Option and
Grant Plan (the "1996 Plan"), an option to purchase up to 12,000 shares of
Common Stock was granted to each non-employee director of the Company as of the
date of the Initial Public Offering at an exercise price equal to the initial
public offering price. In addition, each new non-employee director elected after
the date of the Initial Public Offering and before November 4, 1996 received an
option to purchase up to 12,000 shares of Common Stock upon such director's
election to the Board of Directors at an exercise price equal to the fair market
value of the Common Stock on the date of grant. After November 4, 1996, options
to non-employee directors may be granted in the sole discretion of the Board of
Directors. All options granted to non-employee directors will vest ratably over
four years from the date of grant.

EXECUTIVE COMPENSATION

The following table sets forth the compensation for the last three
completed fiscal years for the Company's Chief Executive Officer and its four
most highly compensated executive officers (other than the Chief Executive
Officer) whose total annual salary and bonus exceeded $100,000 in fiscal 1995
(the Chief Executive Officer and such other executive officers are hereinafter
referred to as the "Senior Executives"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
------------------------------------------------------
ANNUAL
COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
YEAR SALARY BONUS OPTIONS COMPENSATION(1)
---- -------- ------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Ron Zwanziger........................ 1996 $176,277 50,000 400,000 --
1995 149,444 -- 1,062,425 $14,850
1994 86,374 -- -- --
Anthony H. Hall...................... 1996 129,996 20,000 45,000 --
1995(2) 32,598 -- 39,000 --
1994(3) -- -- 117,000 --
Kenneth D. Legg, Ph.D................ 1996 111,055 20,000 45,000 --
1995 97,074 -- 186,446 11,550
1994 68,339 -- -- --
Richard A. Pinkowitz, Ph.D........... 1996 108,788 20,000 15,000 --
1995 94,986 -- 173,446 11,550
1994 75,640 -- -- --
Otto Wahl............................ 1996 207,600 -- 30,000 --
1995 162,306 -- 45,500 --
1994(3) -- -- 52,000 --
</TABLE>

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

(1) These amounts represent the fair market value of shares of Common Stock or
options to purchase Common Stock received in lieu of base salary during
1995.

(2) Mr. Hall was appointed the Company's Chief Financial Officer in October
1995. Prior to October 1995, Mr. Hall was the Managing Director of Cambridge
Diagnostics and was not employed by the Company.

(3) Messrs. Hall and Wahl were not employed by the Company during 1994.

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<PAGE> 76

Option Grants

The following table sets forth certain information concerning grants of
stock options made during fiscal 1996 to each of the Senior Executives:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED EXERCISE
UNDERLYING TO EMPLOYEES PRICE EXPIRATION
OPTIONS GRANTED IN FISCAL YEAR PER SHARE DATE(1)
--------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Ron Zwanziger............................. 400,000(2) 47.7% $13.875 12/10/03
Anthony H. Hall........................... 15,000(3) 1.8% $ 8.750 8/20/06
30,000(4) 3.6% $13.875 12/10/03
Kenneth D. Legg, Ph.D..................... 15,000(3) 1.8% $ 8.750 8/20/06
30,000(4) 3.6% $13.875 12/10/03
Richard A. Pinkowitz, Ph.D................ 15,000(4) 1.8% $13.875 12/10/03
Otto Wahl................................. 15,000(3) 1.8% $ 8.750 8/20/06
15,000(4) 1.8% $13.875 12/10/03
</TABLE>

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

(1) Unless otherwise indicated, the expiration date of an option is the tenth
anniversary of the date on which the option was originally granted. The
exercisability of these options is accelerated upon the occurrence of a
change in control (as defined in the 1996 Plan).

(2) This option vests following seven years of additional employment with the
Company from the date of the grant. However, the option will vest in
February 1999 if certain stock price goals are achieved within two years of
the grant. In the event that such goals are not achieved, this option may
fully vest on any subsequent anniversary of the date of grant if certain
other stock price goals are met.

(3) These options are exercisable in four equal annual installments commencing
on August 20, 1997.

(4) These options will become fully vested at the end of their seven-year term.
These options contain certain performance goals, including goals based on
the Company's budget, stock price, sales, product releases, financings and
technology development, which, if substantially achieved, will cause the
vesting of such options to be accelerated in accordance with a vesting
schedule contained in the agreements evidencing the options.

* All options listed in the table above, except those granted to Messrs.
Zwanziger and Wahl, are intended to qualify as incentive stock options under
the Code.

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<PAGE> 77

Year-End Option Values

The following table sets forth certain information concerning each exercise
of a stock option during fiscal 1996 by each of the Senior Executives and the
number and value of unexercised options held by each of the Senior Executives on
December 31, 1996:

AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNEXERCISED
UNDERLYING IN-THE-MONEY
OPTIONS AT OPTIONS AT
NUMBER FISCAL YEAR-END FISCAL YEAR-END(1)
OF SHARES ----------------- ------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- -------- ----------------- ------------------
<S> <C> <C> <C> <C>
Ron Zwanziger................... -- -- 1,062,425/400,000 $10,860,380/--
Anthony H. Hall................. -- -- 109,200/91,800 1,140,984/530,571
Kenneth D. Legg, Ph.D........... -- -- 121,446/110,000 1,234,382/603,475
Richard A. Pinkowitz, Ph.D...... -- -- 264,446/80,000 2,880,377/545,350
Otto Wahl....................... -- -- 51,675/75,825 547,399/520,728
</TABLE>

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

(1) Based on the fair market value of the Common Stock as of December 31, 1996
($12.625 per share), the closing price of the Common Stock as reported on
the AMEX on such date, less the option exercise price, multiplied by the
number of shares underlying the options.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with several of its executive
officers.

Under the terms of his employment agreement, dated October 15, 1991,
Kenneth D. Legg, Ph.D. has been granted shares of Common Stock. The terms of Dr.
Legg's employment agreement also contains a non-competition provision whereby
Dr. Legg agrees not to compete with or hire any consultants or employees
employed by the Company for a period of one year after termination of his
employment.

Under his employment agreement, dated June 15, 1992, Richard Pinkowitz,
Ph.D., Vice President of Sales and Marketing, has been granted options to
purchase shares of Common Stock. The terms of Dr. Pinkowitz's employment
agreement also contain a non-competition provision whereby Dr. Pinkowitz agrees
not to compete with or hire any consultants or employees employed by the Company
for a period of one year after termination of his employment.

Pursuant to the Service Contract Employment Agreement, dated November 13,
1994, and the supplemental agreement dated October 30, 1995, between Otto Wahl
and Selfcare International GmbH ("Selfcare International"), a wholly-owned
subsidiary of Selfcare, Mr. Wahl was appointed Vice President, Managing Director
for Sales and Marketing of Selfcare International at a monthly salary of
DM20,000 until February 9, 1996, and thereafter at an annual salary of
DM240,000. Under the terms of his employment agreement, Mr. Wahl is also
entitled to a car for business and personal use for which lease payments,
insurance payments and maintenance costs are paid by Selfcare and a
profit-linked bonus of at least DM40,000 after February 9, 1996. Under the terms
of his employment agreement, Mr. Wahl has been granted options to purchase
52,000 shares of Common Stock. The terms of Mr. Wahl's employment agreement also
contain a non-competition provision whereby Mr. Wahl agrees not to render any
services to any company doing business in Selfcare's field of operation and not
to engage in any business transaction within that field of operation or to
acquire any direct or indirect interest in any company doing business in the
Company's field of operation, unless the consent of Selfcare is obtained.
Further, Mr. Wahl agrees not to hire any consultants or employees employed by
Selfcare for a period of one year after termination of his employment with
Selfcare. In

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consideration of the non-competition provision, Mr. Wahl would be paid one year
of his salary after termination of his employment with Selfcare. Mr. Wahl's
employment agreement terminates in April 1998.

EMPLOYEE BENEFIT PLANS

Amended and Restated 1996 Stock Option and Grant Plan

Plan Administration; Eligibility. The Company has authorized the issuance
of up to 1,000,000 shares of Common Stock under the 1996 Plan. The 1996 Plan may
be administered by the Board of Directors or by an Option Committee appointed by
the Board of Directors (in either case, the "Administrator").

The Administrator has full power to select, from among the eligible
participants, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms and
conditions of each award, subject to the provisions of the 1996 Plan. The
Administrator may permit Common Stock, and other amounts payable pursuant to an
award, to be deferred. In such instances, the Administrator may permit interest,
dividend or deemed dividends to be credited to the amount of deferrals.

Persons eligible to participate in the 1996 Plan will be those employees
and other key persons, such as directors and consultants, of the Company and its
subsidiaries who are responsible for or contribute to the management, growth or
profitability of the Company and its subsidiaries, as selected from time to time
by the Administrator. Independent Directors will also be eligible for certain
awards under the 1996 Plan.

Stock Options. The 1996 Plan permits the granting of (i) options to
purchase Common Stock intended to qualify as incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code, as amended (the
"Code"), and (ii) options that do not so qualify ("Non-Qualified Options"). The
option exercise price of each option will be determined by the Administrator but
may not be less than 100% of the fair market value of the Common Stock on the
date of grant in the case of incentive stock options, and may not be less than
85% of the fair market value of the Common Stock on the date of grant in the
case of Non-Qualified Options. However, employees participating in the 1996 Plan
may elect, with the consent of the Administrator, to receive discounted
Non-Qualified Options in lieu of cash bonuses. In the case of such grants, the
option exercise price must be at least 50% of the fair market value of the
Common Stock on the date of grant.

The term of each option will be fixed by the Administrator and may not
exceed ten years from date of grant in the case of an Incentive Option. The
Administrator will determine at what time or times each option may be exercised
and, subject to the provisions of the 1996 Plan, the period of time, if any,
after retirement, death, disability or termination of employment during which
options may be exercised. Options may be made exercisable in installments, and
the exercisability of options may be accelerated by the Administrator.

Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Administrator or, if the Administrator so permits, by delivery of shares of
Common Stock already owned by the optionee. The exercise price may also be
delivered to the Company by a broker pursuant to irrevocable instructions to the
broker from the optionee.

At the discretion of the Administrator, stock options granted under the
1996 Plan may include a "re-load" feature pursuant to which an optionee
exercising an option by the delivery of shares of Common Stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the Common Stock on the date the additional
stock option is granted) to purchase that number of shares of Common Stock equal
to the number delivered to exercise the original stock option. The purpose of
this feature is to enable participants to maintain an equity interest in the
Company without dilution.

To qualify as Incentive Options, options must meet additional Federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
stockholders.

Stock Options Granted to Independent Directors. Each non-employee director
of the Company as of the date of the Initial Public Offering was granted an
option to purchase up to 12,000 shares of Common Stock at an exercise price
equal to the initial public offering price. In addition, each new non-employee
director elected

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after the date of the Initial Public Offering and before November 4, 1996
received an option to purchase up to 12,000 shares of Common Stock upon such
director's election to the Board of Directors at an exercise price equal to the
fair market value of the Common Stock on the date of grant. After November 4,
1996, options to non-employee directors may be granted in the sole discretion of
the Board of Directors. The exercise price of each such Non-Qualified Option
will be the fair market value of the Common Stock on the date of grant. Each
Non-Qualified Option granted to Independent Directors shall vest ratably over
four years from the date of grant.

Stock Appreciation Rights. The Administrator may award a stock appreciation
right ("SAR") either as a freestanding award or in tandem with a stock option.
Upon exercise of the SAR, the holder will be entitled to receive an amount equal
to the excess of the fair market value on the date of exercise of one share of
Common Stock over the exercise price per share specified in the related stock
option (or, in the case of freestanding SAR, the price per share specified in
such right, which price may not be less than 85% of the fair market value of the
Common Stock on the date of grant) times the number of shares of Common Stock
with respect to which the SAR is exercised. This amount may be paid in cash,
Common Stock, or a combination thereof, as determined by the Administrator. If
the SAR is granted in tandem with a stock option, exercise of the SAR cancels
the related option to the extent of such exercise.

Restricted Stock. The Administrator may also award shares of Common Stock
to officers, other employees and key persons subject to such conditions and
restrictions as the Administrator may determine ("Restricted Stock"). These
conditions and restrictions may include the achievement of certain performance
goals and/or continued employment with the Company through a specified
restricted period. The purchase price of shares of Restricted Stock will be
determined by the Administrator. If the performance goals or other restrictions
are not attained, the employees will forfeit their awards of Restricted Stock.

Unrestricted Stock. The Administrator may also grant shares (at no cost or
for a purchase price determined by the Administrator) which are free from any
restrictions under the 1996 Plan ("Unrestricted Stock"). Unrestricted Stock may
be issued to employees and key persons in recognition of past services or other
valid consideration, and may be issued in lieu of cash bonuses to be paid to
such employees and key persons.

Subject to the consent of the Administrator, an employee or key person of
the Company may make an irrevocable election to receive a portion of his
compensation in Unrestricted Stock (valued at fair market value on the date the
cash compensation would otherwise be paid).

An Independent Director may, pursuant to an irrevocable written election at
least six months before directors' fees would otherwise be paid, receive all or
a portion of such fees in Unrestricted Stock, valued at fair market value on the
date the directors' fees would otherwise be paid. In certain instances, an
Independent Director may also elect to defer a portion of his directors' fees
payable in the form of Unrestricted Stock, in accordance with such rules and
procedures as may from time to time be established by the Company. During the
period of deferral, the deferred unrestricted stock would receive dividend
equivalent rights.

Performance Share Awards. The Administrator may also grant performance
share awards to employees or other key persons of the Company or any subsidiary
entitling the recipient to receive shares of Common Stock upon the achievement
of individual or Company performance goals and such other conditions as the
Administrator shall determine ("Performance Share Award").

Dividend Equivalent Rights. The Administrator may grant dividend equivalent
rights, which entitle the recipient to receive credits for dividends that would
be paid if the grantee had held specified shares of Common Stock. Dividend
equivalent rights may be granted as a component of another award or as a
freestanding award. Dividend equivalents credited under the 1996 Plan may be
paid currently or be deemed to be reinvested in additional shares of Common
Stock, which may thereafter accrue additional dividend equivalents at fair
market value at the time of deemed reinvestment or on the terms then governing
the reinvestment of dividends under the Company's dividend reinvestment plan, if
any. Dividend equivalent rights may be settled in cash, shares, or a combination
thereof, in a single installment or installments, as specified in

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the award. Awards payable in cash on a deferred basis may provide for crediting
and payment of interest equivalents.

Adjustments for Stock Dividends, Mergers, Etc. The Administrator will make
appropriate adjustments in outstanding awards to reflect stock dividends, stock
splits and similar events. In the event of a merger, liquidation, sale of the
Company or similar event, the Administrator, in its discretion, may provide for
substitution or adjustments of outstanding options and SARs, or may terminate
all unexercised options and SARs with or without payment of cash consideration.

Amendments and Termination. The Board of Directors may at any time amend or
discontinue the 1996 Plan and the Administrator may at any time amend or cancel
outstanding awards for the purpose of satisfying changes in the law or for any
other lawful purpose. However, no such action may be taken which adversely
affects any rights under outstanding awards without the holder's consent.
Further, Plan amendments shall be subject to approval by the Company's
stockholders if and to the extent required by the Code to preserve the qualified
status of Incentive Options.

Change of Control Provisions. The 1996 Plan provides that in the event of a
"Change of Control" (as defined in the 1996 Plan) of the Company, all stock
options and stock appreciation rights shall automatically become fully
exercisable. In addition, at any time prior to or after a Change of Control, the
Administrator may accelerate awards and waive conditions and restrictions on any
awards to the extent it may determine appropriate.

On June 10, 1996, the Board of Directors granted options to purchase up to
50,000 and 25,000 shares of Common Stock, respectively, to Messrs. McAleer and
Scott at an exercise price of $9.00 per share. On August 5, 1996, the Board of
Directors granted options to purchase 12,000 shares of Common Stock to each of
Messrs. Fleming, Roberts, Umphrey and Ms. Goldberg at an exercise price of $8.50
per share. On August 12, 1996, the Board of Directors granted options to
purchase 12,000 shares of Common Stock to each of Messrs. Townsend and Levy at
an exercise price of $8.75. On August 20, 1996, the Board of Directors granted
options to purchase an aggregate of 55,000 shares of Common Stock to Messrs.
Hall, Legg and Wahl and two other employees of the Company at an exercise price
of $8.75. On December 10, 1996, the Company granted options to purchase an
aggregate of 600,000 shares of Common Stock to Messrs. Zwanziger, Hall, Legg,
Pinkowitz, Scott, Herzberg and Wahl and four other employees of the Company at
an exercise price of $13.875. As of December 31, 1996, there were 161,608 shares
of Common Stock available for issuance pursuant to options granted under the
1996 Plan.

1994 Incentive and Non-Qualified Stock Option Plan

In June 1996, the Company amended the 1994 Plan to provide that no
additional stock options would be granted under such plan. As of December 31,
1996, options to purchase up to 2,997,930 shares of Common Stock remained
outstanding under the 1994 Plan. The 1994 Plan will remain in place solely for
purposes of administration of the options outstanding under such plan, and its
terms are substantially similar to those described above with respect to the
1996 Plan as it relates to Incentive Options and Non-Qualified Options.

1992 Stock Plan

In June 1996, the Company amended its 1992 Stock Plan (the "1992 Plan") to
provide that no additional stock options would be granted under such plan. As of
December 31, 1996, options to purchase up to 336,739 shares of Common Stock
remained outstanding under the 1992 Plan. The 1992 Plan will remain in place
solely for purposes of administration of the options outstanding under such
plan, and its terms are substantially similar to those described above with
respect to the 1996 Plan as it relates to Incentive Options and Non-Qualified
Options.

Employee Stock Purchase Plan

The Selfcare, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan")
provides an opportunity for eligible employees of the Company and its
subsidiaries to purchase shares of Common Stock, at a discount,

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through regular monthly payroll deductions of up to 10% of their regular pay.
Subject to adjustment for stock splits, stock dividends and similar events, a
maximum of 250,000 shares of Common Stock may be issued under the Stock Purchase
Plan.

The first offering under the Stock Purchase Plan began at the consummation
of the Initial Public Offering and ended on December 31, 1996. Unless otherwise
determined by the Board of Directors or the Compensation Committee, subsequent
offerings commence on each January 1 and July 1 thereafter and will have a
duration of six months. The Board of Directors or the Compensation Committee
may, in its discretion select a different offering period for any offering,
provided the duration of the offering is not more than one year. Generally, all
employees who are customarily employed for more than 20 hours per week and have
been employed by the Company or a participating subsidiary for at least three
months as of the first day of the applicable offering period are eligible to
participate in the Stock Purchase Plan. On December 31, 1996, the Company issued
10,508 shares of Common Stock to certain eligible employees for a discounted
purchase price of $7.225 per share pursuant to the first offering under the
Stock Purchase Plan.

The maximum number of shares which may be purchased by a participating
employee of the Company and its subsidiaries during an offering will be
determined by the Board of Directors or the Compensation Committee on a uniform
basis and generally will equal 1,000 shares. An employee may purchase shares
under the Stock Purchase Plan by authorizing payroll deductions of up to 10% of
his regular pay during this offering period. Unless the employee has previously
withdrawn from the offering, his accumulated payroll deductions will be used to
purchase Common Stock on the last business day of the period at a price equal to
85% of the fair market value of the Common Stock on the first or last day of
this offering period, whichever is lower. For these purposes, the fair market
value of the Common Stock on the first day of the initial offering period was
deemed to be the price to the public on such date. Under applicable tax rules,
an employee may purchase no more than $25,000 worth of Common Stock in any
calendar year (determined on the first day of the offering period(s) in which
such stock is purchased); certain other tax limitations may apply.

The Stock Purchase Plan will be administered by the Board of Directors or
the Compensation Committee. The Board of Directors or the Compensation Committee
has the discretion to designate the subsidiaries of the Company whose employees
are eligible to participate in the Stock Purchase Plan from time to time. The
Board of Directors or the Compensation Committee may at any time amend the Stock
Purchase Plan, subject to the approval of the Company's stockholders if and to
the extent required to preserve the favorable tax treatment of participants, or
discontinue the Stock Purchase Plan.

The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" as defined in Section 423 of the Code, which provides that an
employee will not have income for federal income tax purposes at the start of an
offering or upon receipt of shares of Common Stock at the end of an offering,
but generally will recognize ordinary income, in addition to capital gain or
loss, when the employee sells the shares. The Company generally will not be
entitled to a tax deduction upon either the purchase or sale of shares issued
under the Stock Purchase Plan if certain holding period requirements are met by
participating employees.

TAX ASPECTS OF THE 1996 PLAN UNDER THE U.S. INTERNAL REVENUE CODE

The following is a summary of the principal Federal income tax consequences
of option grants under the 1996 Plan. It does not describe all Federal tax
consequences under the 1996 Plan, nor does it describe state or local tax
consequences.

INCENTIVE OPTIONS

Under the Code, an employee will not realize taxable income by reason of
the grant or the exercise of an Incentive Option. If an employee exercises an
Incentive Option and does not dispose of the shares until the later of (a) two
years from the date the option was granted or (b) one year from the date the
shares were transferred to the employee, the entire gain, if any, realized upon
disposition of such shares will be taxable to the employee as long-term capital
gain, and the Company will not be entitled to any deduction. If an employee
disposes of the shares within such one-year or two-year period in a manner so as
to violate the holding period

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requirements (a "disqualifying disposition"), the employee generally will
realize ordinary income in the year of disposition, and, provided the Company
complies with applicable withholding requirements, the Company will receive a
corresponding deduction in an amount equal to the excess of (1) the lesser of
(x) the amount, if any, realized on the disposition and (y) the fair market
value of the shares on the date the option was exercised over (2) the option
price. Any additional gain realized on the disposition of the shares acquired
upon exercise of the option will be long-term or short-term capital gain and any
loss will be long-term or short-term capital loss depending upon the holding
period for such shares. The employee will be considered to have disposed of his
shares if he sells, exchanges, makes a gift of or transfers legal title to the
shares (except by pledge or by transfer on death). If the disposition of shares
is by gift and violates the holding period requirements, the amount of the
employee's ordinary income (and the Company's deduction) is equal to the fair
market value of the shares on the date of exercise less the option price. If the
disposition is by sale or exchange, the employee's tax basis will equal the
amount paid for the shares plus any ordinary income realized as a result of the
disqualifying distribution. The exercise of an Incentive Option may subject the
employee to the alternative minimum tax.

Special rules apply if an employee surrenders shares of Common Stock in
payment of the exercise price of his Incentive Option.

An Incentive Option that is exercised by an employee more than three months
after an employee's employment terminates will be treated as a Non-Qualified
Option for Federal income tax purposes. In the case of an employee who is
disabled, the three-month period is extended to one year and in the case of an
employee who dies, the three-month employment rule does not apply.

NON-QUALIFIED OPTIONS

There are no Federal income tax consequences to either the optionee or the
Company on the grant of a Non-Qualified Option. On the exercise of a
Non-Qualified Option, the optionee has taxable ordinary income equal to the
excess of the fair market value of the Common Stock received on the exercise
date over the option price of the shares. The optionee's tax basis for the
shares acquired upon exercise of a Non-Qualified Option is increased by the
amount of such taxable income. The Company will be entitled to a Federal income
tax deduction in an amount equal to such excess, provided the Company complies
with applicable withholding rules. Upon the sale of the shares acquired by
exercise of a Non-Qualified Option, the optionee will realize long-term or
short-term capital gain or loss depending upon his or her holding period for
such shares.

Special rules apply if an optionee surrenders shares of Common Stock in
payment of the exercise price of a Non-Qualified Option.

INDEMNIFICATION AND OTHER MATTERS

The Company's Certificate of Incorporation contains a provision that
generally eliminates the personal liability of its directors for breaches of
their fiduciary duty. The By-laws of the Company further provide that the
Company shall, to the fullest extent permissible under Delaware General
Corporate Law, indemnify its directors and officers, and in the discretion of
the Board of Directors, non-officer employees, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
the Company. In addition, the Company has obtained director and officer
liability insurance with respect to liabilities arising out of certain matters,
including matters arising under the federal securities laws.

There is no pending litigation or proceeding involving any director or
officer, employee or agent of the Company where indemnification will be
required. The Company is not aware of any threatened litigation or proceeding
which may result in a claim for such indemnification.

PARACHUTE PAYMENTS

The exercise of any portion of any option that is accelerated due to the
occurrence of a change of control may cause a portion of the payments with
respect to such accelerated options to be treated as "parachute payments" as
defined in the Code. Any such parachute payments may be non-deductible to the
Company, in

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whole or in part, and may subject the recipient to a non-deductible 20% federal
excise tax on all or portion of such payments (in addition to other taxes
ordinarily payable).

LIMITATION ON COMPANY'S DEDUCTIONS

As a result of Section 162(m) of the Code, the Company's deduction for
certain awards under the 1996 Plan may be limited to the extent that the Chief
Executive Officer or other executive officer whose compensation is required to
be reported in the summary compensation table receives compensation (other than
performance-based compensation) in excess of $1.0 million a year.

COMPENSATION COMMITTEE INTERLOCKS

The current members of the Company's Compensation Committee are Mr. Umphrey
and Ms. Goldberg. See "Certain Transactions."

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CERTAIN TRANSACTIONS

TRANSACTIONS WITH U.S. BOSTON CAPITAL CORPORATION

On December 29, 1993, Selfcare entered into a Technology Purchase and Sale
Agreement and a Technology License and Development Agreement (the "Technology
Agreements") with USB '93 Technology Associates Limited Partnership ("USB '93").
USB '93 is a limited partnership, the general partner of which is USB '93
Technology, Inc. ("USB, Inc."), a corporation whose president and chief
executive officer is Willard Lee Umphrey, a Selfcare director. Under the terms
of the Technology Agreements, USB '93 acquired certain ovulation prediction
technology from Selfcare for a purchase price of $1.36 million (the "Purchase
Price") payable in two installments, and Selfcare agreed to develop, market and
distribute products developed from the technology and pay USB '93 license fees
equal to 1.5% of Selfcare's gross sales and 22.5% of Selfcare's royalty income
until such time as aggregate license fee payments totaled $6.0 million (the
"Aggregate Royalties"). As additional consideration for the license, Selfcare
issued warrants to purchase up to 438,750 shares of Common Stock at an exercise
price of $1.54 per share to USB '93. Selfcare has the option of repurchasing the
technology from USB '93 before payment of the Aggregate Royalties.

In connection with Selfcare's financing of the acquisition of Cambridge
Diagnostics, Cambridge Diagnostics entered into a Guarantee and Debenture, dated
August 30, 1995, with USB, Inc. Pursuant to the Guarantee and Debenture, USB,
Inc. became the guarantor of an aggregate of $3.0 million in notes issued by
Selfcare to certain investors. In return for this guarantee, Cambridge
Diagnostics granted USB, Inc. a security interest in its machinery, equipment,
securities, goodwill and uncalled capital, patents, trademarks, patent
applications, brand names, copyrights, any and all rights acquired by Cambridge
Diagnostics as a licensee or sub-licensee, and all present and future benefit,
right, title and interest in any and all moneys, payments and proceeds of
insurance presently maintained or obtained in the future. As consideration for
its services as placement agent for the Cambridge Diagnostics Notes, the Company
issued an aggregate of 119,834 shares of Common Stock to U.S. Boston Capital
Corporation ("U.S. Boston"), an entity owned by Willard Lee Umphrey, a director
of the Company, and Mr. Leon Okurowski. Additionally, the Company issued 92,950
shares of Common Stock to Mr. Zwanziger for his personal guarantee of the
Cambridge Diagnostics Notes.

U.S. Boston, a broker-dealer, the president of which is Willard Lee
Umphrey, a director and principal stockholder of the Company, participated in
the Initial Public Offering as a member of the selling group. U.S. Boston sold
350,000 shares of Common Stock and received approximately $71,611 in selling
fees in connection with the Initial Public Offering. U.S. Boston's participation
in the Initial Public Offering was on the same terms as other members of the
selling group. It is currently anticipated that U.S. Boston will also
participate in this offering as a member of the selling group. U.S. Boston will
participate on the same terms as other members of the selling group. See
"Underwriting."

TRANSACTIONS WITH EN PLC LIMITED PARTNERSHIP

In March, April, June, and September, 1994, the Company entered into a
joint venture agreement with Enviromed and the other Disputed Enviromed
Agreements for the purpose of distributing diabetes and women's health products
in European Union countries and related purposes. The joint venture activities
were to be conducted through a newly formed entity, Selfcare Europe Ltd.
("SCE"), in which the Company and Enviromed each held 50% equity interests, but
for which the Company had management responsibility. The capital requirements of
SCE were to be funded 75% by Enviromed and 25% by Selfcare, in accordance with
the SCE business plan. In connection with the formation of SCE, SCE entered into
certain distributorship agreements with Selfcare and affiliates of Enviromed,
and Enviromed acquired 593,528 shares of Common Stock in consideration for
Enviromed entering into the joint venture agreement and payment of certain cash
consideration. See "Shares Eligible for Future Sale." In June 1995, Selfcare
notified Enviromed that Enviromed was in breach of its obligations under the
joint venture agreement to make payments to fund SCE's capital needs. In July
1995, Selfcare notified Enviromed that, as a result of Enviromed's failure to
cure this breach, Enviromed's shares in SCE were deemed to be transferred to
Selfcare pursuant to the terms of SCE's charter and the joint venture agreement.
For its part, Enviromed informed Selfcare that it denied Selfcare's claims of
breach, and claimed that Selfcare was in breach of the joint venture agreement
in several

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respects. SCE is currently classified as a wholly owned subsidiary in the
Company's financial statements. See Note 2 to the Consolidated Financial
Statements. In April 1995, Mr. Zwanziger resigned as a director of Enviromed and
his counterpart at Enviromed resigned as a director of the Company. The Company
does not consider SCE to be material to its business or operations.

