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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]       Annual  Report  Pursuant  to  Section  13 or 15(d)  of the  Securities
          Exchange Act of 1934
For the fiscal year ended December 31, 1997, or
[ ]       Transition  Report  Pursuant to Section 13 or 15(d) of the  Securities
          Exchange Act of 1934

For the transition period from ___________________ to _______________________
Commission file number 000-21615 .





                             BOSTON BIOMEDICA, INC.
                             ----------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)





              MASSACHUSETTS                                  04-2652826      
              -------------                                  ----------      
     (State or other Jurisdiction of                      (I.R.S. Employer   
        Incorporation or Organization)                   Identification No.)
                                                      
            375 WEST STREET,                                 
     WEST BRIDGEWATER, MASSACHUSETTS                          02379-1040
     -------------------------------                          ----------
(Address of Principal Executive Offices)                      (zip code)
                                                             

Registrant's telephone number, including area code    (508) 580-1900
                                                      --------------
   
           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OFTHE ACT:
                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     Common Stock, par value $.01 per share

         Indicate  by check mark  whether the  registrant:  (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934  during  the  preceding  12 months (or for such  shorter  period
that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.    Yes  [X]   No  [ ]

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  be  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

         The aggregate  market value of the voting stock held by non-affiliates
of the  Registrant at March 17, 1998 was  $27,754,339.  The aggregate  market
value was  computed  by  reference  to the closing price as of that date on
NASDAQ.

         The  number of shares  outstanding  of the  Registrant's  only class of
common stock as of March 17, 1998 was 4,643,172.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

         Portions of the  Registrant's  definitive  Proxy Statement for its 1997
annual meeting,  are incorporated by reference into Part III of this Report, and
portions of the Registrant's Registration Statement on Form S-1 (Registration
No. 333-10759) are incorporated by reference into Part IV of this Report.


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                                 PART I
ITEM 	1.	BUSINESS

        The Company is a worldwide provider of proprietary quality control
products for use with in vitro diagnostic test kits ("test kits") for the
detection, analysis and monitoring of infectious diseases, including AIDS,
Hepatitis and Lyme Disease. These products are used to develop test kits, to
permit the monitoring of laboratory equipment and personnel, and to help ensure
the accuracy of test results. The Company's products are derived from human
plasma and serum using proprietary manufacturing processes. The Company
believes its Quality Control Panel products are viewed as the current industry
standard for the independent assessment of the performance of HIV and Hepatitis
test kits. The Company also manufactures diagnostic test kit components,
laboratory instruments, and provides specialty laboratory services, including
clinical trials. It also provides contract instrument development and related
repairs at its service center in Garden Grove, CA. The Company's customers
include test kit manufacturers, regulatory agencies and end-users of test kits
such as blood banks, hospital laboratories and clinical reference laboratories.
Currently the Company's products are used in connection with the detection of
more than 15 infectious diseases, and its specialty laboratory services are
used in connection with the detection of over 100 such diseases.

        The Company's strategy is to leverage its scientific capabilities in
microbiology, immunology, virology, and molecular biology to (i) capitalize on
the emerging end-user market, (ii) develop new products and services, (iii)
enhance technical leadership, (iv) capitalize on complementary business
operations, and (v) pursue strategic acquisitions and alliances.

Industry Overview

        Infectious Disease Test Kits and Testing Methods. Test kits contain in
one compact package all of the materials necessary to run a test for an
infectious disease. These include the disposable diagnostic components,
instructions, and reaction mixing vessels (generally 96-well plates or test
tubes) which are coated with the relevant infectious disease antigens,
antibodies or other materials. To perform the test, either a technician or a
specially designed instrument typically mixes the solutions from the test kit
with human blood specimens in a specific sequence according to the test kit
instructions. The mixture must then "incubate" for up to 18 hours, during which
time a series of biochemical reactions trigger signals (including color, light
and radioactive count) which indicate the presence or absence and amount of
specific markers of the particular disease in the specimen.

        Test kits generally employ one of three methods for infectious disease
testing: microbiology, immunology or molecular biology. Traditional
microbiology tests use a growth medium that enables an organism, if present, to
replicate and be detected visually. Immunology tests detect the antigen or
antibody, which is an indicator (marker) of the pathogen (e.g., virus,
bacterium, fungus or parasite). Molecular diagnostic methods, such as the
polymerase chain reaction ("PCR"), test for the presence of nucleic acids (DNA
or RNA) which are specific to a particular pathogen.

        Most infectious disease tests currently use microbiological or
immunological methods. However, molecular diagnostic methods are increasingly
being used in research and clinical laboratories worldwide. The Company
believes that the advent of molecular diagnostic methods will complement rather
than diminish the need to test by microbiological and immunological procedures,
because different test methods reveal different information about a disease
state. The Company anticipates that as new test methods become more widespread,
they will account for a larger portion of the Company's business.

        Quality Control for In Vitro Diagnostic Test Kits. Customers employ
quality control products in order to develop and use test kits (both infectious
and non-infectious). Quality control products help ensure that test kits detect
the correct analyte (specificity), detect it the same way every time

                                      -2-

(reproducibility or precision), and detect it at the appropriate levels
(sensitivity). The major element of this quality control process is the
continuous evaluation of test kits by the testing of carefully characterized
samples that resemble the donor or patient samples routinely used with the
test. Quality control is used in both the infectious and non-infectious disease
markets, although currently it is not as prevalent among end-users of
infectious disease test kits. 

        The market for quality control products consists of three main customer
segments: (i) manufacturers of test kits, (ii) regulatory agencies that oversee
the manufacture and use of test kits and (iii) end-users of test kits, such as
hospitals, clinical reference laboratories and blood banks. 

Company Products and Services

Overview

        The Company offers two broad product classes used in in vitro
diagnostics ("IVD"): "Diagnostic Products" consisting of Quality Control
Panels, Accurun( Run Controls and Diagnostic Components, all used in connection
with infectious disease testing, and new for 1997, "Laboratory Instruments".
Diagnostic Products are used throughout the entire test kit life cycle, from
initial research and development, through the regulatory approval process and
test kit production, to training, troubleshooting and routine use by end-users.
The Company's Quality Control Panels, which combine human blood specimens with
comprehensive quantitative data useful for comparative analysis, help ensure
that test kits detect the correct analyte (specificity), detect it the same way
every time (reproducibility), and detect it at the appropriate levels
(sensitivity). The Company's Accurun( Run Controls enable end-users of test
kits to confirm the validity of results by monitoring test performance, thereby
minimizing false negative test results and improving error detection. In
addition, the Company provides Diagnostic Components, which are custom
processed human plasma and serum products, to test kit manufacturers.

        Through its wholly owned subsidiary, BBI Source Scientific, Inc., the
Company designs, manufactures and markets Laboratory Instruments used in
hospitals, clinics, and research, environmental and food testing laboratories.
Utilizing a common hardware technology platform, these instruments are used in
connection with the performance of an IVD test, including reading the test
result.

        The Company's specialty clinical laboratory services include both
routine and sophisticated infectious disease testing in microbiology,
immunology and molecular biology. The Company seeks to focus its specialty
laboratory services in advanced areas of infectious disease testing, and
provides contract research and clinical trials for the United States government
and for domestic and foreign test kit manufacturers.

Diagnostic Products

        The Company manufactures its Diagnostic Products from human plasma and
serum which are obtained from nonprofit and commercial blood centers, primarily
in the United States. The Company has acquired and developed an inventory of
approximately 50,000 individual blood units and specimens (with volumes ranging
from 1 ml to 800 ml) which provides most of the raw material for its products.
Within the Diagnostic Products class are two groups:  Quality Control Products
(Panels and Accurun( Run Controls) and Diagnostic Components.

        Quality Control Panels

        Quality Control Panels consist of blood products characterized by the
presence or absence of specific disease markers and a Data Sheet containing
comprehensive quantitative data useful for comparative analysis. These Quality
Control Panels are designed for measuring overall test kit

                                      -3-

performance and laboratory proficiency, as well as for training laboratory
professionals.  The Company's Data Sheets, containing comprehensive
quantitative data useful for comparative analysis, are an integral part of its
Quality Control Panels. These Data Sheets are created as the result of
extensive testing of proposed panel components in both the Company's
laboratories and at major testing laboratories on behalf of the Company in the
United States and Europe, including national public health laboratories,
research and clinical laboratories and regulatory agencies. These laboratories
are selected based on their expertise in performing the appropriate tests on a
large scale in an actual clinical setting; this testing process provides the
Company's customers with the benefit that the Quality Control Panels they
purchase from the Company have undergone rigorous testing in actual clinical
settings. In addition, the Company provides information on its Data Sheets on
the reactivity of panel components in all FDA licensed test kits and all
leading European test kits for the target pathogen, as well as for all other
appropriate markers of this pathogen. For example, the Company's HIV panel Data
Sheets include anti-HIV by IFA, ELISA and western blot; HIV antigen by ELISA;
and HIV RNA by several molecular diagnostic procedures. The Company's Data
Sheets require significant time and scientific expertise to prepare. The
following table describes the types of Quality Control Panel products currently
offered by the Company.

<TABLE>
<CAPTION>
                                          QUALITY CONTROL PANEL PRODUCTS
- -------------------------------- ----------------------------------- --------------------------------- ---------------------

PRODUCT LINE                     DESCRIPTION                         USE                               CUSTOMERS
- -------------------------------- ----------------------------------- --------------------------------- ---------------------

<S>                             <C>                                  <C>                               <C>
Seroconversion Panels            Plasma samples collected from a     Compare the clinical              Test kit
                                 single individual overra specific   sensitivity of competing          manufacturers and
                                 time period showing conversion      manufacturers' test kits,         regulators.
                                 from negative to positive for       enabling the user to assess the
                                 markers of an infectious            sensitivity of a test in
                                 disease.-                           detecting a developing
                                                                     antigen/antibody.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------

Performance Panels               A set of 10 to 50 serum and         Determine test kit performance    Test kit
                                 plasma samples collected from       against all expected levels of    manufacturers and
                                 many different individuals and      reactivities in the evaluation    regulators.
                                 characterized for the presence or   of new, modified and improved
                                 absence of a particular disease     test methods.
                                 marker.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------

Sensitivity Panels               Precise dilutions of human plasma   Evaluate the low-end analytical   Test kit
                                 or serum human plasma or serum      sensitivity of a test kit.        manufacturers
                                 containing a known amount of an
                                 infectious disease marker as
                                 calibrated against international
                                 standards.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------

Qualification Panels             Dilutions of human plasma or        Demonstrate the consistent        Clinical reference
                                 serum manifesting a full range of   lot-to-lot performance of test    laboratories, blood
                                 reactivities in test kits for a     kits, troubleshoot problems,      banks, and hospital
                                 specific marker.                    evaluate proficiency, and train   laboratories
                                                                     laboratory technicians.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------

OEM Panels                       Custom-designed Qualification       Train laboratory personnel on     Custom designed
                                 Panels for regulators and test      new test kits or equipment.       with test kit
                                 kit manufacturers for                                                 manufacturers and
                                 distribution to customers or for                                      regulators as an
                                 internal use.                                                         end-user product or
                                                                                                       for internal use.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------
</TABLE>

                                      -4-

        The Company first introduced Quality Control Panels in 1987. The
Company currently offers a broad range of Quality Control Panels that address a
variety of needs of manufacturers and regulators of test kits as well as blood
banks, hospitals, clinical laboratories and other end-users. Prices for the
Company's quality control seroconversion, performance and sensitivity panels
range from $450 to $2,000 each, and its qualification and OEM panels range from
$100 to $200 per panel.

        Seroconversion and Performance Panels are comprised of unique and rare
plasma specimens obtained from individuals during the short period of time when
the markers for a particular disease are converting from negative to positive.
As a result, the quantity of any such panel is limited, so that the Company
must replace these panels as they sell out with another panel comprised of
different specimens equally unique and rare. The Company believes that its
inventory and relationships with blood centers affords it a competitive
advantage in acquiring such plasma for replacement panels and developing new
products to meet market demand. There can be no assurance that the Company will
be able to continue to obtain such specimens.

        Quality Control Panels currently span the immunologic markers for AIDS
(i.e., HIV), Hepatitis (A, B and C), Lyme Disease and ToRCH (Toxoplasma,
rubella, cytomegalovirus and herpes simplex virus). New introductions this year
include Performance Panels for HIV, EBV and HCV, Qualification Panels for HIV,
HTLV, CMV and HCV, and additional Seroconversion Panels for HIV and HCV.
Included in the Performance Panel category are the first "Worldwide" panels for
HCV and HIV that include specimens from throughout the world reactive for
variants and subtypes of these deadly viruses.

        Accurun(r) Run Controls

        End-users of test kits utilize Run Controls to confirm the validity of
results by monitoring test performance, thereby minimizing false negative test
results and improving error detection. Run controls consist of one or more
specimens of known reactivity that are tested together with donor or patient
samples in an assay to determine whether the assay is performing within the
manufacturer's specifications. Clinical laboratories generally process their
patient specimens in a batch processing mode, and typically include 25 to 100
specimens to be tested in each batch (a "run"). Large laboratories may perform
several runs per day, while smaller laboratories may perform only a single run
each day, or sometimes only several runs per week. A clinical laboratory using
a Run Control will place the Run Control product in a testing well or
test-tube, normally used for a specimen, and will test it in the same manner
that it tests the donor or patient specimens. It will then compare the results
generated to an acceptable range, determined by the user, to measure whether
the other specimens are being accurately tested. The Run Control result must be
within the acceptable range to be considered valid. This is often tracked
visually using a Levey-Jennings chart. Depending upon a particular laboratory's
quality control practices, it may use several Run Controls on each run or it
may simply use a Run Control in a single run at the beginning and end of the
day.

        In 1997, the Company introduced its AccuChartTM tracking and charting
software. Used as part of a laboratory's quality assurance program, AccuChartTM
runs on a PC and is designed to provide the data tracking capability needed to
document laboratory performance.

        The Company's Accurun(r) family of products is targeted at the emerging
market of end-users of infectious disease test kits. The Company believes that
it offers the most comprehensive line of Run Controls in the industry, and that
its Accurun(r) products, in combination with its Quality Control Panel
products, provide an extensive line of products for quality assurance in
infectious disease testing.  The Company intends to continue to expand its line
of Accurun(r) products, thereby providing its customers with the convenience
and cost effectiveness of a single supplier for independent run controls.

        The Company introduced its first four Accurun(r) Run Control products
in the fourth quarter of 1993 and has since developed and released for sale an
additional 31 Accurun(r) products, for a total of 35

                                      -5-

Run Controls. The majority of these products are available for diagnostic
purposes; the others currently are limited to research use. Current Accurun(r)
Run Control products range in price from $5 to $45 per milliliter and are
described in the following table.

<TABLE>
<CAPTION>
                                               ACCURUN(r) RUN CONTROLS

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


         PRODUCT LINE                     DESCRIPTION              CURRENT NUMBER OF          PRIMARY CUSTOMERS
                                                                       PRODUCTS
- ------------------------------- -------------------------------- ---------------------- ------------------------------
<S>                              <C>                               <C>                  <C>

   Accurun(r)1-99               Multi-marker Run Control                 6              Blood Banks
                                for immunological tests
- ------------------------------- -------------------------------- ---------------------- ------------------------------

   Accurun(r)100-199            Single-marker Run Control                22             Hospitals and clinical
                                for immunological tests                                 reference laboratories
- ------------------------------- -------------------------------- ---------------------- ------------------------------

   Accurun(r)200-299            Multi-marker Run Control                 1              Research and specialty
                                for molecular tests                                     laboratories
- ------------------------------- -------------------------------- ---------------------- ------------------------------

   Accurun(r)300-399            Single-marker Run Control                3              Research and specialty
                                for immunological tests                                 laboratories
- ------------------------------- -------------------------------- ---------------------- ------------------------------

   Accurun(r)800-899            Negative Run Control for                 3              All laboratories
                                immunological and molecular
                                tests
- ------------------------------- -------------------------------- ---------------------- ------------------------------
</TABLE>

        All of the Company's Accurun(r) Run Controls require FDA premarket
clearance (a 510(k)) prior to being marketed for diagnostic use, under current
FDA rules. The FDA Modernization Act of 1997 will likely produce new
regulations exempting some of these products from FDA submission requirements,
but the new rules are not yet in place. As of March 1, 1998, a total of nine
products in the Accurun 1(r) line and 14 single analyte Accurun( controls have
received 510(k) clearance from the FDA. An additional three Accurun(r) single
analyte products have been submitted but have not yet received FDA approval.

