SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
                                       OR
         [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended June 30, 1997       Commission File No. 33-43976
               Delaware                                88-0218411
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    incorporation or organization)

                                BIORELEASE CORP.
            (Exact name of Registrant as specified in its charter)

               340 Granite Street, 2nd Floor, Manchester, NH 03102
               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:         (603)641-8443

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,Class A
                         Common Stock Purchase Warrants

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-B 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-KSB or any  amendment to
this Form 10-KSB [X ]

                    Yes  __X__        No _____

The aggregate market value of the voting common stock held by non-affiliates (1)
of the  registrant  based on the  average  of high bid ($.12) and low bid ($.06)
prices of the Company's  Common Stock, as of October 08, 1997, is  approximately
$611,376  based upon an average  of $.10  multiplied  by the number of shares of
Registrant's Common Stock held by non-affiliates (6,113,757shares).

The number of shares  outstanding  of the  Registrant's  Common Stock,  $.01 par
value,  as of October 08, 1997 is 9,371,659  (which  excludes  550,000  treasury
shares).

(1)  "Affiliates"  solely for purposes of this item refers to those persons who,
during the 3 months  preceding  the filing of this Form  10-KSB  were  officers,
directors and/or  beneficial  owners of 5% or more of the Company's  outstanding
stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                  See Item 13.

Transitional Small Business Disclosure Format (check one):  Yes _____   No __X__

                                       i

<PAGE>

                                   BIORELEASE CORP.
                                      Form 10-KSB
                            Fiscal Year Ended June 30, 1997

                                   Table of Contents

      PART I
      Item 1. Business.                                                      1
           General                                                           1
           The Subsidiary (Biorelease Technologies, Inc.)                    2
           Description of the Subsidiary's Technologies                      2
           ErythrogenTM Cell Culture Product and Business Opportunity        4
           ErythrogenTM Manufacturing, Sales and Marketing                   4
           Competition                                                       5
           Research and Development Policy                                   5
           Patents and Proprietary Technology                                5
           Employees & Outside Consultants                                   6
      Item 2. Properties.                                                    7
      Item 3. Legal Proceedings.                                             7
      Item 4. Submission of Matters to a Vote of Security Holders.           7
      PART II
      Item 5. Market for Company's Common Equity and Related 
              Stockholder Matters.                                           7
      Item 6. Management's Discussion and Analysis of Financial
              Condition and Results of Operations.                           8
         Results of Operations                                               8
         General                                                             8
         Year Ended June 30, 1997 compared to the Years Ended 
         June 30, 1996 and 1995                                              9
         Liquidity and Capital Resources                                     9
         Dividend Policy                                                    10
         Effect of Inflation                                                10
         Litigation and Related Matters                                     10
      Item 7. Financial Statements.                                         10
      Item 8. Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosures.                           11
      PART III
      Item 9. Directors, Executive Officers, Promoters and
              Control Persons; Compliance with Section 16(a) of
              the Exchange Act.                                             12
           Compliance With Section 16(a) of The Securities
           Exchange Act of 1934                                             13
      Item 10. Executive Compensation.                                      13
      Item 11. Security Ownership of Certain Beneficial Owners
               and Management.                                              15
      Item 12. Certain Relationships and Related Transactions.              17
           The Reorganization                                               17
           The Company                                                      17
           The Subsidiary                                                   18
           The Selling Securityholders' Offering                            19
           The Exchange Offering                                            20
           Terminated Public Offering                                       20
      Item 13. Exhibits and Reports on Form 8-K.                            20
           Reports on Form 8-K                                              20
           Exhibits                                                         20
           Exhibits incorporated by reference                               20
      SIGNATURES                                                            22
      SUPPLEMENTAL INFORMATION AND EXHIBITS                                 23

                                       ii

<PAGE>

PART I

Item 1.  Business.

General

      The  Company,   Biorelease  Corp.  ("BIO")   including  its  biotechnology
subsidiary,  Biorelease Technologies,  Inc. (the "Subsidiary"), is a development
stage company. The Subsidiary holds technology and patents in the field of blood
substitutes and sustained release drug delivery  technology based on chondroitin
sulfate. Dr. R. Bruce Reeves, formerly the Company's President and CEO, resigned
effective  October 4, 1996 as an officer and Director of the  Company.  Dr. Leon
Gauci was named  President of the  Company's  subsidiary on January 13, 1997 and
served in that capacity until June 30, 1997. R T Robertson Consultants,  Inc., a
corporation  wholly-owned  by  members of Dr.  Reeves'  family,  entered  into a
consulting  agreement  with the  Company's  subsidiary  to oversee the  business
activities of the Company's subsidiary through June 30, 1997. Currently both Dr.
Reeves and Dr.  Gauci are  available  to the Company on an  informal  consulting
basis.

      The Subsidiary began its biotechnology activities in 1989 by acquiring the
hemoglobin  stabilization and processing  technologies of Oxygenetics,  an early
stage  California  based company to allow  Biorelease to become a participant in
the  $3 to $5  billion  synthetic  blood  business.  The  Subsidiary's  founders
included Richard Schubert, the Company's present Chairman, then President of the
American Red Cross, Dr. R. Bruce Reeves,  its President and CEO until October 4,
1996 and Dr. Paul Maybury,  a Director until  September 30, 1997. The Subsidiary
subsequently  acquired  sustained  release  drug  delivery  technology  based on
chondroitin  sulfate  in order to  expand  its  business  franchise  into  other
therapeutic  areas. Drug delivery has become one of the fastest growing areas in
the  pharmaceutical  industry  with  companies  increasingly  turning  to  novel
delivery  systems to extend the patent life of existing drugs,  increase product
portfolios,  enhance safety and efficacy, reduce unwanted side-effects,  improve
patient  compliance  and maintain  product sales against  competition.  Products
utilizing novel drug delivery  technologies  have already captured a significant
share of several therapeutic markets and some systems may be able to provide new
therapies by modifying the activity of existing compounds.

      The  Company  became  listed on NASDAQ  (Small  cap) in 1992  following  a
business  combination  with the Subsidiary.  The Company's stock was delisted in
April,  1994 for failing to meet net asset  requirements and its stock has since
been trading on the OTC Electronic  Bulletin Board. During the fourth quarter of
this past fiscal year,  NASDAQ changed the Company's trading symbol from BREL to
BRLZ.

      The Company has invested  approximately  nine million dollars ($9 million)
in the Subsidiary's  technologies including support and administrative expenses.
By mid 1994, following the delisting, it was clear that the Company's ability to
raise capital was  insufficient to allow it to become a self standing  synthetic
blood producer in light of the large costs  necessary to bring such a product to
market.  For the past  three  fiscal  years the  Company  has  operated  without
employees,  using  consultants  and  research  affiliations  to conduct  limited
research on the Company's technologies.

      On October 8, 1996,  the  Company's  Board of  Directors  announced it had
executed a letter of intent for the proposed  acquisition of TheraMed  Partners,
Inc.  ("TheraMed"),  a then recently formed,  privately-held company focusing on
acquiring   and   consolidating    late-stage    biotechnology   companies   and
pharmaceutical  synergistic  technologies.  The  letter of intent  provided  the
general  terms and  conditions  of a proposed  acquisition  of  TheraMed  by the
Company, whereby the management of TheraMed would receive a substantial interest
in BIO.  When  taken  together  with  shares  held by  existing  management  and
directors of the Company,  TheraMed stockholders and the Company's then existing
management  and  directors  together  would hold a  controlling  interest in BIO
following the  acquisition.  In February 1997, the Company  terminated the Stock
Purchase  Agreement  with  TheraMed.  Under  the terms of the  termination,  the
Company agreed to reimburse TheraMed for up to $27,500 advanced on behalf of the
Company during the pendency of the acquisition.