In October 1995, EN PLC was formed by Mr. Zwanziger and a group of
investors for the purpose of purchasing ordinary shares of Enviromed. Mr.
Zwanziger shares control of EN PLC's general partner with another individual who
is not affiliated with the Company. Mr. Zwanziger, Ms. Goldberg and Mr. Umphrey,
directors of the Company, are among EN PLC's limited partners. Prior to the time
that EN PLC commenced its acquisition of Enviromed shares, Selfcare's Board of
Directors (including two directors with no interest in EN PLC) determined
unanimously that Selfcare lacked the capital resources needed to acquire a
significant stake in Enviromed, and that Mr. Zwanziger and the investor group
should be encouraged to proceed independently. In October 1996, when the
Company's capital resources had been significantly enhanced, and after Enviromed
had commenced the litigation against the Company described below, the Company
entered into the EN PLC Agreement pursuant to which the Company purchased
7,961,386 shares of Enviromed held by EN PLC for approximately $3.8 million,
representing the price at which the shares were then quoted on the London Stock
Exchange. The Company's principal purpose in entering into the EN PLC Agreement
was to improve the likelihood of effecting a change in Enviromed's management
and resolving its various disputes with Enviromed. The decision to enter into
the EN PLC Agreement was approved by a special committee of independent
directors of the Company who were not affiliated with EN PLC. On January 1,
1997, the Company and EN PLC entered into an amendment to the EN PLC Agreement
pursuant to which the Company agreed to issue two promissory notes, in principal
amounts of approximately $2.8 million and $1.0 million respectively, evidencing
the purchase price under the EN PLC Agreement. Each note bears interest at the
annual rate of the Bank of Boston prime rate plus 1.5 percent, payable quarterly
over the two-year term of the note. The principal amount of the $1.0 million
promissory note is payable in eight quarterly installments commencing in January
1997; the first four installments are $85,897 each and the second four
installments are $171,794 each. Approximately $1.4 million of the principal
amount of the $2.8 million promissory note is payable in January 1998, followed
by three equal quarterly installments of the remaining principal. In
consideration of the amendment, the Company agreed to issue to EN PLC a warrant
to purchase 15,401 shares of Common Stock at an exercise price of $12.875 per
share. The warrant is exercisable at any time prior to January 1, 2002. See
"Business -- Strategic Transactions -- Acquisition of Enviromed Shares."

On July 5, 1996, Enviromed filed suit against the Company and the IPO
Representatives in United States District Court for the Southern District of New
York alleging breach of a registration rights agreement relating to the Common
Stock held of record by Enviromed. See "Business -- Legal Proceedings," and
"Shares Eligible for Future Sale." Enviromed claimed that its rights under a
registration rights agreement were breached in connection with the Initial
Public Offering and requested damages, injunctive relief and a declaratory
judgment that Enviromed is the lawful owner of the shares. The Company has filed
counterclaims against Enviromed arising out of the failure of Enviromed and
Cranfield to perform their obligations under the Disputed Enviromed Agreements
and is contesting Enviromed's claims vigorously. On October 18, 1996, the case
was ordered transferred to the United States District Court for the District of
Massachusetts. The Company is not able to estimate the amount of damages, if
any, which might result from Enviromed's claims against the Company, but
believes that any such damages would not be in an amount which would have a
material adverse effect on the Company. The Company agreed to indemnify the IPO
Representatives for any losses they might incur, including reasonable attorney's
fees and expenses, as a result of the Enviromed lawsuit. On November 15, 1996,
Enviromed filed a dismissal without prejudice of its claims against the IPO
Representatives.

Trinity and Eastcourt have filed Schedule 13Ds with the Commission stating
that Enviromed sold the Common Stock held by it of record to Flambelle, a
wholly-owned subsidiary of Trinity, and Eastcourt, an entity owned 50% each by
Enviromed and Flambelle, on August 28, 1996. On November 1, 1996, Enviromed
announced that it had disposed of its holding of shares of Eastcourt to
Flambelle for consideration of $1.25 million. In December 1996, Eastcourt filed
a Schedule 13D/A and Flambelle filed a Schedule 13D with the Commission. The
Company believes, based solely upon the information provided in the Schedule
13Ds

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<PAGE> 86

filed by Flambelle and Eastcourt, that Flambelle is incorporated under the laws
of the Republic of Ireland and is a direct wholly-owned subsidiary of Trinity,
an entity incorporated under the laws of the Republic of Ireland, and Eastcourt
is incorporated under the laws of England and Wales and is a direct wholly-owned
subsidiary of Flambelle. The Company further believes, based solely upon the
information provided in the Schedule 13D filed by Flambelle, that Ronan O'Caoimh
is the President and sole director of Flambelle and that the following are the
executive officers and directors of Trinity: Mr. O'Caoimh, Chairman and Chief
Executive Officer, Denis Burger, Non-Executive Director, Brendan Farrell,
President and Director, Jonathan O'Connell, Chief Financial Officer and
Director, and James Walsh, Chief Operating Officer and Director. The Company
further believes, based solely on the Schedule 13Ds filed by Eastcourt, that Mr.
O'Caoimh is the President and sole director of Eastcourt.

TRANSACTIONS WITH MVP PARTNERS

Medica Israel and Medica U.S., two investment partnerships, participated in
one-half of the Company's initial $1.0 million investment in Orgenics. On April
25, 1996, the Company exercised its right to acquire Medica's participation,
pursuant to which the Company issued 118,534 and 16,887 shares of Common Stock
to Medica Israel and Medica U.S. respectively. See "Business -- Strategic
Transactions -- Orgenics Acquisition." In October 1996, Selfcare Holdings, Ltd,
an Israeli company owned by Medica Israel, purchased 500 Series A Preferred
Shares for $500,000. See "Description of Capital Stock -- Issued and Outstanding
Capital Stock -- Series A Convertible Preferred Stock." Jonathan Fleming, a
director of the Company, is a partner of MVP Ventures, which serves as the
general partner of both Medica Israel and Medica U.S.

CAMBRIDGE DIAGNOSTICS TRANSACTIONS

In connection with the financing of the Cambridge Diagnostics Acquisition,
Messrs. Zwanziger, Umphrey, Scott and Levy purchased $225,000, $400,000, $50,000
and $150,000 respectively, of the 10% promissory notes with an aggregate
principal amount of $3.0 million issued by the Company (the "Cambridge
Diagnostics Notes"). Each also received his pro rata interest in attached
warrants having an aggregate purchase price of $30,000 (the "Cambridge
Diagnostics Warrants"). Upon repayment of their Cambridge Diagnostics Notes
pursuant to the agreements described below, Messrs. Zwanziger, Umphrey, Scott
and Levy, at that time, will be entitled to receive 85,696, 152,350, 19,044 and
57,132 shares of Common Stock underlying the Cambridge Diagnostics Warrants held
by such individuals, respectively.

In addition, in order for the Company to obtain approval for listing of the
Common Stock on the AMEX, the Company, in July 1996, offered to enter into
agreements with all holders of Cambridge Diagnostics Notes. Holders of such
notes with an aggregate principal amount of $2.75 million accepted this offer.
Pursuant to such agreements, the principal amount of the notes were to be
automatically converted into shares of Common Stock, at the lesser of the market
value of the Common Stock at the time of the conversion or the Initial Public
Offering price, if the Company's stockholders' equity as of November 30, 1996
were determined to be

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<PAGE> 87

less than $4.0 million. As consideration for the foregoing, the Company agreed
to pay to each holder who agreed to these terms additional cash consideration in
an amount equal to 5.0% of the principal amount of the Cambridge Diagnostics
Notes held by such holder. The Company stockholders' equity as of November 30,
1996 exceeded $4.0 million. As a result, the Company became obligated to repay
such notes on or about December 31, 1996. In December 1996, the Company entered
into the First Extension Agreements with holders of substantially all of the
Cambridge Diagnostics Notes pursuant to which such holders agreed to defer
repayment of the principal amount of their notes until January 15, 1998. In
consideration of such deferral, the Company agreed to issue warrants to purchase
an aggregate of 54,090 shares of Common Stock to such holders, exercisable at
any time within the next five years and at an exercise price of $12.875 per
share.

The number of shares of Common Stock issuable pursuant to the Cambridge
Diagnostics Warrants is equal to 69% of the net sales of Cambridge Diagnostics
for the fiscal year preceding the repayment of the Cambridge Diagnostics Notes,
divided by $32.87. Based on this formula and Cambridge Diagnostics' net sales
for fiscal year 1995, had the Cambridge Diagnostics Notes been repaid on
December 31, 1996, all of the Cambridge Diagnostics Warrants would have become
exercisable for an aggregate of 1,142,635 shares of Common Stock which represent
19% of the Common Stock outstanding as of December 31, 1996. Pursuant to the
First Extension Agreements, such holders agreed that their Cambridge Diagnostics
Warrants would become exercisable as if the Cambridge Diagnostics Notes had been
repaid on December 31, 1996. As a result, the number of shares of Common Stock
issuable pursuant to such Cambridge Diagnostic Warrants will be based on the net
sales of Cambridge Diagnostics in 1995. On December 31, 1996, the holders of
$2.6 million in principal amount of the Cambridge Diagnostics Notes, including
substantially all of the holders who were subject to the First Extension
Agreements, entered into the Second Extension Agreements to terminate and cancel
their Cambridge Diagnostics Warrants, in exchange for which the Company agreed
to transfer to such holders, for no additional consideration, an aggregate of
990,050 shares of Common Stock on the earlier of January 15, 2000 or the
occurrence of a change in control (as defined in the Second Extension
Agreements) of the Company. Of the holders of the remaining $400,000 in
principal amount of the Cambridge Diagnostics Notes, the holders of $375,000 in
principal amount of such notes remain parties to the First Extension Agreements.
See "Business -- Strategic Transactions -- Cambridge Diagnostics Acquisition."

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 1, 1997 by (i) each person or entity
known by the Company to own beneficially more than five percent of the Common
Stock, (ii) each Director of the Company, (iii) each of the Senior Executives,
and (iv) all directors and executive officers as a group. The percentage
ownership calculations set forth below do not give effect to the issuance of any
shares of Common Stock which may be issued in connection with the Orgenics
Acquisition.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
BENEFICIALLY OWNED(2)
NAME AND ADDRESS OF NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER(1) BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ----------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders
Flambelle Limited(3) 389,311 6.4% 4.9%
15/16 Fitzwilliam Place
Dublin 2
Republic of Ireland
Eastcourt Limited(3) 389,311 6.4 4.9
Chichester House
278-282 High Holborn
London, UK WC17 7HA
Ron Zwanziger Family Trust 669,500(4) 10.5 8.2
Directors and Senior Executives
Ron Zwanziger 1,591,627(5) 22.2 17.8
Kenneth D. Legg, Ph.D. 316,446(6) 5.1 4.0
Richard A. Pinkowitz, Ph.D. 283,673(7) 4.5 3.5
David Scott, Ph.D. 323,153(8) 5.1 4.0
Otto Wahl 55,173(9) * *
Jonathan J. Fleming 149,205(10) 2.5 1.9
Carol R. Goldberg 92,989(11) 1.5 1.2
Edward B. Roberts, Ph.D. 74,913(12) 1.2 *
Willard Lee Umphrey 851,876(13) 13.0 10.2
Anthony H. Hall 116,607(14) 1.9 1.5
John F. Levy 93,732 1.5 1.2
Peter Townsend 9,750(15) * *
All Directors and Executive Officers as a group (12
persons) 3,959,144 46.1 38.1
</TABLE>

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

* Less than 1%

(1) Unless otherwise noted, the address of the listed persons or entities is
c/o Selfcare, Inc., 200 Prospect Street, Waltham, Massachusetts 02154.

(2) The number of shares of Common Stock outstanding used in calculating the
percentage for each listed person includes the shares of Common Stock
underlying options or warrants held by such person that are exercisable
within 60 days of the date of this Prospectus, but excludes shares of
Common Stock underlying options or warrants held by any other person.

(3) Based solely on Schedule 13Ds filed by Eastcourt and Flambelle with the
Commission in December 1996. The shares of Common Stock reported in said
Schedule 13Ds were purportedly transferred to Eastcourt and Flambelle by
Enviromed. The Company believes, based solely upon the information provided
in the Schedule 13Ds filed by Flambelle and Eastcourt, that Flambelle is
incorporated under the laws of the Republic of Ireland and is a direct
wholly-owned subsidiary of Trinity, an entity incorporated under the laws
of the Republic of Ireland, and Eastcourt is incorporated under the laws of
England and Wales and is a direct wholly-owned subsidiary of Flambelle. The
Company further believes, based solely upon the information provided in the
Schedule 13D filed by Flambelle, that Ronan O'Caoimh is the President and
sole director of Flambelle and that the following are the executive
officers and directors of Trinity: Mr. O'Caoimh, Chairman and Chief
Executive Officer, Denis Burger, Non-Executive Director, Brendan Farrell,
President and Director, Jonathan O'Connell, Chief Financial

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<PAGE> 89

Officer and Director, and James Walsh, Chief Operating Officer and
Director. The Company further believes, based solely on the Schedule 13Ds
filed by Eastcourt, that Mr. O'Caoimh is the President and sole director of
Eastcourt. The Company has disputed, and continues to dispute, Enviromed's,
and its purported transferees' (including Eastcourt and Flambelle), alleged
ownership of the shares. See "Business -- Legal Proceedings" and "Certain
Transactions."

(4) Includes a warrant to purchase up to 279,500 shares of Common Stock which
is currently exercisable.

(5) Includes options and warrants to purchase up to 1,062,425 shares of Common
Stock which are currently exercisable or exercisable within 60 days of the
date of this Prospectus. Does not include 841,273 shares of Common Stock
held by other stockholders of the Company who, together with Mr. Zwanziger,
are parties to a voting agreement, pursuant to which such parties have
agreed to vote all shares held by them in accordance with the
recommendation of the Company's Board of Directors, through December 31,
1997.

(6) Includes options to purchase up to 121,446 shares of Common Stock which are
currently exercisable or exercisable within 60 days of the date of this
Prospectus.

(7) Includes options to purchase up to 264,446 shares of Common Stock which are
currently exercisable or exercisable within 60 days of the date of this
Prospectus.

(8) Includes options to purchase up to 253,500 shares of Common Stock which are
currently exercisable or exercisable within 60 days of the date of this
Prospectus.

(9) Represents options to purchase up to 54,275 shares of Common Stock which
are currently exercisable or exercisable within 60 days of the date of this
Prospectus.

(10) Includes options to purchase up to 13,784 shares of Common Stock which are
currently exercisable or exercisable within 60 days of the date of this
Prospectus. Also includes an aggregate of 135,421 shares of Common Stock
owned by Medica Israel and Medica U.S., two investment limited
partnerships. MVP Ventures, of which Mr. Fleming is a partner, is a general
partner of each of Medica Israel and Medica U.S. Mr. Fleming disclaims
beneficial ownership of the 135,421 shares of Common Stock owned by Medica
Israel and Medica U.S.

(11) Includes options and warrants to purchase up to 43,816 shares of Common
Stock which are currently exercisable or exercisable within 60 days of the
date of this Prospectus.

(12) Includes options and warrants to purchase up to 38,669 shares of Common
Stock which are currently exercisable or exercisable within 60 days of the
date of this Prospectus. Also includes 34,229 shares of Common Stock and a
warrant to purchase up to 2,015 shares of Common Stock held by the Roberts
Family Trust, of which Mr. Roberts is a trustee.

(13) Includes options and warrants to purchase up to 481,987 shares of Common
Stock beneficially owned by Mr. Umphrey which are currently exercisable or
exercisable within 60 days of the date of this Prospectus. Of that amount,
Mr. Umphrey disclaims beneficial ownership of a warrant to purchase up to
234,000 shares of Common Stock held by USB Technology '93 Associates, L.P.
and a warrant to purchase up to 68,250 shares of Common Stock held by Leon
Okurowski, an affiliate of U.S. Boston Capital Corporation. In addition,
Mr. Umphrey also disclaims beneficial ownership of a warrant to purchase up
to 2,272 shares of Common Stock held by a retirement account for the
benefit of Leon Okurowski, of which Mr. Umphrey is a trustee. Mr. Umphrey
also disclaims beneficial ownership of an additional 70,778 shares of
Common Stock held by such retirement account.

(14) Represents options to purchase up to 113,100 shares of Common Stock which
are currently exercisable or exercisable within 60 days of this Prospectus.

(15) Includes options to purchase up to 9,750 shares of Common Stock which are
currently exercisable or exercisable within 60 days of the date of this
Prospectus.

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<PAGE> 90

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

The Company's Certificate of Incorporation authorizes the issuance of up to
40,000,000 shares of Common Stock, $.001 par value per share, and 5,000,000
shares of undesignated preferred stock issuable in series by the Board of
Directors (the "Preferred Stock"), of which 4,990,000 shares remained
undesignated as of January 1, 1997. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Company's Certificate of Incorporation and By-laws, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
Certificate of Incorporation and By-laws have been adopted by the stockholders
and the Board of Directors of the Company.

Common Stock. Holders of Common Stock are entitled to one vote per share on
all matters to be voted on by stockholders. Holders of Common Stock are not
entitled to cumulative voting rights. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to the rights of the holders of Preferred
Stock, if and when issued. The holders of Common Stock have no preemptive or
other subscription rights.

The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors from funds
legally available therefor, with each share of Common Stock sharing equally in
such dividends. The possible issuance of Preferred Stock with a preference over
Common Stock as to dividends could impact the dividend rights of holders of
Common Stock.

There are no redemption or sinking fund provisions with respect to the
Common Stock. All outstanding shares of Common Stock, including the shares
offered hereby, are, or will be upon completion of this offering, fully paid and
non-assessable.

The By-laws provide, subject to the rights of the holders of the Preferred
Stock, if and when issued, that the number of directors shall be fixed by the
Board of Directors. The directors, other than those who may be elected by the
holders of Preferred Stock, if and when issued, are divided into three classes,
as nearly equal in number as possible, with each class serving for a three-year
term, except with respect to the initial term of each class of directors which
shall be for the period described under "Management -- Board of Directors."
Subject to any rights of the holders of Preferred Stock, if and when issued, to
elect directors, and to remove any director, whom the holders of any such stock
had the right to elect, any director of the Company may be removed from office
only for cause and by the affirmative vote of at least two-thirds of the total
votes which would be eligible to be cast by stockholders in the election of such
director.

Warrants and Rights to Receive Stock. As of January 1, 1997, a total of
2,104,381 shares of Common Stock were issuable upon exercise of outstanding
warrants at exercise prices ranging from $0 to $12.875 per share. Such warrants,
unless exercised after January 1, 1997, will remain outstanding after the
closing of this offering. For a description of certain of these warrants, see
"Certain Transactions."

Undesignated Preferred Stock. The Board of Directors of the Company is
authorized, without further action of the stockholders of the Company, to issue
up to 4,990,000 shares of currently undesignated Preferred Stock in classes or
series and to fix the designations, powers, preferences and the relative,
participating, optional or other special rights of the shares of each series and
any qualifications, limitations and restrictions thereon as set forth in the
Certificate of Incorporation. Any such Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock.

The purpose of authorizing the Board of Directors to issue Preferred Stock
is, in part, to eliminate delays associated with a stockholder vote on specific
issuances. The issuance of Preferred Stock could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring or seeking to acquire, a significant portion of the outstanding
stock of the Company.

Series A Convertible Preferred Stock. In October 1996, the Board of
Directors adopted a resolution authorizing 10,000 shares of Series A Convertible
Preferred Stock, par value $.001 per share ("Series A

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<PAGE> 91

Preferred Shares"). The Company subsequently sold 5,500 Series A Preferred
Shares at a price of $1,000 per share to certain non-U.S. investors; the net
proceeds to the Company after commissions and expenses were approximately $5.2
million.

The holders of the Series A Preferred Shares are generally entitled to
receive cumulative quarterly dividends payable in cash at the rate of 6% per
year provided, however, that the dividends shall cease to accrue if the closing
bid price of the Common Stock on the AMEX for any 30 consecutive calendar days
is equal to or greater than $20 per share. No dividends or other distributions
are to be paid in respect of the Common Stock if the dividends on the Series A
Preferred Shares are in arrears.

In the event of a liquidation, dissolution or winding up of the Company,
the holders of the Series A Preferred Shares are entitled to receive, for each
share of Series A Preferred Shares, prior to and in preference to any
distribution of assets or surplus funds of the Company to any holder of Common
Stock, an amount equal to the sum of $1,000 plus any unpaid dividends per share
to which they are entitled.

The investors in the Series A Preferred Shares are entitled, pursuant to
their subscription agreements with the Company, to convert their Series A
Preferred Shares into shares of Common Stock. The Series A Preferred Shares are
convertible in five equal installments over a 120-day period, with the initial
one-fifth having become convertible on December 14, 1996 and the last one-fifth
becoming convertible on April 13, 1997. The Series A Preferred Shares are
generally convertible at a discount of 14.5% from the average closing bid price
of the Common Stock for the five trading days prior to their conversion subject
to the following: (i) the maximum conversion price is $20.00 per share and (ii)
if the conversion price would otherwise be $12.00 per share or less, it shall
instead be $12.00 per share; provided, however, if the average closing bid price
is less than $12.00 per share, then the conversion price shall be equal to such
price but in no event less than $8.75 per share. Any Series A Preferred Shares
not previously converted will automatically convert into shares of Common Stock
on October 15, 1998 at the closing bid price on such date. In December 1996 and
February 1997, the Company issued an aggregate of 63,951 shares of Common Stock
to certain holders of Series A Preferred Shares who elected to convert 700
Series A Preferred Shares into Common Stock.

The Series A Preferred Shares do not have any voting rights, except as may
be required by law.

CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS

General. A number of provisions of the Certificate of Incorporation and
By-laws concern matters of corporate governance and the rights of stockholders.
Certain of these provisions, as well as the ability of the Board of Directors to
issue shares of Preferred Stock and to set the voting rights, preferences and
other terms thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors
(including takeovers which certain stockholders may deem to be in their best
interests). To the extent takeover attempts are discouraged, temporary
fluctuations in the market price of the Common Stock, which may result from
actual or rumored takeover attempts, may be inhibited.

The Certificate of Incorporation provides for the Board of Directors to be
divided into three classes, as nearly equal in size as possible, of directors
serving staggered three-year terms. As a result, approximately one-third of the
Board of Directors will be elected each year. In addition, the Certificate of
Incorporation provides that stockholders may remove a director only for cause
and only by the vote of the holders of two-thirds of the Common Stock of the
Company. This provision, when coupled with the provision of the Certificate of
Incorporation authorizing only the Board of Directors to fill vacant
directorships, will preclude stockholders from removing incumbent directors
without cause and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with their own nominees, and will
make more difficult, and therefore may discourage, a proxy contest to change
control of the Company. These provisions, together with the ability of the Board
to issue Preferred Stock without further stockholder action, also could delay or
frustrate the removal of incumbent directors or the assumption of control by
stockholders, even if such removal or assumption would be beneficial to
stockholders of the Company. In addition, these provisions could discourage or
make more difficult a merger, tender offer or proxy contest, even if they could
be favorable to the interests of stockholders, and could potentially depress the
market price of the Common Stock. The Board of Directors of the Company believes
that these provisions are appropriate to protect the interests of the

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Company and all of its stockholders. The Board of Directors has no present plans
to adopt any other measures or devices which may be deemed to have an
anti-takeover effect.

Meetings of Stockholders. The Company's By-laws provide that a special
meeting of stockholders may be called only by the Board of Directors unless
otherwise required by law. The Company's By-laws provide that only those matters
set forth in the notice of the special meeting may be considered or acted upon
at that special meeting, unless otherwise provided by law. In addition, the
Company's By-laws set forth certain advance notice and informational
requirements and time limitations on any director nomination or any new business
which a stockholder wishes to propose for consideration at an annual meeting of
stockholders.

No Stockholder Action by Written Consent. The Certificate of Incorporation
provides that any action required or permitted to be taken by the stockholders
of the Company at an annual or special meeting of stockholders must be effected
at a duly called meeting and may not be taken or effected by a written consent
of stockholders in lieu thereof.

Indemnification and Limitation of Liability. The By-laws of the Company
provide that directors and officers of the Company shall be, and in the
discretion of the Board of Directors non-officer employees may be, indemnified
by the Company to the fullest extent authorized by Delaware law, as it now
exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with service for or on behalf of the Company.
The By-laws of the Company also provide that the right of directors and officers
to indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any by-law, agreement,
vote of stockholders or otherwise. The Certificate of Incorporation contains a
provision permitted by Delaware law that generally eliminates the personal
liability of directors for monetary damages for breaches of their fiduciary
duty, including breaches involving negligence or gross negligence in business
combinations, unless the director has breached his or her duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or a knowing
violation of law, paid a dividend or approved a stock repurchase in violation of
the Delaware General Corporation Law or obtained an improper personal benefit.
This provision does not alter a Director's liability under the federal
securities laws. In addition, this provision does not affect the availability of
equitable remedies, such as an injunction or rescission, for breach of fiduciary
duty. The Company believes that this provision will assist the Company in
attracting and retaining qualified individuals to serve as directors.

Amendment of the Certificate of Incorporation. The Certificate of
Incorporation provides that an amendment thereof must first be approved by a
majority of the Board of Directors and (with certain exceptions) thereafter
approved by the holders of a majority of the total votes eligible to be cast by
holders of voting stock with respect to such amendment or repeal and the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon as a class; provided however, that the affirmative vote of
two-thirds of the total votes eligible to be cast by holders of voting stock,
voting together as a single class, and the affirmative vote of two-thirds of the
outstanding shares of each class entitled to vote thereon as a class, is
required to amend provisions relating to the establishment of the Board of
Directors and amendments to the Certificate of Incorporation.

Amendment of By-laws. The Certificate of Incorporation provides that the
By-laws may be amended or repealed by the Board of Directors or by the
stockholders. Such action by the Board of Directors requires the affirmative
vote of a majority of the directors then in office. Such action by the
stockholders requires the affirmative vote of the holders of at least two-thirds
of the total votes eligible to be cast by holders of voting stock with respect
to such amendment or repeal at an annual meeting of stockholders or a special
meeting called for such purpose, unless the Board of Directors recommends that
the stockholders approve such amendment or repeal at such meeting, in which case
such amendment or repeal shall only require the affirmative vote of a majority
of the total votes eligible to be cast by holders of voting stock with respect
to such amendment or repeal.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage

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in any of a broad range of business combinations with a person or affiliate or
associate of such person, who is an "interested stockholder" for a period of
three years from the date that such person became an interested stockholder
unless: (i) the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the board of directors
of the corporation before the person becomes an interested stockholder; (ii) the
interested stockholder acquired 85% or more of the outstanding voting stock of
the corporation in the same transaction that makes it an interested stockholder
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. Under Section 203, an "interested stockholder" is defined (with
certain limited exceptions) as any person that is (i) the owner of 15% or more
of the outstanding voting stock of the corporation, or (ii) an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that such by-law or
charter amendment shall not become effective until 12 months after the date it
is adopted. Neither the Certificate of Incorporation nor the By-laws contains
any such exclusion.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is State Street Bank
and Trust Company.

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SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, and without giving effect to the issuance
of any shares of Common Stock which may be issued in connection with the
Orgenics Acquisition, there will be 7,888,313 shares of Common Stock of the
Company outstanding (exclusive of 6,475,592 shares underlying options, warrants
and rights to receive shares of Common Stock outstanding as of the date of this
Prospectus). Of these outstanding shares, the 1,800,000 shares of Common Stock
being sold in this offering and the 1,495,000 shares sold in the Initial Public
Offering will be immediately eligible for resale in the public market without
restriction under the Securities Act of 1933, as amended (the "Securities Act")
by persons other than "affiliates" of the Company, as that term is defined in
Rule 144 adopted under the Securities Act ("Affiliates"). In addition, in
October 1996 the Company sold 5,500 Series A Preferred Shares to certain
non-U.S. investors. The holders of such shares, among other things, are entitled
to convert their Series A Preferred Shares into shares of Common Stock in five
equal installments over a 120-day period beginning in December 1996. Series A
Preferred Shares are generally convertible at a discount of 14.5% from the
average closing bid price per share of the Common Stock for the five trading
days prior to their conversion. See "Description of Capital Stock -- Authorized
and Outstanding Capital Stock." Upon the election of certain holders of Series A
Preferred Shares, the Company issued in December 1996 and February 1997 an
aggregate of 63,951 shares of Common Stock, all of which are freely tradeable
without restriction or registration. Upon conversion of the remaining 4,800
Series A Preferred Shares into shares of Common Stock, assuming an average
market price of $11.60 per share, (based on the closing price of the Common
Stock on the AMEX on the five trading days during the period February 27 through
March 5, 1997) resulting in a conversion price of $11.60 per share, an
additional 421,684 shares of Common Stock will be freely tradeable without
restriction or registration under the Securities Act. In addition, during the
period November 1996 through February 1997, the Company issued an aggregate of
149,384 shares of Common Stock in connection with exercises of employee stock
options and purchases under the Stock Purchase Plan, all of which have been
registered and are freely tradeable. The remaining 4,379,978 shares of Common
Stock (the "Restricted Shares") held by officers, directors, employees,
consultants and other stockholders of the Company were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted" securities within the meaning of Rule 144 under the
Securities Act and may not be sold publicly unless they are registered under the
Securities Act or are sold pursuant to Rule 144 or another exemption from
registration. Approximately 3,273,231 additional shares of Common Stock
(exclusive of approximately 3,664,783 shares covered by options and warrants
exercisable within the 90-day period following the date of this Prospectus) will
become eligible for immediate resale in the public market, subject to compliance
with applicable provisions of Rule 144, and the lock-up agreements described
below. The remaining 1,106,747 shares of Common Stock will have been held for
less than two years and will become eligible for sale under Rule 144 at various
dates thereafter as the holding period provisions of Rule 144 are satisfied.

In general, under Rule 144 as currently in effect, a stockholder, including
an Affiliate, who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least two years from the later of the
date such securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of 1% of the
then outstanding shares of Common Stock (approximately 78,883 shares immediately
after this offering) or the average weekly trading volume in the Common Stock
during the four calendar weeks preceding the date on which notice of such sale
was filed under Rule 144, provided certain requirements concerning availability
of public information, manner of sale and notice of sale are satisfied. In
addition, under Rule 144(k), if a period of at least three years has elapsed
between the later of the date restricted securities were acquired from the
Company or (if applicable) the date they were acquired from an Affiliate of the
Company, a stockholder who is not an Affiliate of the Company at the time of
sale and has not been an Affiliate of the Company for at least three months
prior to the sale is entitled to sell the shares immediately without compliance
with the foregoing requirements under Rule 144. The Commission has proposed an
amendment to Rule 144 which would reduce the holding period required for shares
subject to Rule 144 to become eligible for sale in the public market from two
years to one year, and from three years to two years in the case of Rule 144(k).

93
<PAGE> 95

The Company's executive officers, directors and certain stockholders have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock (or
any securities convertible into or exercisable for Common Stock), with certain
limited exceptions, for a period of 120 days after the date of this Prospectus
without the prior written consent of Lehman Brothers Inc. on behalf of the
Representatives.

On November 5, 1996, the Company filed a registration statement on Form S-8
under the Securities Act to register all shares of Common Stock issuable under
the 1992 Plan, the 1994 Plan and the 1996 Plan. Shares issued upon the exercise
of stock options after the effective date of the Form S-8 registration statement
will be eligible for resale in the public market without restriction, subject to
Rule 144 limitations applicable to Affiliates and the lock-up agreements noted
above. On December 13, 1996, the Company filed a registration statement on Form
S-8 under the Securities Act to register all shares of Common Stock issuable
under the Company's Employee Stock Purchase Plan.

The Company has granted certain registration rights with respect to shares
of its Common Stock which are currently outstanding or which are issuable in the
future, pursuant to which the Company may in the future be required to prepare
and file registration statements covering the sale of such shares under the
Securities Act. All expenses relating to the filing of such registration
statements, excluding underwriting discounts and selling expenses relating to
the filing of such registration statements, are payable by the Company.

