SCANTEK MEDICAL INC, 10SB12G, 1996-07-22

SCANTEK MEDICAL INC
10SB12G, 1996-07-22
MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES

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U.S.SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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FORM 10-SB

GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934

Scantek Medical, Inc.
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(Exact name of registrant as specified in its charter)

Delaware 84-1090126
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

26 Merry Lane, East Hanover, New Jersey 07936
- ----------------------------------------- -----
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code 201-331-1766

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

Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------

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

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

Common Stock, $.0001 par value
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(Title of class)

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PART I

Item 1. Description of Business.

The Company

Scantek Medical, Inc. (the "Company"), a Delaware corporation, was organized
under the name "Jenncor Acquisition Inc." on June 10, 1988, to obtain funding
for prospective business opportunities available to publicly held entities.
Until October 3, 1991, when the Company exchanged its shares with Scantek
Digital Systems Inc. ("SDSI"), the Company's only business activities involved
raising capital through a public offering pursuant to Regulation A of the
Securities Act of 1933, as amended (the "Act"). Pursuant to the share exchange
between the Company and SDSI, SDSI, the current holder of several patents
relating to a medical product known as the Breast Thermal Activity Indicator
(the "BTAI"), became a wholly-owned subsidiary of the Company. The Company is a
development stage company and has not received any significant revenue to date.
Its accumulated deficit as of December 31, 1995 was $3,457,791.

The BTAI is a direct reading digital device used to screen for breast
abnormalities, including cancer. The BTAI is designed to complement, not
replace, conventional breast abnormality screening methods and devices. It is a
cost effective, single-use, non-invasive screening modality which has no known
side effects, and will aid in the early detection of breast abnormalities,
including cancer, especially when used in conjunction with other medical
examination techniques. (See "Business -- The Product"). In January, 1984, the
marketing of the BTAI was approved by the Food and Drug Administration (the
"FDA").

The Company recently entered into a license agreement with Humascan, Inc.
("Humascan") granting Humascan the exclusive right to manufacture and sell the
BTAI in the United States and Canada and their respective territories ("U.S. and
Canada"). At the time of the license agreement, the Company and Humascan were
independent unaffiliated companies. However, as a result of this license
agreement, the Company received, and currently owns, twenty percent (20%) of
Humascan's outstanding common stock. With regard to all areas outside of the
U.S. and Canada, the Company's goal is to enter into license agreements and form
joint ventures for the global sale of the BTAI. (See "BUSINESS - License
Agreements" and "BUSINESS Patents").

The Company intends to construct a production facility to manufacture and
assemble the BTAI for sale outside the U.S. and Canada. The Company is looking
for a manufacturing location which can give the Company access to shipping and
low manufacturing cost. Although no determination of the initial manufacturing
location has been made, based on the criteria, the Company expects the location
will be in central Europe. The Company has entered into an agreement with Zigmed
Corporation ("Zigmed") pursuant to which Zigmed will manufacture the production
equipment needed for the manufacturing of the BTAI for the contract price of
$1,750,680, subject to increase. It is estimated that the combined cost of the
production equipment and the production facility will be approximately
$2,500,000. At the time of the purchase order, and presently, Zigmed is owned
and controlled by the son of Zsigmond Sagi, the President and Chief Executive
Officer of the Company. Although Mr. Sagi was once the owner of Zigmed,

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he has had no ties to Zigmed since September, 1994. (See "Certain Relationships
and Related Transactions: Manufacturing Equipment Purchase Order")

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Background for the BTAI

The BTAI is designed to screen the breast for abnormalities, including cancer.
Breast cancer, the most common form of cancer that women suffer from today, is
currently the second leading cause of cancer death among women in the United
States, and the most common cause of cancer deaths for women between the ages of
35 and 54. The recent estimate is that 1 out of 8 women in the United States
will develop breast cancer in her lifetime. Of those who do, 1 out of 4 will die
because of the breast cancer. It is estimated that in 1996 there will be 182,900
new invasive cases among women in the United States and 1,400 among men. As a
result, an estimated 44,300 women and 260 men will die from breast cancer in
1996.

Statistics support the notion that early detection of breast cancer is the most
effective means of reducing the breast cancer mortality rate. In the 1940's, the
five-year survival rate for early diagnosed breast cancer was 78%. Today, the
survival rate is 96%. However, when the cancer is not detected early and is
given the chance to spread to the lymph nodes, the survival rate decreases
dramatically. For example, if the breast cancer has spread and is no longer
localized, the five-year survival rate falls to 75%, for persons with distant
metastases at the time of diagnosis, the survival rate is 20%.

Recent studies suggest that mammography is cost/benefit ineffective in reducing
deaths in the absence of suspicious symptoms or a high risk factor for women
under the age of 50. As a result, the National Cancer Institute (NCI) and the
American Academy of Family Physicians now recommend that women wait until age
50 to begin routine screening mammography and encourage women under age 50 to
consult their doctors regarding decisions about screening. Consequently, there
is no universally accepted initial screening technique other than physical
examination for detection of breast cancers in pre-menopausal women in the 20-50
age group. There are 57 million women of age 20-50 in the United States.

The Product

It is well established that breast abnormalities, including cancer, are often
characterized by increased heat output. An important biological characteristic
of a malignant tumor is its increased rate of growth as compared to the
surrounding or "host" tissue. The malignant propensities are directly related to
the speed of cell division, which is in turn reflected by accelerated local
metabolism causing increased blood and lymphatic vascularity. These biological
alterations can be detected by measuring temperature differences between the
tumor and its immediate environment and other segments of the same breast, or by
comparing it to the temperatures of tissue of the opposite breast. Heat energy
is transferred by process of convection, conduction (as used by the BTAI), or
radiated energy (as used by thermography). Management believes that the BTAI can
assist in the recognition of early cellular activity and development by
recording the heat differentiation in corresponding areas of the breasts and/or
within the same breast. Although the BTAI is not a diagnostic test for cancer
(i.e., biopsy), it is a valuable device to identify and follow breast
abnormalities by means of temperature conductivity integration.

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In brief summary, the BTAI is designed to assist in the detection of the
pathology of the breast abnormalities by recognizing heat differences in the
underlying tissue of a particular area within one breast, and comparing the
mirror images of one breast to the other. In the event that the BTAI indicates a
certain heat difference, the doctor is alerted to the fact that there is
evidence of a pathological process within a particular area of the breast that
should be evaluated further. The test does not determine the type of
abnormality.

The BTAI is a direct reading digital device which can be used to screen for
breast abnormalities, including cancer. The product is designed to complement,
not replace, conventional breast abnormality screening methods and devices. It
is intended for use on women of all ages. The Company expects the product to be
used for routine, primary office care procedure as a non-invasive, screening
modality.

The BTAI measures underlying breast tissue temperature and not skin surface
temperature by retaining emitted heat when the BTAI is placed against the
breast. In reading the averaged and recorded segments on the BTAI, the method
takes into consideration the fact that the temperature patterns of a woman's
breasts are normally closely symmetrical.

The BTAI consists of a pair of non-woven pads made of spun fiber material, each
of which has three wafer-thin, pliant, aluminum foil, temperature responsive
segments attached to its inner surface. Each segment is wedge shaped and
contains 18 columns or bars of thermal dots, each column differing from the
adjacent column by approximately 0.5 degrees fahrenheit. These dots contain a
chemical heat sensor that changes color when exposed to a specific temperature.

Before being used, all the dots of thermosensitive foil material in the BTAI are
blue. The color dots have a memory which allows them to retain their color
indication (pink) after they have been exposed to the temperature of the breast.
To use the product, the pads are inserted into the patient's brassiere for 15
minutes. When removed, the wedge-shaped sensors on the pads will directly
indicate the average underlying breast tissue temperature, without requiring any
electronic or ancillary devices. This result is digitally, not analogically,
indicated by color changes for each temperature graduation. Tissue heat is
indicated as a bar graph on the heat sensors for each segment of the breast.
Temperature differences of 2 degrees fahrenheit or 4 bars or more, in the
corresponding areas of the breasts may indicate a breast abnormality before a
lump would be discovered by self examination, clinical examination, or other
detection methods such as mammography, ultrasound, etc. Based upon an analysis
of these temperature differences in corresponding areas of the breast, further
site-specific testing by other diagnostic techniques including mammography
and/or biopsy and other methods may be performed. However, the BTAI does not
replace recommended guidelines for scheduled mammographic screening.

The FDA has authorized the marketing of the BTAI and it will be used as an
adjunct to mammography and/or physical examination. From 1980 to 1984,
comprehensive clinical data was collected in five separate clinical studies
conducted by six institutions and hospitals including among others, M.D.
Anderson Hospital & Tumor Institute, Brotman Memorial Hospital at

<PAGE>

UCLA, Georgetown University School of Medicine, Memorial Sloan Kettering
Hospital and the Guttman Cancer Diagnostic Institute. The BTAI was found to be
very accurate in terms of the device's documented sensitivity (true positives
for cancer) and specificity (true negatives -- no cancer detectable by accepted
medical methods) indices in relation to biopsy, and clinical breast examination
and mammography. Some specifics regarding the studies are as follows:

BTAI Test Results vs. Biopsy Finding

After initial clinical trials at Georgetown University School of Medicine,
the BTAI was the focus of a clinical trial involving 179 women who
underwent biopsy. This multicenter study was conducted at three cancer
institutions: M.D. Anderson Hospital and Tumor Institute, Memorial
Sloan-Kettering Hospital, and Brotman Memorial Hospital at UCLA. BTAI
tested positive in 93 of the 112 women who were diagnosed with cancer by
biopsy for an overall sensitivity index of 83.0%, and was notably stronger
in correlation with unilateral cancers -- a sensitivity index of 88.1%
(that is, 74 of the 84 unilateral cancers diagnosed). (Less than 3% of
breast cancers are believed to be bilateral generally.)

The biopsy results were subjected to a breakdown by the size of cancer
detected and the patient age. The threshold tumor size which would
typically result in skin temperature variance detectable with BTAI is five
millimeters and up -- an early-stage cancer; of a total of eight cancers
under 1.0 centimeter diagnosed during the screening study, seven tested
positive using the device. Moreover, a breakdown of the BTAI results by age
suggests a possibly high efficacy in detecting suspicious abnormalities in
younger women.

BTAI Results vs. Clinical Findings by Mammography and Physical Examination

In the second major clinical trial study at Guttman Cancer Diagnostic
Institute, the BTAI was studied prospectively in 2,805 asymptomatic women.
Specifically, the BTAI data were compared to the mammographic and clinical
findings obtained for "suspicion of Malignancy," as well as to a limited
number of cytological findings. Of the 2,805 women screened, 99 were
recommended for biopsy based on either suspicious mammogram and/or clinical
examinations. The BTAI was positive in 86 of the 99 women recommended for
biopsy (a sensitivity index of 86.9%). Fifty-nine biopsies were
subsequently performed, and 13 of the 15 cancers diagnosed were positive
for the BTAI (a sensitivity index of 86.7% against biopsy). Of the 2,706
women who had no suspicion of cancer based on mammogram and/or clinical

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examinations, 2,340 had negative BTAI results (a specificity index of 86.5%
and a negative predictive value of 99.4% with a 95% confidence interval).

The false positive rate (true negatives with a positive BTAI of 13.5%
obtained for the initial screening trial assumes two additional
circumstances: (1) that no mammographically undetectable cancers occurred;
and (2) that the rate of subsequent cancer occurrence within this so-called
false positive group is not statistically higher than that of the
population of women as a whole. A lower true false positive rate for the
device can be assumed if abnormal thermal distribution is a risk marker for
future disease incidence, as has frequently been suggested. In fact,
several publications have documented a positive predictive value for
thermographically-based tests to detect future cancers.

Based on the clinical results and the characteristics of the BTAI, the Company
believes that the prospects for the BTAI as a supplement to currently existing
diagnostic tests are very good.

History of the Technology

The BTAI was developed by Zsigmond Sagi through BCSI Laboratories, Inc., a
corporation of which he was President and Chief Executive Officer from 1980 to
1985. During that time, the product was produced in a prototype plant and
clinical trials were performed. From 1985-1989, the product was under the
control of an MacGregor Industries, an unaffiliated company which discontinued
work on the BTAI. Thereafter, Mr. Sagi, through SMC Corp., a company which he
controlled, sought to and in 1989 re-acquired the technology. From 1989 until
the acquisition of the technology in 1991 by SDSI, SMC Corp. sought to raise
sufficient capital to proceed with the manufacture and sale of the BTAI. Since
1991, when SDSI became a wholly-owned subsidiary of the Company, the Company has
been seeking capital in order to exploit the technology. As a result, since
1985, the technology has not been further developed or exploited. See "Certain
Relationships and Related Transactions: History of the Control of the BTAI."

Regulations

The Company's development and manufacture of medical devices is controlled by
the Food, Drug and Cosmetic Act (the "Act"). The Food and Drug Administration
("FDA"), which

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administers the Act, has promulgated regulations pursuant to Section 510(k) of
the Act which permit certain new products to enter the United States market
through the submission of premarket notification to FDA (Title 21, CFR, Part
807, Subpart E, Premarket Notification Procedures). FDA has also promulgated
regulations for facilities registration and product listing (Title 21, CFR, Part
807, Subpart B) and for the documentation and control of manufacturing processes
(Title 21, CFR, Part 820 Good Manufacturing Practice for Medical Devices:
General).

There is a risk that the FDA could reevaluate the basis upon which it granted
the Company's 510(k) Market Rights in 1984. If the FDA were to reevaluate these
decisions and conclude that additional data was necessary to support
authorization to market the BTAI, it could rescind previous 510(k) Market Rights
for breast thermographic devices. The result would be that the Company's
licensee, Humascan, would have to cease marketing the BTAI until new approval to
market the BTAI is received.

In that the Company intends to construct its manufacturing facility outside of
the United States, the FDA will have no authority to regulate the Company's
proposed manufacturing operations.

However, the FDC Act requires device manufacturers to obtain new FDA clearance
or approval when, among other things, there is a major change or modification in
the intended use of a legally marketed device or a change or modification,
including product enhancements, to a legally marketed device that could
significantly affect its safety or effectiveness. For devices marketed pursuant
to 510(k) Market Rights, the manufacturer must obtain FDA clearance of a new
510(k) notification prior to marketing the modified device; for devices marketed
pursuant to an approval PMA, the manufacturer must obtain FDA approval of a
supplement to the PMA (a "PMA supplement") prior to marketing the modified
device.

A device manufacturer is responsible for making the initial determination as to
whether a proposed change to a cleared or approved device or to its intended use
necessitates the filing of a new 510(k) notification or a PMA supplement. If a
company determines that any modification to a device would not require the
submission of a new 510(k) notification (or a PMA supplement, for devices
marketed pursuant to an approved PMA), there can be no assurance that FDA would
agree with the company's determinations and would not require the company to
submit a new 510(k) notification (or PMA supplement) for any modification to the
device, the company may be prohibited from marketing the device as modified
until FDA clears the 510(k) notification (or approves the PMA supplement). There
can be no assurance that the company will obtain 510(k) Market Rights (or
approval of a PMA supplement) on a timely basis, or at all, for modifications to
a device for which it files a future 510(k) notification (or a future PMA
supplement). Moreover, the clearances or approvals, if granted, could limit the
uses for which the product could be marketed. Failure to obtain, or delays
caused by, regulatory clearances or approvals could have a material adverse
effect directly on Humascan, and indirectly on the Company's business, financial
condition and results of operations.

Any products manufactured or distributed by a company pursuant to FDA clearances
or approvals are subject to pervasive and continuing regulation by FDA. Device
manufacturers are required to register their establishments and list their
devices with FDA, and are subject to periodic inspections by FDA and certain
state agencies. The FDA Act requires device manufacturers to comply with cGMP
regulations which impose certain procedural and documentation requirements upon
a company with respect to manufacturing and quality assurance activities. FDA
has proposed changes to the cGMP regulations which, if finalized, would likely
increase the cost of complying with cGMP requirements.

