FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

(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
<TABLE>
<CAPTION>
<S>                                                                               <C>
[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
         SECURITIES EXCHANGE ACT OF 1934.  For the transition period from _________ to __________
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                         Commission file number 0-26992

                        CARDIOVASCULAR DIAGNOSTICS, INC.
             (Exact name of registrant as specified in its charter)

      NORTH CAROLINA                                            56-1493744
(State or other jurisdiction of                              (I.R.S. Employer
            incorporation or organization)                  Identification No.)

5301 DEPARTURE DRIVE, RALEIGH, NORTH CAROLINA                     27616
(Address of principal executive offices)                        (Zip Code)

        Registrant's telephone number, including area code: 919-954-9871

        Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK ($.001
PAR VALUE)


     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 by 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 based upon $7.75 per share, the closing price of the Common
Stock on March 20, 1998, on the NASDAQ National Market System, was approximately
$51,550,400 as of such date. Shares of Common Stock held by each officer and
director and by each person who owns 10% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status may not be conclusive for other purposes.


<PAGE>




As of March 20, 1998, the registrant had outstanding 6,788,937 shares of
Common Stock ($.001 par value).


                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Company's Proxy Statement for the 1998 Annual Meeting
of Shareholders are incorporated herein by reference into Part III.



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                    NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Statements in this Annual Report on Form 10-K that are not descriptions
of historical facts are forward-looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those set forth herein under
the heading "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Factors That May Affect Future Results" and
elsewhere, as well as in the Company's other filings with the Securities and
Exchange Commission (the "SEC"), and including, in particular, risks relating to
new product development, uncertainties regarding market acceptance of the
Company's products, government regulation, healthcare industry consolidation and
competition.


                                     PART I

ITEM 1.    BUSINESS.

         Cardiovascular Diagnostics, Inc., a North Carolina corporation (the
"Company" or the "Registrant"), develops, manufactures and markets a proprietary
cardiovascular diagnostic analyzer and tests that provide, at the point of
patient care, rapid and accurate evaluation of hemostasis and certain new drugs
under development. The Company believes that its Thrombolytic Assessment System
("TAS") is the only stat, or "as soon as possible", point-of-care system capable
of monitoring both the coagulation (formation) and lysis (dissolution) of blood
clots. Such monitoring provides information which is critical in administering
anticoagulant and thrombolytic (clot-dissolving) drugs, which are used in the
treatment of heart attacks and strokes and in a variety of other medical
procedures. During 1997 the Company exhibited the flexibility of the TAS
platform by signing collaboration agreements with Knoll AG and Eli Lilly and
Company to monitor the effects of certain new drugs that are in clinical trials.

         Evaluation of hemostasis is an integral part of patient diagnosis and
treatment for a wide variety of medical conditions. Hemostatic test results must
be provided quickly because a majority of the drugs used to regulate clotting
are cleared rapidly from the body, and these drugs must be closely monitored to
maintain drug levels within an effective treatment range. The Company believes
that generally, hospital central and stat laboratories, which currently provide
the majority of such testing, cannot provide timely information to clinicians
regarding coagulation, and thrombolytic and other drug monitoring. Any delay in
providing such information can be a problem since the physician is likely to
leave the patient area during this time, which may result in a further delay in
diagnosis and treatment. The Company believes that TAS can provide information
regarding coagulation as well as thrombolytic and other drug monitoring on a
timely basis, thus permitting quicker diagnosis and therapeutic intervention,
which will improve hemostatic therapy and the quality of patient care. The
Company believes that this improvement may facilitate quicker transfers out of
expensive critical care settings, reduce the overall length of hospital stays,
reduce expenditures for laboratory equipment and its associated maintenance and
labor, and reduce the unnecessary use, and therefore the overall


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<PAGE>


cost, of pharmaceuticals. In addition, point-of-care testing can save hospitals
money by reducing the numerous steps, paperwork and personnel involved in
collecting, transporting, documenting and processing blood samples.

         The Company currently sells its TAS analyzer and a menu of nine tests
and four sets of controls in the United States. Five of these tests, the
Prothrombin Time ("PT"), PT non-citrated ("PTNC"), the PT One, the activated
Partial Thromboplastin Time ("aPTT") and the Heparin Management ("HMT") tests
(which monitor oral anticoagulant therapy, low level intravenous anticoagulant
therapy and high level intravenous anticoagulant therapy, respectively), have
received Food and Drug Administration ("FDA") clearance under Section 510(k) of
the Food, Drug and Cosmetic Act (the "FDC Act"), and are currently sold for
commercial use. The other four tests, the SK Panel, Lysis Onset Time ("LOT"),
Low Range Heparin Monitoring ("LHMT") and Ecarin Clotting Time ("ECT") tests
(which monitor low heparin levels and antithrombin, respectively) are currently
sold in the U.S. "for investigational use only", pending further FDA review and
clearance. 510(k) filings were submitted for the LHMT and ECT tests in December
1997 and January 1998, respectively. The SK Panel, which consists of two tests,
assists physicians in anticipating possible complications of thrombolytic
therapy by screening patients for resistance to streptokinase. The LOT test may
be used during the administration of any thrombolytic drug to detect the
establishment of the lytic state, after which additional administration of the
drug may no longer be efficacious. The Company currently sells the TAS analyzer
and all of these tests in Europe.

         On October 31, 1993, the Company acquired Coeur Laboratories, Inc.
("Coeur"), which manufactures and sells a line of disposable power injection
syringes used for cardiology and radiology procedures, as well as a line of
manifolds used in custom angiographic procedure kits. The Company acquired Coeur
in order to gain access to Coeur's management and infrastructure, its positive
annual cash flow and its manufacturing facility. The Company believes that the
acquisition of Coeur has accelerated the commercialization of TAS.


     INDUSTRY OVERVIEW

         The practice of laboratory medicine has changed dramatically over the
last 30 years, with new technology continuously evolving in response to the
physician's demand for information. This demand for information is particularly
acute in blood testing, where access to timely and accurate results is critical
to effective patient care. Initially, hospital blood analysis was performed in
multiple small laboratories that typically used time-consuming manual
techniques. The accuracy of tests performed under these conditions varied
considerably depending upon, among other factors, the skill of the laboratory
personnel. The advent of automated blood testing, first introduced in the
mid-1960's, allowed for centralization and standardization of laboratory tests.
With improved access to blood analysis, physicians began to use laboratory tests
as a primary diagnostic tool and consequently demanded more tests and faster
results. In an effort to meet this demand, some hospitals established
decentralized stat laboratories nearer the patient. These laboratories typically
rely on technology designed for efficiency in a high-volume centralized
department. The Company 


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believes that reliance on this technology makes stat laboratories inadequate and
expensive, creating a need for new technology suitable for use at the point of
patient care.

         Recent advances in technology allow many routine blood tests to be
performed at the point of patient care, where the physician can most effectively
use test results. Portable, easy-to-use analyzers designed to perform blood
analysis rapidly and accurately are emerging as a solution to current healthcare
demands. While speed is important in point-of-care testing, accuracy is
critical. Since point-of-care testing is typically performed by operators who
lack any special laboratory skills or training, the more error-proof the testing
system, from sample collection through archiving of the test result, the more
reliable the system will prove to be. By design, most point-of-care tests
require limited materials and minimum labor. Point-of-care test systems must
also comply with the Clinical Laboratory Improvement Amendment of 1988 ("CLIA")
regulations. See "-Government Regulation-CLIA".

         Access to timely and accurate coagulation test results must be provided
quickly because a majority of the drugs used to regulate clotting are cleared
rapidly from the body and these drugs must be closely monitored to maintain drug
levels within a safe treatment range. Coagulation testing presents special
challenges in achieving test accuracy, because blood begins to coagulate as soon
as it leaves the body, and therefore any delay in performing a coagulation test
may lead to a less accurate test result. For this reason, coagulation testing is
an ideal area for point-of-care testing.

     TECHNOLOGY

         The Company's core technology relating to both the TAS analyzer and
test cards is currently protected by a number of U.S. and corresponding
international patents. The TAS card technology combines a mixture of dry
reagents and paramagnetic iron oxide particles ("PIOP") that is contained within
the card's reaction chamber. The test card has the approximate dimensions and
half the thickness of a standard credit card. Blood samples are introduced into
this reagent/particle mixture, dissolving the dry reagent and freeing the
magnetic particles to move within the card's chamber. When the oscillating
magnetic field is generated by the TAS analyzer, the magnetic particles within
the TAS card's reaction chamber move in response to the magnetic field. An
optical sensor within the TAS analyzer monitors the motion of the magnetic
particles without touching the blood sample. When movement diminishes to a
predetermined amplitude, the TAS system determines that a clot has been formed.

         Conversely, the same technology is used to measure the time required
for a clot to dissolve. The Company's technology permits the measurement of clot
dissolution by introducing a sample of blood to a mixture of magnetic particles
and reagents including a clot-forming chemical, thereby inducing a clot. The
system then measures the amount of time required for the induced clot to
dissolve. The Company believes that TAS is the only point-of-care system capable
of monitoring both coagulation and dissolution of clots. Furthermore, an
additional benefit to the Company is the flexibility of the TAS technology,
which allows for


                                       5

<PAGE>


further expansion of the Company's menu of tests, since new tests can be
developed by using different reagents in the test cards.

     PRODUCTS

         THROMBOLYTIC ASSESSMENT SYSTEM (TAS)

         The Company's Thrombolytic Assessment System, or TAS, consists of a
proprietary portable analyzer and proprietary, disposable test cards. The
Company's TAS analyzer and test cards are designed to work effectively in a
decentralized testing environment where they are used by healthcare personnel
who need not have received formal central laboratory training. The Company's
products are able to provide point-of-care testing, which can save valuable time
in obtaining test results, is more convenient to the healthcare professional
than laboratory testing and allows for more efficient treatment of patients. The
Company believes that TAS complies with current CLIA regulations. See
"-Government Regulation-CLIA".

         ANALYZER/SYSTEM OPERATION

         The TAS analyzer weighs approximately four pounds and is about the size
of the typical office telephone. The TAS analyzer has a four-line LCD display
screen, which is driven by software to prompt the technician to input the user
and patient ID numbers, sample type, and timing of application of the blood
sample.

         TAS can test unprocessed whole blood or plasma. Whole blood is obtained
through venipuncture by drawing blood from a patient, often into a tube
containing sodium citrate, which stabilizes the blood prior to testing. The
process of citrating blood requires no special training or skill, and can be
done at the point of patient care by the same person who performs the TAS test,
without adding any time to the process. Plasma, which is typically used in
laboratory testing, is whole blood which has had various cellular components
removed through spinning in a centrifuge for 10 to 15 minutes.

         To operate TAS, a test card is swiped through the magnetic strip reader
of the analyzer, which automatically initiates quality controls and begins to
elicit information from the operator through a series of prompts outlining the
operating procedure for the specific test to be performed. The test card is then
inserted into the TAS analyzer. A single drop of unprocessed, noncitrated or
citrated, whole blood or plasma is then placed into the reaction chamber of the
card, which already contains the appropriate mixture of dry reagents and PIOP
for the test being performed. Typically within three minutes, the screen on the
TAS analyzer displays a numerical test result, which is comparable to the result
which would be achieved in a central laboratory using traditional testing
procedures. The portable analyzer has been designed with a memory capability,
may be connected to a printer, and with a software upgrade may be connected to
the hospital's patient information system. The internal memory of the TAS
analyzer allows for the storage of up to 1,000 individual test results and has
an alphanumeric keypad that allows for the input of up to a 20-character patient
identification code. Additionally, the keypad provides for coded entry so only
authorized personnel can gain

                                       6

<PAGE>



access to the system. The TAS analyzer can operate either on wall current or on
an internal rechargeable battery.

         CURRENT TEST CARDS

         The aPTT test is a coagulation screening test which may be used in
conjunction with the PT to provide a global assessment of a patient's ability to
form a clot. In addition, the aPTT test is used to monitor heparin, an
injectable anticoagulant. Hospitals routinely use heparin as the initial
treatment for patients with a clot, including patients suffering from heart
attacks or strokes. Heparin also prevents clots from forming in patients
undergoing procedures involving particular risks of clotting, such as
angioplasties, angiograms, open heart surgeries, dialyses and certain other
surgeries. Heparin must be closely monitored to assure adequate anticoagulation
without increasing the risk of developing a bleeding complication. Time is
particularly important when monitoring heparin, since the drug affects a
patient's coagulation system within minutes.

         The PT test is a general screening test that is used to assess a
patient's baseline hemostatic function or to monitor the use of warfarin, an
oral anticoagulant. Although they are both anticoagulants, heparin and warfarin
work in different ways and require different tests to monitor their functions.
Warfarin is widely used for long-term treatment in patients who have previously
developed clots, including after heart attacks, in order to inhibit coagulation
and reduce the risk of developing additional clots. A physician uses the PT test
to monitor and maintain drug levels within a safe treatment range; that is, too
little warfarin will not prevent a new clot from developing, but too much of the
drug may result in a bleeding complication.

         The Company manufactures and markets three different types of PT test
cards, a general purpose PT test card routinely used in the United States, the
PT One, which uses a more sensitive scale of measurement, and the PT-NC, which
is used with finger stick samples. The PT One is currently the preferred test
for all indications in Europe and is rapidly becoming popular in the United
States.

         Generally, aPTT tests are incapable of monitoring high levels of
heparin. Therefore, the Company developed its HMT for monitoring patients
requiring high dose heparin therapy during procedures such as open heart
surgeries or dialyses. For example, during the course of an open heart surgery,
the patient's blood may be tested as many as four to six times to assure an
adequate heparin effect. The Company believes that its HMT is a more effective
test than the Activated Clotting Time test ("ACT") currently used for procedures
requiring high dose heparin therapy. Unlike ACT, HMT is not sensitive to changes
in blood temperature or dilution, such as typically occur during open heart
surgery. Clinical trials also indicate that HMT more closely correlates with a
precise but time-consuming laboratory measurement of heparin concentration than
does ACT. Finally, the Company believes that HMT is easier to perform and is
less prone to operator error than ACT.

         The Low-range Heparin Management Test ("LHMT") card currently under
review by the FDA is intended to monitor the moderate levels of heparin used
during certain surgical procedures, including angioplasty and cardiac surgery on
pediatric patients.


                                       7

<PAGE>



         The SK Panel is designed to assess a patient's response to one of the
most commonly used thrombolytic drugs, streptokinase. Since approximately 10% of
patients may develop neutralizing antibodies or inhibitors to streptokinase
(which prevent the drug from being effective), physicians often use the more
expensive thrombolytic drug, t-PA, rather than risk ineffective therapy with
streptokinase. The SK Panel provides the physician with objective information on
which to base a decision regarding the choice of thrombolytic drug. The SK Panel
consists of two test cards. One of the cards is designed to test the patient's
response to high levels of streptokinase. The other card, the Lytic Control
test, is designed to identify possible defects in a patient's fibrinolytic
system that may interfere with all thrombolytic therapy.