Pursuant to a Registration Rights Agreement dated as of March 8, 1994, the
Company granted registration rights with respect to 593,528 shares of Common
Stock sold to Enviromed and with respect to 438,750 shares of Common Stock that
may be purchased by USB '93 pursuant to the exercise of certain warrants which
had previously been granted to USB '93 (the "Enviromed/USB '93 Shares"). Under
the Registration Rights Agreement, the holders of 66 2/3% of the then
outstanding Enviromed/USB '93 Shares have the right to demand, on one occasion,
that the Company file a registration statement covering sales of such shares. In
addition, if the Company proposes to register any Common Stock under the
Securities Act in connection with a public offering, the holders of
Enviromed/USB '93 Shares are entitled to notice of such registration and to
include their shares in such registration, subject to the right of the
underwriters participating in the offering to limit the number of shares
included in such registration and certain other conditions. In connection with
the Initial Public Offering, Enviromed filed a lawsuit against the Company and
the IPO Representatives which alleges, among other things, that the Company
breached this Registration Rights Agreement with respect to Enviromed. On
November 15, 1996, Enviromed filed a dismissal without prejudice of its claims
against the IPO Representatives. See "Business -- Legal Proceedings."

The Company has granted certain registration rights with respect to the
shares of Common Stock issuable pursuant to the Option Agreements between the
Company and certain direct and indirect holders of Orgenics' ordinary shares.
See "Business -- Strategic Transactions -- Orgenics Acquisition." During the
three- year period following the issuance of any of the shares of Common Stock
issued pursuant to the Option Agreements (the "Registrable Shares") any former
Orgenics stockholders who hold at least 25% of the Registrable Shares may
request that all or part of the Registrable Shares held by them be registered
for sale under the Securities Act (a "Demand Registration"). The Company is
required to notify other former Orgenics stockholders having similar
registration rights of this request and to provide them with the opportunity to
be included in the Demand Registration. A Demand Registration request may not be
made more often than once in any 12-month period, and, in the case of any such
request made prior to the first anniversary of the closing of a Qualified
Offering, the Company is entitled to limit the total amount of Registrable
Shares to an amount having a value (based on the market value of the Common
Stock on the date on which registration was requested) which is equal to 30% of
the combined gross proceeds of this offering and a subsequent public offering
which is a Qualified Offering. The Company is required to use all commercially
reasonable efforts to effect a Demand Registration within 120 days after it is
made. The former Orgenics stockholders are also entitled to certain "piggy-back"
registration rights with respect to the Registrable Shares following a Qualified
Offering. If the Company proposes to effect certain registrations of its
securities under the Securities Act, the holders of the Registrable Shares are
entitled to notice of such registration and to include their shares of Common
Stock in such registration, subject to the right of an underwriter for the
offering to limit the number of shares included in such registration. In
addition, the Company is required to

94
<PAGE> 96

use all commercially reasonable efforts to effect the registration under the
Securities Act of any Registrable Shares which have not previously been
registered and which are outstanding on August 7, 1997, and any Registrable
Shares which are issued after such date pursuant to exercises of put options
which are made within 30 days of such date. See "Business -- Strategic
Transactions -- Orgenics Acquisition."

Pursuant to certain subscription agreements entered into with those certain
non-U.S. investors (the "Preferred Investors") who purchased 5,500 Series A
Preferred Shares, upon a breach of any warranties in such agreements by the
Company, the Company is obligated, at the written request of any Preferred
Investor prior to October 1997, to register shares of Common Stock issuable upon
the conversion of such investor's Series A Preferred Shares) as promptly as
practicable. The registration statement shall remain effective for a period of
60 days and may include shares of Common Stock of other Preferred Investors. If
the Company fails to effect the registration of such Common Stock within 90 days
after the date of filing the registration statement, the Company will be
obligated to pay to such Preferred Investor $100,000 as liquidated damages,
provided that the aggregate amount of liquidated damages to all Preferred
Investors shall not exceed $400,000.

95
<PAGE> 97

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Underwriters named below,
for whom Lehman Brothers Inc., Dillon, Read & Co. Inc. and A.G. Edwards & Sons,
Inc. are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company, and the Company has agreed to sell to each
Underwriter, the aggregate number of shares of Common Stock set forth opposite
the name of each such Underwriter below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
Lehman Brothers Inc. ............................................. 459,000
Dillon, Read & Co. Inc. .......................................... 458,000
A.G. Edwards & Sons, Inc. ........................................ 458,000
Bear, Stearns & Co. Inc. ......................................... 59,000
Hambrecht & Quist LLC............................................. 59,000
Oppenheimer & Co., Inc............................................ 59,000
William Blair & Company, L.L.C. .................................. 31,000
Cohig & Associates, Inc. ......................................... 31,000
Leerink, Swann, Garrity, Sollami, Yaffe & Wynn, Inc............... 31,000
Needham & Company, Inc. .......................................... 31,000
Raymond James & Associates, Inc. ................................. 31,000
The Shemano Group, Inc. .......................................... 31,000
Tucker Anthony Incorporated....................................... 31,000
Unterberg Harris.................................................. 31,000
---------
Total................................................... 1,800,000
=========
</TABLE>

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares to the public at the public offering price set forth
on the cover page hereof, and to certain dealers at such public offering price
less a selling concession not in excess of $0.33 per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $0.10 per
share to certain other Underwriters or to certain other brokers or dealers.
After the offering to the public, the offering price and other selling terms may
be changed by the Representatives.

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions, including the condition that no stop order
suspending the effectiveness of the Registration Statement is in effect and no
proceedings for such purpose are pending or threatened by the Securities and
Exchange Commission and that there has been no material adverse change in the
condition of the Company from that set forth in the Registration Statement
otherwise than as set forth or contemplated in this Prospectus, and that certain
certificates, opinions and letters have been received from the Company and its
counsel and independent auditors. The Underwriters are obligated to take and pay
for all of the above shares of Common Stock if any such shares are taken.

The Company and the Underwriters have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including liabilities under
the Securities Act. In addition, the Company has agreed to indemnify the
Representatives for any losses they may incur, including attorneys' fees and
expenses, arising out of a potential dispute with certain stockholders. See
"Business -- Legal Proceedings."

The Company has granted to the Underwriters an option to purchase up to an
additional 270,000 shares of Common Stock, exercisable solely to cover
over-allotments, at the public offering price, less the underwriting discounts
and commissions shown on the cover page of this Prospectus. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that such option is exercised, each Underwriter will be
committed, subject to certain conditions, to purchase a number

96
<PAGE> 98

of the additional shares of Common Stock proportionate to such Underwriter's
initial commitment as indicated in the preceding table.

The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

The Company and its directors, executive officers and certain stockholders
have agreed not to offer, sell or otherwise dispose of any shares of Common
Stock (or any securities convertible into or exercisable for Common Stock), with
certain limited exceptions, for a period of 120 days after the date of this
Prospectus without the prior written consent of Lehman Brothers Inc. on behalf
of the Representatives.

It is currently anticipated that U.S. Boston, a broker-dealer, the
president of which is Willard Lee Umphrey, a director and principal stockholder
of the Company, will participate in this offering as a member of the selling
group. U.S. Boston will participate on the same terms as other members of the
selling group. As a result of the foregoing, this offering is subject to the
provisions of Rule 2720 of the Conduct Rules of the NASD. Accordingly, the
underwriting arrangements for the offering will conform with the requirements
set forth in Rule 2720. In particular, the public offering price of the Common
Stock can be no higher than that recommended by a "qualified independent
underwriter" meeting certain standards. In accordance with this requirement,
Lehman Brothers Inc. will serve in such capacity and will recommend the public
offering price in compliance with the requirements of Rule 2720. Lehman Brothers
Inc., in its role as qualified independent underwriter, has participated in due
diligence investigations and reviewed and participated in the preparation of
this Prospectus and the Registration Statement of which this Prospectus forms a
part.

Until the distribution of the Common Stock is completed, rules of the
Commission limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. In addition, if the Underwriters over-allot (sell more shares of
Common Stock than are set forth on the cover page of this Prospectus) and
thereby create a short position in the Common Stock in connection with the
offering, the Representatives may reduce that short position by purchasing
Common Stock in the open market. The Representatives also may elect to reduce
any short position by exercising all or part of the over-allotment option
described herein.

In general, purchase of shares of Common Stock for the purpose of
stabilization or to reduce a syndicate short position could cause the price of
the Common Stock to be higher than it might otherwise be in the absence of such
purchases. Neither the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.

LEGAL MATTERS

The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. The president of a professional corporation which is a partner in
the firm of Goodwin, Procter & Hoar LLP beneficially owns an aggregate of
approximately 40,664 shares of Common Stock and warrants to purchase up to 5,278
shares of Common Stock at an exercise price of $2.53 per share.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 and the statements of the Nutritional Supplement Lines as of November 30,
1996 and the years ended November 30, 1995 and 1996, included in this Prospectus

97
<PAGE> 99

and elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

The consolidated financial statements of Orgenics at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995 and
as of September 30, 1996 and the nine months then ended, appearing in this
Prospectus and Registration Statement have been audited by Kost Levary and
Forer, Certified Public Accountants (Israel), a member of Ernst & Young
International, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended, and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at prescribed rates
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a web site
(http://www.sec.gov) containing reports, proxy and information statements and
other information regarding registrants that file such material electronically
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system. The Company's Common Stock is listed on the American Stock
Exchange and reports, proxy statements and other information concerning the
Company can be inspected at the offices of the American Stock Exchange at 86
Trinity Place, New York, New York 10006. The Company has filed with the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement (which term shall include all amendments, exhibits and schedules
thereto) on Form SB-2 under the Act with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, to which Registration Statement reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities at the addresses set forth above, and
are also publicly available through the Commission's web site
(http://www.sec.gov).

98
<PAGE> 100

SELFCARE, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SELFCARE, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996..................... F-3
Consolidated Statements of Operations for the Years Ended 1994, 1995 and 1996.... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1994, 1995 and 1996................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1995 and 1996.................................................................. F-6
Notes to Consolidated Financial Statements....................................... F-7
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Financial Statements...................... F-33
Unaudited Pro Forma Combined Condensed Balance Sheet as of December 31, 1996..... F-35
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet as of December 31,
1996............................................................................ F-36
Unaudited Pro Forma Combined Condensed Statement of Operations for the Year Ended
December 31, 1996............................................................... F-37
Notes to Unaudited Pro Forma Combined Condensed Statement of Operations for the
Year Ended December 31, 1996.................................................... F-38
ORGENICS LTD. AND ITS SUBSIDIARIES:
Reports of Independent Auditors.................................................. F-39
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30,
1996............................................................................ F-41
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995 and for the Nine Months Ended September 30, 1995 (Unaudited) and
1996............................................................................ F-42
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1993, 1994, and 1995 and for the Nine Months Ended September 30,
1996............................................................................ F-43
Consolidated Statements of Cash Flows for the years ended December 31, 1993,
1994, and 1995 and for the Nine Months Ended September 30, 1995 (Unaudited) and
1996............................................................................ F-44
Notes to Consolidated Financial Statements....................................... F-46
AMERICAN HOME PRODUCTS CORPORATION WHITEHALL-ROBINS HEALTHCARE DIVISION -- CERTAIN
DOMESTIC VITAMIN AND NUTRITIONAL SUPPLEMENT CONSUMER HEALTHCARE BRANDS (NUTRITIONAL
SUPPLEMENT LINES)
Report of Independent Public Accountants......................................... F-65
Statement of Net Assets to be Sold as of November 30, 1996....................... F-66
Statements of Net Revenues in Excess of Direct Expenses for the Years Ended
November 30, 1995 and 1996...................................................... F-67
Notes to Statements.............................................................. F-68
</TABLE>

F-1
<PAGE> 101

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Selfcare, Inc.:

We have audited the accompanying consolidated balance sheets of Selfcare,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
consolidated financial statements of Orgenics, Ltd., a majority-owned subsidiary
of the Company, which statements reflect total assets and total revenues of 20
percent and 11 percent in 1996, respectively, of the consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included for those
entities, is based solely on the report of the other auditors.

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

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Selfcare, Inc. and subsidiaries as
of December 31, 1995 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 19, 1997

F-2
<PAGE> 102

SELFCARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 7,394,750 $ 16,458,654
Accounts receivable, net of allowance for doubtful accounts of approximately
$94,000 in 1995 and $316,000 in 1996.......................................... 1,414,232 5,478,814
Inventories..................................................................... 1,193,114 2,266,234
Prepaid and other current assets................................................ 305,043 1,034,260
------------ ------------
Total current assets...................................................... 10,307,139 25,237,962
------------ ------------
PROPERTY AND EQUIPMENT, AT COST:
Machinery and laboratory equipment.............................................. 1,705,802 7,275,161
Leasehold improvements.......................................................... 691,946 1,109,658
Furniture and fixtures.......................................................... 295,775 408,639
Computer equipment.............................................................. 151,092 657,780
------------ ------------
2,844,615 9,451,238
Less -- Accumulated depreciation and amortization............................... 625,008 1,592,353
------------ ------------
2,219,607 7,858,885
------------ ------------
INVESTMENTS IN AFFILIATED COMPANIES............................................... 1,000,000 3,732,609
------------ ------------
GOODWILL AND OTHER INTANGIBLE ASSETS, NET......................................... -- 3,741,171
OTHER ASSETS...................................................................... 165,602 518,825
------------ ------------
$ 13,692,348 $ 41,089,452
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term bank debt............................................................ $ -- $ 1,337,000
Current portion of long-term debt............................................... -- 332,000
Current portion of promissory note payable to EN PLC............................ -- 1,267,851
Accounts payable................................................................ 1,764,095 4,991,543
Accrued expenses and other current liabilities.................................. 1,665,368 5,826,952
Current portion of convertible advance.......................................... 2,333,333 --
Current portion of deferred revenue............................................. 226,667 1,619,152
------------ ------------
Total current liabilities................................................. 5,989,463 15,374,498
------------ ------------
LONG-TERM LIABILITIES:
Deferred revenue, net of current portion........................................ 3,123,035 4,786,347
Notes payable, net of current portion........................................... 3,000,000 3,000,000
Promissory note payable to EN PLC, net of current portion....................... -- 2,535,701
Long-term debt, net of current portion.......................................... -- 360,000
Convertible advance, net of current portion..................................... 4,666,667 --
Convertible payable............................................................. 500,000 --
------------ ------------
Total long-term liabilities............................................... 11,289,702 10,682,048
COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 11)
MINORITY INTEREST IN SUBSIDIARY................................................... -- 1,199,684
------------ ------------
MANDATORILY REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY............................ 1,643,580 1,753,928
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock
Authorized -- 5,000,000 shares
Issued and outstanding -- 5,200 shares in 1996................................ -- 5
Common stock, $.001 par value --
Authorized -- 40,000,000 shares
Issued -- 4,057,924 and 5,975,263 shares in 1995 and 1996, respectively....... 4,058 5,975
Additional paid-in capital...................................................... 9,553,220 55,233,847
Deferred compensation........................................................... (198,965) --
Less -- Treasury stock, at cost, 15,600 shares.................................. (15,200) (15,200)
Accumulated deficit............................................................. (14,676,034) (43,318,898)
Cumulative translation adjustment............................................... 102,524 173,565
------------ ------------
Total stockholders' equity (deficit)...................................... (5,230,397) 12,079,294
------------ ------------
$ 13,692,348 $ 41,089,452
============ ============
</TABLE>

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

F-3
<PAGE> 103

SELFCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Net product sales.................................. $ 2,089,387 $ 6,722,625 $ 14,066,630
Grants and other revenue........................... 232,538 516,087 4,996,158
----------- ------------ ------------
Net revenue................................... 2,321,925 7,238,712 19,062,788
Cost of sales...................................... 1,559,854 5,564,438 10,958,024
----------- ------------ ------------
Gross profit.................................. 762,071 1,674,274 8,104,764
----------- ------------ ------------
Operating expenses:
Research and development......................... 584,217 1,532,496 6,643,186
Charge for in-process research and development... -- -- 4,396,700
Selling, general and administrative.............. 2,962,531 5,649,781 10,517,790
Noncash compensation charge...................... 60,025 52,000 4,195,437
----------- ------------ ------------
Total operating expenses...................... 3,606,773 7,234,277 25,753,113
----------- ------------ ------------
Operating loss................................ (2,844,702) (5,560,003) (17,648,349)
Interest expense, including noncash interest
relating to issuance of warrants (Note 8)........ (7,111) (4,519,375) (11,295,382)
Interest income.................................... -- 38,055 543,447
Equity in net loss of affiliate.................... -- -- (200,000)
----------- ------------ ------------
Loss before minority interest and dividends and
accretion on preferred stock of a subsidiary..... (2,851,813) (10,041,323) (28,600,284)
Minority interest in subsidiary's income........... 67,050 -- 132,990
Dividends and accretion on mandatorily redeemable
preferred stock of a subsidiary.................. -- (55,580) (110,348)
----------- ------------ ------------
Net loss...................................... $(2,784,763) $(10,096,903) $(28,577,642)
=========== ============ ============
Net loss per common and common equivalent share.... $ (.52) $ (1.66) $ (4.70)
=========== ============ ============
Weighted average number of common and common
equivalent shares outstanding.................... 5,378,736 6,071,799 6,082,928
=========== ============ ============
</TABLE>

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

F-4
<PAGE> 104

SELFCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- -----------------------
NUMBER $.001 NUMBER
OF PAR OF $.001
SHARES VALUE SHARES PAR VALUE
-------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993................................... -- -- 2,507,310 $ 2,507
Issuance of common stock, net of issuance costs of
$92,133................................................... -- -- 1,216,332 1,216
Issuance of common stock in connection with consulting
agreements................................................ -- -- 36,465 36
Exercise of stock options................................... -- -- 650 1
Net loss.................................................... -- -- -- --
----- -------- --------- -------
Balance, December 31, 1994................................... -- -- 3,760,757 3,760
Subsidiary's issuance of preferred stock.................... -- -- -- --
Issuance of common stock.................................... -- -- 57,083 58
Issuance of common stock in connection with notes payable... -- -- 212,784 213
Issuance of common stock warrants in connection with notes
payable................................................... -- -- -- --
Noncash interest expense related to common stock warrants
issued in connection with notes payable................... -- -- -- --
Exercise of stock options................................... -- -- 27,300 27
Deferred compensation related to grants of common stock
options................................................... -- -- -- --
Amortization of deferred compensation related to grants of
common stock options...................................... -- -- -- --
Purchase of treasury stock.................................. -- -- -- --
Purchase of common stock options............................ -- -- -- --
Change in cumulative translation adjustment................. -- -- -- --
Net loss.................................................... -- -- -- --
----- -------- --------- -------
Balance, December 31, 1995................................... -- -- 4,057,924 4,058
Issuance of Common Stock, net of issuance costs of
approximately $2,343,000.................................. -- -- 1,505,508 1,505
Issuance of Common Stock related to Convertible advances.... -- -- 135,421 135
Issuance of Series A Convertible Preferred Stock, net of
issuance costs of approximately $338,000.................. 5,500 5 -- --
Dividends accrued on Series A Convertible Preferred Stock... -- -- -- --
Conversion of Series A Convertible Preferred Stock to Common
Stock..................................................... (300) -- 22,892 23
Conversion of Note Payable into Common Stock................ -- -- 201,622 202
Exercise of Stock Options................................... -- -- 51,896 52
Noncash interest expense related to Common Stock Warrants
issued in connection with promissory notes payable........ -- -- -- --
Noncash compensation expense related to Common Stock Options
issued to Company's President............................. -- -- -- --
Noncash compensation expense related to grants of Common
Stock Options............................................. -- -- -- --
Noncash interest expense related to Common Stock Warrants
issued in connection with promissory notes payable........ -- -- -- --
Options granted in connection with the Orgenics
acquisition............................................... -- -- -- --
Amortization of deferred compensation related to grant of
Common Stock options...................................... -- -- -- --
Change in cumulative translation adjustment................. -- -- -- --
Net loss.................................................... -- -- -- --
----- -------- --------- -------
Balance, December 31, 1996................................... 5,200 $ 5 5,975,263 $ 5,975
===== ======== ========= =======

<CAPTION>
TREASURY STOCK
----------------------
ADDITIONAL DEFERRED NUMBER OF
PAID-IN CAPITAL COMPENSATION SHARES COST
--------------- ------------ --------- --------
<S> <C> <C> <C>
Balance, December 31, 1993................................... $ 1,834,477 $ -- -- $ --
Issuance of common stock, net of issuance costs of
$92,133................................................... 2,762,682 -- -- --
Issuance of common stock in connection with consulting
agreements................................................ 59,989 -- -- --
Exercise of stock options................................... 999 -- -- --
Net loss.................................................... -- -- -- --
----------- ---------- ------- --------
Balance, December 31, 1994................................... 4,658,147 -- -- --
Subsidiary's issuance of preferred stock.................... -- -- -- --
Issuance of common stock.................................... 144,260 -- -- --
Issuance of common stock in connection with notes payable... 179,835 -- -- --
Issuance of common stock warrants in connection with notes
payable................................................... 30,000 -- -- --
Noncash interest expense related to common stock warrants
issued in connection with notes payable................... 4,235,768 -- -- --
Exercise of stock options................................... 69,045 -- -- --
Deferred compensation related to grants of common stock
options................................................... 250,965 (250,965) -- --
Amortization of deferred compensation related to grants of
common stock options...................................... -- 52,000 -- --
Purchase of treasury stock.................................. -- -- (15,600) (15,200)
Purchase of common stock options............................ (14,800) -- -- --
Change in cumulative translation adjustment................. -- -- -- --
Net loss.................................................... -- -- -- --
----------- ---------- ------- --------
Balance, December 31, 1995................................... 9,553,220 (198,965) (15,600) (15,200)
Issuance of Common Stock, net of issuance costs of
approximately $2,343,000.................................. 10,439,344 -- -- --
Issuance of Common Stock related to Convertible advances.... 499,865 -- -- --
Issuance of Series A Convertible Preferred Stock, net of
issuance costs of approximately $338,000.................. 5,161,850 -- -- --
Dividends accrued on Series A Convertible Preferred Stock... -- -- -- --
Conversion of Series A Convertible Preferred Stock to Common
Stock..................................................... 14,162 -- -- --
Conversion of Note Payable into Common Stock................ 13,693,346 -- -- --
Exercise of Stock Options................................... 80,017 -- -- --
Noncash interest expense related to Common Stock Warrants
issued in connection with promissory notes payable........ 10,632,842 -- -- --
Noncash compensation expense related to Common Stock Options
issued to Company's President............................. 3,240,000 -- -- --
Noncash compensation expense related to grants of Common
Stock Options............................................. 756,472 -- -- --
Noncash interest expense related to Common Stock Warrants
issued in connection with promissory notes payable........ 106,729 -- -- --
Options granted in connection with the Orgenics
acquisition............................................... 1,056,000 -- -- --
Amortization of deferred compensation related to grant of
Common Stock options...................................... -- 198,965 -- --
Change in cumulative translation adjustment................. -- -- -- --
Net loss.................................................... -- -- -- --
----------- ---------- ------- --------
Balance, December 31, 1996................................... $55,233,847 $ -- (15,600) $(15,200)
=========== ========== ======= ========

<CAPTION>
TOTAL
CUMULATIVE STOCKHOLDERS'
ACCUMULATED TRANSLATION EQUITY
DEFICIT ADJUSTMENT (DEFICIT)
------------ ---------- -------------
Balance, December 31, 1993................................... $(1,794,368) $ -- $ 42,616
Issuance of common stock, net of issuance costs of
$92,133................................................... -- -- 2,763,898
Issuance of common stock in connection with consulting
agreements................................................ -- -- 60,025
Exercise of stock options................................... -- -- 1,000
Net loss.................................................... (2,784,763) -- (2,784,763)
------------ -------- ------------
Balance, December 31, 1994................................... (4,579,131) -- 82,776
Subsidiary's issuance of preferred stock.................... -- -- --
Issuance of common stock.................................... -- -- 144,318
Issuance of common stock in connection with notes payable... -- -- 180,048
Issuance of common stock warrants in connection with notes
payable................................................... -- -- 30,000
Noncash interest expense related to common stock warrants
issued in connection with notes payable................... -- -- 4,235,768
Exercise of stock options................................... -- -- 69,072
Deferred compensation related to grants of common stock
options................................................... -- -- --
Amortization of deferred compensation related to grants of
common stock options...................................... -- -- 52,000
Purchase of treasury stock.................................. -- -- (15,200)
Purchase of common stock options............................ -- -- (14,800)
Change in cumulative translation adjustment................. -- 102,524 102,524
Net loss.................................................... (10,096,903) -- (10,096,903)
------------ -------- ------------
Balance, December 31, 1995................................... (14,676,034) 102,524 (5,230,397)
Issuance of Common Stock, net of issuance costs of
approximately $2,343,000.................................. -- -- 10,440,849
Issuance of Common Stock related to Convertible advances.... -- -- 500,000
Issuance of Series A Convertible Preferred Stock, net of
issuance costs of approximately $338,000.................. -- -- 5,161,855
Dividends accrued on Series A Convertible Preferred Stock... (51,037) -- (51,037)
Conversion of Series A Convertible Preferred Stock to Common
Stock..................................................... (14,185) -- --
Conversion of Note Payable into Common Stock................ -- -- 13,693,548
Exercise of Stock Options................................... -- -- 80,069
Noncash interest expense related to Common Stock Warrants
issued in connection with promissory notes payable........ -- -- 10,632,842
Noncash compensation expense related to Common Stock Options
issued to Company's President............................. -- -- 3,240,000
Noncash compensation expense related to grants of Common
Stock Options............................................. -- -- 756,472
Noncash interest expense related to Common Stock Warrants
issued in connection with promissory notes payable........ -- -- 106,729
Options granted in connection with the Orgenics
acquisition............................................... -- -- 1,056,000
Amortization of deferred compensation related to grant of
Common Stock options...................................... -- -- 198,965
Change in cumulative translation adjustment................. -- 71,041 71,041
Net loss.................................................... (28,577,642) -- (28,577,642)
------------ -------- ------------
Balance, December 31, 1996................................... $(43,318,898) $173,565 $ 12,079,294
============ ======== ============
</TABLE>

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

F-5
<PAGE> 105

SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................................................... $(2,784,763) $(10,096,903) $(28,577,642)
Adjustments to reconcile net loss to net cash used in operating activities --
Accretion on preferred stock of a subsidiary.................................... -- 55,580 110,348
Dividends accrued on Series A preferred stock................................... -- -- (51,037)
Noncash interest expense related to issuance of warrants........................ -- 4,235,768 10,739,571
Noncash compensation expense related to issuance of Common Stock options........ -- 52,000 955,437
Noncash compensation expense related to Common Stock options issued to the
Company's Chief Executive Officer............................................. -- -- 3,240,000
Issuance of common stock for services rendered.................................. 60,025 -- --
Noncash in-process research and development expense............................. -- -- 4,396,700
Amortization of deferred revenue................................................ (226,667) (506,374) (1,034,974)
Depreciation and amortization................................................... 23,299 576,463 1,044,136
Equity in net loss of affiliate................................................. -- -- 200,000
Minority interest in subsidiary's income........................................ (67,050) -- (132,990)
Changes in assets and liabilities, net of assets and liabilities acquired in
connection with the acquisition of Cambridge Diagnostics in 1994 and Orgenics
in 1996 --
Accounts receivable........................................................... (49,634) (476,750) (1,937,323)
Inventory..................................................................... (32,505) (163,860) 80,341
Prepaid and other current assets.............................................. (10,148) (229,573) (215,400)
Accounts payable.............................................................. 190,156 801,224 2,194,066
Accrued expenses and other current liabilities................................ 130,497 948,364 2,433,403
----------- ------------ ------------
Net cash used in operating activities....................................... (2,766,790) (4,804,061) (6,555,364)
----------- ------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment............................................... (36,826) (1,251,210) (4,749,476)
Proceeds from sale of property and equipment...................................... -- 61,386 --
(Increase) decrease in other assets............................................... 28,844 -- (448,050)
Cash paid for investment in affiliated companies.................................. -- -- (129,057)
Cash paid for investment in Orgenics, net of cash acquired........................ -- (500,000) (5,515,659)
Cash paid for acquisition of Cambridge Diagnostics, net of cash acquired.......... (1,333,869) -- --
----------- ------------ ------------
Net cash used in investing activities....................................... (1,341,851) (1,689,824) (10,842,242)
----------- ------------ ------------
Cash Flows from Financing Activities:
(Increase) decrease in restricted cash............................................ (69,346) 69,346 --
(Purchase of) proceeds from note receivable....................................... 950,000 -- --
Net proceeds from the issuance of Common Stock.................................... 2,764,898 213,390 10,520,918
Net proceeds from issuance of preferred stock..................................... -- -- 5,161,855
(Repayments on) proceeds from line of credit...................................... 1,872,685 (2,167,685) --
Repayments of long-term debt...................................................... -- -- (17,076)
Net proceeds from borrowing under short-term bank debt............................ -- -- 185,144
Increase in deferred revenue...................................................... -- 2,432,000 3,815,336
Proceeds from issuance of notes payable........................................... -- 3,000,000 --
Proceeds from issuance of Common Stock warrants in connection with notes
payable......................................................................... -- 30,000 --
Purchase of treasury stock........................................................ -- (15,200) --
Proceeds from convertible advance................................................. -- 7,000,000 6,693,548
Purchase of Common Stock options.................................................. -- (14,800) --
Proceeds from sale of preferred stock of a subsidiary............................. -- 1,588,000 --
----------- ------------ ------------
Net cash provided by financing activities................................... 5,518,237 12,135,051 26,359,725
----------- ------------ ------------
Foreign Exchange Effect on Cash and Cash Equivalents............................... -- (8,524) 101,785
----------- ------------ ------------
Net Increase in Cash and Cash Equivalents.......................................... 1,409,596 5,632,642 9,063,904
Cash and Cash Equivalents, beginning of period..................................... 352,512 1,762,108 7,394,750
----------- ------------ ------------
Cash and Cash Equivalents, end of period........................................... $ 1,762,108 $ 7,394,750 $ 16,458,654
=========== ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for --
Interest........................................................................ $ 12,168 $ 254,134 $ 396,118
=========== ============ ============
Income taxes.................................................................... $ 456 $ 6,162 $ 47,705
=========== ============ ============
Supplemental Disclosure of Noncash Investing and Financing Activities:
On November 23, 1994, the Company acquired all of the assets and assumed certain
liabilities of Cambridge Diagnostics --
Fair value of assets acquired................................................... $ 3,191,794 $ -- $ --
Liabilities assumed............................................................. 1,115,067 -- --
----------- ------------ ------------
Cash paid for acquisition, net of cash acquired............................. $ 2,076,727 $ -- $ --
=========== ============ ============
On October 24, 1996, the Company acquired 57.1% of the assets and liabilities of
Orgenics, Ltd.
Fair value of net assets acquired, net of minority interest..................... $ -- $ -- $ 1,659,326
In-process research and development............................................. -- -- 4,397,700
Goodwill........................................................................ -- -- 3,020,176
Conversion of debenture into shares of Orgenics................................. -- -- (1,000,000)
Options granted in connection with the acquisition.............................. -- -- (1,056,000)
Less cash acquired.............................................................. -- -- (1,505,543)
----------- ------------ ------------
Cash paid for acquisition, net of cash acquired............................. $ -- $ -- $ 5,515,659
=========== ============ ============
Cash paid for Investment in Affiliated Companies
Cost of investment.............................................................. $ -- $ -- $ 3,932,609
Stock acquired through issuance of promissory notes payable..................... -- -- 3,803,552
----------- ------------ ------------
Cash paid for investment in affiliated companies............................ $ -- $ -- $ 129,057
=========== ============ ============
Conversion of convertible advance into Common Stock................................ $ -- $ -- $ 13,693,548
=========== ============ ============
Conversion of convertible payable into Common Stock................................ $ -- $ -- $ 500,000
=========== ============ ============
</TABLE>

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

F-6
<PAGE> 106

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION

Selfcare, Inc. ("Selfcare" or the "Company") is engaged in the development,
manufacture and marketing of self-test diagnostic products for the diabetes,
women's health and infectious disease markets. The Company's existing and
planned products are targeted at the two largest existing markets for self-care
diagnostics, diabetes management and women's health, as well as the emerging
market for self tests for infectious diseases and agents, including human
immunodeficiency virus ("HIV").