      The Subsidiary  recently received notice from Baxter Healthcare Corp. that
effective January 1, 1998, Baxter would not renew its exclusive licensing rights
to the Subsidiary's  chondroitin  sulfate  technology for blood  substitutes but
rather convert to a non-exclusive  basis for its license rights. In light of the
loss of future  Baxter  exclusivity  payments  and the lack of  working  capital

                                       1

<PAGE>

adequate to exploit the  Subsidiary's  technology,  the Company expects to offer
for sale either the entire  Subsidiary  subject to Subsidiary  liabilities or to
find a buyer  for each of the  separate  technologies  owned by the  Subsidiary.
There is no  assurance  that a suitable  purchaser  can be found.  BIO will seek
acquisition or  reorganization  candidates  which can benefit from the Company's
publicly traded status.

The Subsidiary (Biorelease Technologies, Inc.)

      Since  acquisition  by the Company in 1992,  the Subsidiary has focused on
development  and  promotion of its  proprietary  hemoglobin  based  cell-culture
additive,  ErythrogenTM,  along with  developing  applications  of its sustained
release  drug  technology.  During  fiscal year 1993,  the  Subsidiary  began to
generate  minimal  revenues  ($7,942)  from the first sales of  ErythrogenTM  in
non-FDA regulated  applications.  ErythrogenTM  sales $21,705 and $26,265 during
the years ended June 30, 1996 and 1997, respectively and $146,312 from inception
to June 30, 1997.  The  Subsidiary  received  $81,519 in fiscal 1997 and $46,948
during the year ended June 30, 1996 for licensing  revenues  inclusive of patent
cost  reimbursement from Baxter Healthcare (see Next Paragraph) related to their
use of chondroitin  sulfate drug delivery for blood substitutes.  The Subsidiary
had $7,000 in revenues during fiscal 1996 from the leasing of its equipment. The
Subsidiary's  long-term  intention,  with  assistance from one or more strategic
partners  in the  pharmaceutical  industry,  is to develop  and  derive  license
revenues  from  human  therapeutic  products  based  upon  applications  of  its
technologies.  At this time, the Subsidiary has no products  approved by the FDA
or in  clinical  trials  and no  assurance  can be given  as to if or when  such
approvals  or trials will occur.  Moreover,  the  Subsidiary  does not intend to
conduct large scale  clinical  trials or to develop a  pharmaceutical  marketing
unit;  rather,  it plans to establish  collaborations  for these  purposes  with
strategic partners that have sufficient expertise and resources.

      The   Subsidiary  has  invested   development   resources  into  two  core
proprietary  technologies:  hemoglobin  stabilization and sustained drug release
technology based on chondroitin sulfate. The Subsidiary's cell culture additive,
ErythrogenTM,  uses hemoglobin  stabilizing  technology to produce a proprietary
cell culture  additive.  The Subsidiary  has  discontinued  direct  promotion of
ErythrogenTM to the research and laboratory  markets because of the high cost of
promotion.  Instead, the Subsidiary is focusing on industrial  applications.  It
has initiated  application studies with a supplier of hollow core bioreactors to
demonstrate the benefit of  ErythrogenTM  in the production of  pharmaceuticals.
From August,  1994 to June, 1995 the Subsidiary  received  financial  support to
demonstrate  the benefit of its  chondroitin  sustained  release  technology  as
applied  to  a  blood   substitute   product  under   development   by  a  major
multi-national  pharmaceutical  company, Baxter Healthcare (Baxter). As a result
of this  sponsored  work,  on April 30,  1996  Baxter  entered  into a licensing
agreement  with The  Subsidiary  whereby  Baxter pays an escalating  exclusivity
payment  to the  Subsidiary  quarterly  plus a royalty on all  applicable  blood
substitute sales for the period of the  Subsidiary's  patents in exchange for an
exclusive  license  to use  the  chondroitin  technology  for  blood  substitute
applications.  The agreement calls for quarterly revenues to the Company through
the calendar  year 2001 with  minimum  annual  revenues  ranging from $80,000 in
calendar year 1997 to $240,000 in 2001.  Further the agreement calls for royalty
payments  derived from  products  that  incorporate  the  Subsidiary's  patented
Chondroitin  sulfate  technology.  This  agreement  could result in  significant
license  royalties to the  Subsidiary  not earlier  than the year 2000  provided
Baxter  incorporates  this technology into its blood  substitute  products under
clinical review in the U.S. and other countries.  The Company was recently given
notice that these exclusive licensing rights held by Baxter Healthcare would not
be renewed after  December 31, 1997,  instead  converting  into a  non-exclusive
license  resulting in cessation of future  payments.  Through June 30, 1997, the
Company has received $317,225 of revenues under the agreement.

      Since closing its research  facilities  in June,  1995,  the  Subsidiary's
primary  research  activities  are  being  conducted  at the  University  of New
Hampshire ("UNH") pursuant to a research agreement.  Research at UNH has focused
on cell culture  application  development of  ErythrogenTM.  Continuation of the
work earlier conducted for Baxter in the Subsidiary's  facilities on chondroitin
sulfate/blood  substitutes is now being conducted by Baxter at their Round Lake,
Illinois  research  facilities.  With  the  pending  conversion  of  the  Baxter
agreements  from exclusive  basis to  non-exclusive  basis and resultant loss of
exclusivity  payments  therefrom,  the Company expects to seek a buyer of either
the Subsidiary or its respective technologies.



Description of the Subsidiary's Technologies

               THE SUBSIDIARY'S HEMOGLOBIN BLOOD GAS TECHNOLOGY

                                       2

<PAGE>

      The  subsidiary  holds an allowance for a European  Patent for the medical
use of  nitric  oxide  and/or  carbon  monoxide  complexed  with any  hemoglobin
compound including  hemoglobin based blood products being developed by others as
blood substitutes.  These blood gas compounds, long held to be both unstable and
toxic to human cells, have been shown over the past several years by independent
laboratories to exhibit  significant  medical and biologic benefit.  In March of
1996, a discovery by Dr.  Jonathan  Stamler and  associates  at Duke  University
Medical  Center,  published in the  publication  "NATURE",  validated  the basic
premise  of  the  subsidiary's   patent.   Stamler's   research  concluded  that
hemoglobin,  the protein  contained in red blood cells which delivers oxygen and
exchanges  carbon dioxide in all living  tissue,  also carries nitric oxide (and
can carry  carbon  monoxide)  in a beneficial  and  therapeutically  significant
manner.  Currently,  the Subsidiary does not possess the resources  necessary to
develop this  technology on its own. It is the goal of the  Subsidiary to either
find a buyer for this  technology or a company  willing to provide the resources
to further develop this technology.

            CHONDROITIN SULFATE SUSTAINED DRUG RELEASE TECHNOLOGY

      While the subsidiary  was pursuing its own blood  substitute  product,  it
acquired an  excellent  sustained  release  drug  delivery  technology  based on
chondroitin  sulfate,  a naturally  occurring  compound  found in the  cartilage
tissue of all cartilage containing animals (including humans).  This technology,
patented in the U.S. and abroad,  has been applied by the subsidiary to a number
of drugs and  biological  compounds  with the effect of extending  the drug's in
vivo dwell time.  This technology has received  development  support from Baxter
Healthcare  and  resulted in an initial  licensing  agreement in April 1996 with
Baxter for Baxter's  blood  substitute  application,  such  recently  revised to
become   non-exclusive.   Chondroitin   sulfate  enjoys  key   advantages   that
differentiate  it  within  the drug  delivery  marketplace.  Unlike a number  of
competitive  drug  delivery  technologies,   chondroitin  sulfate  is  naturally
occurring in the body, is highly  biocompatible  and is readily available from a
number of natural  sources.  The subsidiary has complexed  chondroitin  sulfate,
derived  from  bovine  sources,  to  various  drugs  and  proteins.   Commercial
applications  could enable the Subsidiary to participate,  in collaboration with
corporate  partners,  in a new  generation  of  sustained-release  drug delivery
applications  for the  pharmaceutical  industry  with emphasis on large dose and
chronically  used drugs,  actively  competing in a drug delivery  market that is
currently  estimated  at tens of  billions  of  dollars.  Because of the limited
working capital position of the Company, the Subsidiary will seek either a buyer
for this  technology  or find a partner  willing to  provide  the  resources  to
develop this technology further.