         The LOT test is designed to monitor a patient's response to any of the
currently used thrombolytic drugs, including streptokinase, t-PA and urokinase.
The LOT test is used during the administration of any thrombolytic drug to
detect the establishment of the lytic state, after which additional
administration of the drug may no longer be efficacious. Before the Company
developed the LOT test, there was no rapid, precise method for monitoring the
effects of thrombolytic therapy. With the information provided by the LOT test,
healthcare providers can optimize thrombolytic therapy, providing for better,
more cost-effective patient care.

         The FDA is currently reviewing the Ecarin Clotting Time ("ECT") test
designed to monitor the effect of a new class of anticoagulant drugs,
"antithrombins" such as hirudin or argatroban.

         TEST CARDS UNDER DEVELOPMENT

         The Company is currently studying the feasibility and developing
several new tests to expand the menu for the TAS Analyzer. The Company is
studying and developing new tests to complement the aPTT and HMT in a complete
heparin monitoring package. The Company's low range fibrinogen ("LRF") test is a
new test under development that will allow a physician to monitor the effects of
Ancrod, a new drug for the treatment of stroke. In addition, the Company has
tests under development to monitor thrombin inhibitors and a new drug to treat
sepsis. The Company has also developed versions of certain of its test cards,
including PT and HMT, which would allow testing of noncitrated, as well as
citrated, blood. In addition, the Company has developed test cards calibrated to
the reagent of its North American distributor, Dade. See "-Sales and Marketing".


         QUALITY CONTROL PRODUCTS

         The Company also develops and manufactures single-use "crush-vial"
controls for each test card. These controls allow quality assurance testing at
the point of care. In addition, the Company is developing Electronic Quality
Control ("EQC") cards to test analyzer function.



                                       8

<PAGE>



     SALES AND MARKETING

         The Company commenced marketing TAS products in May 1995. As of
December 31, 1997 the Company had sold approximately 1,100 analyzers in the
United States and in Europe. In 1996, the Company initiated a sales and
marketing strategy, with a direct sales force targeting hospitals with over 200
beds. Through this initiative the Company achieved its goal of gaining
recognition for its technology and was able to attract several strategic
partners. In October 1996, the Company signed an exclusive, five-year
development and distribution agreement with Dade, a world leader in coagulation
reagent sales, with its share of the U.S. reagent market estimated at over 50%.
Under the agreement with Dade, Dade has the right to distribute TAS technology
under a joint Dade/Cardiovascular Diagnostics, Inc. label to hospitals and
non-hospital laboratories. The PT and aPTT tests will be sold exclusively by
Dade in the United States, Canada, Mexico and certain Latin American countries.
With Dade the marketing focus was shifted to begin targeting major corporate
accounts and integrated health networks ("IHNs"), who would be offered
standardized coagulation testing through a combination of Dade and CVDI
products. Upon launch, the Dade PT test cards became key components in IHN
presentations and was a contributing factor to a supply contract awarded to Dade
by Premier in September 1997.

         During 1997, the Company also continued to develop its strategy of
appointing distributors focused in key market segments. To this end, the Company
signed a three year exclusive agreement with Avecor Cardiovascular to distribute
the Company's Heparin Management Test ("HMT") to hospitals. Avecor
Cardiovascular supplies blood oxygenators and related products to operating
rooms and as such has an established relationship with perfusionists and
anesthesiologists.

         The Company also markets TAS products in Europe and elsewhere. In
Europe there are a large number of recognized experts in the fields of
hematology and cardiology. The Company's strategy to date has been to sell
primarily through selected independent distributors. During 1997, Ortho Clinical
Diagnostics signed a three-year agreement to distribute the Company's products
in Italy. Distribution agreements remain in place for the United Kingdom,
Berelux and Scandinavia, New Zealand and Australia. These relationships continue
to be reviewed on an annual basis.

         In 1997, the Company also entered into additional collaborative
agreements with Knoll AG and Eli Lilly for the development of test cards for use
in monitoring therapies being investigated for the treatment of ischemic stroke
and sepsis.

         The commercial success of the Company's products will depend upon their
acceptance by the medical community and third-party payors as useful and
cost-effective. Market acceptance will depend upon several factors, including
the establishment of the utility and cost-effectiveness of the Company's tests,
the receipt of regulatory clearances in the United States and elsewhere and the
availability of third-party reimbursement. The availability of point-of-care
hemostasis test systems has been limited to date, so by selling point-of-care
hemostasis test products, the Company is targeting an essentially new market.
Diagnostic tests similar to


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those developed by the Company are generally performed by a central laboratory
at a hospital or clinic. The approval of the purchase of diagnostic equipment by
a hospital is generally controlled by its central laboratory. The Company
expects there will be resistance by central laboratories to yield control of
tests they have previously performed. The Company will also have to demonstrate
to physicians that its diagnostic products perform as intended, meaning that the
level of accuracy and precision attained by the Company's products must be
comparable to test results achieved by central laboratory systems. Failure of
the Company's products to achieve market acceptance would have a material
adverse effect on the Company.

         The Company is substantially dependent upon Dade for marketing and
distribution in North America. There can be no assurance that the Company will
be able to build an adequate sales and marketing staff, that establishing such a
sales and marketing staff will be cost-effective, or that Dade's or the
Company's direct sales and marketing efforts will be successful. The loss of one
or more of the Company's foreign distributors or the inability to enter into
agreements with new distributors to sell TAS products in additional countries
could have a material adverse effect on the Company. There can be no assurance
that the Company or its distributors will be successful in marketing or selling
the Company's products.

     RESEARCH AND DEVELOPMENT

         At December 31, 1997 the Company had a research and development staff
consisting of ten people, five of whom have Ph.D.'s in related fields.
Continuing research and development is focused on expanding the menu of tests.
See "-Products-Test Cards".

         During fiscal 1995, fiscal 1996 and fiscal 1997, the Company's research
and development expenses were approximately $1,801,000, $2,300,000 and
$2,573,000, respectively. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Results of Operations".

     COMPETITION

         The medical diagnostic testing industry is characterized by rapidly
evolving technology and intense competition. TAS competes in the coagulation and
hematology testing market with manufacturers providing testing equipment to
central and stat laboratories of hospitals, since such laboratories currently
perform a substantial portion of such testing, and with other point-of-care
coagulation and hematology test system manufacturers. Laboratories provide the
same tests performed by TAS; however, these laboratory tests generally require
the use of skilled technicians and complex, expensive equipment. The Company
believes that TAS offers several advantages over these laboratory-based
instruments, including faster results, ease-of-use, reduced opportunity for
error and cost-effectiveness.

         The Company has several competitors, including Boehringer Mannheim
Corporation ("BMC"), International Technidyne Corporation ("ITC") and Medtronic,
that manufacture and market point-of-care coagulation and hematology test
systems. ITC, in particular, has a large installed base of systems, which it has
been selling for over 20 years. Despite the fact that the Company believes that
TAS competes favorably with these systems, ITC's installed base could



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give it a competitive advantage. Although the market for point-of-care
coagulation and hematology test systems is in its early stages of development,
the Company believes that potential customers will base their purchasing
decisions upon a combination of factors, including accuracy and precision,
speed, cost-effectiveness, ease-of-use and compliance with CLIA guidelines.

         If the Company introduces additional blood tests beyond its initial
coagulation and hematology tests, it will compete with numerous companies that
market similar products to hospitals for use in laboratories and at the point of
patient care. Other manufacturers and academic institutions may be conducting
research and development with respect to blood testing technologies and other
companies may in the future engage in research and development activities
regarding products competitive with those of the Company. Many of the companies
in the medical technology industry, including those listed above, have
substantially greater capital resources, research and development staffs, sales
and manufacturing capabilities and manufacturing facilities than the Company.
Such entities may be developing or could in the future attempt to develop
additional products competitive with TAS. Many of these companies also have
substantially greater experience than the Company in research and development,
obtaining regulatory clearances, manufacturing and marketing, and may therefore
represent significant competition for the Company. There can be no assurance
that the Company's competitors will not succeed in developing or marketing
technologies and products that will be more effective or less expensive than
those being marketed by the Company or that would render the Company's
technology and products obsolete or noncompetitive.

     PATENTS AND OTHER INTELLECTUAL PROPERTY

         The Company pursues patent applications to provide protection from
competitors. A number of U.S. and corresponding international patents have been
issued to the Company covering various aspects of the TAS technology. The
Company has filed, and is pursuing, a number of additional U.S. and
international patent applications.

         The Company's success will depend in part on its ability to enforce its
patents, to preserve its trade secrets and to operate without infringing the
proprietary rights of third parties. The Company's ability to protect its
proprietary position is also in part dependent on the issuance of additional
patents on current and future applications. The validity and breadth of claims
covered in medical technology patents involve complex legal and factual
questions. No assurance can be given that any patent applications will be
issued, that the scope of any patent protection will exclude competitors or
provide competitive advantages to the Company, that any of the Company's patents
will be held valid if subsequently challenged or that others will not claim
rights in or ownership to the patents and other proprietary rights held by the
Company. Furthermore, there can be no assurance that others have not developed
or will not develop similar products, duplicate any of the Company's products or
design around the Company's patents. In addition, others may hold or receive
patents or file patent applications which contain claims having a scope that
covers products developed by the Company. In the event that any relevant claims
of third-party patents are upheld as valid and enforceable, the Company could be
prevented from practicing the subject matter claimed in such patents or


                                       11

<PAGE>


could be required to obtain licenses from the patent owners of each of such
patents or to redesign its products or processes to avoid infringement. There
can be no assurance that such licenses would be available or, if available,
would be on terms acceptable to the Company or that the Company would be
successful in any attempt to redesign its products or processes to avoid
infringement.

         The Company also relies upon unpatented trade secrets to protect its
proprietary technology. In particular, the Company believes that its
custom-designed automated test card production line embodies proprietary Company
process technology. No assurance can be given that others will not independently
develop or otherwise acquire equivalent technology or otherwise gain access to
the Company's proprietary technology or that the Company can ultimately protect
meaningful rights to such unpatented proprietary technology.

         There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. In March 1997, the
Company filed a lawsuit against BMC alleging, among other things,
misappropriation of trade secrets. See "Item 3. Legal Proceedings". This and any
other litigation, which would result in substantial cost to and diversion of
effort by the Company, may be necessary to enforce patents issued to the
Company, to protect trade secrets or know-how owned by the Company, to defend
the Company against claimed infringement of the rights of others or to determine
the ownership, scope or validity of the proprietary rights of the Company and
others. An adverse determination in any such litigation could subject the
Company to significant liability to third parties, could require the Company to
seek licenses from third parties, which licenses may not be available or, if
available, may not be on terms acceptable to the Company; and ultimately could
prevent the Company from manufacturing, selling or using its products, any of
which could have a material adverse effect on the Company.

     LICENSES

         TOKUYAMA SODA LICENSE

         In October 1988, the Company entered into a License Agreement with
Tokuyama Soda Company, Ltd. ("Tokuyama") pursuant to which the Company granted
Tokuyama exclusive rights to manufacture and sell PT and aPTT tests and
analyzers in certain Asian countries (the "Tokuyama License"). The Tokuyama
License requires that the Company negotiate in good faith with Tokuyama for 90
days prior to marketing or licensing in these Asian nations any new products
that the Company develops related to the licensed tests or analyzer technology.

         In 1988 and 1989, Tokuyama paid the Company an aggregate license fee of
$1,080,000 pursuant to the Tokuyama License. In addition, until the earlier of
October 2004 or the expiration of the last Japanese patent covering the licensed
technology, Tokuyama must pay the Company royalties based on Tokuyama's net
sales of licensed products, subject to annual minimums through September 2000.
The Company can terminate the Tokuyama License if Tokuyama fails to make a
required payment or report (or makes a false report), or if Tokuyama voluntarily
ceases the manufacture and sale of licensed products for 12 months, and 

                                       12

<PAGE>


if, in any such case, Tokuyama fails to remedy such default within 60 days after
notice thereof from the Company.

         In December 1995, the Company and Tokuyama amended the Tokuyama
License, to, among other things, provide the Company with the right to market PT
and aPTT tests and analyzers in an Asian country (other than Japan, Taiwan and
South Korea) if Tokuyama has not attained annual net sales of $250,000 in the
country by June 30, 1996 (or within 12 months of the time when export to such
country becomes authorized). In the event the Company exercises this right, it
and Tokuyama may both market in the country and must each pay royalties to the
other. The amendment also provides that the Company owns all rights outside Asia
to Tokuyama improvements to the Company's technology, and must pay royalties to
Tokuyama based on Company net sales of products incorporating such improvements.

         The Company received royalty payments under this agreement of $63,176,
$32,835 and $30,741 during the years ended December 31, 1995, 1996 and 1997,
respectively.

     MANUFACTURING

         The Company operates a manufacturing facility in Raleigh, North
Carolina to assemble TAS analyzers. Vendors currently provide all molded parts,
mechanical components and printed circuit boards. The Company assembles the
components and provides final mechanical, electrical and chemistry testing of
each analyzer. The Company believes that it has sufficient capacity to
accommodate anticipated demand.

         The Company also operates proprietary automated test card production
equipment at its Raleigh facility. This automated production equipment was
custom-designed by the Company and built to its specifications. The Company
believes that this production machinery embodies proprietary Company process
technology. The equipment has been designed to allow for increased production as
dictated by customer demand. Programs are currently in process to attempt to
double manufacturing capacity from the current level of 28,000 cards per day.

         The FDC Act requires the Company to manufacture its products in
registered establishments and in accordance with Good Manufacturing Practice
("GMP"). The Company and Coeur are both registered as medical device
manufacturers and are subject to periodic inspections by the FDA. In addition,
the Company received ISO 9001 certification in 1997.

         To be successful, the Company must manufacture its products in
compliance with regulatory requirements, in sufficient quantities and on a
timely basis, while maintaining product quality and acceptable manufacturing
costs. The Company has limited experience producing its products in large
commercial quantities. There can be no assurance that the Company will be able
to manufacture accurate and reliable products in large commercial quantities on
a timely basis and at an acceptable cost.

         Most of the raw materials and components used to manufacture the
Company's TAS products are readily available. However, certain of these
materials are obtained from a sole supplier or a limited group of suppliers. For
example, the Company currently obtains the 

                                       13

<PAGE>




PIOP used in the TAS test cards from a single source. However, the Company
maintains enough PIOP to produce the Company's test cards for an extended period
of time. The Company believes that, in the event of an interruption in the
availability of PIOP from such supplier, the Company has enough PIOP at its
facility to supply its needs until an alternative source could be procured. The
Company generally does not maintain long-term agreements with any of its
suppliers. The reliance on sole or limited suppliers and the failure to maintain
long-term agreements with suppliers involves several risks, including the
inability to obtain an adequate supply of required raw materials and components
and reduced control over pricing, quality and timely delivery. Any interruption
in supply could have a material adverse effect on the Company.