In addition, the Medical Device Reporting ("MDR") regulation obligates a company
to inform FDA whenever there is reasonable evidence to suggest that one of its
devices may have caused or contributed to death or serious injury, or when one
of its devices malfunctions and, if the malfunction were to recur, the device
would be likely to cause or contribute to a death or serious injury.

Labeling and promotion activities are also subject to scrutiny by FDA and, in
certain instances, by the Federal Trade Commission. FDA actively enforces
regulations prohibiting marketing of products for unapproved uses.

If, as a result of FDA inspections, MDR reports or information derived from any
other source, FDA believes a company is not in compliance with the law, FDA can
refuse to clear or approve pending 510(k) notifications or PMA applications;
withdraw 510(k) Market Rights or PMA approvals; require notification to users
regarding newly found unreasonable risks; request repair, refund or replacement
of faulty devices; request corrective advertisements, formal recalls or
temporary marketing suspension; impose civil penalties; or institute legal
proceedings to detain or seize products, enjoin future violations, or seek
criminal penalties against a company, its officers and/or employees.

A company and its products are also subject to a variety of state and local laws
and regulations in those states or localities where its products are or will be
marketed. Any applicable state or local laws or regulations may hinder a
company's ability to market its products in those states or localities.

Changes in existing requirements or adoption of new requirements or policies
could adversely affect the ability of a company to comply with regulatory
requirements. Failure to comply with regulatory requirements could have a
material adverse effect on a company. There can be no assurance that the
Licensor will not be required to incur significant costs to comply with laws and
regulations in the future or that laws or regulations will not have a material
adverse effect upon the Licensor, and the Company indirectly.

The impact of potential foreign government regulations may impose additional
costs and burdens on the Company. The regulatory review process varies from
country to country. Many countries impose product standards, packaging and
labeling requirements, and import restrictions on devices. In addition, each
country has its own tariff regulations, duties and tax requirements. Changes in
existing requirements or adoption of new requirements or policies in foreign
countries could have a material adverse effect on the Company. There can be no
assurance that the Company will not be required to incur significant costs to
comply with laws and regulations in the future or that laws or regulations will
not have a material adverse effect upon the Company.

Subject to the potential changes in regulatory status discussed above, the
Company believes that it is in full compliance with the requirements Part 807
Premarket Notification, as promulgated under Section 510(k) of the Act and
therefore, has market rights for the BTAI (which have been assigned to Humascan
under the Humascan License Agreement). Also included under Part 807 is a
requirement for product registration and listing, which the Company believes has
been satisfied.

On January 24, 1984, the FDA granted permission to market the BTAI.

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Patents

The proprietary nature of the BTAI is protected under patent rights issued in
the United States and foreign countries. However, in general, the level of
protection afforded by a patent is directly proportional to the ability of the
patent owner to protect and enforce his rights under the patent. Since the
financial resources of the Company are currently limited, and patent litigation
can be both expensive and time consuming, there is the risk that enforcing the
patents for the BTAI will have a material adverse financial effect on the
Company or the Company will not have the financial resources to necessary to
enforce its patents. Once the Company's existing patents expire, other companies
may be able to create substantially similar products. If this were to happen,
the Company would not be able to avail itself of the protection afforded by the
patent laws.

In the United States, Patent No. 4,190,058 for a "Device For Use in Early
Detection of Breast Cancer" was granted and issued to Mr. Sagi on February 26,
1980. Patent No. 4,651,749, granted on March 24, 1987, entitled "Cancer
Detection Patch for Early Detection of Breast Cancer; Temperature, Indicators,
Flexibility, Thermoconductivity, Webs," is a partial continuation of Patent No.
4,190,058; both patents will expire on February 26, 1997. On October 8, 1985,
Patent No. RE32,000, a reissue of the 1980 patent, was granted and issued.
As a result of a series of assignments and corporate name changes since 1980,
SDSI has been assigned the patents relating to the BTAI. (See "Certain
Relationships and Related Transactions: Ownership of the BTAI").

Foreign patents for the BTAI include:

- - Belgium Patent No. 884,382; issued July 18, 1980; expires
July 18, 2000
- - Canada Patent No. 1,130,157; issued August 24, 1982;
expires August 24, 1999
- - France Patent No. 7913059; issued July 15, 1986;
expires May 22, 1999
- - Germany Patent No. 2920785; issued May 22, 1985;
- - Israel Patent No. 58422; issued March 1, 1983;
expires October 9, 1999
- - The Netherlands Patent No. 7,094,034; issued December 18, 1989;
expires May 22, 1999
- - United Kingdom Patent No. 2023288; issued April 27, 1983;
expires May 21, 1999
- - Venezuela Patent No. 44,664; registered April 20, 1987;
expires April 20, 1997

<PAGE>

Production

The Company intends to construct a production facility abroad to manufacture,
market and sell the BTAI to the international market. In January 1991, the
Company entered into an agreement with Zigmed Inc. pursuant to which Zigmed Inc.
will manufacture the production equipment needed for the manufacturing of the
BTAI for the contract price of $1,750,680. Due to the fact that the Company has
had insufficient capital, the production of the manufacturing equipment has been
delayed. As a result of the delay, the contract price for manufacturing the
equipment may, at Zigmed's option, be increased 0.5% percent per month for each
month since April 8, 1991. The contract price will be determined at the time the
Company instructs Zigmed to begin production of the equipment. The Company
anticipates that construction of its facility will begin in early 1997.

The Company believes it must maintain a separate manufacturing facility from its
licensee to sell the BTAI to the international market. To have economical and
profitable endeavors the Company intends to set up its international activities
outside of the U.S. and Canada. The Company is looking for a possible
manufacturing location which can give the Company good access to shipping, tax
considerations, and low manufacturing cost. Due to the nature of the Company's
product, shipping will be a major cost factor; therefore, the Company intends to
set up the first manufacturing location in central Europe. Another major
consideration is the segmental distribution of the product, because of policing
of the crossover among distributor's areas. A final consideration is the ease of
possible distribution into South East Asia and Asia in general from the European
location.

As part of the licensing agreement with Humascan, the Company can purchase $1
million worth of the BTAI to sell to the international market, provided that the
order is given prior to January 1, 1997. This provision is valid only in the
first year of Humascan's operations. This will enable the Company to start its
distribution before its own production capability is ready. The cost to purchase
per the agreement is higher than if the Company was to manufacture the BTAI
itself.

Accordingly, the Company will seek to raise additional capital through public or
private equity or debt financing by the end of 1996, to be operational in 1997.
The Company is contemplating a private placement from which it expects raising
$1,500,000. Failure to raise additional capital, may adversely affect the
Company's operations and international projects.

The Company's success is dependent on raising sufficient capital to establish a
production facility and manufacture production equipment to manufacture the BTAI
for the international market. The Company does not have all the financing in
place at this time, nor may it ever, to meet these objectives. However, the
Company feels payments to be received on the initial license fee will be more
than sufficient to cover the operations of the Company over the next twelve (12)
months. If the proposed production facility is not constructed, the Company,
based on discussions with Humascan, expects to be able to purchase additional
units from

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Humascan to generate profits and cash flows to fund its current operations in
the foreseeable future.

Supplies and Raw Materials

Supplies and raw materials for the manufacture of the BTAI are available from
various sources. Historically, other than on a few rare occasions, the supplies
and raw materials for producing the BTAI have been readily available and the
cost of such materials has not experienced any material fluctuation. However,
the Company has not performed an in depth investigation regarding the
availability and cost of materials. The Company has determined the inventory
planning and control, as well as other production management systems, it intends
to use. Many of these determinations are based upon the operation of the
prototype plant.

Key personnel for the management of the Company's production facility have been
identified and preliminary employment discussions are in progress. No assurance
can be given that the Company will be able to employ the personnel it needs.

Marketing

The marketing of the BTAI is dependent upon the ability of both the Company and
Humascan to raise the needed capital to build their respective manufacturing
facilities. In the event that either the Company or Humascan is unable to raise
capital as planned, the marketing plans discussed below may not occur when
anticipated. Humascan recently raised approximately $7.5 Million through a
private placement of its securities, and has filed a registration statement for
a public offering of its securities.

United States and Canada Marketing - Humascan

Pursuant to the Humascan Agreement, the Company granted Humascan the exclusive
right to market and manufacture the BTAI in the U.S. and Canada. As part of the
Humascan Agreement, the Company, for a period of two years from the effective
date, will provide Mr. Sagi's consulting services for up to 90 hours per
calendar quarter to Humascan in connection with marketing the BTAI, without
additional payment.

The target market for the BTAI in the U.S. and Canada includes primary care
physicians, both in their own practices and as part of groups such as health
maintenance organizations (HMO's), and preferred provider organizations (PPO's),
gynecologists, obstetricians, internists and other general practitioners.

With respect to the U.S. and Canada, Humascan has entered into an agreement with
Physician's Sales and Services, a major U.S. distributor, regarding its
distribution of the BTAI.

Global Marketing - The Company

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Since breast cancer is a global problem, the Company intends to use its
technology, medical knowledge and patent position to manufacture and market the
BTAI worldwide.

The Company intends to market the BTAI outside of U.S. and Canada through
licensing agreements and joint ventures. Although each agreement will be
different as required by the various markets and participants, the Company
expects participating companies will be primarily responsible for the assembly,
packaging, pricing and sales of the BTAI in their defined markets.

Distribution

The Company has focused on developing partnerships with various international
companies who have relationships with distributors throughout the world and who
have connections in the medical communities of target markets.

With respect to the distribution of the BTAI in the international market, the
Company intends to enter new markets on a regional basis. The commencement of
the Company's international distribution of the BTAI has been scheduled for
1997. There can be no assurance that the Company will be able to enter into
distribution agreements on favorable terms or at all.

Licensing Agreements

Previous Agreements

In April, 1992, the Company entered into a license agreement under which
Northern Medical, Inc. was granted an exclusive right and license to
assemble, use and sell the BTAI in Canada, Australia and New Zealand and
their respective territories and possessions. Northern Medical was to pay
the Company $25,000 on the date of execution of the agreement and $475,000
within thirty days from the date of the agreement. Thereafter, the Company
terminated the license agreement due to Northern Medical's failure to make
the required $475,000 payment under the license agreement.

In May, 1994, the Company signed a memorandum of understanding
(the"Memorandum") with Metropolitan Industries Limited ("Metropolitan").
Pursuant to the Memorandum, the Company granted Metropolitan the right to
assemble and distribute the BTAI in India and any other countries as
authorized in writing by the Company. However the Memorandum was
subsequently terminated for failure to make the initial payment under the
agreement.

United States and Canada - The Humascan Agreement

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Humascan Agreement will be in full force until the later to occur of (i)
the expiration of the last to expire patent rights, or (ii) October 20,
2012.

In the Humascan Agreement, Humascan agreed to manufacture and sell the BTAI
in the U.S. and Canada for an initial cash licensing fee of $1,600,000 and
a common stock licensing fee equal to 20% of Humascan (the "Licensing
Fee"). The Company has received $550,000 of the cash portion of the
Licensing Fee, of which $375,000 was paid on May 31, 1996. The $1,050,000
balance of the cash portion of the Licensing Fee is due in installments as
follows: (a) $175,000 on December 31, 1997, (b) $175,000 on March 31, 1998,
(c) 350,000 on October 31, 1998, and (d) 350,000 on January 31, 1999. (See
"Management's Discussion and Analysis or Plan of Operation; Condition and
Results of Operations").

In connection with the common stock portion of the Licensing Fee, Humascan
has issued to the Company 900,000 shares of its common stock. In connection
with Humascan's private placement in May 1996, the Company received an
additional 438,750 shares of Humascan's common stock. The number of shares
of Humascan's common stock owned by the Company will be increased or
decreased so that upon the completion of the financing described below, the
Company shall own twenty (20%) percent of the outstanding shares of
Humascan's common stock. As part of the Humascan Agreement, the Company has
delivered to Humascan an irrevocable proxy to the President of Humascan,
allowing him to vote all of the shares of Humascan's common stock owned by
the Company in the manner directed by a majority of Humascan's Board of
Directors, except that the Company will vote its own shares when the
subject of the vote is either (i) approval of financing, (ii) approval of
stock option plans or amendments thereto, or (iii) any change of control
which would require Licensee to file a Form 8-K with the SEC. This
irrevocable proxy will automatically terminate when Humascan accepts the
manufacturing equipment for the production of the BTAI at its production
facility.

Under the Humascan Agreement, Humascan intends to secure total funding of
a minimum of $10,000,000 to commence the manufacturing and marketing of
the BTAI through (i) a private placement of between $5,000,000 and
$6,000,000 (the "First Stage Financing") and (ii) additional financing
(the "Second Stage Financing") as is necessary to raise a minimum of
$10,000,000, inclusive of the First Stage Financing. The Second Stage
Financing may be obtained through an initial public offering of Humascan's
securities registered pursuant to the Securities Act of 1933 or through a
private placement of Humascan's securities. Humascan recently raised
approximately $7.5 Million through a private placement of its securities,
and has filed a registration statement for a public offering of its
securities.

<PAGE>

In connection with the Humascan Agreement, commencing with the first day of
the first month in which the BTAI is sold for each year including the
termination date, Humascan will pay the Company a royalty based on net
sales, ranging from three percent (3%) of the first $2 million increasing
to ten percent (10%) of net sales in excess of $10 million with a minimum
royalty of $150,000 in the first year increasing to $600,000 in the fifth
year and thereafter.

Licensing and Joint Ventures Outside the U.S. and Canada

Since the Company holds the rights to manufacture and market the BTAI
outside of the U.S. and Canada, it is seeking to enter into either license
agreements or joint ventures regarding the marketing and distribution
rights of the BTAI. Although the Company has not finalized any such
agreements covering territories outside of the U.S. and Canada, it is
currently involved in several ongoing discussions. The Company is actively
seeking marketing partners which the Company believes will be best suited
to distribute, market and position the BTAI for effective global
commercialization. Proposals are currently being reviewed to license the
BTAI in several territories, including Europe, Israel, Australia, New
Zealand and China. However, there can be no assurance that the Company will
enter into any license agreements or joint ventures for territories outside
of the U.S. and Canada.

Competition

The breast cancer screening device industry is highly competitive and
fragmented. The Company is not aware of any low cost screening devices on the
market which would compete directly with the BTAI for use by primary care
physicians. Although the Company believes that infra-red and liquid crystal
thermographic devices are not devices which will compete with the BTAI on a
daily basis (because these devices are significantly more expensive than the
BTAI and are not recommended as a routine screening modality), the BTAI may
still have to compete with them in some cases.

The Company believes that the BTAI, which provides digital quantitative
recordings of underlying tissue temperature, represents a significant
improvement over thermographic technology products because such other products
are subject to the inherent problems of subjective evaluation of heat patterns.
Based on these differences, the Company believes that the prospects for the BTAI
as a supplement to currently existing diagnostic tests are very good.

13
<PAGE>

The Company believes it is in a unique position because the BTAI has no known
competing low cost screening devices. As a result, the Company believes that the
BTAI will augment other existing forms of screening and technology.

Some of the Company's future competitors may be large, well-financed and
established companies that have greater resources for research and development,
manufacturing and marketing than the Company has and, therefore, may be better
able than the Company to compete for a share of the market, even in areas in
which the Company may have superior technology. There can be no assurance that
the Company will be able to produce a commercially acceptable product, or that
if produced, such product will be competitive with existing or future products.
It is also possible that there will be technological changes or developments by
competitors which will render the Company products noncompetitive or obsolete.

Future Products

The Company believes that the BTAI may have applicability as a screening device
for other abnormalities, including measuring ovulation cycles for infertile
couples, measuring changes in the cardiovascular system to screen for potential
stroke victims, and detecting abnormalities in the kidneys and testicles.
Although some testing was performed during the BTAI's development stage, these
initial tests were preliminary only, and in order to develop future products,
clinical trials will be necessary in order to obtain FDA approval, which would
be required in order to market a future product. The Company intends to further
explore its initial findings and, perhaps, introduce products in furtherance of
these findings.

Employees

As of May 1996, the Company employed a total of two people, both on a full-time
basis and both of whom has entered into letters of employment with the Company.
(See "Executive Compensation - Employment Agreements").