Diagnostic Components

        Diagnostic Components are the individual materials supplied to
infectious disease test kit manufacturers and combined (often after further
processing by the manufacturer) with other materials to become the various
fluid components of the manufacturer's test kit. The Company supplies
Diagnostic Components in four product lines: Normal Human Plasma, Normal Human
Serum, Basematrix, and Characterized Disease State Serum and Plasma. Normal
Human Plasma and Serum are both the clear liquid portion of blood which
contains proteins, antibodies, hormones and other substances, except that the
Serum product has had the clotting factors removed. Basematrix, the Company's
proprietary processed serum product that has been chemically converted from
plasma, is designed to be a highly-stable, lower cost substitute for most
Normal Human Serum and Plasma applications. Characterized Disease State Serum
and Plasma are collected from specific blood donors pre-selected because of the
presence or absence of a particular disease marker. The Company often
customizes its Diagnostic Components by further processing the raw material to
meet the specifications of the test kit manufacturer. The Company's Diagnostic
Components range in price from $0.25 to $60 per milliliter, with the majority
selling between $0.50 and $5 per milliliter.

                                  -6-


Laboratory Instruments

        In 1997, the Company acquired the business and net assets of Source
Scientific, Inc., a laboratory instrument manufacturer in Garden Grove,
California. As a result of this acquisition, the Company through its wholly
owned subsidiary, BBI Source Scientific, Inc. ("BBI Source"), now has expertise
in IVD instruments, adding to its existing capability in IVD quality control
products. This is significant since, in addition to the test kit and a well
trained technician, the third element to an accurate test result is a properly
calibrated instrument to read the test result. See also Note 2 to the Company's
Notes to Consolidated Financial Statements in Item 8 hereunder regarding the
Company's purchase of the business and net assets of Source Scientific, Inc.

        BBI Source designs, manufactures and markets Laboratory Instruments
used in hospitals, clinics, and research, environmental and food testing
laboratories. They are generally sold on a private-label or OEM basis for other
companies utilizing a common hardware technology platform. The instruments
manufactured by the Company use advanced optical detection methods
(luminescence, fluorescence, reflectance, photometry), robotics, fluidics, and
unique software, which is desired by customer companies reselling the
state-of-the-art instrumentation systems to clinical distributors and
laboratories worldwide.

        The products currently being offered by BBI Source have been
commercialized since 1985. BBI Source expects that its newest products will be 
available for production in late 1998. Management believes that products address
important market segments in biomedical and clinical diagnostic testing and 
environmental monitoring and food testing research. The BBI Source product line
includes the following:

        MicroChem(r) Photometer. A compact, low-cost, photometer designed for
immunoassay and general chemistry applications.

        ChemStat(r) Automated Photometer. A high-speed, automated photometer
with a sample capacity of 95 tubes and a read rate of one sample per second.
This product is suited for high-volume processing.

        ChemStat(r) Plus Automated Photometer. The ChemStat Plus is a second
generation photometer compatible with the EXEC-WASH Washing System that
features menu-driven software and optional on-board dispensers.

        E/LUMINA(r) Luminescence Analyzer. A flexible luminometer for both
"flash" and "glow" luminescence methods, this automated system reads up to 114
samples and reports final results.

        E/LUMINA(r) 2E Automated Luminescence Analyzer. This detection system
is designed with the same features as the E/LUMINA Luminescence Analyzer that
can be used to detect faster "flash" luminescence techniques and adapts to
various formats, as well as to liquid phase assays.

        EXEC-WASH(r) Washing System. An automated immunoassay washing system
that can be quickly configured by the user to wash different solid-phase assay
formats by a propriety manifold design. The EXEC-WASH is fully compatible with
a variety of other Company products, such as the ChemStat, the ChemStat Plus
and the E/LUMINA Luminescence Analyzer.

        PlateMate(r) Reader. The Company expects to have available in 1998 the
PlateMate Reader, a microfluidics well-reading system combining robotics and
fluidics. The current design of the PlateMate Reader performs photometric
assays in the 400 to 700 nm range for 96 samples at a time and prints out
results directly on a built-in printer.

                                      -7-

        Protocol Design Software System. A development tool for researchers and
assay manufacturers, the program operates under Microsoft(r) Windows and serves
as the master programing center for EXEC-WASH systems to create fluid handling
protocols.

        FOCUS(r). Florescence Polarization System. Fluorescence polarization 
("FP") is a technology that has dominated the clinical market for therapeutic 
and abuse drug level testing for many years.

        FluoroStat(r) Reader. The FluoroStat is a compact fluorometer that is
highly sensitive and provides a broad dynamic range for tube-based fluorometric
assays. The instrument was introduced in September 1995 and is currently
available for OEM manufacture.

Services

        The Company seeks to focus its specialty laboratory services in both
the clinical reference laboratory testing and advanced research areas. The
Company concentrates its services in those areas of infectious disease testing
which are complementary to its quality control and diagnostic products
businesses.

        Specialty Clinical Laboratory Testing. Through its wholly owned
subsidiary, BBI Clinical Laboratories, Inc. the Company operates an independent
specialty clinical reference laboratory which performs both routine and
sophisticated infectious disease testing in microbiology, immunology and
molecular biology, with special emphasis in AIDS, Viral Hepatitis and Lyme
Disease. The Company's specialty clinical laboratory combines traditional
microbiology, advanced immunology, and current molecular diagnostic techniques,
such as PCR, to detect and identify microorganisms, their antigens and related
antibodies, and their nucleic acids (i.e., DNA and RNA). Customers include
physicians, clinics, hospitals and other clinical/research laboratories.

        Contract Research. The Company, through its wholly owned subsidiary,
BBI Biotech Research Laboratories, Inc. ("BBI Biotech"), offers a variety of
contract research services in molecular biology, cell biology and immunology to
governmental agencies, diagnostic test kit manufacturers and biomedical
researchers. Molecular biology services include DNA sequencing, recombinant DNA
support, probe labeling and custom PCR assays. Cell biology and immunology
services include sterility testing, virus infectivity assays, cultivations of
virus or bacteria from clinical specimens, preparation of viral or bacterial
antigens or nucleic acids, and production of antibodies. The Company is
currently providing contract research services under several contracts and
grants. These services primarily related to infectious diseases, and include
the following: assessment of the efficiency of candidate HIV vaccines in a
monkey model system; development of a multiplex RT PCR based test for HIV-1,
HTLV I/II, HCV, and HBV; DNA sequencing of human genes involved in neurological
disorders; plate assays for HIV-1 genotyping; and eliciting neutralizing
antibodies targeting HIV. In addition, since 1983, BBI Biotech, has provided
blood processing and repository services for the National Cancer Institute
("NCI"), also a part of the National Institutes of Health ("NIH"). The
repository stores over 2,000,000 specimens and processes or ships up to several
thousand specimens per week in support of various NIH cancer and virus research
programs. A new one year NCI repository contract was signed in February 1997
which includes four one year renewal options exercisable by NCI. The total
value of the contract in the first year is $916,000, and including all options,
is $4.8 million. The initial renewal option has been approved by the NCI
although there can be no assurance that any subsequent options will be
exercised.

        Clinical Trials. The Company conducts clinical trials for domestic and
foreign test kit manufacturers. Test kit manufacturers must conduct such trials
to collect data for submission to the United States FDA and other regulatory
agencies. By providing this service, the Company is able to maintain close
contact with test kit manufacturers and regulators, and is able to evaluate new
technologies in various stages of development. The Company believes that the
reputation of its laboratory and scientific staff, its large number of Quality
Control Panels, and its inventory of

                                      -8-

characterized serum and plasma specimens assist the Company in marketing its
clinical trial services to its customers. The Company has performed clinical
trials for a number of United States and foreign test kit manufacturers seeking
to obtain FDA approval for their infectious disease test kits.

        Laboratory Instrumentation Services. BBI Source offers design,
development and manufacturing services to companies seeking to market
biomedical products manufactured under government-approved manufacturing
practices. The OEM services range in complexity from contract manufacturing to
full system development and distribution.

        BBI Source also provides after-sales-service. Management believes that
after-sales service is a major marketing advantage in many of the Company's
markets, since many of the Company's customers do not maintain their own full
service departments. Servi-Trak(r), a proprietary software program, is a key
element of this after-sales service. The Company's service department is
located at BBI Source's facility in Garden Grove, California. A fully
functional service center located in Giessen, Germany, is contracted by the
Company to provide European service and support.

        On March 9, 1998, the Company announced plans to modify a previously
announced 3-year contract with ABX Hematology, Inc. ("ABX") and its parent
company, ABX Hematologie, SA (France). Under the contract, the Company provided
technical, customer and field services for instruments sold by ABX in the
United States. Under the modified agreement, individual customer service
contracts will be assigned to ABX and ABX will assume responsibility for its
United States instruments. The Company will provide certain consulting services
through March 1999 to assist ABX in establishing a sales, customer service,
technical support, and field service operation in the United States for its
hematology instrument and reagent business. In addition, the Company has agreed
to allow ABX to occupy space at its California facility during the period of
the agreement. The Company's personnel associated with this contract, included
the nationwide field service organization and hotline technical support, will
be offered employment by ABX.

        Drug Screening Program. As a subcontractor for an NIH AIDS grant held
by the University of North Carolina at Chapel Hill, the Company has established
an anti-HIV drug screening program to test a large number of natural products
(largely plant derivatives) to determine whether they inhibit HIV replication
in an in vitro assay system. These in vitro assays are also offered as a
service to researchers and pharmaceutical companies who wish to test various
candidate anti-viral agents for anti-HIV activity. 

Research and Development

        The Company's research and development effort is focused on the
development of (i) new and improved Quality Control Products (Panels and
Accurun(r)) for the emerging end-user market, (ii) new products for existing
customers, (iii) Diagnostic Components for use with test kits for both new test
methodologies and new diseases, (iv) new laboratory instruments and mechanical
and optical detection techniques, and (v) infectious disease testing services
using PCR and other amplification assays for AIDS, Viral Hepatitis, Lyme
Disease and Chlamydia, among others. The Company has approximately 36 full or
part-time employees involved in its research and development effort. For 1997
the Company increased spending on research and development as a percentage of
revenues compared to 1996 and expects to continue to increase such expenditures
as a percentage of revenues for the next several years. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations." The Company's research scientists work closely with
sales, marketing, manufacturing, regulatory and finance personnel to identify
and prioritize the development of new products and services.

        The Company's product development activities center on the
identification and characterization of materials for the manufacture of new
Quality Control Products and the replacement of sold-out products. During 1997,
the Company introduced 32 new Seroconversion, Performance, Sensitivity and
Qualification Panel products, as well as 6 new Accurun(r) Run Controls, and 34
OEM Panels. The

                                      -9-

Company is developing new Quality Control Products for use with both
immunological and molecular diagnostic tests for subtypes and variants of HIV,
HCV and HBV, and a variety of controls targeted for leading instrument
platforms. The Company has increased the number of off-the-shelf Quality
Control Products it offers from approximately 20 products in 1990 to
approximately 167 in 1997.

        The Company's product development activities related to Laboratory
Instruments are centered on additional configurations for its PlateMate(r)
microtiter plate reader and the development of a "reflectance" reader to
produce qualitative results from rapid IVD tests using dry chemistry (strip)
technology. In addition, the Company continues to work on applications for
existing products to broaden their utilization.

        The Company is also developing new and improved infectious disease
tests which offer potential for above average profit for use in its specialty
laboratory business. This includes emphasis on  additional applications of PCR
and other amplification technologies to infectious disease diagnostics, beyond
its current assays for the pathogens of AIDS, Viral Hepatitis, Lyme Disease and
Herpes, and for the direct detection of other infectious agents in blood,
tissues and other body fluids.

        From time to time in the past, the Company has funded a portion of its
research and development activities from grants provided by various agencies
and departments of the United States government. See also "-Services-Contract
Research."

Strategic Alliances

        University of North Carolina at Chapel Hill ("UNC"). The Company is
directly supporting a drug discovery program at UNC, in which a full-time
research scientist is working to develop synthetic derivatives of anti-HIV
compounds that have been discovered pursuant to the Company's joint
collaboration with UNC. This research scientist is also working to introduce
modifications to these derivatives that would make them more soluble, less
toxic, or otherwise enhance their anti-viral properties. UNC has licensed to
the Company exclusive worldwide rights to three series of patent applications
filed by the Company and UNC with respect to three classes of anti-HIV
compounds. Two such compounds have exhibited therapeutic indices in in vitro
test model systems in excess of those recorded for AZT under comparable test
conditions. The Company is expending approximately $150,000 per year for
research and development relating to these compounds. In addition, under this
license, the Company will also have the rights to any new anti-HIV compounds or
derivatives developed in the course of this sponsored research, provided the
Company obtains certain regulatory approvals from the FDA. See also
"-Services-Drug Screening program." 

        Ajinomoto Co., Inc. The Company entered into an agreement with
Ajinomoto Co., Inc. in October 1995 pursuant to which the Company is performing
research regarding among other things, whether tests for certain amino acids in
plasma can be used to determine a person's immune status, particularly in
chronic fatigue syndrome. This project is funded by Ajinomoto and has a three
year budget of approximately $1,000,000. Discoveries and inventions arising
from the research will be owned by Ajinomoto, but the Company has the right of
first refusal to obtain certain exclusive licenses from Ajinomoto of any
patented technology arising from the research. The Company is entitled to
certain royalties based upon a percentage of sales of products arising out of
the research. This agreement expires in September 1998. The Company does not
know if the contract will be renewed.

        BioSeq, Inc. In October 1996, the Company entered into a strategic
alliance with BioSeq, Inc. an early stage biotechnology company that is
developing a technology that may, through the use of pressure, be able to more
precisely control chemical reactions. The Company believes that this technology
may be useful for sample preparation in connection with both molecular and
immunological testing, process purification, sequencing, synthesizing and
characterizing nucleic acids and proteins, which may then allow  for the more
precise identification of infectious disease agents. See also Note 5 to the
Company's

                                      -10-

Notes to Consolidated Financial Statements in Item 8 hereunder regarding the
Company's investment in BioSeq, Inc. The Company, in a seperate transaction,
purchased a licensed technology from BioSeq, Inc. on March 20, 1998. See also
Note 14 to the Company's Note to Consolidated Financial Statements and Item 8
hereunder regarding subsequent event.

Sales and Marketing

        The Company's sales and marketing efforts are directed by a Senior Vice
President of Sales and Marketing and includes 25 sales people and 9 other
full-time marketing and customer services employees.

        The Company's marketing strategy is focused upon addressing the needs
of its customers in the infectious disease testing market throughout the entire
test kit life-cycle, from initial research and development, through the
regulatory approval process and test kit production, to training,
troubleshooting and routine use by end-users such as clinical laboratories,
hospitals and blood banks.

        The Company recently has begun to focus its sales and marketing efforts
on the emerging end-user market for quality control products for infectious
disease test kits. To promote this objective, the Company has implemented a
major marketing platform, known as "Total Quality System" ("TQS"). TQS is a
package of Quality Control Products, including the Company's Accurun(r) Run
Controls, which is designed to provide test kit end-users with the products
needed in an overall quality assurance program. These products enable
laboratories to evaluate each of the key elements involved in the testing
process: the test kit, laboratory instrument and laboratory personnel. The
Company believes that TQS effectively addresses the need for end-users to
ensure the accuracy of their test results. The Company intends to continue to
expand its sales and marketing activities with respect to its Accurun(r) line
of run control products.

        The Company's products are currently sold through a combination of
telephone, mail, third party distributors and direct sales efforts.
Domestically, Diagnostic Products are sold through a direct sales force
consisting of a sales director, three regional managers and nine sales
representatives. Internationally, the Company distributes its Diagnostic
Products both directly and through 21 independent distributors located in
Japan, Australia, South America, Southeast Asia, Israel and Europe. The
Company's international sales manager oversees the Company's foreign
distributors. The Company's Laboratory Instruments are sold through a direct
domestic and international sales force consisting of two sales managers. Export
sales, including sales to distributors, for the years ended December 31, 1995,
1996, and 1997 were $3.4 million, $4.3 million, and $5.2 million, respectively.
See also Note 6 to the Consolidated Financial Statements.

        The Company's Specialty Clinical Laboratory Testing services are
marketed primarily through a direct domestic sales force consisting of seven
sales representatives managed by a sales director. The sales representatives
are located throughout the eastern and mid-western United States. They are
supported internally by a client services representative.