     GOVERNMENT REGULATION

         FDA

         The medical devices to be marketed and manufactured by the Company are
subject to extensive regulation by the FDA. Pursuant to the FDC Act, the FDA
regulates the clinical testing, manufacture, labeling, distribution and
promotion of medical devices. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval ("PMA") for
devices, withdrawal of marketing approvals and criminal prosecution. The FDA
also has the authority to request repair, replacement or refund of the cost of
any device manufactured or distributed by the Company.

         In the United States, medical devices are classified into one of three
classes (Class I, II or III), on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and effectiveness. Under the FDA
regulations, Class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to GMPs) and Class II devices are
subject to general and special controls (for example, performance standards,
postmarket surveillance, patient registries, and FDA guidelines). Generally,
Class III devices are those which must receive a PMA from the FDA to ensure
their safety and effectiveness (for example, life-sustaining, life-supporting
and implantable devices, or new devices which have not been found substantially
equivalent to legally marketed devices).

         Before a new device can be introduced into the market, the manufacturer
must generally obtain marketing clearance through either a 510(k) notification
(a "510(k)") or a PMA. Commercial distribution of a device for which a 510(k) is
required can begin only after the FDA issues an order finding the device to be
"substantially equivalent" to a predicate legally marketed Class I or II medical
device, or to a Class III medical device for which the FDA has not required a
PMA. The FDA has recently been requiring a more rigorous demonstration of
substantial equivalence than in the past. It generally takes from four to 12
months from submission of a 510(k) to obtain a 510(k) clearance, but it may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device, or that additional information is
needed before a substantial equivalence determination


                                       14

<PAGE>


can be made. A request for additional data may require that clinical studies of
the device's safety and efficacy be performed. A "not substantially equivalent"
determination or a request for additional information could delay the market
introduction of new products that fall into this category and could have a
material adverse effect on the Company's business, financial condition and
results of operations. For any of the Company's products that are cleared
through the 510(k) process, modifications or enhancements that could
significantly affect the safety or efficacy of the device or that constitute a
major change to the intended use of the device will require a new 510(k). If the
FDA requires the Company to submit a new 510(k) for any modification to the
device the Company may be prohibited from marketing the modified device until
the 510(k) is cleared by the FDA.

         The Company received 510(k) clearance to market its PT and aPTT test
cards, along with a first generation analyzer, in 1988. In 1993, the Company
received 510(k) clearance for the TAS analyzer to be marketed with PT and aPTT
tests. The Company received 510(k) clearance in May 1995 to commercially market
the HMT test. The Company received 510(k) clearance for PT, HMT and aPTT
controls in 1996 and for PT-NC controls in 1997. In addition, the Company
submitted 510(k) applications for the LHMT test card in December 1997 and for
the ECT test card in January 1998.

         The Company submitted a 510(k) for its SK Panel in September 1993. This
submission was withdrawn in October 1994, after consultation with the FDA,
pending the conclusion of additional clinical evaluations of the SK Panel. The
Company is currently working with the FDA to establish protocols for additional
clinical evaluations. The Company intends to submit the data from those clinical
trials to the FDA in a revised 510(k) for the SK Panel. There can be no
assurance, however, that the additional clinical evaluations will satisfy the
FDA's requirements, that market clearance will be forthcoming in a timely
manner, if at all, or that the FDA will not require more extensive clinical
evaluations, other information, or submission of a PMA. There can be no
assurance that the Company will obtain 510(k) clearance on a timely basis, or at
all, for any device for which it files a future 510(k).

         The SK Panel and LOT tests are currently sold in the United States and
Europe for investigational use only in connection with clinical evaluations of
the safety and effectiveness of the products. Although clinical investigations
of most devices are subject to the investigational device exemption ("IDE")
requirements, a clinical investigation is exempt from the IDE requirements
provided the clinical investigation involves a noninvasive test, does not
require an invasive sampling procedure that presents significant risk, does not
introduce energy into a subject, and is not used as a diagnostic procedure
without confirmation of the diagnosis by another medically established
diagnostic product or procedure. Manufacturers must also establish distribution
controls to assure that devices distributed for the purposes of conducting
clinical investigations are used only for that purpose. Pursuant to FDA policy,
manufacturers of devices labeled "for investigational use only" must establish a
certification program under which investigational devices are distributed to or
utilized only by individuals, laboratories or healthcare facilities that have
provided the manufacturer with a written certification of compliance indicating
that: the device will be used for investigational purposes only; results will
not be used for diagnostic purposes without confirmation of the diagnosis under
another

                                       15

<PAGE>



 medically established diagnostic device or procedure; all investigations
will be conducted with approval from an institutional review board ("IRB"),
using an IRB-approved study protocol, and patient informed consent; and the
device will be labeled in accordance with the applicable labeling regulations.
Failure of the Company or recipients of the Company's "investigational use only"
products to comply with these requirements could result in enforcement action by
the FDA that would adversely affect the Company's ability to conduct testing
necessary to obtain market clearance and, consequently could have a material
adverse effect on the Company.

         A PMA application must be filed if a proposed device is not
substantially equivalent to a legally marketed Class I or Class II device, or if
it is a Class III device for which FDA has called for PMAs. A PMA application
must be supported by valid scientific evidence which typically includes
extensive data, including preclinical and clinical trial data, to demonstrate
the safety and effectiveness of the device. In addition, the submission must
include the proposed labeling, advertising literature and training methods (if
required). FDA review of a PMA application generally takes one to two years from
the date the PMA application is accepted for filing, but may take significantly
longer. The review time is often significantly extended by the FDA asking for
more information or clarification of information already provided in the
submission. Toward the end of the PMA review process, the FDA generally will
conduct an inspection of the manufacturer's facilities to ensure that the
facilities are in compliance with applicable GMP requirements. If the FDA's
evaluations are favorable, the FDA will either issue an approval letter or an
approvable letter, which usually contains a number of conditions which must be
met in order to secure final approval of the PMA. When and if those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
approval letter, authorizing commercial marketing of the device for certain
indications. If the FDA's evaluations are not favorable, the FDA will deny
approval of the PMA application or issue a "not approvable" letter. The FDA may
also determine that additional clinical trials are necessary, in which case PMA
approval may be delayed for several years while additional clinical trials are
conducted and submitted in an amendment to the PMA. Modifications to a device
that is the subject of an approved PMA, its labeling, or manufacturing process
may require approval by the FDA of PMA supplements or new PMAs. The PMA process
can be expensive, uncertain and lengthy and a number of devices for which FDA
approval has been sought by other companies have never been approved for
marketing. There can be no assurance that the Company will be able to obtain
necessary regulatory approvals on a timely basis, or at all, and delays in
receipt of or failure to receive such approvals, the loss of previously received
approvals, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations.

         Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including recordkeeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their facilities and list their devices with the FDA, and are subject
to periodic inspections by the FDA and certain state agencies. The FDC Act
requires devices to be manufactured in accordance with GMP regulations which
impose certain procedural and documentation requirements upon

                                       16

<PAGE>



the Company with respect to manufacturing and quality assurance activities. The
FDA has approved changes to the regulations which may increase the cost of
complying with GMP requirements.

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

         REGULATIONS ON EXPORTED PRODUCTS

         Export of products that have market clearance from the FDA in the
United States do not require FDA authorization. However, foreign countries often
require an FDA certificate for products for export (a "CPE"). To obtain a CPE
the device manufacturer must certify to FDA that the product has been granted
clearance in the United States and that the manufacturing facilities appeared to
be in compliance with GMPs at the time of the last FDA inspection. The FDA will
refuse to issue a CPE if significant outstanding GMP violations exist.

         Export of products subject to the 510(k) requirements, but not yet
cleared to market, are permitted without FDA authorization provided certain
requirements are met. Unapproved products subject to the PMA requirements must
be approved by the FDA for export. To obtain FDA export approvals certain
requirements must be met and information must be provided to the FDA, including
documentation demonstrating that the product is approved for import into the
country to which it is to be exported and, in some instances, safety data from
animal or human studies. There can be no assurance that the FDA will grant
export approval when such approval is necessary, or that the countries to which
the devices are to be exported will approve the devices for import.

         The Company has obtained CPEs for the PT, PT One, aPTT and HMT tests
and the TAS analyzer. Failure of the Company to obtain a CPE for the export of
its products in the future could have a material adverse effect on the Company.
Products which the Company exports that do not have premarket clearance in the
United States include the SK Panel, the LOT test and the ECT test. The Company
has made a determination that these products are subject to the 510(k)
requirements and, consequently, has not requested FDA approval for the export of
this device. However, there can be no assurance that the FDA would agree with
the Company's determination that these products are subject to the 510(k)
requirements and would not require the Company to obtain FDA export approval.
Such a determination by the FDA may significantly delay and impair the Company's
ability to continue exporting the SK Panel, the LOT test and the ECT test and
could have a material adverse effect on the Company.

         The introduction of the Company's test products in foreign markets will
also subject the Company to foreign regulatory clearances, which may impose
additional substantial costs and burdens. International sales of medical devices
are subject to the regulatory requirements of each country. The regulatory
review process varies from country to country. Many countries also impose
product standards, packaging, requirements, labeling requirements and import
restrictions on devices. In addition, each country has its own tariff
regulations, duties and tax 

                                       17

<PAGE>



requirements. Approval by foreign government authorities is unpredictable and
uncertain, and no assurance can be given that the necessary approvals or
clearances will be granted on a timely basis or at all. Delays in receipt of, or
a failure to receive, such approvals or clearances, or the loss of any
previously received approvals or clearances, could have a material adverse
effect on the Company.

         CLIA

         The Company's products are also subject to the requirements of CLIA.
This law requires all laboratories, including those performing blood chemistry
tests, to meet specified standards in the areas of personnel qualification,
administration, participation in proficiency testing, patient test management,
quality control, quality assurance and inspections. The regulations have
established three levels of regulatory control based on test complexity -
"waived", "moderate complexity" and "high complexity". The PT and aPTT tests
performed by TAS have been categorized by the FDA and the Centers for Disease
Control and Prevention (the "CDC") as moderate complexity tests. There can be no
assurance that these tests will not be recategorized, or that other tests
performed by the TAS will not be categorized as high complexity tests or that
such a categorization will not have a material adverse effect on the Company.
Furthermore, there can be no assurance that regulations under and future
administrative interpretations of CLIA will not have an adverse impact on the
potential market for the Company's products.

         Laboratories that perform either moderate or high complexity tests must
meet certain standards, with the major difference in requirements being quality
control and personnel standards. Quality control standards for moderate
complexity tests (not modified by laboratories) are being implemented in stages,
while laboratories performing high complexity and modified moderate complexity
tests currently must meet all of the quality control requirements. Personnel
standards for high complexity tests require that personnel have more education
and experience than personnel conducting moderate complexity tests. All
laboratories performing moderately complex or highly complex tests are required
to obtain either a registration certificate or certification of accreditation
from the Health Care Financing Administration. With certain specified
exceptions, each site for laboratory testing must file a separate application
and separately meet all CLIA requirements. Multiple laboratory sites within a
hospital located at contiguous buildings on the same campus and under common
direction may file a single application. As a result of the CLIA requirements,
hospitals may be discouraged from expanding point-of-care testing. Because CLIA
certification must be obtained by laboratories, the Company does not possess
sufficient data to make a determination as to the cost of certification to a
laboratory or the potential inhibiting effect of CLIA certification on the
purchase of the Company's products by laboratories.

         OTHER REGULATIONS

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

                                       18

<PAGE>



products in those states or localities. Use of the Company's products will also
be subject to inspection, quality control, quality assurance, proficiency
testing, documentation and safety reporting standards pursuant to the Joint
Commission on Accreditation of Healthcare Organizations. Various states and
municipalities may also have similar regulations.

         Manufacturers are also subject to numerous federal, state and local
laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances. There can be no assurance that
the Company will not be required to incur significant costs to comply with such
laws and regulations now or in the future or that such laws or regulations will
not have a material adverse effect upon the Company.

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

     REIMBURSEMENT

         The Company's ability to commercialize its products successfully
depends in part on the extent to which reimbursement for the cost of such
products and related treatment will be available from government health
administration authorities (such as the Health Care Financing Administration
(the "HCFA")), which determines Medicare reimbursement levels), private health
insurers and other organizations ("Payors"). Payors are increasingly challenging
the prices of medical products and services. Payors may deny reimbursement if
they determine that a prescribed device has not received appropriate FDA or
other governmental regulatory clearances, is not used in accordance with
cost-effective treatment methods, or is experimental, unnecessary or
inappropriate. Also, the trend towards managed healthcare in the United States
and the concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of healthcare services and products, as
well as legislative proposals to reform healthcare or reduce government
insurance programs, may result in customers demanding lower prices for the
Company's TAS products. The cost containment measures that healthcare providers
are instituting and the impact of any healthcare reform could have an adverse
effect on the Company's ability to sell its products and may have a material
adverse effect on the Company.

         Effective October 1991, HCFA adopted new regulations providing for the
inclusion of capital-related costs in the prospective payment system, under
which providers are reimbursed on a per-discharge basis at fixed rates unrelated
to actual costs, based on diagnostic related groups. Under this system of
reimbursement, equipment costs generally will not be reimbursed separately, but
rather, will be included in a single, fixed-rate, per-patient reimbursement.
These regulations are being phased in over a 10-year period, and, although the
full implications of these regulations cannot yet be known, the Company believes
that the


                                       19

<PAGE>


new regulations will place more pressure on hospitals' operating margins,
causing them to limit capital expenditures. These regulations could have an
adverse effect on the Company's results of operations if hospitals decide to
defer obtaining medical equipment as a result of any such limitation on their
capital expenditures. The Company is unable to predict the effect on the
Company, if any, additional government regulations, legislation or initiatives
or changes by other Payors affecting reimbursement or other matters which may
influence decisions to obtain medical equipment.

         There can be no assurance that reimbursement in the United States or
foreign countries will be available for any of the Company's products, or that
if available it will not be decreased in the future, or that any reduction in
reimbursement amounts will not reduce the demand for or the price of the
Company's products. The unavailability of third-party reimbursement or the
inadequacy of the reimbursement for medical procedures using the Company's tests
would have a material adverse effect on the Company. Moreover, the Company is
unable to forecast what additional legislation or regulations, if any, relating
to the healthcare industry or third-party coverage and reimbursement may be
enacted in the future or what effect such legislation or regulations would have
on the Company.

     COEUR'S BUSINESS

         On October 31, 1993, the Company acquired Coeur, which manufactures and
sells a line of disposable power injection syringes used for cardiology and
radiology procedures, as well as a line of manifolds used in custom angiographic
procedure kits. The Company acquired Coeur in order to gain access to Coeur's
management and infrastructure, its positive annual cashflow and its
manufacturing facility. The Company believes that the acquisition of Coeur has
accelerated the commercialization of TAS.

