<PAGE>



                                    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, 1996 OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
         For the transition period from                to

                         Commission file number 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)
                                (Title of class)

         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 $5.50 per share, the closing price of the Common
Stock on March 21, 1997, on the NASDAQ National Market System, was approximately
$29,615,146 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.

         As of March 21, 1997, the registrant had outstanding 6,716,186 shares
of Common Stock ($.001 par value).

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Company's Proxy Statement for the 1997 Annual Meeting
of Shareholders are incorporated herein by reference into Part III.

<PAGE>



         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 and in
the Company's other filings with the Securities and Exchange Commission, and
including, in particular, risks relating to uncertainties regarding market
acceptance of the Company's products, government regulation, new product
development, healthcare reform, third-party reimbursement 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 test system that provides rapid and accurate
evaluation of hemostasis at the point of patient care. 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.

         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 a safe 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 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 six tests in
the United States. Four of these tests, the Prothrombin Time ("PT"), 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 two tests, the SK Panel and Lysis
Onset Time ("LOT") tests (which are used in conjunction with the administration
of thrombolytic or clot-dissolution drugs such as Tissue Plasminogen Activator
("t-PA"), streptokinase and urokinase), are currently sold in the U.S. "for
investigational use only", pending further FDA review and clearance. The SK
Panel, which consists of three tests that the Company





<PAGE>



intends to sell separately in the future, 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 believes that the SK Panel and LOT test will be useful diagnostic tools
for managed-care hospitals, especially those operating under contracts which may
capitate per procedure charges, because healthcare providers can optimize
thrombolytic therapy, providing for better, more cost-effective patient care.
The Company currently sells the TAS analyzer and all six of these tests for
commercial use in Europe.

         The TAS technology allows for further expansion of the Company's menu
of tests. The Company plans to introduce new tests in 1997 in certain European
markets. Tests under development include three tests for heparin management
(Heparin Response Test ("HRT"), Heparin Neutralizing Test ("HNT") and the
Protamine Sulfate Titration ("PMT")), and two tests for anticoagulants other
than heparin (the Anti-Xa and Thrombin Inhibitor Management/Ecarin Clotting Time
("TIM/ECT")). The Company intends to submit notifications for each of these
tests to the FDA for U.S. marketing clearance under Section 510(k) of the FDC
Act at or about the time of its European market launches. In addition, the
Company is pursuing strategic corporate alliances in order to increase the
installed base of TAS analyzers and to further accelerate development and
expansion of the applications of TAS.

         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 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 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




                                        3

<PAGE>



must also comply with the Clinical Laboratory Improvement Amendment of 1988
("CLIA") regulations.  See "--Government Regulation--CLIA".

         Point-of-care devices are being developed for four major types of blood
testing--blood gas, chemistry, hematology and hemostasis. The Company's
technology focuses on hemostasis testing, which consists of the monitoring of
coagulation and thrombolytic drugs. Based upon market research conducted by IMS
America ("IMS"), the Company estimates that in 1992 U.S. hospitals conducted
over 300 million PT and aPTT tests, two anticoagulant tests currently marketed
by the Company. The Company believes that very few of such tests were conducted
at the point of patient care because of the limited availability at that time of
accurate point-of-care hemostasis testing.

         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.

         The increased use over the past few years of thrombolytic drugs, which
dissolve clots, in the treatment of heart attacks and strokes has increased the
need for rapid thrombolytic test results, which can be provided by point-of-care
testing. Prior to development of the Company's products, there were no
point-of-care thrombolytic test systems available. Current laboratory tests
capable of monitoring thrombolysis take 45 minutes to two hours to perform and
therefore do not provide results during the critical early minutes of therapy,
during which the patient is likely to derive the most benefit from appropriate
doses of the drug. The ability to inform the physician of the presence of
inhibitors to specific thrombolytic drugs and to monitor clot dissolution within
minutes provides objective information upon which the healthcare provider can
base a decision regarding optimal and cost-effective use of thrombolytic drugs
such as t-PA, streptokinase and urokinase.

TAS Benefits

         The Company believes that the TAS analyzer and test cards enhance the
physician's ability to obtain accurate hemostasis testing results quickly at the
point of patient care. TAS will permit the timely initiation or alteration of
patient therapy and assist in the monitoring of patient response to therapy,
thereby providing the potential for substantial improvement in the quality of
patient care and for reduced overall healthcare costs. Benefits of the Company's
TAS point-of-care system include:

                  Accuracy and Precision. Clinical trials indicate that TAS's
         accuracy and precision are comparable to that of conventional
         laboratory equipment. TAS reduces opportunities for error by
         eliminating many of the steps involved in laboratory blood analysis,
         including transportation of the blood sample, its preparation for
         testing and the reporting of test results.

                  Rapid Test Results. TAS typically provides test results in
         under three minutes, which allows the healthcare provider to diagnose
         more quickly and accurately a patient's condition, as well as begin
         treatment, change treatment or monitor the patient's response to
         ongoing therapy.

                  Cost-Effectiveness. The Company believes that in addition to
         being competitive with the cost of laboratory testing on a test-by-test
         basis, TAS also may facilitate quicker transfers out of expensive
         critical care settings, reduce the overall length of hospital stays,
         reduce expenditures for laboratory equipment and associated maintenance




                                        4

<PAGE>



         and labor, and reduce the unnecessary use, and therefore the overall
         cost, of pharmaceuticals.

                  Ease of Use. TAS requires only a single drop of unprocessed
         blood, and no specialized laboratory training to operate. It
         can be used by any healthcare provider at the point of patient care.
         The TAS analyzer automatically controls all functions of the system,
         eliminating the need for highly specialized skills to perform the
         analysis and interpret the results.

                  Compliance with Current CLIA Regulations. Features of the TAS
         analyzer that were designed to meet CLIA regulations include internal
         quality control, operator access codes, patient identification, data
         storage, printer interface and battery operation. The Company believes
         that TAS complies with current CLIA regulations.

Strategy

         The Company's goal is to become the leading manufacturer and marketer
of cost-effective point-of-care test systems for coagulation and thrombolytic
drug monitoring and to establish TAS as the standard of care for coagulation and
thrombolytic drug monitoring at the point of patient care. The Company intends
to achieve this goal through the following strategies:

                  Broadening Sales and Marketing Efforts. In October 1996, 
         the Company entered into a five-year North American distribution 
         arrangement with Dade International ("Dade"). The Company has 
         independent distributors in various countries, including the United 
         Kingdom, Italy, Belgium, Germany, Austria, The Netherlands, 
         Scandinavia, Israel, New Zealand and Australia.

                  Targeting Acute Care Facilities. The Company is directing its
         initial marketing efforts toward integrated healthcare networks
         ("IHN's") and large hospitals' central and stat laboratories, as well
         as acute care sites within such hospitals. The Company believes that
         these targeted customers are the most likely to make initial TAS
         purchases due to their high demand for the benefits of point-of-care
         testing. The Company also believes that once TAS's utility is
         demonstrated, additional sites within hospitals will be more likely to
         purchase TAS products.

                  Promoting Hospital and Physician Acceptance. The Company is
         seeking to gain broad acceptance of its products by hospitals and
         physicians through the dissemination of scientific, clinical and
         patient outcome data on its products. The Company's initial marketing
         efforts are targeted to directors of hospital central laboratories and
         cardiovascular specialists.

                  Expanding Technology Applications. The Company is seeking to
         expand the applications of TAS through development of additional tests,
         including heparin management tests, new anticoagulant tests and general
         screening tests. The Company is also developing complementary products
         such as quality control tests and data collection and analysis
         equipment.

                  Entering into Strategic Alliances. The Company is pursuing
         strategic corporate alliances with pharmaceutical and other companies.
         The Company believes that such strategic corporate alliances would
         increase the installed base of TAS analyzers and further accelerate the
         development and expansion of the applications of TAS.