        The Company emphasizes high quality products and services, technical
knowledge, and responsiveness to customer needs in its marketing activities for
both products and services. The Company educates its distributors, customers
and prospective customers about its products through a series of detailed
marketing brochures, technical bulletins and pamphlets, press releases and
direct mail pieces. These materials are supplemented by advertising campaigns
in major industry publications, technical presentations, and exhibitions at
local, national and international trade shows and expositions.

                                      -11-

Customers

        The Company's customers for Diagnostic Products comprise three major
groups: (i) international diagnostics and pharmaceutical manufacturing
companies, such as Abbott Diagnostics, Behring, Boehringer Mannheim, Chiron,
Fujirebio, Hoffman LaRoche, Ortho Diagnostics (Johnson and Johnson), Sanofi
Diagnostics and Sorin Biomedica; (ii) regulatory agencies such as the United
States FDA, the British Public Health Laboratory Service, the French Institut
National de la Transfusion Sanguine, and the German Paul Ehrlich Institute; and
(iii) end-users of diagnostic test kits, such as hospital and independent
clinical laboratories, including LabCorp, Quest and Smith Klein Beecham, public
health laboratories and blood banks, including the American Red Cross,  Swiss
Red Cross, United Blood Services and Kaiser Permanente. The Company's customers
for Laboratory Instruments consist of international diagnostic and
pharmaceutical manufacturing companies and are generally sold on an OEM basis,
for use by hospitals, and clinical and research laboratories. In addition,
Laboratory Instruments are sold directly to environmental and food testing
laboratories, and wineries. Customers include Mast Immuno Systems, ABX
Hematology, Hybritech Inc., Vicam, and Toray Fuji Bionics Inc. The Company's
Specialty Clinical Laboratory Testing services are sold to hospital and
clinical laboratories, physicians, blood banks, researchers and other health
care providers. The Company's Contract Research services are typically offered
under contracts to governmental agencies, diagnostic test kit manufacturers and
biomedical researchers.

        The Company does not have long-term contracts with its customers for
Quality Control Products and Diagnostic Components. The Company's products are
sold to its customers pursuant to purchase orders for discrete purchases.
Laboratory Instruments sold on an OEM basis are usually done so under a one
year contract with monthly delivery dates. Although the Company believes that
its relationships with customers are satisfactory, termination of the Company's
relationship with any one of its customers could have a material adverse effect
on the Company.

        During the fiscal years 1995, 1996 and 1997, sales to the Company's
three largest customers accounted for an aggregate of approximately 20% of the
Company's net sales, although the customers were not identical in each period.
During the fiscal years 1995, 1996 and 1997, the combined revenues to all
branches of the National Institutes of Health, a United States Government
agency, accounted for approximately 13% of total consolidated revenues of the
Company. While the Company believes that the loss of any one customer would
have an adverse effect on its results, this risk is partially mitigated by the
diversity of its customer base within the IVD industry and the different
diseases and instrument platforms on which they focus.

Manufacturing and Operations

        The Company manufactures and assembles Diagnostic Products at its
facility in West Bridgewater, Massachusetts. Raw materials (primarily plasma
and serum) are acquired from a variety of vendors and through a program of
donor recruitment, screening, management, and plasma/serum  collection and
characterization. All important materials have multiple sources of supply.
Laboratory Instruments are manufactured and assembled at the Company's facility
in Garden Grove, California. Raw materials and subassemblies are acquired from
a variety of vendors with multiple sources of supply.

        The Company also operates a specialty clinical laboratory in New
Britain, Connecticut, and a research and development laboratory in
Gaithersburg, Maryland. See "Item 2 -- PROPERTIES."

Competition

        The market for the Company's products and services is highly
competitive. Many of the Company's competitors are larger than the Company and
have greater financial, research, manufacturing, and marketing resources.
Important competitive factors for the Company's products include product

                                      -12-

quality, price, ease of use, customer service and reputation. In a broader
sense, industry competition is based upon scientific and technical capability,
proprietary know-how, access to adequate capital, the ability to develop and
market products and processes, the ability to attract and retain qualified
personnel, and the availability of patent protection. To the extent that the
Company's products and services do not reflect technological advances, the
Company's ability to compete in those products and services could be adversely
affected.

        In the area of Quality Control Products, the Company competes in the
United States with NABI (formerly North American Biologicals, Inc.) in run
controls and quality control panel products. with Dade International, Bio-Rad
Laboratories, Inc., and Blackhawk Biosystems Inc. in run controls, and with a
number of smaller, privately held companies in quality control panels. In
Europe, in addition to the above, the Netherlands Red Cross has recently begun
offering several run control and panel products. The Company believes that all
of these competitors currently offer a more limited line of panel and run
control products than the Company, although there can be no assurance these
companies will not expand their product lines.

        In the Diagnostic Components area, the Company competes against
integrated plasma collection and processing companies such as Serologicals,
Inc. and NABI, as well as smaller, independent plasma collection centers and
brokers of plasma products. In the Diagnostic Components area, the Company
competes on the basis of quality, breadth of product line, technical expertise
and reputation.

        The laboratory instrument manufacturing industry is diverse and highly
competitive. The Company believes its technology base, reputation for
reliability, systems integration and service capabilities provide it with a
competitive advantage over its competitors which include: Dynatech Corp,
Kollsman Manufacturing Company, Inc., Bio-Tek Instruments Inc., Rela Inc. (part
of Colorado Medtech, Inc.), as well as numerous, smaller companies, such as
Awareness Technology Inc.

        In the Specialty Clinical Laboratory Testing services portion of the
Company's business, it competes with large national reference laboratories,
such as LabCorp of America, Quest Laboratories and SmithKline Beecham Clinical
Laboratories, as well as several independent regional laboratories, hospital
laboratories, government contract laboratories and large research institutions.
The Company believes that by focusing on the specialty clinical laboratory
market, it is able to offer its customers a higher value-added service on the
more complex diagnostic tests than the larger national reference laboratories.

Intellectual Property

        The Company holds as trade secrets current technology used to prepare
Basematrix and other blood-based products. None of the Company's Quality
Control Products or Diagnostic Components has been patented. The Company relies
primarily on a combination of trade secrets and non-disclosure and
confidentiality agreements to establish and protect its proprietary rights in
its technology and products. There can be no assurance that others will not
independently develop or otherwise acquire the same, similar or more advanced
trade secrets and know-how.

        BBI Source has also relied on trade secrets and proprietary know-how
for its Laboratory Instruments which it protects in part by entering into
confidentiality agreements with persons or parties deemed appropriate by
management. In addition, the Company currently has five issued United States
patents, and one United States patent application on file, covering significant
aspects of the Company's core instrument technology and techniques, as well as
several electronic and mechanical designs employed in the Company's existing
products.

        The Company owns two United States patents related to its contracts and
services work, and, jointly with UNC, has four additional United States patents
relating to compounds, pharmaceutical compositions and therapeutic methods in
connection with the Company's drug discovery program at

                                      -13-

UNC. One additional United States application and foreign applications for all
five of the joint patents are pending.

        The Company has no reason to believe that its products and proprietary
methods infringe the proprietary rights of any other party. There can be no
assurance, however, that other parties will not assert infringement claims in
the future.

Government Regulation

        The manufacture and distribution of medical devices, including products
manufactured by the Company that are intended for in vitro diagnostic use, are
subject to extensive government regulation in the United States and in other
countries.

        In the United States, the Food, Drug, and Cosmetic Act ("FDCA")
prohibits the marketing of most in vitro diagnostic products until they have
been cleared or approved by the FDA, a process that is time-consuming,
expensive, and uncertain. In vitro diagnostic products must be the subject of
either a premarket notification clearance (a "510(k)") or an approved premarket
approval application ("PMA"). With respect to devices reviewed through the
510(k) process, a company may not market a device for diagnostic use until an
order is issued by the FDA finding the product to be substantially equivalent
to a legally marketed device. A 510(k) submission may involve the presentation
of a substantial volume of data, including clinical data, and may require a
substantial period of review. With respect to devices reviewed through the PMA
process, a company may not market a device until FDA has approved a PMA
application, which must be supported by extensive data, including preclinical
and clinical trial data, literature, and manufacturing information to prove the
safety and effectiveness of the device.

        The Company's Accurun(r) Run Controls, when marketed for diagnostic
use, have been classified by the FDA as medical devices. The FDA could,
however, require that some products be reviewed through the PMA process, which
generally involves a longer review period and the submission of more
information to FDA. There can be no assurance that the Company will obtain
regulatory approvals on a timely basis, if at all. Failure to obtain regulatory
approvals in a timely fashion or at all could have a material adverse effect on
the Company.

        As of March 1, 1998, a total of nine products in the Accurun 1(r) line
and fourteen Accurun(r) single analyte controls have received 510(k) clearance
from the FDA. An additional three Accurun(r) single analyte controls have been
submitted but have not yet received FDA clearance.

        Some of the Company's Accurun(r) run controls are currently marketed
"for research use only." Such products do not currently require FDA premarket
clearance or approval. The labeling of these products limits their use to
research. It is possible, however, that some purchasers of these products may
use them for diagnostic purposes despite the Company's intended use. In these
circumstances, the FDA could allege that these products should have been
cleared or approved by the FDA prior to marketing, and initiate enforcement
action against the Company, which could have a material adverse effect on the
Company. The FDA has recently issued a Draft Policy Compliance Guideline,
which, if it takes effect as written, will strictly limit the sale of products
labeled "for research use only." The Company is monitoring this situation, and
will adapt its policies as required.

        BBI Source obtains 510(k) approval for all laboratory instrumentation
designed and manufactured in its Garden Grove facility.

        The Company's Diagnostic Products and Laboratory Instruments product
groups are both registered as medical device manufacturers with the FDA, and
file listings of their products semi-annually. The Company's facilities in West
Bridgewater, Massachusetts for Diagnostic Products and Garden Grove, California
for Laboratory Instruments are FDA Good Manufacturing Practices

                                      -14-

(FDA/GMP) facilities, and, as such, maintain high standards of quality in
manufacturing, testing and documentation, and implement strict GMP guidelines
governing reagent and instrument manufacturing.

        Once cleared or approved, medical devices are subject to pervasive and
continuing regulation by the FDA, including, but not limited to, good
manufacturing practices ("GMP") regulations governing testing, control, and
documentation; and reporting of adverse experiences with the use of the device.
Ongoing compliance with GMP and other applicable regulatory requirements is
monitored through periodic inspections. FDA regulations require agency
clearance or approval for certain changes if they do or could affect the safety
and effectiveness of the device, including, for example, new indications for
use, labeling changes or changes in design or manufacturing methods. In
addition, both before and after clearance or approval, medical devices are
subject to certain export and import requirements under the FDCA. Product
labeling and promotional activities are subject to scrutiny by the FDA and, in
certain instances, by the Federal Trade Commission. Products may be promoted by
the Company only for their approved use. Failure to comply with these and other
regulatory requirements can result, among other consequences, in failure to
obtain premarket approvals, withdrawal of approvals, total or partial
suspension of product distribution, injunctions, civil penalties, recall or
seizures of products and criminal prosecution.

        The Company believes that its Quality Control Panels are not regulated
by the FDA because they are not intended for diagnostic purposes. The Company
believes that its Diagnostic Components, which are components of in vitro
diagnostic products, may be subject to certain regulatory requirements under
the FDCA and other laws administered by the FDA, but do not require that the
Company obtain a premarket approval or clearance. There can be no assurance,
however, that the FDA would agree or that the FDA will not adopt a different
interpretation of the FDCA or other laws it administers, which could have a
material adverse effect on the Company.

        The Company's Diagnostic Products and Laboratory Instruments groups are
both ISO9001 certified, with registration by TUV Rheinland. The Laboratory
Instrument group is also certified to EN46001, a set of supplementary
requirements applicable to their products.

        Laws and regulations affecting some of the Company's products are in
effect in many of the countries in which the Company markets or intends to
market its products. These requirements vary from country to country. Member
states of the European Economic Area (which is composed of the European Union
members and the European Free Trade Association members) are in the process of
adopting various product and service "Directives" to address essential health,
safety, and environmental requirements associated with the subject products and
services. The "Directives" cover both quality system requirements (ISO Series
9000 Standards and the EN46001 Requirements) and product and marketing related
requirements. In addition, some jurisdictions have requirements related to
marketing of the Company's products. There can be no assurance that the Company
will be able to obtain any regulatory approvals required to market its products
on a timely basis, or at all. Delays in receipt of, or failure to receive such
approvals, or the failure to comply with regulatory requirements in these
countries or states could lead to compliance action, which could have a
material adverse effect on the Company's business, financial condition, or
results of operations.

        The Company's service-related business (clinical trials, infectious
disease testing, and contract research) is subject to other national and local
requirements. The Company's facilities are subject to review, inspection,
licensure or accreditation by some states, national professional organizations
(College of American Pathologists), and other national regulatory agencies
(Health Care Financing Administration). Studies to evaluate the safety or
effectiveness of FDA regulated products (primarily human and animal drugs or
biologics) must also be conducted in conformance with relevant FDA
requirements, including Good Laboratory Practice ("GLP") regulations,
investigational new drug or device regulations, Institutional Review Board
("IRB") regulations and informed consent regulations.

                                      -15-

        The Clinical Laboratory Improvement Amendments of 1988 ("CLIA")
prohibits laboratories from performing in vitro tests for the purpose of
providing information for the diagnosis, prevention or treatment of any disease
or impairment of, or the assessment of, the health of human beings unless there
is in effect for such laboratories a certificate issued by the US Department of
Health and Human Services ("HHS") applicable to the category of examination or
procedure performed.
            
        The Company currently holds permits issued by HHS (CLIA license),
Centers for Disease Control and Prevention (Importation of Etiological Agents
or Vectors of Human Diseases), the US Department of Agriculture (Importation
and Transportation of Controlled Materials and Organisms and Vectors) and the
US Nuclear Regulatory Commission (in vitro testing with byproduct material
under general license, covering the use of certain radioimmunoassay test
methods).

        The Company is also subject to government regulation under the Clean
Water Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, the Atomic Energy Act, and other national, state and local
restrictions relating to the use and disposal of biohazardous, radioactive and
other hazardous substances and wastes. The Company is an exempt small quantity
generator of hazardous waste and has a US Environmental Protection Agency
identification number. The Company is also registered with the US Nuclear
Regulatory Commission for use of certain radioactive materials. The Company is
also subject to various state regulatory requirements governing the handling of
and disposal of biohazardous, radioactive and hazardous wastes. The Company has
never been a party to any environmental proceeding. 

        Internationally, some of the Company's products are subject to
additional regulatory requirements, which vary significantly from country to
country. Each country in which the Company's products and services are offered
must be evaluated independently to determine the country's particular
requirements. In foreign countries, the Company's distributors are generally
responsible for obtaining any required government consents.

Employees

        As of December 31, 1997 the Company employed 282 persons, all of whom
were located in the United States. Of these, 102 persons were employed by the
West Bridgewater, Massachusetts company, 65 by the New Britain, Connecticut
company, 48 by the Gaithersburg, Maryland company, and 67 by the Garden Grove,
California company. None of the Company's employees is covered by a collective
bargaining agreement. The Company believes that it has a satisfactory
relationship with its employees.

                                      -16-

Executive Officers of the Registrant

The following table sets forth the names, ages and positions of the current
executive officers of the Registrant as of December 31, 1997:

Name                            Age     Position
----                            ---     --------
Richard T. Schumacher           47      President; Chief Executive Officer and
                                        Chairman of the Board

Kevin W. Quinlan                47      Senior Vice President, Finance; Chief
                                        Financial Officer; Treasurer and
                                        Director

Patricia E. Garrett, Ph.D.      54      Senior Vice President, Regulatory
                                        Affairs & Strategic Programs

Mark M. Manak, Ph.D.            46      Senior Vice President, Research and
                                        Development

Richard A Sullivan              57      Senior Vice President, Laboratory
                                        Instrumentation

Richard C. Tilton, Ph.D.        61      Senior Vice President, Specialty
                                        Laboratory Services

Barry M. Warren                 50      Senior Vice President, Sales &
                                        Marketing

Ronald V. DiPaolo, Ph.D.        53      Vice President, Manufacturing

Richard H. Newhouse, Ph.D.      54      Vice President, Materials Management

        Mr. Schumacher, the founder of the Company, has been the President and
a Director since 1986, and Chief Executive Officer and Chairman since 1992. Mr.
Schumacher served as the Director of Infectious Disease Services for Clinical
Science Laboratory, a New England-based medical reference laboratory, from 1986
to 1988. From 1972 to 1985, Mr. Schumacher was employed by the Center for Blood
Research, a nonprofit medical research institute associated with Harvard
Medical School. Mr. Schumacher received a B.S. in zoology from the University
of New Hampshire.