         Because Coeur does not manufacture injectors and has no direct sales
force, its primary customers for disposable syringes are injector manufacturers.
The three principal injector manufacturers are Medrad (which is the market
leader), Liebel-Flarsheim and E-Z-EM. Coeur's unique marketing position is a
result of a patent that allows Coeur to manufacture an alternative to Medrad
200m1 syringes, which model represents approximately half of all disposable
syringe sales. Because hospitals typically use more than one manufacturer's
injector, salesmen must have a full line of syringes capable of fitting each
type of injector. Liebel Flarsheim and E-Z-EM buy 200m1 syringes from Coeur,
because Coeur's patent makes it the only current alternative source for Medrad
200m1 syringes. In addition, Coeur manufactures, on an OEM basis, all disposable
syringes for E-Z-EM injectors. For the fiscal year ended December 31, 1997,
E-Z-EM, Liebel-Flarsheim and Kimal Scientific Products Ltd. each represented
more than 10%, and in total represented 87% of Coeur's net sales.

         Coeur's other product line is manifolds, which historically have been
sold to kit manufacturers as components for custom angiographic kits. Most kit
components are commodity products and not proprietary. Management believes that
future sales trends will be toward more standardization of angiographic kits.
Additional competitors are expected to enter the custom kit market and pricing
will become more competitive.



                                       20

<PAGE>


         Since its acquisition by the Company in October 1993, Coeur has
operated profitably and therefore helped fund the Company's activities related
to its diagnostic products. While the Company does not expect to rely upon
profits from Coeur to fund a significant portion of its operations, there can be
no assurances that Coeur will remain profitable. Coeur's business is subject to
various risks, including the limited market for its products, competition,
decreases in gross profits attributable to increases in the price of raw
materials, technological obsolescence, uncertainty of protection of patents and
other proprietary technology, reliance upon its distributors and a limited
number of customers, and governmental regulation.

     PRODUCT LIABILITY AND INSURANCE

         The Company faces an inherent business risk of exposure to product
liability claims in the event that the use of its products is alleged to have
resulted in adverse effects. The Company maintains product liability insurance
with coverage of up to $11 million per claim, with an annual aggregate policy
limit of $12 million. There can be no assurance that liability claims will not
exceed the coverage limits of such policies or that such insurance will continue
to be available on commercially acceptable terms, or at all. Consequently,
product liability claims could have a material adverse effect on the company's
business, financial condition and results of operations.

     EMPLOYEES

         The Company had 89 employees as of December 31, 1997. Ten employees
were engaged in research and development, 54 in manufacturing and quality
control, nine in engineering, five in sales/marketing and 11 in
finance/administration. Many of the Company's executive and technical personnel
have had experience with biomedical diagnostics companies. None of the Company's
employees are covered by a collective bargaining agreement and the Company
believes that employee relations are good.

         The Company's success depends to a significant extent upon a number of
key management and technical personnel. Although the Company maintains a
$500,000 key man life insurance policy on its chief executive officer, the loss
of the service of this officer or other key employees could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company also believes that its future success will depend in
large part upon its ability to attract and retain highly skilled technical,
management and sales and marketing personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The Company's failure to attract, hire
and retain these personnel would have a material adverse effect on the Company.

ITEM 2.    PROPERTIES.

         The Company's principal corporate offices are located at 5301 Departure
Drive, Raleigh, North Carolina 27616. The Company occupies approximately 55,000
square feet of development, production and administration space at that location
pursuant to a facility lease that runs through January 2001.



                                       21

<PAGE>



         The Company believes that its facilities are adequate for its current
needs and that suitable additional space will be available as required.

ITEM 3.    LEGAL PROCEEDINGS.

         In August 1992, Ciba Corning sent a letter to the Company stating it
appeared that the Company infringed patents owned by Biotrack Inc., ("Biotrack")
a wholly-owned subsidiary of Ciba Corning, and that the Company should cease any
activity that infringed the patents. In September 1992, the Company responded
that it believes that it is not infringing Biotrack's patents and that its
issued U.S. patents protect all of its products which are currently cleared by
the FDA or in clinical trials. Since September 1992, BMC has acquired Biotrack,
and the Company has had no further contact with Biotrack or its parent
concerning this matter until March 1996, when BMC sent another letter to the
Company alleging infringement. The Company intends to defend itself vigorously
in connection with these allegations.

         In March 1997, the Company filed suit in U.S. District Court for the
Eastern District of North Carolina, charging BMC with misappropriation of the
Company's trade secrets by improper disclosure, breach of contract, breach of
fiduciary duty, unfair and deceptive trade practices, and constructive fraud. In
addition, the Company requested a declaratory judgment that neither the products
nor activities of the Company infringe U.S. patents purportedly owned by BMC. In
April 1997, BMC answered the claims and submitted a patent infringement
counterclaim against CVDI. Each party filed a motion for judgment on the
pleadings with respect to all claims asserted by the other party. In November
1997, the Court issued a Judgment and Order granting CVDI's motion for judgment
on the pleadings, holding that CVDI has a license, until June 21, 1999 or until
the last of the patents expire, to the patents at issue. It dismissed all other
claims of the parties. Both parties have appealed and are awaiting the Court's
decision.

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

         No matters were submitted to a vote of security holders during the
fourth quarter ended December 31, 1997.

                                       22

<PAGE>



         EXECUTIVE OFFICERS OF THE COMPANY

         The following sets forth information with respect to all the executive
officers of the Company, including their names, ages, positions with the Company
and business experience during the last five years, as of March 31, 1998.

         John P. Funkhouser, age 44, was elected President, Chief Executive
Officer and a director of the Company in October 1993 upon the Company's
acquisition of Coeur. Since February 1992, Mr. Funkhouser has also served as
President and Chief Executive Officer of Coeur. Before his employment with
Coeur, Mr. Funkhouser was a General Partner with Hillcrest Group, a venture
capital firm, and worked for over nine years in managing venture capital
portfolio companies. Mr. Funkhouser holds a B.A. from Princeton University and
an M.B.A. from the University of Virginia.

         Dick D. Timmons II, age 52, was elected Vice President and Chief
Operating Officer of the Company in January 1998. Since October 1997, Mr.
Timmons had served as Vice President of Manufacturing of the Company. Before
joining the Company, Mr. Timmons spent 22 years in operations and product
development positions of increasing responsibility, with the Diagnostic Products
Division of Abbott Laboratories and Johnson & Johnson. From 1994 until October
1997, he served as Director of Operations at Direct Access Diagnostics, an HIV
testing service, and from 1988 until 1994, he was Director of Technology
Transfer at Ortho Diagnostics Systems, a medical diagnostic test company. Mr.
Timmons holds a B.S. in Industrial Engineering from Purdue University and an
M.B.A. from Lake Forest School of Management.

         Donald E. Mahan, Ph.D., age 50, joined the Company as its Director of
Research in 1995, and was appointed Vice President of Research and Development
in March 1997. From 1986 until 1995, Dr. Mahan worked for Gene-Trak Systems, a
subsidiary of AMOCO Corp., most recently as Director of Systems Development. Dr.
Mahan holds a Ph.D. in Biochemistry from Oklahoma State University.

         Michael D. Riddle, age 44, joined the Company as its Vice President of
Sales and Marketing in January 1995. Prior to joining the Company, Mr. Riddle
was employed by American Home Products for more than five years in various
positions, most recently Vice President of Sales and Marketing for its
subsidiary, Sherwood Medical Devices. Mr. Riddle holds an A.I.M.L.T. from
Bromley College of Technology (Kent, United Kingdom).

         Peter J. Scott, age 49, joined the Company as its Vice President of
Quality Assurance and Regulatory Affairs in October 1997. Prior to joining the
Company, Mr. Scott was employed by Gaymar Industries Inc., a medical device
company, for five years as Director of Quality Assurance and Regulatory Affairs.
Mr. Scott holds a B.S. from Tusculum College and an M.B.A. from Mt. St. Mary's
College, and is a Certified ASQ Quality Engineer.

         Paul T. Storey, age 31, was elected Treasurer and Secretary in February
1998. Since December 1997, Mr. Storey has also served as Director of Finance of
the Company. Prior to joining the Company, Mr. Storey was employed for more than
five years at KPMG Peat Marwick LLP, most recently as a senior manager. Mr.
Storey is a Certified Public Accountant and holds a B.A. in Accounting from
Furman University.



                                       23

<PAGE>





                                     PART II

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

         (a)      Price Range of Common Stock

         The Company's Common stock trades on the Nasdaq National Market under
the symbol "CVDI". The following sets forth the quarterly high and low sales
prices for the fiscal years ended December 31, 1996 and 1997 as reported by
Nasdaq. These prices are based on quotations between dealers, which do not
reflect retail mark-up, mark-down or commissions, and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>

                                                                                  High            Low
<S>                                                                           <C>                 <C>
Fiscal Year Ended December 31, 1996
          January 1, 1996 through March 31, 1996                              $  11 5/8           $ 9 1/2 
          April  1, 1996 through June 30, 1996                                   11 1/2             7 1/2
          July 1, 1996 through  September 30, 1996                                8 1/4             4 1/4               
          October 1, 1996 through December 31, 1996                               6 3/4             3 3/4



Fiscal Year Ended December 31, 1997
          January 1, 1997 through March 31, 1997                              $    5 3/4          $ 3 1/2
          April 1, 1997 through June 30, 1997                                      8 1/4            4 5/8
          July 1, 1997 through September 30, 1997                                  9 3/8            5 3/4
          October 1, 1997 through December 31, 1997                                9 1/8            4 1/2

</TABLE>

         (b)      Approximate Number of Equity Security Holders

         As of December 31, 1997, the number of record holders of the Company's
Common Stock was approximately 200, and the Company believes that the number of
beneficial owners was approximately 1,800.

         (c)      Dividends

         The Company has never paid a cash dividend on its Common Stock and
anticipates that for the foreseeable future any earnings will be retained for
use in its business and, accordingly, does not anticipate the payment of cash
dividends.

ITEM 6.    SELECTED FINANCIAL DATA.

         The selected financial data presented below summarizes certain
financial data and should be read in conjunction with the more detailed
financial statements of the Company and the notes thereto included elsewhere in
this Annual Report on Form 10-K along with said

                                       24


<PAGE>



financial statements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business".





                                       25

<PAGE>
<TABLE>
<CAPTION>




                CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
   Selected Consolidated Financial Data (In thousands, except per share data)



                                                                    Year Ended December 31,
                                        ---------------------------------------------------------------------------------
RESULTS OF OPERATIONS                         1997                 1996                  1995                 1994
                                        ------------------   ------------------    -----------------    -----------------
<S>                                     <C>                  <C>                   <C>                  <C>
Net sales                               $         7,618      $        6,411        $       5,199        $       4,695
Cost of goods sold                                6,169               5,257                4,268                3,021
                                                  -----               -----                -----                -----
Gross profit                                      1,449               1,154                  931                1,674
                                                  -----               -----               ------                -----

Operating expenses:
Research and development                          2,573               2,300                1,801                1,882
General and administrative                        3,594               2,933                2,191                1,441
Sales and marketing                               1,347               1,896                1,278                  453
                                            --------------       --------------       --------------       --------------
    Total operating expenses                      7,514               7,129                5,270                3,776
                                                  -----               -----                -----                -----      


Other income, net                                 1,468                 906                  469                  365      


Provision for income taxes                          (82)                (52)                 (82)                 (91)
                                              ----------          ----------           ----------          -----------
Net loss                                        ($4,679)            ($5,121)             ($3,952)             ($1,828)
                                              ==========          ==========           ==========          ===========

Basic and diluted
    loss per common share                        ($0.70)             ($0.78)              ($0.74)              ($0.35)
Weighted average shares
    outstanding                                   6,722               6,566                5,323                5,179



<CAPTION>







                                                                  Two-Month
                                                                 Period Ended          Year Ended
                                                                 December 31,         October 31,
                                                               -----------------    -----------------
RESULTS OF OPERATIONS                                                1993                 1993
                                                               -----------------    -----------------
<S>                                                            <C>
Net sales                                                      $          738
Cost of goods sold                                                        570
                                                                          ---
Gross profit                                                              168
                                                                          ---

Operating expenses:
Research and development                                                  283       $         2,085
General and administrative                                                357                 1,051
Sales and marketing                                                        33                   256
                                                                  --------------        -------------
    Total operating expenses                                              673                 3,392
                                                                          ---                 -----


Other income, net                                                          32                 1,050


Provision for income taxes                                                 (4)
                                                                      --------              --------
Net loss                                                                ($477)              ($2,342)
                                                                      ========              ========

Basic and diluted
    loss per common share                                              ($0.10)              ($0.65)
Weighted average shares
    outstanding                                                         4,600                 3,626

                                                             
</TABLE>



                                       26

<PAGE>
<TABLE>
<CAPTION>




                                                                       As of December 31,                               As of
                                                                                                                     October 31,
                                        ------------------------------------------------------------------------ -----------------
FINANCIAL CONDITION                           1997             1996             1995                 1994              1993
                                        ---------------- ---------------- -----------------    ----------------- -----------------
<S>                                     <C>              <C>              <C>                  <C>               <C>           
Cash and cash equivalents               $         5,885  $        2,716   $      16,237        $       3,206     $          626
Total assets                                     17,685          18,351          23,986                8,328              5,468


Long term debt, excluding current
    portion                                       2,351              67             499                  269                330
Total liabilities                                 4,492             683           2,176                  901              1,346
Accumulated deficit                             (20,619)        (15,940)        (10,819)              (6,867)            (4,562)
Shareholders' equity                             13,193          17,668          21,810                7,428              4,422

</TABLE>



                                       27

<PAGE>



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

         This discussion contains forward-looking statements. The Company's
actual results might differ materially from those projected in the
forward-looking statements for various reasons, including development risks, the
possibility of pressure from managed care hospitals to decrease prices, the
availability of products from vendors, the timing of orders from customers, the
ability to determine proper inventory levels and the possibility of competition
entering the point-of-care hemostasis monitoring market. Additional information
concerning factors that could cause actual results to materially differ from
those in the forward-looking statements is contained herein (including under the
heading "--Factors That May Affect Future Results") and in the Company's other
SEC filings, copies of which are available upon request.

         Cardiovascular Diagnostics, Inc. ("CVDI" or the "Company") is located
in Raleigh, North Carolina, within a 55,000 square foot facility housing office
space, research labs and manufacturing clean rooms. CVDI develops, manufactures
and markets the Thrombolytic Assessment System ("TAS"), a proprietary
cardiovascular diagnostic test system that provides rapid and accurate
evaluation of hemostasis at the point of patient care. CVDI's subsidiary, Coeur
Laboratories, Inc. ("Coeur"), located within the Raleigh facility, assembles and
sells disposable power injection syringes used for cardiology and radiology
procedures, as well as a line of manifolds sold in custom angiographic procedure
kits.

         During 1996, the Company had salespeople covering the major
metropolitan areas across the United States and nine distributors selling into
13 countries, compared to two distributors in Europe at the beginning of 1995.
The laboratory response to CVDI's technology was largely positive, however,
throughout 1996 and 1997, individual hospitals continued to consolidate into
IHNs. This consolidation delayed many pending decisions to adopt the new
technology provided by TAS, and created a demand for standardized test results
from one hospital to another. CVDI offers a technological breakthrough capable
of providing rapid diagnostic test results standardized to the central
laboratory tests. In 1996, CVDI signed a North American distribution agreement
with DADE International ("Dade"), a world leader in coagulation reagent sales,
and in 1997 CVDI signed additional distribution agreements in niche markets with
Avecor Cardiovascular and Johnson & Johnson's Ortho Clinical Diagnostics S.p.A.
in Italy. These agreements allowed the Company to reduce its sale force and are
consistent with the Company's strategy of seeking to provide a comprehensive,
standardized, rapid, point-of-care hemostasis testing solution, while also
developing specialty tests that should have higher margins.