On November 30, 1994, the Company acquired substantially all of the assets
and the exclusive rights to certain licenses (see Note 12(c)) of Cambridge
Biotech Limited from Cambridge Biotech Corporation ("Cambridge Biotech").
Thereafter, the Company changed this subsidiary's name from Cambridge Biotech
Limited to Cambridge Diagnostic Ireland Limited ("Cambridge Diagnostics"). The
total cost of the acquisition was $3,191,794, which consisted of $2,076,727 in
cash (including acquisition costs) and $1,115,067 of assumed liabilities. This
transaction was accounted for as a purchase (see Note 3).

In October 1996 the Company acquired a 57.1% direct and indirect equity
interest in Orgenics Ltd. ("Orgenics") for total consideration of $9,077,000.
The Company estimates that it will pay additional consideration totaling
approximately $9,307,000 in cash and Common Stock for the remaining 42.9% direct
and indirect equity interest in March 1997 (see Note 5).

On January 14, 1997, the Company entered into an agreement to acquire the
U.S. rights to several nutritional supplement product lines (the "Nutritional
Supplement Lines Acquisition") from American Home Products Corporation ("AHP")
for $30 million in cash and the issuance of a $6 million 7% promissory note (see
Note 19).

Since inception, the Company has devoted substantially all of its efforts
toward the research and development of products, the establishment of
distribution networks in the United States and Europe, and raising capital.
Management anticipates that substantially all future revenues will be derived
from products under development or those developed or acquired in the future.
Principal risks to the Company include the ability of the Company to obtain
adequate financing to fund future operations, dependence on key individuals,
competition from substitute products and larger companies, obtaining regulatory
approval, and the successful development and marketing of commercial products.
Based on the Company's current operating plan, including alternate financing
sources, such as from the Master Agreement with Johnson and Johnson Development
Corporation ("JJDC") and Lifescan, Inc. ("LifeScan") (see Note 10), management
believes that the Company has adequate financial resources to continue
operations through at least January 1998. See "Risk Factors" beginning on page 8
of this Prospectus.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation

The accompanying consolidated financial statements include the results of
the Company and its wholly owned subsidiaries: Cambridge Diagnostics (an Irish
corporation), Selfhelp Israel, Ltd. (an Israeli corporation), Selfcare
International GmbH (a German corporation), Selfcare Europe Ltd. ("SCE") and
subsidiaries (a UK corporation), and Inverness Medical Limited (a Scottish
corporation) ("Inverness"). Also included in the accompanying consolidated
financial statements is the Company's 49% minority interest in Cambridge
Affiliate Corporation ("Cambridge Affiliate"), as discussed in Note 12(c) and
its 57.1% direct and indirect equity interest in Orgenics (see Note 5). The
results of operations of Orgenics from the date of acquisition (October 24,
1996) through December 31, 1996 have been consolidated by the Company, adjusted
to give effect to the minority interest of 42.9%. All material intercompany
balances and transactions have been eliminated in consolidation.

F-7
<PAGE> 107

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The accounts of SCE include its wholly owned subsidiaries, Selfcare Europe,
GmbH (a German company) and Selfcare Benelux (a Belgian company). SCE was a
joint venture between the Company and Enviromed plc ("Enviromed") in which the
Company originally held a 50% interest. Due to default by Enviromed on certain
covenants of the joint venture agreement during 1995, the Company has assumed
100% ownership and effective operating control of SCE (see Note 11(c)).
Accordingly, the Company considers this entity to be a wholly owned subsidiary
and has included its results of operations in the accompanying consolidated
financial statements for the year ended December 31, 1995 and 1996.

The accounts of Orgenics also includes its wholly-owned subsidiary PBS S.A.
("PBS"), a French corporation and its 55% owned subsidiary CPEI Orgenics LTDA, a
Brazilian corporation.

(b) Revenue Recognition

Product revenue is recognized when products are shipped to customers, at
which time title is transferred. The Company is recognizing deferred revenue
relating to the 1993 sale of technology over a defined life (see Note 12(a)).
The Company is recognizing deferred revenue relating to the Lifescan alliance as
unfulfilled obligations are met (see Note 10). The Company has also recorded
deferred revenue in the accompanying consolidated balance sheets relating to
amounts received in advance on certain contracts and grants (see Notes 4 and
11(b)). The Company records the related revenue on funded amounts relating to
facilities and equipment over their estimated useful lives and related costs
based on when such costs are incurred.

The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The Company has classified its cash equivalents as held-to-maturity
and recorded them at amortized cost, which approximates market value. The
Company considers all highly liquid cash investments with maturities of three
months or less at the date of acquisition to be cash equivalents. Cash and cash
equivalents consisted of the following at December 31, 1995 and 1996:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
---------- -------------
<S> <C> <C>
Cash and money market funds.............................. $7,394,750 $ 2,622,824
Overnight time deposits.................................. -- 13,835,830
---------- ------------
$7,394,750 $ 16,458,654
========== ============
</TABLE>

(d) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following at December 31, 1995 and 1996:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
---------- -------------
<S> <C> <C>
Raw materials............................................ $ 776,770 $ 1,363,168
Work in-process.......................................... 237,954 272,466
Finished goods........................................... 178,390 630,600
---------- -----------
$1,193,114 $ 2,266,234
========== ===========
</TABLE>

F-8
<PAGE> 108

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(e) Depreciation and Amortization

Depreciation and amortization are computed using the straight-line method
based on the estimated useful lives of the related assets as follows:

<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
------------------------------------------------------ ------------------------
<S> <C>
Machinery and laboratory equipment.................... 3 - 5 Years
Leasehold improvements................................ Lesser of Life of Lease
or Life of Asset
Furniture and fixtures................................ 3 - 7 Years
Computer equipment.................................... 3 - 5 Years
</TABLE>

(f) Postretirement Benefits

The Company does not have any obligations for postretirement or
postemployment benefits, as defined by SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, as it does not currently offer such
benefits. Orgenics provides certain severance benefits as discussed in Note
11(h).

(g) Net Loss per Common and Common Equivalent Share

Net loss per common and common equivalent share is based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during the period. All shares, options and warrants issued during
the 12 months immediately preceding the initial public offering were treated as
if they had been outstanding for the years ended December 31, 1994 and 1995 and
from January 1, 1996 through August 6, 1996 in accordance with the
treasury-stock method. Common Stock equivalents (certain stock options, warrants
and convertible preferred stock) for all periods have not been included, as
their inclusion would be antidilutive.

(h) Foreign Currency Translation

The accounts of the Company's subsidiaries are translated in accordance
with SFAS No. 52, Foreign Currency Translation. Accordingly, assets and
liabilities of the Company's foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date. Income and expense
accounts are translated using an average rate of exchange during the period.
Foreign currency translation adjustments are accumulated as a separate component
of consolidated stockholders' equity. The aggregate transaction gains and losses
were immaterial for all periods presented.

(i) Use of Estimates in the Preparation of Financial Statements

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.

(j) Concentration of Credit Risk

SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The

F-9
<PAGE> 109

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company maintains the majority of its cash balances and its overnight time
deposits with financial institutions. See Note 16 for financial information by
geographic area.

(k) Derivative Financial Instruments and Fair Value of Financial Instruments

The Company does not have any derivative or other financial instruments as
defined by SFAS No. 119, Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments.

SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash equivalents,
accounts receivable and debt. The estimated fair value of these financial
instruments approximates their carrying value at December 31, 1995 and 1996. The
estimated fair values have been determined through information obtained from
market sources and management estimates.

(l) Recapitalization

On June 13, 1996, the Company's Board of Directors authorized 5,000,000
shares of preferred stock and declared a 13-for-1 stock split of the Company's
Common Stock, effected as a dividend for all common stockholders of record as of
June 20, 1996. All share and per share amounts of Common Stock for all periods
presented have been retroactively adjusted to reflect the stock split.

(m) Investment in Affiliated Company

The Company accounts for its investment in an affiliated company under the
equity method (see Note 15).

(n) Initial Public Offering

Effective August 6, 1996, the Company completed it's initial public
offering (the "IPO") of 1,495,000 shares of Common Stock for $8.50 per share.
The sale of Common Stock resulted in net proceeds to the Company of
approximately $10,365,000, after deducting all expenses related to the IPO.

(3) ACQUISITION OF CAMBRIDGE DIAGNOSTICS

On November 30, 1994, the Company acquired all outstanding stock of
Cambridge Diagnostics for a nominal value and concurrently acquired
substantially all of the assets and assumed certain liabilities of Cambridge
Diagnostics. As consideration, the Company paid $2,076,727 in cash (including
acquisition costs) and assumed $1,115,067 of liabilities. In connection with
this acquisition, the Company also acquired 49% of Cambridge Affiliate and
entered into various contractual agreements (see Note 12(c)). This transaction
was accounted for as a purchase, and accordingly, the results of Cambridge
Diagnostics since November 30, 1994 are included in the accompanying
consolidated financial statements. The aggregate purchase price of $3,191,794
was allocated based on the fair value of tangible assets acquired as follows:

<TABLE>
<S> <C>
Current assets........................................... $1,766,960
Property and equipment................................... 1,424,834
----------
$3,191,794
==========
</TABLE>

(4) INVESTMENT IN INVERNESS MEDICAL LIMITED

On May 31, 1995, the Company invested approximately $1,588,000 to fund
initial operations and to acquire a 50% interest in Inverness. Inverness
(formerly named Hebocraft Limited) was founded on November 1, 1994 and had no
significant activities, assets or liabilities at the time of the Company's
investment. Inverness & Nairn Local Enterprise Company ("INLEC") holds the
remaining 50% interest in

F-10
<PAGE> 110

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Inverness and also paid in $1,588,000 for its interest. The Company holds
1,000,000 ordinary shares of stock, while INLEC holds 1,000,000 shares of 6%
Cumulative Redeemable Preference Shares (the "Preference Shares"). This
investment is consolidated by the Company due to its ownership of 100% of
Inverness' ordinary shares. The Preference Shares held by INLEC (including
cumulative dividend) are reflected in the accompanying consolidated balance
sheets as mandatorily redeemable preferred stock of a subsidiary.

The Preference Shareholders are entitled to receive, out of funds legally
available, a cumulative annual dividend of approximately $0.095 per share,
payable annually on April 30, beginning in 1996. At the option of the Company
and subject to certain limitations on each redemption, the Preference Shares may
be redeemed for approximately $1.67 per share, plus any accrued and unpaid
dividends. The Company must redeem all 1,000,000 Preference Shares by May 31,
2000. If the Company cannot legally redeem the Preference Shares on that date,
it must redeem the shares as soon as legally permissible at a price of
approximately $1.91 per share plus any accrued and unpaid dividends. Upon
liquidation of Inverness, the Preference Shareholders are entitled to receive
approximately $1.59 per share, plus any accrued and unpaid dividends;
thereafter, the ordinary stockholders shall equally share with the Preference
Shareholders in the remaining assets to be distributed. The Preference
Shareholders do not hold any voting rights.

Under a related agreement, Highlands and Islands Enterprise ("HIE"), a
party related to INLEC, constructed a 50,000-square-foot production facility for
Inverness to use for manufacturing its products. Inverness has entered into a
20-year facility lease, with an option to purchase the facility for fair market
value. The rent due under this lease will be approximately $520,000 per year,
subject to increases each five years, dependent upon then-current market rates,
as defined. Inverness is not obligated to pay rent for the first two years of
the lease. The Company is guarantor to HIE for these payments if Inverness
defaults on its payments.

INLEC has provided Inverness with L2,100,00 British Pounds Sterling
(approximately $3,596,000 at December 31, 1996) for the purpose of outfitting
the facility with required equipment, providing training for the Inverness work
force and certain other defined costs. These funds shall be permanently invested
in Inverness, so long as no events of default by Inverness occur within five
years of the funding. Events of default are defined as the insolvency of
Inverness, defined changes in ownership of Inverness and certain other similar
related criteria. Should a default occur within five years of the funding by
INLEC to Inverness, the Company will be liable to INLEC for a declining portion,
as defined, of the amounts paid by INLEC.

Inverness recognizes as revenue the funded amounts relating to the facility
and equipment over the estimated useful life of the facility and equipment and
amounts related to training and other costs based on when such costs are
incurred. Inverness recognized grant revenue of approximately $216,000 and
$722,000 during the years ended December 31, 1995 and 1996, respectively, which
are included in grants and other revenues in the accompanying consolidated
statements of operations. Unearned amounts of approximately $2,539,000 at
December 31, 1996 are included in deferred revenue in the accompanying
consolidated balance sheets

(5) INVESTMENT IN ORGENICS

On December 23, 1995, the Company and Orgenics entered into an Investment
and Loan Agreement whereby the Company purchased a $1,000,000, 18-month,
unsecured, interest-bearing debenture that is convertible into redeemable
preferred shares of Orgenics (the "Debenture"). Concurrent with the issuance of
the Debenture, the Company provided guaranties (in the form of letters of
credit) of $200,000 on the debt of Orgenics' French subsidiary to two French
banks, which is included in other assets in the accompanying consolidated
balance sheet. The Debenture accrues interest at the LIBOR rate (5 17/32% at
December 31, 1996) plus 2%. Upon a conversion event, as defined, the principal
amount together with accrued interest will convert into 20% of the then issued
and outstanding share capital of Orgenics. In October 1996, the Company
exercised its right to convert the Debenture (see below).

F-11
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Two investment limited partnerships, Medica Investment (Israel) L.P. and
Medica Investment (U.S.) L.P. (collectively "Medica"), contributed a total of
$500,000 in cash toward the purchase of the Debenture. A director of the Company
is a partner of MVP Ventures, which serves as the general partner of both Medica
Investment (Israel) L.P. and Medica Investment (U.S.) L.P. On April 25, 1996,
the Company exercised its right to acquire Medica's interest in the Debenture
for 135,421 shares of Common Stock; the Company issued such shares on May 7,
1996. Accordingly, the Company will receive all of the Orgenics shares upon
conversion of the Debenture. The Company recorded the Orgenics Debenture as an
asset and also recorded a convertible payable for $500,000 related to the
investment made by Medica as a long-term liability in the accompanying
consolidated balance sheet prior to the Company's acquisition of Medica's
interest in the Debenture.

The Company also entered into option purchase agreements (the "Option
Agreements") with all of the individual stockholders of Orgenics and Orgenics
International Holdings B.V. ("Orgenics International"), a Dutch holding company
whose only material asset is its investment in Orgenics. Each Option Agreement
provides a put option on the part of the stockholders to sell to the Company and
a call option on the part of the Company to purchase from the stockholders (the
"Optionee"). The call option is exercisable at any time prior to August 7, 1999.
The put option shall not be exercisable until the closing of one or more public
offerings of the Company with aggregate gross proceeds of at least $15,000,000.
Upon exercise of either the put or call options discussed above, the Company
would effectively own 100% of Orgenics.

Under the terms of the Option Agreements, assuming that the put or call
options under the Option Agreements are exercised prior to March 10, 1997 (as
the Company currently intends), the Company will be required to pay for each
share of Orgenics that it acquires consideration equal to 1.5 times Orgenics'
gross revenues per share (on a fully diluted basis as of the exercise date,
giving effect to the conversion of the Debenture) during the most recent four
fiscal quarters immediately preceding the date of exercise. However, if certain
performance goals are met by Orgenics, the multiple would increase to 1.75
times. The Company believes these performance goals were met during the
applicable period.

In October 1996, the Company acquired a 57.1% direct and indirect equity
interest in Orgenics as a result of the conversion of the Debenture and cash
payment of approximately $7,000,000 for the purchases of outstanding shares of
Orgenics and Orgenics International. In addition, the Company has granted
options to purchase 85,800 shares of Common Stock having a fair market value of
$1,056,000 (Note 13(b)) and incurred direct acquisition costs of $100,000. The
Company estimates that it will pay additional consideration totaling
approximately $9,307,000 in cash and common stock for substantially all the
remaining shares in Orgenics and Orgenics International pursuant to the exercise
of the Option Agreements.

The aggregate purchase price of the Company's 57.1% direct and indirect
interest in Orgenics of approximately $9,077,000 was allocated based on the
relative fair values of the assets acquired as follows:

<TABLE>
<S> <C>
Current assets......................................................... $2,981,000
Property, equipment and other assets................................... 1,245,000
Liabilities assumed.................................................... (2,567,000)
In-process research and development.................................... 4,397,000
Goodwill............................................................... 3,021,000
----------
$9,077,000
==========
</TABLE>

The allocation of a portion of the purchase price to in-process research
and development represents the applicable pro-rata portion of its appraised
value of $7,700,000. Upon completion of the Orgenics acquisition, the Company
anticipates that of the remaining estimated purchase price of $9,307,000, it
will allocate an additional $3,303,000 to in-process research and development
and $4,890,000 to goodwill.

F-12
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The portion of the purchase price allocated to goodwill and other
intangible assets relates primarily to acquired technology, trade names and
goodwill and will be amortized on a straight-line basis over their estimated
useful lives of five years. The portion of the purchase price allocated to
in-process research and development projects that had not reached technological
feasibility and did not have a future alternative use was charged to expense as
of the acquisition date on a pro rata basis. The remaining portion of the
in-process research and development will be charged to expense upon completion
of the Orgenics Acquisition. The amount allocated to in-process research and
development projects represents the estimated fair value related to these
projects determined by an independent appraisal. Proven valuation procedures and
techniques were used in determining the fair market value of each intangible
asset. To bring these projects to technological feasibility, high-risk
development and testing issues will need to be resolved which will require
substantial additional effort and testing.

The remaining consideration for the Orgenics shares to be purchased
pursuant to the Option Agreements is payable by the Company, at the election of
each Optionee, entirely in cash, entirely in Common Stock or 50% in cash and 50%
in Common Stock. After August 7, 1997, the consideration payable pursuant to a
put or call would be 50% in cash and 50% in Common Stock. Although the Company
considers it likely that the Orgenics Acquisition will be completed prior to
March 31, 1997, the Company is not able to predict when the acquisition will be
completed. Moreover, because the amount of the consideration to be paid pursuant
to the Option Agreements is a function of the date on which the options are
exercised and the performance of Orgenics during the four fiscal quarters
preceding such exercise, the Company is not presently able to determine the
total amount of such consideration that will be payable. Assuming the exercise
of the call option prior to March 10, 1997 and that the Orgenics and Orgenics
International Stockholders elect to receive the consideration in the form of 50%
cash and 50% Common Stock, the Company would pay approximately $4,654,000 in
cash and issue approximately 393,537 shares of Common Stock (based on an average
market price of $11.825 per share of Common Stock and Orgenics' revenues for the
four fiscal quarters ended December 31, 1996).

In the event that the Company were not to exercise its call option prior to
March 10, 1997, the purchase price could be substantially greater, based on the
gross revenues of Orgenics, the multiple to be used in calculating the purchase
price or both. See "Business -- Strategic Transactions -- Orgenics Acquisition."
Accordingly, the Company may be required to raise additional financing, offer
additional shares to the Orgenics and Orgenics International stockholders or
both in order to pay the greater purchase price. There can be no assurance that
the Company will be able to raise such additional financing on terms favorable
to the Company, if at all. In addition, the per share price of the Company's
Common Stock could vary significantly from the average market price of $11.825.
Such variations would impact the number of shares Common Stock the Company would
be required to issue as consideration.

The Company has granted certain registration rights with respect to the
shares of Common Stock issued pursuant to the Option Agreements.

For financial information reflecting the Orgenics Acquisition on a pro
forma basis, along with the Nutritional Supplement Lines Acquisition (see Note
19) and certain other events, see the Company's Unaudited Pro Forma Combined
Condensed Financial Statements beginning on page F-33.

(6) LINE OF CREDIT

During 1994, the Company entered into an agreement for a demand line of
credit with a bank. This line of credit was established to finance the
acquisition of Cambridge Diagnostics, as discussed in Notes 1 and 3. The Company
included a certificate of deposit as a component of its assets collateralizing
this line of credit. During November 1995, the Company paid off this line of
credit with a portion of the proceeds from the issuance of notes payable (see
Note 8), and the line subsequently expired. The President of the Company had
personally guaranteed the line of credit.

F-13
<PAGE> 113

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) SHORT-TERM BANK DEBT

Orgenics has the following short-term debt instruments outstanding as of
December 31, 1996:

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Israeli NIS bank overdraft................................... $ 717,000
Short-term loans (linked to the U.S. dollar)................. 620,000
----------
$1,337,000
</TABLE>

The State of Israel has guaranteed approximately $500,000 of the
outstanding borrowings; the balance is collateralized by certain Orgenics
assets. Orgenics is required to make monthly interest payments on borrowings at
interest rates ranging form 7% to 21%.

(8) NOTES PAYABLE

In 1995, the Company issued notes payable (the "Cambridge Diagnostics
Notes") and common stock warrants (the "Cambridge Diagnostics Warrants") to
individual investors for gross proceeds of $3,030,000. Of this amount,
$3,000,000 relates to the Cambridge Diagnostics Notes, which bear interest at
10% and are due on March 31, 1998. As of December 31, 1995 and 1996, $675,000
and $825,000, respectively, of such notes were due to certain directors and
officers of the Company. Upon default by the Company, as defined, and the vote
of at least 51% (based on the total principal value of the Cambridge Diagnostics
Notes) of the noteholders, the noteholders may demand full or partial payment of
the notes plus accrued interest. The Company closed on this financing in several
installments from March 1995 through August 1995.

The remaining $30,000 represents amounts paid to the Company in exchange
for warrants to purchase shares of Common Stock. The number of Cambridge
Diagnostics Warrants is calculated as 69% of the net sales of Cambridge
Diagnostics for the fiscal year preceding the repayment of the Cambridge
Diagnostics Notes divided by $32.87. The Company would have issued 1,142,635
shares of the Company's Common Stock based on net sales of Cambridge Diagnostics
for 1995, if the notes were repaid prior to December 31, 1996. In December 1996,
the Company entered into agreements with substantially all the principal
noteholders of the Cambridge Diagnostics Notes, whereby the Company canceled the
Cambridge Diagnostics Warrants and effectively fixed the ultimate number of
shares of the Company's Common Stock to be issued at 1,142,635, of which 314,222
will be exercisable by certain directors and officers of the Company; 990,050 of
the shares of Common Stock will be issued for no additional consideration upon
the earlier of January 15, 2000 or the date on which a change in control of the
Company (as defined) occurs, pursuant to one of the December agreements.
Accordingly, the Company has recorded noncash interest charges of approximately
$4,236,000 and $10,633,000 for the year ended December 31, 1995 and 1996,
respectively, which represents the difference between the fair market value of
the underlying Common Stock and the exercise price of the Cambridge Diagnostics
Warrants.

In order for the Company to obtain approval for listing of its common stock
on the American Stock
Exchange, the Company entered into agreements with certain holders of $2,750,000
in principal amounts of the Cambridge Diagnostic Notes, pursuant to which such
holders agreed that such aggregate principal amount, together with any accrued
but unpaid interest thereon, would automatically convert into shares of Common
Stock if the Company's stockholders' equity as of November 30, 1996 is less than
$4.0 million. If the Company met the stockholders' equity threshold, the
Cambridge Diagnostics Notes would be due and payable on December 31, 1996. As
consideration for the foregoing, each holder who agreed to these terms will
receive additional consideration in an amount equal to 5.0% of the principal
amount of the Cambridge Diagnostics Notes held by such holder. The Company's
stockholders' equity was greater than $4.0 million as of November 30, 1996;
accordingly, the $2,750,000 principal amount and $137,500 of additional
consideration became due. On December 31, 1996, the Company entered into an
agreement with substantially all the

F-14
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

principal holders of the Cambridge Diagnostic Notes, pursuant to which such
holders agreed to defer repayment of the principal amount of their notes until
January 15, 1998 and effectively fix the ultimate number of shares of Common
Stock to be issued. As consideration for the foregoing, the Company agreed to
issue five-year warrants to purchase an aggregate of 54,090 shares of Common
Stock that are fully exercisable at an exercise price of $12.875 (fair market
value as of grant dated) to such holders, of which 14,999 will be exercisable by
certain directors and officers of the Company. If the notes are not paid by June
30, 1997 and the Company has not sold shares of Common Stock on or before June
30, 1997 pursuant to a registration statement on form SB-2 (or a similar form),
then the Company will issue additional five-year warrants to purchase an
aggregate of 27,046 shares of Common Stock that would be fully exercisable at an
exercise price of $12.875 to such holders, of which 7,500 would be exercisable
by certain directors and officers of the Company.

In connection with Selfcare's financing of the acquisition of Cambridge
Diagnostics, Cambridge Diagnostics entered into a Guarantee and Debenture, dated
August 30, 1995, with USB '93 Technology, Inc. ("USB '93, Inc."), a corporation
whose president and chief executive officer is a director of the Company.
Pursuant to the Guarantee and Debenture, USB '93, Inc. became the guarantor of
an aggregate of $3.0 million in notes issued by SelfCare to certain investors.
In return for this guarantee, Cambridge Diagnostics granted USB '93, Inc. a
security interest in its machinery, equipment, securities, goodwill and uncalled
capital, patents, trademarks, patent applications, brand names, copyrights, any
and all rights acquired by Cambridge Diagnostics as a licensee or sub-licensee,
and all present and future benefit, right, title and interest in any and all
moneys, payments and proceeds of insurance presently maintained or obtained in
the future.

The Company issued 119,834 shares of Common Stock to U.S. Boston Capital
Corporation, the president of which is a director of the Company, for its
services as placement agent on the Cambridge Diagnostics Notes. Additionally,
the Company issued 92,950 shares of Common Stock to the Company's President for
his personal guarantee of these notes. The total fair value of the shares issued
to both the President and USB '93 ($101,000 and $79,000, respectively) have been
recorded as deferred financing costs, which are included in other assets in the
accompanying consolidated financial statements, and are being amortized over the
original life of the Cambridge Diagnostics Notes.

(9) LONG-TERM DEBT

Orgenics has the following long-term debt outstanding as of December 31,
1996.

<TABLE>
<CAPTION>
INTEREST DECEMBER 31,
RATE 1996
-------- ------------
%
--------
<S> <C> <C>
Bank debt.................................................... 18-20 $ 66,000
7- 9 626,000
--------
692,000
Less current maturities.................................................... 332,000
--------
$360,000
========
</TABLE>

Aggregate maturities of long-term debt are as follows:

Orgenics is required to make monthly and quarterly payments of principle
and interest ranging from $1,035 to $62,133 on the various Notes through April
1999.

F-15
<PAGE> 115

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As collateral for Orgenics' liabilities to banks and others in Israel,
Orgenics has granted liens on certain assets, including fixed assets, insurance
rights, share capital and goodwill.

(10) LIFESCAN ALLIANCE

On November 10, 1995, the Company entered into a master agreement with JJDC
and LifeScan, an affiliate of JJDC (the "Master Agreement"). The Master
Agreement includes an equity investment agreement, a glucose distribution
agreement and a summary of terms to be included in other distribution
agreements.

The equity investment agreement calls for up to a total of $14,000,000 of
advances from JJDC. The advances convert into a maximum of 480,194 shares of the
Company's Common Stock, representing 5% of the Company's Common Stock on a fully
diluted basis, upon the occurrence of certain events. JJDC made the initial
advance of $7,000,000 upon closing, which the Company recorded as a convertible
advance in the accompanying consolidated balance sheets. On May 21, 1996, the
Company met certain Food and Drug Administration (the "FDA") filing criteria, as
set forth in the Master Agreement, and accordingly, the Company received
approximately $6,700,000 from the second advance. As of December 31, 1995 the
Company had not met either of the two conversion events nor had JJDC issued an
acceleration notice; accordingly, the advances have been recorded as a
convertible advances in the accompanying consolidated balance sheet in
accordance with the repayment terms set forth in the agreement (quarterly
installments over a three-year period). In October 1996 the Company met one of
the conversion event criteria (see below).

The Master Agreement requires LifeScan to pay the Company an additional
$7,000,000 as a success fee when the Company receives clearance from the FDA
regarding the glucose system. LifeScan, as a condition of payment, may, at its
option, require the Company to enter into a glucose distribution agreement (the
"Distribution Agreement"). The glucose Distribution Agreement, which will run
through December 31, 2010, sets certain minimum purchase requirements which, if
not met by LifeScan, render the exclusivity provisions null and void.

In October 1996, the Company met one of the conversion event criteria by
entering into a Distribution Agreement with LifeScan pursuant to which LifeScan
will distribute an advanced version of the Company's proprietary electrochemical
blood glucose monitoring system (the "New System"). As contemplated by the terms
of the LifeScan Alliance, in connection with entering into the Distribution
Agreement, LifeScan paid the Company a success fee of $7,000,000 million and
JJDC converted all of its approximately $13,700,000 million in convertible
advances to the Company into 201,622 shares of Common Stock which represents 5%
of (i) the Common Stock outstanding as of November 10, 1995, and (ii) any shares
of Common Stock issued prior to such conversion pursuant to the exercise of
rights to acquire Common Stock outstanding as of November 10, 1995. In addition,
under the terms of the LifeScan Alliance, the Company must issue to JJDC, for no
additional consideration, shares of Common Stock equal to 5% of any additional
Common Stock issued pursuant to the exercise of rights to acquire Common Stock
outstanding as of November 10, 1995 (the total of all shares so issued, the
"Conversion Shares"). The precise number of Conversion Shares depends on the
number of shares of Common Stock which the Company is required to issue in
connection with the financing of the Inverness Facility as well as the vesting
and exercise of options and warrants that were outstanding on November 10, 1995.
However, the Company estimates that the number of additional Conversion Shares
which JJDC will acquire is approximately 278,572. The New System must receive
FDA clearance before sales of the product can commence in the United States. The
Company has deferred revenue recognition on $3,000,000 of the success fee based
on management's estimate of its future commitments under the Distribution
Agreement. The Company will recognize this amount as revenue as such obligations
are met, which management estimates will be over four years.