        Mr. Quinlan, a Director of the Company since 1986, has been Senior Vice
President, Finance, Chief Financial Officer and Treasurer since January 1993.
From 1990 to December 1992, he was the Chief Financial Officer of ParcTec, Inc.
a New York-based leasing company. Mr. Quinlan served as Vice President and
Assistant Treasurer of American Finance Group, Inc. from 1981 to 1989 and was
employed by Coopers & Lybrand from 1975 to 1980. Mr. Quinlan is a certified
public accountant and received a M.S. in accounting from Northeastern
University and a B.S. in economics from the University of New Hampshire.

        Dr. Garrett has been Senior Vice President, Regulatory Affairs &
Strategic Programs since 1988. From 1980 to 1987, Dr. Garrett served as the
Technical Director of the Chemistry Laboratory, Department of Laboratory
Medicine at the Lahey Clinic Medical Center. Dr. Garrett earned her Ph.D. from
the University of Colorado and was a postdoctoral research associate at Harvard
University, Oregon State University, Massachusetts Institute of Technology and
the University of British Columbia.

        Dr. Manak has served as Senior Vice President, Research and Development
since 1992. From 1980 to 1992, he served as Senior Research Scientist,
Molecular Biology, of Biotech Research Laboratories. Dr. Manak received his
Ph.D. in biochemistry from the University of Connecticut and completed
postdoctoral research work in biochemistry/virology at Johns Hopkins
University.

        Mr. Sullivan has served as Senior Vice President, Laboratory
Instrumentation since the Company's acquisition of the business of Source
Scientific, Inc. ("Source") in July 1997.  Prior to that from 1994 to 1997, Mr.
Sullivan was Chairman, President and Chief Executive Officer of Source. He held
the position of Executive Vice President and General Manager of Source from
1993 to 1994, and was Vice President Sales & Marketing for MicroProbe
Corporation from 1989 to 1993. Previously, he was President of LAB2000 in
Florida, a company specialized in import and export of clinical and industrial
products worldwide. Mr. Sullivan holds a BS in Medical Technology from the
University of Buffalo, New York and a MBA from Pace University, New York.

        Dr. Tilton has served as Senior Vice President, Specialty Laboratory
Services since the Company's acquisition of BBI Clinical Laboratories, Inc.
("BBICL") in 1993 and was one of the

                                      -17-

founders of BBICL, where he served as President from 1989 to 1993. Dr. Tilton
has 25 years of experience in university hospital clinical microbiology
laboratories and is board certified in medical and public health microbiology.
Dr. Tilton received his Ph.D. in microbiology from the University of
Massachusetts.

        Mr. Warren has served as Senior Vice President, Sales & Marketing since
1993. From 1985 to 1993, Mr. Warren served as Group Director of Marketing of
Organon Teknika, a manufacturer of infectious disease reagents. Mr. Warren
received an M.A. in political science from Loyola University of Chicago and a
B.A. from Loyola University.

        Dr. DiPaolo has recently been appointed Vice President, Manufacturing.
Prior to that he served as Vice President of Operations since 1993. Prior to
joining the Company, Dr. DiPaolo served as Vice President and General Manager
of the Biomedical Products Division of Collaborative Research, a medical
research products company from 1986 to 1989. From 1975 to 1986 he was employed
by DuPont New England Nuclear, an in vitro test kit manufacturer. Dr. DiPaolo
received his Ph.D. in biochemistry from Massachusetts Institute of Technology
and later completed postdoctoral research at the Eunice Shriver Center in
Waltham, Massachusetts.

        Dr. Newhouse has been Vice President of Materials Management since
1997. Prior to joining the Company, Dr. Newhouse served as Vice President of
Laboratory Services for Serologicals Corporation, an Atlanta, Georgia based
biopharmaceutical company from 1989 to 1997. Prior to that he was employed for
20 years in several medical diagnostics companies holding titles such as Vice
President Operations, Laboratory Director, and Director of Manufacturing. Dr.
Newhouse received his Ph.D. in clinical pathology from the University of
Maryland.

Officers are elected by, and serve at the pleasure of, the Board of Directors.

ITEM 2. PROPERTIES.

        The Company owns its corporate offices and Diagnostic Products
manufacturing facility located in a two story, 32,000 square foot building in
West Bridgewater, Massachusetts. The Company has been renovating and expanding
this facility during the past year, and believes that upon completion of
renovations in mid 1998, its facility in West Bridgewater will be sufficient to
meet its foreseeable needs.

        The Company leases 41,000 square feet of space in Garden Grove,
California where it manufactures Laboratory Instruments.  The lease continues
until February 1, 2002 and the Company has an option to renew at market rates.

        The Company leases its laboratory facilities in Gaithersburg, Maryland
and New Britain, Connecticut. The Gaithersburg facility contains 36,500 square
feet of custom built laboratory space, and is occupied under a ten-year lease
that is due to expire on October 31, 2007. The New Britain facility has 15,000
square feet, most of which is dedicated to laboratory space. The lease is for
five years and is due to expire on July 30, 2000; the Company has an option to
renew for an additional five years.

ITEM 3. LEGAL PROCEEDINGS.

        There are no material legal proceedings pending against the Company or
its subsidiaries.

                                      -18-


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

        No matter was submitted during the fourth quarter of fiscal 1997 to a
vote of security holders of the Company.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
        RELATED STOCKHOLDER MATTERS.

        The Company completed an initial public offering of its Common Stock,
$.01 par value, (the "Common Stock") on October 31, 1996. The Common Stock is
listed on the NASDAQ National Market under the symbol "BBII".

        The following table sets forth the high and low closing price, by
quarter, since the Company's initial public offering.

                Q1             Q2             Q3             Q4
           -------------  -------------  -------------  -------------
            High    Low    High    Low    High    Low    High    Low
           ------  -----  ------  -----  ------  -----  ------  -----
   1997    10.250  6.063  11.375  7.750  8.875   6.000  8.000   4.875
   1996     ---     ---     ---    ---    ---     ---   8.500   6.750

        As of December 31, 1997, there were 20,000,000 shares of Common Stock
authorized of which 4,622,566 shares were outstanding, held of record by
approximately 1,500 stockholders.

        The Company has not declared or paid any dividends on its Common Stock.
In accordance with the terms of the Company's loan agreement with its bank,
payment of dividends on Common Stock requires bank approval. The Company does
not expect to recommend the payment of a dividend as it plans to continue to
reinvest profits to expand its business.

                                      -19-

ITEM 6. SELECTED FINANCIAL DATA

        The statement of income data for each of the fiscal years in the five
year period ended December 31, 1997, and the balance sheet data as of December
31, 1993, 1994, 1995, 1996 and 1997, have been derived from the consolidated
financial statements of the Company which have been audited by Coopers &
Lybrand L.L.P., independent accountants. This data should be read in
conjunction with Item 8--"Consolidated Financial Statements and Supplementary
Data", and Item 7--"Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere herein.

<TABLE>
<CAPTION
                                                                                     Year Ended December 31,
                                                                    ----------------------------------------------------
                                                                     1997 (1)    1996       1995       1994      1993(2)
                                                                    ---------  ---------  ---------  ---------  --------
Consolidated Statement of Income Data:                                        (In thousands, except per share data)
REVENUE:
<S>                                                                 <C>        <C>        <C>        <C>        <C>
    Products                                                         $11,711    $ 8,470    $ 6,622    $ 5,982    $3,942
    Services                                                          10,588      7,039      5,649      4,741     5,215
                                                                    ---------  ---------  ---------  ---------  --------
         Total revenue                                                22,299     15,509     12,271     10,723     9,157
                                                                    ---------  ---------  ---------  ---------  --------

COSTS AND EXPENSES:
    Cost of product sales                                              5,773      4,252      3,564      3,194     2,088
    Cost of services                                                   7,239      4,856      4,168      3,416     3,965
    Research and development                                           1,311        797        375        469       279
    Selling and marketing                                              3,241      2,188      1,340      1,192       894
    General and administrative                                         3,343      2,401      2,316      2,047     1,619
                                                                    ---------  ---------  ---------  ---------  --------
         Total operating costs and expenses                           20,907     14,494     11,763     10,318     8,845
                                                                    ---------  ---------  ---------  ---------  --------
         Income from operations                                        1,392      1,015        508        405       312
Interest expense, net                                                    283       (213)      (336)      (244)     (179)
                                                                    ---------  ---------  ---------  ---------  --------
    Income before income taxes and extraordinary item                  1,675        802        172        161       133
Provision for income taxes                                              (670)      (321)       (69)       (64)      (41)
                                                                    ---------  ---------  ---------  ---------  --------
    Income before extraordinary item                                   1,005        481        103         97        92
Extraordinary item-gain on elimination of debt, net of income taxes      --         --         --         --         50
                                                                    ---------  ---------  ---------  ---------  --------
    Net income                                                       $ 1,005    $   481    $   103    $    97    $  142
                                                                    ---------  ---------  ---------  ---------  --------
Net income per share, basic                                          $  0.23    $  0.17    $  0.04    $  0.04    $ 0.06
Net income per share, diluted                                        $  0.21    $  0.14    $  0.03    $  0.03    $ 0.05

Number of shares used to calculate net income per share
    Basic                                                              4,438      2,916      2,570      2,552     2,403
    Diluted                                                            4,780      3,340      3,040      3,019     2,794
</TABLE>
<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                    ---------------------------------------------------
                                                                      1997       1996       1995       1994      1993
                                                                    ---------  ---------  ---------  --------  --------
Consolidated Balance Sheet Data:                                        (In thousands, except per share data)

<S>                                                                 <C>        <C>        <C>        <C>       <C>
Working capital(3)                                                   $ 9,576    $12,836     $4,688    $4,686    $3,612
Total assets                                                          23,630     19,798      9,928     8,076     6,870
Long term debt, less current maturities(3)                               216         41      4,216     3,180     2,381
Total stockholders' equity                                            18,067     16,290      3,187     3,041     2,762
Dividends                                                               --         --         --        --        --

</TABLE>
---------------
(1) Effective July 1, 1997, the Company acquired the business and net assets of
    Source Scientific, Inc. for $1,994,000 which increased 1997 revenues by
    $2,608,000.

(2) On June 30, 1993, the Company exercised its option to pre-pay the
    acquisition note in connection with the 1992 purchase of BBI Biotech at a
    substantial discount from the balance due, resulting in an extraordinary
    gain of $50,000 net taxes of $33,000. The 1993 net income per share before
    such extraordinary gain was $0.04.

(3) Due to a modification of its maturity date, the Company's demand line of
    credit with an outstanding amount of $1,895,000 as of December 31, 1993,
    has been presented as part of long-term debt (and excluded from current
    liabilities in calculating working capital) for 1993. This change was made
    to be consistent with its reclassification to long-term debt in 1994 and
    1995.

                                      -20-

 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS.

Overview 

        The Company generates revenue from products and services provided
primarily to the in vitro diagnostic infectious disease industry. There are two
broad product classes: Diagnostic Products and Laboratory Instruments.
Diagnostic Products consist of three groups: Quality Control Panels, Accurun(r)
Run Controls and Diagnostic Components. Services consist of Specialty Clinical
Laboratory Testing, Contract Research, Clinical Trials, Laboratory
Instrumentation Services, and Drug Screening. In the five full years since the
Company's acquisition of BBI Biotech Research Laboratories ("BBI Biotech") and
BBI Clinical Laboratories, Inc. ("BBICL"), the Company has experienced a shift
in revenue mix towards increased product sales, as product revenue as a
percentage of total revenue increased from 43.1% in 1993 to 52.5% in 1997, with
a corresponding decrease in the percentage of total revenue provided by
services. 

        The Company's gross profit margin increased from 33.9% in 1993 to 41.6%
in 1997 principally as a result of the increased percentage of higher margin
product revenues. Within products, the Company's Quality Control Products
(Accurun(r) Run Controls and Quality Control Panels) have higher margins than
the Company's Laboratory Instruments and Diagnostic Components. Within
services, Contract Research gross margins are lower than other services.
However, such contracts enable the Company to maintain certain scientific staff
and capability that it might otherwise not be able to afford. The Company
intends to continue to concentrate on the growth in sales of its Quality
Control Products. 

        Historically, the Company's results of operations have been subject to
quarterly fluctuations due to a variety of factors, including customer
purchasing patterns, primarily driven by end-of-year expenditures, and seasonal
demand during the summer months for certain laboratory testing services. In
particular, the Company's sales of its Quality Control Products and Diagnostic
Components typically have been highest in the fourth quarter and lowest in the
first quarter of each fiscal year, whereas Specialty Clinical Laboratory
Testing has generally reached a seasonal peak during the third quarter,
coinciding with the peak incidence of Lyme Disease. Research Contracts are
generally for large dollar amounts spread over a one or two year period, and
upon completion, frequently do not have renewal phases. As a result they can
cause large fluctuations in revenue and net income. In addition to staff
dedicated to internal research and development, certain of the Company's
technical staff work on both Contract Research for customers and Company
sponsored research and development. The allocation of certain technical staff
to such projects depends on the volume of Contract Research. As a result,
research and development expenditures fluctuate due to increases or decreases
in Contract Research.

        To develop new Quality Control Products and support increased sales,
the Company hired additional research and development staff in the second half
of 1995 and sales and marketing staff in 1996 and 1997. The Company intends to
continue to add staff to these departments but at a reduced rate. General and
administrative expenses are not expected to increase at the same rate, as the
Company has already incurred significant infrastructure expenses. 

        The Company does not have any foreign operations. However, the Company
does have significant export sales in Europe, the Pacific Rim countries and
Canada to agents under distribution agreements, as well as directly to test kit
manufacturers. All sales are denominated in US dollars. Export sales for the
years ended December 31, 1995, 1996, and 1997 were $3.4 million, $4.3 million,
and $5.2 million, respectively. The Company expects that export sales will
continue to be a significant source of revenue and operating income. 

                                      -21-

Results of Operations

        The following table sets forth for the periods indicated the percentage
of total revenue represented by certain items reflected in the Company's
consolidated statements of operations:

                                      Year Ended December 31
                                      ----------------------
                                       1997    1996    1995
                                      ------  ------  ------
Revenue:
    Products                            52.5%   54.6%   54.0%
    Services                            47.5    45.4    46.0
                                      ------  ------  ------
           Total revenue               100.0   100.0   100.0
Gross profit                            41.6    41.3    37.0
Operating expenses:
    Research and development             5.9     5.1     3.1
    Selling and marketing               14.5    14.1    10.9
    General and administrative          15.0    15.5    18.9
                                      ------  ------  ------
           Total operating expenses     35.4    34.7    32.9
                                      ------  ------  ------
    Income from operations               6.2     6.5     4.1
Interest income (expense)                1.3    (1.4)   (2.7)
                                      ------  ------  ------
    Income before income taxes           7.5     5.1     1.4
    Net income                           4.5     3.1     0.8
                                      ======  ======  ======
Product gross profit                    50.7%   49.8%   46.2%
Services gross profit                   31.6%   31.0%   26.2%


Years Ended December 31, 1997 and 1996

        The most significant event in 1997 effecting comparability of results
with 1996 was the acquisition of the business of Source Scientific, Inc.
effective July 1, 1997.  The acquisition was completed by a wholly owned
subsidiary of the Company, BBI Source Scientific, Inc., ("BBI Source") and was
accounted for as an asset purchase.  This effected every line of the income
statement.

        Total revenue increased 43.8%, or $6,790,000, to $22,299,000 in 1997
from $15,509,000 in 1996. The increase in revenue was the result of a 38.3%
increase in product revenue of $3,241,000 to $11,711,000 from $8,470,000, and a
50.4% increase in service revenue of $3,549,000 to $10,588,000 from $7,039,000
in 1996.  Approximately $1,416,000 of the product increase was attributable to
the inclusion of BBI Source for the first time, and the balance of the increase
was a result of a 34.0% increase in sales of Quality Control Products,
particularly Accurun(r) from a higher volume of both new and existing products,
offset in part by price decreases. Service revenue included $1,192,000 from
inclusion of BBI Source, a 49.1% increase in contract research revenue as a
result of new contracts, and a 32.6% increase in specialty clinical laboratory
testing revenue as the Company's HIV PCR test introduced in September 1996, was
offered for a full year in 1997. Overall for both products and services, prices
declined slightly in 1997 versus 1996.  In summary, even after excluding BBI
Source, the Company's total revenue increased 27.0% in 1997 compared to 1996
with a 21.5% increase in product revenue, and a 33.5% increase in service
revenue on strong volume performance by Quality Control Products, contract
research, and specialty clinical laboratory testing.