         During 1997, the marketing of CVDI's tests for routine anticoagulants
was delayed while the dry chemistry tests were calibrated to conform to Dade's
wet chemistry reagents. Calibration to Dade's reagents was necessary to ensure
consistency between results obtained at the point of care with the TAS platform
and those obtained in the central laboratory. In addition, the ongoing
consolidation of hospitals and diagnostic companies increased the need to offer
an expanded test menu beyond the initial routine coagulation tests being
distributed by Dade.

                                       28

<PAGE>


         Given the consolidating hospital market and pricing pressures, the
Company's strategy has evolved towards becoming more focused on the development
of specialty tests for drugs with narrow ranges between over- and under-dosage.
The Company believes that rapid diagnostic capabilities improve patient care and
turnover, and that there is a market trend to obtain diagnostic information
faster in order to effect therapy sooner. The Company also believes that these
trends should allow the Company to obtain higher pricing of these specialty
tests. As a result, during 1997 the Company exhibited the flexibility of the TAS
platform and the potential to expand its menu of specialty tests by signing
collaboration agreements with Knoll AG and Eli Lilly and Company to monitor the
effects of certain new drugs that are in clinical trials. The Company believes
that these and other collaborations for specialty tests will also further demand
for analyzers and routine anticoagulant tests. The Company believes it is well
positioned in its development efforts to expand its menu of tests to monitor
developmental drugs where rapid therapeutic intervention is needed.

RESULTS OF OPERATIONS

         Sales for the year ended December 31, 1997 increased 19% to $7.6
million compared to $6.4 million in 1996. The increase in sales was primarily
attributable to higher TAS product sales ($2.9 million in 1997 as compared to
$1.8 million in 1996) as a result of the initiation of the distribution
agreement with Dade. 1996 sales increased $1.2 million from 1995, also primarily
due to higher TAS sales, which only began in mid-1995. The gross profit margin
for fiscal 1997 increased slightly to 19% from 18% in each of 1996 and 1995. TAS
analyzer sales in 1997 totaled approximately 580, compared to approximately 400
in 1996. Since the TAS was brought to market, the Company has sold approximately
1,100 analyzers worldwide.

         The Company's research and development expenses relate primarily to its
TAS products. Research and development expenses for 1997 were $2.6 million, a
12% increase from 1996, primarily due to increased clinical trial expenses
related to collaborations for new test card products. Research and development
expenses for 1996 were 28% greater than those for 1995, as the Company expanded
its initial test card menu.

         The Company's general and administrative expenses in 1997 were $3.6
million, an increase of $661,000, or 23%, from 1996. Principal factors
contributing to the increase were legal expenses, additional staffing and
recruiting expenses, and increased facility expenses, including rent,
depreciation and consulting related to equipment upgrades. In 1996, the
Company's general and administrative expenses increased 34% from 1995, mainly
due to increased staffing and the full year effect of public company expenses,
such as investor relations and director and officer liability insurance.

         Sales and marketing expenses in 1997 of $1.3 million decreased
approximately $548,000 from 1996, primarily due to the reduction of the
Company's sales force in September 1996 after the Dade distribution agreement
was signed. In 1996, sales and marketing expenses

                                       29

<PAGE>


had increased approximately $617,000 from 1995, primarily due to the addition of
salespeople and the associated travel expenses, as well as increased marketing
and advertising expenses.

         The net loss for the year ended December 31, 1997 was $4.7 million, or
$0.70 per share, compared to $5.1 million, or $0.78 per share, in 1996. The
decreased loss resulted primarily from increased sales and increased development
income from collaborations, partially offset by higher operating expenses, as
well as lower interest income because of smaller cash balances during the year.
The net loss in 1996 increased approximately $1.1 million from the 1995 net loss
of $4.0 million, primarily as a result of increased operating expenses,
partially offset by increased interest income and higher gross profits.

         In connection with its initial public offering, in fiscal 1995 the
Company recorded unearned compensation expense of $427,000, the amount by which
the deemed fair value of the Common Stock exceeded the exercise price of certain
options as of the date of grant. Such compensation is expensed as the options
vest. For the year ended December 31, 1995, $383,000 of such compensation was
expensed. The compensation expense for the years ended December 31, 1997 and
1996 was $11,000. The Company expects to continue to recognize the remaining
compensation expense at a rate of $11,000 per year in 1998 and 1999.

LIQUIDITY AND CAPITAL RESOURCES

         Through November 1995, CVDI's operations were funded primarily through
private sales of equity securities, National Institutes of Health Small Business
Innovative Research ("NIH SBIR") grants, license fees, equipment lease lines and
profits from Coeur. In December 1995, the Company completed its initial public
offering ("IPO"), selling 2.2 million shares with net proceeds to the Company of
$17.7 million.

         At December 31, 1997, CVDI had cash and cash equivalents and short-term
investments of $5.9 million and working capital of $8.8 million, as compared to
$8.7 million and $11.6 million, respectively, at December 31, 1996. The decrease
was primarily the result of funding current operations.

         During 1997, 1996 and 1995, the Company used cash flow in operating
activities of $4.3 million, $6.6 million and $2.7 million, respectively. The use
of cash was primarily due to funding the net operating losses of the Company
during these years and also growth in the Company's receivables and inventories
due to increased revenues.

         Net cash provided by investing activities was $4.4 million in 1997
compared to net cash used in 1996 and 1995 of $7.2 million and $2.5 million,
respectively. Cash provided by investing activities in 1997 was mainly
attributable to maturities of investments that were used to fund operating
activities and capital expenditures. The net cash used in investing activities
in 1996 was the result of purchasing short term investments from the proceeds of
the Company's IPO in December 1995. The 1995 cash used was primarily related to
capital expenditures as the Company prepared for increased sales of its
products.


                                       30

<PAGE>


         Capital expenditures for 1997 were $1.5 million compared to $1.4
million in 1996 and $2.3 million in 1995. These capital expenditures were
primarily for additional automated TAS test card production equipment and
leasehold improvements. The Company expects that capital expenditures will
decrease in 1998.

         Cash provided by financing activities was $3.0 million, $0.3 million
and $18.3 million in 1997, 1996 and 1995, respectively. Net cash provided by
financing activities for 1997 resulted primarily from proceeds of a $3.0 million
working capital loan obtained in December 1997. The cash provided by financing
activities in 1996 and 1995 was primarily the result of proceeds from the
issuance of stock in connection with the Company's IPO. These inflows were
partially offset by payments for capital lease obligations incurred related to
equipment purchases.

         Management believes that its existing capital resources and the cash
flows from operations will be adequate to satisfy its planned capital
requirements through 1998. However, the Company expects to incur additional
operating losses during 1998. The Company's working capital requirements in 1998
will depend on many factors, including the volume of orders of TAS products from
its distributors and the amount of new test development costs incurred by the
Company and not reimbursed or otherwise paid by collaborative partners.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         A number of uncertainties exist that may affect the Company's future
operating results and stock price, including: risks associated with development
of new tests, particularly specialty tests that rely on development, regulatory
approval, commercialization and market acceptance of collaborators' new drugs;
market acceptance of TAS; the Company's continuing losses and the resulting
potential need for additional capital in the future; managed care and continuing
market consolidation, which may result in price pressure, particularly on
routine tests; and FDA regulations and other regulatory guidelines affecting the
Company and/or its collaborators. The market price of the Common Stock could be
subject to significant fluctuations in response to variations in the Company's
quarterly operating results as well as other factors which may be unrelated to
the Company's performance. The stock market in recent years has experienced
extreme price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of and announcements concerning
public companies. Such broad fluctuations may adversely affect the market price
of the Company's Common Stock. Securities of issuers having relatively limited
capitalization, such as the Company, are particularly susceptible to volatility.


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         See Index to Consolidated Financial Statements on page F-1.


                                       31

<PAGE>



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

         Not applicable.


                                       32
<PAGE>



                                    PART III

         Certain information required by Part III is omitted from this report
because the Registrant will file a definitive proxy statement for its 1998
Annual Meeting of Shareholders (the "Proxy Statement") within 120 days after the
end of its fiscal year pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended, and the information included
therein is incorporated herein by reference to the extent provided below.

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information required by Item 10 of Form 10-K concerning the
Registrant's executive officers is set forth under the heading "Executive
Officers of the Company" located at the end of Part I of this Form 10-K.

         The other information required by Item 10 of Form 10-K is incorporated
by reference to the information under the headings "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement.

ITEM 11.   EXECUTIVE COMPENSATION.

         The information required by Item 11 of Form 10-K is incorporated by
reference to the information under the heading "Proposal No. 1-Election of
Directors-Information Concerning the Board of Directors and Its Committees",
"Other Information-Compensation of Executive Officers", "-Compensation of
Directors", "-Report of the Compensation Committee on Executive Compensation",
"-Compensation Committee Interlocks and Insider Participation", and
"-Performance Graph" in the Proxy Statement.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information required by Item 12 of Form 10-K is incorporated by
reference to the information under the heading "Other Information-Principal
Shareholders" in the Proxy Statement.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by Item 13 of Form 10-K is incorporated by
reference to the information under the heading "Other Information-Certain
Transactions" in the Proxy Statement.

                                       33
<PAGE>



                                     PART IV

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

(a) The following Financial Statements, Financial Statement Schedules and
Exhibits are filed as part of this report or incorporated herein by reference:

         (1)      Financial Statements.

                  See Index to Consolidated Financial Statements on page F-1.

         (2)      Financial Statement Schedules.

                  Schedule II, Valuation and Qualifying Accounts, is found on
                  page S-1 of this Form 10-K.

                  All other schedules for which provision is made in Regulation
                  S-X are not required under the related instructions, are
                  inapplicable, or the required information is given in the
                  financial statements, including the notes thereto and,
                  therefore, have been omitted.

         (3)      Exhibits Filed.
<TABLE>
<CAPTION>

Exhibit
 Number            Description
  <S>             <C>
   3.1(a)         Articles of Incorporation, as currently in effect.
   3.3(a)         Bylaws.
   4.1(a)         Form of Common Stock certificate.
  10.1(a)*        License Agreement with Boehringer Mannheim
                  Corporation, dated June 21, 1989, as amended September 28,1995.
  10.2(a)*        License Agreement with Tokuyama Soda Company, Ltd., dated October 6, 1988.
  10.3(a)         Form of International Distributor Agreement.
  10.4(a)*        Purchasing Agreement with VHA Inc., dated April 1, 1995.
  10.5(a)         Lease Agreement dated November 21, 1990 relating to 5301 Departure Drive, Raleigh, as amended.
  10.6(a)         Contract of Lease for Industrial Property, Service Agreement
                  and Addendum, dated effective as of January 1, 1995
                 (The Netherlands).
  10.7(a)         Amended and Restated Registration Rights Agreement, dated December 16, 1994, as amended August 31, 1995.
  10.8(a)         1994 Stock Plan, as amended.
  10.9(a)         1995 Stock Plan, as amended.



                                       34

<PAGE>
<CAPTION>

Exhibit
 Number            Description
<S>               <C>
  10.10(a)*       License Agreement with Duke University, dated January 22, 1993.
  10.11(a)*       Agreement between Coeur and E-Z-EM, Inc., dated March 24, 1995.
  10.12(a)        Financial Assistance Agreement with North Carolina Biotechnology Center, dated January 7, 1994.
  10.13(a)        Equipment Lease Agreements with Centura Bank, dated March 15, 1993.
  10.14(a)        Equipment Finance Line with Phoenix Growth Capital Corp., dated May 5, 1995.
  10.15(a)        Master Equipment Lease Agreement with Venture Lending & Leasing, Inc., dated June 2, 1995.
  10.16(a)        Loan Agreements with Max Edward Bolene, d/b/a Carolina Financial Services, Inc., as amended.
  10.17(a)        Security Agreement and Commercial Notes between Coeur and Centura Bank, dated September 21, 1995.
  10.18(b)*       Amendment Agreement, dated December 14, 1995, to License Agreement with Tokuyama Soda Company, Ltd.
  10.19(c)*       Distribution Agreement, dated October 18, 1996, with Dade International.
  10.20(d)*       Patent Sublicense Agreement, dated December 1, 1996, with Knoll AG.
  10.21(d)        Development Agreement, dated August 21, 1996, with Bayer Corporation.
  21.1(a)         List of Subsidiaries.
  23.1            Consent of Independent Accountants.
  27.1            Financial Data Schedule.

</TABLE>


-----------------------------------------------------------------------
*        Confidential treatment requested.
(a)      Incorporated herein by reference to the identically-numbered exhibits
         to the Registrant's Registration Statement on Form S-1 (Registration
         No. 33-98078) initially filed October 12, 1995, as amended.
(b)      Forms 8-K. No Current Reports on Form 8-K were filed by the Registrant
         during the fourth quarter of the fiscal year ended December 31, 1997.
         Incorporated herein by reference to the identically-numbered exhibit to
         the Registrant's Annual Report on Form 10-K for the year ended December
         31, 1995.
(c)      Incorporated herein by reference to the identically-numbered exhibit to
         the Registrant's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1996.
(d)      Incorporated herein by reference to the identically-numbered exhibit to
         the Registrant's Annual Report on Form 10-K for the year ended December
         31, 1996.


                                       35
<PAGE>



                                    SIGNATURE

         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.


                        CARDIOVASCULAR DIAGNOSTICS, INC.

Date: March 27, 1998                                 By: /s/ John P. Funkhouser
                                                        ----------------------
                                                          John P. Funkhouser,
                                                          President

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

<TABLE>
<CAPTION>



               Signature            Title                                  Date
<S>                   <C>                                            <C>
/s/ John P. Funkhouser
--------------------      President and Director                       March 27, 1998
John P. Funkhouser        (Principal Executive Officer)

/s/ Paul T. Storey
--------------------      Treasurer and Director of Finance            March 27, 1998
Paul T. Storey            (Principal Financial and Accounting Officer)

/s/ Dennis J. Dougherty
-----------------------   Director                                     March 25, 1998
Dennis J. Dougherty

/s/ William A. Hawkins
--------------------      Director                                     March 24, 1998
William A. Hawkins

/s/ John K. Pirotte
--------------------      Director                                     March 27, 1998
John K. Pirotte

--------------------      Director                                     March   , 1998
Stephen R. Puckett

/s/ Philip R. Tracy
--------------------      Director                                     March 27, 1998
Philip R. Tracy

</TABLE>


                                       36


<PAGE>


                        CARDIOVASCULAR DIAGNOSTICS, INC.
                                AND SUBSIDIARIES

                                      INDEX

                                                                Page(s)

Report of Independent Accountants                                 F-2

Financial Statements:

             Consolidated Balance Sheets                          F-3

             Consolidated Statements of Operations                F-4

             Consolidated Statements of Shareholders' Equity      F-5 - 6

             Consolidated Statements of Cash Flows                F-7 - 8

             Notes to Consolidated Financial Statements           F-9 - 19




                                       F-1

REPORT OF INDEPENDENT ACCOUNTANTS


<PAGE>


The Board of Directors and Shareholders
Cardiovascular Diagnostics, Inc.