      The Subsidiary acquired the U.S. and certain international patents for its
sustained  drug  release  technology  based  on  chondroitin  sulfate.  Research
conducted  by  predecessors  and others in  support  of the patent  applications
indicates  that  chondroitin  sulfate  can  bind  with  biological  or  chemical
compounds and effect  prolonged  release of drug  activity.  Based upon research
conducted by the Company and scientific literature, the Subsidiary believes that
chondroitin sulfate can be modified and linked to a variety of compounds.

      Chondroitin  sulfate  is a  naturally  occurring  biopolymer  found in the
connective tissues of mammals and other cartilage containing creatures.  It is a
biodegradable and biocompatible substance. Accordingly, management believes that
chemically  linking  chondroitin  sulfate  to a variety of  peptides,  proteins,
hormones  and  enzymes  is  not  expected  to  produce  toxic  effects  if  used
therapeutically in humans and animals.  Based upon the Subsidiary's  patents and
other published  studies,  management  believes that chondroitin  sulfate can be
used as a sustained  release  drug system.  The active drug would be  chemically
linked to chondroitin  sulfate.  The chondroitin sulfate would act as a carrier,
protecting the drug for a prolonged period,  allowing lower but sustained levels
of drug in the body. During the normal metabolic process the complex, over time,
would be slowly broken by physiological action,  thereby releasing optimal doses
for a prolonged  period.  The sustained  release system may allow for the use of
lower doses, potentially reducing the incidence of toxic side effects.

      Potential therapeutic applications of such a sustained release drug system
would include drugs not suitable for mechanical  systems  (e.g.,  encapsulation)
and drugs that  currently  are  delivered  by  mechanical  systems  that produce
patient  discomfort  (e.g.,  by  injection).  Potential  drugs to be  linked  to
chondroitin  sulfate  include   antibiotics,   biopharmaceutical   products  and
anti-cancer  drugs, and topical  formulations  using  chondroitin  sulfate-bound
drugs.  No assurance can be given that the Subsidiary will be able to enter into
a sale or  collaborations  or, if such an arrangement is entered into,  that the
preclinical  data generated will result in further  collaboration or a licensing
opportunity.

                                       3

<PAGE>

ErythrogenTM Cell Culture Product and Business Opportunity

      The Subsidiary's focus, in the non-regulated  biologics industry, has been
to develop a cell culture product by creating an additive based on its blood gas
technology for the cell culture additive market.  Cell culture is the process by
which living cells (bacterial,  plant, yeast, insect,  mammalian) are propagated
in a controlled  environment (medium).  Cell culture is maintained at the proper
bath temperature and  supplemented  with nutrients and salts, and is utilized by
the  pharmaceutical  and  biotechnology   industries  to  generate   recombinant
products.  Agents that enhance the efficiency and  productivity  of cell culture
can be  developed  for  markets  that are both  sizable and  independent  of FDA
clinical trials. Fetal bovine serum (FBS), the serum component of blood obtained
from calf fetuses,  is the cell culture additive used most commonly  (represents
approximately  50% of the additive market) to provide  nutrition and enhance the
growth  of cells.  Cells  grown in  culture  can be used to  produce  biological
materials    including    antibiotics,     antibodies,     biopesticides,    and
genetically-engineered proteins and viruses.

      In academic and industrial  laboratories,  cells are propagated in vessels
ranging from plastic flasks to large stainless steel  bioreactors.  Cells can be
maintained  more  easily in flasks in  research  laboratories.  Scale-up of cell
cultures into large volume spinner/shaker flasks and bioreactors has encountered
difficulty in supplying  oxygen  uniformly to  high-density  cell  cultures.  No
method has been wholly  satisfactory in addressing this problem.  Biorelease has
developed  a  purified,   stabilized   tetrameric   hemoglobin   that   utilizes
hemoglobin's oxygen carrying capability to increase the oxygen delivery to cells
contained  in the media.  ErythrogenTM  enhances  the growth of cultured  cells,
especially  those of  high-density  cultures and reduces the amount of nutrients
that must be  added.  Most  importantly,  ErythrogenTM  significantly  increases
protein expression and production.

      In July, 1994, at the XI Congress of International  Society for Artificial
Cells, Blood Substitutes and Immobilization Biotechnology, Dr. Tony Goffe, now a
consultant  to the  Subsidiary,  then with Unisyn  Technologies  Corporation,  a
supplier  of  bioreactor  equipment  and  media  products  to the  cell  culture
industry,  reported  results showing  ErythrogenTM's  efficacy in mammalian cell
types (3C11  Hybridoma  and 1581  Monoclonal  antibodies).  In this  significant
study,  Unisyn  reported  ErythrogenTM  increased  protein  production  for both
monoclonal  antibodies and hybridoma cells in their hollow core bioreactors by a
factor of 80% compared to control media  without  ErythrogenTM  added.  Further,
Unisyn   compared    ErythrogenTM   to   other   oxygen   carriers,    including
perfluorocarbons and blood substitutes. ErythrogenTM showed substantially higher
activity than any other carrier studied. In the Company's fiscal year ended June
30, 1996,  under a cooperative  research  grant from the State of New Hampshire,
researchers  confirmed broad  stimulative  effect on a variety of mammalian cell
lines including  normal human epidermal  keratinocytes  (NHEK),  the cells which
make up skin tissue. In addition to the possible use in cosmetics, this research
may lead to  products  for wound  healing  and burns  (see  previous  discussion
relating to blood gas technology).

      The Subsidiary  introduced its first cell culture additive,  ErythrogenTM,
in late 1993.  ErythrogenTM has been sold to a number of research  laboratories,
including the NIH, as well as to a number of  biotechnology  and  pharmaceutical
companies for incorporation  into their experimental cell culture media. In 1995
the  subsidiary  received  an  initial  order for  ErythrogenTM  from  Sigma for
incorporation  into their tissue  culture  research  catalogue.  The  subsidiary
continues to develop new  applications  data under an ongoing  University of New
Hampshire cooperative research grant and expects to publish some of this data.

      The subsidiary  commenced small-user sales of ErythrogenTM in the research
market several years ago.  Revenues from research sales of ErythrogenTM  for the
past several fiscal years have been modest ($141,790 to date).  This product and
business activity has not been a major focus for the Subsidiary.

ErythrogenTM Manufacturing, Sales and Marketing

      The Subsidiary  engaged a small  unaffiliated  manufacturer  of biological
products to perform specific  manufacturing and product  development  activities
for the Subsidiary. Manufacturing and product development was conducted pursuant
to periodic  work orders.  The  Subsidiary  owns the primary  equipment  used to
manufacture  ErythrogenTM.  This manufacturer has not manufactured  ErythrogenTM
for the  Subsidiary  for several  years because the  Subsidiary  currently has a
sufficient inventory of ErythrogenTM.  Based upon the Subsidiary's experience to
date,  management  believes that the manufacturer has the ability to manufacture
ErythrogenTM within the product  specifications  established for the utilization
of ErythrogenTM as a cell culture additive.  Since June 1995, the Subsidiary has
employed no sales or marketing staff.