        Gross profit increased 45.1%, or $2,886,000, to $9,287,000 for 1997
from $6,401,000 in 1996. Product gross profit increased 40.8%, or $1,720,000,
to $5,938,000 in 1997 from $4,218,000 in 1996 and product gross profit margin
increased to 50.7% in 1997 from 49.8%. The products gross margin increase was a
result of a favorable shift in product mix towards Accurun sales and overall
volume increase, thereby spreading fixed costs over a larger base, and despite
a lower gross profit margin in BBI Source's instrument sales.  Services gross
profit increased 53.5%, or $1,167,000, to $3,350,000 in 1997 from $2,183,000 in
1996 as the testing volume increased at a faster rate than laboratory
headcount, thereby

                                      -22-

causing the services gross profit margin to increase to 31.6% in 1997 from
31.0% in 1996. BBI Source's service gross profit margin was slightly higher
than the Company average, which is expected to continue.

        Research and development expenditures increased 64.6%, or $514,000, to
$1,311,000 in 1997 from $797,000 in 1996. The increase resulted primarily from
new Laboratory Instrument development activities at BBI Source, as well as
increased development expenditures for Accurun(r), molecular and immunological
Run Controls, and specialized molecular assays. 

        Selling and marketing expenses increased 48.1%, or $1,053,000, to
$3,241,000 in 1997 from $2,188,000 in 1996. The increase was attributable
primarily to an eleven person expansion of the TQS sales, marketing, and
technical support staff and related increased trade show and travel expenses.
In addition, the inclusion of BBI Source added $167,000 of expense to this
category.

        General and administrative costs increased 39.2%, or $942,000, to
$3,343,000 in 1997 from $2,401,000 in 1996. This increase was attributable
primarily to: the addition of a Director of Human Resources and wide area
network systems analyst; higher expenditures for accounting and legal
professionals and investor relations activities in our first full year as a
public company; increased travel associated with the BBI Source acquisition;
and non-recurring moving costs of $40,000 associated with moving BBI Biotech
Research Laboratories to a new facility in Gaithersburg Maryland. These
increases were partially offset by a lower provision for doubtful accounts as a
result of improved accounts receivable collections from patients at the
Company's clinical reference testing laboratory.  In addition, the inclusion of
BBI Source added $442,000 of expense to this category.

        Operating income increased 37.1%, or $377,000, to $1,392,000 in 1997
from $1,015,000 in 1996. This increase was primarily a result of continued
strong performance in the Company's Quality Control Products business and
clinic reference testing laboratory, partially offset by a loss at BBI Source
of $189,000.

        The Company had net interest income of $283,000 in 1997 versus net
interest expense of ($213,000) in 1996 as substantially all of the Company's
debt was repaid in November 1996 with a portion of the proceeds from its IPO.
The Company had positive cash balances to invest for all of 1997.

        Net income increased 108.9%, or $524,000, to $1,005,000 in 1997 from
$481,000 in 1996.  Of this increase, 43% was attributable to higher operating
income, and the balance was due to the shift from net interest expense in 1996
to net interest income in 1997.  Diluted earnings per share increased 50% to
$0.21 for 1997 versus $0.14 in 1996.  This increase was achieved even though
weighted average diluted shares outstanding increased 43%. Basic earnings per
share increased 35% to $0.23 for 1997 versus $0.17 in 1996.

Years Ended December 31, 1996 and 1995

        Total revenue increased 26.4%, or $3,239,000, to $15,509,000 in 1996
from $12,271,000 in 1995. The increase in revenue was the result of a 27.9%
increase in product revenue of $1,848,000 to $8,470,000 from $6,622,000, and a
24.6% increase in service revenue of $1,390,000 to $7,039,000 from $5,649,000
in 1995. The increase in product revenue was attributable to an increase in the
volume of sales of Quality Control Products, particularly Accurun.  The
increase in service revenue was primarily the result of increased volume of
specialty clinical laboratory testing and a favorable mix shift towards higher
priced molecular testing, and the impact of two new research contracts.  This
was partially offset by lower volume of clinical trial services. 

        Gross profit increased 41.0%, or $1,862,000, to $6,400,599 for 1996
from $4,539,000 in 1995. Products gross profit increased 38.0%, or $1,160,000,
to $4,217,000 in 1996 from $3,057,000 in 1995 and products gross profit margin
increased to 49.8% in 1996 from 46.2%. The products gross margin increase was a
result of a favorable mix shift towards Accurun sales.  Services gross profit
increased 47.3%, or $701,000, to $2,183,000 in 1996 from $1,481,000 in 1995 as
the testing volume increased at a

                                      -23-

faster rate than laboratory headcount increased, and thereby caused  the
services gross profit margin to increase to 31.0% in 1996 from 26.2% in 1995.

        Research and development expenditures increased 112.1%, or $421,000, to
$797,000 in 1996 from $376,000 in 1995. The increase resulted from increased
costs of personnel hired in the second half of 1995 to step-up the rate of new
product introductions, and increased research project expenditures. Development
projects included Accurun(r), molecular and immunological Run Controls,
specialized molecular assays, and expenditures related to the Company's drug
discovery program. 

        Selling and marketing expenses increased 63.3%, or $848,000, to
$2,188,000 in 1996 from $1,340,000 in 1995. The increase was attributable
primarily to additional sales and marketing staff and overhead; increased
advertising, promotion, trade show and travel expenses due to the commencement
of the Company's "Total Quality System" (TQS) marketing campaign; and costs
associated with participation by the Company's Specialty Clinical Laboratory in
the Roche Diagnostics' Amplicor( Access program in connection with Roche's
launch of their new FDA approved HIV PCR test kit. The Amplicor( kit is
primarily  used to monitor the HIV viral load (level) in patients prior to and
during drug therapy.

        General and administrative costs increased 3.7%, or $85,000, to
$2,401,000 in 1996 from $2,316,000 in 1995. This increase was attributable
primarily to additional staffing in support of Company growth and higher
reserve provisions for doubtful accounts associated with the increased volume
of revenue related to testing in situations in which payment to the Company
depends on collecting from the patient rather than a healthcare institution.

        Operating income increased 100.0%, or $507,000, to $1,015,000 in 1996
from $508,000 in 1995. This increase was primarily a result of a very strong
performance in the Company's Quality Control Products business and clinic
reference testing laboratory.

        Net interest expense decreased 36.6%, or $123,000, to $213,000 in 1996
from $336,000 in 1995, as the proceeds from the Company's initial public
offering were used to pay down almost all debt in early November, and the
remaining amount invested in short term, investment grade securities.

        Net income increased 367.2%, or $378,000, to $481,000 in 1996 from
$103,000 in 1995. Diluted earnings per share increased 325% to $0.14 for 1996
versus $0.03 in 1995. Weighted average diluted shares outstanding only
increased 10% in 1996 over 1995 as the Company's shares issued in connection
with its IPO were outstanding for only two months in 1996. Basic earnings per
share increased 312% to $0.17 for 1996 versus $0.04 in 1995.

Liquidity and Capital Resources

        At December 31, 1997, the Company had cash and cash equivalents of
approximately $2,772,000 and working capital of  $9,633,000.  Trade accounts
receivable increased $2,143,000 or 62.7%,  primarily from the inclusion of BBI
Source in the year end balance sheet for the first time, and significant growth
in fourth quarter revenue in 1997. Inventory increased $1,723,000 or 41.2%,
again primarily due to the inclusion of BBI Source for the first time, and the
addition of 39 new products to inventory.

        On October 31, 1996, the Company's Common Stock commenced trading on the
NASDAQ as a result of completing the initial public offering of its common
stock ("IPO"),  selling 1,600,000 shares at $8.50 per share.  Net proceeds
received after underwriting discounts, commissions and offering costs was
approximately $11,633,000.  On November 5, 1996, the Company repaid
substantially all of its outstanding bank debt which totaled approximately $3.9
million.

        The Company has financed its operations to date through cash flow from
operations, borrowings from banks and sales of equity. The Company expects its
cash flow and cash position to meet existing operational needs, although its
revolving line of credit will be available as needed for working capital.

                                      -24-


        Net cash provided by operations for 1997 was $727,000 as compared to
$1,460,000 in 1996. As discussed above, this decrease in cash flow was
primarily attributable to carrying additional accounts receivable and inventory
as of year end. This was partially offset by an increase in deferred revenue
from a payment of $331,000 under a research contract for future clinical trial
services, and a net increase in accounts payable and accrued expenses of
$696,000. Also benefiting net cash from operations for 1997 was a $290,000
reduction in current federal tax liability as a result of non-qualified stock
option exercises. Cash flow used in operations in 1995  was $29,000 as working
capital needs due to sales growth exceeded cash generated from net income
adjusted by non cash expenses.

        Cash used in investing activities for 1997, 1996 and 1995 amounted to
$5,396,000, $1,412,000, and $1,320,000, respectively. In addition to normal
capital expenditures, four items accounted for most of the 1997 investing
activities. First, the Company exercised its option to purchase an additional
165,000 shares of BioSeq, Inc. stock at an aggregate cost of $750,000, thereby
increasing its ownership of BioSeq to 19.9%. Second, in May 1997, the Company's
BBI Biotech subsidiary signed a ten year lease for new laboratory space in
Gaithersburg, Maryland and spent $566,000 on leasehold improvements for new
laboratory space for its contract research and product development activities.
Third, the expansion and renovation of its Diagnostic Products manufacturing
facility in West Bridgewater, Massachusetts commenced construction and
approximately $920,000 was expended as the project is now over two-thirds
complete. Finally, effective on July 1, 1997, the Company completed the
acquisition of the business and net assets of Source Scientific, Inc. at a
purchase price of $1,994,000 including acquisition costs. The Company has
accounted for the acquisition as an asset purchase, and is amortizing goodwill
of approximately $2.2 million over 15 years.  See Note 2 to the Company's Notes
to Consolidated Financial Statements in Item 8 hereunder. The cash used in
investing activities in 1996 included the initial investment in BioSeq, Inc. of
$732,500, while 1995 included the purchase of the Company's West Bridgewater
facility for $806,000.

        During 1997, net cash generated from financing activities included
$300,000 from the exercise of warrants, and $182,000 from exercising stock
options. Also in 1997, $1,124,000 was used to pay down debt acquired in
connection with the Source acquisition.  In 1996, net cash generated from
common stock issued, including the IPO, approximated $12,600,000.  This was
used to pay down net debt of  $4,577,000.  Net cash provided by borrowings for
1995 amounted to $1,240,000, and net proceeds from the sale of Common Stock for
the same period was approximately $176,000. The proceeds of such debt were used
for working capital, to acquire the West Bridgewater property and to purchase
capital equipment.

        In 1997, 1996 and 1995 capital expenditures amounted to $2,613,000,
$669,000, and $1,316,000,  respectively. The 1997 expenditures included both
the Massachusetts and Maryland facility improvement, and the 1995 expenditures
related to the purchase of the West Bridgewater facility, all as discussed
above.

        On April 26, 1996 the Company entered into a new five year distribution
agreement with Kyowa Medex, Co., Ltd., a foreign distributor, extending a six
year old relationship. Simultaneously, Kyowa  purchased 117,647 shares of the
Company's Common Stock at a price of $8.50 per share.   Under the distribution
agreement,  Kyowa has been granted an exclusive right to sell and distribute
the Company's products in Japan and to continue to purchase product from the
Company at a discount.  In return, Kyowa is obligated to achieve certain
minimum sales levels, provide market, sales and regulatory information, and has
agreed not to compete with the Company.

        On March 9, 1998, the Company announced plans to modify a previously
announced 3-year contract with ABX Hematology, Inc. ("ABX") and its parent
company, ABX Hematologie, SA (France). Under the contract, the Company provided
technical, customer and field services for instruments sold by ABX in the
United States. Under the modified agreement, individual customer service
contracts will be assigned to ABX and ABX will assume responsibility for its
United States instruments. The Company will provide certain consulting services
through March 1999 to assist ABX in establishing a sales, customer service,
technical support, and field service operation in the United States for its
hematology

                                      -25-

instrument and reagent business. In addition, the Company has agreed to allow
ABX to occupy space at its California facility during the period of the
agreement. The Company's personnel associated with this contract, included the
nationwide field service organization and hotline technical support, will be
offered employment by ABX.

        The Company is accounting for its investment in BioSeq on the
cost-basis in accordance with the provisions of APB 18 since its cumulative
investment is less than 20% of the equity of BioSeq and the Company does not
exert significant influence or control. BioSeq needs to obtain additional
financing in 1998 to continue operations and there can be no assurances that
any such financing will be available upon acceptable terms.  Due to the
uncertainty of technology based development stage enterprises, the Company
performs a periodic analysis of the investment to determine whether the
carrying value of its investment in BioSeq has been other than temporarily
impaired. In performing the analysis of its investment in BioSeq for the
current year, management considered BioSeq's positive factors including its
technology, patent positions, business prospects, and the possibility of
raising capital and achieving financial success; as well as its negative cash
flow and net worth, and limited cash and other resources, and failure to date
to raise significant capital independent of the Company. Management has
concluded that its investment has not been other than temporarily impaired, if
at all. If it is subsequently  determined to be impaired, the Company will
adjust the carrying value of its investment by taking a charge to earnings
which could amount to the full value of its $1,482,500 investment as of
December 31, 1997.  See also Note 14 relating to the Company's $600,000
purchase of certain technology rights from BioSeq.

        The Company anticipates capital expenditures to begin slowing down in
1998 as most of the Maryland and approximately two-thirds of the Massachusetts
projects have been completed. The Company believes that existing cash balances,
the borrowing capacity available under the revolving line of credit, and cash
generated from operations are sufficient to fund operations and anticipated
capital expenditures for the foreseeable future. Except for purchase orders in
connection with the manufacturing expansion, there were no material financial
commitments for capital expenditures as of December 31, 1997. 

Year 2000 Computer Systems Compliance

        Concerns have been widely expressed regarding the inability of certain
computer programs to process date information beyond year 1999. These concerns
focus on the impact of the Year 2000 problem on business operations and the
potential costs associated with identifying and addressing the problem. The
Company is in the process of evaluating and taking steps to deal with the
potential impact of this problem in areas under its control, including its
products and sources of supply, as well as its operations management,
administration and financial systems.

        Based on its review to date, the Company believes that its products are
"Year 2000 compliant." The Company plans to correct or replace its
administrative and business systems in time to avoid material problems. The
Company has confirmed with existing software vendors that Year 2000 compliant
versions either exist or will be available to upgrade or replace its operations
management, administrative and financial systems. Where it believes that a
particular supplier's situation poses unacceptable risks, the Company plans to
identify an alternative source.

        Based upon its review, the Company does not believe that the Year 2000
problem will have a material adverse affect on the Company. However, there can
be no assurances that failure to comply with Year 2000 by parties outside its
control will not have a material adverse affect on the Company.

                                      -26-

Recent Accounting Pronouncements

Comprehensive Income

        Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) is effective for fiscal years beginning after
December 15, 1997. SFAS 130 requires that changes in comprehensive income be
shown in a financial statement that is displayed with the same prominence as
other financial statements. The Company will adopt SFAS 130 in fiscal year
ended December 31, 1998. Adoption of this statement is not expected to have an
impact on the Company's consolidated financial position and results of
operations.

Segment Reporting

        Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131) is effective for
financial statements for periods beginning after December 15, 1997. This
statement will change the way companies report annual financial statements and
requires them to report selected segment information in their quarterly reports
issued to shareholders. It also requires entity wide disclosures about the
products and services an entity provides, the material countries in which it
holds assets and reports revenues, and its major customers. The Company will
adopt SFAS 131 in the fiscal year ended December 31, 1998. Adoption of this
statement is not expected to have an impact on the Company's consolidated
financial position and results of operations.

Forward - Looking Information

        The Annual Report on Form 10-K contains forward-looking statements
concerning the Company's financial performance and business operations. The
Company wishes to caution readers of this Annual Report on Form 10-K that
actual results might differ materially from those projected in the
forward-looking statements contained herein.
    