                                        5

<PAGE>




Technology

         The Company's core technology relating to both the TAS analyzer and
test cards is currently protected by three U.S. patents and 28 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 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 current list
price for the TAS analyzer is $5,000 and for individual test cards is between
$6.00 and $30.00, depending on the test. All of these prices are subject to
discounts for purchases in volume. 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. However, there is no formal CLIA
approval process for specific devices other than the classification process,
pursuant to which the TAS tests have been categorized as "moderate complexity"
tests. Furthermore, the CLIA regulations affecting use of the TAS analyzer are
subject to ongoing implementation, interpretation and revision. 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




                                        6

<PAGE>



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

  Test Cards

         Currently the TAS analyzer is capable of performing a variety of
coagulation and thrombolytic assessment tests, including the aPTT, PT, HMT, SK
Panel and LOT tests. The following table describes the tests that the Company is
currently selling:

<TABLE>
<CAPTION>

                                               PRINCIPAL
TEST                  TYPE                     APPLICATION                              STATUS
-------------       -----------------------  --------------------------------------   -------------------------------------------
<S>                 <C>                      <C>                                      <C>                            

Coagulation

aPTT                  Baseline/monitoring      Monitors low heparin levels              510(k) clearance received. Sold
                                                                                        commercially in U.S. and Europe.

PT                    Baseline/monitoring      Monitors oral anticoagulants             510(k) clearance received. Sold
                                                                                        commercially in U.S. and Europe.

PT One                Baseline/monitoring      Monitors oral anticoagulants with        510(k) clearance received.  Sold
                                               greater sensitivity                      commercially in U.S. and Europe.

HMT                   Heparin management       Monitors high heparin levels             510(k) clearance received. Sold
                                                                                        commercially in U.S. and Europe.

Thrombolysis

SK Panel*             Pre-therapy screen       Resistance to streptokinase              Extended clinical trials required for 510(k)
                                                                                        clearance. Sold commercially in Europe and
                                                                                        for investigational use only in U.S.

LOT                   Thrombolytic drug        Monitors establishment of lytic state    Extended clinical trials required for 510(k)
                        monitoring                                                      clearance. Sold commercially in Europe and
                                                                                        for investigational use only in U.S.
</TABLE>


* Consists of three tests that the Company intends to sell separately in the
future.


         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




                                        7

<PAGE>



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 two different types of PT test
cards, a general purpose PT test card routinely used in the United States, and
the PT One, which uses a more sensitive scale of measurement. The PT One is
currently the preferred test for all indications in Europe and is rapidly
becoming more popular in the United States.

         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 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 three test cards, which the Company intends to market separately in
the future. Two of the cards are designed to test the patient's response to low
and high levels of streptokinase. The third card, which contains the Lytic
Control test, is designed to identify possible defects in a patient's
fibrinolytic system that may interfere with all thrombolytic drugs.

         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 Company is currently studying the feasibility of or developing
several new tests to expand the menu for the TAS Analyzer. The Company is
studying or developing four new tests to complement the aPTT and HMT in a




                                        8

<PAGE>



complete heparin monitoring package. The Company's Heparin Response Test ("HRT")
will be used to determine rapidly an individual's response to heparin, since
patients differ widely in their responses to this drug. If HRT indicates that a
patient may be resistant to the effect of heparin, adjunct therapy or another
anticoagulant may be chosen. One reason for this resistance may be a deficiency
of the natural anticoagulant, antithrombin ("AT"), which is required in order
for heparin to achieve its full effect. The Company is developing an AT test to
identify patients with this particular heparin defect. The Heparin
Neutralization Test ("HNT") will monitor patients who have received heparin to
determine if they have an underlying coagulation defect that may increase their
risk of bleeding. The Protamine Sulfate Management Test ("PMT") will determine
whether protamine sulfate has neutralized the heparin in a patient's blood at
the end of surgery or if a patient develops a bleeding complication while on
heparin. The Company also intends to develop an additional piece of equipment,
known as ACCENT, to collect and analyze data derived from the Company's heparin
monitoring tests.

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

         The Company is studying or developing two tests that will be used in
connection with new anticoagulant drugs entering the market. The Thrombin
Inhibitor Management/Ecarin Clotting Time ("TIM/ECT") test is designed to
monitor the effect of a new class of anticoagulant drugs, "antithrombins" such
as hirudin or argatroban. Likewise, the Company's Anti-Xa test will be used to
monitor low molecular weight heparin, a more purified form of heparin that
cannot be monitored by the aPTT. In addition, the Anti-Xa test can determine
full length heparin concentration and it may be used in combination with the
aPTT and HMT to more precisely determine a patient's response to heparin.

         The Company's Ancrod test is a new test under development that will
allow a physician to monitor a patient's level of Ancrod, a new drug for the
treatment of stroke.

         The Company is also developing, or preparing for field trials of,
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 is
developing PT and aPTT test cards calibrated to the reagents of its new North
American distributor, Dade. See "--Sales and Marketing".





                                        9

<PAGE>



         The following table describes certain of the Company's tests currently
undergoing initial feasibility study or development (including field trials):

<TABLE>
<CAPTION>


TEST           TYPE                       PRINCIPAL APPLICATION                      STATUS
------------ -------------------------  -----------------------------------------  ------------------------------------------
<S>          <C>                        <C>                                          <C>


HRT            Heparin management         Predicts response to heparin               Initial development completed; field trials
                                                                                     in progress.

AT             Heparin management         Required heparin co-factor                 Feasibility determination in progress.

HNT            Heparin management         Predicts problems after heparin            Initial development completed; field trials
                                          neutralization                             in progress.

PMT            Heparin management         Specifies amount of protamine sulfate to   Initial development completed; field trials
                                          neutralize heparin                         in progress.

LHMT           Heparin management         Low-range heparin management               Initial development completed; field trials
                                                                                     in progress.

(TIM) ECT      New anticoagulant drug     Thrombin inhibitor management              Initial development completed; field trials
               monitoring                                                            in progress.

Anti-Xa        New anticoagulant drug     Monitors low molecular weight heparin      Feasibility determination in progress.
               monitoring

Ancrod         New stroke drug            Monitors new treatment for stroke          Feasibility determined; development
               monitoring                                                            initiated.
</TABLE>


Quality Control Products

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

Sales and Marketing

         The Company commenced marketing TAS products commercially in May 1995.
As of December 31, 1996, the Company had sold 287 TAS analyzers in the United
States to a total of 60 hospitals and 252 analyzers in Europe. These 
analyzers and certain of the Company's test cards are currently being used in 
ten different departments in those hospitals.

         In April 1995, the Company entered into a purchasing agreement with
Voluntary Hospitals of America ("VHA"), a 1,000-member hospital alliance. VHA's
Technology Development Program had previously identified the Company as a
technically innovative company producing new products that will benefit VHA
member hospitals. The Company was selected by VHA as the vendor of choice for
point-of-care hemostasis testing after investigating available technologies. The
Company was selected for this VHA program because of the improved patient care
and potential cost savings resulting from use of TAS in monitoring anticoagulant
drugs and in selecting and monitoring thrombolytic drugs. Under the program, VHA
will provide marketing support for the Company products and has produced
marketing and training videotapes for TAS, promotional brochures and technical
white papers. In exchange for such services, the Company has agreed to provide
VHA member hospitals with priority in receiving TAS products, as well as "most
favored customer" pricing on TAS products. In addition, the Company will pay
rebates to VHA on sales to VHA member hospitals.

         In 1996, the Company focused its sales and marketing efforts on
hospitals with over 200 or more beds through its direct sales force. The Company
employed eight experienced technical sales staff and a laboratory trained
technical service group of five. Utilizing this group the Company




                                       10

<PAGE>



achieved its goal of gaining recognition for its technology and initiated over
170 clinical evaluations.

         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%. An
anticipated advantage of this agreement is that the Company's TAS technology may
be used to calibrate test results to Dade products, with the anticipated
standardized testing solutions being more attractive to customers. Under the
Company's 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.
In addition, Dade intends to cooperate in, and fund development of, additional
tests for distribution.

         The Company continues to consider additional distribution channels in
the United States, including joint ventures with strategically positioned
corporate partners. To the extent that specialized test capabilities are
developed, the Company may consider joint development and subsequent
co-marketing agreements with corporate partners in the pharmaceutical industry.

         During 1996, the Company also entered into collaborative agreements
with Bayer Corporation and Knoll AG for development of tests for anti-thrombin
and thrombin inhibitor drugs, respectively. These test cards are currently
involved in the field and clinical trials associated with these therapeutic
compounds. The Company's strategy with respect to these and other potential
specialty tests is to be the only company capable of monitoring certain next
generation drugs at the site of administration. The Company expects to continue
to attempt to enter into new collaboration agreements with major pharmaceutical
companies in 1997.