None of the Company's employees are covered by a collective bargaining agreement
with a union. The Company considers its relationship with its employees to be
good.

<PAGE>

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Overview

The Company is a development stage company organized to manufacture, sell
and license the Breast Thermal Activity Indicator ("BTAI"). This device has been
patented and has Food and Drug Administration ("FDA") approval for sale. The
BTAI is an early screening device which can detect certain breast tissue
abnormalities, including cancer. The Company has not generated any revenues but
has entered into a License Agreement whereby the licensee purchased the right to
manufacture and sell the BTAI in the United States of America and Canada and
their territories and possessions.

% Increase (Decrease) from Prior Period

Nine Months Ended
March 31, 1995
Compared with Nine
1995 Compared 1994 Compared Months Ended
to 1994 to 1993 March 31, 1996
------------- ------------- ------------------

General and adminis-
trative expense (42.8) 12.3 (129.5)
Amortization and
depreciation .1 .7 ( .2)
Interest expense 68.6 73.9 66.5
Research and
development 6.5 (27.0) (3.5)
Net loss (24.0) 4.8 66.0

General and Administrative

General and administrative expense increased 129.5% to $441,293 during the
nine months ended March 31, 1996 as compared to the nine months ended March 31,
1995. The increase was primarily due to professional fees the Company incurred
during the period.

General and administrative expense decreased 42.8% to $366,571 in 1995 from
$641,190 in 1994. The decrease for the year ended June 30, 1995 compared to June
30, 1994 was primarily due to the professional fees the Company incurred in 1994
for their aborted underwriting that was expensed during the 1994 period.

General and administrative expense increased 12.3% to $641,190 from
$570,993 in 1993. The increase for the year ended June 30, 1994 compared to June
30, 1993 was primarily attributed to increases in professional fees incurred in
anticipation of the Company raising equity financing that was ultimately
aborted.

<PAGE>

Amortization and Depreciation

Amortization and depreciation for the nine months ended March 31, 1996
and 1995, and the years ended June 30, 1995, 1994 and 1993 has remained
relatively constant.

Interest Expense

Interest expense was $133,891 for the nine months ended Marech 31, 1996
compared to $120,993 for the nine months ended March 31, 1995. The 66.5%
increase for the nine months ended March 31, 1996 compared to the nine months
ended March 31, 1995 was attributable to increases in the debt incurred by the
Company during the previous fiscal year ending June 30, 1995.

Interest expense was $114,880 in 1995, $68,132 in 1994 and $39,174 in 1993.
The 68.7% increase in 1995 compared to 1994 and the 73.9% increase in 1994
compared to 1993 was attributable to increases in debt incurred by the Company
in each of the respective comparable periods.

Research and Development

Research and development expense remained relatively constant decreasing to
$116,705 during the nine months ended March 31, 1996 from $80,404 during the
nine months ended March 31, 1995.

Research and development expense remained relatively constant for the year
ended June 30, 1995 compared to the year ended June 30, 1994 increasing by 6.5%.

Research and development expense decreased 27.0% to $15,000 in 1994 from
$205,452 in 1993. The decrease for the year ended June 30, 1994 compared to the
year ended June 30, 1993 is primarily attributable to reduced salaries incurred
by the Company in the experimental area of development.

Liquidity and Capital Resources

The Company's need for funds has increased from period to period as it has
incurred expenses for among other things, research and development; applications
for domestic and international patent protection; licensing and premarketing
activities; and attempts to raise the necessary capital for initial production.
Since inception, the Company has funded these needs through private placements
of its equity and debt securities and advances from the Company's President,
Chief Executive Officer and major shareholder. In addition, the Company's
auditors' report for the year ended June 30, 1995 dated August 25, 1995,
expressed an opinion as to the Company continuing as a going concern.

On April 29, 1996, the Company entered into an Amended License Agreement
with Humascan, Inc. ("Humascan" or "Licensee"), amending the October 20, 1995
License Agreement whereby Humascan purchased the right to manufacture and sell
the BTAI in the United States and Canada and their respective territories and
possessions and pay the Company a licensing fee of $1,600,000 and issue to the
Company 900,000 shares of the outstanding common stock of Humascan. The Company
received $150,000 in 1995, $25,000 on April 29, 1996 and $375,000 on May 31,
1996. Thereafter

<PAGE>

(subject to acceptance of various equipment installations by Humascan),
$175,000 is payable on December 31, 1997, $175,000 on March 31, 1998, $350,000
on October 31, 1998 and $350,000 on January 31, 1999.

In connection with the agreement, commencing with the first day of the
first month in which the Licensed Product is sold and for each year through and
including the termination date October 20, 2012, the Licensee agrees to pay the
Company a royalty based on net sales, ranging from three (3%) percent of the
first $2 million increasing to ten (10%) percent of net sales in excess of $10
million with a minimum royalty of $150,000 in the first year increasing to
$600,000 in the fifth year and thereafter.

The Licensee intends to secure total funding of a minimum of $10,000,000 to
commence the manufacturing and marketing of the BTAI through (i) a private
placement of between $5,000,000 and $6,000,000 (the "First Stage Financing") and
(ii) additional financing (the "Second Stage Financing") as is necessary to
raise a minimum of $10,000,000, inclusive of the First Stage Financing. The
Second Stage Financing may be obtained through an initial public offering of
Humascan's securities registered pursuant to the Securities Act of 1933 or
through a private placement of Humascan's securities. The Licensee recently
raised approximately $7.5 Million through a private placement of its securities,
and has filed a registration statement for a public offering of its securities.

United States Patent No. 4,190,058 for a "Device for Use in Early Detection
of Breast Cancer," which was granted to Mr. Sagi on February 26, 1980, and
Patent No. 4,651,749, entitled "Cancer Detection Patch for Early Detection of
Breast Cancer; Temperature, Indicators, Flexibility, Thermoconductivity, Webs,"
a partial continuation of Patent No. 4,190,058, will both expire on February 26,
1997. Upon expiration, the Company will no longer be able to avail itself of the
protection afforded by the patent laws. Further, there is no assurance that
other companies will not create substantially similar products.

Additionally, any product manufactured or distributed by a company pursuant
to FDA clearances or approvals is subject to pervasive and continuing regulation
by FDA. There is no assurance that the FDA will not re-evaluate its basis for
granting marketing rights to the Company to sell the BTAI. See "Description of
Business: Regulations."

The Company's working capital and capital requirements will depend on
numerous factors, including the level of resources that the Company devotes to
the purchase of manufacturing equipment, to support start-up production and to
the marketing aspects of its product. The Company intends to construct a
production facility abroad to manufacture, market and sell the BTAI to the
international market. In January 1991, the Company entered into an agreement
with Zigmed Inc. pursuant to which Zigmed Inc. will manufacture the production
equipment needed for the manufacturing of the BTAI for the contract price of
$1,750,680. Due to the fact that the Company has had insufficient capital, the
production of the manufacturing equipment has been delayed. As a result of the
delay, the contract price for manufacturing the equipment may increase by
approximately twenty (20%) percent; subject to additional increases at Zigmed's
option.

17
<PAGE>

tax considerations, and low manufacturing cost. Due to the nature of
the Company's product, shipping will be a major cost factor; therefore, the
Company intends to set up the first manufacturing location in central Europe.
Another major consideration is the segmental distribution of the product,
because of policing of the crossover among distributor's areas. A final
consideration is the ease of possible distribution into South East Asia and Asia
in general from the European location.

As part of the licensing agreement with Humascan, the Company can purchase
$1 million worth of the BTAI to sell to the international market, provided the
order is placed prior to January 1, 1997. This provision is valid only in the
first year of Humascan's operations. This will enable the Company to start its
distribution before its own production capability is ready. The cost to purchase
per the agreement is higher than if the Company was to manufacture the BTAI
itself.

Accordingly, the Company will seek to raise additional capital through
public or private equity or debt financing by the end of 1996, to be operational
in 1997. The Company is contemplating a private placement from which it expects
to raise $1,500,000. Failure to raise additional capital, may adversely affect
the Company's operations and international projects.

The Company's success is dependent on raising sufficient capital to
establish a production facility and manufacture production equipment to
manufacture the BTAI for the international market. The Company does not have all
the financing in place at this time, nor may it ever, to meet these objectives.
However, the Company feels payments to be received on the initial license fee
will be more than sufficient to cover the operations of the Company over the
next twelve (12) months. The Company believes the BTAI will be commercially
accepted throughout the international market. If the proposed production
facility is not constructed, the Company, under a separate agreement, will be
able to purchase additional units from Humascan to generate profits and cash
flows to fund its current operations in the foreseeable future, despite the
higher price it will pay for these units.

As stated previously, the Company has financed its operations through
private placements of its equity and debt securities and advances from the
Company's President.

In a 1994 private placement, the Company raised $246,000 through unsecured
notes. Each noteholder did receive 2,000 shares of the Company's common stock as
additional consideration for their ten (10%) percent promissory note. The
promissory notes issued in connection with these bridge loans are due in full
upon the completion of a public offering by the Company. In March, 1995, the
Company offered to convert the promissory notes into shares of the Company's
common stock at a conversion price of $1.00 per share. As of April 30, 1996,
$121,000 of promissory notes, plus interest, were converted into 151,084 shares.

During 1994, the Company borrowed $288,006 from SMC Corp., a corporation
controlled by the Company's President and Chief Executive Officer. The note is
unsecured and is due the earlier of June 30, 1996 or the successful financing
for the Company in excess of $3,000,000.

18
<PAGE>

In 1991, the Company's subsidiary entered into an Asset Transfer Agreement
with SMC Corp. In exchange for the assets of SMC Corp. (principally patents),
the subsidiary issued a subordinated note in the amount of $600,000. The payment
terms are as follows: (1) payments of $300,000 due within thirty (30) days after
the date the Company or its subsidiary consummates the closing of financing in
the aggregate amount of $3,000,000 and (2) payment of the remaining unpaid
principal balance on August 20, 1996.

Should the Company consummate financing in the amount of $3,000,000, the
Company would be obligated to pay SMC Corp. $888,006 of outstanding debt plus
accrued interest of approximately $200,000.

On September 28, 1995, the Company's President and Chief Executive Officer
converted $375,000 of accrued salaries into 3,750,000 shares and the Company's
Vice-President and Secretary converted $80,000 of accrued salaries into 800,000
shares of the Company's common stock valuedat $.10 per share. The conversion of
these accrued salaries into common stock enabled the Company to preserve its
cash flow as these accrued salaries were paid with common stock in lieu of cash,
having no effect on the Company's statement of operations.

The letters of employment for Dr. Sagi and Ms. Furness will be superseded
by new employment agreements. No new agreements have been formalized as of this
date, but the Company expects that the new agreements will differ materially
from current compensation.

<PAGE>

Item 3. Description of Property.

The Company leases approximately 1,750 square feet of storage and office space
in East Hanover, New Jersey pursuant to a lease agreement which provides for
monthly payments of $1,750 and is renewable on a year by year basis, under the
same terms as the previous year. The lease is renewable upon written notice to
the landlord at least 90 days in advance of the expiration of the current lease
period.

The Company also leases office space in Mountain Lakes, New Jersey pursuant to a
lease agreement which provides for a monthly rent of $1,750 and is renewable on
a year by year basis, under the same terms as the previous year, upon written
notice to the landlord.

<PAGE>

Item 4. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information known to the Company as of
the date of this Statement, with respect to beneficial ownership of: (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
the Company's outstanding Common Stock; (ii) each of the Company's directors and
executive officers; and (iii) all officers and directors as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws, where applicable.

Name and Amount and
address of nature of Percent
beneficial beneficial of shares
owner ownership outstanding
- ----- --------- -----------

SMC Corp.
19 Lockley Court
Mountain Lakes, NJ 07046 3,868,385(1) 24.87%

361 Acquisition Corp.
885 W. Georgia St., Suite 1200
Vancouver, BC
Canada V6L 3E8 2,121,250(2) 13.50%

Zsigmond L. Sagi
19 Lockley Court
Mountain Lakes, NJ 07046 4,438,782(3)(4)(5) 28.26%

Patricia B. Furness
25 Beechway Road
Mountain Lakes, NJ 07046 877,000(6)(7) 5.58%

Paul Nelson
69 Lookout Road
Mountain Lakes, NJ 07046 127,000(8) 0.55%

Gene E. Hollen
2 Goldeneye Lane
Savanah, GA 31411 42,000(8) 0.26%

George Heman
25 Deerwood Dr. 40,000 0.25%
Danielson, CT 0239

<PAGE>

Name and Amount
address of and nature of Percent
beneficial beneficial of shares
owner ownership outstanding
- ----- --------- -----------

Maurice Siegel
15 Sierra Ct 22,500 0.14%
Hillsdale, NJ 07642

Carlo Civelli
19 Lockley Ct 50,000(9)(10) 0.32%
Mountain Lakes, NJ 07046

All directors and
executive officers
as a group (consis-
ting of 7 persons) 5,594,282 35.63%

- ----------

(1) Includes 1,250,000 shares of the Company's Common Stock issued by the
Company to SMC Corp. on February 3, 1993, to replace shares of the
Company's Common Stock SMC Corp. had transferred to third parties for the
benefit of the Company. (See "Certain Relationships and Related
Transactions"). Mr. Sagi owns 11% of SMC Corp.'s common stock and currently
serves as its president and director.

(2) Includes 621,250 shares of the Company's Common Stock which 361 Acquisition
Corp. received as part of the 361 Acquisition Agreement. (See "Certain
Relationships and Related Transactions").

(3) Includes 3,750,000 shares of the Company's Common Stock issued to Mr. Sagi
upon conversion of an aggregate of $375,000 of accrued salaries. (See
"Recent Sales of Unregistered Securities").

(4) Does not include the 3,868,385 shares of the Company's Common Stock owned
by SMC Corp. Mr. Sagi, owner of approximately 11% of SMC Corp., is the
largest stockholder of SMC Corp. Mr. Sagi disclaims beneficial ownership of
the shares owned by SMC Corp.

(5) Does not include 45,000 shares of the Company's Common Stock owned by Mr.
Sagi's former wife, and 98,500 shares of the Company's Common Stock owned
by Mr. Sagi's children and their spouses, as to which Mr. Sagi disclaims
beneficial ownership.

<PAGE>

(6) Includes 10,000 shares owned by Ms. Furness' children, as to which Ms.
Furness disclaims beneficial ownership.

(7) Includes 800,000 shares of the Company's Common Stock issued to Ms. Furness
upon conversion of an aggregate of $80,000 of accrued salaries. (See
"Recent Sales of Unregistered Securities").

(8) Includes 40,000 shares of the Company's Common Stock issuable upon the
exercise of options granted on March 7, 1995 to such director. (See
"Description of Securities; Outstanding Warrants and Stock Options").

(9) Includes 50,000 shares of the Company's Common Stock issuable upon the
exercise of options granted on March 7, 1995. (See "Description of
Securities; Outstanding Warrants and Stock Options").

(10) Does not include the 2,121,250 shares of the Company's common stock owned
by 361 Acquisition Corp. Mr. Civelli is the largest stockholder of 361
Acquisition Corp. owning in excess of 50% of the outstanding shares.

<PAGE>

Item 5. Directors, Executive Officers, Promoters and Control Persons.