The Master Agreement also covers two other Company products. Upon FDA
acceptance of the Company's filing for each of these products, LifeScan may, at
its sole discretion, pay the Company $3,000,000

F-16
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and require the Company to enter into a distribution agreement for each product,
under the terms set forth below. If LifeScan elects to make the $3,000,000
payment and the product receives FDA clearance, then LifeScan shall make an
additional payment of $2,000,000. If LifeScan makes the $3,000,000 payment and
the Company does not receive FDA clearance within one year of the payment, the
$3,000,000 must be repaid in eight quarterly installments without interest
(provided payments are made in a timely manner), and the related distribution
agreement will terminate.

Under the Distribution Agreement, SelfCare has agreed to indemnify LifeScan
for any claims that the New System infringes on any patents. As a condition for
entering into the Distribution Agreement, LifeScan was entitled to receive and
received opinions of patent counsel to the effect that the New System does not
infringe patents held by others.

(11) COMMITMENTS AND CONTINGENCIES

(a) Operating Leases

The Company has operating lease commitments for certain of its facilities
and equipment that expire through 2026. The following schedule outlines future
minimum annual rental payments under these leases at December 31, 1996:

<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
-------------------------------------------------------- -----------
<S> <C>
1997.................................................... $ 767,000
1998.................................................... 1,154,000
1999.................................................... 1,119,000
2000.................................................... 928,000
2001.................................................... 928,000
Thereafter.............................................. 12,917,000
-----------
$17,813,000
===========
</TABLE>

Rent expense relating to these operating leases was approximately $51,000,
$315,000 and $401,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.

(b) Industrial Development Authority of Ireland Grants

Prior to the Company's acquisition of Cambridge Diagnostics (Note 3),
Cambridge Diagnostics received certain capital expenditure and revenue grants
from the Industrial Development Authority of Ireland (the "IDA"). Cambridge
Diagnostics recognizes revenue on the capital expenditure grants over the
estimated useful lives of the related assets and on revenue grants as the
related costs are incurred.

As a condition to retaining the grants, the IDA requires Cambridge
Diagnostics to maintain a certain number of employees in Ireland. The IDA also
prohibits the Company from disposing of assets or terminating business
activities that were funded by the grants within 10 years of such grants. As of
December 31, 1996, Cambridge Diagnostics was not in compliance with the
employment provisions of the grants. As a result, the IDA could require
Cambridge Diagnostics to repay capital expenditure and revenue grants totaling
774,000 Irish pounds (approximately $1,282,000 at December, 1996). The IDA has
not historically pursued its right to recoup these grants from Cambridge
Diagnostics and, as of December 31, 1996, Cambridge Diagnostics management
believes that the IDA is unlikely to do so, provided that Cambridge Diagnostics
does not terminate its operations in Ireland. Accordingly, as management
believes that repayment is not probable, Cambridge Diagnostics has not provided
for a potential liability for the repayment of these grants.

If the IDA did pursue its rights to recoup these grants, it could have a
material adverse effect on the Company and Cambridge Diagnostics.

F-17
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

From time to time, the Company may be exposed to litigation arising out of
its products and operations. The Company is not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on the Company's financial condition or results of operations.

Pasteur Sanofi Diagnostics licensed the Pasteur HIV Technology to Cambridge
Biotech and its affiliates, including Cambridge Affiliate, relating to patents
and proprietary rights underlying the Company's HIV-related products. The
licenses of the Pasteur HIV Technologies to Cambridge Biotech are nonexclusive
and cover diagnostic test kits in finished form embodying the Pasteur HIV
Technologies. The territorial scope of the licenses is worldwide, with the
exception of exclusive rights which Pasteur Sanofi Diagnostics asserted to have
granted in the Pasteur HIV Technologies to Genetic Systems Corporation ("Genetic
Systems") in the United States, Canada, Mexico, Australia, New Zealand and India
(the "Excluded Countries"). However, the licenses provided that, to the extent
that Pasteur Sanofi Diagnostics recovers the right to practice the patents
underlying the Pasteur HIV Technologies in the Excluded Countries, Cambridge
Biotech is entitled to nonexclusive rights in such technology in such countries.
In 1990, Pasteur Sanofi Diagnostics acquired ownership of Genetic Systems,
whereupon Cambridge Biotech commenced selling products incorporating the Pasteur
HIV Technologies in the United States. These activities were challenged in a
patent infringement lawsuit filed in bankruptcy court in March 1995 by Institut
Pasteur, the minority stockholder of Pasteur Sanofi Diagnostics, and Genetic
Systems. In September 1995, the bankruptcy court ruled in favor of Cambridge
Biotech on this issue, and Institut Pasteur and Genetic Systems subsequently
filed an appeal in district court. The date for the appeal hearing is unknown.
If the bankruptcy court decision were reversed on appeal, the territories to
which Cambridge Affiliate could sell HIV-related products would be limited and
this could have a material adverse effect on the Company. See
"Business -- Patent and Patents and Proprietary Rights."

Pasteur Sanofi Diagnostics has notified Orgenics that as a result of
Orgenics' use of certain peptides, Orgenics may be liable for infringement of
certain patents held by Institut Pasteur and under which Pasteur Sanofi
Diagnostics holds an exclusive license. Orgenics has informed the Company that
it is not aware of any other threatened litigation that would have a material
adverse effect on Orgenics or its business.

The Company has been involved in a dispute with Enviromed with respect to a
joint venture agreement entered into between the Company and Enviromed in March
1994 and other agreements (collectively, the "Disputed Enviromed Agreements")
entered into between the Company and Enviromed and its wholly owned subsidiary,
Cranfield Biotechnology Ltd., and the issuance of shares of Common Stock to
Enviromed in connection therewith. See "Certain Transactions." In connection
with this dispute, the Company has informed Enviromed that, due to the failure
of Enviromed and Cranfield to perform their obligations under the Disputed
Enviromed Agreements, it disputes Enviromed's ownership of the Common Stock held
of record by Enviromed. On July 5, 1996, Enviromed filed suit against the
Company and the representatives of the underwriters of the Company's IPO (the
"IPO Representatives") in United States District Court for the Southern District
of New York alleging breach of a registration rights agreement relating to the
Common Stock held of record by Enviromed. Enviromed claimed that its rights
under a registration rights agreement were breached in connection with the IPO
and requested damages, injunctive relief and a declaratory judgment that
Enviromed is the lawful owner of the shares. The Company has filed counterclaims
against Enviromed arising out of the failure of Enviromed and Cranfield to
perform their obligations under the Disputed Enviromed Agreement and is
contesting Enviromed's claims vigorously. On October 18, 1996, the case was
ordered transferred to the United States District Court for the District of
Massachusetts. The Company is not able to estimate the amount of damages, if
any, which might result from Enviromed's claims against the Company, but
believes that any such damages would not be in an amount that would have a
material adverse effect on the Company. The Company agreed to indemnify the IPO
Representatives for any losses they might incur, including reasonable attorney's
fees and expenses, as a result of the Enviromed

F-18
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lawsuit. On November 15, 1996, Enviromed filed a dismissal without prejudice of
its claims against the IPO Representatives.

(d) Agreement with Princeton BioMeditech Corporation

On March 15, 1996, the Company entered into an agreement with Princeton
BioMeditech Corporation ("Princeton") that provides for the development of
certain specific infectious disease tests by Princeton for marketing by Selfcare
on a nonexclusive basis. The agreement also grants the Company an option to
market under its own brand name other infectious disease tests and certain other
types of tests developed by Princeton on terms to be agreed. Pursuant to the
agreement, the Company is also obligated to purchase $6,900,000 of certain test
kits from Princeton through 1998 and will provide $500,000 to finance the
purchase of equipment, which will remain the property of the Company, to be used
in producing test kits for the Company. As of December 31, 1996, the Company is
obligated to purchase up to $2,177,000 and $3,030,000 of certain test kits from
Princeton in 1997 and 1998, respectively. The Company has paid $500,000 of the
above-mentioned financing as of December 31, 1996. The agreement also provides
that the Company will provide funding for the development by Princeton of a
birth control aid, with respect to which the Company will have exclusive
worldwide marketing rights.

(e) Agreement with Nova Biomedical

In September 1996, the Company entered into an agreement with Nova
Biomedical Corp., a Massachusetts corporation ("Nova"), pursuant to which Nova
will perform the final packaging of early pregnancy and ovulation test kits for
the Company. The initial term of the agreement expires on December 31, 1998 and
may be automatically renewed for additional and successive terms of one year
thereafter unless either party gives written notice of its intention not to
renew the agreement. Under the manufacturing agreement, the Company has agreed
to purchase a minimum quantity of $1,620,000 of specified products from Nova
during the term of the agreement.

(f) Employment Agreements

The Company has employment agreements with several of its executive
officers. The terms of the agreements cover option grants, noncompete
provisions, and severance arrangements.

In September 1993, Orgenics entered into an employment agreement with its
Chairman of the Board and Chief Executive Officer ("the Employee"). Under the
terms of the agreement, the Employee became entitled annually to participate in
the profit of Orgenics at a rate of 2% of the next income of Orgenics, subject
to the

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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

condition that the net income of Orgenics be at least 10% of total sales of
Orgenics in the same year. The agreement will expire in August 1997 unless one
of the two parties gives expiration notice earlier. Orgenics did not incur any
liability in 1996 in connection with this employment agreement.

(g) Orgenics Royalty Commitment

Orgenics finances its research and development expenditures in Israel under
programs sponsored by the Chief Scientist of the Ministry of Trade of Israel,
for the support of research and development projects. In the event that
development of the products in which the Chief Scientist participates is
successful, Orgenics will be obligated to pay royalties at the rate of 2%-5% of
the sales of products developed with funds provided by the Chief Scientist, up
to an amount equal to 100% of the Chief Scientist's research and development
grants to such projects. Orgenics incurred royalty expense of $209,000 in 1996
under these programs. The maximum contingent royalty as of December 31, 1996 was
approximately $1,500,000. Orgenics does not have any liability to the State of
Israel for amounts received in support of unsuccessful programs or unsaleable
products.

(h) Orgenics Severance Obligations

Orgenics' liability for severance pay, pursuant to Israeli law, is provided
by managers insurance policies and by severance pay funds. The Company has
accrued a liability of $173,000, net of contributions, as of December 31, 1996,
included as a component of accrued expenses in the accompanying consolidated
balance sheet.

France has a State-run mandatory pension plan to which contributions are
made monthly by both the employee and employer based on the gross monthly
salary. Orgenics' liability is fully covered by these contributions.

In addition, pursuant to industry employment agreements, a lump sum
severance is payable upon retirement to employees still in the service of PBS at
the date of retirement. Orgenics has fully provided for the $221,000 obligation
as of December 31, 1996.

(12) RESEARCH, MANAGEMENT AND MANUFACTURING AGREEMENTS

(a) U.S. Boston Technology Associates Limited Partnership

On December 30, 1993, the Company entered into a purchase and sale
agreement with USB '93 for the sale of the Company's core immuno-assay
technology (the "Technology") for $1,360,000. USB '93 is a limited partnership,
the general partner of which is USB '93 Inc., a corporation whose president and
chief executive officer is a director of the Company. This director beneficially
owns approximately 20% of the Company on a fully diluted basis. The Company may
repurchase the Technology for $6,000,000.

The Company and the USB '93 also entered into a license and development
agreement on December 30, 1993 whereby the Company leased back the rights to the
Technology from the USB '93 in consideration for three warrants to purchase up
to an aggregate of 438,750 shares of the Company's Common Stock at an exercise
price of $1.54 per share (see Note 13(c)) and the payment of 1.5% of gross sales
and 22.5% of royalty income, up to an aggregate total payment of $6,000,000. The
license agreement remains in effect until such time that the Company reacquires
the Technology or pays $6,000,000 in royalties. This agreement is immediately
void if the Company decides to repurchase the rights to the Technology according
to terms of the Technology purchase and sale agreement noted above. Pursuant to
this agreement, the Company has charged approximately $35,000, $104,000 and
$235,000 to cost of sales in the accompanying consolidated statements of
operations for the years ended December 31, 1994 1995 and 1996, respectively.

The income from the sale of technology has been included in deferred
revenue in the accompanying consolidated balance sheets and will be recognized
on the earlier of (1) a straight-line basis over a period of

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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

six years, the Technology's estimated useful life, or (2) will be eliminated
upon the repurchase of the Technology, if the Company opts to repurchase the
Technology, as discussed above. The Company has recognized approximately
$227,000, as grants and other revenue in the accompanying consolidated statement
of operations for each of the years ended December 31, 1996. Accordingly,
$680,000 is included in deferred revenue in the accompanying consolidated
balance sheet as of December 31, 1996.

(b) University College of Wales/Aberystwyth

On February 10, 1992, the Company entered into a research and development
contract with University College of Wales/Aberystwyth, a corporation organized
and existing under the laws of England and Wales, whereby the Company obtained
the right to develop and market certain technology in consideration for a
royalty stream of 1.5% of gross revenues generated from the technology. The
agreement will remain in effect for the duration of the life of any patent
issued with respect to the technology, or any improvements thereof, unless
terminated pursuant to provisions of the agreement. As of December 31, 1996, the
Company had not generated any revenues related to this technology and,
therefore, did not incur any royalty expense for the year then ended.

On November 30, 1994, Selfcare acquired Cambridge Diagnostics from
Cambridge Biotech, which at that time was operating in Massachusetts under
Chapter 11 of the U.S. Bankruptcy Code. Cambridge Diagnostics, located in
Galway, Ireland, produces three categories of tests for infectious diseases as
well as packages products for the Company's European customers, including
pregnancy tests, birth control and other women's health products. At the time of
the acquisition, Cambridge Diagnostics (then known as Cambridge Biotech Limited)
was operating under the protection of a court-appointed examiner in a procedure
analogous to a Chapter 11 reorganization under U.S. bankruptcy law. Pursuant to
the acquisition agreements, the terms of which were approved by the United
States Bankruptcy Court and the Irish High Court, Selfcare acquired all of
Cambridge Diagnostics' issued and outstanding capital stock and, pursuant to
certain license agreements, acquired certain technologies necessary for the
production of Cambridge Diagnostics' HIV 1/2 RDT, Capillus, Rapid Test and Lyme
disease test kits for an aggregate of $2.1 million and the assumption of certain
liabilities. In addition, the Company furnished Cambridge Diagnostics with a
$900,000 unsecured working capital line of credit. Under the terms of Cambridge
Biotech's license agreements with Pasteur Sanofi Diagnostics, Cambridge Biotech
could not assign or sublicense its rights with respect to certain of these
technologies directly to the Company. In order to allow the Company to have
access to such technologies, Selfcare and Cambridge Biotech formed an affiliate,
Cambridge Affiliate, 51% owned by Cambridge Biotech and 49% owned by Selfcare. A
series of contracts was entered into between Cambridge Affiliate and Cambridge
Diagnostics, pursuant to which Cambridge Diagnostics manages Cambridge Affiliate
and manufactures and sells products on behalf of Cambridge Affiliate. Cambridge
Affiliate is managed and funded separately from Selfcare and Cambridge
Diagnostics.

The Company acquired the 49% interest in Cambridge Affiliate for $1.00. The
Company is accounting for this investment under the equity method. During the
period from November 30, 1994 to December 31, 1994, Cambridge Affiliate had no
significant activity. Pursuant to the series of contracts between Cambridge
Affiliate and Cambridge Diagnostics described above and in Note 3, Cambridge
Diagnostics and Cambridge Affiliate owe Cambridge Biotech royalties ranging from
4% to 6% of certain net sales, as defined. In return for the goods and services
provided by Cambridge Diagnostics pursuant to the series of contracts between
Cambridge Affiliate and Cambridge Diagnostics described above, Cambridge
Affiliate has agreed to pay to Cambridge Diagnostics an aggregate amount equal
to its net revenues from sales of the products, less (i) operation expenses
attributable to such products (including the royalties which Cambridge Affiliate
pays to Cambridge Biotech), and (ii) an amount equal to 10% of such royalty
payments payable by Cambridge Affiliate. The additional 10% of royalties
deducted is designed to create a retention within Cambridge Affiliate

F-21
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to cover its operating costs. The royalties paid by Cambridge Affiliate to
Cambridge Biotech are equal to the royalties owed by Cambridge Biotech to
Pasteur Sanofi Diagnostics. Portions of the aggregate amounts payable by
Cambridge Affiliate to Cambridge Diagnostics are allocated 75%, 5% and 20% to
the manufacturing agreement, the management agreement and the sales agreement,
respectively. Royalty payments made by Cambridge Diagnostics to Cambridge
Biotech during the years ended December 31, 1995 and 1996 were approximately
$45,000 to $56,000, respectively, and Cambridge Diagnostics received
approximately $1,914,000 and $1,942,000 during the years ended December 31, 1995
and 1996, respectively, from Cambridge Affiliate under the manufacturing
agreement. In addition, Cambridge Diagnostics received approximately $128,000
and $129,000 from Cambridge Affiliate during the years ended December 31, 1995
and 1996, respectively, under the management agreement and approximately
$510,000 and $518,000 from Cambridge Affiliate during the years ended December
31, 1995 and 1996, respectively, under the sales agreement.

(13) STOCKHOLDERS' EQUITY

(a) Stock Option Plans

In 1992, the Company adopted the 1992 Stock Plan (the "1992 Plan"), which
provides for granting to directors, officers, employees and consultants of the
Company, at the discretion of the Board of Directors, incentive stock options,
nonqualified stock options and stock awards for the purchase of up to 10,725,000
shares of Common Stock under terms similar to those in the 1996 Plan, as
described below. In June 1996, the Company amended the 1992 Plan to provide that
no additional stock options would be granted under the 1992 Plan. As of December
31, 1996, options to purchase up to 336,739 shares of Common Stock remain
outstanding.

In 1994, the Company adopted the 1994 Incentive and Nonqualified Stock
Option Plan (the "1994 Plan"), which provides for the granting of up to
3,380,000 shares of Common Stock under terms similar to those in the 1996 Plan,
as described below. In June 1996, the Company amended the 1994 Plan to provide

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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

that no additional stock options would be granted under the 1994 Plan. As of
December 31, 1996, options to purchase up to 2,997,930 shares of Common Stock
remain outstanding.

In 1996, the Company adopted the 1996 Stock Option and Grant Plan (the
"1996 Plan"). The 1996 Plan may be administered by the Board of Directors or by
an Option Committee, as defined (in either case, the "Administrator"), to grant
incentive stock options, nonqualified stock options, restricted stock,
unrestricted stock, stock appreciation rights ("SAR"), performance share awards
and dividend equivalent rights. The Company has reserved a total of 1,000,000
shares of Common Stock for future grant under the 1996 Plan. As of December 31,
1996, options to purchase up to 838,392 shares of Common Stock remain
outstanding. The key terms of the amended 1996 Plan are as follows:

Incentive and Nonqualified Stock Options

The Administrator, at its discretion, may determine the number, term and
exercise price of each option to be granted, except that no option shall have a
term of greater than ten years. Also, incentive stock options may not be granted
at less than fair market value.

Stock Appreciation Right

The Administrator may award a freestanding award or in tandem with a stock
option. Upon exercise of the SAR, the holder will be entitled to receive an
amount equal to the excess of the fair market value on the date of exercise of
one share of Common Stock over the exercise price per share specified in the
related stock option (or, in the case of a freestanding SAR, the price per share
specified in such right, which price may not be less than 85% of the fair market
value of the Common Stock on the date of grant) times the number of shares of
Common Stock with respect to which the SAR is exercised. This amount may be paid
in cash, Common Stock, or a combination thereof, as determined by the
Administrator. If the SAR is granted in tandem with a stock option, exercise of
the SAR cancels the related option to the extent of such exercise.

Restricted Stock

The Administrator may award shares of Common Stock to officers, other
employees and key persons subject to such conditions and restrictions as the
Committee may determine. These conditions and restrictions may include the
achievement of certain performance goals and/or continued employment with the
Company through a specified restricted period. The purchase price of shares of
restricted stock will be determined by the Administrator. If the performance
goals and other restrictions are not attained, the employees will forfeit their
awards of restricted stock.

Unrestricted Stock

The Administrator may grant shares that are free from any restrictions
under the 1996 Plan. Unrestricted stock may be issued to employees and key
persons in recognition of past services or other valid consideration.

Performance Share Awards

The Administrator may grant performance share awards to employees or other
key persons entitling the recipient to receive shares of Common Stock upon the
achievement of individual or Company performance goals and such other conditions
as the Administrator shall determine.

Dividend Equivalent Rights

The Administrator may grant dividend equivalent rights, which entitle the
recipient to receive credits for dividends that would be paid if the grantee had
held specified shares of Common Stock. Dividend equivalent rights may be granted
as a component of another award or as a freestanding award. Dividend equivalents

F-23
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

credited under the 1996 Plan may be paid currently or be deemed to be reinvested
in additional shares of Common Stock, which may thereafter accrue additional
dividend equivalents at fair market value at the time of deemed reinvestment or
on the terms then governing the reinvestment of dividends under the Company's
dividend reinvestment plan, if any. Dividend equivalent rights may be settled in
cash, shares, or a combination thereof, in a single installment or installments,
as specified in the award. Awards payable in cash on a deferred basis may
provide for crediting and payment of interest equivalents.

Grants to Nonemployee Directors

Each nonemployee director of the Company as of the date of the IPO was
granted an option to purchase up to 12,000 shares of Common Stock at an exercise
price equal to the IPO price. In addition, each new nonemployee director elected
after the date of the IPO and before November 4, 1996 received an option to
purchase up to 12,000 shares of Common Stock upon such director's election to
the Board of Directors, at an exercise price equal to the fair market value of
the Common Stock on the date of grant. After November 4, 1996, options to
nonemployee directors may be granted at the sole discretion of the Board of
Directors. The exercise price of each such Nonqualified Option will be the fair
market value of the Common Stock on the date of grant. Each Nonqualified Option
granted to Independent Directors shall vest ratably over four years from the
date of grant.

Change of Control Provisions

The 1996 Plan provides that in the event of a "Change of Control" (as
defined in the 1996 Plan) of the Company, all stock options and stock
appreciation rights shall automatically become fully exercisable. In addition,
at any time prior to or after a Change of Control, the Administrator may
accelerate awards and waive conditions and restrictions on any awards to the
extent it may determine appropriate.

(b) Other Stock Options

On August 15, 1995, the Company entered into a stock option agreement (the
"Agreement") with the President of the Company. Under the Agreement, the
President received an option to acquire 520,000 shares of the Company's Common
Stock. The option vests and becomes exercisable, within a two-year period, if a
liquidity event, such as an initial public offering or the sale of the Company,
occurs; otherwise, the option expires. The exercise price per share is
determined by the liquidity price per share. The exercise price per share will
decrease $1 for every $1 that the liquidity price per share exceeds $5.38 per
share. Accordingly, upon completion of the IPO, the Company recorded a
compensation charge of approximately $3,240,000 representing the difference
between the exercise price per share and the fair market value per share at the
date of vesting.

On October 17, 1995, the Company entered into stock option agreements with
certain officers and key employees granting them options to acquire up to
253,500 shares of Common Stock at an exercise price of $1.54 per share. These
shares are exercisable after ten years of continuous employment or earlier if
certain milestones, such as meeting certain financial targets and the
effectiveness of an IPO, are achieved. At the date of grant, the fair market
value per share of the Company's Common Stock exceeded the exercise price of the
options; therefore, the Company recorded deferred compensation of $250,965
related to this difference at the date of grant. Such goals were met in 1996
and, accordingly, the Company fully amortized the deferred compensation in 1996.
During the years ended December 31, 1995 and 1996, the Company recorded
compensation expense of approximately $52,000 and $199,000, respectively,
related to these option grants in the accompanying consolidated statement of
operations.

During the year ended December 31, 1996, the Company recorded compensation
expense of approximately $680,000 related to stock options granted to employees
that were contingent on certain goals that have now been met. In accordance with
SFAS No. 123 Accounting for Stock-Based Compensation (SFAS No. 123), the Company
also recorded compensation expense of $76,000 for options granted to
nonemployees.

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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On December 29, 1995, the Company entered into stock option agreements with
certain shareholders and officers of Orgenics granting them options to acquire
up to 85,800 shares of Common Stock at an exercise price of $3.69 per share.
These options vest over a four-year period but were not be considered granted
until the Company's ownership of Orgenics exceeded 51%, which occurred during
October 1996. The difference between the exercise price and the fair market
value price per share of $1,056,000 is included as a component of the purchase
price.

The following is a summary of all stock option activity during the three
years ended December 31, 1996:

<TABLE>
<CAPTION>
NUMBER OF WTD AVG
SHARES OPTION PRICE OPTION PRICE
---------- -------------- ------------
<S> <C> <C> <C>
Options outstanding, December 31, 1993..... 668,473 $ .001- 1.538 $ 1.134
Granted.................................. 649,649 1.538- 2.528 2.214
Exercised................................ (650) 1.538 1.538
Terminated............................... (189,865) 1.538- 2.528 1.559
---------- -------------- --------
Options outstanding, December 31, 1994..... 1,127,607 .001- 2.528 1.685
Granted.................................. 2,591,056 .001- 3.692 2.609
Exercised................................ (27,300) 2.528 2.528
Terminated............................... (308,919) .001- 2.528 1.257
---------- -------------- --------
Options outstanding, December 31, 1995..... 3,382,444 1.15- 3.692 2.407
Granted.................................. 842,292 3.69-15.375 12.576
Exercised................................ (51,675) 1.540 1.540
---------- -------------- --------
Options outstanding, December 31, 1996..... 4,173,061 $ 1.15- 15.375 $ 4.47
---------- -------------- --------
Options exercisable, December 31, 1996..... 2,598,680 $ 1.15- 3.692 $ 2.23
========== ============== ========
</TABLE>

On December 10, 1996 the Company granted 600,000 options at an exercise
price of $13.875 to the President and certain officers and key employees of the
Company. The options vest in seven years unless certain performance goals, as
defined, are met. In the event that such performance goals are met, the vesting
of these options will accelerate.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, which requires the measurement of the fair value of stock options or
warrants to be included in the statement of income or disclosed in the notes to
the financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No.
123 for options granted in 1996 using the Black-Scholes option pricing model
prescribed by SFAS No. 123. The weighted average assumptions are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
------------ ----
<S> <C> <C>
Risk-free interest rate...................................... 6.3% 6.2%
Expected dividend yield...................................... -- --
Expected lives............................................... 5 5
Expected volatility.......................................... 60% 74%
</TABLE>

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<PAGE> 125

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net loss and loss per share would have been reduced to
the following pro forma amounts:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996
------------ ------------
<S> <C> <C> <C>
Net Loss:............................ As Reported $(10,096,903) $(28,577,642)
Pro Forma (11,517,942) (31,307,295)
Net Loss Per Share:.................. As Reported $ (1.66) $ (4.70)
Pro Forma (1.90) (5.15)
</TABLE>

Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

On November 16, 1993, the Company issued a warrant to purchase 279,500
shares of Common Stock, at an exercise price of $1.54 per share, to the
President of the Company. This price was determined by the Company's Board of
Directors to be fair market value at the date of grant. This warrant was issued
in consideration of the President's guarantee of certain Company loans and is
fully exercisable through November 16, 2013.

As discussed in Note 12(a), on December 30, 1993, the Company issued to the
USB '93 warrants to purchase 438,750 shares of Common Stock at an exercise price
of $1.54 per share. This price was determined by the Company's Board of
Directors to be fair market value at the date of grant. The warrants are fully
exercisable up to 30 days after the time when the Company fulfills all of its
obligations under its agreements with the USB '93.

In connection with certain sales of Common Stock in 1994, the Company
issued five-year warrants to purchase up to 174,226 shares of Common Stock to
those individuals purchasing the Common Stock. These warrants are fully
exercisable at $2.53 per share; 174,005 of such warrants remain outstanding at
December 31, 1996.

As discussed in Note 8, on December 31, 1996, the Company entered into
agreement with substantially all of the principal noteholders of the Cambridge
Diagnostics Notes and fixed the number of shares of Common Stock to be issued at
1,142,635, of which 314,222 will be issued to certain directors and officers of
the Company. All such shares of Common Stock will be issued for no additional
consideration on the earlier of January 15, 2000 or the date on which a change
in control of the Company (as defined) occurs. In addition, the Company agreed
to issue five-year warrants to purchase an aggregate of 54,090 shares of Common
Stock, which are fully exercisable at an exercise price of $12.875 to such
holders, of which 14,999 will be exercisable by certain directors and officers
of the Company. In accordance with SFAS No. 123, the Company has recorded
interest expense of approximately $394,000 related to the grant of these
warrants. If the notes are not paid by June 30, 1997 and the Company has not
sold shares of Common Stock on or before June 30, 1997 pursuant to a
registration statement on form SB-2 (or a similar form), then the Company will
issue additional five-year warrants to purchase an aggregate of 27,046 shares of
Common Stock, which would be fully exercisable at an exercise price of $12.875
to such holders, of which 7,500 would be exercisable by certain directors and
officers of the Company.

(d) Employee Stock Purchase Plan

Upon the consummation of the IPO, the Company adopted the Selfcare, Inc.
Employee Stock Purchase Plan (the "Stock Purchase Plan"). The Company has
reserved 250,000 shares of Common Stock for issuance

F-26
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

under the Stock Purchase Plan. Under the Stock Purchase Plan, eligible employees
will be able to purchase shares of the Company's Common Stock at 85% of fair
market value, as defined, subject to certain limitations. 10,508 shares have
been issued under the Stock Purchase Plan as of December 31, 1996.

(e) Preferred Stock

The Board of Directors of the Company is authorized, without further action
of the stockholders of the Company, to issue up to 5,000,000 shares of preferred
stock in classes or series and to fix the designations, powers, preferences and
the relative, participating, optional or other special rights of the shares of
each series and any qualifications, limitations and restrictions thereon as set
forth in the Certificate of Incorporation. Any such preferred stock issued by
the Company may rank prior to the Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock.