         The Company also markets TAS products in Europe and elsewhere. The
advantages of marketing TAS in Europe include the presence of a large number of
physicians and scientists who are recognized experts in the areas of hematology
and cardiology. These physicians and scientists publish extensively on new
technologies and tend to be early adopters of the latest technical innovations.
In Europe, the Company's strategy is to sell primarily through independent
distributors, although it may in the future enter into strategic European
distribution agreements like the agreement with Dade. The Company has entered
into agreements with an independent distributor in each of the United Kingdom,
Italy, Belgium, Germany, Austria, The Netherlands, Scandinavia, Israel, New
Zealand and Australia. Selection criteria for Company distributors include: an
interventional cardiology and point-of-care focus; synergistic other product
offerings; a dedicated sales force; and technical sales orientation. The Company
provides its distributors' personnel with a comprehensive, three-day training
course at its headquarters in Raleigh, North Carolina. Monthly reports are
obtained from each distributor detailing results of evaluations, completed sales
and a three-month rolling sales forecast. Formal distributor meetings are held
on a quarterly basis to review sales and marketing progress. Distributor
relationships are reviewed annually before extension of the distribution
agreement.

         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 the Company, by selling
point-of-care hemostasis test products, is targeting an essentially new market.
Diagnostic tests similar to 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




                                       11

<PAGE>



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.

Clinical Evaluations

         In the ongoing effort to support released as well as developmental
products, clinical trials and evaluations have escalated in activity. During
1996, over 170 hospitals throughout the United States initiated clinical
evaluations using the PT, aPTT or HMT test cards. The purpose of these
evaluations was to allow the hospitals to use the system in a clinical setting
over an extended period to confirm the TAS accuracy, precision, speed and ease
of use. Similar evaluations have been accomplished in Europe through the network
of individual country distributors; these evaluations have included the SK and
LOT test cards as well as the PT, aPTT and HMT. Where applicable, the TAS data
is compared to existing systems and methodologies and the clinical utility is
established by the institution. Evaluations of this type are intended to provide
the institution with the necessary documentation to support routine use of the
TAS.

         In 1996, the activities surrounding formal clinical trials sponsored
and funded by the Company were reorganized and realigned to more closely support
the product priorities and Company objectives. As a part of this process, clear
clinical trial objectives and the expected outcome or benefit have been
established. Formal trials being initiated by the Company must comply with the
objective of FDA submission or provide the Company with pertinent clinical data
which ultimately results in presentation and publication of the data. Clinical
sites and studies are screened and the sites are involved in the development and
design of the study protocol. Studies and data are monitored by the Company in
order to ensure that when completed, the trial will meet with the study
objectives.

         The coordination and monitoring of clinical trial activity is being
addressed in the United States as well as Europe. In an attempt to assist with
this effort in Europe, the Company has established a European Scientific
Advisory Board which is comprised of cardiologists, anesthesiologists and
laboratory based coagulation clinicians. This board has recommended that the
Company endorse multi-center coordinated trials which concentrate on TAS
technology as compared to existing methods. Initially, proposed studies include
HMT, aPTT, SK and LOT tests and would involve multiple sites in different
countries utilizing a defined specific protocol. By involving multiple sites in
a coordinated trial, the power of the study is enhanced and the endorsement of
TAS technology is more widespread. Similar efforts are being pursued in the
United States, with clinical sites being carefully selected and studies being
closely coordinated.

         In addition, multiple research trials are being conducted for new test
cards and controls.  These studies are primarily being accomplished in




                                       12

<PAGE>



established reference laboratories where there is a collaborative research
agreement between the Company and the institution. This type of situation
provides the Company with a controlled external testing environment where
confidentiality is maintained and exposure is minimal. Initial field testing is
performed in these sites as well as data collection for 510(k) submissions.

         In 1997, CVDI intends to continue to initiate trials and obtain
clinical data which demonstrate clinical utility, support product claims and
quantify the advantages of rapid testing in terms of patient outcome and cost
savings. More than 20 studies are planned over the course of the year, with the
objective being to provide the Company and the marketplace with pertinent
clinical evaluations and publications. These clinical trials are critical to the
ultimate success of the Company.

Research and Development

         The Company has a research and development staff consisting of eight
people, four 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 1994, fiscal 1995 and fiscal 1996, the Company's research
and development expenses were approximately $1,882,000, $1,801,000 and
$2,230,000, 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 approximately 20 years. Despite the fact that the Company
believes that TAS competes favorably with these systems, ITC's installed base
could 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




                                       13

<PAGE>



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. This strategy includes evaluating and seeking patent protection
both for inventions most likely to be used in the Company's products and for
those inventions most likely to be used by others as competing alternatives.
Three U.S. and 28 corresponding international patents have 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 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 Biotrack or 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




                                       14

<PAGE>



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

  BMC License

         In June 1989, the Company entered into a License Agreement with BMC (as
subsequently amended in September 1995, the "BMC License"), pursuant to which
the Company granted BMC exclusive rights to manufacture and sell aPTT and PT
test products under the Company's patent applications throughout the world,
except for certain Asian countries. Under the terms of the BMC License, the
Company regained certain rights to manufacture and sell such products in 1993,
when the Company paid BMC $1,000 after BMC declined to license the SK Panel. In
September 1995, the Company and BMC amended the BMC License to terminate the
royalty and milestone payment obligations of BMC to the Company effective June
30, 1995, and to clarify that the Company can sell aPTT and PT tests for use on
an analyzer that is also capable of analyzing a thrombolytic test. The TAS
analyzer is capable of analyzing aPTT, PT and thrombolytic tests, and the
Company does not intend to introduce an analyzer capable of analyzing aPTT or PT
tests that is not also capable of analyzing a thrombolytic test. As a result of
this amendment, the Company and BMC each have rights to sell aPTT and PT test
products under the Company's patent applications throughout the world, except
for certain Asian countries. During the year ended October 31, 1993, the Company
received a fee from the licensee of $750,000 for the licensee introducing the
licensed product to market. The Company received royalty payments of $88,841
under this agreement during the year ended December 31, 1994 and $61,596 during
the year ended December 31, 1995. BMC's obligation to pay royalties and any
future milestone payments under the BMC license terminated as of the end of the
second quarter of 1995.

  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 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




                                       15

<PAGE>



pay royalties to Tokuyama based on Company net sales of products incorporating
such improvements.

         The Company received royalty payments under this agreement of $46,450,
$63,176 and $32,835 using the years ended December 31, 1994, 1995 and 1996,
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 a proprietary automated test card production
line at its Raleigh facility. This automated production line was custom-designed
by the Company and built to its specifications. The Company believes that this
production line embodies proprietary Company process technology. The line 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 22,000 cards per day.

         The FDC Act requires the Company to manufacture its products in
registered establishments and in accordance with GMP. The Company and Coeur are
both registered as medical device manufacturers and are subject to periodic
inspections by the FDA. The Company received ISO 9002 certification in 1996, and
the Company and Coeur are further implementing requirements of the International
Standards Organization ("ISO") at their manufacturing facilities.

         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 PIOP used in the TAS test cards from
a single source, which is currently holding enough PIOP to produce the Company's
test cards for at least the next ten years. 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




                                       16

<PAGE>



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 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 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 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")




                                       17

<PAGE>



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 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.