The names of the members of the Company's current Board of Directors, each of
whom is elected annually, its executive officers and certain other key
employees, and a brief description of their current and prior responsibilities
are set forth below:

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

Zsigmond L. Sagi, Ph.D. 62 Chairman of the Board, President and Chief
Executive Officer

George Heman 66 Vice President, Manufacturing

Maurice Siegel, Ph.D. 66 Vice President, Research and Development

Patricia B. Furness 49 Vice President, Secretary, Director

Carlo Civelli 47 Vice President of Finance International

Gene E. Hollen 63 Director

Paul Nelson 64 Director

ZSIGMOND L. SAGI, Ph.D., has served as Chairman of the Board, Chief Executive
Officer and Chief Scientist of the Company since October 1991. Mr. Sagi has over
25 years experience in the healthcare field and has invented or developed
several commercial medical devices and technological products. From 1968 until
1977 he served as Executive Vice President and Chief Operating Officer of
Bio-Medical Sciences, Inc., a publicly held company of which he was one of the
founders. Thereafter, he organized and managed several companies, including
Zigmed Corp., a healthcare engineering firm. In 1978, he founded BCSI
Laboratories, Inc., the company which developed the BTAI. From 1986 until 1991,
Mr. Sagi served as Chairman of the Board and President of SMC Corp., a company
he founded in 1986. Mr. Sagi has been issued numerous United States and foreign
patents in the fields of healthcare, chemical applications, electronics and
mechanics, including the disposable oral thermometer, the Zigzag sewing machine,
an ambulatory automated feeding device, and a sterilization indicator. He
received his doctorate in Physics from Stevens Institute of Technology, Newark,
New Jersey, in 1968 and his master's in mechanical engineering at Technical
University of Hungary in 1954.

GEORGE HEMAN has served as Vice President of Manufacturing for the Company since
October 1991. From 1987 until 1991, he served as in the same capacity with
Scantek Medical Corp., the Company's predecessor. Prior to 1987, he was General
Manager of Hermitage Hospital Products (a Division of Inmed Corp.), a medical
device products company. Mr. Heman is a professional engineer with extensive
experience in the management and design of medical device production

<PAGE>

facilities. He received a Master's Degree in Chemical Engineering from the
University of Detroit in 1951.

MAURICE SIEGEL, Ph.D., has served as the Company's Vice President of Research
and Development since 1991. From 1989 until 1991 he served in the same capacity
with Scantek Medical Corp., the Company's predecessor. He was employed by
Faberge, Inc. from 1957 through 1987, as Director of Research and Development
from 1957 to 1966, as Vice President of Research and Development from 1966 to
1977, and last holding the position of Executive Vice President of Research and
Development from 1977 to 1987. Since 1987, Mr. Siegel has served, and continues
to serve, as a consultant to numerous companies, including Tri-Scent, Imported
Beauty Lines, Telebrands and Sun Laboratories. Mr. Siegel received a Ph.D. in
Physical and Organic Chemistry from New York University in 1957.

PATRICIA B. FURNESS has served as the Vice President, Secretary and Director of
the Company since 1991. In addition to managing marketing, finance and public
relations for the Company, Ms. Furness is also responsible for coordinating
market research, product testing programs and Clinical Research follow-up
studies. From 1988 until 1991 she served as Vice President and Secretary of
Scantek Medical Corp., and, in 1989, was elected to its Board of Directors. In
1987, Ms. Furness became the Manager of Corporate Development of Zigmed, Inc., a
manufacturer of automated systems for the health care industry. Ms. Furness
received a Bachelor of Science Degree in education from Appalachian State in
Boone, North Carolina in 1969.

CARLO CIVELLI has served as Vice President of Finance International since March
7, 1995. Since 1980, Mr Civelli has owned Clarion Finanz, A.G., a Swiss
corporation which he founded. From 1969 to 1971, Mr. Civelli was an Assistant
Vice-President with New Province Securities in Zurich, Switzerland. From 1971 to
1978, he served as Vice President of a European NYSE brokerage firm. From 1978
to 1980, Mr. Civelli was a free-lance investment advisor. Mr. Civelli is a
graduate of the College of the Swiss Mercantile Society, London.

GENE E. HOLLEN was elected to the Board of Directors of the Company in October,
1992. From 1983 - 1994, he served as Executive Vice President and a member of
the Management Board of Simms & McIvor Communications. He currently serves as
Director of Med-Tech Group, a private medical marketing company. Mr. Hollen was
employed with Johnson and Johnson from 1977 to 1981 as Vice President of
Corporate Staff; Vice President and General Manager of the Patient Care
Division, Merchandising Director of Hospital and Professional Division
Advertising and Merchandising Director of the Healthcare Division, Product
Director and Group Director. Mr. Hollen holds a Masters Degree in Marketing from
Columbia University.

PAUL NELSON has served on the Company's Board of Directors since 1991. From 1987
until 1991, he served as a Director of Scantek Medical Corp., the Company's
Predecessor. In 1968, Mr. Nelson founded Compressed Gas, Inc., a wholesale
supplier of medical and industrial compressed gases. Although Mr. nelson has
since sold his ownership in Compressed Gas, Inc., he has served as both
President and Director of Compressed Gas, Inc. Mr. Nelson received a Bachelor of
Science Degree from the University of North Carolina in Chapel Hill, North
Carolina.

<PAGE>

Item 6. Executive Compensation.

Executive Compensation

The following table sets forth the amount of all cash compensation, as well as
certain other compensation, paid or accrued by the Company for the fiscal years
ended June 30, 1995, 1994 and 1993 to the Chief Executive Officer of the
company. No other officer had a total annual salary and bonus of $100,000 or
more during the reported periods.

Summary Compensation Table
<TABLE>
<CAPTION>

Annual Compensation Long Term
---------------------------------------- -------------
Other Long
Annual Term
Name and Principal Position Year Salary (1) Bonus Compensation Compensation
- --------------------------- ---- ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Zsigmond L. Sagi 1995 $100,000 $0 $0 none
Chairman of the Board 1994 $100,000 $0 $0 none
and Chief Executive Officer 1993 $100,000 $0 $0 none
</TABLE>

(1) On September 28, 1995, Mr Sagi received 3,750,000 shares of the
Company's Common Stock in lieu of $375,000 of accrued income for the
period from October, 1991 to June 30, 1995.

Employment Agreements

On February 26, 1993, Mr. Sagi and Ms. Patricia Furness each entered into
letters of employment (the "Letters of Employment") with the Company. Pursuant
to such Letters of Employment, Mr. Sagi and Ms. Furness earn annual salaries of
$100,000 and $50,000, respectively. These salaries were prorated from October 3,
1991, and were to be paid upon the completion of certain financing. On September
28, 1995, a portion of Mr. Sagi's accrued salaries were converted into shares of
the Company's Common Stock. Also on September 28, 1995, a portion of Ms.
Furness' accrued salaries were converted into shares of the Company's Common
Stock. (See "Recent Sales of Unregistered Securities").

The Company expects to enter into an employment agreement with Mr. Sagi. While
the terms of the agreement have not been finalized, the Company anticipates that
the agreement will provide for an increase in annual salary plus a bonus, which
are to be established by the Board of Directors. The new agreements are expected
to be finalized in connection with a private placement which raises a minimum of
$1,000,000 in gross proceeds.

<PAGE>

The Company also expects to enter into an employment agreement with Ms. Furness.
While the terms of the agreement have not been finalized, the Company
anticipates that the agreement will provide for an increase in annual salary
plus a bonus, which are to be established by the Board of Directors. The new
agreements are expected to be finalized in connection with a private placement
which raises a minimum of $1,000,000 in gross proceeds.

Stock Option and Stock Grant Plans

On March 7, 1995, the Company established a Non-Qualified Stock Option Plan (the
"Plan") which provides for the granting stock options to key employees. The plan
provides for the issuance of 500,000 shares, none of which have been registered.
As of June 30, 1995, no stock options were granted pursuant to the Plan.

Also on March 7, 1995, the Company established a Stock Grant Program (the
"Program") which provides for the granting of Common Stock of the Company to key
employees. The Program provides for the issuance of 500,000 shares of the
Company's Common Stock, none of which have been registered. As of June 30, 1995,
no shares were granted pursuant to the Program.

Options and Warrants Granted

On March 7, 1995, the Company granted an aggregate of 120,000 options to three
outside directors to purchase shares of the Company's Common Stock at an option
price of $.10 per share. The options are currently exercisable and expire on
March 6, 2000. As of June 30, 1995, none of these options had been exercised.
These options were not issued pursuant to the Plan or the Program.

Also on March 7, 1995, the Company granted 50,000 options to purchase shares of
the Company's Common Stock to Carlo Civelli, the Company's Vice President of
Finance International, at an option price of $.10 per share. These options are
currently exercisable and expire on March 6, 2000. As of June 30, 1995, none of
these options had been exercised. These options were not issued pursuant to the
Plan or the Program.

On February 10, 1994, the Company granted to Carriage House Capital ("Carriage
House"), as part of a termination agreement, two year redeemable warrants to
purchase 125,000 shares of the Company's Common Stock at a purchase price of
$6.00 per share. These warrants expired on February 10, 1996. (See "Certain
Relationships and Related Transactions").

On February 2, 1996, the Company granted to Roger L. Fidler, options to purchase
an aggregate of 150,000 shares of the Company's common stock at an exercise
price of $.625 per share. The options, which were given in lieu of payment for
legal services in the amount of $45,000, expire on February 2, 1999.

<PAGE>

Item 7. Certain Relationships and Related Transactions.

Manufacturing Equipment Purchase Order

In connection with the acquisition by SDSI of the assets of SMC Corp., SDSI
assumed all liabilities of SMC Corp. to purchase certain machinery for
production of the BTAI from Zigmed Corporation ("Zigmed"). Pursuant to a letter
agreement dated January 8, 1991 between SMC Corp. and Zigmed, a purchase order
pursuant thereto dated January 22, 1991 and a Non-Disclosure Agreement dated May
7, 1990, the Company has contracted with Zigmed for the construction of
machinery necessary to manufacture the BTAI. Although the contract price for the
manufacture of the production equipment necessary for the manufacturing of the
BTAI is $1,750,680, this figure may increase by approximately 20%. Mr. Sagi,
Chairman of the Board and Chief Executive Officer of the Company, is a
stockholder of SMC Corp.

Mr. Sagi is the founder and past President of Zigmed. There is no current
relationship between Zigmed and the Company. Since early 1990, Zigmed has been
owned and controlled by the son of Zsigmond Sagi, the President and Chief
Executive Office of the Company. The Company believes that, in view of the lead
times and delivery dates proposed by Zigmed, the purchase order was obtained on
terms no less favorable than such order could have been obtained in an arm's
length transaction.

Notes

(i) In connection with the acquisition by SDSI of the assets of SMC Corp., SDSI
issued a subordinated promissory note in the principal amount of $600,000 to SMC
Corp (the "Note").

The Note, dated August 20, 1991, bears interest at a rate of 5% per annum and is
due and payable as follows: (i) $300,000 within 30 days after the date that SDSI
(or any of its affiliates including the Company) consummates the closing of
financing in an aggregate amount of at least $3,000,000 from a private placement
and/or public offering of any of its equity securities, and (ii) the remaining
unpaid principal amount on August 20, 1996. The payment of all indebtedness
outstanding under the Note is subject to acceleration upon the occurrence of
certain events primarily relating to any insolvency, bankruptcy (voluntary or
involuntary) or similar conditions affecting SDSI. The Note is payable by SDSI
in whole or in part at any time, subject in each case to the subordination
provisions described below.

The indebtedness evidenced by the Note is subordinated in right of payment to
the prior payment in full of (a) all indebtedness and capitalized lease
obligations of SDSI; (b) all installments of the purchase price due under the
purchase order between the Company and Zigmed; (c) all payment obligations of
SDSI for goods and services relating to the BTAI; and (d) all expenses and fees
incurred in connection with the transactions described above.

<PAGE>

(ii) The Company owes, evidenced by a note, Zsigmond Sagi $257,993, such amount
including accrued interest as of December 31, 1995. This note bears interest at
prime plus one percent (1%), the interest being ten percent (10%) on September
30, 1995. This note is payable on demand.

(iii) During 1993, the Company borrowed $288,006 from SMC Corp. The note is due
on the earlier of June 30, 1996, or upon the successful financing for the
Company of $3,000,000.

Bio-Life Agreement and the Related Termination Agreement

On March 11, 1993, the Company entered into an agreement (the "Bio-Life
Agreement") with certain shareholders of Bio-Life Systems, Inc. (the "Bio-Life
Shareholders"), a public company, in order to ensure the release to SMC Corp. of
the shares held in escrow under the Escrow Agreement. Under the Bio-Life
Agreement, the Bio-Life Shareholders agreed to place 666,667 shares of Bio-Life
System, Inc.'s stock in escrow. These shares were to be exchanged for 500,000
shares of the Company's Common Stock upon the inclusion of the 500,000 shares in
a registration statement in connection with a public offering of the Company's
Common Stock.

On April 6, 1993, the Company and the Bio-Life Shareholders entered into an
agreement terminating the Bio-Life Agreement (the "Bio-Life Termination
Agreement") due to the rejection by 361 Acquisition Corp. of the transaction as
satisfaction of the escrow provisions permitting the release to SMC Corp. of the
shares held in escrow under the Escrow Agreement. In connection with the
Bio-Life Termination Agreement, the Company issued 35,000 shares of its Common
Stock to the Bio-Life Shareholders. The Company also agreed to register all such
shares in a public offering of the Company's Common Stock, however, 10,000 of
such shares were to be subject to a lock-up of 120 days after the closing of
such public offering.

In June 1994, the Company and the Bio-Life Shareholders amended the Bio-Life
Termination Agreement to provide that all of the 35,000 shares of the Company's
Common Stock will be registered subject to a lock-up of 120 days after the
closing of a public offering.

The Bio-Life Shareholders had no affiliation with the Company prior to these
transactions, and their only current affiliation is through the 35,000 shares
they received as a result of these transactions.

Carriage House Capital Agreements

On February 10, 1994, the Company entered into an agreement with Carriage House
Capital ("Carriage House") and Howard Baer, President of Carriage House (the
"Carriage House Agreement"), who had been previously contracted as the primary
financial consultant to the Company. The Carriage House Agreement terminated all
prior agreements and obligations between the Company, SMC Corp. and/or Mr. Sagi,
on the one hand, and Carriage House and Mr. Baer, on the other hand. The
Carriage House Agreement provided that upon the consummation of an underwritten
public offering, the Company will pay Carriage House $170,000 for consulting
services rendered for the Company and $80,000 for expenses incurred by Carriage
House in connection with such consulting services. Due to the fact that a public
offering was not consummated by August 10, 1995, the

<PAGE>

Company was not obligated to make such payments. All agreements and obligations
between the Company and Carriage House and Howard Baer were terminated except a
two-year redeemable warrant to purchase up to 125,000 shares of the Company's
Common Stock at a purchase price per share equal to (a) $6.00 per share, or (b)
after the consummation of the Public Offering, the purchase price per share of
the Company's Common Stock sold in the Public Offering. In addition, Carriage
House has the right to require the Company to register the warrant. The Carriage
House Agreement also provided that if the Company failed to file a registration
statement for a public offering of its securities by December 31, 1994, Carriage
House would have had the right to register the warrant at its own cost. The
warrant to purchase up to 125,000 shares of the Company's Common Stock was not
exercised and therefore terminated on February 6, 1996.

As part of the Carriage House Agreement, Carriage House delivered to SMC Corp.
125,000 shares of Common Stock of the Company. In addition, Howard Baer (a)
canceled a promissory note dated March 31, 1993 and (b) is to deliver to SMC
Corp. 10,000 shares of the Company's Common Stock.

Carriage House owns approximately 1% of the Company's Common Stock. Mr. Baer,
President and sole shareholder of Carriage House, owns approximately 1.4% of the
Company's Common Stock.

SMC Share Replacement

From 1989 through 1992, SMC Corp. transferred approximately 2,000,000 shares of
the Company, which SMC Corp. owned, to various persons in satisfaction of such
persons' claims against the Company for services rendered or goods sold to the
Company. Such transfers benefited the Company by paying certain of its
outstanding obligations while avoiding the possible dilutive, and other
potentially adverse, effects of the issuance of additional common stock. In
transferring such shares, SMC Corp. was acting to protect its substantial
interest in the Company. In February 1993, after discussions between the Company
and SMC Corp., the Company reimbursed SMC Corp. in part for such transfers by
issuing to it 1,250,000 shares of the Company's Common Stock. A portion of the
shares of Common Stock transferred by SMC Corp. were transferred to Carriage
House in partial payment for fees due to Carriage House for services rendered to
the Company. As part of the settlement of certain disputes between the Company
and Carriage House, 125,000 shares were returned by Carriage House to SMC Corp.
In addition, Howard Baer, the principal of Carriage House, agreed to transfer
10,000 shares of the Company's Common Stock owned by him to SMC Corp. To date,
these shares have not been transferred. As a further part of the settlement with
Carriage House, the Company issued a note to SMC Corp. for $288,006 representing
expenses incurred by Carriage House and reimbursable by the Company.