                                       4

<PAGE>

Competition

      (a) ErythrogenTM  Initial testing  indicates that  ErythrogenTM  increases
cell densities and reduces cell doubling time and increases  protein  production
when added to insect and mammalian cell culture media.  Management believes that
these results stem, in part, from ErythrogenTM 's ability to increase the amount
of  available  oxygen for cell  utilization  and,  possibly,  decrease the level
needed of  certain  additives  such as FBS.  ErythrogenTM  technically  does not
compete with FBS because it is a supplement  to and not a  replacement  for FBS.
The Subsidiary knows of no other  commercially  available cell culture additives
that  provide  oxygenation  to  culture  media;  however,  a number  of  biotech
companies have the capability to produce similar products.  Management  believes
that, the Subsidiary's  patent position for hemoglobin  stabilization will limit
the degree to which these companies could sell similar products will be limited.
The Subsidiary has received  notice of allowance from the European Patent Office
of  foreign  allowance.  With  any  culture  media  supplement,  broad  customer
acceptance  will be a  factor  of the  number  of  cell  lines  enhanced  by the
substance,  the product's  shelf life and cost, and its  biological  activity or
other  such  features  as might  affect or  characterize  its  performance.  The
Subsidiary  generally  will compete  with  manufacturers  and  suppliers of cell
culture  media  supplements,   and  there  continue  to  be  other  products  in
development which may compete directly with those of the Subsidiary. Most of the
Subsidiary's competitors have greater financial and personnel resources than the
Subsidiary.  In the event that a competitor  produces a comparable  product,  no
assurance can be given that the Subsidiary will be able to successfully compete.

Research and Development Policy

      Ongoing Research and Development is important to the Subsidiary's  ability
to provide  marketable  technology  that keep pace with the rapid  technological
change  associated with the  biotechnology and  pharmaceutical  industries.  The
Subsidiary  is  committed  to  continuing  collaborative  research to extend the
existing uses of ErythrogenTM  and to develop other cell culture uses related to
the hemoglobin stabilization technology.  During the fiscal years ended June 30,
1995 and 1994, the Subsidiary spent $230,444 and $654,019 and, respectively,  on
research and  development on its hemoglobin and  chondroitin  technologies.  The
research at University of New Hampshire was the only work undertaken  during the
past two fiscal years (1996 and 1997).  From October 1989 to June 30, 1996,  the
Subsidiary spent $2,558,041 on research and development (not including  $690,000
to purchase these two technologies).

      Pursuant to an agreement  with the  University  of New  Hampshire,  UNH is
conducting research on the application development of ErythrogenTM for mammalian
cells.  Pursuant to the UNH Cooperative  Agreement which commenced  December 19,
1994 and runs through December 31, 1997, the Subsidiary  contributed $175,000 of
"in kind" matching  expenditures plus  contributing  $34,000 of equipment to UNH
for research under this UNH Cooperative Agreement, which funding was contributed
by the state of New  Hampshire to a level of $50,000.  There can be no assurance
that the agreement will extend beyond December 31, 1997.

      Until June,  1995,  the  Subsidiary  had been  utilizing  its own in-house
laboratory at its former facilities. However, as a part of the Subsidiary's 1995
reorganization  and  downsizing,   this  laboratory   facility  was  closed  and
laboratory  employees  terminated.  See "Item 2.  Properties" and "Item 3. Legal
Proceedings."  All work both in development of application data for ErythrogenTM
is now being  conducted  under the UNH  Cooperative  Agreement.  The  Subsidiary
cannot assure it can fund this program on a sustained  basis without  additional
capital or support from a collaborator.  Chondroitin  sulfate technology will be
promoted as a novel sustained release drug licensing opportunity.

Patents and Proprietary Technology

      The  Company's  success  will depend,  in part,  on its ability to obtain,
maintain  and  defend  patents,   protect  trade  secrets  and  operate  without
infringing  the patent  rights of others both in the United  States and in other
countries.  The  Subsidiary  holds United States patents for  "Stabilization  of
Proteins  and  Peptides  By  Chemical  Binding  with  Chondroitin"   (1986)  and
"Chondroitin  Drug Complexes"  (1984), a Canadian patent for "Method for Protein
Stabilization"  (utilizing  Chondroitin) (1991) and a European allowance related
to  its   hemoglobin   technology  for   "Continuous   Processes  for  Modifying
Biologically Active Materials and the Products Therefrom" (1992). The Subsidiary
received  notice of allowance in 1996 from the European  Patent Office (EPO) for
European  applications  of a patent for its hemoglobin  stabilization  blood gas
technology used in producing ErythrogenTM and possible therapeutic applications.
(See the  discussion  of Blood Gas  Technology.)  Subject to  available  working
capital,  the  Subsidiary  has proceeded to develop  patent  coverage in several
European  countries under this approval.  The patent  position of  biotechnology
companies  generally is highly  uncertain and involves complex legal and factual
questions.  There is a substantial backlog of biotechnology  patent applications

                                       5

<PAGE>

at the United  States  Patent and Trademark  Office.  No  consistent  policy has
emerged  regarding the breadth of claims covered in biotechnology  patents.  The
patent protection for chondroitin stabilization extends through 2003 in the U.S.
There can be no assurance  that any issued patents will provide the Company with
competitive  advantages or will not be challenged by others, or that the patents
of others  will not have an adverse  effect on the  ability of the Company to do
business.   Furthermore,  there  can  be  no  assurance  that  others  will  not
independently develop similar products,  will not duplicate any of the Company's
proposed products or, will not design around Company patents. The prosecution or
defense of patent  infringement  litigation,  if  required,  could  involve  the
commitment  of  substantial  management  time  and  financial  resources  of the
Company.  The  loss or  challenge  of any of the  Company's  patents  may have a
material adverse effect on the Company's current and proposed  operations.  Also
the Company's  working capital  deficiency could impact the Company's ability to
pursue and maintain its patents.

Employees & Outside Consultants

     From  August  1994 until March 31,  1996,  the  Company  had one  full-time
employee,  Dr. R. Bruce Reeves,  the Company's  President (see Part iii, item 10
and 11).  Effective April 1, 1996 the Board of Directors  retained R T Robertson
Consultants,  Inc. as  consultants to the Company which includes the services of
Dr. Reeves.  Dr. Reeves continued to serve through October 4, 1996 as a Director
and President of the Company. R T Robertson Consultants,  Inc. agreed to consult
for the Subsidiary  for up to six months through June 1997. The Company  engages
certain other  consultants  on a part-time  and/or as needed basis.  During this
past year, the Company engaged as technical  consultants on a regular basis: Dr.
Victor Chan,  formerly a senior manager  employed by the Company who coordinates
technical  activities,  Dr.  Hiroshi  Mizukami  who  consults  in  the  area  of
hemoglobin research, and Dr. Tony Goffe who consults in the area of ErythrogenTM
applications and continuing cell culture  development.  Dr. Leon Gauci served as
President of the Subsidiary  from January,  1997 through June 30, 1997. Both Dr.
Reeves and Dr. Gauci are available to the Company on an as needed basis.  Due to
the Company's current financial position and lack of significant  revenues,  the
Company expects to continue this mode of operation for the near future.