         The Company submitted a 510(k) for a new injector turret developed by
Coeur for use in power injectors for angiographic procedures to the FDA in
August 1995. The 510(k) was prepared by a high-level employee of the Company
with regulatory affairs and quality assurance responsibilities. The 510(k)
contained product information, including results from tests that were
purportedly performed relating to physical measurements of the device. In
September 1995, while the 510(k) was under review by the FDA, the FDA contacted
the employee who prepared it and asked for additional information. After
receiving the request, the employee informed senior Company management that no
testing relating to physical measurements had been performed on the device and
that the physical measurement test data submitted in the 510(k) were false. The
employee acknowledged sole responsibility for creating and submitting the false
data. Upon learning of the matter, the Company promptly withdrew the 510(k),
suspended the responsible employee and initiated an internal investigation of
the matter. Upon completion of the Company's detailed internal investigation,
the Company had the matter investigated by an independent quality assurance
organization and the Company's special FDA regulatory counsel. Based on the
results of these investigations, the Company concluded that the employee had
acted alone, that no pressure had been put on the employee to obtain clearance
for this device and that there was no evidence that false data had been
previously submitted to the FDA. As a result of this matter, the Company created
a permanent Compliance Committee (which currently consists of three non-employee
directors of the Company) to report directly to the Board of Directors on
regulatory compliance matters and to recommend regulatory procedures and
safeguards to preclude the possibility of any such occurrences in the future.
The Compliance Committee reviewed the results of the Company's internal
investigation and the independent investigations of this matter. Based on the
recommendations of the Compliance Committee, the Company accepted the
resignation of the responsible employee. The Company also has advised the FDA of
the matter and described the corrective actions the Company has taken. The
Company believes that it has acted appropriately in connection with this matter,
but there can be no assurance that the FDA will consider the Company's
corrective actions to be sufficient. If the Company's corrective actions are not
deemed sufficient by the FDA, possible consequences include civil money
penalties against the Company and/or its officers (ranging from $1,000 to
$500,000 per violation), temporarily withholding future 510(k) clearances and
criminal prosecution. These actions, if taken by the FDA, could have a material
adverse effect on the Company.





                                       18

<PAGE>



         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 Good Manufacturing
Practice ("GMP") regulations which impose certain procedural and documentation
requirements upon 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




                                       19

<PAGE>



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 and LOT tests. 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 and LOT tests 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 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




                                       20

<PAGE>



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 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




                                       21

<PAGE>



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 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, 1996,
E-Z-EM, Liebel-Flarsheim and Kimal Scientific Products Ltd. each represented
more than 10%, and in total represented 77% 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.

         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,




                                       22

<PAGE>



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 $6 million per claim, with an annual aggregate policy
limit of $7 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 83 employees as of December 31, 1996. Eight employees
are engaged in research and development, 44 in manufacturing and quality
control, 10 in engineering, 11 in sales/marketing and 10 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 key man
life insurance policies on three of its executive officers, the loss of the
services of one or more of these executive officers 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.

Factors Affecting Operating Results and Stock Price

         The Company's revenues and operating results may vary significantly
from quarter to quarter as a result of a number of factors, including the volume
and timing of sales, customer purchasing patterns and the timing of new product
introductions by the Company or its competitors. A substantial number of
outstanding shares of Common Stock will become eligible for future sale in the
public market at various times. Sales of substantial amounts of such shares in
the public market could adversely affect the market price of the Common Stock.
The stock market has from time to time experienced extreme price and volume
fluctuations, particularly in the high technology sector, which have often been
unrelated to the operating performance of particular companies. In addition,
factors such as announcements of technological innovations or new products by
the Company or its competitors or third parties, as well as market conditions in
the medical diagnostic device or point-of-care blood testing industries, may
have a significant impact on the market price of the Company's Common Stock.


Item 2.  PROPERTIES.

         The Company's principal corporate offices are located at 5301 Departure
Drive, Raleigh, North Carolina 27616. The Company occupies approximately




                                       23

<PAGE>



55,000 square feet of development, production and administration space at that
location pursuant to a facility lease that runs through January 2001.

         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 Raleigh, North Carolina in
U.S. District court 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 has requested a declaratory judgment that neither the products nor
activities of the Company infringe U.S. Patents purportedly owned by BMC. The
complaint alleges that this unauthorized disclosure of the Company's trade
secrets is (i) a breach of the license agreement between BMC and the Company,
(ii) a breach of the fiduciary duty owed by BMC to CVDI, (iii) constructive
fraud, (iv) a misappropriation of the Company's trade secrets in violation of
North Carolina's Trade Secrets Act, and (v) constitutes unfair trade practices
in violation of the North Carolina Unfair Trade Practices Act. The complaint
further requests the court to declare that the Company's blood assay products
and activities do not infringe either of two U.S. Patents held by BMC, in
response to a letter to the Company from BMC asserting that the Company is
infringing these patents. The Company is requesting an award of substantial
actual and punitive damages due to the unauthorized disclosure of the Company's
trade secrets, which could be tripled due to violation of the North Carolina
Unfair Trade Practices Act and is seeking to obtain ownership of the patents and
patent applications worldwide that contain the Company trade secret information.


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, 1996.





                                       24

<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, 1997.

         John P. Funkhouser, age 43, 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. In 1991, CSVa, Inc., a venture capital portfolio company of
which Mr. Funkhouser was a director, filed a petition for bankruptcy. Mr.
Funkhouser holds a B.A. from Princeton University and an M.B.A. from the
University of Virginia.

         B. Denise Hobbs, age 45, was elected Vice President of Finance and
Administration in February 1997.  Since October 1993, she has also served as
Treasurer and Secretary of the Company.  From October 1993 until May 1996, Ms.
Hobbs was also Director of Finance and Administration of the Company.  Since
1991, she has also served as Coeur's Controller and Secretary.  For over three
years prior to joining Coeur, Ms. Hobbs was the Controller for the Virginia
Municipal League.  Ms. Hobbs holds an M.S. in Accounting and Finance from
Virginia Commonwealth University.

         Jonathon Lawrie, Ph.D., age 46, was elected Managing Director, Europe
and Chief Scientific Officer in 1994.  From January 1992 until 1994, Dr.
Lawrie served as President and a director of the Company.  Prior to joining
the Company, Dr. Lawrie was Director of Development of Roche Diagnostic
Systems for over two years.  Dr. Lawrie holds an M.S. and a Ph.D. in
Microbiology and Immunology from the University of Washington.

         Michael D. Riddle, age 43, was elected 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).

         Wayne J. Scroggins, age 48, was elected Executive Vice President and
Chief Operating Officer of the Company in May 1996.  Before joining the
Company, Mr. Scroggins spent the past 24 years in operational and financial
positions of increasing responsibility with the domestic and international
tobacco subsidiaries of RJR Nabisco, Inc. and with R.J. Reynolds Industries,
Inc.  Mr. Scroggins is a Certified Public Accountant and holds a B.A. in
Accounting and Finance from Lewis University.




                                       25

<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 year ended December 31, 1996 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.


                                                    High                 Low

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


         (b)      Approximate Number of Equity Security Holders

         As of December 31, 1996, the number of record holders of the Company's
Common Stock was 250, and the Company believes that the number of beneficial
owners was approximately 1,500.

         (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.

Recent Sales of Unregistered Securities

         Since December 31, 1995, the Company has issued and sold the following
unregistered securities:

         1. From January 1, 1996 through December 31, 1996, the Company issued
options to purchase an aggregate of 109,000 shares of Common Stock to employees
and consultants of the Company.


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 which have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report
thereon is included elsewhere in this Annual Report on Form 10-K along with said
financial statements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business".






                                       26

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                        Two Month
                                                       Year Ended                     Period Ended             Year Ended
                                                      December 31,                   December 31,               October 31,
                                    --------------------------------------------- -------------------   ----------------------------
RESULTS OF OPERATIONS                 1996           1995             1994            1993               1993             1992
                                    -----------   ------------     ------------    ------------       ------------     ------------
<S>                                     <C>            <C>              <C>               <C>         <C>              <C>     
Net sales                               $6,411         $5,199           $4,695            $738        $    ---         $    ---
Cost of goods sold                       5,257          4,268            3,021             570              ---              ---
Gross profit                             1,154            931            1,674             168              ---              ---

Operating expenses:
Research and development                 2,300          1,801            1,882             283              2,085            1,317
General and administrative               2,933          2,191            1,441             357              1,051              675
Sales and marketing                      1,896          1,278              453              33                256            ---
Total operating expenses                 7,129          5,270            3,776             673              3,392            1,992

Other income, net                          906            469              365              32              1,050              325

Provision for income taxes                 (52)           (82)             (91)             (4)             ---              ---
Net loss                               ($5,121)       ($3,952)         ($1,828)          ($477)           ($2,342)         ($1,667)

Net loss per share                      ($0.78)        ($0.74)          ($0.35)         ($0.10)            ($0.65)          ($0.54)
Weighted Average Shares Outstanding      6,566          5,323            5,179           4,600              3,626            3,116


                                                       As of December 31,                                   As of October 31,
                                    -------------------------------------------                       -----------------------------
FINANCIAL CONDITION                   1996           1995             1994                               1993             1992
                                    -----------   ------------     ------------                       ------------     ------------
Cash and cash equivalents               $2,716        $16,237           $3,206                               $626             $604
Total assets                            18,351         23,986            8,328                              5,468            1,817

Long term debt, excluding current 
     portion                                67            499              269                                330               42
Total liabilities                          683          2,176              901                              1,346              283
Accumulated deficit                    (15,940)       (10,819)          (6,867)                            (4,562)          (2,220)
Shareholders' equity                   $17,668        $21,810           $7,428                             $4,422           $1,534
</TABLE>


<PAGE>


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


This discussion contains forward-looking information. The actual results might
differ materially from those projected in the forward-looking statements for
various reasons, including 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 and in the Company's other SEC filings, including under the
heading "Risk Factors" in the company's initial public offering prospectus,
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 has a European
subsidiary, Cardiovascular Diagnostics Europe, BV ("CDE"), located in Amsterdam,
Holland, which serves as a sales and distribution office for TAS products sold
in Europe. CVDI's other 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.