In October 1996, the Board of Directors adopted a resolution authorizing
10,000 shares of Series A Convertible Preferred Stock, $.001 par value (the
"Series A Preferred Stock"). In October 1996, the Company sold 5,500 shares of
Series A Preferred Stock at a price of $1,000 per share to various non-U.S.
investors. The net proceeds of such sales of approximately $5.2 million were
used to purchase a portion of the Orgenics and Orgenics International shares.
The holders of Series A Preferred Stock generally are entitled to receive
cumulative quarterly dividends at the rate of six percent per year and their
shares of Series A Preferred Stock will become convertible into shares of the
Company's Common Stock in five equal installments over a 120-day period
beginning in December 1996. Shares of Series A Preferred Stock are generally
convertible at a discount of 14.5% from the average closing bid price per share
of the Company's Common Stock for the five trading days prior to their
conversion, subject to the following: (i) the maximum conversion price is $20
per share and (ii) if the conversion price would otherwise be $12.00 or less, it
shall instead be $12.00; provided, however, if the average closing bid price is
less than $12.00, then the conversion price shall be equal to such price but in
no event less than $8.75 per share. Any shares of Series A Preferred Stock not
previously converted will automatically convert into shares of the Company's
Common Stock on October 15, 1998 at the closing bid price at the time. During
December 1996 and February 1997, 700 shares of Series A Preferred Stock together
with cumulative dividends were converted into 63,951 shares of Common Stock. The
4,800 remaining shares of Series A Preferred Stock will convert into 421,684
shares of Common Stock assuming an average closing market price of $11.60 per
share at the time of conversion resulting in a conversion price of $11.60 per
share. The Company has accreted dividends of $51,037 as of December 31, 1996
relating to the outstanding shares of Series A Preferred Stock.

(14) INCOME TAXES

The Company provides for income taxes in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes. Accordingly, a deferred tax asset or
liability is determined based on the difference between the financial statement
and tax basis of assets and liabilities, as measured by the enacted tax rates
expected to be in effect when these differences reverse.

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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company provides deferred income taxes for temporary differences
between assets and liabilities recognized for financial reporting and income tax
purposes. The income tax effects of these temporary differences at December 31,
1994, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax assets --
Nondeductible reserves................... $ 116,000 $ 70,000 $ 522,000
Deferred revenue......................... 422,000 338,000 1,288,000
Net domestic and foreign operating loss
and tax credit carryforwards.......... 1,370,000 7,800,000 12,382,000
----------- ----------- ------------
1,908,000 8,208,000 14,192,000
----------- ----------- ------------
Deferred tax liabilities --
Depreciation............................. $ (1,300) $ (2,000) (19,000)
Other temporary differences.............. (5,000) (3,000) (2,000)
----------- ----------- ------------
(6,300) (5,000) (21,000)
----------- ----------- ------------
Valuation allowance...................... (1,901,700) (8,203,000) (14,171,000)
----------- ----------- ------------
Net deferred tax asset................... $ -- $ -- $ --
=========== =========== ============
</TABLE>

The Company has available domestic and foreign net operating loss
carryforwards of approximately $4,441,000 and $30,933,000, respectively, as of
December 31, 1996 and federal research and development credit carryforwards of
approximately $61,000 as of December 31, 1996 to reduce future income taxes, if
any. These carryforwards expire through 2010 and are subject to review and
possible adjustment by the appropriate taxing authorities.

The Internal Revenue Code contains provisions that limit the amount of
federal net operating loss and credit carryforwards that the Company may utilize
in any one year in the event of certain cumulative changes in ownership over a
three-year period in excess of 50%, as defined. The Company has recorded a 100%
valuation allowance against the deferred tax asset, as the realization of the
asset is uncertain at this time.

Orgenics and its subsidiaries have approximately $11,000,000 in net
operating loss carryforwards, substantially all of which do not expire. These
net operating loss carryforwards may only be used to offset taxable income of
the entities in which the losses were generated and may be otherwise limited or
adjusted by the appropriate taxing authorities.

(15) TRANSACTIONS WITH ENVIROMED AND EN PLC LIMITED PARTNERSHIP

In March 1994, the Company entered into a joint venture agreement with
Enviromed for the purpose of distributing diabetes and women's health products
in European Union countries. The joint venture activities were to be conducted
through a newly formed entity, Selfcare Europe Ltd. ("SCE"), in which the
Company and Enviromed each held 50% equity interests, but for which the Company
had sole management responsibility. The capital requirements of SCE were to be
funded 75% by Enviromed and 25% by Selfcare, in accordance with the agreed SCE
budgets. In connection with the formation of SCE, SCE entered into certain
distributorship agreements with Selfcare and affiliates of Enviromed, and
Enviromed purchased 593,528 shares of Common Stock in consideration for certain
manufacturing rights granted by an affiliate of Enviromed. In June 1995,
Selfcare notified Enviromed that Enviromed was in breach of its obligation to
make agreed payments to fund SCE's capital needs. In July 1995, Selfcare
notified Enviromed that, as a result of Enviromed's failure to cure this breach,
Enviromed's shares in SCE were deemed to be transferred to Selfcare pursuant to
the terms of SCE's charter and the joint venture agreement. For its part,
Enviromed informed

F-28
<PAGE> 128

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Selfcare that it denied Selfcare's claims of breach and claimed that Selfcare
was in breach of the joint venture agreement in several respects. SCE is
currently classified as a wholly owned subsidiary in the Company's financial
statements (see Note 2). In April 1995, the Company's President resigned as a
director of Enviromed and his counterpart at Enviromed resigned as a director of
the Company. The Company does not consider SCE to be material to its business or
operations.

In October 1995, EN PLC Limited Partnership ("EN PLC") was formed by the
Company's President and a group of investors for the purpose of purchasing
ordinary shares of Enviromed. As of May 1, 1996, EN PLC had acquired 27.0% of
Enviromed's outstanding voting stock. The Company's President shares control of
EN PLC's general partner with another individual who is not affiliated with the
Company. The Company's President and two Company directors are among EN PLC's
limited partners. In October 1996, the Company purchased 200,000 common shares
of Enviromed and entered into an agreement with EN PLC (the "EN PLC Agreement")
pursuant to which the Company purchased 7,961,386 shares of Enviromed held by EN
PLC for approximately $3.8 million. The Company's purchase price for these
shares was based on their quoted market price at the date of the Company's
acquisition of such shares from EN PLC. On January 1, 1997, the Company and EN
PLC entered into an amendment to the EN PLC Agreement pursuant to which the
Company agreed to issue two promissory notes, in principal amounts of
approximately $2.8 million and $1.0 million respectively, evidencing the
purchase price under the EN PLC Agreement. Each note bears interest at the
annual rate of the Bank of Boston prime rate plus 1.5 percent, payable quarterly
over the two-year term of the note. The principal amount of the $1.0 million
promissory note is payable in eight quarterly installments, commencing in
January 1997; the first four installments are $85,897 each and the second four
installments are $171,794 each. Approximately $1.4 million of the principal
amount of the $2.8 million promissory note is payable in January 1998, followed
by three equal quarterly installments of the remaining principal. In
consideration of the amendment, the Company agreed to issue to EN PLC a warrant
to purchase 15,401 shares of Common Stock at an exercise price of $12.875 per
share. The warrant is exercisable at any time prior to January 1, 2002. In
accordance with SFAS No. 123, the Company recorded deferred financing costs of
approximately $107,000 in connection with the grant of these warrants. As a
result of this purchase, the Company acquired a 28.5% equity interest in
Enviromed. The Company subsequently acquired an additional 100,000 shares of
Enviromed which increased the Company's equity interest in Enviromed to 28.9%.

On January 17, 1997, at a meeting of the shareholders of Enviromed called
at the request of Selfcare, the shareholders of Enviromed voted to remove the
existing Board of Directors of Enviromed and to elect as directors four
individuals nominated by Selfcare: Mr. Zwanziger, Mr. Anthony H. Hall
(Selfcare's Chief Financial Officer), Dr. Paul Winson, and Mr. Clifford
Passmore. Dr. Winson is serving as the Managing Director of Enviromed; Messrs.
Zwanziger, Hall and Passmore are serving as non-executive directors. See
"Business -- Strategic Acquisitions -- Acquisition of Shares of Enviromed."
Neither Dr. Winson nor Mr. Passmore is affiliated with Selfcare. Selfcare is
currently considering the possibility of providing a credit enhancement to
enable Enviromed to secure additional borrowing capacity and, to this end, may
determine to guaranty up to approximately $600,000 of Enviromed's bank debt.
Selfcare would be compensated for this guaranty, in an amount yet to be
determined. In lieu of this guaranty, Selfcare may elect to make an equity
investment of up to $600,000 in Enviromed.

Following the Company's acquisition of its ownership interest in Enviromed,
the Company has accounted for its investment under the equity method. In the
year ended December 31, 1996, the Company has recorded a loss of $200,000,
representing the Company's pro rata share of Enviromed's estimated net loss
during the Company's period of ownership.

(16) FINANCIAL INFORMATION BY GEOGRAPHIC AREA

Prior to the Company's acquisition of Cambridge Diagnostics in 1994,
substantially all of the revenues, net income, and identifiable assets of the
Company related to operations in the United States.

F-29
<PAGE> 129

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenues by geographic destination and as a percentage of total revenues
for the years ended December 31, 1994, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------------------------
DESTINATION 1994 1995 1996
---------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
North America................................. $1,650,621 $2,993,249 $11,484,380
Europe........................................ 609,725 1,875,855 4,761,713
Africa........................................ -- 86,400 947,390
Asia.......................................... -- 800,000 585,055
Middle East................................... -- 1,075,200 356,435
Other......................................... 61,579 408,008 927,815
---------- ---------- -----------
$2,321,925 $7,238,712 $19,062,788
========== ========== ===========
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
GEOGRAPHIC AREA BY ----------------------------------------
DESTINATION 1994 1995 1996
----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
North America.................................. 71% 41% 60%
Europe......................................... 26 26 25
Africa......................................... -- 1 5
Asia........................................... -- 11 3
Middle East.................................... -- 15 2
Other.......................................... 3 6 5
--- --- ---
100% 100% 100%
=== === ===
</TABLE>

Revenues, net income, and identifiable assets for the Company's United
States, Irish, Scottish, Israeli and other European operations are as follows:

<TABLE>
<CAPTION>
UNITED OTHER INTERCOMPANY
YEAR ENDED DECEMBER 31, STATES IRELAND SCOTLAND ISRAEL EUROPEAN ELIMINATIONS CONSOLIDATED
- ----------------------------- ------------ ---------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 --
Revenues................... $ 1,806,533 $ 515,392 $ -- $ -- $ -- $ -- $ 2,321,925
============ ========== =========== ========== =========== ===========
Net income (loss).......... (2,906,193) 154,956 -- -- (134,101) 100,575 (2,784,763)
============ ========== =========== ========== =========== ===========
Identifiable assets........ 3,734,362 3,784,775 -- -- -- (2,188,235) 5,330,902
============ ========== =========== ========== =========== ===========
1995 --
Revenues................... $ 2,302,154 $4,187,104 $ -- -- $ 749,454 $ -- $ 7,238,712
============ ========== =========== ========== =========== ===========
Net loss................... (7,339,808) (710,400) (519,661) -- (1,527,034) -- (10,096,903)
============ ========== =========== ========== =========== ===========
Identifiable assets........ 11,421,961 2,946,355 5,316,234 -- 1,941,297 (7,933,499) 13,692,348
============ ========== =========== ========== =========== ===========
1996 --
Revenues................... $ 10,834,816 $4,601,838 $ 722,163 $2,036,000 $ 867,971 $ -- $19,062,788
============ ========== =========== ========== =========== ===========
Net loss................... (16,471,342) (747,888) (4,745,715) (310,000) (2,249,659) (4,053,038) (28,577,642)
============ ========== =========== ========== =========== ===========
Identifiable assets........ 41,578,973 3,570,683 9,335,606 8,129,000 2,929,440 (24,454,250) 41,089,452
============ ========== =========== ========== =========== ===========
</TABLE>

F-30
<PAGE> 130

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following
at December 31, 1995 and 1996:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Compensation and compensation-related..................... $ 326,271 $1,181,337
Professional fees......................................... 94,967 499,174
Product return reserve.................................... 480,000 1,183,630
Other..................................................... 764,130 2,962,811
---------- ----------
$1,665,368 $5,826,952
========== ==========
</TABLE>

(18) VALUATION AND QUALIFYING ACCOUNTS

The following table sets forth activity in the Company's accounts
receivable reserve account:

<TABLE>
<CAPTION>
BALANCE AT OTHER UNCOLLECTIBLE BALANCE AT
BEGINNING PROVISION FOR ADDITIONS TO ACCOUNTS END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS OF PERIOD BAD DEBT ALLOWANCES(1) WRITTEN OFF PERIOD
- ----------------------------------- ---------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994....... -- -- 94,190 -- 94,190
Year Ended December 31, 1995....... 94,190 37,372 -- (38,184) 93,378
Year Ended December 31, 1996....... 93,378 191,662 51,000 (19,821) 316,219
</TABLE>

- ---------------
(1) Additions arising through the acquisition of Cambridge Diagnostics in 1994
and Orgenics in 1996.

(19) NUTRITIONAL SUPPLEMENT LINES ACQUISITION

On February 19, 1997, the Company completed the Nutritional Supplement
Lines Acquisition, pursuant to which a newly-formed subsidiary of the Company
(the "Acquisition Subsidiary") acquired the Nutritional Supplement Lines from
AHP. As consideration for the Nutritional Supplement Lines, the Acquisition
Subsidiary paid to AHP $30,000,000 million in cash and the Company issued to AHP
the AHP Note for total consideration of $36,000,000. The Company funded the cash
portion of the purchase price with the AHP Term Loan and the AHP Bridge Loan
(collectively, the "Acquisition Facility"). The AHP Note will be due on the
first anniversary of the closing of the Nutritional Supplement Lines
Acquisition, and will bear interest payable quarterly at the rate of 7.0% per
annum.

The AHP Term Loan has a five-year term, with quarterly amortization of
principal at annual rates ranging from $3,000,000 to $5,000,000, and a
$6,250,000 balloon payment at maturity. In addition to this amortization
schedule, the Acquisition Subsidiary is required to make mandatory prepayments
of the AHP Term Loan at the end of each fiscal year, in an amount equal to 50%
of the excess of (i) its earnings before interest, taxes, depreciation and
amortization ("EBITDA") for such fiscal year over (ii) principal payments on the
AHP Term Loan, cash interest and tax expense, capital expenditures and any
change in working capital. These prepayments will be applied in the inverse
order of the established amortization schedule. The AHP Term Loan, at the
Company's election, bears interest at an annual floating rate equal to either
LIBOR plus two percent, or Fleet's Prime Rate. The AHP Bridge Loan is due June
3, 1997, and at the Company's election, bears interest at an annual floating
rate equal to either LIBOR plus 3.5 percent or Fleet's Prime Rate plus 1.5
percent. If the AHP Bridge Loan has not been repaid or refinanced by May 3,
1997, Selfcare will be required to maintain a minimum of $5,000,000 in cash or
liquid investments. As of December 31, 1996, the Company had approximately
$16,500,000 in cash and liquid investments. If the AHP Bridge Loan has not been
repaid or refinanced at maturity, Selfcare would have the option of extending
the loan with cash pledged to collateralize a like amount.

F-31
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SELFCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the Acquisition Facility, the Acquisition Subsidiary has
obtained from Fleet a $5,000,000 revolving credit line (the "Credit Line"). The
Credit Line, at the Company's election, bears interest at an annual floating
rate equal to either LIBOR plus 1.75 percent or Fleet's Prime Rate and matures
in three years. The Company has a limited number of LIBOR rate options for the
AHP Term Loan, the AHP Bridge Loan, and the Credit Line. Each LIBOR rate option
must be exercised for a period between one month and 12 months and must cover a
minimum of $1,000,000 of the loan. The Acquisition Facility and the Credit Line
are secured by a first priority lien on all of the Acquisition Subsidiary's
assets and are guaranteed by the Company, which guaranty is secured by a first
priority lien on substantially all the Company's U.S. assets.

The Acquisition Facility and the Credit Line impose certain financial
covenants on the Acquisition Subsidiary, including (i) requirements to maintain
minimum EBITDA levels of $2,300,000 per quarter beginning with the quarter ended
June 30, 1998 and $2,475,000 per quarter beginning with the quarter ended June
30, 1999 and not to exceed certain ratios of total indebtedness to EBITDA,
beginning with the quarter ended December 31, 1997, at which time the ratio of
total indebtedness to EBITDA cannot exceed 3.75 to 1, (ii) limits on capital
expenditures of $250,000 per year, (iii) a requirement to maintain a ratio of
EBITDA to fixed charges of not less than 1.25 for any quarter beginning with the
quarter ending March 31, 1998, and (iv) a requirement of a positive net income
for any quarter. The Acquisition Subsidiary has also agreed to restrictions on
(x) acquisitions, mergers or joint ventures without Fleet's consent, (y)
material asset sales and other payments, and (z) dividends and distributions.
Further, the Company, as guarantor of the Acquisition Subsidiary's debt under
the Acquisition Facility and the Credit Facility, is subject to a limited number
of covenants, none of which are financial maintenance covenants, including a
requirement to provide Fleet with periodic financial statements and other
information and a prohibition on the Company having other liens on its U.S.
assets. The Company also will be limited in its ability to receive dividends and
distributions from the Acquisition Subsidiary. In addition, an event of default
shall be deemed to have occurred under the Acquisition Facility and the Credit
Line if any three of Ron Zwanziger, Kenneth D. Legg, Richard A. Pinkowitz,
Anthony H. Hall and Gary E. Long cease to be employed by the Company or the
Acquisition Subsidiary in positions comparable to their current positions.
Messrs. Zwanziger, Legg, Pinkowitz and Hall are officers of the Company. Mr.
Long joined the Company in February 1997 and has responsibility for the
operation of the Nutritional Supplement lines business. In addition, the
Acquisition Subsidiary was required, at the time of the closing of the
Acquisition Facility, to have a proforma capital base of at least $9,500,000.
This requirement was satisfied through a combination of (i) the Company's
obligations under the AHP Note, (ii) a $2,000,000 subordinated loan by the
Company to the Acquisition Subsidiary and (iii) the Company's capital
contribution of approximately $1,500,000 to be used to pay expenses incurred in
connection with the completion of the Nutritional Supplement Lines Acquisition.
The Company and the Acquisition Subsidiary have paid Fleet fees and expenses
totaling approximately $350,000 in connection with the Acquisition Facility and
the Credit Facility.

The Company may prepay the AHP Note and the AHP Bridge Loan at any time.
The Company currently intends to pay the AHP Bridge Loan with proceeds from this
offering; however, the Company may elect to refinance the AHP Bridge Loan from
other sources.

For financial information reflecting the Nutritional Supplement Lines
Acquisition on a Pro Forma basis, along with the Orgenics Acquisition (see Note
5) and certain other events, see the Company's Unaudited Pro Forma Combined
Condensed Financial Statements beginning on page F-33.

F-32
<PAGE> 132

SELFCARE, INC. AND SUBSIDIARIES

PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

OVERVIEW:

On December 23, 1995, the Company and Orgenics entered into an Investment
and Loan Agreement whereby the Company purchased a $1,000,000, 18-month,
unsecured interest-bearing Debenture that is convertible into redeemable
preferred shares of Orgenics. Medica contributed $500,000 in cash toward the
purchase of the Debenture. On April 25, 1996, the Company exercised its right to
acquire Medica's interest in the Debenture for 135,421 shares of Common Stock.

The Company has also entered into Option Agreements with a majority of the
individual stockholders of Orgenics and Orgenics International. Each Option
Agreement provides a put option on the part of the stockholders to sell to the
Company and a call option on the part of the Company to purchase from the
stockholder such shares of Orgenics and Orgenics International (the "Optionee").
The call option is exercisable at any time prior to August 7, 1999. The put
option shall not be exercisable until the closing of one or more public
offerings of the Company with aggregate gross proceeds of at least $15,000,000.
Upon exercise of either the put or call options discussed above, the Company
would effectively own 100% of Orgenics.

Under the terms of the Option Agreements, assuming that the put or call
options under the Option Agreements are exercised prior to March 10, 1997 (as
the Company currently intends), the Company will be required to pay for each
share of Orgenics which it acquires, consideration equal to 1.50 times Orgenics'
gross revenues per share (on a fully diluted basis as of the exercise date,
giving effect to the conversion of the Debenture) during the most recent four
fiscal quarters immediately preceding the date of exercise. However, if certain
performance goals are met by Orgenics, the multiple would increase to 1.75
times. The Company believes these performance goals will be met during the
applicable period.

In October 1996, the Company acquired a 57.1% direct and indirect equity
interest in Orgenics, as a result of the conversion of the Debenture and cash
payment of approximately $7,000,000 for the purchases of outstanding shares of
Orgenics and Orgenics International. In addition, the Company has granted
options to purchase up to 85,800 shares of Common Stock having a fair market
value of $1,056,000 and will incur direct acquisition costs of approximately
$100,000. The Company estimates that it will pay additional consideration
totaling approximately $9,307,000 in cash and Common Stock for all the remaining
shares in Orgenics and Orgenics International pursuant to the exercise of the
Option Agreements.

The remaining consideration for the Orgenics shares to be purchased
pursuant to the Option Agreements is payable by the Company, at the election of
each Optionee entirely in cash, entirely in Common Stock or 50% in cash and 50%
in Common Stock. After August 7, 1997, the consideration payable pursuant to a
put or call would be 50% in cash and 50% in Common Stock. Although the Company
considers it likely that the Orgenics Acquisition will be completed prior to
March 31, 1997, the Company is not able to predict when the acquisition will be
completed. Moreover, because the amount of the consideration to be paid pursuant
to the Option Agreements is a function of the date on which the options are
exercised and the performance of Orgenics during the four fiscal quarters
preceding such exercise, the Company is not presently able to determine the
total amount of such consideration which will be payable. Assuming the exercise
of the call option prior to March 10, 1997 and that the Orgenics and Orgenics
International Stockholders elect to receive the consideration in the form of 50%
cash and 50% Common Stock, the Company would pay approximately $4,654,000 in
cash and issue approximately 393,537 shares of Common Stock, based on an average
market price of $11.825 per share of Common Stock and Orgenics' revenues for the
four fiscal quarters ended December 31, 1996.

In the event that the Company were not to exercise its call option to March
10, 1997, the purchase price could be substantially greater, based on the gross
revenues of Orgenics, the multiple to be used in calculating the purchase price
or both. See "Business -- Strategic Transactions -- Orgenics Acquisition."
Accordingly, the Company may be required to raise additional financing, offer
additional shares to the Orgenics and

F-33
<PAGE> 133

SELFCARE, INC. AND SUBSIDIARIES

PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

Orgenics International stockholders or both in order to pay the greater purchase
price. There can be no assurance that the Company will be able to raise such
additional financing on terms favorable to the Company, if at all. In addition,
the per share price of the Company's Common Stock could vary significantly from
the average market price of $11.825. Such variations would impact the number of
shares of Common Stock the Company would be required to issue as consideration.

On February 19, 1997, the Company paid $36 million to acquire the
Nutritional Supplement Lines from American Home Products Corporation ("AHP"),
through $31 million of debt and $5 million of proceeds from this offering. See
"Strategic Transactions -- Nutritional Supplement Lines Acquisition." The
Company anticipates that the entire purchase price will be allocated to trade
names, goodwill and other intangible assets, and plans to amortize such assets
over their estimated useful lives of 20 years.

The following unaudited pro forma combined condensed financial statements
are presented in U.S. dollars, are in accordance with generally accepted
accounting principles ("GAAP") and give effect to the proposed offering of the
Company's Common Stock and the transactions described above. The financial
statement of Orgenics have been prepared in accordance with Israeli GAAP; there
are no material differences between U.S. GAAP and Israeli GAAP, insofar as they
pertains to Orgenics financial statements. The unaudited pro forma combined
condensed statements combine the historical consolidated balance sheets of the
Company and Orgenics as of December 31, 1996 and the statement of assets to be
sold of the Nutritional Supplement Lines as of November 30, 1995 and combine the
historical consolidated statements of operations of the Company and Orgenics for
the year ended December 31, 1996 and the statements of revenues and expenses of
the Nutritional Supplement Lines for the year ended November 30, 1996 assuming
that Orgenics and the Nutritional Supplement Lines acquisitions were consummated
on January 1, 1996 using proceeds from the Company's initial public offering and
anticipated secondary public offering and after giving effect to certain
adjustments. The unaudited pro forma combined condensed financial statements
were prepared assuming that the exercise of the Company's options under the
Option Agreements become effective prior to March 10, 1997; accordingly, the
purchase price has been calculated using 1.75 times Orgenics gross revenues per
share (on a fully-diluted basis as of the exercise date, and after giving effect
to the conversion of the Debentures) based upon the revenues for the four fiscal
quarters ended December 31, 1996. The unaudited pro forma combined condensed
financial statements do not reflect additional consideration that will be paid
if the Company does not complete the Orgenics Acquisition on or prior to March
31, 1997 insofar as it relates to determining the most recent four fiscal
quarters immediately preceding the date of exercise, or prior to March 10, 1997
insofar as it relates to the gross revenues multiple to be used in the
calculation of the purchase price. The unaudited pro forma combined condensed
financial statements do not purport to be indicative of the results which would
actually have been reported if the acquisitions of Orgenics and the Nutritional
Supplement Lines had been effected at those dates or which may be reported in
the future. These unaudited pro forma combined condensed financial statements
should be read in conjunction with the accompanying notes and the respective
historical financial statements and related notes of the Company, Orgenics and
the Nutritional Supplement Lines.

F-34
<PAGE> 134

SELFCARE, INC. AND SUBSIDIARIES

PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
ACTUAL
-------------------------- PRO FORMA
NUTRITIONAL -------------------------------
SUPPLEMENT COMBINED
THE COMPANY LINES ADJUSTMENTS COMPANY
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 16,458,654 $ -- $ 16,320,000(1) $ 21,625,084
(4,653,570)(2)
(6,500,000)(4)
Accounts receivable.................................. 5,478,814 -- -- 5,478,814
Inventory............................................ 2,266,234 -- -- 2,266,234
Prepaid and other current assets..................... 1,034,260 -- -- 1,034,260
------------ ----------- ------------ ------------
Total current assets........................... 25,237,962 -- 5,166,430 30,404,392
------------ ----------- ------------ ------------
PROPERTY AND EQUIPMENT, NET............................ 7,858,885 -- -- 7,858,885
IN PROCESS RESEARCH AND DEVELOPMENT.................... -- -- 7,700,000(3)
(7,700,000)(3)
GOODWILL AND OTHER INTANGIBLE ASSETS................... 3,741,171 13,822,000 4,890,156(3) 46,131,327
23,678,000(5)
INVESTMENT IN AFFILIATED COMPANIES..................... 3,732,609 -- 3,732,609
OTHER ASSETS........................................... 518,825 -- -- 518,825
------------ ----------- ------------ ------------
$ 41,089,452 $13,822,000 $ 33,734,586 $ 88,646,038
============ =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term bank debt................................. $ 1,337,000 $ -- $ -- $ 1,337,000
Current portion of long-term debt.................... 332,000 -- 10,000,000(4) 10,332,000
Current portion of promissory notes payable.......... 1,267,851 -- -- 1,267,851
Accounts payable..................................... 4,991,543 -- -- 4,991,543
Accrued expenses and other current liabilities....... 5,826,952 1,443,000 (1,443,000)(5) 5,826,952
Current portion of deferred revenue.................. 1,619,152 -- -- 1,619,152
------------ ----------- ------------ ------------
Total current liabilities.......................... 15,374,498 1,443,000 8,557,000 25,374,498
------------ ----------- ------------ ------------
LONG-TERM LIABILITIES
Deferred revenue, net of current portion............. 4,786,347 -- -- 4,786,347
Notes Payable........................................ 3,000,000 -- -- 3,000,000
Promissory notes payable, net of current portion..... 2,535,701 -- -- 2,535,701
Long-term debt, net of current portion............... 360,000 -- 21,000,000(4) 21,360,000
------------ ----------- ------------ ------------
Total long-term liabilities........................ 10,682,048 -- 21,000,000 31,682,048
------------ ----------- ------------ ------------
MINORITY INTEREST...................................... 1,199,684 -- (1,113,684)(2) 86,000
------------ ----------- ------------ ------------
MANDATORILY REDEEMABLE PREFERRED STOCK OF A
SUBSIDIARY........................................... 1,753,928 -- -- 1,753,928
------------ ----------- ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A preferred stock............................. 5 -- -- 5
Common stock......................................... 5,975 -- 1,800(1) 8,169
394(2)
Additional paid-in capital........................... 55,233,847 12,379,000 16,318,200(1) 76,205,223
4,653,176(2)
(12,379,000)(5)
Treasury stock, at cost.............................. (15,200) -- -- (15,200)
Accumulated deficit.................................. (43,318,898) -- (3,303,300) (46,622,198)
Cumulative translation adjustment.................... 173,565 -- -- 173,565
------------ ----------- ------------ ------------
Total stockholders' equity (deficit)............... 12,079,294 12,379,000 5,291,270 29,749,564
------------ ----------- ------------ ------------
$ 41,089,452 $13,822,000 $ 33,734,586 $ 88,646,038
============ =========== ============ ============
</TABLE>

F-35
<PAGE> 135

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1996

The accompanying unaudited pro forma combined condensed balance sheet has
been prepared by combining the historical results of the Company as of December
31, 1996 and the Nutritional Supplement Lines as of November 30, 1996 and
reflects the following pro forma adjustments:

<TABLE>
<C> <S> <C>
(1) Represents the receipt of the net proceeds from the Company's secondary
public offering of 1,800,000 shares of Common Stock at the public
offering price of 10.00 per share....................................... $16,320,000
(2) Represents the payment of additional consideration in connection with
the completion of the Orgenics Acquisition in the form of cash
consideration of $4,653,570 and the issuance of 393,537 shares of Common
Stock having a fair market value of $4,653,570.......................... 9,307,140
(3) Represents the Orgenics Acquisition purchase price allocation to
in-process research and development and goodwill and other intangible
assets and charge to operations the estimated fair values of the
in-process research and development..................................... 4,890,156
(4) Represents the payment of consideration in connection with the
Nutritional Supplement Lines Acquisition in the form of cash
consideration of $6,500,000 (including acquisition costs of $1,500,000),
bank debt of $25,000,000 and the AHP Note of $6,000,000................. 37,500,000
(5) Represents the Nutritional Supplement Lines Acquisition purchase price
allocation to goodwill and other intangible assets and the elimination
of the Nutritional Supplement Lines equity account...................... 22,528,000
</TABLE>

F-36
<PAGE> 136

SELFCARE, INC. AND SUBSIDIARIES

PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
ACTUAL
-------------------------------------------- PRO FORMA
NUTRITIONAL ------------------------------
SUPPLEMENT COMBINED
THE COMPANY ORGENICS(1) LINES(2) ADJUSTMENTS COMPANY
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net product sales............................... $ 14,066,630 $10,273,000 $24,449,000 $ -- $ 48,788,630
Grants and other revenue........................ 4,996,158 -- -- -- 4,996,158
------------ ----------- ----------- ----------- ------------
Net revenue................................... 19,062,788 10,273,000 24,449,000 -- 53,784,788
Cost of sales................................... 10,958,024 3,084,000 7,246,000 724,600(3) 22,012,624
------------ ----------- ----------- ----------- ------------
Gross profit.................................. 8,104,764 7,189,000 17,203,000 (724,600) 31,772,164
Operating Expenses:
Research and development...................... 6,643,186 1,159,000 210,000 -- 8,012,186
Charge for in process research and
development................................. 4,396,700 -- -- 3,303,300(5) --
(7,700,000)(8)
Selling, general and administrative........... 10,517,790 4,983,000 4,798,000 1,468,972(4) 26,640,762
2,863,000(3)
2,010,000(6)
Noncash compensation charge................... 4,195,437 -- -- -- 4,195,437
------------ ----------- ----------- ----------- ------------
Total operating expenses.................... 25,753,113 6,142,000 5,008,000 1,945,272 38,848,385
------------ ----------- ----------- ----------- ------------
Operating income (loss)..................... (17,648,349) 1,047,000 12,195,000 (2,669,872) (7,076,221)
Interest expense, including noncash interest.... (11,295,382) -- -- (2,295,000)(7) (13,590,382)
----------- -----------
Interest income................................. 543,447 9,000 -- 552,447
Equity in loss of Enviromed..................... (200,000) -- -- -- (200,000)
------------ ----------- ----------- ----------- ------------
Income (loss) before minority interest and
dividends and accretion on preferred stock of
subsidiary and provision for income taxes..... (28,600,284) 1,056,000 12,195,000 (4,964,872) (20,314,156)
Minority interest in subsidiary's income........ 132,990 -- -- (132,990)(9) --
Dividends and accretion on mandatorily
redeemable preferred stock of a subsidiary.... (110,348) -- -- -- (110,348)
------------ ----------- ----------- ----------- ------------
Net income (loss)........................... $(28,577,642) $ 1,056,000 $12,195,000 $(5,097,862) $(20,424,504)
============ =========== =========== =========== ============
Pro forma net loss per share:
Net loss per common share..................... $ (4.70) $ (2.47)
============ ============
Weighted average common shares outstanding.... 6,082,928 2,193,537(10) 8,276,465
============ =========== ============
</TABLE>

F-37
<PAGE> 137

SELFCARE, INC. AND SUBSIDIARIES

NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

The accompanying unaudited pro forma combined condensed statement of
operations has been prepared by combining the historical results of the Company
and Orgenics for the year ended December 31, 1996 and the Nutritional Supplement
Lines for the year ended November 30, 1996 and reflects the following pro forma
adjustments:

<TABLE>
<C> <S> <C>
(1) The Orgenics historical statement of operations for the period from January
1, 1996 to October 24, 1996 has been translated into U.S. dollars for this
unaudited pro forma combined condensed statement of operations. The
Orgenics statement of operations is translated at the average exchange rate
in effect for the period from January 1, 1996 to October 24, 1996, which
was 3.170 U.S. dollars per New Israeli Shekel. The operations of Orgenics
from the acquisition date (October 24, 1996) through December 31, 1996 are
included in the Company's consolidated statement of operations.
(2) The Nutritional Supplement Lines data presented herein reflect only the
revenues and direct expenses; it does not reflect actual AHP Corporate
overhead allocations of $3,433,000
(3) Represents incremental costs of goods sold and selling, general and
administrative expenses that the Company estimates it will incur following
the Nutritional Supplement Lines Acquisition. Does not reflect additional
revenues, if any, which may result from increased promotional spending. $3,587,660
(4) Reflects amortization expense on goodwill and other intangible assets
acquired as a part of the Orgenics Acquisition based on their estimated
useful life of five years. $1,468,973
(5) Represents charge to operations for the estimated fair values of certain
in-process research and development projects. 3,303,300
(6) Represents amortization expense on goodwill and other intangible assets
acquired as a part of the Nutritional Supplement Lines Acquisition based on
their estimated useful lives of 5 to 20 years. 2,010,000
(7) Represents interest in connection with the bank debt and the AHP Note
associated with the Nutritional Supplement Lines acquisition, assuming an
annual interest rate of 7.5% and 7.0%, respectively. 2,295,000
(8) Represents reversal of nonrecurring charges, in accordance with Securities
and Exchange Commission regulations; the Company has recorded charges
pertaining to the expensing of certain in-process research and development
acquired in connection with the Orgenics Acquisition. Such charges were
recorded as a part of the purchase price allocation. 7,700,000
(9) Represents reversal of minority interest in subsidiary's income. 132,990
(10) Pro forma net loss per share is computed assuming the 1,800,000 and 393,537
shares issued in connection with the proposed public offering and Orgenics
Acquisition, respectively, were outstanding for the entire period. 2,193,537
</TABLE>

F-38
<PAGE> 138

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of ORGENICS LTD.