      The  Company  has  always  utilized   scientific  advisors  and  technical
consultants  with  recognized  expertise in areas relevant to the development of
the Company's technologies and proposed products. From time to time, the Company
consults  with  other  outside  advisors  individually  on issues  of  research,
development  and  planning.  The Company  has  separate  arrangements  with each
outside consultant.  Generally,  outside consultants are given stock options and
consulting  fees and are reimbursed for accountable  expenses.  During the years
ended June 30,  1997,  1996 and 1995,  the Company  paid  $48,088,  $4,650,  and
$3,100,  in  accountable  expenses  to  Technical   Consultants  and  Scientific
Advisors.  As of the date  hereof,  past and  current  Scientific  Advisors  and
Technical  Consultants own an aggregate of 56,984 Shares of the Company's Common
Stock,  670,000  options to purchase a like  number of shares at prices  ranging
from $.07 to $6.00 per Share. All Outside  Consultants are employed by employers
other than the Company and may have  commitments  to or  consulting  or advisory
arrangements  with  other  entities  that may limit  their  availability  to the
Company. Some of these entities may also be competitors of the Company.  Where a
conflict  of  interest  arises,  while the  conflict  may not be resolved to the
benefit of the Company, each consultant or advisor has agreed not to divulge any
information that is proprietary to the Company.  Although Consultants may devote
substantial time and effort on behalf of the Company,  no individual is expected
to devote more than a small amount of time to the Company's business.

      Information relating to Scientific Consultants follows:

      HIROSHI MIZUKAMI,  Ph.D., has been a Professor of Biological Sciences at
Wayne State  University in Detroit,  Michigan  since 1974. He holds a Ph.D. in
Biophysics  from the University of Illinois.  Dr.  Mizukami  consults with the
Company on researching  the properties of hemoglobin and  chondroitin  sulfate
analogues.

      VICTOR T. CHAN,  Ph.D.,  serves the  Company as a  Consultant.  Dr. Chan
joined the Company in March,  1993 and served on a full time basis as Director
of Analytical Chemistry and through September,  1994 as Director of Laboratory
Operations.  Effective  October,  1994 Dr. Chan became a part time  consultant
to the  Company.  Dr. Chan was with Ares  Serono  Group for five years and was
instrumental   in  setting  up  their  protein   chemistry  group  to  provide
analytical  support for process  development  activities and pilot production.
Dr. Chan has experience in both new product  discovery and  structure-function
determination  of recombinant  proteins and naturally  derived  products.  Dr.
Chan  received his Ph.D.  from MIT in 1986 and later served as a post doctoral
fellow at Dana Farber Institute (Harvard Medical School).

                                       6

<PAGE>

      RANDAL  (TONY)  GOFFE,  Ph.D.,  consults  in the area of  Erythrogen  TM
research and  development.  Dr. Goffe was a  co-founder  of CellPro  (Bothell,
Washington) and more recently  served as V.P. and Chief Technical  Officer for
Unisyn  Technologies  (Milford,  Mass.).  Currently Dr, Goffe is President and
Founder  of  Genespan  Corporation  (Bothell,  Washington).  Dr  Goffe  is the
holder of 11 issued  patents and has authored  over 35 scientific  papers.  Dr
Goffe received a BS degree from  University of London in 1974 and received his
Ph.D. from The City University, London, UK in 1978.

      LEON GAUCI, M.D., served as President of the Subsidiary from January, 1997
until June 30, 1997. Dr. Gauci is now available to the Company, as a Consultant,
on an as needed basis.  Dr Gauci received his M.D. from the University of London
in 1972 and has spent over 25 years in the healthcare field, both as a physician
and in senior level pharmaceutical  research including assignments with Schering
Plough Corporation, Hoffman-La Roche Inc.
and Cortecs International.

Item 2.  Properties.

      The Company  entered into a lease  agreement,  on June 21,  1995,  for its
principal  offices in Bedford,  N.H.  The lease calls for monthly  rent of $295,
plus  utilities and a prorata share of taxes and common area  maintenance  fees.
The current  lease expires in July,  1998.  Since October 20, 1997 the principal
offices are located at 340 Granite Street,  2nd floor,  Manchester,  N.H. 03102,
(603)  641-8443.  This location,  in an in-town  multi-tenant  office  building,
allows R T  Robertson  Consultants,  Inc.  to provide  on a  contract  basis the
administrative functions of the Company and the Subsidiary and technical support
and shipping for the ErythrogenTM product line. R T Robertson Consultants,  Inc.
took over the  responsibility  for  payment of this lease  until it vacated  the
premises on October 20. The Company  has no  laboratory  facilities  at present,
instead utilizing  facilities at the University of New Hampshire,  located about
40  minutes  from the  Company's  offices.  The  Company  expects  to  reimburse
Robertson for an allocated portion of the facilities used. The Company relocated
from its former  facilities at 8A Industrial Way, Salem,  New Hampshire 03079 in
June of 1995 (see "Item 3.
Legal Proceedings").

Item 3.  Legal Proceedings.

      Except as set forth  below,  the  Company is not  presently a party to any
material litigation.

      On May 17, 1994,  Mr.  Lofink,  a shareholder  and former  employee of the
Subsidiary, filed a law suit in Superior Court in California to recover certain,
then  remaining,  sums  due  (approximately  $40,000),  relating  to his  former
employment.  In April, 1995 the Company entered into a court approved settlement
with Mr.  Lofink in the amount of $43,475  calling  for  payment of $5,000  upon
signing and $1,000 monthly until December,  1996 when any remaining  balance was
to become due. This agreement was further  amended in fiscal 1996 to provide for
an extension in the due date to December,  1997 by the Subsidiary  continuing to
pay $1,000 monthly through this extended  period.  The Company retains the right
to repay any open  balance by tendering  its stock of equal value.  All payments
have been made as called for under this settlement. This settlement is reflected
in the current financial statement (see Item 7 - Notes to Financial Statements).

Item 4.  Submission of Matters to a Vote of Security Holders.

       During the past three fiscal years no matters were submitted to a vote of
security holders through the solicitation of proxies or otherwise.

PART II

Item 5.  Market for Company's Common Equity and Related Stockholder Matters.

      (a) Market Information -- The principal U.S. market in which the Company's
common  shares are traded (all of which are of one class,  $.01 par value Common
Stock) is the Over-the-Counter market. In August 1986, the Company completed its
initial  public  offering.  In April 1991,  the Company  issued  450,000 Class A
Common Stock Purchase Warrants,  400,000 of which have been exercised. The Class
A Warrants were  exercisable  at $1.375 per Share and expired July 5, 1995.  The
Common Stock was listed for trading on the National  Association  of  Securities

                                       7
<PAGE>

Dealers  Automated  Quotation  System  ("NASDAQ")  under the symbol "BREL" until
April 27, 1994  (excluding  from February 28, 1994 through  March 17, 1994),  at
which  time it was  delisted.  The  Company's  common  Stock  is  traded  in the
Over-the-Counter  market and is listed on the OTC Bulletin  Board.  In July 1997
NASDAQ assigned the Company a new symbol "BRLZ". On October 8, 1997, the average
between  the high and low  reported  bid  price of the  Common  Stock on the OTC
Bulletin Board was $.10 per Share.  The following  table sets forth the range of
quoted  high and low bid prices of the  Company's  Common  Stock on a  quarterly
basis for the fiscal  years  ended June 30,  1997 and 1996,  as  reported by the
National  Quotation  Bureau.  These quotes reflect  inter-dealer  prices without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions. The Company's Class A Warrants expired on July 5, 1995.