<PAGE>

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, selling 2.2 million shares with net proceeds to the Company of $17.7
million.

During 1996 the Company had 10 sales people covering the major metropolitan
areas across the United States and nine distributors selling into 13 countries,
compared to three sales people in the U.S. and two distributors in Europe at the
beginning of 1995. The laboratory response to CVDI's technology was largely
positive, as the Company's sales force initiated more than 170 hospital
evaluations of TAS during 1996. However, throughout 1996, individual hospitals
continued to consolidate into integrated health networks, ("IHN"). This
consolidation delayed many pending decisions to adopt the new technology
provided by CVDI's 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. CVDI signed a North American distribution agreement with DADE
International ("Dade"), the world's largest reagent manufacturer. This
represents a milestone event for CVDI, since Dade and CVDI together have the
ability to provide IHNs a total standardized hemostasis solution from less time
sensitive testing to immediate "stat" testing.

The TAS is a flexible technology platform which allows CVDI to develop tests to
monitor drug therapy. To capitalize on this ability, CVDI has signed
collaboration agreements with Knoll AG and Bayer Corporation to monitor the
effects of new drugs under development in clinical trials. This is a new era
for diagnostic and pharmaceutical companies to team together to introduce
more powerful drugs for specific indications.

CVDI's strategy is to eventually offer a continuum of drug monitoring for
cardiac patients throughout their hospital stay, and later, for patients who
must continue using anticoagulant therapy in an outpatient format. This strategy
will enable CVDI to establish the TAS technology as the gold standard of
coagulation care.

RESULTS OF OPERATIONS

Sales for the year ended December 31, 1996 increased 23% to $6.4 million
compared to a year earlier. The $1.2 million increase in sales was attributable
to higher TAS product sales, $1.8 million in fiscal 1996 as compared to $600,000
in fiscal 1995. All sales in fiscal 1994 were derived from Coeur. The gross
profit margin for fiscal 1996 was 18%, unchanged from fiscal 1995. The gross
profit margin declined in 1995 to 18% from 36% in fiscal 1994 as 1995 TAS
product sales were insufficient to recover production start-up and associated
overhead expenses of TAS product production. TAS analyzer sales in fiscal 1996
totaled 395 (214 analyzers in the U.S. and 181 in Europe). Since the TAS was
brought to market in 1995, 539 analyzers have been sold, 287 in the U.S. and 252
to distributors in Europe. The Company signed a North American distribution
agreement with DADE International ("Dade") in October, 1996. This agreement
should enable CVDI to penetrate the U.S. market as TAS products will be sold by
DADE.

The Company's research and development expenses relate primarily to its TAS
products. Research and development expenses for 1996 were $2.3 million, or 28%
greater than 1995, due to increased clinical trials expenses for expansion of
the TAS test card menu. The research and development expenses for fiscal year
1995 were slightly less than fiscal 1994 as a result of the redirection of the
company from the development stage to commercialization. Research and
development expenses for 1997 are expected to increase as the company initiates
additional clinical trials for new test cards under development.

The Company's general and administration expenses rose $742,000, or 34%, from
fiscal 1995 to fiscal 1996. Principal factors contributing to the increase were
additional staffing, the full year effect of public company related expenses,
such as investor relations and director and officer liability insurance, and an
11,000 square feet increase of facility space. In fiscal 1995 the Company's
general and administrative expenses increased 52% from fiscal 1994. Unearned
compensation related to the vesting of options upon the consummation of the
initial public offering in December 1995 accounted for $383,000 or 51% of this
increase. Staffing and associated office expenses for the Amsterdam facility and
an increase in allowance for doubtful accounts accounted for the balance of this
year to year increase.

Sales and marketing expenses increased approximately $617,000 from fiscal 1995
to 1996. This increase reflected the addition of seven sales people and the
associated travel expenses, as well as increased marketing and advertising
expenses. The increase of approximately $825,000 from 

<PAGE>


fiscal 1994 to fiscal 1995 was a result of staffing the European office,
establishing a warranty reserve for TAS products and associated travel expenses
for the market launch of TAS in 1995. Sales marketing and advertising expenses
are expected to decrease in 1997 due to the Dade distribution agreement which
was signed in October 1996.

The net loss for the year ended December 31, 1996 was $5.1, million or $0.78 per
share, compared to a net loss of $4.0 million, or $0.74 per share, in 1995. The
additional loss of $1.1 million was a result of increased operating expenses
from fiscal 1995 to fiscal 1996 of $1.8 million which was partially offset by
increased interest income of $523,000 and $223,000 of higher gross profits.. The
net loss for fiscal 1995 was $0.74 per share compared to a loss of $0.35 per
share in 1994. The $0.74 loss per share in 1995 was due to $0.60 per share of
operating losses and $0.14 per share of charges for reserves and compensation
expense. In fiscal 1995, CVDI increased the allowance for doubtful accounts as a
result of delinquent foreign receivables and established a reserve for obsolete
inventory recognizing the one-year life for test cards.

The Company recorded an unearned compensation expense of $427,000 in fiscal
1995, 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 year ended
December 31, 1996 was $11,000. The Company expects to continue to recognize the
remaining compensation expense at a rate of $11,000 per year in 1997 through
1999.


LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996 CVDI had cash and cash equivalents and short term
investments of $8.7 million and working capital of $11.6 million, as compared to
$16.2 million and $16.8 million, respectively, at December 31, 1995.

Capital expenditures for 1996 were $1.4 million, primarily for additional
automated TAS test card production equipment and lease-hold improvements.
Accordingly, depreciation expense increased $113,000, or 21%, from 1995 to 1996.
CVDI expects capital expenditures to be approximately $700,000 for 1997, none of
which is currently subject to contracts or commitments. These expenditures are
likely to include additional manufacturing and production equipment, furniture
and fixtures, computers and engineering equipment. In addition the Company has
contractual obligations with vendors to purchase approximately $1.0 million of
raw materials during 1997. Management believes that its existing capital
resources and the cash flows from operations will be adequate to satisfy its
planned capital requirements through at least 1998.

CVDI's European subsidiary, CDE, makes expenditures in Dutch guilders. There is
some currency risk when translating financial statements from guilders to
dollars, however, sales invoicing and remittances are completed in dollars.
Therefore, any currency translation adjustments are non-cash items.
<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS

A number of uncertainties exist that may affect the Company's future operating
results and stock price, including managed care, FDA regulations and other
regulatory guidelines affecting the Company. 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 or securities recently issued in an initial public offering are
particularly susceptible to volatility based on short-term trading strategies of
certain investors.




Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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


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

         Not applicable.





<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 1997
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.




                                       28

<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.
                  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.




                                       29

<PAGE>



                  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*            Patent Sublicense Agreement, dated December 1,
                                    1996, with Knoll AG.
                  10.21             Development Agreement, dated August 21, 1996,
                                    with Bayer Corporation.
                  21.1 (a)          List of Subsidiaries.
                  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)    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.

           (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, 1996.




                                       30

<PAGE>


                        CARDIOVASCULAR DIAGNOSTICS, INC.

                                AND SUBSIDIARIES




                                     INDEX



                                                            Page(s)

Report of Independent Accountants                              F-1

Financial Statements:

        Consolidated Balance Sheets                             F-2

        Consolidated Statements of Operations                   F-3

        Consolidated Statements of Shareholders' Equity         F-4

        Consolidated Statements of Cash Flows               F-5 - 6

        Notes to Consolidated Financial Statements         F-7 - 19


<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS



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, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.