        Factors which might cause actual results to differ materially from
those projected in the forward-looking statements contained herein include the
following: inability of the Company to develop the end user market for quality
control products; inability of the Company to integrate the business of Source
Scientific, Inc. into the Company's business; inability of the Company to grow
the sales of Source Scientific, Inc. to the extent anticipated; failure to
execute a definitive agreement with ABX Hematologie for the transfer to them of
certain service activities in connection with the letter of intent to modify
the existing contract; a material adverse change in the business, financial
condition or prospects of BioSeq, Inc., an early stage biotechnology company in
which the Company has made a significant investment, including inability to
develop its technology to the level of commercial utilization; inability of the
Company to obtain an adequate supply of the unique and rare specimens of plasma
and serum necessary for certain of its products; significant reductions in
purchases by any of the Company's major customers; and the potential
insufficiency of Company resources, including human resources, plant and
equipment and management systems, to accommodate any future growth. Certain of
these and other factors which might cause actual results to differ materially
from those projected are more fully set forth under the caption "Risk Factors"
in the Company's Registration Statement on Form S-1 (SEC File No. 333-10759).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Not Applicable


                                      -27-

ITEM 8.               FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA       
                        BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                            December 31,
                                                                    ----------------------------
                                                                         1997          1996
                                                                    ------------- --------------

                           ASSETS
                           ------
CURRENT ASSETS:
<S>                                                                 <C>           <C>
    Cash and cash equivalents                                         $2,772,360    $8,082,642
    Accounts receivable, less allowances of $446,517
      in 1997 and $352,058 in 1996                                     5,558,710     3,415,994
    Inventories                                                        5,902,821     4,180,334
    Prepaid expense and other                                            288,481       239,950
    Deferred income taxes                                                328,562       283,200
                                                                    -------------  ------------
                Total current assets                                  14,850,934    16,202,120
                                                                    -------------  ------------

Property and equipment, net                                           4,980,164      2,699,158

OTHER ASSETS:
    Long term investment                                              1,482,500        732,500
    Goodwill and other intangibles, net                               2,212,220         95,302
    Notes receivable and other                                          124,178         69,234
                                                                    ------------   ------------
                                                                      3,818,898        897,036
                                                                    ------------   ------------
              TOTAL ASSETS                                          $23,649,996    $19,798,314
                                                                    ============   ============


          LIABILITIES AND STOCKHOLDERS' EQUITY
          ------------------------------------

CURRENT LIABILITIES:
    Current maturities of long term debt                            $    14,878    $   12,820
    Accounts payable                                                  2,218,685       991,839
    Accrued compensation                                              1,103,837       840,666
    Accrued income taxes                                                132,802       427,140
    Other accrued expenses                                              498,247       264,262
    Deferred revenue                                                  1,249,024       829,477
                                                                    ------------   -----------
                Total current liabilities                             5,217,473     3,366,204
                                                                    ------------   -----------

LONG-TERM LIABILITIES:
    Deferred rent and other liabilities                                 215,937        40,948
    Deferred income taxes                                               149,333       101,580

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
    Common stock, $.01 par value; authorized 20,000,000 shares in
       1997 and 1996; issued and outstanding 4,622,566 in 1997 and
       4,378,157 in 1996                                                 46,226        43,782
    Additional paid-in capital                                       16,029,049    15,258,656
    Retained earnings                                                 1,991,978       987,144
                                                                    ------------  ------------
                Total stockholders' equity                           18,067,253    16,289,582
                                                                    ------------  ------------
             TOTAL LIABILITIES & STOCKHOLDERS' EQUITY               $23,649,996   $19,798,314
                                                                    ============  ============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                   statements
                                      -28-


                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                                         -----------------------------------------
                                                             1997           1996          1995
                                                         -------------  ------------  ------------
<S>                                                      <C>            <C>           <C>
REVENUE:
     Products                                             $11,711,026   $ 8,469,890   $ 6,621,631
     Services                                              10,588,311     7,039,406     5,649,099
                                                         -------------  ------------  ------------
            Total revenue                                  22,299,337    15,509,296    12,270,730

COSTS AND EXPENSES:
     Cost of product sales                                  5,773,417     4,252,068     3,564,241
     Cost of services                                       7,238,527     4,856,630     4,167,625
     Research and development                               1,311,190       796,805       375,712
     Selling and marketing                                  3,241,422     2,188,152     1,339,792
     General and administrative                             3,342,829     2,400,681     2,315,814
                                                         -------------  ------------  ------------
            Total operating costs and expenses             20,907,385    14,494,336    11,763,184

            Income from operations                          1,391,952     1,014,960       507,546

Interest income (expense), net                                282,771      (212,969)     (335,899)
                                                         -------------  ------------  ------------

            Income before income taxes                      1,674,723       801,991       171,647

Provision for income taxes                                   (669,889)     (320,771)      (68,657)
                                                         -------------  ------------  ------------

            Net income                                    $ 1,004,834   $   481,220   $   102,990
                                                         =============  ============  ============

            Net income per share, basic                   $      0.23   $      0.17   $      0.04
            Net income per share, diluted                 $      0.21   $      0.14   $      0.03

Number of shares used to calculate net income per share
            Basic                                           4,437,801     2,915,522     2,569,641
            Diluted                                         4,780,070     3,340,236     3,040,188

</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                   statements
                                      -29-

                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                                            Common Stock
                                                        ---------------------  Additional                        Total
                                                                    $.01 Par     Paid-In   Retained Treasury  Stockholders'
                                                         Shares      Value       Capital   Earnings   Stock      Equity
                                                        ---------- ---------- ----------- --------- --------- -------------
<S>                                                     <C>        <C>        <C>         <C>       <C>       <C>
BALANCE, December 31, 1994                              2,578,865    25,789     2,612,500   402,934     -       3,041,223
    Issuance of common stock                                8,535        85        58,160                          58,245
    Stock options and warrants exercised                   47,200       472       117,068                         117,540
    Conversion of note payable                              5,817        58         9,542                           9,600
    Treasury stock purchased - 80,000 shares                                                        (144,000)    (144,000
    Tax benefit of stock options exercised                                          1,350                           1,350
    Net income                                                                              102,990               102,990
                                                        ---------- ---------- ----------- --------- --------- -------------
BALANCE, December 31, 1995                              2,640,417    26,404     2,798,620   505,924 (144,000)   3,186,948
    Issuance of common stock, net of issuance costs     1,637,647    16,377    12,371,469            144,000   12,531,846
    Stock options and warrants exercised                   85,760       858        67,210                          68,068
    Conversion of note payable                             14,333       143        21,357                          21,500
    Net income                                                                              481,220               481,220
                                                        ---------- ---------- ----------- --------- --------- -------------
BALANCE, December 31, 1996                              4,378,157    43,782    15,258,656   987,144     -      16,289,582
    Stock options and warrants exercised                  244,409     2,444       480,032                         482,476
    Tax benefit of stock options exercised                                        290,361                         290,361
    Net income                                                                            1,004,834             1,004,834
                                                        ---------- ---------- ----------- ---------- -------- -------------
BALANCE, December 31, 1997                              4,622,566  $ 46,226   $16,029,049 $1,991,978    -     $18,067,253
                                                        ========== ========== =========== ========== ======== =============

</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                   statements
                                      -30-



                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                              -------------------------------------
                                                                  1997         1996         1995
                                                              -----------  -----------  -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                           <C>          <C>          <C>
    Net income                                                $1,004,834   $  481,220   $  102,990
    Adjustments to reconcile net income to net
       cash provided by (used in) operating activities:
    Depreciation and amortization                                858,434      600,495      441,356
    Provision for doubtful accounts                              174,925      247,080      181,084
    Deferred rent                                                (71,381)     (87,152)     (45,792)
    Deferred income taxes                                          2,391     (155,495)     (61,765)
    Tax benefit of stock options exercised                       290,361         -           1,350
Changes in operating assets and liabilities:
    Accounts receivable                                       (1,907,413)    (587,204)    (997,112)
    Note receivable and other assets                             (13,930)      14,188      (61,343)
    Inventories                                                 (640,301)    (503,483)     (67,335)
    Prepaid expenses                                               2,546       14,249      (98,082)
    Accounts payable                                             797,690      246,623      (42,190)
    Accrued compensation and other expenses                     (102,199)     883,063       94,126
    Deferred revenue                                             330,855      306,076      523,401
                                                              -----------  -----------  -----------
        Net cash provided by (used in) operating activities      726,812    1,459,660      (29,312)
                                                              -----------  -----------  -----------

CASH FLOWS FOR INVESTING ACTIVITIES:
    Payments for additions to property and equipment          (2,612,697)    (669,154)  (1,316,217)
    Purchase of intangible assets                                (39,625)      (9,999)      (4,000)
    Purchase of long term investment                            (750,000)    (732,500)        -
    Net assets of acquisition, net of cash acquired           (1,993,722)        -            -
                                                              -----------  -----------  -----------
        Net cash used in investing activities                 (5,396,044)  (1,411,653)  (1,320,217)
                                                              -----------  -----------  -----------

CASH FLOWS FOR FINANCING ACTIVITIES:
    Proceeds from long term debt                                    -         226,300    1,517,867
    Repayments of long-term debt                              (1,123,526)  (4,803,042)    (277,789)
    Proceeds of common stock issued                              482,476   13,581,315      175,785
    Offering costs associated with common stock issued              -        (981,401)        -
    Purchase of treasury stock                                      -            -        (144,000)
                                                              -----------  -----------  -----------
        Net cash (used in) provided by financing activities     (641,050)   8,023,172    1,271,863
                                                              -----------  -----------  -----------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS:             (5,310,282)   8,071,179      (77,666)
    Cash and cash equivalents, beginning of year               8,082,642       11,463       89,129
                                                              -----------  -----------  -----------
    Cash and cash equivalents, end of year                    $2,772,360   $8,082,642   $   11,463
                                                              ===========  ===========  ===========

SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
    Conversion of note payable to common stock                      -      $   21,500   $    9,600
    Noncash exercise of warrants to stockholder                     -      $  180,650         -

SUPPLEMENTAL INFORMATION:
    Income taxes paid                                         $  662,304   $   85,460   $  168,994
    Interest paid                                             $    5,731   $  300,587   $  331,495

</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                   statements
                                      -31-

                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  Business and Significant Accounting Policies

        Boston Biomedica, Inc. ("BBI") and Subsidiaries (together, the
"Company") provide infectious disease diagnostic products, clinical
instrumentation, contract research and specialty infectious disease testing
services to the in-vitro diagnostic industry, government agencies, blood banks,
hospitals and other health care providers worldwide. The Company is subject to
risks common to companies in the Biotechnology industry, including but not
limited to, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology,
and compliance with FDA government regulations.

        Significant accounting policies followed in the preparation of these
consolidated financial statements are as follows:

 (i) Principles of Consolidation

        The consolidated financial statements include the accounts of BBI and
its wholly-owned subsidiaries, BBI Biotech Research Laboratories, Inc. ("BBI
Biotech"), BBI Clinical Laboratories, Inc. ("BBICL"), and BBI Source
Scientific, Inc. ("BBI Source"). All significant intercompany accounts and
transactions have been eliminated in the consolidation. Certain amounts
included in the prior year's financial statements may have been reclassified to
conform to the current presentation.

 (ii) Use of Estimates

        To prepare the financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. In particular, the Company records reserves for estimates
regarding the collectability of accounts receivable as well as the net
realizable value of its inventory. Actual results could differ from the
estimates and assumptions used by management.

 (iii) Revenue Recognition

        Product revenues are recognized as sales upon shipment of the products
or, for specific orders at the request of the customer, on a bill and hold
basis after completion of manufacture. All bill and hold transactions meet
specified revenue recognition criteria which include normal billing, credit and
payment terms, and transfer to the customers of all risks and rewards of
ownership. Accounts receivable as of December 31, 1997 and 1996 include bill
and hold receivables of $31,000 and $23,000, respectively.

        The Company periodically enters into barter transactions whereby the
Company exchanges inventory for testing services. Revenue on these transactions
are recognized when both the products have been shipped and the testing
services have been completed and are recorded at the estimated fair market
value of the inventory based upon standard Company prices. The revenue
recognized on these transactions for the years ended December 31, 1997, 1996
and 1995 was $261,000, $244,000, and $213,000, respectively.

        Services are recognized as revenue upon completion of tests for
specialty laboratory services. Revenue from service contracts and research and
development contracts for the Company's laboratory instrumentation business is
recognized as the service and research and development activities are performed
under the terms of the contracts.

        Revenue under long-term contracts, including funded research and
development contracts, is recorded under the percentage of completion method,
wherein costs plus profit is recorded as service revenue and billed monthly as
the work is performed. Certain customers make advance payments that are
deferred until revenue recognition is appropriate. Unbilled amounts for fee
retainage are included in accounts receivable at December 31, 1997 and 1996,
and are immaterial. When the current contract estimates indicate a loss,
provision is made for the total anticipated loss. The Company does not believe
there are any material collectability issues associated with these receivables.

        Total revenue related to funded research and development contracts was
approximately $1,737,000, $1,126,000, and $728,000 for the years ended December
31, 1997, 1996 and 1995, respectively. Total contract costs associated with
these agreements were approximately $1,438,000, $975,000 and $575,000 for the
years ended December 1997, 1996 and 1995, respectively.

                                      -32-

                     BOSTON BIOMEDICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Business and Significant Accounting Policies -- (Continued)

 (iv) Cash and cash equivalents

        The Company's policy is to invest available cash in short-term,
investment grade, interest bearing obligations, including money market funds,
municipal notes, and bank and corporate debt instruments. Securities purchased
with initial maturities of three months or less, are valued at cost plus
accrued interest, which approximates fair market value, and classified as cash
equivalents. At December 31, 1997 the Company's cash equivalents consisted of
$2,702,280 invested in a money market fund. At December 31, 1996 the Company's
cash equivalents consisted of $6,001,259 invested in a money market fund and a
banker's acceptance of $1,991,522.

 (v) Research and Development Costs

        Research and development costs are expensed as incurred.

 (vi) Inventories

        Inventories are stated at the lower of average cost or net realizable
value and include material, labor and manufacturing overhead.

 (vii) Property and Equipment

        Property and equipment are stated at cost. For financial reporting
purposes, depreciation is recognized using accelerated and straight-line
methods, allocating the cost of the assets over their estimated useful lives
ranging from five years to ten years for certain manufacturing and laboratory
equipment, from three to five years for management information systems and
office equipment, three years for automobiles and fifteen years for the
building. Upon retirement or sale, the cost and related accumulated
depreciation of the asset are removed from the books. Any resulting gain or
loss is credited or charged to income.

 (viii) Goodwill and Intangibles

        The Company has classified as goodwill the cost in excess of fair value
of the assets of business acquired. Goodwill is being amortized on a straight
line basis over ten to fifteen years. Other intangibles primarily consist of
patents, licenses, and intellectual property rights and are amortized over four
to ten years.

 (ix) Income Taxes

        The Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred taxes arise from temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. A valuation allowance is provided for net
deferred tax assets if, based on the weighted available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized. Tax credits are recognized when realized using the flow through
method of accounting.

 (x) Concentration of Credit Risk

        Financial instruments which potentially subject the Company to
concentrations of credit risk are principally cash and cash equivalents, and
accounts receivable. The Company places its cash in federally chartered banks,
each of which is insured up to $100,000 by the Federal Deposit Insurance
Corporation. The Company limits credit risk in cash equivalents by investing
only in short term, investment grade securities including money market funds
restricted to such securities. Concentration of credit risk with respect to
accounts receivable is limited to certain customers to whom the Company makes
substantial sales (see also Note 6). The Company does not require collateral
from its customers. To reduce risk, the Company routinely assesses the
financial strength of its customers and, as a consequence, believes that its
trade accounts receivable credit risk exposure is limited.

 (xi) Deferred Revenue

        Deferred revenue consists of payments received from customers in
advance of services performed.

                                      -33-

                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Business and Significant Accounting Policies -- (Continued)

 (xii) Recent Accounting Standards

       Comprehensive Income

        Statement of Financial Accounting Standards No. 130, "Reporting
 Comprehensive Income" (SFAS 130) is effective for fiscal years beginning after
 December 15, 1997. SFAS 130 requires that changes in comprehensive income be
 shown in a financial statement that is displayed with the same prominence as
 other financial statements. The Company will adopt SFAS 130 in fiscal year
 ended December 31, 1998. Adoption of this statement is not expected to have an
 impact on the Company's consolidated financial position and results of
 operations.

       Segment Reporting

        Statement of Financial Accounting Standards No. 131, "Disclosures about
 Segments of an Enterprise and Related Information" (SFAS 131) is effective for
 financial statements for periods beginning after December 15, 1997. This
 statement will change the way companies report annual financial statements and
 requires them to report selected segment information in their quarterly
 reports issued to shareholders. It also requires entity wide disclosures about
 the products and services an entity provides, the material countries in which
 it holds assets and reports revenues, and its major customers. The Company
 will adopt SFAS 131 in the fiscal year ended December 31, 1998. Adoption of
 this statement is not expected to have an impact on the Company's consolidated
 financial position and results of operations.