                            Bid Price                                Bid Price
Fiscal 1997                Low    High   Fiscal 1996                Low    High
-----------                ---    ----   -----------                ---    ----
First Quarter,                           First Quarter
Ended September 30, 1996   $.125  $.16   Ended September 30, 1995   $.08   $.125

Second Quarter,                          Second Quarter
Ended December 31, 1996    $.08   $.14   Ended December 31, 1995    $.02   $.13

Third Quarter                            Third Quarter
Ended March 31, 1997       $.09   $.09   Ended September 30, 1995   $.08   $.125

Fourth Quarter                           Fourth Quarter
Ended June 30, 1997        $.13   $.13   Ended June 30, 1996        $.13   $.297

      (b) Holders -- The number of record holders of the Company's  Common Stock
as of June 30, 1997 was 1,710 inclusive of those brokerage firms and/or clearing
houses holding the Company's  common shares for their  clientele (with each such
brokerage  house and/or  clearing  house being  considered  as one holder).  The
aggregate  number of shares of Common Stock  outstanding  was  9,371,659  shares
which excludes 550,000 shares held in treasury as of June 30, 1997.

      (c)  Dividends  -- The Company made a dividend  distribution  of shares of
Vegas Chips,  Inc. in January  1992.  However,  the Company has not declared any
cash dividends since inception,  and has no present intention of paying any cash
dividends on its Common Stock in the  foreseeable  future,  as it intends to use
earnings, if any, to generate increased growth.

Item 6.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations.1

Results of Operations

General

      In April,  1994,  following a failed financing and delisting by NASDAQ for
failure to maintain required asset levels, the Company experienced a severe cash
flow shortage and had to severely  curtail its funding of the Subsidiary as such
resources were being used to fund research on the Subsidiary's technologies.  In
May,  1994  the  Company  terminated   substantially  all  remaining  laboratory
personnel,  professional staff and administrative  personnel except for Dr. Chan
and Dr. Reeves. Since that time, the Company and the Subsidiary has focused only
on  ErythrogenTM   sales  activities  and   confidential   research  related  to
chondroitin sulfate sustained release sponsored in part by Baxter Healthcare.

      In June,  1995,  because of  continuing  cash flow  shortages and defaults
under the  Subsidiary's  facility  lease and  equipment  lease,  all  laboratory
operations of the Subsidiary were terminated and the remaining  Subsidiary staff
were laid off.  Late in June 1995 the Company  moved to its current  facility in
Bedford,  N.H.  As a  part  of  this  consolidation,  the  Subsidiary  sold  all
non-essential  equipment,  destroyed all non-essential inventory of ErythrogenTM
and  settled its  outstanding  lease  obligations  with both its  equipment  and
facilities lessors.  The Subsidiary also reached settlement with a number of the
Subsidiary's  creditors by issuing stock in the Company in exchange for creditor

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

1 The primary focus of the following discussion is on the business of BIORELEASE
Technologies,  Inc. (the "Subsidiary"), as the Company, prior to its acquisition
of the  Subsidiary,  had no operations  other than raising capital and searching
for an acquisition candidate (i.e., the Subsidiary). Where relevant, all numbers
retroactively  take  into  account  the  acquisition  of the  Subsidiary  by the
Company.

                                       8

<PAGE>

releases  (see  Financial  Statements  at Note  6).  Currently,  the  Subsidiary
continues to maintain  inventory  of  ErythrogenTM,  its cell  culture  additive
product,  in order to provide  for supply of the  product  to  existing  and new
customers.

      Other than possible licensing opportunities,therapeutic products which may
be  derived  from the  Subsidiary's  technologies  are years  away  from  market
introduction and will require  significant  additional research and development,
including extensive preclinical and clinical testing and regulatory approval and
additional  resources the Subsidiary  presently  does not possess.  See "Item 1.
Business."

      Sales from  ErythrogenTM for the year ended June 30, 1997, 1996, and 1995,
were $26,265, $21,705, and $39,781. During year end June 30, 1995 the Subsidiary
ceased promoting direct sales to research and laboratory  markets because of the
extremely high promotion costs necessary to access these markets.  Instead,  the
Subsidiary   has  focused  on  supplying  a  single   industrial   client  which
incorporates ErythrogenTM in a proprietary media.

      In 1995, the Subsidiary, obtained its first significant sponsored research
revenues.  These  revenues,  amounting  to $81,519 in 1997,  $46,948 in 1996 and
$180,000 of the $213,117 sponsored revenues in 1995 were received from Baxter in
support of technology  development of  chondroitin  sulfate  sustained  delivery
technology.  In 1995 $33,117 was part of the State of New Hampshire  grant which
continues through December,  1997 unless further extended.  Chondroitin  sulfate
sales to Baxter  were $0 for 1997 and  $4,522  for  1996.  Total  revenues  were
$107,784  for the year ended June 30, 1997  compared to $75,653 and $257,420 for
1996  and  1995,  respectively.  Because  of the  closing  of  the  Subsidiary's
laboratory  facilities,  it is unlikely sponsored research will continue at this
level until the Subsidiary  re-establishes new laboratory  facilities,  if ever.
Following its  restructuring  and  consolidation,  the  Subsidiary  has and will
continue  to focus on  industrial  ErythrogenTM  sales  and  continue  to pursue
licensing and/or sale of its chondroitin sulfate  therapeutic  sustained release
drug technology. The Company expects to seek a buyer of either the Subsidiary or
it's respective technologies.

Year Ended June 30,  1997  compared  to the Years  Ended June 30, 1996 and 1995

      For the year ended June 30, 1997,  the Company,  including the  Subsidiary
had revenues of $109,284 cost of revenues of $7,998  general and  administrative
operational  costs of  $168,765,  interest  expense of $6,909,  $43,511 of costs
related to a terminated  public  offering,  income  recognized  on settlement of
liabilities  of $13,096 and $0 income taxes  resulting in a net loss of $104,803
as compared to the year ended June 30, 1996, in which the Company, including the
Subsidiary,  had revenues of $75,653, cost of revenues of $3,103, no expenses of
its Cell Culture  Operations,  no research and  development  costs,  general and
administrative  operational  costs of  $318,168,  interest  expense  of  $6,531,
litigation  costs of $6,951,  no costs  related to public  offerings,  no option
compensation  expense,  a loss of $1,600 from the sale of  equipment,  income of
$29,366 from the settlement of liabilities, a realized loss for decline in value
of  investment  of  $179,999  and $0  income  taxes  resulting  in a net loss of
$411,333.  In the year ended June 30,  1995,  the Company had sales of $257,420,
cost of sales of $4,706,  interest income of $1,449, selling expenses of $5,981,
research and development costs of $230,444,  general and administrative expenses
of $318,423,  litigation expense of $35,434,  gain on sale of assets of $64,216,
decline in investments of $945,000,  $251,134 income recognized on settlement of
liabilities,  other non-reoccurring costs of $45,763, an income tax of $463,440.
This resulted in a net loss of $1,474,972  for the year ended June 30, 1995. The
decrease  in loss  compared  to both of the  previous  two  fiscal  year's  loss
resulted  primarily  from the  reorganization  of cell culture  operations,  the
reduction of research expense resulting from the reduced laboratory  operations,
reduced general and administrative  expenses and decrease in loss for decline in
value of investment.  This difference is especially  apparent when the Loss from
Operations is compared,  namely $67,479 for 1997 verses $245,620 and 302,134 for
the two previous years.

      Other non-operational  expenses have decreased in the aggregate to $37,324
in 1997 as compared to $165,715 and $709,398 in 1996 and 1995 respectively. This
decrease is primarily  attributed  to the reduced  realized  loss for decline in
value of the Genesis investment.

Liquidity and Capital Resources

      From inception until the closing of the  Reorganization,  the Subsidiary's
primary  source of funds has been the  proceeds  from  private  offerings of its
Common Stock and Stock in the Subsidiary. Since the Reorganization,  the primary
source of capital has been the Company's funds.