We have audited the accompanying consolidated balance sheets of Cardiovascular
Diagnostics, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cardiovascular
Diagnostics, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated 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.



Raleigh, North Carolina
February 12, 1998


                                       F-2


<PAGE>


                CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                           December 31, 1997 and 1996

<TABLE>
<CAPTION>
ASSETS                                                                           1997                    1996
                                                                                 ----                    ----
<S>                                                                        <C>                     <C>         
Current assets:
       Cash and cash equivalents                                           $  5,884,522            $  2,716,242
       Short term investments, held-to-maturity                                      --               5,973,405
       Receivables:
        Trade, net of allowance for doubtful accounts of $3,792 in
          1997 and $5,000 in 1996                                             1,629,499                 906,491
        Other                                                                   258,213                 385,073
                                                                           --------------          --------------
                Total Receivables                                             1,887,712               1,291,564
       Inventories                                                            2,998,052               2,018,798
       Other current assets                                                     216,808                 198,111
                                                                           --------------          --------------
                Total current assets                                         10,987,094              12,198,120
Property and equipment, net                                                   4,938,125               4,236,128
Intangible assets, net                                                        1,568,095               1,700,560
Other noncurrent assets                                                         191,189                 216,547
                                                                           --------------          --------------
                                                                            $17,684,503             $18,351,355
                                                                           ==============          ==============
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
      Accounts payable                                                     $  1,137,676            $    377,314
      Accrued expenses                                                          463,884                 219,634
      Current portion of long-term debt                                         533,218                      --
      Current portion of capital lease obligations                                5,842                  19,082
                                                                           ----------------        ---------------
              Total current liabilities                                       2,140,620                 616,030
                                                                           -------------           --------------
Long-term debt, less current portion                                          2,350,155                  50,000
Capital lease obligations, less current portion                                   1,020                  16,987
                                                                           ----------------        ---------------
              Total noncurrent liabilities                                    2,351,175                  66,987
                                                                           ----------------        ---------------
              Total liabilities                                               4,491,795                 683,017
                                                                           ----------------        ---------------
Shareholders' equity:
    Preferred stock, $.001 par value; authorized 1,000,000 shares
       Series A participating preferred stock, voting; no shares
       issued or outstanding at December 31, 1997 and 1996

    Common stock, $.001 par value; authorized 10,000,000 shares;
       6,750,518 and 6,663,986 issued and outstanding at December
       31, 1997 and 1996, respectively                                            6,750                   6,664
    Additional paid-in capital                                               33,826,747              33,682,330
    Cumulative translation adjustments                                               --                 (48,078)
    Accumulated deficit                                                     (20,618,789)            (15,939,578)
    Unearned compensation                                                       (22,000)                (33,000)
                                                                           ------------            ------------
              Total shareholders' equity                                     13,192,708              17,668,338
                                                                           ------------            ------------
                                                                            $17,684,503             $18,351,355
Commitments and contingencies (Notes 9, 14 and 15)
</TABLE>

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


                                       F-3


<PAGE>


                CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations

              For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                               1997           1996         1995
                                               ----           ----         ----
<S>                                        <C>            <C>            <C>
Net sales                                  $ 7,618,473    $ 6,411,519    $ 5,198,950
Cost of sales:
     Materials and labor                     3,961,772      3,121,439      2,744,932
     Overhead                                2,207,340      2,135,605      1,523,296
                                           -----------    -----------    -----------
         Total cost of sales                 6,169,112      5,257,044      4,268,228
                                           -----------    -----------    -----------
           Gross profit                      1,449,361      1,154,475        930,722
                                           -----------    -----------    -----------
Operating expenses:
     General and administrative              3,594,158      2,933,016      2,191,036
     Sales and marketing                     1,347,309      1,895,492      1,278,139
     Research and development                2,572,649      2,300,462      1,800,936
                                           -----------    -----------    -----------
         Total operating expenses            7,514,116      7,128,970      5,270,111
                                           -----------    -----------    -----------

         Loss from operations               (6,064,755)    (5,974,495)    (4,339,389)
                                           -----------    -----------    -----------

Other income (expense):
     Interest expense                           (1,638)       (16,317)       (59,550)
     Interest income                           335,403        634,989        111,536
     Grant income                              278,121        254,204        292,534
     Development income                        825,000             --             --
     License fee and royalty income             30,741         32,835        124,772
                                           -----------    -----------    -----------
           Other income, net                 1,467,627        905,711        469,292
                                           -----------    -----------    -----------

           Loss before income taxes         (4,597,128)    (5,068,784)    (3,870,097)

Provision for income taxes                     (82,083)       (51,860)       (82,136)
                                           -----------    -----------    -----------

           Net loss                        $(4,679,211)   $(5,120,644)   $(3,952,233)
                                           ===========    ===========    ===========

Basic and diluted loss per common share    $     (0.70)   $     (0.78)   $     (0.74)
                                           ===========    ===========    ===========

Weighted average number of common shares     6,722,491      6,566,134      5,323,239
                                           ===========    ===========    ===========
</TABLE>

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

                                       F-4


<PAGE>


                CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                 Consolidated Statements of Shareholders' Equity
              For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                            Series A                      Additional        Cumulative        Total
                                          Participating      Common         Paid-In        Translation     Accumulated
                                         Preferred Stock      Stock         Capital        Adjustments       Deficit
                                         ---------------      -----         -------        -----------       -------
<S>                                         <C>            <C>           <C>              <C>            <C>
Balances at December 31, 1994               $        482   $      3,456  $  14,291,171    $      (557)   $    (6,866,701)
Issuance of 210,900 shares of Series
    A preferred stock at $6.25 per
    share, net of issuance costs                     211                     1,278,595
Issuance of 3,671 shares of common
    stock at $0.59 per share                                          4          2,171
Issuance of 1,265 shares of common
    stock at $0.5056 per share                                        1            639
Issuance of 15,189 shares of common
    stock at $0.3950 per share                                       15          5,985
Unearned compensation related to
    common stock options                                                       426,638
Amortization of unearned
    compensation
Conversion of 693,272 shares of Series
    A preferred stock to
    877,530 shares of common stock                 (693)            877           (184)
Issuance of 393,904 shares of
    common stock for liquidation
    preferences                                                     394           (394)
Issuance of 1,700,000 shares of
    common stock at $11.00 per
    share, net of issuance costs                                  1,700     16,667,817
Net loss for the year ended
    December 31, 1995                                                                                       (3,952,233)
Translation adjustment                                                                         (5,011)
                                         --------------   -------------  -------------    -------------   ----------------
Balances at December 31, 1995                        --          6,447      32,672,438         (5,568)     (10,818,934)

</TABLE>


<TABLE>
<CAPTION>
                                                            Total
                                           Unearned      Shareholders'
                                         Compensation       Equity
                                         ------------       ------
<S>                                      <C>           <C>
Balances at December 31, 1994            $        --   $   7,427,851
Issuance of 210,900 shares of Series
    A preferred stock at $6.25 per
    share, net of issuance costs                           1,278,806
Issuance of 3,671 shares of common
    stock at $0.59 per share                                   2,175
Issuance of 1,265 shares of common
    stock at $0.5056 per share                                   640
Issuance of 15,189 shares of common
    stock at $0.3950 per share                                 6,000
Unearned compensation related to
    common stock options                    (426,638)             --
Amortization of unearned
    compensation                             382,638         382,638
Conversion of 693,272 shares of Series
    A preferred stock to
    877,530 shares of common stock                                --
Issuance of 393,904 shares of
    common stock for liquidation
    preferences                                                   --
Issuance of 1,700,000 shares of
    common stock at $11.00 per
    share, net of issuance costs                          16,669,517
Net loss for the year ended
    December 31, 1995                                     (3,952,233)
Translation adjustment                                        (5,011)
                                          ------------   ------------
Balances at December 31, 1995                 (44,000)    21,810,383

</TABLE>


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

                                   (continued)
                                       F-5


<PAGE>


                CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

           Consolidated Statements of Shareholders' Equity (continued)
              For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                            Series A                      Additional   Cumulative                 
                                                          Participating       Common       Paid-In     Translation   Accumulated  
                                                         Preferred Stock      Stock        Capital     Adjustments     Deficit    
                                                         ---------------      -----        -------     -----------     -------
<S>                                                      <C>                    <C>         <C>        <C>          <C>
Issuance of 100,000 shares of common
    stock at $11.00 per share, net of issuance costs                            100         990,595
Issuance of 39,148 shares of common stock at
    $0.79 per share                                                              39          30,887
Issuance of 7,593 shares of common stock at
    $0.59 per share                                                               8           4,472
Issuance of 79,767 shares of common stock at
    $0.395 per share                                                             80          31,428
Repurchase of 10,000 shares of common stock
    at $4.75 per share                                                          (10)        (47,490)
Amortization of unearned compensation
Net loss for the year ended December 31,
    1996                                                                                                            (5,120,644)
Translation adjustment                                                                                 (42,510)
                                                         ---------------   ---------    -----------  -----------   ------------
Balances at December 31, 1996                                         --      6,664      33,682,330    (48,078)    (15,939,578)

Issuance of 51,965 shares of common stock
     at $0.79 per share                                                          52          41,000
Issuance of 21,909 shares of common stock
     at $4.50 per share                                                          22          98,366
Issuance of 12,658 shares of common stock
     at $0.40 per share                                                          12           5,051
Amortization of unearned compensation
Net loss for the year ended December 31,
    1997                                                                                                            (4,679,211)
Translation adjustment                                                                                  48,078
                                                         ---------------   ---------    -----------  -----------   ------------
Balances at December 31, 1997                             $           --     $6,750     $33,826,747   $     --    $(20,618,789)
                                                         ================  =========    ===========  ===========   ============
</TABLE>


<TABLE>
<CAPTION>
                                                                             Total
                                                           Unearned      Shareholders'
                                                         Compensation        Equity
                                                         ------------        ------
<S>                                                     <C>                 <C>
Issuance of 100,000 shares of common
    stock at $11.00 per share, net of issuance costs                        990,695
Issuance of 39,148 shares of common stock at
    $0.79 per share                                                          30,926
Issuance of 7,593 shares of common stock at
    $0.59 per share                                                           4,480
Issuance of 79,767 shares of common stock at
    $0.395 per share                                                         31,508
Repurchase of 10,000 shares of common stock
    at $4.75 per share                                                      (47,500)
Amortization of unearned compensation                       11,000           11,000
Net loss for the year ended December 31,
    1996                                                                 (5,120,644)
Translation adjustment                                                      (42,510)
                                                        ------------  --------------
Balances at December 31, 1996                              (33,000)      17,668,338

Issuance of 51,965 shares of common stock
     at $0.79 per share                                                      41,052
Issuance of 21,909 shares of common stock
     at $4.50 per share                                                      98,388
Issuance of 12,658 shares of common stock
     at $0.40 per share                                                       5,063
Amortization of unearned compensation                       11,000           11,000
Net loss for the year ended December 31,
    1997                                                                 (4,679,211)
Translation adjustment                                                       48,078
                                                        ------------  --------------  
Balances at December 31, 1997                             $(22,000)     $13,192,708
                                                        ============  ==============      
</TABLE>



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

                                       F-6


<PAGE>


                CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
              For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                     1997               1996           1995
                                                                     ----               ----           ----
<S>                                                                  <C>               <C>            <C>         
Cash flows from operating activities:
    Net loss                                                         $(4,679,211)      $(5,120,644)   $(3,952,233)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
      Depreciation and amortization                                      775,510           663,809        550,342
      Amortization of intangible assets                                  196,434           203,479        213,805
      Amortization of discount on investments, net                       (22,743)         (285,509)            --
      Amortization of deferred gain on sale-leaseback                         --            (4,247)       (16,999)
      Provision for warranties                                                --                --         50,000
      Provision for doubtful accounts                                         --                --         40,395
      Amortization of unearned compensation                               11,000            11,000        382,638
      Provision for inventory obsolescence                               220,000            40,000         82,000
      Loss (gain) on disposal of fixed assets                             (2,276)           (3,192)         2,989
      Provision for deferred income taxes                                     --                --          7,573
      Change in assets and liabilities:
         Receivables                                                    (596,148)         (488,378)      (271,020)
         Inventories                                                  (1,199,254)         (753,947)      (601,293)
         Other assets                                                      6,661           (80,074)      (142,392)
         Accounts payable and accrued expenses                         1,004,612          (743,426)       931,054
         Deferred revenue and gains                                           --                --        (25,000)
                                                                      -----------      ------------   ------------
           Net cash used in operating activities                      (4,285,415)       (6,561,129)    (2,748,141)
                                                                      -----------      ------------   ------------

Cash flows from investing activities:
    Purchases of property and equipment                               (1,494,564)       (1,417,977)    (2,343,157)
    Proceeds from sales of property and equipment                          3,433            23,532             --
    Costs incurred to obtain patents                                     (63,969)          (93,573)      (144,763)
    Purchases of short-term investments, held to maturity             (2,503,852)      (10,687,896)            --
    Proceeds from maturities of investments                            8,500,000         5,000,000             --
                                                                      -----------      ------------   ------------
           Net cash provided by (used in) investing activities         4,441,048        (7,175,914)    (2,487,920)
                                                                      -----------      ------------   ------------

Cash flows from financing activities:
    Proceeds from issuance of long-term debt                           3,005,404                --        500,000
    Principal payments on long-term debt and capital
     lease obligations                                                  (185,338)        (751,446)       (185,020)
    Purchase of treasury stock                                                --           (47,500)            --
    Net proceeds from issuance of stock                                  144,503         1,057,609     17,957,138
                                                                      -----------      ------------   ------------
           Net cash provided by financing activities                   2,964,569           258,663     18,272,118
                                                                      -----------      ------------   ------------
Effect of exchange rates on cash                                          48,078           (42,510)        (5,011)
                                                                      -----------      ------------   ------------
           Net increase (decrease) in cash and cash
                 equivalents                                           3,168,280       (13,520,890)    13,031,046
Cash and cash equivalents at beginning of year                         2,716,242        16,237,132      3,206,086
                                                                      -----------      ------------   ------------
Cash and cash equivalents at end of year                            $  5,884,522        $2,716,242    $16,237,132
                                                                      ===========      ============   ============
</TABLE>

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


                                   (continued)
                                       F-7


<PAGE>


                CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows (continued)
              For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                      1997              1996           1995
                                                                      ----              ----           ----
<S>                                                               <C>               <C>            <C>      
Supplemental disclosures of cash flow information:

    Cash paid during the year for interest expense                $    1,638        $  11,589      $  59,968
                                                                  ==========        =========      =========

    Cash received during the year for interest income               $393,843        $ 473,288       $103,078
                                                                  ==========        =========      =========

    Cash paid during the year for income taxes                    $   42,819        $  76,724      $  88,700
                                                                  ==========        =========      =========

Supplemental disclosure of noncash investing and
  financing activities:
     Capital lease and debt obligations incurred
       for equipment                                              $       --        $   6,479      $  21,095
                                                                  ==========        =========      =========

     Reduction in capital lease in exchange for equipment         $   15,900        $      --      $      --
                                                                  ==========        =========      =========
</TABLE>

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

                                       F-8


<PAGE>


                CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Cardiovascular Diagnostics, Inc. (the "Company") develops, manufactures and
markets a proprietary cardiovascular diagnostic test system that provides, at
the point of patient care, rapid and accurate evaluation of hemostasis and
certain new drugs under development. The Company's wholly-owned subsidiary,
Coeur Laboratories, Inc. ("Coeur"), manufactures and sells a line of disposable
power injection syringes used for cardiology and radiology procedures, as well
as a line of manifolds used in custom angiographic procedure kits.
Cardiovascular Diagnostics Europe, BV (CDE), a wholly-owned Dutch company,
distributed the Company's products in Europe until March 1997 when CDE
operations were ceased.