/s/ COOPERS & LYBRAND

Raleigh, North Carolina

February 20, 1997

                                      F-1
<PAGE>





               CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets

                           December 31, 1996 and 1995
<TABLE>
<CAPTION>



ASSETS                                                                                1996            1995
<S>                                                                           <C>                <C>

Current assets:
     Cash and cash equivalents                                                 $  2,716,242     $16,237,132
     Short term investments, held-to-maturity                                     5,973,405              --
     Receivables:
       Trade, net of allowance for doubtful accounts of $5,000 in
        1996 and $40,395 in 1995                                                    906,491         762,756

       Other                                                                        385,073          40,430
            Total receivables                                                     1,291,564         803,186
     Inventories                                                                  2,018,798       1,304,851
     Other current assets                                                           198,111         159,401
            Total current assets                                                 12,198,120      18,504,570
Property and equipment, net                                                       4,236,128       3,495,821
Intangible assets, net                                                            1,700,560       1,810,466
Other noncurrent assets                                                             216,547         175,183
                                                                               $ 18,351,355    $ 23,986,040

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                          $    377,314    $    953,293
     Accrued expenses                                                               219,634         387,081
     Current portion of long-term debt                                                   --         282,566
     Current portion of capital lease obligations                                    19,082          53,772
            Total current liabilities                                               616,030       1,676,712
Long-term debt, less current portion                                                 50,000         456,612
Capital lease obligations, less current portion                                      16,987          38,086
Deferred gain on sale-leaseback                                                          --           4,247
            Total noncurrent liabilities                                             66,987         498,945
            Total liabilities                                                       683,017       2,175,657
Commitments and contingencies (Notes 8, 13 and 14)

Shareholders' equity:

      Preferred stock, $.001 par value; authorized 1,000,000 shares - Series A
       participating preferred stock, voting; designated 696,000 shares at
       December 31, 1996 and 1995; no shares issued or outstanding at December
       31, 1996 and 1995

      Common stock, $.001 par value; authorized 10,000,000 shares; 6,663,986 and
       6,447,562 issued and outstanding at December 31,
       1996 and 1995, respectively                                                    6,664           6,447
      Additional paid-in capital                                                 33,682,330      32,672,438
      Cumulative translation adjustments                                            (48,078)         (5,568)
      Accumulated deficit                                                       (15,939,578)    (10,818,934)
      Unearned compensation                                                         (33,000)        (44,000)
              Total shareholders' equity                                         17,668,338      21,810,383
                                                                               $ 18,351,355    $ 23,986,040


</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
                                       F-2
<PAGE>

               CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Operations

              for the years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>


                                            1996          1995           1994

<S>                                         <C>            <C>            <C>


Net sales                                  $ 6,411,519    $ 5,198,950    $ 4,695,488
Cost of sales:
   Materials and labor                       3,121,439      2,744,932      2,105,605
   Overhead                                  2,135,605      1,523,296        915,585

      Total cost of sales                    5,257,044      4,268,228      3,021,190
Gross profit                                 1,154,475        930,722      1,674,298
Operating expenses:
   General and administrative                2,933,016      2,191,036      1,441,070
   Sales and marketing                       1,895,492      1,278,139        453,152
   Research and development                  2,300,462      1,800,936      1,881,778
      Total operating expenses               7,128,970      5,270,111      3,776,000
      Loss from operations                  (5,974,495)    (4,339,389)    (2,101,702)

Other income (expense):

   Interest expense                            (16,317)       (59,550)       (48,471)
   Interest income                             634,989        111,536         28,930
   Grant income                                254,204        292,534        249,523
   License fee and royalty income               32,835        124,772        135,291
       Other income, net                       905,711        469,292        365,273
       Loss before income taxes             (5,068,784)    (3,870,097)    (1,736,429)
Provision for income taxes                     (51,860)       (82,136)       (91,250)
       Net loss                            $(5,120,644)   $(3,952,233)  $ (1,827,679)
Net loss per share                         $     (0.78)   $     (0.74)  $      (0.35)
Weighted average number of common shares
  and common share equivalents               6,566,134      5,323,239      5,178,526

</TABLE>

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

                                       F-3
<PAGE>

               CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                Consolidated Statements of Shareholders' Equity

              for the years ended December 31, 1996, 1995 and 1994


<TABLE>
<CAPTION>



                                            Series A                Additional   Cumulative
                                           Participating   Common     Paid-In    Translation   Accumulated
                                           Preferred Stock  Stock     Capital    Adjustments     Deficit
<S>                                         <C>            <C>     <C>           <C>          <C>

Balances at December 31, 1993                               $2,828 $  8,681,479                $ (5,039,022)


Issuance of 612,638 shares of common stock at
 $4.9377 per share, net of issuance costs                      613    2,722,706
Issuance of 4,088 shares of common stock at
 $.395 per share                                                 4        1,611
Issuance of 11,855 shares of common stock at
 $.5925 per share                                               11        7,014
Issuance of 482,372 shares of Series A
 preferred stock at $6.25 per
 share, net of issuance costs                   $ 482                 2,878,361
Net loss for the year ended December 31,
 1994                                                                                            (1,827,679)
Translation adjustment                                                                $  (557)
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
 participating preferred stock to 877,530
 shares of common stock                          (693)         877         (184)
Issuance of 393,904 shares of common stock
for liquidation preference                                     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)
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)
Balance at December 31, 1996                     $ --      $ 6,664 $ 33,682,330      $(48,078) $(15,939,578)

</TABLE>

<TABLE>
<CAPTION>

                                                               Total
                                                Unearned    Shareholders'
                                               Compensation    Equity
<S>                                          <C>          <C>
Balances at December 31, 1993                              $  3,645,285


Issuance of 612,638 shares of common stock at
 $4.9377 per share, net of issuance costs                     2,723,319
Issuance of 4,088 shares of common stock at
 $.395 per share                                                  1,615
Issuance of 11,855 shares of common stock at
 $.5925 per share                                                 7,025
Issuance of 482,372 shares of Series A
preferred stock at $6.25 per
share, net of issuance costs                                 2,878,843
Net loss for the year ended December 31,
 1994                                                        (1,827,679)
Translation adjustment                                             (557)
Balances at December 31, 1994                                 7,427,851
Issuance of 210,900 shares 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 participating preferred stock to
 877,530 shares of common stock
Issuance of 393,904 shares of common stock for liquidation preference 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
Issuance of 100,000 shares of common stock at                   990,695
 $11.00 per share, net of issuance costs
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)
Balance at December 31, 1996                      $(33,000) $17,668,338
</TABLE>
The accompanying notes are on integral part of the consolidated financial 
statements.

                                    F-4

<PAGE>


<PAGE>


               CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

              for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>



                                                             1996                 1995            1994


<S>                                                      <C>                     <C>              <C>
Cash flows from operating activities:
   Net loss                                               $ (5,120,644)           $ (3,952,233)   $ (1,827,679)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depreciation and amortization                           663,809                 550,342         391,011
       Amortization of intangible assets                       203,479                 213,805         216,688
       Amortization of discount on investments, net           (285,509)                     --              --
       Amortization of deferred gain on sale-leaseback          (4,247)                (16,999)        (17,000)
       Provision for warranties                                     --                  50,000              --
       Provision for doubtful accounts                              --                  40,395          12,000
       Amortization of unearned compensation                    11,000                 382,638              --
       Provision for inventory obsolescence                     40,000                  82,000              --
       Loss (gain) on disposal of fixed assets                  (3,192)                  2,989          28,948
       Provision for deferred income taxes                          --                   7,573          91,250
       Change in assets and liabilities:
           Receivables                                        (488,378)               (271,020)         71,403
           Inventories                                        (753,947)               (601,293)       (196,800)
           Other assets                                        (80,074)               (142,392)       (128,474)
           Accounts  payable  and  accrued  expenses          (743,426)                931,054        (223,028)
           Deferred revenue and gains                                                  (25,000)         25,000
               Net cash used in operating activities        (6,561,129)             (2,748,141)     (1,556,681)
Cash flows from investing activities:

   Purchases of property and equipment                      (1,417,977)             (2,343,157)       (978,767)
   Proceeds from sales of property and equipment                23,532
   Costs incurred to obtain patents                            (93,573)               (144,763)        (26,374)
   Refunds of deposits                                              --                      --           1,358
   Purchases of short-term investments, held to maturity   (10,687,896)                     --              --
   Proceeds from maturities of investments                   5,000,000                      --              --
               Net cash used in investing activities        (7,175,914)             (2,487,920)     (1,003,783)


</TABLE>


(Continued)

                                        F-5

<PAGE>
               CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES

               Consolidated Statements of Cash Flows (Continued)

              for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>



                                                               1996          1995         1994
<S>                                                          <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from financing activities:
   Proceeds from issuance of  long-term debt
   Principal payments on long-term debt and capital                    --         500,000          15,325
    lease obligations                                            (751,446)       (185,020)       (125,275)
   Purchase of treasury stock                                     (47,500)             --              --
   Net proceeds from issuance of stock                          1,057,609      17,957,138       5,610,802
       Net cash provided by financing activities                  258,663      18,272,118       5,500,852
Effect of exchange rates on cash                                  (42,510)         (5,011)           (557)
      Net increase (decrease) in cash equivalents and cash
       equivalents                                            (13,520,890)     13,031,046       2,939,831
Cash and cash equivalents at beginning of year                 16,237,132       3,206,086         266,255
Cash and cash equivalents at end of year                     $  2,716,242    $ 16,237,132    $  3,206,086
Supplemental disclosures of cash flow information:


   Cash paid during the year for interest expense            $     11,589    $     59,968    $     49,805
   Cash received during the year for interest income         $    473,288    $    103,078    $     28,930
   Cash paid during the year for income taxes                $     76,724    $     88,700              --
Supplemental disclosure of noncash investing and financing activities:
    Capital lease and debt obligations incurred
      for equipment                                          $      6,479    $     21,095    $     76,148
    Debt retired by discounts on products sold                                               $     49,126



</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
                                       F-6
<PAGE>


               CARDIOVASCULAR DIAGNOSTICS, INC. AND SUBSIDIARIES
               Notes to Consolidated Financial Statements

        1.      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Cardiovascular Diagnostics, Inc. (the "Company") develops, manufactures and
markets a proprietary cardiovascular diagnostic test system that provides rapid
and accurate evaluation of hemostasis at the point of patient care. The Company
has two wholly-owned subsidiaries, Coeur Laboratories, Inc. ("Coeur") and
Cardiovascular Diagnostics Europe, BV ("CDE"). 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. CDE, a Dutch company, distributes the Company's products in Europe.

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 price per
share was $11.00, resulting 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 stockholders' equity.
                                       F-7
<PAGE>

        1.      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Investments (continued)

The Company has the intent and ability to hold all investments at December 31,
1996 until maturity.

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. Organization costs were incurred in connection with the
formation of CDE and are being amortized over five years. Patents 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 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.
                                       F-8
<PAGE>


        1.      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

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

Historical loss per common share is computed by dividing net loss by the
weighted average number of common shares and common share equivalents
outstanding during the period. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, Series A preferred shares that
automatically converted into common shares upon the effective date of the IPO,
393,904 additional shares of common stock that were issued to holders of Series
A preferred stock upon the closing of the IPO, as discussed in Note 9, and stock
options issued to employees during the 12 months immediately preceding the IPO,
have been included in the calculation as if they were outstanding for all
periods presented (using the treasury stock method and the IPO price of $11.00
per share).

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. Had compensation 
cost for the Company's plans been determined based on the fair value at the 
grant dates for awards under the plans consistent with the method of SFAS 
123, the impact on the Company's net loss and net loss per share would not 
have been material.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company's management in
estimating fair values for financial instruments.

Short-Term Investments, Held-to-Maturity

The fair values of the Company's short-term investments have been based upon
quoted market prices.
                                       F-9
<PAGE>


        1.      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Long-Term Debt

Market values of debt issues were estimated based upon prevailing market
interest rates at December 31, 1996 for debt issues with similar
characteristics.

A summary of significant financial instruments at December 31, 1996 is as
follows:

                                      Market Value   Carrying Value   Location
                                                                      of Details



 Short-term investments, held to
     maturity                           $5,979,680    $5,973,405       Note 2



Long-term debt                          $   49,623       $   50,00        Note 7



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

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS 128
is designed to improve the earnings per share information provided in financial
statements by simplifying the existing computational guidelines, revising the
disclosure requirements, and increasing comparability of earnings per share data
on an international basis. This pronouncement is effective for periods beginning
after December 15, 1997, and is not expected to have a material impact on the
Company's financial statements.

        2.      SHORT-TERM INVESTMENTS

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 Realized

                             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>
                                      F-10
<PAGE>


        3.      INVENTORIES

Inventories at December 31, 1996 and 1995 consisted of the following:

                                  1996                    1995



        Raw materials          $ 1,431,534             $   975,686

        Finished goods             587,264                 329,165



                               $ 2,018,798             $ 1,304,851



        4.      PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1996 and 1995 consisted of the following:

                                                1996            1995



Molds and equipment                              $4,709,870   $4,014,533
Furniture, fixtures and EDP equipment               711,993      519,154
Leasehold improvements                            1,040,093      774,912
Equipment under capital leases                      390,691      387,569
Automobiles                                          16,222       32,645
                                                  6,868,869    5,728,813
Less accumulated depreciation and amortization
                                                  2,632,741    2,232,992



                                                 $4,236,128   $3,495,821



        5.      INTANGIBLE ASSETS

Intangible assets at December 31, 1996 and 1995 consisted of the following:

                               1996           1995



Excess of cost over fair value
 of net assets acquired
                                 $1,802,506   $1,802,506

Patents                             478,338      382,687

Other                                85,123       87,201

                                  2,365,967    2,272,394

Less accumulated amortization       665,407      461,928



                                 $1,700,560   $1,810,466


                                      F-11
<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>


                                                                                   1996       1995       1994
<S>                                                                               <C>        <C>      <C>

Phase II grant award of $500,000 for research related
        to research of a rapid fibrinogen assay                                                      $ 13,735

Phase I grant award of $487,269 for research related
        to thrombolytic drug research                                                     $  8,587    235,788

Phase II grant award of $315,041 for research related to
        thromobolytic 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 myacardial injury detection                      $ 10,466     94,447

Phase II grant award of $541,383 for research related to rapid
        monitoring of antithrombin agents                                       243,738
                                                                               $254,204   $292,534   $249,523


</TABLE>

        7.      LONG-TERM DEBT

Long-term debt as of December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>


                                                           Fair Value 1996      1996        1995

<S>                                                             <C>          <C>          <C>


Convertible financial assistance agreement (see below)        $ 49,623   $  50,000   $  50,000

15.0% note payable due February 1, 1995,


        collateralized by subordinated claims to all assets
                                                                                           85,000

12% note payable due May 3, 1996, collateralized by


        certain inventories                                                               110,000

Bank notes payable repaid in 1996
                                                                                          494,178

$                                                                  49,623      50,000     739,178

Current portion of long-term debt
                                                                                         (282,566)



Long-term debt, excluding current portion
                                                                             $ 50,000   $ 456,612


</TABLE>

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, 1996 and 1995. 12

                                      F-12

<PAGE>


        8.      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, 1996 and 1995 was $390,691 and $387,569, respectively, and the related
accumulated amortization was $345,105 and $292,533, respectively. Rent expense
related to operating leases totaled $416,635, $317,334, and $191,654 for the 
years ended December 31, 1996, 1995 and 1994, respectively.

Future minimum lease payments as of December 31, 1996 are as follows:

  Year ending December 31,                 Capital Leases    Operating Leases



   1997                                         $21,617           $  428,520
   1998                                          17,400              357,392
   1999                                           1,030              372,443
   2000                                              --              382,630
   2001                                                               44,911
   Total minimum lease payments                   40,047           1,585,896
   Imputed interest (rates 8.00% to 9.24%)       (3,978)
   Present value of minimum lease payments       36,069
   Less current maturities                       19,082
   Long-term capital lease obligations          $16,987



        9.      SHAREHOLDERS' EQUITY

Authorized Shares

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 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 at $4.94
per share.

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 at $6.25 per share.

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 at
$6.25 per share.