We have audited the consolidated balance sheets of Orgenics Ltd. ("the
Company") as of September 30, 1996 and December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the nine month period ended September 30, 1996 and for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of CPEI Orgenics LTDA, a
consolidated subsidiary as of September 30, 1996 and December 31, 1995 and for
the nine month period ended September 30, 1996 and for the year ended December
31, 1995 which statements reflect total assets constituting 7% and 8%
respectively of total consolidated assets and total revenues for the nine month
period ended September 30, 1996 and the year ended December 31, 1995,
constituting 23% and 21% respectively of total consolidated revenues. These
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, as it relates to the amounts included for CPEI Orgenics
LTDA, is based solely on the reports of the other auditor.

We conducted our audits in accordance with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors'
Regulations (Mode of Performance), 1973 which do not differ significantly from
generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statement included therein. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly in all
material respects the consolidated financial position of the Company as of
September 30, 1996 and December 31, 1995 and 1994 and the consolidated results
of their operations and cash flows for the nine month period ended September 30,
1996 and for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles in Israel. For a
description of the differences between generally accepted accounting principles
in Israel and United States generally accepted accounting principles as
applicable in these financial statements see Notes 2n and 2c.

KOST LEVARY AND FORER
Certified Public Accountants (Israel)
a Member of Ernst & Young
International

Tel-Aviv, Israel
November 14, 1996

F-39
<PAGE> 139

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
CPEI ORGENICS LTDA

We have examined the accompanying balance sheet of CPEI ORGENICS LTDA, at
September 30, 1996 and the related statements of income, changes in
stockholders' equity and cash flow for the nine months period then ended. These
financial statements are the responsibility of the entity management. Our
responsibility is to express an opinion on these financial statements.

We conduct our auditing in accordance with the generally accepted auditing
standard in Brazil and in the United States of America. These standards require:
(a) assignment planning, considering the balance materiality, the volume of the
transactions, and the accounting system and internal controls of the entity, (b)
verifying on test basis evidence supporting the amounts and accounting
information, and (c) the evaluation of the practices and significant accounting
estimate made by the management of the entity, as well the presentation of the
financial statements.

In our opinion, the financial statements referred to above represent
fairly, in all material respects, the financial position of CPEI ORGENICS LTDA
at September 30, 1996 and the results of their operation and their cash flow for
the nine months period then ended, in conformity with accounting principles
accepted in Brazil and in the United States of America.

Our examination also comprehended the translation of Brazilian real amounts
into US dollar amounts and in our opinion, such translation has been made in
conformity with the basis stated in note 1. Such US dollar amounts are presented
solely for the convenience of readers outside Brazil.

SAO PAULO, DECEMBER 10TH, 1996

GALLORO & ASSOCIADOS
AUDITORES INDEPENDENTES S/C
CRC-SP N degrees 05.851

VICTOR DOMINGOS GALLORO
SOCIO-DIRETOR
CT-CRC-SP N degrees 44.278

F-40
<PAGE> 140

ORGENICS LTD.

CONSOLIDATED BALANCE SHEETS
U.S. DOLLARS (IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2c).................... $ 752 $ 886 $ 1,373
Marketable securities (Note 2d)........................ 78 81 60
Accounts receivable -- trade (Notes 2e and 3).......... 2,131 2,052 2,085
Other accounts receivable and prepaid expenses (Note
4).................................................. 475 451 1,081
Inventories (Notes 2f and 5)........................... 1,167 1,238 1,022
-------- -------- ---------
Total current assets........................... 4,603 4,708 5,621
-------- -------- ---------
INVESTMENTS (Notes 2g and 6)............................. 175 206 200
-------- -------- ---------
FIXED ASSETS (Notes 2h and 7):
Cost................................................... 3,163 3,289 3,484
Less -- accumulated depreciation....................... 1,396 1,772 2,015
-------- -------- ---------
1,767 1,517 1,469
-------- -------- ---------
OTHER ASSETS (Notes 2i and 8)............................ 535 525 520
-------- -------- ---------
$ 7,080 $ 6,956 $ 7,810
======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank debt (Note 9).......................... $ 1,936 $ 1,702 $ 1,240
Current maturities of long-term debt (Note 11)......... 973 639 370
Trade payables......................................... 773 1,208 861
Accrued expenses and other payables (Note 10).......... 1,197 1,348 1,300
-------- -------- ---------
Total current liabilities...................... 4,879 4,897 3,771
-------- -------- ---------
LONG-TERM DEBT, net of current maturities (Note 11)...... 1,117 683 542
-------- -------- ---------
ACCRUED SEVERANCE PAY, NET (Note 12)..................... 108 129 181
-------- -------- ---------
MINORITY INTEREST........................................ -- 71 152
-------- -------- ---------
CONVERTIBLE DEBENTURE (Note 15c)......................... -- -- 1,045
-------- -------- ---------
SHAREHOLDERS' EQUITY (Note 15b):
Share capital.......................................... 66 66 66
Additional paid-in capital............................. 13,114 13,114 13,141
Cumulative translation adjustment...................... 27 99 70
Accumulated deficit.................................... (12,231) (12,103) (11,158)
-------- -------- ---------
Total stockholders' equity..................... 976 1,176 2,119
-------- -------- ---------
$ 7,080 $ 6,956 $ 7,810
======== ======== =========
</TABLE>

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

F-41
<PAGE> 141

ORGENICS LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. DOLLARS (IN THOUSANDS)
(EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ---------------------
1993 1994 1995 1995(*) 1996
------ ------- ------- --------- -------
AUDITED UNAUDITED AUDITED
<S> <C> <C> <C> <C> <C>
Revenues (Notes 2j and 18a)................ $6,307 $ 7,562 $10,173 $ 7,078 $ 9,431
Cost of revenues (Note 18c)................ 2,105 2,192 3,074 2,243(*) 2,878
------ ------- ------- ------- -------
Gross profit............................... 4,202 5,370 7,099 4,835 6,553
------ ------- ------- ------- -------
Research and development expenses (Notes 2k
and 18d)................................. 829 1,563 1,409 909 1,499
Less royalty bearing grants (Notes 21 and
14a)..................................... 273 780 418 228 664
------ ------- ------- ------- -------
Research and development expenses, net..... 556 783 991 681 835
Selling expenses (Note 18e)................ 1,335 1,583 2,377 1,878(*) 2,387
General and administrative expenses (Note
18f)..................................... 1,773 1,946 2,696 1,842 2,225
------ ------- ------- ------- -------
Operating income........................... 538 1,058 1,035 434 1,106
Financial expenses, net (Note 18g)......... (367) (319) (600) (440) (38)
Other income (expenses), net (Note 18h).... (6) 45 15 (6) --
Aborted initial public offering expenses... -- (1,125) (200) (200) --
------ ------- ------- ------- -------
Income (loss) before taxes on income....... 165 (341) 250 (212) 1,068
Taxes on income (Note 16).................. 6 15 62 38 42
------ ------- ------- ------- -------
159 (356) 188 (250) 1,026
Minority share in income of subsidiary..... -- -- (60) (45) (81)
------ ------- ------- ------- -------
Net income (loss).......................... $ 159 $ (356) $ 128 $ (295) $ 945
====== ======= ======= ======= =======
Earning (loss) per share (Note 2o)......... $ 0.25 $ (0.44) $ 0.16 $ (0.37) $ 1.04
====== ======= ======= ======= =======
Weighted average number of shares
outstanding during the year (in
thousands)............................... 635 801 801 801 1,000
====== ======= ======= ======= =======
</TABLE>

- ---------------
(*) Reclassified -- see Note 2t.

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

F-42
<PAGE> 142

ORGENICS LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. DOLLARS (IN THOUSANDS)

<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL CUMULATIVE TOTAL
SHARES SHARE PAID-IN TRANSLATION ACCUMULATED SHAREHOLDERS'
OUTSTANDING CAPITAL CAPITAL ADJUSTMENT DEFICIT * EQUITY
----------- ------- ---------- ---------- ----------- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1993.......... 518,997 $46 $ 9,166 $ 60 $ (12,034) $ $ (2,762)
Issuance of shares................... 221,714 20 3,528 -- -- 3,548
Foreign currency translation
adjustments........................ -- -- -- 80 -- 80
Amortization of compensation in stock
options issued to employees........ -- -- 93 -- -- 93
Waiver of interest by related
party.............................. -- -- 268 -- -- 268
Net income........................... -- -- -- -- 159 159
------- --- -------- ---- --------- --- --------
Balance as of December 31, 1993........ 740,711 66 13,055 140 (11,875) 1,386
Foreign currency translation
adjustment......................... -- -- -- (113) -- (113)
Amortization of compensation in stock
options issued to employees........ -- -- 59 -- -- 59
Net loss............................. -- -- -- -- (356) (356)
------- --- -------- ---- --------- --- --------
Balance as of December 31, 1994........ 740,711 66 13,114 27 (12,231) 976
Foreign currency translation
adjustment......................... -- -- -- 72 -- 72
Net income........................... -- -- -- -- 128 128
------- --- -------- ---- --------- --- --------
Balance as of December 31, 1995........ 740,711 66 13,114 99 (12,103) 1,176
Issuance of shares................... 70,923 -- -- -- -- --
Deferred compensation (Note
15b(3))............................ -- -- 62 -- -- 62
Payments to optionees for waiving
stock options (Note 15a(2))........ -- -- (35) -- -- (35)
Foreign currency translation
adjustment......................... -- -- -- (29) -- (29)
Net income........................... -- -- -- -- 945 945
------- --- -------- ---- --------- --- --------
Balance as of September 30, 1996....... 811,634 $66 $ 13,141 $ 70 $ (11,158) $ $ 2,119
======= === ======== ==== ========= === ========
</TABLE>

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

F-43
<PAGE> 143

ORGENICS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. DOLLARS (IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
---------------------- -------------------
1993 1994 1995 1995 1996
----- ----- ------ --------- -------
AUDITED UNAUDITED AUDITED
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 159 $(356) $ 128 $(295) $ 945
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Minority share in income of subsidiary......... -- -- 60 45 81
Loss (gain) on sale of fixed assets and other
investments.................................. 4 (30) 8 8 --
Depreciation and amortization.................. 225 260 595 469 331
Increase in accrued severance pay, net......... 44 21 21 14 52
Amortization of unearned compensation in stock
options issued to employees.................. 93 59 -- -- 31
Decrease (increase) in accounts
receivable -- trade.......................... (218) (620) 140 341 (79)
Decrease (increase) in other accounts
receivable................................... (160) (103) 13 21 (682)
Decrease (increase) in inventories............. (339) (462) (54) 46 203
(Decrease) increase in trade payables.......... 79 185 419 (174) (323)
(Decrease) increase in accrued expenses and
other payables............................... 391 30 205 146 (1)
Decrease (increase) in marketable securities,
net.......................................... (645) 567 (3) (5) 21
Accrued interest on convertible debenture...... -- -- -- -- 45
----- ----- ------ ----- -----
Net cash provided by (used in) operating
activities..................................... (367) (449) 1,532 616 624
----- ----- ------ ----- -----
Cash flows from investing activities:
Purchase of fixed assets....................... (271) (525) (118) (118) (242)
Purchase of other assets....................... -- (200) (341) (9) (30)
Proceeds from sale of fixed assets............. 58 86 20 13 11
Proceeds from sale of other investments........ 34 -- -- -- --
Purchase of other investments.................. (81) (36) -- -- --
----- ----- ------ ----- -----
Net cash used in investing activities............. (260) (675) (439) (114) (261)
----- ----- ------ ----- -----
</TABLE>

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

F-44
<PAGE> 144

ORGENICS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. DOLLARS (IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------
1993 1994 1995 1995 1996
------ ------- ----- --------- -------
AUDITED UNAUDITED AUDITED
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Payment to optionees for waiving stock options.... -- -- -- -- (35)
Repayment of short-term debt to a related party... (957) -- -- -- --
Long-term debt -- undertaken...................... 461 509 65 -- 65
Issuance of shares in a private placement......... 3,548 -- -- -- --
Issuance of shares by a subsidiary................ -- -- 11 11 --
Repayment of long-term debt....................... (415) (1,008) (777) (662) (472)
Increase (decrease) in short-term bank debt....... (807) 959 (266) 140 (429)
Issuance of convertible debenture................. -- -- -- -- 1,000
------ ------- ----- ----- -------
Net cash provided by (used in) financing
activities........................................ 1,830 460 (967) (511) 129
------ ------- ----- ----- -------
Net increase (decrease) in cash and cash
equivalents....................................... 1,203 (664) 126 (9) 492
Effect of exchange rate changes on cash............. (3) 13 8 7 (5)
Cash and cash equivalents at the beginning of the
year.............................................. 203 1,403 752 752 886
------ ------- ----- ----- -------
Cash and cash equivalents at the end of the year.... $1,403 $ 752 $ 886 $ 750 $ 1,373
====== ======= ===== ===== =======
Cash paid during the year for:
Interest.......................................... $ 300 $ 338 $ 159 $ 335 $ 213
====== ======= ===== ===== =======
Taxes on income................................... $ 5 $ 15 $ 62 $ 41 $ 46
====== ======= ===== ===== =======
</TABLE>

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

F-45
<PAGE> 145

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: GENERAL

a. Organization:

Orgenics Ltd. (hereinafter "Orgenics") is an Israeli corporation which is
engaged in the development, manufacturing and marketing of diagnostic test kits
for infectious diseases and genetic markers.

As of September 30, 1996, approximately 63.9% of the ordinary shares of
Orgenics Ltd. were owned by Orgenics International Holdings B.V. ("OIH"), a
holding company with no business activity.

During November 1996, Selfcare Inc. of Boston USA purchased from the
stockholders of Orgenics approximately 6.5% of Orgenics shares and acquired
direct ownership of 26.8% (after converting the debenture -- see Note 15c).

Following these transactions, 50.7% of Orgenics shares are directly held by
OIH.

PBS S.A. ("PBS"), a French corporation engaged in the marketing of
diagnostic devices in France was, through December 1993, also a wholly-owned
subsidiary of OIH. In December 1993, OIH transferred all of its holdings in PBS
to Orgenics. The acquisition of PBS by Orgenics represents a reorganization of
entities under common control and has been accounted for in a manner similar to
a pooling of interests. Accordingly, the financial statements for prior years
have been restated to give effect to this transaction.

CPEI ORGENICS LTDA ("CPEI"), a Brazilian corporation engaged in the
marketing of diagnostic devices in Brazil, is 55% owned by Orgenics. Beginning
April 1, 1995 CPEI has been accounted for as a consolidated subsidiary of
Orgenics (on April 1, 1995 CPEI started its activity).

The Company and its subsidiaries sell their products throughout the world,
mainly in France and South America. For the nine months ended September 30, 1996
98.5% and for the three years ended December 31, 1995, approximately 95.9%,
96.8% and 98.1%, respectively, of the Group's total revenues were derived from
sales to customers outside of Israel.

b. Principles of consolidation:

The consolidated financial statements include the financial statements of
Orgenics and its subsidiaries, PBS and CPEI.

Significant intercompany balances and transactions have been eliminated in
the consolidation.

Hereinafter, Orgenics and its consolidated subsidiaries are collectively
referred to as the "Company".

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

a. Financial statements in U.S. dollars:

The accompanying financial statements have been prepared in U.S. dollars.

Approximately 98% of the sales of the Company are made outside Israel. In
1996, 34.6% of the Company's consolidated revenues were in U.S. dollars, 1.4%
were in NIS and 64% were in other currencies, primarily the French Franc.

The U.S. dollar has been determined to be the functional currency for the
Company and its subsidiaries except for the French subsidiary.

The functional currency for PBS is the French Franc. Accordingly, the
financial statements of PBS have been translated into dollars in accordance with
the principles set forth in Statement No. 52 of the Financial Accounting
Standards Board of the United States (FASB). Gains and losses resulting from
translation are reflected in stockholders' equity under the caption "cumulative
translation adjustments".

F-46
<PAGE> 146

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

If the Company was to declare a dividend, it would be paid in NIS to
Israeli and foreign stockholders.

b. Rates of Exchange:

The amounts stated for assets and liabilities in currencies other than the
functional currency of the Company and its subsidiaries, or linked to foreign
currencies are remeasured into the appropriate functional currency using the
representative exchange rates prevailing at the balance sheet dates.

The exchange rates of the dollar in relation to the New Israeli Shekel and
to the French Franc were as follows:

<TABLE>
<S> <C>
September 30, 1996...................... U.S.$1 = NIS 3.220 = F.FR. 5.17
September 30, 1995...................... U.S.$1 = NIS 2.995 = F.FR. 4.90
December 31, 1995....................... U.S.$1 = NIS 3.135 = F.FR. 4.89
December 31, 1994....................... U.S.$1 = NIS 3.018 = F.FR. 5.35
December 31, 1993....................... U.S.$1 = NIS 2.986 = F.FR. 5.90
December 31, 1992....................... U.S.$1 = NIS 2.764 = F.FR. 5.51
</TABLE>

c. Cash equivalents:

Cash equivalents are short-term highly liquid investments that are readily
convertible to cash and with maturities when purchased of three months or less,
such as short-term deposits.

d. Marketable securities:

Marketable securities are accounted for in accordance with FASB Statement
No. 115. The Company designated its marketable securities as trading and
therefore are presented at their market value at the balance sheet date and
resulting realized and unrealized gains and losses are included in financial
income and expenses.

e. Allowance for doubtful accounts:

The allowance for doubtful accounts is determined with respect to specific
debts which are of doubtful collection.

f. Inventories:

Inventories are stated at the lower of cost or market value.

Cost is determined as follows:

Raw materials -- on the basis of weighted average.

Work in process and finished products of Orgenics -- on the basis of
computed manufacturing costs.

Finished products purchased by PBS and CPEI from third parties -- on the
"first-in, first-out" method.

g. Investments:

The investment in affiliate is accounted for using the equity method of
accounting. Other investments are stated at cost.

h. Fixed assets:

Fixed assets are stated at cost, net of related investment grants received
(see Note 14b).

F-47
<PAGE> 147

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation is computed by the straight-line method over the estimated
useful lives of the assets.

The annual depreciation rates are as follows:

<TABLE>
<CAPTION>
%
------------------
<S> <C>
Laboratories and equipment............................... 7-20 (mainly 7)
Motor vehicles........................................... 15-25 (mainly 15)
Computers and peripheral equipment....................... 20-25 (mainly 20)
Leasehold improvements................................... 10
</TABLE>

i. Other assets:

Purchased know-how and patent registration costs are stated at cost.
Amortization is computed on the straight-line method over the estimated useful
lives of the assets 5-8 years.

j. Revenue recognition:

Sales are recognized upon shipment.

k. Research and development expenses:

Research and development expenses, net of related research grants, are
charged to income as incurred.

l. Royalty-bearing grants:

Royalty-bearing grants from the Government of Israel for funding approved
research projects, are recognized of the time the Company is entitled to such
grants, on the basis of the related costs incurred, and are netted from such
costs in the statement of operations.

m. Advertising expenses:

Advertising costs are expensed as incurred.

n. Taxes on income:

The Company follows the asset and liability method of accounting for income
taxes in accordance with Israeli accounting principles. Under Israeli accounting
principles, deferred income taxes are provided for differences resulting from
changes in the Israeli Consumer Price Index (CPI) (the basis for the Company's
tax reporting) and changes in the exchange rate of the NIS to the U.S. dollar.
FAS No. 109, "Accounting for Income Taxes", does not allow deferred income taxes
to be recognized for these differences which with respect to the Company's
financial statements, are immaterial.

o. Earnings per share:

Earnings per share are computed based on the weighted average number of
shares outstanding during the year, in accordance with Opinion No. 55 of the
Institute of Certified Public Accountants in Israel. The effect of applying APB
15 (U.S. GAAP) on earnings per share is immaterial.

p. Accounting for stock issued to employees:

The Company accounts for stock-based compensation in accordance with the
requirements of APB 25 and intends to continue to do so.

F-48
<PAGE> 148
ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

q. Use of estimates:

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

r. Concentrations of credit risks:

The Company performs ongoing credit valuations of its debtors. In
management's opinion, the allowance for doubtful accounts adequately covers all
anticipated losses with respect to concentration of credit risks of trade
receivables.

s. Unaudited information:

The financial statements include the unaudited results of operations and
cash flows for the nine months ended September 30, 1995. This unaudited
information has been prepared by the Company on the same basis as the audited
consolidated financial statements and, in management's opinion, reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial information in accordance with generally
accepted accounting principles for the period presented when read in conjunction
with the Company's audited consolidated financial statements and notes thereto.

t. Reclassification:

Prior years amounts have been reclassified to conform to the September 30,
1996 presentation.

NOTE 3: ACCOUNTS RECEIVABLE -- TRADE

DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable.................................. $2,169 $2,103 $ 2,155
Less allowance for doubtful accounts................. 38 51 70
------ ------ -------
$2,131 $2,052 $ 2,085
====== ====== =======
</TABLE>

NOTE 4: OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1994 1995 1996
---- ---- -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C>
Prepaid expenses........................................ $236 $267 $ 427
V.A.T. receivable....................................... 47 52 183
Accrued income receivable............................... 192 104 416
Other receivables....................................... -- 28 55
---- ---- -------
$475 $451 $ 1,081
==== ==== =======
</TABLE>

F-49
<PAGE> 149

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5: INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C>
Raw materials and work in process.................... $ 820 $ 692 $ 700
Finished products manufactured by Orgenics........... 332 503 270
Finished products purchased by subsidiaries.......... 15 43 52
------ ------ -------
$1,167 $1,238 $ 1,022
====== ====== =======
</TABLE>

NOTE 6: INVESTMENTS

<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1994 1995 1996
---- ---- -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C>
Cost of investment in 50%-owned Japanese joint
venture -- Orgenics Takra Co. Ltd..................... $ 25 $ 25 $ 25
Equity in post-acquisition earnings..................... 7 7 7
Cumulative translation adjustments...................... 27 27 27
---- ---- -----
59 59 59
Orgenics International Holding shares(1)................ 84 101 95
Other investments at cost............................... 32 46 46
---- ---- -----
$175 $206 $ 200
==== ==== =====
</TABLE>

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

(1) In December 1993, PBS bought 24,474 Orgenics International Holding ("OIH")
shares from the former general manager of PBS, as part of a transaction
following his resignation.

In January 1994, PBS bought 1,000 OIH shares from its former marketing
manager, as part of a transaction following his resignation.

F-50
<PAGE> 150

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7: FIXED ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C>
a. Cost:
Laboratories and equipment......................... $2,094 $2,116 $ 2,153
Motor vehicles..................................... 186 164 209
Computers and peripheral equipment................. 364 417 527
Leasehold improvements............................. 519 592 595
------ ------ -------
$3,163 $3,289 $ 3,484
====== ====== =======
b. Accumulated depreciation:
Laboratories and equipment......................... $ 876 $1,074 $ 1,171
Motor vehicles..................................... 46 63 77
Computers and peripheral equipment................. 245 294 363
Leasehold improvements............................. 229 341 404
------ ------ -------
$1,396 $1,772 $ 2,015
====== ====== =======
c. For assets pledged -- see Note 13.
</TABLE>

NOTE 8: OTHER ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C>
Deferred expenses.................................... $ 200 $ -- $ --
Purchased know-how and patent registration costs..... 391 642 672
------ ------ -------
591 642 672
Less accumulated amortization........................ 56 117 152
------ ------ -------
$ 535 $ 525 $ 520
====== ====== =======
</TABLE>

NOTE 9: SHORT-TERM BANK DEBT

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C>
French Franc bank overdraft.......................... $ 365 $ 614 $ 5
Israeli NIS bank overdraft........................... 475 500 529
Short-term loans (linked to the U.S. dollar)......... 1,096 588 706
------ ------ -------
$1,936 $1,702 $ 1,240
====== ====== =======
</TABLE>

F-51
<PAGE> 151

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10: ACCRUED EXPENSES AND OTHER PAYABLES

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C>
Employee payroll and accrued vacation pay............ $ 446 $ 554 $ 616
Government institutions.............................. 35 89 287
Royalties payable to the Chief Scientist of the
Ministry of Trade of Israel........................ 39 65 60
Royalties in respect of production and know-how
licenses........................................... 28 73 16
Royalties payable to the Fund for Encouragement of
Marketing Activity................................. 49 -- --
Other accrued expenses............................... 600 567 321
------ ------ -------
$1,197 $1,348 $ 1,300
====== ====== =======
</TABLE>

NOTE 11: LONG-TERM DEBT

a. Linkage terms and rates of interest:

<TABLE>
<CAPTION>
INTEREST
RATE DECEMBER 31, SEPTEMBER
TERMS OF -------- ----------------- 30,
LINKAGE 1994 1995 1996
------------- % ------ ------ ------------
-------- U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Bank debt(1)................ NIS 20 $ 136 $ 28 $ 75
U.S. Dollar 5- 9 1,495 1,131 682
French Franc 7-12 280 -- --
------ ------ ----
1,911 1,159 757
Government loans(2)......... French Franc 0 179 163 155
------ ------ ----
2,090 1,322 912
Less current maturities................................ 973 639 370
------ ------ ----
$1,117 $ 683 $542
====== ====== ====
</TABLE>

b. Aggregate maturities of long-term debt are as follows:

<TABLE>
<S> <C> <C> <C> <C> <C>
First year -- (current maturities)..................... $ 973 $ 639 $370
------ ------ ----
Second Year............................................ 374 375 403
Third Year............................................. 367 308 139
Fourth Year............................................ 376 -- --
------ ------ ----
Long-term debt, net of current maturities.............. 1,117 683 542
------ ------ ----
$2,090 $1,322 $912
====== ====== ====
</TABLE>

c. For assets pledged -- see Note 13.
- ---------------

(1) Including state-guaranteed loans in the amount of $101 thousand.

(2) An interest free loan of $155 thousand (F.FR.800,000) received by PBS from
the Government of France Agency for the Encouragement of Innovation
("ANVAR"). Under the provisions of the loan, and provided the Company
complies with the conditions, if the innovation project is not considered a
technical success, the Company will only be required to refund F.FR.490,000.
The Company is presently

F-52
<PAGE> 152

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

negotiating with this Agency to obtain total waiver of this debt following
the technical failure of the project.

During 1994, ANVAR agreed to convert an interest-free loan of $138 thousand
(F.FR.740,000) to a research grant.

NOTE 12: ACCRUED SEVERANCE PAY

a. Orgenics' liability for severance pay, pursuant to Israeli law, is provided
by managers' insurance policies and by severance pay funds.