In December 1995, the Company completed an initial public offering ("IPO") of
1,700,000 new shares of $.001 par value common stock. The offering resulted in
gross proceeds of $18.7 million. Net of underwriting discount and offering
expenses, the Company received approximately $16.7 million.

In January 1996, the underwriters of the Company's IPO purchased an additional
100,000 shares of the Company's common stock under the terms of an option to
purchase additional shares to cover over-allotments. The Company received net
proceeds of approximately $991,000 from the sale of these shares.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

CASH EQUIVALENTS

The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.

INVESTMENTS

Investments are accounted for in accordance with Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments
in Debt and Equity Securities." This statement requires certain securities to be
classified into three categories:

(a) Securities Held-to-Maturity - Debt securities that the entity has the
positive intent and ability to hold to maturity are reported at amortized cost.

(b) Trading Securities - Debt and equity securities that are bought and held
principally for the purpose of selling in the near term are reported at fair
value, with unrealized gains and losses included in earnings.

(c) Securities Available-for-Sale - Debt and equity securities not classified as
either securities held to maturity or trading securities are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity.

Premiums are amortized and discounts accreted using the interest method over the
remaining terms of the related securities. Gains and losses on the sale of
securities are determined using the specific-identification method.



                                       F-9

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


<PAGE>

INVENTORIES

Inventories are stated at the lower of standard cost (which approximates cost on
a first-in, first-out basis) or market.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which range from three to seven years. Leasehold improvements are amortized over
the shorter of the estimated useful lives of the improvements, or the term of
the facility lease.

Expenditures for repairs and maintenance are charged to expense as incurred. The
costs of major renewals and betterments are capitalized and depreciated over
their estimated useful lives. Upon disposition, the cost and related accumulated
depreciation of property and equipment are removed from the accounts and any
resulting gain or loss is reflected in operations.

INTANGIBLE ASSETS

Excess of cost over fair value of net assets acquired ("goodwill") resulted from
the acquisition of Coeur and is being amortized over ten years using the
straight-line method. Patent costs are capitalized and are amortized using the
straight-line method over their estimated useful lives (13 to 17 years). Periods
of amortization are evaluated periodically to determine whether later events and
circumstances warrant revised estimates of useful lives.

At each balance sheet date, the Company evaluates the recoverability of
unamortized goodwill based upon expectations of nondiscounted cash flows and
operating income of Coeur. Impairments, if any, would be recognized in operating
results if a permanent diminution in value were to occur.

CONVERTIBLE DEBT

Convertible debt is recorded as a liability until converted into common stock,
at which time it is recorded as equity.

REVENUE AND INCOME RECOGNITION POLICIES

Revenue from the sale of products is recorded at the time the goods are shipped
or when title passes. Income under license and development agreements is
recorded upon the achievement of certain milestones contained in these
agreements. Income from research grants is recognized when amounts are expended
for the specific purpose stated in the grant.

INCOME TAXES

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.

LOSS PER COMMON SHARE

On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." In accordance with SFAS 128,
the Company has replaced the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS and has presented both basic and diluted EPS on
the face of the Statement of Operations. Basic EPS excludes dilution and is
computed by dividing income available to

                                      F-10


<PAGE>


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is the same as basic EPS because, for loss periods,
potential common shares (such as options) are not included in computing diluted
EPS since the effect would be antidilutive. Options currently outstanding that
could be dilutive in the future are summarized in Note 10.

STOCK OPTIONS

On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123). As
permitted by SFAS No. 123, the Company has chosen to continue to apply APB
Opinion No. 25 "Accounting for Stock issued to Employees" (APB No. 25) and
related interpretations in accounting for its stock plans. Note 10 summarizes
the compensation cost for the Company's plans if the grants had been based on
the fair value at the grant dates consistent with SFAS 123.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standard No. 107, "Disclosures about the Fair
Value of Financial Instruments" (SFAS 107) requires the disclosure of fair value
information about financial instruments whether or not recognized on the balance
sheet, for which it is practicable to estimate the value. Where quoted market
prices are not readily available, fair values are based on quoted market prices
of comparable instruments. The carrying amount of cash and equivalents, accounts
receivable and accounts payable approximates fair value because of the short
maturity of those instruments. The fair value of the Company's debt issues are
estimated to approximate fair value because the debt was issued shortly before
December 31, 1997.

USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS

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

RECENT ACCOUNTING PRONOUNCEMENTS

The Company will adopt Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") beginning January 1, 1998. SFAS No. 131 requires the Company to report
selected information about operating segments in its financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company does
not believe the adoption of the new pronouncement will have a significant impact
on the financial statements.

The Company will adopt Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS No. 130") beginning January 1, 1998.
SFAS No. 130 requires the Company to display an amount representing total
comprehensive income for the period in a financial statement which is displayed
with the same prominence as other financial statements. Upon adoption, all prior
period data presented will be restated to conform to the provisions of SFAS No.
130. The Company does not believe the adoption of the new pronouncement will
have a significant impact on the financial statements.


                                      F-11


<PAGE>


2.       SHORT-TERM INVESTMENTS

At December 31, 1997, no short-term investments were held by the Company. At
December 31, 1996 the Company classified investment securities in the
consolidated financial statements according to management's intent. Investment
securities at December 31, 1996 are summarized as follows:

<TABLE>
<CAPTION>
                                                           Gross Unrealized
                                    Amortized          ------------------------             Estimated
                                      Cost             Gains             Losses           Market Value
                                      ----             -----             ------           ------------
<S>                                <C>             <C>                 <C>              <C>        
Held-to-maturity:
     U.S. Treasury obligations     $ 5,973,405     $    6,275          $        --      $ 5,979,680
                                   ===========     ==========          ===========      ===========
</TABLE>

3.       INVENTORIES

Inventories at December 31, 1997 and 1996 consisted of the following:

                                                    1997              1996
                                                    ----              ----

             Raw materials                      $ 2,122,058       $ 1,431,534
             Finished goods                         875,994           587,264
                                                -----------       -----------

                                                $ 2,998,052       $ 2,018,798
                                                ===========       ===========

4.       PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1997 and 1996 consisted of the following:

                                                        1997           1996
                                                        ----           ----

Molds and equipment                                   $ 6,039,207    $ 4,775,327
Furniture, fixtures and EDP equipment                     966,927        711,993
Leasehold improvements                                  1,134,337      1,040,093
Equipment under capital leases                            266,291        325,234
Automobiles                                                    --         16,222
                                                      -----------    -----------
                                                        8,406,762      6,868,869
Less accumulated depreciation and amortization          3,468,637      2,632,741
                                                      -----------   ------------
                                                      $ 4,938,125    $ 4,236,128
                                                      ===========    ===========

5.          INTANGIBLE ASSETS

Intangible assets at December 31, 1997 and 1996 consisted of the following:

                                                   1997              1996
                                                   ----              ----

Excess of cost over fair value
  of net assets acquired                         $1,802,506        $1,802,506
Patents                                             517,430           478,338
Other                                               110,000            85,123
                                               ------------      -------------
                                                  2,429,936         2,365,967
Less accumulated amortization                       861,841           665,407
                                               ------------      ------------
                                                 $1,568,095        $1,700,560
                                               ============      ============

                                      F-12


<PAGE>


6.       RESEARCH AND DEVELOPMENT GRANTS

The Company has recognized income related to National Institutes of Health Small
Business Innovation Research grant awards as follows:

<TABLE>
<CAPTION>
                                                                       1997           1996          1995
                                                                       ----           ----          ----
<S>                                                                   <C>          <C>            <C>     
Phase I grant award of $487,269 for research related
               to thrombolytic drug research                        $       --     $     --      $  8,587

Phase II grant award of $315,041 for research related to
         thrombolytic drug research                                         --           --       114,500

Phase I grant award of $75,000 for research related to rapid
         monitoring of antithrombin agents                                  --           --        75,000

Grant award of $100,000 for research related to a rapid
         immunoassay for acute myocardial injury detection                  --       10,466        94,447

Phase II grant award of $750,000 for research related to rapid
         monitoring of antithrombin agents                             278,121      243,738            --
                                                                      --------    ---------       --------
                                                                      $278,121     $254,204       $292,534
                                                                      ========    =========       ========
</TABLE>

7.       DEVELOPMENT INCOME

During 1997, the Company recognized $825,000 of development income related to
collaboration agreements with Knoll AG, Eli Lilly and Company, and Dade
International. This was the result of the Company meeting milestones in
accordance with these collaboration agreements.

8.       LONG-TERM DEBT

Long-term debt as of December 31, 1997 and 1996 consisted of the following:

                                                        1997           1996
                                                        ----           ----

Convertible financial assistance agreement          $     50,000    $  50,000
Notes payable                                          2,833,373           --
                                                    ------------    ---------
                                                       2,883,373       50,000

Current portion of long-term debt                        533,218           --
                                                    ------------    ---------
Long-term debt, excluding current portion             $2,350,155    $  50,000
                                                    ============    =========

In January 1994, the Company received a $50,000 loan pursuant to a financial
assistance agreement to fund research. The funds were used only for direct costs
related to the approved project. The $50,000, plus interest at 7.5% per annum,
is due in January 1999. The loan, at the request of the lender, can be converted
at any time into common stock based on an exercise price of $5.33 per share,
subject to adjustment for stock splits, stock dividends, combinations and other
similar events. Accrued but unpaid interest is not convertible into common
stock. This agreement includes certain covenants relating to, among other
things, use of funds and maintenance of a significant presence in the State of
North Carolina for a period of five years. Management believes the Company was
in compliance with all of these covenants at December 31, 1997 and 1996.


                                      F-13

8.       LONG-TERM DEBT (Continued)


<PAGE>


In December 1997, the Company received a loan for $3,005,404 from Transamerica
Business Credit Corporation to fund working capital and capital expenditures.
The loan has an interest rate of 15%, payable monthly, and is collateralized by
existing fixed assets and new equipment financed under the loan. The loan
includes certain covenants relating to, among other things, the maintenance of
the collateral. Management believes the Company was in compliance with these
covenants at December 31, 1997. The aggregate amounts of maturities on this loan
are as follows: 1998, $533,218; 1999, $673,873; 2000, $785,544; and 2001,
$840,738.

9.       LEASES

The Company leases its office space under a noncancelable operating lease
agreement. In January 1995, the lease term was extended from 1996 to 2001. In
addition, the Company leases certain equipment under various capital and
operating lease agreements. Equipment held under capital leases as of December
31, 1997 and 1996 was $266,291 and $325,234, respectively, and the related
accumulated amortization was $257,149 and $285,535, respectively. Rent expense
related to operating leases totaled $471,592, $416,635, and $317,334 for the
years ended December 31, 1997, 1996 and 1995, respectively.

Future minimum lease payments as of December 31, 1997 are as follows:

    Year ending December 31,                   Capital Leases  Operating Leases

     1998                                       $  6,180        $    379,298
     1999                                          1,030             381,364
     2000                                             --             389,790
     2001                                             --              44,911
                                               -----------      ------------
     Total minimum lease payments                  7,210        $  1,195,363
                                                                ============
     Imputed interest                               (348)
                                               -----------
     Present value of minimum lease payments       6,862
     Less current maturities                       5,842
                                               -----------
     Long-term capital lease obligations        $  1,020
                                               ===========


10.      SHAREHOLDERS' EQUITY

Authorized Shares

In January and February 1994, the Company raised $2,723,319, net of
issuance costs, in a private placement of 612,638 shares of its common
stock.

In December 1994, the Company raised $2,878,843, net of issuance costs,
in a private placement of 482,372 shares of its Series A participating
preferred stock.

In November 1995 the Company amended its Articles of Incorporation to increase
the number of authorized shares of common stock to 10,000,000.

Common Stock

In January 1995, the Company raised $1,278,806, net of issuance costs, in a
private placement of 210,900 shares of Series A participating preferred stock.



                                      F-14


10.      SHAREHOLDERS' EQUITY (Continued)


<PAGE>

Common Stock (Continued)

The authorized and designated Series A preferred stock outstanding prior to the
closing of the IPO had rights, preferences and privileges related to
liquidation, dividends, voting and conversion. Upon the closing of the IPO, each
share of Series A preferred stock was converted into the number of common shares
as was determined by dividing $6.25 by the Series A conversion price ($4.94 at
the closing of the IPO), resulting in 877,530 shares of common stock. Upon
closing of the Company's IPO, in addition to the shares issued upon conversion,
the holders of the Series A preferred stock were issued the number of shares of
common stock as was determined by dividing the Series A Preferential Amount
($4.94) by the price per share of common stock in the public offering. Based
upon the IPO price, the holders of the Series A preferred stock were issued an
additional 393,904 shares of common stock, representing fair value of
$4,332,948. The issuance of these shares has been recorded at par value with a
corresponding reduction in additional paid-in capital. As of December 31, 1997
and 1996, no shares of preferred stock were outstanding and none of the
1,000,000 authorized shares were designated. The Company's Board of Directors is
authorized, without further shareholder action, to issue preferred stock in one
or more series and to fix the voting rights, liquidation preferences, dividend
rights, repurchase rights, conversion rights, redemption rights and terms,
including sinking fund provisions, and certain other rights and preferences, of
the preferred stock. Although there is no current intention to do so, the Board
of Directors of the Company may, without shareholder approval, issue shares of a
class or series of preferred stock with voting and conversion rights which could
adversely affect the voting power or dividend rights of the holders of common
stock and may have the effect of delaying, deferring or preventing a change in
control of the Company.

Stock Warrants

At December 31, 1994, 6,567 warrants at exercise prices ranging from $0.5056 to
$9.0182 per share were outstanding. In conjunction with the 1995 common stock
offering, the Company issued warrants for the purchase of 15,189 shares of
common stock at $0.3950 per share. In September 1995, 16,455 warrants were
exercised, and, upon the closing of the IPO, 1,504 warrants expired, leaving
3,797 warrants with an exercise price of $4.94 per share outstanding. In 1996,
the remaining 3,797 warrants expired.