The "361 Acquisition Agreement"

In March, 1995, SMC Corp., Mr. Sagi, 361 Acquisition Corp., Dal Brynelsen,
Scantek Medical Ltd., and Scantek Medical, Inc. entered into an agreement (the
"361 Acquisition Agreement") which terminated several agreements to which the
Company and 361 Acquisition Corp were parties. These agreements were all part of
the transactions by which Mr. Sagi and the Company

<PAGE>

re-acquired control of the BTAI. See "Certain Transactions: History of Control
of the BTAI: The Acquisition by SDSI of the Assets of SMC Corp."

As part of the 361 Acquisition Agreement, 361 Acquisition Corp. received 621,250
shares of Common Stock of the Company to terminate and release the Company from
each of the agreements described below. See "Certain Transactions: History of
Control of the BTAI: The Acquisition by SDSI of the Assets of SMC Corp." At the
time the Company issued these shares, Mr. Carlo Civelli, the majority
shareholder of 361 Acquisition Corp., was also appointed as an officer of the
Company. Prior to the appointment of Mr. Civelli, the only connection between
the Company and 361 Acquisition Corp., was that 361 Acquisition Corp. owned
shares of the Company's common stock. Mr. Civelli derives no special benefits
from his relationship with 361 Acquisition Corp. and the Company. The 621,250
shares of the Company's Common Stock brought the total number of shares owned by
361 Acquisition Corp. up to twenty (20%) percent of the issued and outstanding
shares of Common Stock of the Company as of the date of issuance. Pursuant to
the 361 Acquisition Agreement, all of the shares held in escrow under the Escrow
Agreement (the "Escrowed Shares") will be delivered to SMC Corp.

Bridge Loans

Pursuant to a confidential private placement memorandum dated May 17, 1994, the
Company offered a minimum of 14 and a maximum of 50 units (the "Unit"), each
Unit consisting of (i) a 10% promissory note in the principle amount of $10,000,
and (ii) 2,000 shares of the Company's Common Stock (the "Private Placement").
The Company sold 24.6 Units and received an aggregate of $246,000 from eighteen
affiliated and unaffiliated parties (the "Bridge Loans"). The proceeds of the
Bridge Loans were used for working capital. Paul Nelson, a director of the
Company, made a Bridge Loan to the Company in the amount of $10,000. In
addition, Patricia Furness, Vice-President, Secretary and Director of the
Company, made a Bridge Loan of $10,000. Mr. Nelson and Ms. Furness are the only
affiliates or related parties who provided bridge loans. The promissory notes
issued in connection with the Bridge Loans are due in full upon the completion
of a public offering of the Company's securities. In March, 1995 the Company
offered to convert the Bridge Loans into shares of the Company's Common Stock.
As of the date of this filing, 8 investors have converted an aggregate of
$121,000, plus interest, of bridge loans into shares of the Company's Common
Stock at a conversion rate of one dollar per share. The Company issued 151,084
shares of its common stock in connection with the conversion. Mr. Nelson, an
affiliate of the Company, converted his loan into shares.

Humascan License Agreement

On March 17, 1995, the Company and Humascan entered into a licensing agreement
with Humascan for the manufacture and sale of the BTAI in the U.S. and Canada.
This agreement was amended several times, most recently in June, 1996. The
Humascan Agreement will be in full force until the later to occur of (i) the
expiration of the last to expire patent rights, or (ii) October 20, 2012.

<PAGE>

In the Humascan Agreement, Humascan agreed to manufacture and sell the BTAI in
the U.S. and Canada for an initial cash licensing fee of $1,600,000 and a common
stock licensing fee equal to 20% of Humascan (the "Licensing Fee"). The Company
has received $550,000 of the cash portion of the Licensing Fee, of which
$375,000 was received on May 31, 1996. The $1,050,000 balance of the cash
portion of the Licensing Fee is due in installments as follows: (a) $175,000 on
December 31, 1997, (b) $175,000 on March 31, 1998, (c) 350,000 on October 31,
1998, and (d) 350,000 on January 31, 1999. (See "Management's Discussion and
Analysis or Plan of Operation; Condition and Results of Operations").

In connection with the common stock portion of the Licensing Fee, Humascan has
issued to the Company 900,000 shares of its common stock. In connection with
Humascan's private placement in May 1996, the Company received an additional
438,750 shares of Humascan's common stock. This number of shares of Humascan's
common stock may be increased in certain circumstances. As part of the Humascan
Agreement, the Company has delivered to the President of Humascan an irrevocable
proxy allowing him to vote all of the shares of Humascan's common stock owned by
the Company in the manner directed by a majority of Humascan's Board of
Directors, except that the Company will vote its own shares when the subject of
the vote is either (i) approval of financing, (ii) approval of stock option
plans or amendments thereto, or (iii) any change of control which would require
Licensee to file a Form 8-K with the SEC. This irrevocable proxy will
automatically terminate when Humascan accepts the manufacturing equipment for
the production of the BTAI at its production facility.

History of the Control of the BTAI

The following is a brief description of how the Company came to control the
patents and rights to the BTAI. This section discusses how Mr. Sagi was granted
the patent, assigned it to BCSI Laboratories, Inc., which subsequently sold it
to SMC Corp., which subsequently sold it to SDSI, which is now a wholly-owned
subsidiary of the Company.

The Acquisition by SMC Corp. of the Assets of BCSI Laboratories, Inc.

In 1980, BCSI Laboratories, Inc. ("BCSI") was developing the product currently
known as the "Breast Thermal Activity Indicator" ("BTAI"). Mr. Zsigmond Sagi,
Ph.D., the inventor of the BTAI, as well as the President and Chief Executive
Officer of BCSI, had assigned all patents relating to the BTAI to BCSI. In 1980,
Faberge, Inc. ("Faberge") acquired 64% interest in BCSI for an equity investment
of $5,500,000. In addition to Faberge's equity investment, Faberge lent BCSI
$691,000 and $400,000 was invested by private individuals, including Mr. Sagi.
Substantially all of this funding was used to complete development of the BTAI,
perform clinical testing, complete engineering drawings, build prototype
automated production equipment, build a prototype production plant, and obtain
FDA authorization to market the BTAI in the United States. FDA authorization to
market the product was received in January of 1984.

In 1985, MacGregor Industries ("MacGregor") succeeded in a hostile takeover of
Faberge which resulted in Faberge becoming a wholly-owned subsidiary of
MacGregor. After the take-over was

<PAGE>

complete, MacGregor discontinued work in many of the new business areas that
Faberge had been pursuing. The activities related to the BTAI were halted and
the production plant was dismantled.

SMC Corp. (formerly "Scantek Medical Corp.") was formed in 1986 by Mr. Sagi to
purchase the BTAI patents and rights and pursue its production and marketing. In
1989, SMC Corp. purchased the equity securities of BCSI from Faberge and merged
BCSI into SMC Corp. whereby SMC Corp. was the surviving corporation.

The Acquisition by SDSI of the Assets of SMC Corp.

In August, 1991, three agreements were entered into relating to the purchase by
SDSI of the assets of SMC. Corp. The three agreements were (i) an asset transfer
agreement dated August 12, 1991 (the "Asset Transfer Agreement"), (ii) a
termination and release agreement dated August 12, 1991 (the "Termination
Agreement"), and (iii) an escrow agreement dated August 20, 1991 (the "Escrow
Agreement"). Although each of these agreements is briefly discussed below, the
Termination Agreement and the Escrow Agreement were terminated in March, 1995 by
the 361 acquisition agreement, which is also discussed below.

(i) Asset Transfer Agreement

SDSI, a Delaware Corporation, was formed in August, 1991 to acquire all of
the assets of SMC Corp. Pursuant to the Asset Transfer Agreement, among
SDSI (under its former name SMC Acquisition Corp.), Mr. Sagi, and Scantek
Medical Corp., SMC Corp.'s assets were exchanged for 80% of the issued and
outstanding capital stock of SDSI and SDSI's subordinated promissory note
in the principal amount of $600,000 (the "Note"). (See "Certain Relations
and Related Transactions: The Note"). Of the remaining 20% of the issued
and outstanding capital stock of SDSI, (a) 15% was issued to 361
Acquisition Corp. in consideration for their termination and release,
pursuant to the Termination Agreement, of all rights and/or claims 361
Acquisition Corp. may have had under a purchase order dated April 27, 1989
(including, without limitation, its rights to indirect ownership of forty
(40) percent of the outstanding capital stock of SMC Corp.), and (b) 5%
was issued to Carriage House Capital, Inc. ("Carriage House"), a financial
consulting firm, in consideration for investment banking services.

(ii) The Termination Agreement

The Termination Agreement, among Scantek Medical Corp., Mr. Sagi, 361
Acquisition Corp., Dal Brynelsen, Douglas E. McRae, and Scantek Medical
Ltd., provided that 361 Acquisition Corp. would receive, without the
payment of additional consideration, such number of additional shares of
SDSI owned by SMC Corp. as was necessary to provide 361 Acquisition

33
<PAGE>

Corp. with beneficial control of at least 40% of SDSI's capital stock in
the event that on or prior to March 20, 1993, SDSI had not consummated the
closing of financing in an aggregate amount of at least $1,500,000 from a
private placement and/or public offering of shares of its capital stock
and/or other securities, a joint venture, corporate partnership, bank loan
and/or other business arrangement or source of financing authorized by the
Board of Directors of SDSI. The Termination Agreement has been terminated
by the March 1995 361 acquisition agreement.

(iii) The Escrow Agreement

The Escrow Agreement, among SMC Corp., 361 Acquisition Corp. and Chase
Lincoln First Bank, as escrow agent (the "Escrow Agreement"), was to
ensure that the obligations under the Termination Agreement and the Asset
Transfer Agreement, if triggered, were met. However, the Escrow Agreement
has been terminated by the March 1995 361 acquisition agreement.

(iv) The 361 Acquisition Agreement

In March, 1995, SMC Corp., Mr. Sagi, 361 Acquisition Corp., Dal Brynelsen,
Scantek Medical Ltd., and Scantek Medical, Inc. entered into an agreement
(the "361 Acquisition Agreement") which terminated the Termination
Agreement, the Escrow Agreement and all amendments thereto whether oral or
written.

As part of the 361 Acquisition Agreement, 361 Acquisition Corp. received
621,250 shares of Common Stock of the Company to terminate and release the
Company from all contracts, agreements, and amendments as previously
entered into. The 621,250 shares of the Company's Common Stock brought the
total number of shares owned by 361 Acquisition Corp. up to twenty (20%)
percent of the issued and outstanding shares of Common Stock of the
Company as of the date of issuance. Pursuant to the 361 Acquisition
Agreement, all of the shares held in escrow under the Escrow Agreement
(the "Escrowed Shares") will be delivered to SMC Corp.

Acquisition of SDSI

On September 6, 1991 the Company (under its former name Jenncor Acquisitions,
Inc.) entered into the share exchange agreement (the "Share Exchange Agreement")
with SDSI (under its former name Scantek Medical Corp.) pursuant to which the
parties agreed to the acquisition of 100% of the outstanding common stock of
SDSI in exchange for 7,100,000 shares of the Company's Common Stock. Shares of
the Company's Common Stock were issued to SDSI shareholders after a .7 to 1
reverse stock split of the outstanding Common Stock. In addition, former
officers and directors of the Company agreed to assign back to the Company
500,000 (post-split) shares of the Company's Common Stock.

Since October 3, 1991, when the share exchange between SDSI and the Company
closed, SDSI, the holder of the patents to the BTAI, has been a wholly-owned
subsidiary of the Company.

<PAGE>

All future transactions between the Company and any officer, director or 5%
Stockholder will be on terms no less favorable than could be obtained from
independent third parties, and for bona fide business purposes only.

<PAGE>

Item 8. Description of Securities

General

The Company is authorized to issue 500,000,000 shares of common stock par value
$.0001 (the "Common Stock"). As of April 9, 1996, there were 15,709,116 shares
of Common Stock issued and outstanding and approximately 232 holders of record
of Common Stock.

Common Stock

Each holder of Common Stock is entitled to one vote for each share held of
record and to a pro rata share of any dividends declared on the Common Stock by
the Board of Directors. In the event that the Company is liquidated, each
stockholder, after payment of all debts, is entitled to share ratably in any
assets available for distribution . Stockholders have no preemptive, conversion
or other subscription rights and there are no redemption rights or sinking fund
provisions applicable to the Common Stock.

The Company's Common Stock is trading in the over-the-counter market. The
Company's stock is available for quotation in the "pink sheets" published by the
National Quotation Bureau, Incorporated, and on the "bulletin board" operated by
Nasdaq.

Outstanding Warrants and Stock Options

On February 15, 1991, the Company granted an option to purchase 50,000 shares of
Common Stock to Nixon, Hargrave, Devans & Doyle, its prior law firm, for
services rendered. The option is exercisable, in whole or in part, at any time
through December 31, 1996, at the option price of $.01 per share of Common
Stock.

On February 10, 1994, the Company granted a two-year redeemable warrant (the
"Warrant") to Carriage House in connection with the Carriage House Agreement.
Pursuant to the Warrant, Carriage House may purchase 125,000 shares of the
Company's Common Stock at a purchase price of $6.00 per share. These warrants
expired on February 10, 1996.

On August 3, 1994, the Company granted options to purchase 20,000 shares of the
Company's Common Stock pursuant to the terms of an Incentive Stock Option Plan
which was adopted on June 14, 1988. These options have a term of 6 years (5
years in the case of options granted to directors who own 10% or more of the
Company's Common Stock) and have an exercise price of $.25 per share (10% of the
exercise in the case of directors owning 10% or more of the Company's Common
Stock). On March 7, 1995, the Incentive Stock Option Plan was replaced with a
Non-Qualified Stock Option Plan, as discussed below. Options issued under the
Incentive Option Plan were replaced with new options which were not part of any
plan.

36
<PAGE>

On March 7, 1995, the Company established a Non-Qualified Stock Option Plan (the
"Plan") which provides for the granting of stock options to key employees. The
Plan provides for the issuance of 500,000 shares, none of which have been
registered. To date, no shares have been granted pursuant to the Plan.

Also on March 7, 1995, the Company established a Stock Grant Program (the
"Program") which provides for the granting of Common Stock to key employees. The
Program provides for the issuance of 500,000 shares, none of which have been
registered. To date, no shares have been granted under the Program.

Also on March 7, 1995, the Company granted options to purchase an aggregate of
120,000 shares to three outside directors at an exercise price of $.10 per
share. These options expire on March 6, 2000.

Also on March 7, 1995, the Company granted Carlo Civelli, the Company's Vice
President of Finance International, options to purchase 50,000 shares of Common
Stock at an exercise price of $.10 per share. These options expire on March 6,
2000.

Dividends

The payment by the Company of dividends, if any, in the future rests within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements (including working capital needs) and its
financial condition as well as other relevant factors. The Company has never
paid dividends and does not intend to declare any dividends in the foreseeable
future.

SHARES ELIGIBLE FOR FUTURE SALE

A total of 15,709,116 shares of the Company's Common Stock were outstanding as
of April 9, 1996. Of this number, 14,006,150 are restricted securities, and are
therefore subject to Rule 144, as promulgated under the Securities Act of 1933,
as amended. In general, under Rule 144, subject to the satisfaction of certain
other conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of common stock for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of shares outstanding of the
same class, or if the common stock is quoted on Nasdaq or a stock exchange, the
average weekly trading volume during the four calendar weeks preceding the sale.
A person who is not and who has not been an affiliate of the Company for at
least three months immediately preceding the sale and who has beneficially owned
shares of common stock for at least three years is entitled to sell such shares
under Rule 144 without regard to any volume limitations described above.