Since the insurance policies are owned by the Company, the cash value of
these policies at each period end is recorded as an asset of the Company and
included in Severance Pay Funds in the Company's balance sheet.

According to U.S. GAAP the amounts deposited should have been presented
under Investments.

Following are the amounts of accrued severance pay, and amounts deposited
as presented in the balance sheets:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1994 1995 1996
----- ----- -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C>
Accrued severance pay................................... $441 $421 $ 529
Less amounts deposited.................................. 333 292 348
---- ---- -----
$108 $129 $ 181
==== ==== =====
</TABLE>

Severance pay expenses for the nine months ended September 30, 1996 and for
the three years ended December 31, 1995 were $109, $248, $156 and $210,
respectively.

b. France has a State-run mandatory pension plan to which contributions are made
monthly by both the employee and employer based on the gross monthly salary.
The liability is fully covered by these contributions.

In addition, pursuant to industry employment agreements, a lump sum
indemnity is payable upon retirement to employees still in the service of PBS at
the date of retirement. Full accrual has been made for this obligation.

NOTE 13: CHARGES (ASSETS PLEDGED)

As collateral for Orgenics' liabilities to banks and to others in Israel,
Orgenics has granted liens on certain assets, including fixed assets, insurance
rights, share capital and goodwill.

NOTE 14: CONTINGENT LIABILITIES AND COMMITMENTS

a. Royalty Commitments:

1. Royalty commitments to the Chief Scientist:

F-53
<PAGE> 153

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The maximum contingent royalty as at September 30, 1996 was approximately
$1.6 million.

2. Royalties in respect of production and know-how licenses:

Orgenics entered into several agreements for the license of know-how. Under
these agreements, Orgenics is committed to make royalty payments at rates
varying between 3.5%-8% of sales of the products which were manufactured using
such know-how. The minimum annual royalties payable is $10,500.

b. Commitments in respect of government loans:

See Note 11(2)

c. Lease commitments:

Orgenics and its subsidiaries have leased offices and other facilities
under operating leases for periods through 2006.

Minimum annual rentals payables under non-cancellable operating leases at
rates in effect as of September 30, 1996, are as follows:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, U.S. DOLLARS
-------------------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1996................................................................ $ 114
1997................................................................ 266
1998 until 2006 ($235 each year).................................... 1,880
------
Total..................................................... $2,260
======
</TABLE>

d. Patent dispute:

Pasteur Sanofi Diagnostics S.A. ("Sanofi Diagnostics") has asserted that it
holds patents to certain peptides purchased by the Company from Biochem
ImmunoSystems Inc. for use in diagnostic products for HIV, but has not brought a
claim against the Company with respect to the Company's use of such peptides.
However, if the Company were found to be infringing upon patents of Sanofi
Diagnostics, it might be required to pay damages, develop alternate sources of
supply or identify alternate peptides, any of which could have a material
adverse effect upon the Company. At this time, the Company is unable to estimate
the probability of Sanofi Diagnostics making a claim against the Company or the
possible liability of the Company, if any, to Sanofi Diagnostics for the use of
such peptides. In June 1996, the Company signed a toll manufacturing contract
with Sanofi Diagnostic, whereby Orgenics is becoming a toll manufacturer for
rapid HIV kits for Sanofi Diagnostics.

e. Subsidy granted by ANVAR

In 1988, PBS obtained a subsidy from "ANVAR" amounting to $33,900 to share
the costs of a new scientist. "ANVAR" might request a refund on dismissal of
this employee, which occurred when the Company ceased its research and
development activity during 1992. Management considers that it is unlikely that
such a request will be made.

F-54
<PAGE> 154

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15: SHAREHOLDERS' EQUITY

a. Share Capital:

1. In February 1994, all classes of shares were converted into one class of
ordinary shares, NIS 0.1 par value each, and the authorized share capital of
Orgenics was increased to 20,000,000 Ordinary Shares of NIS 0.1 par value each.

<TABLE>
<CAPTION>
ORDINARY SHARES OF NIS 0.1
PAR VALUE EACH
--------------------------
NUMBER OF SHARES
--------------------------
ISSUED AND
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
September 30, 1996........................................... 20,000,000 811,634
========== =======
December 31, 1995 and 1994................................... 20,000,000 740,711
========== =======
</TABLE>

2. In September 1993, Orgenics issued 110,855 shares by a private
placement. Within the private placement agreement, the investors were guaranteed
a minimal rate of return in the event the Company effected a public offering.
For this purpose, the Company has allocated 110,859 additional shares to a
trustee, at the date of the private placement.

During the reported period and following an agreement signed between the
Company and Selfcare Inc. (see c. below), the Company transferred the 110,859
shares from the trustee to the private investors, and allocated to those
investors 59,681 additional shares, all in return for the private investors
waiving future rights to a minimal rate of return.

Within the framework of the private placement and as part of the consulting
agreement, the private placement consultants were granted an option to purchase
3.45% of the Company's share capital in an amount equivalent to 10% of the
proceeds raised in the private placement.

During August 1996, the private placement consultants waived their option
against a one-time payment of $35 thousand.

This amount was charged in the financial statements to share premium.

3. The number of shares used in the computation of earnings per share in
prior years was restated in order to reflect the issue of additional shares to
the private investors.

b. Employee Stock Option Plans:

1. During 1992 and 1993, certain employees of Orgenics and PBS were granted
options for the purchase of shares of OIH. As of December 31, 1994 and 1995, all
such options have been exercised or cancelled.

2. In January 1995, the Company granted to Max Herzberg, under the 1994
option plan, options to purchase 11,242 of the Company's ordinary shares, at an
exercise price equal to the par value of the shares. During the reported period,
these stock options were exercised. The exercise increment amounted to $300.

3. 1995 Stock Option Plan:

The Company's stock option plan (the "1995 plan") provides that stock
options of the Company may be granted to employees, officers, directors and
consultants of the Company or any subsidiary. An aggregate of 200,000 ordinary
shares of the Company are reserved for issuance under the 1995 plan. Any options
which are canceled or not exercised within the option period will become
available for future grants. The 1995 plan will terminate in 2004, unless
previously terminated by the Board of Directors.

F-55
<PAGE> 155

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The 1995 plan will be administered by the Board of Directors or an option
committee which may be appointed by the Board, which has the authority to
determine the persons to whom options will be granted, the number of ordinary
shares to be covered by each option, the time or times at which options will be
granted or exercised, and the terms and provisions of the options.

Options granted under the 1995 plan will generally be exercisable in
installments during the option term. These options will not be transferable by
an optionee other than by will or by laws of descent and distribution and,
during an option holder's lifetime, will be exercisable only by such option
holder or by his or her legal representative. Options granted under the 1995
plan will terminate at such time and under such circumstances as the Board or
option committee determines.

During January 1996, the Company granted to certain employees options,
under the 1995 plan, to purchase 6,392 ordinary shares. These options were
granted on the condition that the employee still be an employee of the company
in January 1998 and at exercises prices representing a discount of 40% on the
share value attributed at the time of the exchange with Selfcare Inc. or 40% of
a company valuation basis of $15 million on a fully diluted basis whatever the
lowest for the employee.

According with U.S. GAAP, the Company accrued deferred compensation in the
amount of $62,000. This amount reflects the excess of the market price over the
exercise price at the date of the grant.

This amount is amortized over the period from January 1996 through January
1998.

c. Convertible debenture

On February 7, 1996, the Company signed an agreement with Selfcare Inc. of
Boston USA by which Selfcare invested $1 million in the Company. The investment
was made in the form of a convertible debenture.

During November 1996, the debenture was converted into 20% of the shares of
Orgenics.

d. In November 1993, a related party agreed to waive $268,356 in interest
payable and the Company repaid the remaining balance of the loan. This waiver of
this debt has been accounted for in "stockholders' equity" as a contribution to
additional paid-in capital.

NOTE 16: TAXES ON INCOME

a. Tax benefits under the Law for the Encouragement of Capital Investments,
1959, as amended (hereafter -- "the Law"):

1. The production facilities of the Company have been granted an
"Approved Enterprise" status under the Law.

Income derived from an "Approved Enterprise" is subject, in the case
of Orgenics qualifying as a "foreign investment company," to corporate tax
at the rate of 20% (rather than the regular corporate tax), during a period
of ten years from the year in which such enterprise first earns taxable
income (limited to twelve years from commencement of production or to
fourteen years from the year in which the approval was granted, whichever
is earlier).

The period of benefits in respect of this approval will expire in
1997.

2. Further, an expansion program of Orgenics' enterprise engaged in
the production of diagnostic kits, has been granted an "Approved
Enterprise" status under the Law.

Investments under this program were made in 1991-1994. The Company has
not yet received a final operating approval for this program.

F-56
<PAGE> 156

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

According to the provisions of the Law, Orgenics has chosen, in
respect of this program, to enjoy "alternative benefits" -- waiver of
grants in return for tax exemption.

Accordingly, income derived from such program will be tax exempt for a
period of two years and will be subject to corporate tax at a rate of 20%
for the following eight years (limited to twelve or fourteen years, as
mentioned in 1. above).

The benefit period for this expansion program has not yet commenced.

Since Orgenics is operating under more than one approved program and
since part of its taxable income is not entitled to tax benefits under the
above-mentioned law and is taxed at regular rates (1993 -- 39%,
1994 -- 38%, 1995 -- 37% and 1996 -- 36%), its effective tax rate is the
result of a weighted combination of the various applicable rates or tax
exemptions. The computation is made for income derived from each project on
the basis of formulas specified in the Law and in the approvals.

3. The Law also grants the right to claim accelerated depreciation on
equipment used by the "Approved Enterprise".

b. Tax benefits under the Law for the Encouragement of Industry (Taxation),
1969:

Orgenics is an "Industrial Company" under the above law, and, as such, is
entitled to certain tax benefits, including accelerated depreciation at
increased rates and the deduction of the purchase price of know-how, over a
period of eight years.

c. Measurement of results of Orgenics for tax purposes:

Results of Orgenics for tax purposes are measured in terms of earnings in
NIS after certain adjustments for increases in the Israeli Consumer Price Index
("CPI"). As explained in Note 2a, the financial statements are presented in
United States dollars. The difference between the annual change in the Israeli
CPI and in the NIS/Dollar exchange rate causes a difference between taxable
income and the income before taxes in the financial statements.

d. Taxes on income in France:

Income taxes in France are computed, for fiscal years beginning on January
1, 1996, at a standard rate of 36.66% of taxable income (for the previous fiscal
years the standard rate was 33.33%). Ordinary tax losses can be carried forward
to offset taxable income for five years. Tax losses resulting from depreciation
can be carried forward with no time limit.

e. Taxes on income in Brazil:

Taxes on income in Brazil are computed for fiscal years beginning on
January 1. Commencing in 1996, the standard rate for taxable income will be 15%
(for the previous fiscal year the standard rate was 25%).

f. Carryforward tax losses:

Orgenics has a carryforward tax loss with no time limit amounting to
approximately $8.1 million (NIS 26 million) as of December 31, 1995. Losses in
NIS are linked to the Israeli CPI.

F-57
<PAGE> 157

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. PBS has a carryforward tax loss amounting to approximately $4.4 million
as of September 30, 1996.

Tax losses expire as follows:

<TABLE>
<CAPTION>
U.S. DOLLARS
----------------
(IN THOUSANDS)
<S> <C>
1996................................................... $ 531
1997................................................... --
1998................................................... 476
With no time limit..................................... 3,436
------
$4,443
======
</TABLE>

g. Tax assessments:

1. Orgenics has received final tax assessments up to and including the year
1990.

2. PBS has received final tax assessments up to and including the year
1991. Fiscal years remaining open for a tax audit are the years ended December
31, 1995, 1994 and 1993. However, in the event of utilization of carryforward
losses from previous years, the tax authorities are entitled to reassess the
years in which the tax loss originated.

h. A reconciliation of the theoretical tax expense assuming all income is taxed
at the statutory rate and the actual tax expense is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------ SEPTEMBER 30,
1993 1994 1995 1996
----- ----- ---- -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
Theoretical tax expense (income tax benefit) computed
at the statutory rate applicable to corporations in
Israel(1)........................................... $ 64 $(130) $ 93 $ 384
Increase (decrease) in income taxes resulting from:
Tax adjustments in respect of inflation in Israel... 63 (110) (18) (171)
Non-deductible expenses............................. 52 470 94 17
Different tax rate resulting from lower tax rate in
France and Brazil................................ (53) (5) (25) (44)
Tax benefits realized from use of loss carryforwards
not previously recorded as deferred tax
benefit.......................................... (120) (210) (82) (144)
----- ----- ---- -----
Taxes on income in the statements of operations(2).... $ 6 $ 15 $ 62 $ 42
===== ===== ==== =====
</TABLE>

(1) Computed at the rate of 39% for the year 1993, 38% for the year 1994, 37%
for the year 1995, and 36% for the year 1996.

(2) Represents the minimum taxes paid by PBS and CPEI pursuant to the French and
the Brazilian law.

F-58
<PAGE> 158

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Domestic (Israel)....................... $ 423 $ (420) $ 16 $ 525
Foreign................................. (258) 79 234 543
------- ------- ------- -------
$ 165 $ (341) $ 250 $ 1,068
======= ======= ======= =======
</TABLE>

j. Deferred income taxes:

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------- ------- ------- -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
The Company's deferred income taxes
consist of the following:
Various accrued liabilities........... $ 32 $ 39 $ 105 $ 120
Carryforward losses................... 3,226 3,449 4,464 3,927
Intercompany unrealized income
currently taxable.................. 14 18 15 17
------- ------- ------- -------
3,272 3,506 4,584 4,064
Less valuation allowance(1)........... (3,272) (3,506) (4,584) (4,064)
------- ------- ------- -------
$ -- -- -- --
======= ======= ======= =======
</TABLE>

(1) In 1993, 1994 and 1995, the Company has provided a 100% valuation allowance
against the deferred tax assets, in respect of those tax loss carryforwards
and other temporary differences, due to uncertainty of future results and
its ability to realize these deferred tax assets.

F-59
<PAGE> 159

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17: TRANSACTIONS WITH RELATED PARTIES

a. In September 1993, an employment agreement was signed between Orgenics and
its Chairman of the Board and Chief Executive Officer ("the Employee"). It was
agreed that from January 1, 1993, the Employee will be entitled annually to
participate in the profit of the Company at a rate of 2% of the net income of
the Company, subject to the condition that the net income of the Company be at
least 10% of total sales of the Company in the same year. The agreement will
expire after four years beginning from September 1993 unless one of the two
parties gives expiration notice earlier.

In January 1995, the Company, under the 1994 option plan, granted to the
Employee options to purchase 11,242 of the Company's ordinary shares (see Note
15b).

b. Transactions with related parties are included in the following items in the
statement of operations:

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------- SEPTEMBER 30,
1993 1994 1995 1996
--- --- --- -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
Legal fees and other expenses to OIH....................... $30 $16 $50 $ 165
Revenues from a Company owned by the minority stockholder
of CPEI.................................................. -- -- -- $ 305
</TABLE>

c. CPEI-ORGENICS LTDA -- local management neglected to apply for a permit to
conduct business in the State of Sao Paulo and this company received a warning
from the Health Authorities of that State that it is precluded from selling
products until full documentation is obtained.

Management believes that such a permit will be obtained soon, provided
CPEI-ORGENICS LTDA's local management makes efforts to receive it. In the
meantime, Orgenics Ltd. gave authorization to a related company to sell its
products for a period of three months in the Brazilian market through
CPEI-ORGENICS LTDA.

Management believes that CPEI-ORGENICS LTDA's local management is acting in
conflict of interest and have been notified by the Company to that effect.
Management believes that sales in Brazil could be temporarily affected by 10-20%
in 1997 if a dispute with a local partner would force the Company to establish
alternative distribution channels.

NOTE 18: SELECTED STATEMENT OF OPERATIONS DATA

a. Sales classified by geographical destination:

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
----------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------ ------ ------- -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
France............................................ $3,139 $3,054 $ 4,182 $ 6,401
South America..................................... 1,117 1,675 3,310 2,153
United States..................................... 448 199 132 287
Europe (excluding France)......................... 522 1,027 701 36
Israel............................................ 258 245 192 137
Other countries................................... 823 1,362 1,656 417
------ ------ ------- -------
Total revenues.......................... $6,307 $7,562 $10,173 $ 9,431
====== ====== ======= =======
Including exchange rate insurance revenues (net of
premium)........................................ $ 42 $ -- $ -- $ --
====== ====== ======= =======
</TABLE>

F-60
<PAGE> 160

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

b. Information about the Company's operations in different geographical areas:

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------------------------
ADJUSTMENTS
AND
ISRAEL FRANCE BRAZIL ELIMINATIONS CONSOLIDATED
------ ------ ------ ------------ ------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers......... $3,264 $4,014 $2,153 $ -- $ 9,431
Transfers between geographic areas...... 1,814 -- -- (1,814) --
------ ------ ------ -------- --------
Total sales................... $5,078 $4,014 $2,153 $ (1,814) $ 9,431
====== ====== ====== ======== ========
Operating income........................ $ 532 $ 486 $ 132 $ (44) $ 1,106
====== ====== ====== ========
Financial expenses, net................. (38)
Other expenses, net..................... --
--------
Income before taxes on income........... $ 1,068
========
Identifiable and total assets at
September 30, 1996.................... $6,444 $1,756 $ 597 $ (987) $ 7,810
====== ====== ====== ======== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
ADJUSTMENTS
AND
ISRAEL FRANCE BRAZIL ELIMINATIONS CONSOLIDATED
------ ------ ------ ------------ ------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers......... $3,838 $4,182 $2,153 $ -- $ 10,173
Transfers between geographic areas...... 1,857 -- -- (1,857) --
------ ------ ------ -------- --------
Total sales................... $5,695 $4,182 $2,153 $ (1,857) $ 10,173
====== ====== ====== ======== ========
Operating income........................ $ 583 $ 321 $ 221 $ (90) $ 1,035
====== ====== ====== ======== ========
Financial expenses, net................. (600)
Other expenses, net..................... (185)
--------
Income before taxes on income........... $ 250
========
Identifiable and total assets at
December 31, 1995..................... $5,274 $1,976 $ 562 $ (856) $ 6,956
====== ====== ====== ======== ========
</TABLE>

F-61
<PAGE> 161

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------
ADJUSTMENTS
AND
ISRAEL FRANCE ELIMINATIONS CONSOLIDATED
------ ------ ------------ ------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.................. $4,463 $3,099 $ -- $ 7,562
Transfers between geographic areas............... 1,079 -- (1,079) --
------ ------ -------- --------
Total sales............................ $5,542 $3,099 $ (1,079) $ 7,562
====== ====== ======== ========
Operating income................................. $1,026 $ 13 $ 19 $ 1,058
====== ====== ========
Financial expenses, net.......................... (319)
Other expenses, net.............................. (1,080)
--------
Loss before taxes on income...................... $ (341)
========
Identifiable and total assets at December 31,
1994........................................... $6,972 $1,749 $ (1,641) $ 7,080
====== ====== ======== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------------------
ADJUSTMENTS
AND
ISRAEL FRANCE ELIMINATIONS CONSOLIDATED
------ ------ ------------ ------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.................. $3,079 $3,228 $ -- $ 6,307
Transfers between geographic areas............... 1,080 150 (1,230) --
------ ------ -------- --------
Total sales............................ $4,159 $3,378 $ (1,230) $ 6,307
====== ====== ======== ========
Operating income (loss).......................... $ 558 $ (62) $ 42 $ 538
====== ====== ========
Financial expenses, net.......................... (367)
Other expenses, net.............................. (6)
--------
Income before taxes on income.................... $ 165
========
Identifiable and total assets at December 31,
1993........................................... $7,291 $2,746 $ (3,848) $ 6,189
====== ====== ======== ========
</TABLE>

c. Cost of revenues:

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------ ------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
Materials consumed................................. $812 $1,149 $1,231 $ 1,009
Salaries and related employee benefits............. 350 456 535 460
Royalties.......................................... 246 129 111 195
Other manufacturing costs.......................... 231 190 114 194
Depreciation and amortization...................... 112 91 185 106
------ ------ ------ -------
1,751 2,015 2,176 1,964
Decrease (increase) in finished products and work
in process manufactured by Orgenics.............. (87) (188) (111) 179
------ ------ ------ -------
1,664 1,827 2,065 2,143
Commercial activities -- cost of purchased products
sold............................................. 441 365 1,009 735
------ ------ ------ -------
$2,105 $2,192 $3,074 $ 2,878
====== ====== ====== =======
</TABLE>

F-62
<PAGE> 162

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

d. Research and development expenses:

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------ ------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and related employee benefits............. $ 475 $ 765 $ 961 $ 889
Materials consumed................................. 111 528 314 280
Subcontractors and others.......................... 197 215 74 172
Depreciation and amortization...................... 46 55 60 158
------ ------ ------ -------
$ 829 $1,563 $1,409 $ 1,499
====== ====== ====== =======
</TABLE>

e. Selling expenses:

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------ ------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and related employee benefits............. $ 591 $ 787 $1,179 $ 1,098
Transportation and deliveries...................... 281 313 409 556
Advertising........................................ 138 138 418 166
Depreciation....................................... 6 30 32 10
Other selling expenses............................. 319 315 339 557
------ ------ ------ -------
$1,335 $1,583 $2,377 $ 2,387
====== ====== ====== =======
</TABLE>

f. General and administrative expenses:

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------ ------ ------ -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and related employee benefits............. $ 881 $ 931 $1,221 $ 999
Rental expense and municipal taxes................. 219 380 230 227
Other general and administrative expenses.......... 613 550 1,156 942
Depreciation....................................... 60 85 89 57
------ ------ ------ -------
$1,773 $1,946 $2,696 $ 2,225
====== ====== ====== =======
</TABLE>

F-63
<PAGE> 163

ORGENICS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

g. Financial expenses, net

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------------- SEPTEMBER 30,
1993 1994 1995 1996
---- ---- ---- -------------
U.S. DOLLARS (IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest on short-term debt............................. $208 $204 $377 $ 168
Interest on long-term debt.............................. 135 162 203 45
Foreign translation differences......................... 105 (39) 88 (196)
Interest on short-term investments and others........... (32) (70) (62) --
Loss (gain) from marketable securities.................. (49) 62 (6) 21
---- ---- ---- -----
Financial expenses, net................................. $367 $319 $600 $ 38
==== ==== ==== =====
</TABLE>

h. Other income (expenses) net

<TABLE>
<S> <C> <C> <C> <C>
Gain (loss) on sale of fixed assets and other
investments........................................... $ (4) $ 30 $ (8) $ --
Other income (expenses)................................. (2) 15 23 --
---- ---- ---- -----
$ (6) $ 45 $ 15 $ --
==== ==== ==== =====
</TABLE>

NOTE 19: SUBSIDIARIES INCLUDED IN THE CONSOLIDATION

<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF THE COMPANY OWNERSHIP
----------------------------------------------------------------- -----------------------
<S> <C>
PBS S.A.......................................................... 99.98%
Orgenics International Corporation
(wholly-owned by PBS S.A.)..................................... 99.98%
CPEI ORGENICS LTDA (CPEI)........................................ 55.00%
</TABLE>

F-64
<PAGE> 164

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To American Home Products Corporation:

We have audited the accompanying statement of net assets to be sold of
American Home Products Corporation's Whitehall-Robins Healthcare
Division-Certain Domestic Vitamin and Nutritional Supplement Consumer Healthcare
Brands (Nutritional Supplement Lines) as of November 30, 1996, and the related
statements of net revenues in excess of direct expenses for the years ended
November 30, 1995 and 1996. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

These statements have been prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
the Form SB-2 of Selfcare, Inc., as described in Note 1 and are not intended to
be a complete presentation of the Nutritional Supplement Line's assets and
liabilities and revenues and expenses.

In our opinion, the statements referred to above present fairly, in all
material respects, the net assets to be sold as of November 30, 1996, and net
revenues in excess of direct expenses of the Nutritional Supplement Lines for
the years ended November 30, 1995 and 1996, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Roseland, New Jersey
December 30, 1996

F-65
<PAGE> 165

AMERICAN HOME PRODUCTS CORPORATION

WHITEHALL-ROBINS HEALTHCARE DIVISION -- CERTAIN DOMESTIC VITAMIN
AND NUTRITIONAL SUPPLEMENT CONSUMER HEALTHCARE BRANDS
(NUTRITIONAL SUPPLEMENT LINES)

STATEMENT OF NET ASSETS TO BE SOLD
AS OF NOVEMBER 30, 1996
(IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<S> <C>
INTANGIBLES, net................................................................... $13,822

ACCRUED EXPENSES................................................................... (1,443)
-------
Net assets to be sold.................................................... $12,379
=======
</TABLE>

The accompanying notes are an integral part of this statement.

F-66
<PAGE> 166

AMERICAN HOME PRODUCTS CORPORATION

WHITEHALL-ROBINS HEALTHCARE DIVISION -- CERTAIN DOMESTIC VITAMIN
AND NUTRITIONAL SUPPLEMENT CONSUMER HEALTHCARE BRANDS
(NUTRITIONAL SUPPLEMENT LINES)

STATEMENTS OF NET REVENUES IN EXCESS OF DIRECT EXPENSES
FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
NET REVENUES........................................................... $25,986 $24,449
------- -------

DIRECT COSTS AND EXPENSES:
Cost of sales........................................................ 7,809 7,246
Direct marketing expenses............................................ 6,543 3,847
Direct selling, general and administrative expenses.................. 1,045 951
Research and development expenses.................................... 210 210
------- -------
Net revenues in excess of direct expenses.................... $10,379 $12,195
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-67
<PAGE> 167

AMERICAN HOME PRODUCTS CORPORATION

WHITEHALL-ROBINS HEALTHCARE DIVISION -- CERTAIN DOMESTIC VITAMIN
AND NUTRITIONAL SUPPLEMENT CONSUMER HEALTHCARE BRANDS
(NUTRITIONAL SUPPLEMENT LINES)

NOTES TO STATEMENTS

(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accompanying statements were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission for
inclusion in the Form SB-2 of Selfcare, Inc., and are not intended to be a
complete presentation of the American Home Products Corporation's
Whitehall-Robins Healthcare Division -- Certain Domestic Vitamin and Nutritional
Supplement Consumer Healthcare Brands (the Nutritional Supplement Lines) assets
and liabilities and revenues and expenses. Pursuant to a draft Purchase
Agreement between American Home Products Corporation (the Parent), American
Cyanamid Company, A.H. Robins Company, Inc. and Selfcare, Inc., certain
intangible assets and certain liabilities (see accrued expenses) will be
acquired by Selfcare, Inc. for $30,000,000 cash and $6,000,000 in the form of a
note payable with an annual interest rate of 7%, due one year after closing. All
other assets and liabilities of the Nutritional Supplement Lines have been
excluded in accordance with the draft Purchase Agreement.

The statement of net assets to be sold has been derived from the financial
statements of Domestic Whitehall-Robins Healthcare, a division of American Home
Products Corporation (the Division). The products (the Brands) subject to the
draft Purchase Agreement are --

-- Allbee(R)
-- Beminal(R)
-- Gevral(R)-T
-- Gevrabon(R)
-- Posture(R)
-- Protegra(R)
-- Stresstabs(R)
-- Z-Bec(R)

The Company will not purchase the trademark "Ferro-Sequels" from the
Parent, but instead will receive an exclusive, fully paid license from the
Parent to use the mark in the United States.

The statements of net revenues in excess of direct expenses excludes
charges which are allocated to the Nutritional Supplement Lines by the Division
or the Parent. These allocations include, among other things, support services
such as research and development, legal, finance, treasury, tax, pension and
group insurance, insurance, environmental, safety, public relations, audit and
executive management advisory functions, as well as quality control, warehousing
and administrative costs. Interest income or expense attributable to borrowings
required to finance the Nutritional Supplement Lines' operations have also been
excluded.

Intangibles, Net

No specific historical costs had been recorded relative to the intangible
assets subject to the draft Purchase Agreement. Certain of the Brands were
acquired as part of American Home Products Corporation's acquisition of American
Cyanamid Company, which occurred effective December 1, 1994. The intangible
assets to be sold pursuant to the draft Purchase Agreement represent these
brands' proportionate share of the excess of the cost over the fair value of the
net assets acquired in that acquisition of American Cyanamid and are being
amortized on the straight-line method over 40 years. The allocation has been
made based upon the relative brand profit of the products to the total brand
profit of the Consumer Health division of American Cyanamid Company. At November
30, 1996, the accumulated amortization was $728,000.

F-68
<PAGE> 168

AMERICAN HOME PRODUCTS CORPORATION

WHITEHALL-ROBINS HEALTHCARE DIVISION -- CERTAIN DOMESTIC VITAMIN
AND NUTRITIONAL SUPPLEMENT CONSUMER HEALTHCARE BRANDS
(NUTRITIONAL SUPPLEMENT LINES)

NOTES TO STATEMENTS -- (CONTINUED)

Accrued Expenses

Accrued expenses represents the liabilities for returns and other price
adjustments and promotional accruals on sales occurring on or before November
30, 1996. The Company provides for these accruals at the time of sale based on
historical percentages.

Net Revenues and Direct Expenses

Net revenues, cost of sales, marketing and selling, general and
administrative direct expenses are based on the actual amounts recorded by the
Division associated with the Nutritional Supplement Lines. Amortization of
intangibles was $364,000 for each of the years ended November 30, 1995 and 1996
and is included in selling, general and administrative expenses.

(2) COMMITMENTS AND CONTINGENCIES:

In accordance with the draft Purchase Agreement, American Home Products
Corporation and its subsidiaries and divisions will be required to provide
certain transition supplies of the Brands and manufacturing capacity for the
Brands to the buyer.

F-69
<PAGE> 169

[Description of Inside Back Cover's Graphic: The graphic depicts the
packaging of the Company's early pregnancy tests and early ovulation
predictor and certain private label pregnancy tests and ovulation
predictors supplied by the Company. The packaging of each such product
generally contains photographic or other graphic depiction of the product
as well as the product's name.]
<PAGE> 170

======================================================

No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not 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 the Underwriters. This
Prospectus does not constitute an offer of any securities other than those to
which it relates or an offer to sell, or a solicitation of an offer to buy, to
any person in any jurisdiction where such an offer or solicita- tion would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any im-plication that the information
contained herein is correct as of any time subsequent to the date hereof.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 21
Use of Proceeds....................... 21
Price Range of Common Stock and
Dividend Policy..................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected Consolidated Financial
Data................................ 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 36
Management............................ 71
Certain Transactions.................. 83
Principal Stockholders................ 87
Description of Capital Stock.......... 89
Shares Eligible for Future Sale....... 93
Underwriting.......................... 96
Legal Matters......................... 97
Experts............................... 97
Available Information................. 98
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

======================================================
======================================================

1,800,000 SHARES

LOGO
COMMON STOCK

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

PROSPECTUS

March 7, 1997

---------------------------
LEHMAN BROTHERS
DILLON, READ & CO. INC.
A.G. EDWARDS & SONS, INC.
======================================================