Stock Options

The Company has a stock option plan (the "Plan") whereby nonqualified stock
options are granted to key employees. Under the terms of the Plan, options to
purchase common stock are granted at a price determined by the Board of
Directors. These options may be exercised during specified future periods and
generally expire ten years from date of grant.

During the year ended December 31, 1994, a stock option plan (the "1994 Plan")
was established to purchase common stock. Options granted under the 1994 Plan
generally vest over four years. Certain options granted to date under the 1994
Plan also provided for acceleration of vesting upon the achievement by the
Company of certain milestones and became fully vested by their terms upon the
closing of the IPO. During the year ended December 31, 1995, the exercise price
of these options was reduced to $0.79. Also during the year ended December 31,
1995, the Company granted options to purchase 55,694 shares of the Company's
common stock at an exercise price of $0.79 which vest over four years.

During 1995, the Company recorded unearned compensation of $426,638, which
represented the amount by which the deemed fair value of the Company's common
stock exceeded the exercise price on the date of grant. During 1995, $382,638 of
the unearned compensation was recorded as compensation expense, which
represented the expense related to the options that became fully vested upon the
closing of the IPO. The remaining unearned compensation is being amortized to
compensation expense over the vesting period, which is generally four years.
During both 1997 and 1996, $11,000 of this expense was recognized.

                                      F-15


<PAGE>


10.      SHAREHOLDERS' EQUITY (Continued)

Stock Options (Continued)

In November 1995 the shareholders of the Company approved, effective upon
completion of the IPO, the adoption of the Company's 1995 Stock Plan (the "1995
Plan"). The 1995 Plan reserves 488,150 shares of the Company's common stock for
issuance to employees, consultants and directors of the Company. Options granted
under the 1995 Plan generally vest over four years and have a term of ten years.

A summary of the status of the Company's Plans as of December 31, 1997, 1996 and
1995, and changes during the years ending on those dates is presented below:

<TABLE>
<CAPTION>
                                                          1997                    1996                  1995
                                                          ----                    ----                  ----
                                                        Weighted                      Weighted         Weighted
                                                         Average                       Average          Average
                                                         Exercise                      Exercise        Exercise
                                            Shares          Price      Shares      Price     Shares     Price
                                            ------          -----      ------      -----     ------     -----
<S>                                         <C>            <C>         <C>          <C>     <C>        <C>
Outstanding at beginning of year            757,796        $2.15       865,000      $3.58   601,192
Granted                                     323,375         4.88       109,000       4.50   271,984
Exercised                                   (86,532)        1.67      (126,508)      0.73    (3,670)
Forfeited                                  (116,449)        4.58       (89,696)      0.58    (4,506)
                                            ---------       ----       -------     ------   --------
Outstanding at end of year                  878,190        $2.88       757,796      $2.15    865,000      $3.58
                                            ========       =====       =======     ======    =======      =====
Options exerciseable at year-end            498,280                    451,558               593,016
                                            ========                   =======               =======
</TABLE>

The following table summarizes information about the Plan's stock options at
December 31, 1997:

<TABLE>
<CAPTION>
           Options Outstanding                         Options Exerciseable
---------------------------------------------  ------------------------------------
                                   Weighted
                                    Average    Weighted                   Weighted
                     Number        Remaining    Average        Number      Average
     Range of      Outstanding    Contractual  Exercise     Exercisable   Exercise
Exercise Prices    at 12/31/97       Life       Price       at 12/31/97     Price
---------------    -----------       ----       -----       -----------     -----
<S>                  <C>          <C>             <C>          <C>           <C>
$0.79                426,448      6.5 years    $ 0.79          408,729    $ 0.79
 3.75 - $6.50        446,742      9.1 years      4.77           84,551      4.57
 12.10                 5,000      8.4 years     12.10            5,000     12.10
                   ---------                                 ---------
                     878,190                                   498,280
                   =========                                 =========
</TABLE>

The Company reviewed the provisions of SFAS No. 123 and elected to continue to
use the provisions of APB Opinion 25. However, the Company is required to
disclose the pro forma effects on net income regarding the new fair value based
method. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1997 and 1996, respectively: dividend yield, zero; expected
volatility of 65% and 63%; risk free interest rate of 5.75% and 6.25%; and
expected life of 6 years. Had compensation cost for the Company's stock-based
compensation plans, as described above, been determined consistent with SFAS No.
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below. The compensation costs disclosed here may
not be representative of the effects of pro forma net income in future years.


                                      F-16


<PAGE>


10.      SHAREHOLDERS' EQUITY (Continued)

                                                   1997              1996
                                                   ----              ----
Net loss                         As reported   $(4,679,211)      $(5,120,644)
                                 Pro forma      (5,011,787)       (5,199,261)

Net loss per common share        As reported   $     (0.70)      $     (0.78)
                                 Pro forma           (0.75)            (0.79)

11.      SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company places its temporary cash in accounts with federally
insured depository institutions. At December 31, 1997 the Company had a majority
of its cash invested in one financial institution.

Concentrations of credit risk with respect to trade receivables exist due to the
Company's small customer base. Periodic credit evaluations of customers'
financial condition are performed and generally no collateral is required. The
Company establishes reserves for expected credit losses and such losses, in the
aggregate, have not exceeded management's expectations.

During the years ended December 31, 1997, 1996 and 1995 there were sales to
three customers that exceeded 10% of net consolidated sales. Sales to these
customers were: 1997 customer A, $2,291,581 (30%), customer B, $1,375,728 (18%),
customer C, $1,276,566 (17%), 1996 - customer A, $2,192,778 (34%), customer B,
$671,188 (10%) and customer C, $195,400 (3%); 1995 - customer A, $2,095,548
(40%), customer B, $632,781 (12%) and customer C, $0 (0%). The Company operates
in a single industry segment, providing medical diagnostic and imaging products.

The Company had operations in two geographic regions, the United States and
Europe, until March 31, 1997. At that date, the Company closed its European
office and sales are now made through foreign distributors. The Company began
its European operations in 1994 and revenues from its foreign operations did not
exceed 10% of its consolidated revenues in 1995. During 1997 and 1996, revenues
from foreign operations were approximately $99,000 and $725,000, respectively,
substantially all of which were from customers in Europe and the United Kingdom.
In addition, the Company's identifiable assets of its foreign operations at
December 31, 1996 and 1995 were less than 10% of its consolidated total assets.

The Company generated revenue from all export sales as follows:

                           1997               1996          1995
                           ----               ----          ----
United Kingdom         $    776,260         $957,980    $  850,311
Other                     1,190,631          684,728       650,633
                      -------------      -----------    ----------
Total export sales     $  1,966,891      $ 1,642,708    $1,500,944
                       ============      ===========    ==========

12.      LICENSE AGREEMENTS

The Company entered into a license agreement with Tokuyama Soda Company, Ltd.
("TS"), as amended in December 1995, pursuant to which the Company granted TS
exclusive rights to manufacture and sell PT and aPTT tests and analyzers in
certain Asian countries. The Company received royalty payments under this
agreement of $30,741, $32,835 and $63,176 during the years ended December 31
1997, 1996 and 1995, respectively.


                                      F-17

12.      LICENSE AGREEMENTS (Continued)

<PAGE>

Additionally, the Company had a license agreement with Boehringer Mannheim
Corporation. The Company received royalty payments under this agreement of
$61,596 during the year ended December 31, 1995. All obligations under this
license agreement were terminated effective June 30, 1995.

13.      INCOME TAXES

Income tax expense consisted entirely of current state taxes of $82,083,
$51,860 and $82,136 for the years ended December 31, 1997, 1996 and 1995,
respectively.

A reconciliation of expected income tax at the statutory Federal rate of 34%
with the actual income tax expense for the years ended December 31, 1997, 1996
and 1995 is as follows:

<TABLE>
<CAPTION>
                                                     1997              1996            1995
                                                     ----              ----            ----
<S>                                              <C>               <C>              <C>         
Expected income tax benefit at statutory rate    $(1,563,159)      $(1,706,576)     $(1,315,832)
State tax provision (benefit)                       (175,748)         (114,326)         (25,373)
Goodwill amortization                                 62,830            62,830           62,985
Compensation paid with incentive stock options         3,740             3,740          130,097
Other                                                  7,373            16,192          157,259
Change in valuation allowance                      1,747,047         1,790,000        1,073,000
                                                 -------------     -------------    ------------
Net income tax provision                         $    82,083       $    51,860      $    82,136
                                                 ==============    ==============   =============
</TABLE>

The components of the net deferred tax assets and net deferred tax liabilities
as of December 31, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                                                    1997           1996
                                                                    ----           ----
<S>                                                             <C>             <C>          
Deferred tax assets:
                 Accrued expenses                               $     15,000    $      17,000
                 Other                                               108,000           28,000
                 Alternative minimum tax credits                       9,000            9,000
                 Net operating loss carryforward                   7,825,000        6,446,000
                 Research and development credits                    229,000          229,000
                 Foreign tax credits                                  35,000           35,000
                                                                -------------   -------------
                 Total gross deferred tax assets                   8,221,000        6,764,000
                 Valuation allowance                              (7,923,000)      (6,536,000)
                                                                 -----------    -------------
Net deferred tax assets                                              298,000          228,000
                                                                 -----------    -------------
             Deferred tax liabilities:
                Patents                                              159,000          160,000
                Fixed assets                                         139,000           68,000
                                                                -------------   -------------
                        Total gross deferred tax liabilities         298,000          228,000
                                                                -------------   -------------
             Net deferred taxes                                  $        --    $          --
                                                                =============   =============
</TABLE>

At December 31, 1997 and 1996, the Company had approximately $20,718,000 and
$16,089,000, respectively, of combined net operating losses, $229,000 of
research and development tax credits, $35,000 of foreign tax credits, and $9,000
of alternative minimum tax credits available to offset future federal income
taxes. These carryforwards expire in 2003 through 2011 if not utilized. At
December 31, 1997 and 1996 for state income tax purposes, Cardiovascular
Diagnostics, Inc. had net operating loss carryforwards of approximately
$17,185,073 and $12,020,782, respectively. These carryforwards expire in 1998
through 2003 if not utilized. To the extent that Coeur's net operating losses
incurred through 1994 (approximately $2,000,000 at December 31, 1997) are
utilized in the future, the benefit will reduce the excess of cost over fair
value of net assets acquired.


                                      F-18

13.      INCOME TAXES (Continued)


<PAGE>

Due to the Company's and Coeur's history of operating losses and uncertainty
regarding future operations, management has determined that a valuation
allowance equal to the amount of net deferred tax assets is required.

As a result of changes in ownership, as defined by Internal Revenue Code Section
382, Coeur's losses through 1993 and the Company's consolidated losses through
January 1994 will be subject to an annual limitation of $175,000 and $482,000,
respectively.

An additional change in ownership occurred in 1995 in connection with the
Company's IPO which subjects the losses incurred since January 1994 to December
1995 to an incremental annual limitation of $1,954,000 per year.

14.      CONTINGENCIES

In March 1997, the Company filed suit in the U.S. District Court, for the
Eastern District of North Carolina, against Boehringer Mannheim Corporation
("BMC"). The suit charged BMC with misappropriation of CVDI's trade secrets by
improper disclosure, breach of contract, breach of fiduciary duty, unfair and
deceptive trade practices, and constructive fraud. In addition, CVDI requested a
declaratory judgment that neither the products nor activities of CVDI infringe
U.S. Patents purportedly owned by BMC. In April 1997, BMC answered the claims
and submitted a patent infringement counterclaim against CVDI. Each party filed
a motion for judgment on the pleadings with respect to all claims asserted by
the other party. In November 1997, the Court issued a Judgment and Order
granting CVDI's motion for judgment on the pleadings, holding that CVDI has a
license, until June 21, 1999 or until the last of the patents expire, to the
patents at issue. It dismissed all other claims of the parties. Both parties
have appealed and are awaiting the Court's decision. It is management's opinion
that the disposition of this matter will not have a material adverse effect on
the consolidated financial position, results of operations or liquidity of the
Company.

15.      COMMITMENTS

The Company has several agreements to sell its products to customers at fixed
prices. Management does not anticipate any losses resulting from these
commitments.


                                      F-19


<PAGE>


                        CARDIOVASCULAR DIAGNOSTICS, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              For the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                            Balance at        Charge to                    Balance at
                                            Beginning         Costs and                        End
                                            of Period         Expenses    Deductions        of Period
                                            ---------         --------    ----------        ---------
YEAR ENDED DECEMBER 31, 1997
Deducted from asset accounts:
<S>                                         <C>               <C>         <C>                <C>
       Accounts Receivable Reserve (a)      $   5,000         $     --    $   1,208 (f)      $  3,792
                                            =========         ========    =========          ========

       Inventory Reserves (b)               $  48,256         $220,000      $36,917 (e)      $231,339
                                            =========         ========      =======          ========

Added to liability accounts:

       Warranty Reserves (c)                $  43,845               --     $  5,274 (d)      $ 38,571
                                            =========         ========     ========          ========

YEAR ENDED DECEMBER 31, 1996
Deducted from asset accounts:

       Accounts Receivable Reserves (a)     $  40,395         $      0     $ 35,395 (f)      $  5,000
                                            =========         ========     ========          ========

       Inventory Reserves (b)               $  82,000         $ 40,000     $ 73,744 (e)      $ 48,256
                                            =========         =========    ========          ========

Added to liability accounts:

       Warranty Reserves (c)                $  50,000         $      0     $  6,155 (d)      $ 43,845
                                            =========         ========     ========          ========

YEAR ENDED DECEMBER 31, 1995
Deducted from asset accounts:

       Accounts Receivable Reserves (a)     $       0         $ 40,395     $      0          $40,395
                                            =========         ========     ========          =======

       Inventory Reserves (b)               $       0         $152,578     $ 70,578 (e)      $82,000
                                            =========         =========    ========          =======

Added to liability accounts:

       Warranty Reserves (c)                $       0       $   50,000     $      0          $50,000
                                            =========       ==========     ========          =======
</TABLE>
(a)     Represents an allowance for both product returns and doubtful accounts.
        Activity represents doubtful accounts only. Revenues have been reduced
        directly for product returns.
(b)     Represents an allowance for excess and aging inventory and lower of cost
        or market adjustments.
(c)     Represents an allowance for estimated costs to be incurred under
        warranty obligations.
(d)     Represents costs incurred to fulfill warranty claims. (e) Represents
        inventory items written down to lower of cost or market.
(e)     Represents inventory marked down to lower of cost or market.
(f)     Represents uncollectible accounts written off.


                                      S-1

<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders
Cardiovascular Diagnostics, Inc.


Our report on the consolidated financial statements of Cardiovascular
Diagnostics, Inc. and subsidiaries is included on page F-2 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related consolidated financial statement schedule, Schedule II - Valuation
and Qualifying Accounts, included on page S-1 of this Form 10-K.

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


Raleigh, North Carolina
February 12, 1998