      At June 30, 1997, the Company had negative  working capital of $295,150 as
compared with the  Company's  negative  working  capital of $218,737 at June 30,
1996 and negative  working  capital of $201,448 at June 30, 1995.  The change in

                                       9
<PAGE>

the Company's  working capital between June 30, 1997, June 30, 1996 and June 30,
1995 is  attributable  to  operating  expenses  in  excess of  revenues  and the
realized loss for decline in value of its  investment in Genesis which was $0 in
1997, $180,000 in 1996 and $945,000 in 1995.

      During  fiscal  years  1997  and  1996,  the  Company  benefited  from the
exclusive  licensing  agreement relating to sponsored research revenues from the
Company's  sustained release technology from Baxter  Healthcare.  The Company is
actively  seeking  a buyer for the  Subsidiary's  technologies  and is  actively
seeking  candidate  companies  which could benefit from the  Company's  publicly
traded  status and  possible  reorganization.  The Company can give no assurance
that these activities will be successful.

      The drastic  restructuring of its operations  during the past three fiscal
years, has allowed the Company to operate at significantly  lower expense levels
than those of the previous years.  However,  revenues from  ErythrogenTM,  while
exceeding  its  direct  costs  for the  last  three  fiscal  years,  will not be
sufficient for an indefinite  period to carry all other expenses not relating to
ErythrogenTM,  especially considering the conversion by Baxter from an exclusive
to a  non-exclusive  license  arrangement  and  loss  of  resulting  exclusivity
payments.

Dividend Policy

      The Company has not declared or paid any  dividends  on its commons  stock
since its inception and does not anticipate  the  declaration or payment of cash
dividends in the foreseeable future. The Company intends to retain earnings,  if
any, to finance the development  and expansion of its business.  Future dividend
policy will be subject to the  discretion  of the Board of Directors and will be
contingent  upon future  earnings,  if any, the Company's  financial  condition,
capital requirements,  general business conditions and other factors. Therefore,
it is unlikely that dividends of any kind will ever be paid.

Effect of Inflation

      Management  believes that  inflation has not had a material  effect on its
operations for the periods presented.

Litigation and Related Matters

      See "Item 3.  Legal  Proceedings."  There are no other  matters  pending
against the Company as of the date of this report.

Item 7.  Financial Statements.

      The following  financial  statements have been prepared in accordance with
the requirements of Item 310(a) of Regulation S-B.

                                     INDEX                   Page Number
INDEPENDENT AUDITORS' REPORT                                         F-1

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets
June 30, 1997 and 1996                                               F-2  

Consolidated  Statements of  Operations  
Three years ended June 30, 1997, and for the cumulative 
period from inception to June 30, 1997                               F-3

Consolidated Statements of Stockholders'
Equity (Deficit) for the cumulative  period from 
inception to June 30, 1997                                           F-4

Consolidated Statements of Cash Flows
Three years ended June 30,  1997 and for the cumulative  
period from inception to June 30, 1997                               F-5

Notes to Consolidated Financial Statements                           F-6

      Consolidating  schedules of the Company and its Subsidiary are included in
the  notes as other  supplemental  information.  All other  schedules  have been
omitted  because they are  inapplicable  or not required,  or the information is
included elsewhere in the financial statements or notes thereto.

                                       10
<PAGE>



                        BIORELEASE CORP. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                       CONSOLIDATED FINANCIAL STATEMENTS

                                 June 30, 1997

                       With Independent Auditor's Report

<PAGE>

BERRY, DUNN, McNEIL & PARKER
CERTIFIED PUBLIC ACCOUNTANTS
MANAGEMENT CONSULTANTS
--------------------------------------------------------------------------------

                            INDEPENDENT AUDITORS' REPORT


The Stockholders and Board of Directors
Biorelease Corp.

We have audited the accompanying consolidated balance sheets of Biorelease Corp.
and  Subsidiary (a development  stage  enterprise) as of June 30, 1997 and 1996,
and the related consolidated statements of operations,  changes in stockholders'
equity (deficit),  and cash flows for the years then ended.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our 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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Biorelease Corp. and
Subsidiary as of June 30, 1997 and 1996, and the results of their operations and
their cash flows for the years then ended, in conformity with generally accepted
accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going  concern.  As discussed in Note 1, the
Company  is a  development  stage  enterprise  that,  since its  inception,  has
incurred  operating  losses,  and the Company does not have  sufficient  working
capital to support its future  operations on an ongoing basis.  Because of these
factors,  there is  substantial  doubt  about its ability to continue as a going
concern.  Management's plans in regard to these matters are discussed in Note 1.
The consolidated  financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

The consolidated financial statements of Biorelease Corp. and Subsidiary for the
period  from  inception  to June 30,  1997  have  been  audited  by us and other
auditors.  Those reports  expressed an unqualified  opinion on those statements,
with an explanatory  paragraph regarding the uncertainty of the entity's ability
to continue as a going concern.


/s/Berry, Dunn, McNeil & Parker

Manchester, New Hampshire
October 16, 1997

                                      F-1

<PAGE>


                  BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                          (A Development Stage Enterprise)
                            Consolidated Balance Sheets

                               June 30, 1997 and 1996
<TABLE>
<CAPTION>

                                       ASSETS

                                                           1997      1996
                                                        -------   -------
<S>                                                    <C>        <C>
Current assets
Cash                                                    $ 15,277  $  1,200
Accounts receivable - trade                                8,099       563
                    - other                                  195       -
Inventory                                                 19,681    27,679
Prepaid expenses and other current assets                    180     1,679
                                                          ------    ------
      Total current assets                                43,432    31,121
                                                          ------    ------

Equipment, net                                            18,987    30,040
                                                          ------    ------

Other assets
Intangible assets, net                                    32,347    38,947
Other                                                        699       699
                                                          ------    ------
      Total other assets                                  33,046    39,646
                                                          ------    ------








      Total assets                                      $  95,465 $ 100,807
                                                           ------   -------
</TABLE>

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

                                       F-2

<PAGE>

<TABLE>
<CAPTION>

                         LIABILITIES AND STOCKHOLDERS' DEFICIT

                                                                                       1997         1996
                                                                                       ----         ----
<S>                                                                                    <C>          <C>
Current liabilities
  Accounts payable                                                                 $   116,397 $    90,637
  Accrued expenses                                                                     141,243      70,642
  Current portion of notes payable - stockholders                                       58,575      85,530
  Other current liabilities                                                              2,367       3,049
  Deferred income                                                                       20,000          -
                                                                                    ----------  ----------
     Total current liabilities                                                         338,582     249,858
                                                                                    ----------  ----------

Notes payable - long-term portion
Stockholders                                                                            14,955          -
Other                                                                                   16,000      16,000
                                                                                    ----------  ----------
     Total notes payable - long-term portion                                            30,955      16,000
                                                                                    ----------  ----------

Other liabilities - related party                                                       87,734      87,734
                                                                                    ----------  ----------

     Total liabilities                                                                 457,271     353,592
                                                                                    ----------  ----------

Commitments and contingencies (Note 5)

Stockholders' deficit
  Common stock of $.01 par value;  50,000,000  shares  authorized,
   9,921,659  and 9,880,354 shares issued and 9,371,659 and
   9,430,354 shares outstanding as of June 30, 1997 and 1996,
   respectively                                                                         99,216      98,803
  Additional paid-in capital                                                         9,110,298   9,113,927
  Development stage accumulated deficit                                             (9,515,820) (9,411,015)
  Stock subscriptions receivable                                                       (50,000)    (50,000)
                                                                                    ----------  ----------
                                                                                      (356,306)   (248,285)
  Less cost (at par) of 550,000 and 450,000 shares of treasury
   stock as of June 30, 1997 and 1996, respectively                                      5,500       4,500
                                                                                    ----------  ----------
     Total stockholders' deficit                                                      (361,806)   (252,785)
                                                                                    ----------  ----------

     Total liabilities and stockholders' deficit                                   $    95,465 $   100,807
                                                                                    ==========  ==========
</TABLE>

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

                                   F-2 cont.