(2) Purchase of the Business and Net Assets of Source Scientific, Inc.

        In July 1997, the Company, through its wholly owned subsidiary
BBI-Source Scientific, Inc., completed the acquisition of all of the assets,
business, and selected liabilities of Source Scientific, Inc. ("Source").  In
addition to the cash payment of $1,894,000 to Source, the total purchase price
was $1,994,000 including consulting, legal, accounting and other acquisition
costs, net of cash acquired. The acquisition is treated as an asset purchase as
of July 2, 1997 and the results of operations have been included since that
date. The purchase price exceeded the fair market value of net assets acquired
by approximately $2,202,000, which is recognized as goodwill and is being
amortized on a straight line basis over fifteen years.

        The following unaudited pro forma information combines the consolidated
results of operations of the Company and Source as if the asset purchase had
occurred at the beginning of 1996, after giving effect to certain adjustments,
including amortization of intangible assets, increased interest expense on the
acquisition debt, and related income tax effects. The unaudited pro forma
information is shown for comparative purposes only and does not reflect the
synergies expected to result from the integration of Source's business into the
Company's business.

                                        Years Ended December 31,
                                      ----------------------------
Unaudited                                 1997          1996
---------                             ------------- -------------
Revenue                                $24,051,796   $20,489,296
Operating income (loss)                    688,808       539,960
Net income (loss)                          371,285       239,976
Pro forma earnings per share, basic           0.08          0.08
Pro forma earnings per share, diluted         0.08          0.07
                                              
                                      -34-



(3) Inventories

        The Company purchases human plasma and serum from various private and
commercial blood banks. Upon receipt, such purchases generally undergo
comprehensive testing, and associated costs are included in the value of raw
materials. Most plasma is manufactured into Basematrix and other diagnostic
components to customer specifications. Plasma and serum with the desired
antibodies or antigens are sold or manufactured into Quality Control Panels,
Accurun(r) Run Controls, and reagents ("Finished Goods"). Panels and reagents
are unique to specific donors and/or collection periods, and require
substantial time to characterize and manufacture due to stringent technical
specifications. Panels play an important role in diagnostic test kit
development, licensure and quality control. Panels are manufactured in
quantities sufficient to meet expected user demand which may exceed one year.
Inventory balances at December 31, 1997 and 1996 consist of the following:  

                                                 1997         1996
                                              ----------   ----------
Raw materials..............................   $2,033,040   $1,359,569
Work-in-process............................    1,190,567      697,749
Finished goods.............................    2,679,214    2,123,016
                                              ----------   ----------
                                              $5,902,821   $4,180,334
                                              ==========   ==========


(4) Property and Equipment

        Property and equipment at December 31, 1997 and 1996 consist of the
following:
                                                   1997           1996
                                               ------------   ------------
Laboratory and manufacturing equipment........  $2,240,660     $1,751,737
Management information systems................   1,693,939      1,247,190
Office equipment..............................     686,608        394,957
Automobiles...................................     189,775        196,663
Leasehold improvements........................     687,714        122,419
Land, building and improvements...............   2,160,932        956,386
                                               ------------   ------------
                                                 7,659,628      4,669,352
Less accumulated depreciation.................   2,679,464      1,970,194
                                               ------------   ------------

Net book value................................  $4,980,164     $2,699,158
                                               ============   ============


        Depreciation expense for the years ended December 31, 1997, 1996 and
1995 was approximately $731,000, $585,500, and $425,700 respectively. Included
in 1997 land, building and improvements is approximately $920,000 of
construction in progress.

(5) Long Term Investment

        In October 1996, the Company entered into a License Agreement, Purchase
Agreement, Stockholders' Agreement and Warrant Agreement with BioSeq, Inc.
("BioSeq") a privately held, technology based development stage company. The
Company agreed to purchase convertible preferred stock equivalent to
approximately 19% of the capital stock of BioSeq for an aggregate of $1,482,500
in three installments.  Of the $1,482,500, $732,500 was invested in 1996.

        In April 1997, the Company exercised its option to purchase an
additional 165,000 shares of BioSeq at an aggregate cost of $750,000, thereby
increasing its ownership to 19%. The investment is carried at cost of
$1,482,500 and classified as a long term investment. Under the operative
documents, the Company has price anti-dilution protection, pre-emptive rights
and the right to board representation.  In addition, the Company was granted
warrants to acquire additional shares of common stock of BioSeq for additional
consideration under certain conditions, provided that this right is not
exercisable to the extent it would cause the Company's ownership

                                      -35-


                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) Long Term Investment (Continued)

to equal or exceed 20%. The Company is accounting for its investment in BioSeq
on the cost-basis in accordance with the provisions of APB 18 since its
cumulative investment is less than 20% of the equity of BioSeq and the Company
does not exert significant influence or control. BioSeq needs to obtain
additional financing in 1998 to continue operations and there can be no
assurances that any such financing will be available upon acceptable terms. Due
to the uncertainty of technology based development stage enterprises, the
Company performs a periodic analysis of the investment to determine whether the
carrying value of its investment in BioSeq has been other than temporarily
impaired. In performing the analysis of its investment in BioSeq for the
current year, management considered BioSeq's positive factors including its
technology, patent positions, business prospects, and the possibility of
raising capital and achieving financial success; as well as its negative cash
flow and net worth, and limited cash and other resources, and failure to date
to raise significant capital independent of the Company. Management has
concluded that its investment has not been other than temporarily impaired, if
at all. If it is subsequently  determined to be impaired, the Company will
adjust the carrying value of its investment by taking a charge to earnings
which could amount to the full value of its $1,482,500 investment as of
December 31, 1997.  See also Note 14 relating to the Company's $600,000
purchase of certain technology rights from BioSeq.

        In accordance with the agreement, the Company was granted a worldwide
right ("the License") to use the BioSeq technology relating to sequencing and
analysis services.  The License will be exclusive until BioSeq commences
selling on a commercial basis the equipment used in the DNA sequencing and
analysis process, at which time the License will become non-exclusive.  The
License provides that the Company will pay BioSeq market royalties as a
percentage of net revenues arising out of the services performed by the Company
with the licensed technology.  The Company will account for the royalty as a
cost of revenue as the revenues are earned. (See also Note 14.)

(6) Revenue from Significant Customers and Export Sales

        The Company performs contract research and certain other services under
contracts, subcontracts and grants from United States Government Agencies,
primarily the National Institutes of Health ("NIH"). Revenue from such
contracts, subcontracts and grants was approximately $2,638,000 in 1997,
$1,920,000 in 1996, and $1,628,000 in 1995.

        Export sales by geographic area are approximately as follows:

                                1997       1996       1995
                             ---------- ---------- ----------
        Europe               $3,150,000 $2,844,000 $2,257,000
        Pacific Rim           1,310,000    948,000    642,000
        Others                  694,000    534,000    531,000
                             ---------- ---------- ----------
          Total              $5,154,000 $4,326,000 $3,430,000


(7) Deferred Rent and Other Liabilities

        One of the facility leases includes scheduled base rent increases over
the term of the lease. The amount of base rent payments is being charged to
expense on the straight-line method over the term of the lease. As of December
31, 1997 and 1996, the Company has recorded a liability of $189,867 and
$53,900, respectively, to reflect the excess of rent expense over cash payments
since inception of the lease. In addition to base rent, the Company pays a
monthly allocation of the operating expenses and real estate taxes for the
above facility.

        The Company's outstanding debt consists of an installment note payable
with an interest rate of 9.75%, due August 2001. The note is collateralized by
office furniture and laboratory equipment. The amount outstanding on December
31, 1997 and 1996 was $40,948 and $53,768, respectively. The current amounts of
such debt at December 31, 1997 and 1996 was $14,878 and $12,820, respectively.

        During 1996, convertible debt in the amount of $21,500 was converted
into 14,333 shares of common stock at a price of $1.50 per share.

                                      -36-


                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) Deferred Rent and Other Liabilities (Continued)

        Effective March 28, 1997, the Company entered into a $7.5 million
uncollateralized revolving line of credit (the "Line") with its bank. The Line
matures on June 30, 1999; bears interest at the Company's option based on
either base rate, LIBOR plus 1.75%, or overnight money market rate plus 1.75%;
and carries a facility fee of .25% per annum, payable quarterly. The Line
contains covenants regarding the Company's ratio of total
liabilities-to-equity, minimum tangible net worth, and minimum debt service
coverage ratio. The Line further provides for restrictions on the payment of
dividends, and limitations on additional borrowings. The Company did not draw
upon the Line during 1997.

(8) Income Taxes

        The Company's effective tax rate does not significantly differ from the
federal and state income tax statutory rates. The components of the provision
for income taxes are as follows:
                                                 1997       1996       1995
                                              ---------- ---------- ----------
Current expense: federal and state             $667,498   $476,206   $130,422
Deferred expense (benefit): federal and state     2,391   (155,495)   (61,765)
                                              ---------- ---------- ----------
        Total                                  $669,889   $320,711    $68,657
                                              ========== ========== ==========
        
        Significant items making up deferred tax liabilities and deferred tax
assets are as follows:
                                                        1997           1996
                                                     ----------     ----------
Current deferred taxes:
   Inventory                                          $ 72,249       $ 87,158
   Accounts receivable allowance                       153,469        115,548
   Other accruals                                      102,844         80,494
                                                     ----------     ----------
      Total current deferred tax assets                328,562        283,200
Long term deferred taxes:
   Accelerated tax depreciation                       (217,029)      (176,015)
   Goodwill and intangibles                             15,176         13,551
   State net operating loss carryforwards               52,520         60,884
                                                     ----------     ----------
      Total long term deferred tax liabilities, net   (149,333)      (101,580)
                                                     ----------     ----------
      Total net deferred tax assets                   $179,229       $181,620
                                                     ==========     ==========


As of December 31, 1997, the state net operating loss carryforwards expire at
various dates beginning in 1999 through 2007.

                                      -37-


                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) Commitments and Contingencies

        The Company leases certain office space, laboratory, research and
manufacturing facilities under operating leases with various terms through
October 2007. All of the real estate leases include renewal options at either
market or increasing levels of rent.

        Rent expense for the years ended December 31, 1997, 1996 and 1995 was
$506,300, $365,700, and $477,600, respectively. At December 31, 1996, the
remaining fixed lease commitment was as follows:
 
            Year Ended                    Amount
       --------------------            ------------
       1998                             $  938,970
       1999                                969,715
       2000                                971,993
       2001                                915,609
       2002                                578,326
       2003 and thereafter               2,358,410
                                       ------------
                                        $6,733,023

        Commencing in February 1995, the Company committed under a sponsored
research agreement with a university to fund a research scientist at a cost of
$13,125 per quarter for three years which costs are charged to research and
development expense. In return, the Company has exclusive rights to any
anti-HIV compounds or derivatives developed in the course of this research,
provided the Company obtains certain regulatory approvals from the FDA.

(10) Retirement Plan

        In January 1993, the Company adopted a retirement savings plan for its
employees, which has been qualified under Section 401(k) of the Internal
Revenue Code. Eligible employees are permitted to contribute to the plan
through payroll deductions within statutory limitations and subject to any
limitations included in the plan. Company contributions are made at the
discretion of management. To date, no such contributions have been  made.
During 1997, the Company recognized administrative expense of approximately
$23,000 in connection with the plan.

(11) Stockholders' Equity

Common Stock

        On October 31, 1996, the Company commenced trading on the NASDAQ
National Market as a result of the initial public offering of its common stock
("IPO"), raising net proceeds of $11,633,000 from the sale of 1,600,000 shares
at $8.50 per share.

        On April 26, 1996, the Company entered into a Stock Purchase Agreement
and Exclusive Distributor Agreement for five years with a foreign distributor.
Pursuant to the Stock Purchase Agreement, the Company issued 117,647 shares of
redeemable common stock at a price per share of $8.50, for which it received
net proceeds of $898,503. Issuance costs were $101,497. Completion of the IPO
terminated the redemption feature. The distributor was restricted from selling
these securities for a one-year period after completion of the IPO. The Company
issued 80,000 shares of Treasury Stock in connection with this transaction.

        On August 8, 1996 the Board of Directors approved a 1-for-2 reverse
stock split and an increase in authorized common shares to 20,000,000, and
authorized 1,000,000 shares of preferred stock (par value $.01), which were
approved by the stockholders on September 10, 1996. The stock split has been
retroactively reflected in the accompanying financial statements and notes for
all periods presented.

                                      -38-

                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) Stockholders' Equity-(Continued)

Options and Warrants

        The Company has a nonqualified option plan and an incentive stock
option plan both of which are administered by a committee of the Board of
Directors. In general, the option price shall not be less than the fair market
value at the time the option is granted. Generally, options become exercisable
at the rate of 25% at the end of each of the four years following the
anniversary of the grant. Options issued expire ten years from the date of
grant, or 30 days from the date of termination of affiliation.

        At December 31, 1997, 775,806 shares have been reserved for
non-qualified stock options, of which 92,250 are available for future grants.
At December 31, 1997, 778,925 shares have been reserved for incentive stock
options, of which 348,587 are available for future grants.

        The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is recorded.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Pro forma information regarding net income and
earnings per share is required by SFAS 123 and has been determined as if the
Company had accounted for its employee stock options under the fair value
method of that statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions for 1997. The minimum value option pricing model
was used for all grants during 1996 and 1995 as they were granted prior to the
Company's IPO.

                                     1997        1996       1995
                                   --------    --------   --------
   Risk-free interest rate            5.72%       6.18%      5.33%
   Volatility factor                    .55        .001       .001
   Weighted average expected life   5 years     5 years    5 years
   Expected dividend yield                0           0          0

        The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.

        For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income and pro forma net income per share is as follows:

                                                 1997        1996       1995
                                              ----------   --------   --------
   Net income-as reported                     $1,004,834   $481,220   $102,990
   Net income-pro forma                          851,408    424,921     80,196
   Net income per share-as reported, basic           .23        .17        .04
   Net income per share-as reported, diluted         .21        .14        .03
   Net income per share-pro forma, basic             .19        .14        .03
   Net income per share-pro forma, diluted           .17        .13        .03


                                      -39-

                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) Stockholders' Equity-(Continued)

        Because SFAS 123 provides for pro forma expense for options granted
beginning in 1995, the pro forma expense will likely increase in future years
as new option grants become subject to the pricing model. The average fair
value of options granted during 1997, 1996 and 1995 is estimated as $4.44,
$1.86 and $1.40, respectively.

        In 1991 and 1993, the Company issued warrants in connection with
certain debt financings. During 1997 all of those warrants were exercised.

        The Company has reserved shares of its authorized but unissued common
stock for the following:
<TABLE>
<CAPTION>
                                                 Stock Options                  Warrants
                                           --------------------------     -----------------------
                                                          Weighted                    Weighted
                                                        Average price               Average price            Total
                                                                                                   --------------------------
                                              Shares      per share        Shares     per share       Shares      Exercisable
                                           ----------     ---------       --------    ---------    -----------   ------------
<S>                                        <C>            <C>             <C>         <C>          <C>           <C>
Balance outstanding, December 31, 1994       780,950          2.12        301,538          2.73     1,082,488       827,576
      Granted                                 73,187          6.00           -              -          73,187
      Exercised                               (6,000)         1.88        (41,200)         2.58       (47,200)
      Expired                                (47,850)         2.64           -              -         (47,850)
                                           ----------                     --------                 -----------
Balance outstanding, December 31, 1995       800,287          2.45        260,338          2.85     1,060,625       879,038
      Granted                                140,600          7.27           -              -         140,600
      Exercised                               (1,500)         4.50        (84,260)         2.88       (85,760)
      Expired                                (21,500)         6.05        (56,078)         3.54       (77,578)
                                           ----------                     --------                 -----------
Balance outstanding, December 31, 1996       917,887          3.10        120,000          2.50     1,037,887       839,272
      Granted                                263,050          7.42           -              -         263,050
      Exercised                             (124,409)         1.44       (120,000)         2.50      (244,409)
      Expired                                (30,435)         7.36           -              -         (30,435)
                                           ----------                     --------                 -----------
Balance outstanding, December 31, 1997     1,026,093          4.27           -              -       1,026,093       672,231
                                           ==========                     ========                 ===========

</TABLE>

The following table summarizes information concerning options outstanding and
exercisable as of December 31, 1997:
<TABLE>
<CAPTION>
                                                Options Outstanding      Options Exercisable
                                            -------------------------   ----------------------
                              Weighted        Weighted                                Weighted
                               Average         Average                                 Average
                              Remaining       Number of     Exercise    Number of     Exercise
Range of Exercise Prices        Life           Options       Price       Options       Price
------------------------      ---------     ------------   ----------   ---------    ---------
<S>                           <C>           <C>            <C>          <C>          <C>
      $0.25 - $1.50             2.40            188,834      1.0975      188,834       1.0975
      $1.65 - $3.00             4.60            342,767      2.3869      342,767       2.3869
      $4.50 - $6.63             8.10            259,917      5.9231      104,798       5.0106
      $7.00 - $8.50             8.60            234,575      7.7556       35,832       7.3645
                                            ------------                ---------
                                              1,026,093                  672,231
                                            ============                =========

</TABLE>


                                      -40-

                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(12) Computation of Net Income per Share

        In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". SFAS 128 establishes a different method of computing net income per
share than is currently required under the provisions of Accounting Principles
Board opinion No. 15. The following illustrates the computation of basic and
diluted net income per share.