<PAGE>

Registration Rights

In connection with the Bridge Loans, the bridge lenders who are entitled to
shares of the Company's Common Stock, as well as those who have converted their
bridge loans for shares of the Company's Common Stock, have the right to require
the Company to register such shares or to have such shares included in
registration statements filed by the Company in connection with certain
offerings. In connection with the registration rights of the bridge lenders,
each lender has agreed to a lock-up of 90 days for the shares they were to
receive as part of the original investment, and 120 days for the shares they are
receiving in connection with the conversion.

The Bio-Life Shareholders have the right to register their 35,000 shares of the
Company's Common Stock in a public offering of the Company's Common Stock. The
shares are subject to a 120 day lock-up after the closing of the public
offering. (See "Certain Relationships and Related Transactions:
The Bio-Life Agreement").

On November 29, 1991, the Company issued approximately 18,000 shares of its
Common Stock to one unaffiliated individual. This shareholder was granted the
right to register such shares in any public offering of the Company's
securities. Under the terms of his registration rights agreement, 6000 of his
shares will be immediately disposable upon registration, 6000 within six months
of registration, and the final 6000 one year after the registration date.

Between June and August, 1993, SMC Corp. sold approximately 18,000 of its shares
of the Company's Common Stock to one unaffiliated investor and provided the
total proceeds of $40,000 from such sales to the Company to be used as working
capital by the Company. In connection with the purchase of these shares, the
investor was granted the right to register these shares in any public offering
of the Company's securities. In addition, each of the 18,000 shares purchased by
this investor are subject to a lock-up of ninety (90) days after the closing of
the public offering.

In the event that Roger Fidler exercises the option which he received February
2, 1996, all shares received as part of such exercise shall be subject to
registration rights.

On March 7, 1996, the Company issued 33,666 shares of common stock to Steinberg
and Company as payment for accounting services rendered. Such shares are subject
to registration rights.

<PAGE>

PART II

Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters

The Company's Common Stock is traded in the over-the-counter market. The Common
Stock is available for quotation in the "pink sheets" published by the National
Quotation Bureau, Incorporated and on the "bulletin board" operated by Nasdaq.
The following table sets forth for the periods indicated the high and low bid
quotations for the Common Stock:

High Low

Fiscal Year Ended June 30, 1994

1st Quarter . . . . . . . . 4.000 0.250
2nd Quarter . . . . . . . . 2.875 1.000
3rd Quarter . . . . . . . . 2.500 1.500
4th Quarter . . . . . . . . 3.250 1.000

Fiscal Year Ended June 30, 1995

1st Quarter . . . . . . . . 3.000 0.250
2nd Quarter . . . . . . . . 1.000 0.250
3rd Quarter . . . . . . . . 1.000 0.125
4th Quarter . . . . . . . . 0.750 0.250

Fiscal Year Ended June 30, 1996

1st Quarter . . . . . . . . 0.500 0.0625
2nd Quarter . . . . . . . . 0.625 0.125
3rd Quarter . . . . . . . . 0.750 0.375

These quotations reflected an inter-dealer price, without retail mark-up,
mark-down or commission, and may not necessarily reflect actual transactions.

The Company has not paid any cash dividends since its inception and does not
anticipate paying cash dividends in the foreseeable future. As of April 9, 1996,
there were 232 holders of record of the Company's Common Stock. The security
holders will change if the bridge shares are issued.

<PAGE>

Item 2. Legal Proceedings.

The Company knows of no litigation pending, threatened or contemplated, or
unsatisfied judgments against the Company, or any proceeding to which the
Company is a party. The Company knows of no legal actions pending or threatened
or judgments entered against any officers or directors of the Company in their
capacity as such.

<PAGE>

Item 3. Changes in and Disagreements With Accountants.

The Company's consolidated financial statement at June 30, 1994 and June 30,
1993 and for the period from June 10, 1988, the date of the Company's formation,
through June 30, 1994 were audited by Steinberg & Company. Steinberg & Company's
report, dated September 22, 1994, included an explanatory paragraph concerning
substantial doubt about the Company's ability to continue as a going concern.
After June 30, 1994, the Company changed its accountants from Steinberg &
Company to its present accountants, Gentile, Wiener & Penta, P.C. Although the
Company had no disagreements with Steinberg & Company with respect to matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, the Board of Directors dismissed Steinberg & Company because
they believed it was in the best interest of the Company to retain an accounting
firm with significant experience with filings with the Securities and Exchange
Commission.

<PAGE>

Item 4. Recent Sales of Unregistered Securities.

Except as described in this section, no securities of the Company have been sold
by the Company within the past three years without registration under the
Securities Act of 1933, as amended (the "Act"). The transactions described below
set forth certain information with respect to issuances and transfers of the
Company's Common Stock during the past three years. All such sales and transfers
were exempt from registration pursuant to Section 4(2) of the Act as there was
no public offering involved insofar as each investor had access to all material
information regarding the Company and each was adequately familiar with the
affairs of the Company.

Pursuant to a confidential private placement memorandum dated May 17, 1994, the
Company offered a minimum of 14 and a maximum of 50 units (the "Unit"), each
Unit consisting of (i) a 10% promissory note in the principle amount of $10,000,
and (ii) 2,000 shares of the Company's Common Stock (the "Private Placement").
The Company sold 24.6 Units and received an aggregate of $246,000 from eighteen
affiliated and unaffiliated parties (the "Bridge Loans"). The proceeds of the
Bridge Loans were used for working capital. Paul Nelson, a director of the
Company, made a Bridge Loan to the Company in the amount of $10,000. In
addition, Patricia Furness, Vice-President, Secretary and Director of the
Company, made a Bridge Loan of $10,000. Mr. Nelson and Ms. Furness are the only
affiliates or related parties who provided bridge loans. The promissory notes
issued in connection with the Bridge Loans are due in full upon the completion
of certain financing. In March, 1995 the Company offered to convert the Bridge
Loans into shares of the Company's Common Stock. As of the date of this filing,
8 investors have converted an aggregate of $121,000, plus interest, of bridge
loans into shares of the Company's Common Stock at a conversion rate of one
dollar per share. The Company issued 151,084 shares of its common stock in
connection with the conversion. Mr. Nelson, an affiliate of the Company,
converted his loan into shares.

On March 7, 1995, the Company granted to three outside directors an aggregate of
120,000 options to purchase shares of the Company's Common Stock at an option
price of $.10 per share. The options are currently exercisable and expire on
March 6, 2000. As of June 30, 1995, none of these options had been exercised.
These options were not issued pursuant to the Plan or the Program.

42
<PAGE>

On September 6, 1995, 361 Acquisition Corp. was issued 621,250 shares of the
Company's Common Stock in consideration for cancellation of all previous
agreements between 361 Acquisition and the Company.

On September 28, 1995, the Company's President and Chief Executive Officer
converted $375,000 of accrued wages at $.10 per share into 3,750,000 shares and
its Secretary converted $80,000 of accrued wages at $.10 per share into 800,000
shares of the Company's common stock.

On March 7, 1996, the Company issued 33,666 shares of common stock to Steinberg
and Company representing payment for $33,666 of accounting services.

On March 19, 1996, Arnold Poliskin was issued 400,000 shares of the Company's
common stock representing payment for $120,000 of consulting services rendered.

<PAGE>

Item 5. Indemnification of Directors and Officers.

Indemnification of Directors and Officers under Delaware Law.

The Company is incorporated under the laws of the State of Delaware. Section 145
of the Delaware General Corporation Law empowers a Delaware corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another entity. Section 145(a)'s permissive indemnity may provide
indemnification against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding provided that he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Section
145(b) of the Delaware General Corporation Law empowers a Delaware corporation
to indemnify any person described in Section 145(a), in an action by or in the
right of the corporation provided that he satisfies the conditions provided that
he satisfies the conditions set forth in Section 145(a), except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for proper expenses.
To the extent that a director, officer, employee or agent of a corporation has
been successful on the merits or otherwise in the defense of any action referred
to in Section 145(a) and (b), the corporation shall indemnify him against the
expenses which he actually and reasonably incurred in connection therewith. The
indemnification provided pursuant to Section 145 is not deemed to be exclusive
of any other rights to which those seeking indemnification may be entitled under
any by-law, agreement, vote, or otherwise.

The Company's certificate of incorporation and by-laws provide for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.

Article IV of the by-laws of the Company provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation ) by reason of the fact that he is or was a
director or officer of such corporation, or is or was serving at the request of
such corporation as a director, officer or member of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of such corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was lawful. Indemnification in connection with an action or suit by
or in the right of such corporation to procure

<PAGE>

a judgment in its favor is limited to payment of expenses (including attorneys'
fees) actually and reasonably incurred in connection with the defense or
settlement of such an action or suit except that no such indemnification may be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the indemnifying corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in
consideration of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.

<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1996

<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

INDEX

PAGE
----
Independent Auditors' Report 1 - 2

Financial Statements:

Consolidated Balance Sheets, March 31, 1996
(Unaudited) and June 30, 1995 and 1994 3

Consolidated Statements of Operations For the Nine
Months Ended March 31, 1996 and 1995 (unaudited),
For the Years Ended June 30, 1995, 1994 and 1993,
and For the Period June 10, 1988 (Date of
Formation) through March 31, 1996 4

Consolidated Statements of Stockholders' Deficiency
For the Nine Months Ended March 31, 1996
(unaudited), For the Years Ended June 30, 1995,
1994 and 1993 and For the Period June 10, 1988
(Date of Formation) through March 31, 1996 5 - 7

Consolidated Statements of Cash Flows, For the Nine
Months Ended March 31, 1996 and 1995 (unaudited),
For the Years Ended June 30, 1995, 1994 and 1993,
and For the Period June 10, 1988 (Date of
Formation) through March 31, 1996 8 - 9

Notes to Consolidated Financial Statements 10 - 19

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Scantek Medical, Inc.

We have audited the accompanying consolidated balance sheet of Scantek Medical,
Inc. and Subsidiary (Development Stage Companies) (the "Company") as of June 30,
1995, and the related consolidated statements of operations, stockholders'
deficiency and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The Company's consolidated financial statements
at June 30, 1994 and June 30, 1993 and for the period June 10, 1988 (Date of
Formation) through June 30, 1994 were audited by other auditors whose report,
dated September 22, 1994, expressed an unqualified opinion on those statements
and included an explanatory paragraph concerning substantial doubt about the
Company's ability to continue as a going concern. The other auditors' report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for such prior periods, is based solely on the report of such auditors.

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

In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Scantek Medical,
Inc. and Subsidiary at June 30, 1995, and the results of their operations and
their cash flows for the years then ended and for the period June 10, 1988 (Date
of Formation) through June 30, 1995, in conformity with generally accepted
accounting principles.

F-1
<PAGE>

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company is a Development Stage
Enterprise engaged in developing and ultimately manufacturing and marketing a
product that detects early breast tissue abnormalities including cancer. As more
fully explained in Note 1 of Notes to Consolidated Financial Statements, the
Company needs to obtain additional financing to fulfill its developmental
activities and achieve a level of sales adequate to support its cost structure.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Managements' plans are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties should the Company be unable to
continue as a going concern.

GENTILE, WIENER & PENTA, P.C.
Certified Public Accountants
Eatontown, New Jersey

August 31, 1995, except for
Notes 5 and 6, as to which the
date is June 24, 1996

F-2
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS

ASSETS
March 31, June 30,
------------ ------------------------
1996 1995 1994
----------- ----------- -----------
Current Assets: (Unaudited)
Cash $ 13,246 $ 19,782 $ 818
Equipment - net 3,021 5,039 7,732
Other assets - net 385,101 465,758 573,300
----------- ----------- -----------
TOTAL ASSETS $ 401,368 $ 490,579 $ 581,850
=========== =========== ===========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
Short-term debt $ 905,006 $ 288,006 $ -
Note payable to officer 304,993 168,993 86,293
Accounts payable 491,742 554,282 486,459
Accrued interest 281,256 202,050 111,771
Accrued salaries 323,619 679,119 546,119
Accrued expenses 1,814 9,238 300
----------- ----------- -----------
Total Current Liabilities 2,308,430 1,901,688 1,230,942
----------- ----------- -----------
Deferred income 150,000 100,000 -
Long-term debt 125,000 821,400 1,036,806
----------- ----------- -----------
Total Liabilities 2,583,430 2,823,088 2,267,748
----------- ----------- -----------
Commitments and Contingencies

Stockholders' Deficiency:
Common stock, par value $.0001 per
share - authorized 500,000,000; out-
standing 15,630,200, 10,655,450 and
10,022,200 1,563 1,066 1,003
Additional paid-in-capital 1,725,387 801,134 711,541
Deficit accumulated during development
stage (3,909,012) (3,134,709) (2,398,442)
----------- ----------- -----------
Total Stockholders' Deficiency (2,182,062) (2,332,509) (1,685,898)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 401,368 $ 490,579 $ 581,850
=========== =========== ===========

See notes to consolidated financial statements.

F-3
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Period
For the Nine Months Ended June 10, 1988
March 31, For the Years Ended June 30, (Date of Formation)
------------------------- ---------------------------------------- through
1996 1995 1995 1994 1993 March 31, 1996
----------- ------------ ----------- ---------- ---------- -------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Income:
Interest income $ 212 $ - $ 110 $ - $ - $ 5,949
Consulting - 10,000 15,000 - - 15,000
Miscellaneous - - - - - 25,000
----------- ----------- ----------- ---------- ---------- -----------
Total Income 212 10,000 15,110 - - 45,949
----------- ----------- ----------- ---------- ---------- -----------
Costs and Expenses:
General and adminis-
trative expenses 441,243 192,246 366,571 641,190 570,993 2,225,901
Amortization and
depreciation 82,676 82,857 110,233 110,086 109,350 501,082
Interest expense 133,891 80,404 114,880 68,132 39,174 383,854
Research and
development 116,705 120,993 159,693 150,000 205,452 844,124
----------- ----------- ----------- ---------- ---------- -----------
Total Costs and
Expenses 774,515 476,500 751,377 969,408 924,969 3,954,961
----------- ----------- ----------- ---------- ---------- -----------
Net (Loss) $ (774,303) $ (466,500) $ (736,267) $ (969,408) $ (924,969) $(3,909,012)
=========== =========== =========== ========== ========== ===========
(Loss) per common share $ (.06) $ (.05) $ (.07) $ (.10) $ (.10) $ (.35)
=========== =========== =========== ========== ========== ===========
Weighted average number
of common shares out-
standing 13,705,111 10,034,200 10,189,513 9,985,000 9,079,583 11,250,424
=========== =========== =========== ========== ========== ===========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Treasury Stock Additional During the
-------------------- ------------------ Paid - In Development
Shares Amount Shares Amount Capital Stage Total
--------- -------- -------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Original Capitalization:
Sale of stock
($.023 per share) 2,000,000 $ 200 - $ - $ 45,894 $ - $ 46,094

Issuance of options for
services rendered (valued
at .10 per share) 5,000 5,000

Net (loss) June 10, 1988
(Date of Formation)
through June 30, 1991 - - - - - (18,751) (18,751)
--------- ------- -------- -------- --------- --------- ---------

Balance June 30, 1991 2,000,000 200 - - 50,894 (18,751) 32,343

.7 for 1 reverse stock
split (600,000) (60) - - 60 - -

Donated stock to treasury 500,000 - -

Issuance of stock to acquire
subsidiary ($.006 per
share) 7,100,000 710 99,290 100,000

Sale of treasury stock
($2.50 per share) (18,000) - 45,000 45,000

Treasury stock exchanged for
services rendered (valued at
$.023 per share) (433,000) - 10,000 10,000

Net (loss), June 30, 1992 - - - - - (485,314) (485,314)
--------- ------- -------- -------- --------- --------- ---------
Balance, June 30, 1992 8,500,000 850 49,000 - 205,244 (504,065) (297,971)
</TABLE>

See notes to consolidated financial statements. (Continued)

F-5
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Treasury Stock Additional During the
-------------------- ------------------ Paid - In Development
Shares Amount Shares Amount Capital Stage Total
--------- -------- -------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Treasury stock exchanged
for services rendered
(valued at $0.125 per share) (49,000) - 6,125 6,125