                                       F-13

<PAGE>


        9.      SHAREHOLDERS' EQUITY (Continued)

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 of $11.00 per share, 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, 1996 and 1995, 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 $4.9377 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.
                                       F-14
<PAGE>


        9.      SHAREHOLDERS' EQUITY (Continued)

Stock Options (Continued)

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 1996, $11,000 of this expense was recognized.

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 238,150 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 10 years.

A summary of the status of the Company's Plans as of December 31, 1996, 1995 and
1994, and changes during the years ending on those dates is presented below:

<TABLE>
<CAPTION>
                                        1996              1995                1994

                                             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    865,000     $3.58  601,192          225,154

Granted                             109,000     $4.50  271,984          490,506
Exercised                          (126,508)    $0.73  (3,670)          (22,114)
Forfeited                           (89,696)    $0.58  (4,506)          (92,354)
Outstanding at end of year          757,796     $2.44  865,000    $3.58 601,192    $0.72



Options exercisable at year-end    451,558            593,016            74,619


</TABLE>
                                       F-15
<PAGE>


        9.      SHAREHOLDERS' EQUITY (Continued)

The following table summarizes information about the Plan's stock options at
December 31, 1996:
<TABLE>
<CAPTION>

                 Options Outstanding                     Options Exercisabld

                                     Weighted
                                     Average    Weighted                   Weighted
                       Number       Remaining   Average       Number        Average
        Range of      Outstanding  Contractual Exercise    Excersibale     Exercise
 Exercise Prices      at 12/31/96      Life      Price      at 12/31/96     Price



<S>                   <C>           <C>          <C>            <C>             <C>

 $0.40 - $0.79         432,506      8.1 years     $ 0.78        390,736          $0.78

 $4.50 - $12.10        325,290      9.2 years     $ 4.64         60,822          $5.25

                       757,796                                  451,558

</TABLE>


        10.     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, short-term
investments and accounts receivable. The Company places its temporary cash in
accounts with federally insured depository institutions. At December 31, 1996
the Company had a majority of its cash invested in one financial institution.
The Company's short-term investments consist of obligations of the U.S.
Treasury. 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, 1996, 1995 and 1994 there were sales to
three Coeur customers that exceeded 10% of net sales. Sales to these customers
were: 1996 - customer A, $2,192,778 (34%), customer B, $748,280 (12%) and
customer C, $671,188 (10%); 1995 - customer A, $2,095,548 (40%), customer B,
$790,132 (15%) and customer C, $632,781(12%); 1994 - customer A, $2,269,012
(48%), customer B, $712,155 (15%) and customer C, $733,138( 16%).

The Company operates in a single industry segment, providing medical diagnostic
and imaging products.

The Company has operations in two geographic regions, the United States and
Europe. The geographic areas are, to a significant degree, interdependent with
respect to research, product supply and business expertise. Sales between
geographic areas are generally priced to recover cost plus appropriate mark-up
for profit. The Company began its European operations in 1994 and revenues from
its foreign operations did not exceed 10% of its consolidated revenues in 1994
or 1995. During 1996, revenues from foreign operations were approximately
$725,000, substantially all of which were from customers in Europe and the
United Kingdom. In addition, the Company's identifiable assets of its foreign
operations are less than 10% of its consolidated total assets.
                                       F-16
<PAGE>


        10.     SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
(Continued)

The Company generated revenue from export sales as follows:

                      1996            1995            1994



United Kingdom       $  957,980   $  850,311   $  976,918
Other                   684,728      650,633      616,422



Total export sales   $1,642,708   $1,500,944   $1,593,340



        11.     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 $32,835, $63,176 and $46,450 during the years ended December 31
1996, 1995 and 1994, respectively.

Additionally, the Company had a license agreement with Boehringer Mannheim
Corporation. The Company received royalty payments under this agreement of
$61,596 and $88,841 during the years ended December 31, 1995 and 1994,
respectively. All obligations under this license agreement were terminated
effective June 30, 1995.

        12.     INCOME TAXES

Income tax expense consisted entirely of current state taxes of $51,860, $82,136
and $91,250 for the years ended December 31, 1996, 1995 and 1994, 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, 1996, 1995
and 1994 is as follows:
<TABLE> 
<CAPTION>


                                                          1996           1995           1994
<S>                                               <C>            <C>            <C>

Expected income tax benefit at statutory rate      $(1,706,576)   $(1,315,832)   $  (590,386)
State tax provision (benefit)                         (114,326)       (25,373)        19,105
Goodwill amortization                                   62,830         62,985         66,811
Compensation paid with incentive stock options           3,740        130,097
Other                                                   16,192        157,259         34,720
Change in valuation allowance and June 30, 1995,
   respectively                                      1,790,000      1,073,000        561,000
Net income tax provision                           $    51,860    $    82,136    $    91,250

</TABLE>
                                       F-17
<PAGE>


        12.     INCOME TAXES (Continued)



The components of the net deferred tax assets and net deferred tax liabilities
as of December 31, 1996 and 1995 were as follows:

                                                        1996              1995

        Deferred tax assets:
           Accrued expenses                          $     17,000
           Other                                           28,000   $    38,000
           Alternative minimum tax credits                  9,000         9,000
           Net operating loss carryforward              6,446,000     4,591,000
           Research and development credits               229,000       229,000
           Foreign tax credits                             35,000        35,000
               Total gross deferred tax assets          6,764,000     4,902,000
           Valuation allowance                        (6,536,000)    (4,746,000)
               Net deferred tax assets                   228,000        156,000
        Deferred tax liabilities:
          Patents                                        160,000        130,000
          Fixed assets                                    68,000         26,000
               Total gross deferred tax liabilities      228,000        156,000
        Net deferred taxes                           $       -      $       -



At December 31, 1996 and 1995, the Company had approximately $16,089,000 and
$11,349,000, 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 2002 through 2010 if not utilized. At
December 31, 1996 and 1995, for state income tax purposes, the Company had
combined net operating loss carryforwards of approximately $12,020,782 and
$8,977,000, respectively. These carryforwards expire in 1997 through 2001 if not
utilized. To the extent that Coeur's net operating losses incurred through 1994
(approximately $2,000,000 at December 31, 1996) are utilized in the future, the
benefit will reduce the excess of cost over fair value of net assets acquired.

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 1994 and the Company's consolidated 
losses through January 1995 will be subject to an annual limitation of 
$175,000 and $482,000, respectively.

An additional change in ownership occurred in 1996 in connection with the
Company's IPO which subjects the losses incurred since January 1995 to an
incremental annual limitation of $1,954,000 per year.

        13.     CONTINGENCIES

The Company is subject to certain legal proceedings and claims arising in the
ordinary course of business. It is management's opinion that the disposition of
these matters will not have a material adverse effect on the consolidated
financial position, results of operations or liquidity of the Company.

                                      F-18
<PAGE>


        14.     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, 1996, 1995 and 1994


<TABLE>
<CAPTION>

<S>                                             <C>                   <C>                   <C>                   <C>             

                                                 Balance at                Charged to                                 Balance at
                                                 Beginning                 Costs and                                     End
                                                 of Period                  Expenses              Deductions          of Period
                                                ------------              -----------          ---------------      ---------------
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
                                                  ===========           ===========           ===========           ============


Year Ended December 31, 1994

Deducted from asset accounts:

       Accounts Receivable Reserves (a)         $          0          $     12,000          $     12,000 (f)      $           0
                                                  ===========           ===========           ===========           ============

</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.
(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 financial statement schedule, Schedule II - Valuation and 
Qualifying Accounts, including 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.




/s/ COOPERS & LYBRAND
Raleigh, North Carolina
February 20, 1997



                                      S-2

<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 26, 1997              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                      March 26, 1997
John P. Funkhouser                          Director (Principal
                                            Executive Officer)


/s/ B. Denise Hobbs                         Treasurer and Vice President        March 26, 1997
B. Denise Hobbs                             of Finance and Administration
                                            (Principal Financial and
                                            Accounting Officer)

/s/ Dennis J. Dougherty                     Director                            March 26, 1997
Dennis J. Dougherty


                                            Director                            March __, 1997
William A. Hawkins


/s/ John K. Pirotte                         Director                            March 26, 1997
John K. Pirotte


/s/ Stephen R. Puckett                      Director                            March 25, 1997
Stephen R. Puckett


/s/ Philip R. Tracy                         Director                            March 26, 1997
Philip R. Tracy


                                            Director                            March __, 1997
Paul W. Wiles
</TABLE>