                                               Year Ended December 31,
                                        -------------------------------------
                                           1997         1996         1995
                                        -----------  -----------  -----------

Shares, basic                            4,437,801    2,915,522    2,569,641

Net effect of dilutive common stock
   equivalents-based on treasury stock
   method using average market price       342,269      424,714      470,547
                                        -----------  -----------  -----------

Shares, diluted                          4,780,070    3,340,236    3,040,188
                                        ===========  ===========  ===========



Net income, basic and diluted           $1,004,834   $  481,220     $102,990
                                        ===========  ===========  ===========

Net income per share-basic                    0.23         0.17         0.04
Net income per share-diluted                  0.21         0.14         0.03
                                        ===========  ===========  ===========


(13) Selected Quarterly Financial Data (Unaudited)

        Unaudited (Amounts in thousands, except for per share data)

   1997                                   1st Qtr  2nd Qtr  3rd Qtr  4th Qtr
                                          -------  -------  -------  -------
    Total revenue                          $4,209   $4,649   $6,140   $7,301
    Gross profit                            1,678    1,921    2,541    3,148
    Net income                                148      176      246      435
    Net income per share, basic              0.03     0.04     0.06     0.10
    Net income per share, diluted            0.03     0.04     0.05     0.09


   1996                                   1st Qtr  2nd Qtr  3rd Qtr  4th Qtr
                                          -------  -------  -------  -------
    Total revenue                          $3,084   $3,844   $4,015   $4,566
    Gross profit                            1,051    1,621    1,752    1,976
    Net (loss) income                         (97)     179      163      236
    Net (loss) income per share, basic      (0.04)    0.07     0.06     0.06
    Net (loss) income per share, diluted    (0.04)    0.06     0.05     0.06



(14) Subsequent Event

        On March 20, 1998 the Company completed a license agreement with
BioSeq, Inc., a development stage biotech company of which BBI owns 19% (see
also Note 5). The license agreement provides the Company the sole and exclusive
worldwide right to use BioSeq technical information, licensed processes and
improvements to develop, manufacture, market and sell or sublicense products or
services in the field of human in vitro immunodiagnostics. The Company paid an
initial license fee in the amount of $600,000, to be capitalized with
intangible assets. In accordance with the agreement, the Company will pay
BioSeq an annual royalty based on net sales to customers and sublicensees. The
agreement is effective March 20, 1998 and ends on the date that the last patent
expires, which is approximately 16 years.


                                      -41-


                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
BOSTON BIOMEDICA, INC.:

        We have audited the accompanying consolidated balance sheets of Boston
Biomedica, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
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 audits. 

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

        In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Boston
Biomedica, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.

                                                  COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 24, 1998 except as to
the information in Note 14, for
which the date is March 20, 1998

 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

        None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information called for by Item 10 is incorporated by reference to
the information under Part I, Item 1 - Business under the heading "Executive
Officers of the Registrant" at page 14 of this Report, and to the information
in the Registrant's definitive Proxy Statement which is expected to be filed by
the Registrant within 120 days after the close of its fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

        The information called for by Item 11 is incorporated by reference to
the information in the Registrant's definitive Proxy Statement under the
heading "Executive Compensation," which is expected to be filed by the
Registrant within 120 days after the close of its fiscal year.

                                      -42-

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information called for by Item 12 is incorporated by reference to
the information in the Registrant's definitive Proxy Statement under the
heading "Security Ownership of Directors, Officers and Certain Beneficial 
Owners," which is expected to be filed by the Registrant within 120 days after 
the close of its fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        The information called for by Item 13 is incorporated by reference to
the information in the Registrant's definitive Proxy Statement under the
heading "Certain Relationships and Related Transactions," which is expected to
be filed by the Registrant within 120 days after the close of its fiscal year.


                                      -43-

                                    PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

 (a) 1. Index to Financial Statements:
        Consolidated Balance Sheets as of December 31, 1997 and 1996.........28
        Consolidated Statements of Income for the three years
        ended December 31, 1997..............................................29
        Consolidated Statements of Changes in Stockholders' Equity for the
        three years ended December 31, 1997..................................30
        Consolidated Statements of Cash Flows for the three years ended
        December 31, 1997....................................................31
        Notes to Consolidated Financial Statements...........................32
        Report of Independent Accountants....................................42
 (a) 2. Financial Statement Schedules:
        Schedule II-Valuation and Qualifying Accounts........................49
        Report of Independent Accountants....................................50

        All supplemental schedules other than as set forth above are omitted as
inapplicable or because the required information is included in the
Consolidated Financial Statements or the Notes to Consolidated Financial
Statements.

 (a)3. Exhibits:

        Exhibit No.
        -----------
	3.1	Amended and Restated Articles of Organization of the
		Company**

	3.2	Amended and Restated Bylaws of the Company**

	4.1	Specimen Certificate for Shares of the Company's Common
		Stock**

	4.2	Description of Capital Stock (contained in the Restated
		Articles of Organization of the Company filed as Exhibit
		3.1) **

	10.1	Agreement, dated January 17, 1994, between Roche
		Molecular Systems, Inc. and the Company**

	10.2	Exclusive License Agreement, dated December 6, 1994,
		between the University of North Carolina at Chapel Hill
		and the Company**

	10.3	Contract, dated September 30, 1995, between the National
		Institutes of Health and the Company (No. 1-AI55273) **

	10.4	Contract, dated September 30, 1995, between the National
		Institutes of Health and the Company (No. 1-AI-55277) **

	10.6	Agreement, dated October 1, 1995, between Ajinomoto Co.,
		Inc. and the Company**

	10.7	Lease Agreement, dated June 30, 1992, for Rockville,
		Maryland Facility between Cambridge Biotech Corporation
		and the Company**

	10.8	Lease Agreement, dated July 28, 1995, for New Britain,
		Connecticut Facility between MB Associates and the
		Company**

	10.9	Worcester County Institution for Savings Warrant dated
		December 1, 1995 (No. 1) **

	10.10	Worcester County Institution for Savings Warrant dated
		July 26, 1993 (No. 2) **

	10.11	Stock Purchase Agreement, dated June 5, 1990, between
		G&G Diagnostics Limited Partnership I and the Company,
		as amended**

                                      -44-

        10.14   Stock Purchase Agreement, dated April 26, 1996, between
		Kyowa Medex Co., Ltd. And the Company**

	10.15	1987 Non-Qualified Stock Option Plan**++

	10.16	Employee Stock Option Plan**++

	10.17	Underwriters Warrants, each dated November 4, 1996,
		between the Company and each of Oscar Gruss & Son
		Incorporated and Kaufman Bros., L.P. **

	10.20	Purchase Agreement, dated October 7, 1996, between
		BioSeq, Inc. and the Company**

	10.21	Warrant Agreement, dated October 7, 1996, between
		BioSeq, Inc. and the Company**

	10.22	Stockholders' Agreement, dated October 7, 1996, between
		BioSeq, Inc. and the Company**

        10.23   License Agreement, dated October 7, 1996, between
		BioSeq, Inc. and the Company**

	10.24.1 Commercial Loan Agreement, dated as of March 28, 1997,
		between The First National Bank of Boston and the
		Company**

        10.25   Asset Purchase Agreement, dated March 26, 1997 between
		Source Scientific, Inc. and the Company**

	10.26	Contract, dated March 1, 1997, between National Cancer
		Institute and the Company**

        10.27   Lease Agreement, dated May 16, 1997, for Gaithersberg,
		Maryland facility between B.F. Saul Real Estate
		Investment Trust and the Company

        10.28   Lease Agreement, dated January 30, 1995 for Garden Grove,
                California facility between TR Brell, Cal Corp. and Source
                Scientific, Inc., and Assignment of Lease, dated July 2, 1997,
                for Garden Grove, California facility between Source
                Scientific, Inc. and BBI Source Scientific

        11      Statement re: Computation of Per Share Earnings

	21.1	Subsidiaries of the Company

        23.1    Consent of Coopers & Lybrand L.L.P.

	27	Financial Data Schedule
	________________________

++	Management contract or compensatory plan or arrangement.

**	In accordance with Rule 12b-32 under the Securities Exchange Act
	of 1934, as amended, reference is made to the documents
	previously filed with the Securities and Exchange Commission,
	which documents are hereby incorporated by reference.

(b)  Reports on Form 8-K

        The Registrant did not file any Current Reports on Form 8-K during the
quarter ended December 31, 1997.

                                      -45-

                                   SIGNATURES

                Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized..

Date: March 30, 1998                   Boston Biomedica, Inc.

                                   By:/s/Richard T. Schumacher
                                      ---------------------------------
                                      Richard T. Schumacher
                                      President and Chief Executive Officer

                Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
  SIGNATURES                   TITLES                                  DATE
  ----------                   ------                                  ----

<S>                            <C>                                     <C>
  /s/Richard T. Schumacher     President, Chief Executive Officer,     March 30, 1998
  --------------------------   and Chairman of the Board
  Richard T. Schumacher        (Principal Executive Officer)

  /s/Kevin W. Quinlan          Senior Vice President, Finance;         March 30, 1998
  --------------------------   Chief Financial Officer; Treasurer
  Kevin W. Quinlan             and Director
                               (Principal Accounting Officer)


  /s/Calvin A. Saravis         Director                                March 30, 1998
  --------------------------
  Calvin A. Saravis

  /s/Henry A. Malkasian Sr.    Director                                March 30, 1998
  --------------------------
  Henry A. Malkasian, Sr.

  /s/Francis E. Capitanio      Director                                March 30, 1998
  --------------------------
  Francis E. Capitanio

</TABLE>

                                      -46-

EXHIBIT INDEX
--------------
<TABLE>
<CAPTION>

   Exhibit No.								   Reference
   -----------								  -----------
<S>	  <C>								  <C>
   3.1	  Amended and Restated Articles of Organization of the Company	       A**

   3.2	  Amended and Restated Bylaws of the Company			       A**

   4.1	  Specimen Certificate for Shares of the Company's Common Stock        A**

   4.2	  Description of Capital Stock (contained in the Restated	       A**
	  Articles of Organization of the Company filed as Exhibit 3.1)

  10.1	  Agreement, dated January 17, 1994, between Roche Molecular	       A**
	  Systems, Inc. and the Company

  10.2	  Exclusive License Agreement, dated December 6, 1994, between	       A**
	  the University of North Carolina at Chapel Hill and the
	  Company

  10.3	  Contract, dated September 30, 1995, between the National	       A**
	  Institutes of Health and the Company (No. 1-AI55273)

  10.4	  Contract, dated September 30, 1995, between the National	       A**
	  Institutes of Health and the Company (No. 1-AI-55277)

  10.6	  Agreement, dated October 1, 1995, between Ajinomoto Co., Inc.        A**
	  and the Company

  10.7	  Lease Agreement, dated June 30, 1992, for Rockville, Maryland        A**
	  Facility between Cambridge Biotech Corporation and the Company

  10.8	  Lease Agreement, dated July 28, 1995, for New Britain,	       A**
	  Connecticut Facility between MB Associates and the Company

  10.9	  Worcester County Institution for Savings Warrant dated	       A**
	  December 1, 1995 (No. 1)

  10.10   Worcester County Institution for Savings Warrant dated	       A**
	  July 26, 1993 (No. 2)

  10.11   Stock Purchase Agreement, dated June 5, 1990, between G&G	       A**
	  Diagnostics Limited Partnership I and the Company, as amended

  10.14   Stock Purchase Agreement, dated April 26, 1996, between Kyowa        A**
	  Medex Co., Ltd. and the Company

  10.15   1987 Non-Qualified Stock Option Plan* 			       A**

  10.16   Employee Stock Option Plan*					       A**

  10.17   Underwriters Warrants, each dated November 4, 1996, between	       B**
	  the Company and each of Oscar Gruss & Son Incorporated and
	  Kaufman Bros., L.P.

  10.20   Purchase Agreement, dated October 7, 1996, between BioSeq,	       A**
	  Inc. and the Company

  10.21   Warrant Agreement, dated October 7, 1996, between BioSeq, Inc.       A**
	  and the Company


                                      -47-

  10.22   Stockholders' Agreement, dated October 7, 1996, between              A**
	  BioSeq, Inc. and the Company

  10.23   License Agreement, dated October 7, 1996, between BioSeq, Inc.       A**
	  and the Company

  10.24.1 Commercial Loan Agreement, as of dated March 28, 1997, between       C**
	  The First National Bank of Boston and the Company

  10.25   Asset Purchase Agreement, dated March 26, 1997 between Source        C**
	  Scientific, Inc. and the Company

  10.26   Contract, dated March 1, 1997, between National Cancer	       D**
	  Institute and the Company

  10.27   Lease Agreement, dated May 16, 1997, for Gaithersberg, Maryland      E**
	  facility between B.F. Saul Real Estate Investment Trust and the
	  Company

  10.28   Lease Agreement, dated January 30, 1995 for Garden Grove,            Filed herewith
          California facility between TR Brell, Cal Corp. and Source
          Scientific, Inc., and Assignment of Lease, dated July 2, 1997,
          for Garden Grove, California facility between Source
          Scientific, Inc. and BBI Source Scientific

  11      Statement re: Computation of Per Share Earnings                      Filed herewith

  21.1    Subsidiaries of the Company                                          Filed herewith

  23.1    Consent of Coopers & Lybrand L.L.P.                                  Filed herewith

  27      Financial Data Schedule                                              Filed herewith
  </TABLE>
________________________

A	Incorporated by reference to the Company's Registration
	Statement on Form S-1 (Registration No. 333-10759)(the "Registration
	Statement"). The number set forth herein is the number of the
	Exhibit in said registration statement.
B	Incorporated by reference to the Registration Statement, where
	the Exhibit was filed as Exhibit No. 10.17 and contained in
	Exhibit 1.1.
C       Incorporated by reference to the Company's Annual Report on Form
        10K for the fiscal year ended December 31, 1996.
D       Incorporated by reference to the Company's Quarterly Report on
        Form 10Q for the fiscal quarter ended March 31, 1997.
E       Incorporated by reference to the Company's Quarterly Report on
        Form 10Q for the fiscal quarter ended June 30, 1997.

*	Management contract or compensatory plan or arrangement.

**	In accordance with Rule 12b-32 under the Securities Exchange Act
	of 1934, as amended, reference is made to the documents
	previously filed with the Securities and Exchange Commission, which
	documents are hereby incorporated by reference.


                                      -48-



                                                                SCHEDULE II
                    BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                              Recoveries
 Allowance for    Balance at                 For Accounts    Uncollectible   Balance at
   Doubtful       Beginning   Additions to    Previously       Accounts        End of
   Accounts       of Period     Allowance    Written Off      Written Off      Period
--------------    ----------  ------------   ------------    -------------   ----------
<S>               <C>         <C>            <C>             <C>             <C>
     1997          $352,058     $395,272      $194,154        $(494,967)      $446,517
     1996           142,372      429,677        62,753         (282,744)       352,058
     1995            94,723      181,084          -            (133,435)       142,372
     1994            43,956      102,099          -             (51,332)        94,723

</TABLE>

                                      -49-

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
BOSTON BIOMEDICA, INC.:

        In connection with our audits of the consolidated financial statements 
of Boston Biomedica, Inc. and Subsidiaries, as of December 31, 1996 and 1997, 
and for each of the three years in the period ended December 31, 1997, which
financial statements are included in this Annual Report on Form 10-K, we have
also audited the consolidated financial statement schedule listed in Item 14
herein.

        In our opinion, this consolidated financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

                                                   COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 24, 1998

                                      -50-