Issuance of stock for
professional services
rendered (valued at $.25
to $.50 per share) 1,450,000 145 - - 412,355 412,500

Issuance of stock for
contract release (valued
at $1.00 per share) 35,000 4 - - 34,996 35,000

Net (loss) - - - - - (924,969) (924,969)
---------- ------- -------- -------- --------- --------- ---------

Balance, June 30, 1993 9,985,000 999 - - 658,720 (1,429,034) (769,315)

Issuance of callable
warrants for services
rendered (valued at
$.125 per share) - - - - 15,625 - 15,625

Issuance of stock in
connection with bridge
loan financing 37,200 4 - - 37,196 - 37,200

Net (loss) - - - - - (969,408) (969,408)
---------- ------- -------- -------- --------- --------- ---------
Balance, June 30, 1994 10,022,200 1,003 - - 711,541 (2,398,442) (1,685,898)
</TABLE>

See notes to consolidated financial statements. (Continued)

F-6
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Treasury Stock Additional During the
-------------------- ------------------ Paid - In Development
Shares Amount Shares Amount Capital Stage Total
--------- -------- -------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock in connection
with bridge loan financing 12,000 1 - - 11,999 - 12,000

Issuance of stock for
services rendered (valued
at $.125 per share) 621,250 62 - - 77,594 - 77,656

Net (loss) - - - - - (736,267) (736,267)
---------- ------- ------- -------- ---------- ----------- -----------

Balance - June 30, 1995 10,655,450 1,066 - - 801,134 (3,134,709) (2,332,509)

Issuance of stock exchanged
for accrued salaries 4,550,000 455 - - 454,545 - 455,000

Issuance of stock conversion
of bridge loans (valued at
$1.00 per share) 151,084 15 - - 151,069 - 151,084

Issuance of stock for services
rendered (valued at $1.00 per
share) 33,666 3 - - 33,663 - 33,666

Issuance of options for services
rendered (valued at $.30 per
share) - - - - 45,000 - 45,000

Issuance of stock for services
rendered (valued at $.60 per
share) 240,000 24 - - 239,976 - 240,000

Net (loss) - nine month
period - - - - - (774,303) (774,303)
---------- ------- ------- -------- ---------- ----------- -----------
Balance - March 31, 1996 15,630,200 $ 1,563 - $ - $1,725,387 $(3,909,012) $(2,182,062)
========== ======= ======= ======== ========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS

Net (loss) $ (774,303) $ (466,500) $(736,267) $(969,408) $(924,969) $(3,909,012)

Adjustments to reconcile net loss
to net cash used in operating
activities:

Depreciation and amortization 82,676 82,857 110,233 110,087 109,350 501,082

Acquisition of subsidiary for
stock - - - - - 100,000

Professional services for
treasury stock - - - - 6,125 16,125

Professional services for stock - - 77,656 - 412,500 490,156
Other non-cash items 24,600 18,450 24,600 15,625 35,000 113,674

Changes in operating assets
and liabilities 507,491 215,269 400,042 338,069 311,705 2,052,180
---------- ---------- --------- --------- --------- -----------
Net Cash (Used in)
Operating Activities (159,536) (149,924) (123,736) (505,627) (50,289) (635,795)
---------- ---------- --------- --------- --------- -----------

Cash flows from investing activities:

Purchases of patents - - - - - (76,069)

Organization costs - - - - - (199,672)

Purchase of property, plant
and equipment - - - (4,411) - (7,311)
---------- ---------- --------- --------- --------- -----------
Net Cash (Used) in
Investing Activities - - - (4,411) - (283,052)
---------- ---------- --------- --------- --------- -----------

Cash flows from financing activities:

Proceeds from borrowings 17,000 60,000 60,000 474,006 - 536,006

Proceeds from officer loans 138,000 96,200 82,700 31,463 54,050 306,993

Repayment of officer loans (2,000) - - - - (2,000)
Proceeds from sale of common

and treasury stock - - - - - 91,094
---------- ---------- --------- --------- --------- -----------
Net Cash Provided by
Financing Activities 153,000 156,200 142,700 505,469 54,050 932,093
---------- ---------- --------- --------- --------- -----------

Net Increase (Decrease) in Cash (6,536) 6,276 18,964 (4,569) 3,761 13,246

Cash - beginning of period 19,782 818 818 5,387 1,626 -
---------- ---------- --------- --------- --------- -----------

Cash - end of period $ 13,246 $ 7,094 $ 19,782 $ 818 $ 5,387 $ 13,246
========== ========= ========= ========= ========= ===========
</TABLE>

See notes to consolidated financial statements. (Continued)

F-8
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)

<TABLE>
<CAPTION>
For the Period
For the Nine Months Ended June 10, 1988
March 31, For the Years Ended June 30, (Date of Formation)
-------------------------- ---------------------------------- through
1996 1995 1995 1994 1993 March 31, 1996
----------- ------------- ---------- ---------- ---------- -------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Changes in Operating Assets
and Liabilities Consist of:
Decrease in deposit $ - $ - $ - $ 500 $ - $ -
(Decrease) Increase in accounts
payable and accrued expenses 464,668 149,880 293,018 337,469 311,605 1,902,032
Increase in deferred income 50,000 - 100,000 - - 150,000
Increase (decrease) in accrued
franchise tax (7,177) - 7,024 100 100 148
----------- ---------- ----------- --------- --------- -----------
$ (507,491) $ 149,880 $ 400,042 $ 338,069 $ 311,705 $ 2,052,180
=========== ========== =========== ========= ========= ===========
Non-cash investing activities
Debt incurred for asset transfer
agreement of patents $ 600,000
===========
Common stock issued in lieu of
services $ 318,666 $ 318,666
=========== ===========
Common stock issued in connection
with conversion of accrued
salaries $ 455,000 $ 455,000
=========== ===========
Common stock issued in connection
with conversion of loans and
accrued interest $ 151,084 $ 151,084
=========== ===========
</TABLE>

Supplementary information:
Cash paid for interest and income taxes for the years ended June 30, 1995,
1994, 1993 and for the nine months ended March 31, 1996 and 1995 and for
the period June 10, 1988 (Date of Formation) through March 31, 1996, all
amounted to zero, respectively.

See notes to consolidated financial statements.

F-9
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Scantek
Medical, Inc. and its wholly-owned subsidiary (the "Company"). All
intercompany transactions have been eliminated.

Nature of Business

The Company was incorporated under the laws of the State of Delaware
on June 10, 1988 and began initial developmental operations on July 1,
1988. The Company plans to manufacture, sell and license the Breast Thermal
Activity Indicator ("BTAI"). This device has been patented and has Food and
Drug Administration ("FDA") approval for sale. The BTAI is an early
screening device which can detect certain breast tissue abnormalities,
including cancer.

The development activities of the Company are being financed through
the sale of its common stock and debt securities. The Company's continued
existence is dependent upon its ability to obtain needed working capital
through additional equity and/or debt financing and the commencement of its
planned operations. Management is actively seeking additional capital to
ensure the continuation of its development activities. However, there is no
assurance that additional capital will be obtained.

Developmental Stage Operations

At March 31, 1996, planned principal operations have not yet commenced
and no revenue has been derived therefrom; accordingly, the Company is
considered a development stage company. There is no assurance that
commercially successful products will be developed nor that the Company
will achieve a profitable level of operations. Operations to date have been
devoted primarily to acquiring all of the necessary patents relating to the
BTAI; attending a variety of medical seminars; research and development;
medical follow-up studies; pre-marketing activities; and attempting to
raise the necessary capital for the initial production. On March 17, 1995,
the Company entered into a License Agreement whereby the licensee purchased
the right to manufacture and sell the BTAI in the United States of America
and its territories and possession. (See Note 5 of Notes to Consolidated
Financial Statements). The revenue recognized from the sale of the license
is being amortized on a straight-line basis over the life of the agreement.

F-10
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Depreciation

Equipment is stated at cost less accumulated depreciation.
Depreciation is calculated primarily using the straight-line method over
the estimated useful lives of the related assets.

Organization Costs

The Company capitalizes organization expenses. Amortization is
provided over five years using the straight-line method. Amortization
expense for the years ended June 30, 1995, 1994, 1993 and the nine months
ended March 31, 1996 and 1995 and from June 10, 1988 (Date of Formation)
through March 31, 1996 was $39,934, $39,934, $39,934, $29,952, $29,952 and
$169,722, respectively.

Patent Costs

The costs associated with the acquisition and filings of United
States, French, English, Dutch and other patents have been capitalized. The
patents are amortized using the straight-line method over the ten year life
of the patent. The carrying value of intangible assets is periodically
reviewed by the Company and impairments are recognized when the expected
future operating cash flows to be derived from such intangible assets is
less than their carrying value. Amortization expense for the years ended
June 30, 1995, 1994, 1993 and the nine months ended March 31, 1996 and 1995
and from June 10, 1988 (Date of Formation) through March 31, 1996 was
$67,607, $67,607, $67,607, $50,705, $50,705 and $320,917, respectively.

Research and Development

Research and development costs are expensed as incurred.

(Loss) Per Common Share

(Loss) per common share for 1995, 1994, 1993 and the nine months ended
March 31, 1996 and 1995 and from June 10, 1988 (Date of Formation) through
March 31, 1996 were computed using the weighted average number of common
shares outstanding during the year and the period. The effect of
outstanding stock options and warrants were not considered as their effect
is antidilutive.

Unaudited Interim Financial Statements

The financial statements as of March 31, 1996 and for the nine months
ended March 31, 1996 and 1995 include, in the opinion of management, all
adjustments consisting only of recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The results for the interim period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the entire
year.

F-11
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassifications

Certain reclassifications have been made to prior year balances in
order to conform with the current year's presentation.

2. INVESTMENT IN SUBSIDIARIES

a. On September 6, 1991, the Company acquired all of the issued and
outstanding common stock of Scantek Digital Systems, Inc. ("SDSI") in
exchange for 7,100,000 shares of the Company's common stock. The
acquisition has been accounted for as a purchase and the results of SDSI
are included in the consolidated financial statements from the date of
acquisition.

b. In March 1995, as part of the License Agreement (See Note 5 of Notes to
Consolidated Financial Statements), the Company acquired a twenty (20%)
percent interest in Humascan Inc. ("Humascan" or "Licensee"). The
investment is accounted for using the equity method. Humascan is a
development stage company and no transactions have occurred as of March 31,
1996.

3. EQUIPMENT
March 31, June 30,
--------- ------------------------
1996 1995 1994
--------- --------- ---------
Medical equipment $ 4,000 $ 4,000 $ 4,000
Furniture and fixtures 9,462 9,462 9,462
--------- --------- ---------
13,462 13,462 13,462
Less accumulated
depreciation 10,441 8,423 5,730
--------- --------- ---------
$ 3,021 $ 5,039 $ 7,732
========= ========= =========

Depreciation expense for the years ended June 30, 1995, 1994, 1993 and
the nine months ended March 31, 1996 and 1995 and from June 10, 1988 (Date
of Formation) through March 31, 1996 was $2,692, $2,545, $1,810, $2,019,
$2,200 and $10,442, respectively.

4. OTHER ASSETS

Other assets are as follows:

March 31, June 30,
--------- ------------------------
1996 1995 1994
--------- --------- ---------
Patent costs $ 676,069 $ 676,069 $ 676,069
Organization costs 199,672 199,672 199,672
--------- --------- ---------
875,741 875,741 875,741
Less accumulated
amortization 490,640 409,983 302,441
--------- --------- ---------
$ 385,101 $ 465,758 $ 573,300
========= ========= =========

F-12
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

5. LICENSE AGREEMENT

On March 17, 1995, and as amended on various dates through April 29, 1996,
the Company entered into an exclusive License Agreement ("Agreement") with
Humascan which grants Humascan the right to manufacture and sell in the United
States and Canada and their respective territories and possessions, the BTAI
test for the presence of breast cancer in women. The test is protected by United
States patents expiring February 26, 1997. The agreement, as amended, in
addition to providing for the issuance of 900,000 shares of common stock of
Humascan to the Company provides for a cash payment to the Company of
$1,600,000, $550,000 of which has already been received as of May 31, 1996.
Thereafter (subject to the licensee accepting the equipment needed to
manufacture the BTAI), $175,000 is payable on December 31, 1997, $175,000 on
March 31, 1998, $350,000 on October 31, 1998 and $350,000 on January 31, 1999.

The Company shall be entitled to an advance payment if certain threshold
financing creates surplus cash flows as defined in the agreement.

The Company has offset the amount due from Humascan at March 31, 1996 and
June 30, 1995 in the amount of $1,450,000 and $1,400,000, respectively, against
deferred income of $1,600,000 from the sale of the license. The receivable from
Humascan will not be recognized until the licensee accepts the equipment to
manufacture the BTAI.

In May, 1996, Humascan recently raised approximately $7.5 million through a
private placement of its securities, and has filed a registration statement for
a public offering of its securities. In connection with Humascans' private
placement, the Company received an additional 438,750 shares of Humascans'
common stock.

The agreement also provides for minimum annual royalty payments ranging from
$150,000 in the first year in which the product is sold to $600,000 in the fifth
and subsequent years (the "Minimum Royalties") and maximum royalty payments
ranging from 3% of annual net product sales of up to $2,000,000 to 10% of the
annual net product sales if annual net product sales exceed $10,000,000 (the
"Percentage Royalties"). In addition, the agreement will automatically terminate
if the aggregate earned royalties for the first three years the product is sold
do not exceed $950,000 (the "Threshold Earned Royalties"). The Minimum royalties
and Threshold Earned Royalties automatically terminate after February 26, 1997
(the date the relevant patents expire) if a competitor introduces a product
which would have infringed upon such patents. In addition, the Percentage
Royalties are reduced or eliminated if the licensee reduces the price of its
product below certain preset amounts.

Both the Company and Humascan have entered into agreements with Zigmed
Corporation ("Zigmed") for the manufacture and production of equipment necessary
for their respective BTAI production facilities. Zigmed is owned and controlled
by the son of Zsigmond Sagi, the President, Chairman of the Board, and Chief
Executive Officer of the Company. Prior to 1990, Sagi was the owner of Zigmed.

F-13
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

5. LICENSE AGREEMENT (Continued)

The Company has delivered to the Licensee a detailed description of the
production procedures necessary for the production of Licensed Product. The
Company and the Licensee have also agreed to the elements of cost involved in
the production for each pair of the Licensed Product sold during any two
consecutive quarters in which at least 500,000 units are produced for sale
exceed $2.25 per unit, then the royalty payments owing with respect to such
period shall be deducted by such cost overruns.

The initial licensing fee of $1,600,000 will be amortized over the
remaining life of the license from the commencement of production by the
licensee.

6. DEBT
Short-term debt is as follows:

March 31, June 30,
---------- -----------------------
1996 1995 1994
---------- ---------- ----------
Unsecured note, due the
earlier of (1) June 30,
1996 or (2) successful
financing for the Company
in excess of $3,000,000,
interest at 6% per year
(2) $ 288,006 $ 288,006 $ -

Unsecured note, interest at
5% per year, due August 20,
1996 (3) 600,000 - -

Unsecured note, due the
latest of (1) December 12,
1996 or (2) successful
financing for the
Company, interest at 6%
per year (4) 17,000 - -
---------- ---------- ----------
$ 888,006 $ 288,006 $ -
========== ========== ==========

Long-term debt is as follows:

March 31, June 30,
---------- -----------------------
1996 1995 1994
---------- ---------- ----------
Unsecured notes, due upon
completion of a secondary
public offering, interest
at 10% per year (1) $ 125,000 $ 221,400 $ 148,800

Unsecured note, due the
earlier of (1) June 30,
1996 or (2) successful
financing for the Company
in excess of $3,000,000,
interest at 6% per year
(2) - - 288,006

F-14
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

6. DEBT (Continued)

March 31, June 30,
---------- -----------------------
1996 1995 1994
---------- ---------- ----------
Unsecured note, interest
at 5% per year, due
August 20, 1996 (3) - 600,000 600,000
---------- ---------- ----------
$ 125,000 $ 821,400 $1,036,806
========== ========== ==========

Annual maturities on long-term debt are as follows:

Year Ending June 30,
--------------------
1996 $ 821,400
1997 -
1998 -
1999 -
2000 -
---------
$ 821,400
=========

(1) Each noteholder will receive 2,000 shares of the Company's Common Stock
as additional consideration for their 10% promissory note. Imputed interest
in the amount of $49,200 will be expensed over the expected life of the
promissory notes of approximately 21 months through March 31, 1996. The
promissory notes issued in connection with these bridge loans are due in
full upon the completion of a public offering by the Company. In March,
1995, the Company offered to convert the promissory notes into shares of
the Company's common stock at a conversion price of $1.00 per share. As of
March 31, 1996, $121,000 of the notes were converted including accrued
interest of $30,084.

Paul Nelson, a Director of the Company, and Patricia Furness,
Vice-President, Secretary and Director of the Company, each made a loan of
$10,000. Mr. Nelson and Ms. Furness are the only affiliates or related
parties who provided bridge loans.

(2) The holder of the note is a corporation controlled by the Company's
President and Chief Executive Officer.

(3) The repayment terms are as follows:

(a) Payment of $300,000, due within thirty (30) days after the date
the Company consummates the closing of financing in the aggregate
amount of $3,000,000.

(b) Payment of the remaining unpaid principal balance is due on
August 20, 1996.

(c) Consummation of $3,000,000 in financing is not determinable at
June 30, 1995, therefore, the entire $600,000 note was at June
30, 1995 considered long-term debt. The note is subordinate to
any new debt the Company may incur.

(4) The holder of the note is Clarion Finanz, AG (a Foreign Company)
controlled by Carlo Civelli, the Company's Vice-President of Finance
International.

F-15
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

7. INCOME TAXES

At March 31, 1996 and June 30, 1995, the Company has a net operating
loss ("NOL") carryforward of approximately $3,909,000 and $3,097,000,
respectively, for financial reporting purposes and approximately $770,000
for tax purposes. The Company has not reflected any benefit of such net
operating loss carry-forwards in the accompanying financial statements in
accordance with Financial Accounting Standards Board Statement No. 109 as
the realization of this deferred tax benefit is not more than likely. The
tax NOL carryforwards for tax purposes expire in the years 2005 through
2009. The difference between financial reporting and tax purposes results
from the temporary difference caused by the capitalization of start-up
expenditures for tax purposes required by Internal Revenue Code Section
195.

8. COMMON STOCK

The Company (previously know as Jenncor Acquisition Corp.) had an
original capitalization of 2,000,000 shares of common stock. On September
1, 1991 the Board of Directors of the Company authorized a .7 to 1 reverse
stock split.

On September 6, 1991, the Company exchanged 7,100,000 shares of its
common stock in exchange for the 10,000,000 shares of common stock
outstanding of Scantek Digital Systems, Inc. ("SDSI"). The transaction
resulted in SDSI becoming a wholly-owned subsidiary of Scantek Medical,
Inc. In August, 1991, SDSI entered into an Asset Transfer Agreement with
SMC Corp. whereby SDSI acquired the assets (principally patents) of SMC
Corp.

During 1993, 1994 and 1995, the Company issued 2,106,250 shares of its
common stock in exchange for approximately $525,000 of professional
services.

On March 7, 1996, the Company issued 33,666 shares of its common stock
in exchange for approximately $33,666 of professional services.

On March 16, 1996, the Company issued 400,000 shares of its common
stock in exchange for approximately $120,000 of consulting services. The
Company issued these shares at a discount from the quoted market price on
that date. The balance of $120,000 was expensed as additional compensation
in the Company's consolidated statement of operations for the nine months
ended March 31, 1996.

On March 31, 1996, $121,000 of promissory notes plus $30,084 of
accrued interest were converted into 151,084 shares of the Company's common
stock valued at $1.00 per share.

F-16
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

9. WARRANTS AND OPTIONS

a. On February 10, 1994, the Company granted to Carriage House Capital
("CHC"), as part of a termination agreement, a two year callable
warrant to which the holder may purchase 125,000 shares of common
stock of the Company at a purchase price equal to $6.00 per share. The
price of the warrant was valued at $1.00 over the projected offering
price of the Company's proposed public offering. The warrants to
purchase up to 125,000 shares of the Company's common stock was not
exercised and therefore terminated on February 6, 1996. (See Note 11
of Notes to Con- solidated Financial Statements).

b. On February 15, 1991, the Company granted an option to purchase 50,000
shares of common stock of the Company to its prior law firm for
services rendered. The option is exercisable, at any time, through
December 31, 1996 at an option price of $.01 per share of common
stock.

c. On March 7, 1995, the Company established a Non-Qualified Stock Option
Plan (the "Plan") which provides for the granting to key employees
stock options. The Plan provides for the issuance of 500,000 shares
none of which have been registered. No shares have been granted as at
March 31, 1996.

d. On March 7, 1995, the Company established a Stock Grant Program which
provides for the granting to key employees common stock of the
Company. The Stock Grant Program provides for the issuance of 500,000
shares, none of which have been registered and no shares have been
granted as at March 31, 1996.

e. On March 7, 1995, the Company granted options to three outside
directors totalling 40,000 shares each (120,000 shares) at an option
price of $.10 per share, the market price at the date the options were
granted. The options expire March 6, 2000. The options issued are
exclusive of the above plans.

f. On March 7, 1995, the Company granted options to Carlo Civelli, the
Company's Vice-President of Finance International, for 50,000 shares
at an option price of $.10 per share, the market price at the date the
options were granted. The options expire March 6, 2000. The option
issued is exclusive of the above plans.

g. On January 2, 1996, the Company granted an option to purchase 150,000
shares of common stock to Roger Fidler, Esquire for $45,000 of
professional services rendered. The option is exercisable, at any
time, through January 2, 1999 at an option price of $.625 per share of
common stock.

F-17
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

10. RELATED PARTY TRANSACTIONS

The note payable to officer represents loans, including accrued
interest, made to the Company by its President and Chief Executive Officer.
The promissory note bears interest at prime plus one (1%) percent, nine and
one quarter (9 1/4%) percent at March 31, 1996 and ten (10%) percent at
June 30, 1995, and is payable on demand.

On February 3, 1993, 1,250,000 shares of common stock was issued to
SMC Corp. SMC Corp. is the Company's largest shareholder and has the same
President and Chief Executive Officer as the Company. The 1,250,000 shares
represent replacement of shares delivered by SMC Corp. to third parties for
professional services performed on behalf of the Company in the amount of
approximately $312,500.

11. OTHER TRANSACTIONS AND AGREEMENTS

a. The Company and a related company (SMC Corp.) entered into various
agreements with a firm that invests in other companies ("361") to,
among other things, provide financing for the Company in exchange for
shares of common stock. In exchange for terminating all prior
agreements between 361 and the Company and SMC, the Company issued
621,250 shares of its common stock to 361 representing services valued
at approximately $78,000, which was approved by the Board of Directors
on March 7, 1995.

b. On February 10, 1994, the Company entered into an agreement with CHC
(a financial consultant) who had been previously contracted as the
primary financial consultant to the Company. The agreement provided
that upon the consummation of an underwritten public offering, the
Company will pay CHC $170,000 in consulting service fees rendered by
CHC and $80,000 in expenses incurred by CHC in connection with the
consulting services. The agreement terminated on August 10, 1995 as no
public underwriting was consummated. All agreements and obligations
between the Company and CHC were terminated, except the warrants which
were granted to CHC for shares of the Company's common stock. (See
Note 9 of Notes to Consolidated Financial Statements).

12. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office and warehousing facilities. Certain of these
leases require the Company to pay certain executory costs (such as
insurance and maintenance).

Future minimum lease payments for operating leases are as follows:

Year Ending June 30,
--------------------
1996 $ 28,000
1997 -
1998 -
1999 -
2000 -
--------
$ 28,000
========

F-18
<PAGE>

SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for March 31, 1996 and 1995 is Unaudited)

12. COMMITMENTS AND CONTINGENCIES (Continued)

Rent Expense

Rent expense for the years ended June 30, 1995, 1994, 1993 and the
nine months ended March 31, 1996 and 1995 and from June 10, 1988 (Date of
Formation) through March 31, 1996 approximately $42,000, $44,270, $7,443,
$30,617, $25,367, and $163,305, respectively.

Employment Agreements

On August 23, 1991, the Company entered into letters of employment
with the Company's President and Chief Executive Officer, and the Company's
Vice-President and Secretary. The balance of accrued salaries to the
officers as of June 30, 1995 and 1994 and March 31, 1996 was $544,322,
$411,328 and $193,828, respectively, and is included in Accrued Salaries in
the accompanying Consolidated Balance Sheet.

The letters of employment for Dr. Sagi and Ms. Furness will be
superseded by employment agreements. No new agreements have been formulated
as of this date, but the Company expects that new agreements will differ
materially from current compensation.

On March 7, 1995, the Board of Directors approved a resolution that
the accrued salaries owed to these officers can be converted into shares of
the Company's common stock at $.10 per share, which was the quoted price
per share on the date of the resolution. On September 28, 1995, the
Company's President and Chief Executive Officer converted $375,000 of
accrued salaries into 3,750,000 shares and its Vice-President and Secretary
converted $80,000 of accrued salaries into 800,000 shares of the Company's
common stock.

Production Agreements

The Company intends to construct a production facility, either in the
United States or abroad, to manufacture and assemble the BTAI. In January,
1991, the Company entered into an agreement with Zigmed pursuant to which
Zigmed will manufacture the production equipment needed for the
manufacturing of the BTAI for the contract price of $1,750,680. Due to the
fact that the Company has had insufficient capital, the production of the
manufacturing equipment has been delayed. As a result, the contract price
for manufacturing the equipment will increase by approximately
twenty-percent (20%). Zigmed is owned and controlled by the son of Zsigmond
Sagi. (See Note 5 of Notes to Consolidated Financial Statements for further
information).

F-19
<PAGE>

PART III
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1* Articles of Incorporation for Scantek Medical, Inc., as amended.
2.2* By-Laws of Scantek Medical, Inc., as amended.
3.1* Private Placement Memorandum dated May 17, 1994.
3.2* Instrument defining shareholder rights regarding 18,000 shares of the
Company's Common Stock
purchased on November 29, 1991.
3.3* Instruments defining shareholder rights regarding 18,000 shares of the
Company's Common Stock purchased between June and August, 1993.
3.4* Agreement defining Bio-Life shareholders' rights regarding 35,000
shares of the Company's Common Stock.
6.1* Asset Transfer Agreement among SDSI (as SMC Acquisition Corp.),
Mr. Sagi and Scantek Medical Corp. dated August 12, 1991.
6.2* Letter Agreement between SMC Corp. and Zigmed Corporation dated
January 8, 1991.
6.3* Purchase Order between SMC Corp. and Zigmed Corp. dated
January 22, 1991.
6.4* Non-Disclosure Agreement between SMC Corp. and Zigmed Corp. dated
January 7, 1990.
6.5* Escrow Agreement among SMC Corp., 361 Acquisition Corp. and Chase
Lincoln First Bank dated August 20, 1991.
6.6* Termination Agreement among Scantek Medical Corp., Mr. Sagi, 361
Acquisition Corp., Dal Brynelsen, Douglas E. McRae and Scantek
Medical Ltd. dated August 12, 1991.
6.7* 361 Acquisition Agreement (Amendment No. 2) between SMC Corp.,
Mr. Sagi, 361 Acquisition Corp., Dal Brynelsen, Scantek Medical Ltd.
and Scantek Medical, Inc. dated March 7, 1995.
6.8* Humascan Inc. Licensing Agreement between Scantek Medical, Inc.
and Humascan, Inc. dated October 20, 1995.
6.9* Amendment to the Humascan Inc. Licensing Agreement between Scantek
Medical, Inc. and Humascan, Inc. dated April 29, 1996.
6.10* Lease between Scantek Medical, Inc.and Kaebert Realty Corporation for
Storage and Office Space.
6.11* Lease between Scantek Medical, Inc. and Carol Yang for Office Space.
6.12* Letters of Employment for Mr. Zsigmond Sagi and Ms. Patricia Furness
dated February 26, 1993.
6.13** Amendment to the Humascan Inc. Licensing Agreement between Scantek
Medical, Inc. and Humascan, Inc. dated May 31, 1996.
23.1 Consent of Wiener, Penta & Goodman, P.C. dated June 24, 1996

* - Document previously filed on May 14, 1996 with Form 10-SB which was
withdrawn on July 13, 1996.

** - Document previously filed on June 28, 1996 with Form 10-SB/A-1 which was
withdrawn on July 13, 1996.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.

--------------------------------
Scantek Medical, Inc.

Date July 19, 1996 By: /s/ Patricia B. Furness
---------------------- -----------------------------
Patricia B. Furness
Vice-President, Treasurer
and Secretary

<PAGE>

EXHIBIT INDEX

Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1* Articles of Incorporation for Scantek Medical, Inc., as amended.
2.2* By-Laws of Scantek Medical, Inc., as amended.
3.1* Private Placement Memorandum dated May 17, 1994.
3.2* Instrument defining shareholder rights regarding 18,000 shares of the
Company's Common Stock purchased on November 29, 1991.
3.3* Instruments defining shareholder rights regarding 18,000 shares of the
Company's Common Stock purchased between June and August, 1993.
3.4* Agreement defining Bio-Life shareholders' rights regarding 35,000
shares of the Company's Common Stock.
6.1* Asset Transfer Agreement among SDSI (as SMC Acquisition Corp.),
Mr. Sagi and Scantek Medical Corp. dated August 12, 1991.
6.2* Letter Agreement between SMC Corp. and Zigmed Corporation dated
January 8, 1991.
6.3* Purchase Order between SMC Corp. and Zigmed Corp. dated
January 22, 1991.
6.4* Non-Disclosure Agreement between SMC Corp. and Zigmed Corp. dated
January 7, 1990.
6.5* Escrow Agreement among SMC Corp., 361 Acquisition Corp. and Chase
Lincoln First Bank dated August 20, 1991.
6.6* Termination Agreement among Scantek Medical Corp., Mr. Sagi,
361 Acquisition Corp., Dal Brynelsen, Douglas E. McRae and Scantek
Medical Ltd. dated August 12, 1991.
6.7* 361 Acquisition Agreement (Amendment No. 2) between SMC Corp.,
Mr. Sagi, 361 Acquisition Corp., Dal Brynelsen, Scantek Medical Ltd.
and Scantek Medical, Inc. dated March 7, 1995.
6.8* Humascan Inc. Licensing Agreement between Scantek Medical, Inc. and
Humascan, Inc. dated October 20, 1995.
6.9* Amendment to the Humascan Inc. Licensing Agreement between Scantek
Medical, Inc. and Humascan, Inc. dated April 29, 1996.
6.10* Lease between Scantek Medical, Inc.and Kaebert Realty Corporation for
Storage and Office Space.
6.11* Lease between Scantek Medical, Inc. and Carol Yang for Office Space.
6.12* Letters of Employment for Mr. Zsigmond Sagi and Ms. Patricia Furness
dated February 26, 1993.
6.13** Amendment to the Humascan Inc. Licensing Agreement between Scantek
Medical, Inc. and Humascan, Inc. dated May 31, 1996.
23.1 Consent of Wiener, Penta & Goodman, P.C. dated June 24, 1996

* - Document previously filed on May 14, 1996 with Form 10-SB which was
withdrawn on July 13, 1996.

** - Document previously filed on June 28, 1996 with Form 10-SB/A-1 which was
withdrawn on July 13, 1996.

[LETTERHEAD OF WIENER, PENTA & GOODMAN, P.C.]

INDEPENDENT AUDITORS' REPORT

We consent to the incorporation by reference in the Form 10-SB of Scantek
Medical, Inc. of our report dated August 31, 1995 and June 24, 1996 for the year
ended June 30, 1995.

/s/ WIENER, PENTA & GOODMAN, P.C.
- --------------------------------
WIENER, PENTA & GOODMAN, P.C.
Certified Public Accountants

July 19, 1996