<PAGE>


                  BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                          (A Development Stage Enterprise)

                        Consolidated Statements of Operations

                       Years Ended June 30, 1997 and 1996 and

                the Cumulative Period from Inception to June 30, 1997
<TABLE>
<CAPTION>

                                                                    For the Year Ended June 30,       Period From
                                                                    --------------------------        Inception to
                                                                        1997        1996              June 30, 1997
                                                                        ----        ----              -------------
<S>                                                                  <C>         <C>               <C>
Revenues
  Sales                                                              $  26,266   $  21,705         $  146,313
  Sponsored research                                                    81,518      46,948            308,466
  Grant revenues                                                           -           -               33,117
  Rental income                                                          1,500       7,000              8,500
                                                                    ----------  ----------         ----------
     Total revenues                                                    109,284      75,653            496,396
Cost of revenues                                                         7,999       3,103             23,296
                                                                    ----------  ----------         ----------
     Gross profit                                                      101,285      72,550            473,100
                                                                    ----------  ----------         ----------

Costs and expenses
  Research and development                                                 -           -            2,558,041
  Purchased technology                                                     -           -              690,000
  General and administrative                                           168,765     318,170          4,204,397
  Cell culture operations                                                  -           -              601,116
                                                                    ----------  ----------         ----------
                                                                       168,765     318,170          8,053,554
                                                                    ----------  ----------         ----------

     Loss from operations                                              (67,480)   (245,620)        (7,580,454)
                                                                    ----------  ----------         ----------

Other income (expense)
  Interest, net                                                         (6,909)     (6,530)            80,442
  Litigation costs                                                         -        (6,951)           (99,242)
  Offering costs                                                       (43,512)        -             (334,946)
  Option compensation                                                      -           -             (219,375)
  Other                                                                    -           -              (23,034)
  Accelerated lease commitment cost                                        -           -             (315,000)
  Recognized loss for decline in value of investment                       -      (180,000)        (1,500,000)
  Gain on sale of equipment                                                -        (1,600)            62,616
  Income recognized on settlements                                      13,096      29,366            293,606
                                                                    ----------  ----------         ----------
     Other expense, net                                                (37,325)   (165,715)        (2,054,933)
                                                                    ----------  -----------        ----------

     Loss before provision for income taxes and cumulative
       effect of change in accounting principle                       (104,805)   (411,335)        (9,635,387)

Provision for income taxes                                                 -           -              343,873
                                                                    ----------  ----------         ----------
     Loss before cumulative effect of change in accounting principle  (104,805)   (411,335)        (9,979,260)

Cumulative effect of change in accounting principle                        -           -              463,440
                                                                    ----------  -----------        ----------

Net loss                                                            $ (104,805)   (411,335)      $ (9,515,820)
                                                                    ==========  ==========   =     ==========

Weighted average shares                                              9,388,325   9,001,271          5,575,916
                                                                     =========  ==========         ==========

Loss per share                                                      $    (0.01)      (0.$5)             (1.71)
                                                                     =========  ==========         ==========
</TABLE>

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

                                       F-3

<PAGE>
                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

            Consolidated Statements of Stockholders' Equity (Deficit)

                       Years Ended June 30, 1997 and 1996

<TABLE>
<CAPTION>

                                              Common Stock    Common Stock
                                              ------------      Warrants              Development                         Total
                                            Number             Outstanding  Additional   Stage        Stock            Stockholders'
                                              of      Capital  -----------   Paid-in  Accumulated  Subscription Treasury  Equity
                                            Shares    Amount  Units  Amount  Capital    Deficit     Receivable   Stock   (Deficit)
                                            ------    ------  -----  ------  -------    -------     ----------   -----   ---------
<S>                                      <C>        <C>      <C>      <C>  <C>        <C>           <C>        <C>       <C>

Balance, June 30, 1995                   13,512,263 $135,123  50,000  $50  $9,009,614 $(8,999,680)  $(50,000)  $(45,500) $  49,607
  Cancellation of shares issue           (4,100,000) (41,000)    -      -       -           -            -       41,000        -
  Expiration of warrants                      -          -   (50,000) (50)         50       -            -          -          -
  Issuance of common stock for
    Services                                160,000    1,600     -      -       7,400       -            -          -        9,000
    Settlement of liabilities               308,091    3,080     -      -      44,563       -            -          -       47,643
  Options granted in exchange for services    -          -       -      -      52,300       -            -          -       52,300
  Net loss                                    -          -       -      -       -        (411,335)       -          -     (411,335)
                                          ---------   ------ -------- ----  ---------  -----------   --------    -------  ---------
Balance, June 30, 1996                    9,880,354   98,803     -      -   9,113,927  (9,411,015)   (50,000)    (4,500)  (252,785)
  Issuance of common stock for
    Settlement of liabilities                41,305      413     -      -       5,371       -            -          -        5,784
  Acquisition of treasury stock               -          -       -      -      (9,000)      -            -       (1,000)   (10,000)
  Net loss                                    -          -       -      -       -        (104,805)       -          -     (104,805)
                                          ---------   ------ -------- ----  ---------  -----------   --------    -------  ---------

Balance, June 30, 1997                  $ 9,921,659 $ 99,216     -    $ -   9,110,298  (9,515,820)   (50,00$)    (5,500)  (361,806)
                                          =========   ====== ======== ====  =========  ===========   ========    =======  =========
</TABLE>



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

                                      F-4

<PAGE>
                  BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                          (A Development Stage Enterprise)

                      Consolidated Statements of Cash Flows

                       Years Ended June 30, 1997 and 1996

              the Cumulative Period From Inception to June 30, 1997
<TABLE>
<CAPTION>

                                                                                                      Period From
                                                                  For the Year Ended June 30,         Inception to
                                                                        1997         1996            June 30, 1997
                                                                        ----         ----            -------------
<S>                                                                  <C>          <C>                 <C>
Cash flows from operating activities
  Net loss                                                           $ (104,805)  $ (411,335)         (9,515,820)
  Adjustments to reconcile net loss to net cash provided (used) by
    operating activities
     Depreciation and amortization                                       26,586       27,051             236,016
     Cumulative effect of change in accounting principle                    -            -              (463,440)
     Recognized loss on investment                                          -        180,000           1,500,000
     (Gain) loss on sale of assets                                          -          1,600             (38,704)
     Loss on extinguishment of debt                                         -            -                42,000
     Common stock issued in exchange for 
       Purchased technology                                                 -            -               605,000
       Services rendered                                                  5,784       10,213              95,012
     Common stock options issued in exchange for services rendered          -         52,300              52,300
     Amortization of unearned compensation                                  -            -               140,625
     Repricing of A warrants                                                -            -                78,750
     (Increase) decrease in
       Accounts receivable                                               (7,536)      35,168              (8,099)
       Inventory                                                          7,998        3,073             (19,681)
       Prepaid expenses and other current assets                          1,499         (413)                180
       Other receivables                                                   (195)         -                  (195)
       Other assets                                                         -            -                  (699)
       Deferred tax assets                                                  -            401             463,440
     Increase (decrease) in
       Accounts payable                                                  25,760       (5,353)            187,348
       Accrued expenses                                                  70,601      (81,519)            148,711
       Other current liabilities                                           (682)         -                  (682)
       Deferred income                                                   20,000          -                20,000
       Other liabilities                                                    -         87,734              90,783
                                                                        -------     --------          ----------
          Net cash provided (used) by operating activities               45,010     (101,080)         (6,387,155)
                                                                        -------     --------          ----------

Cash flows from investing activities
  Purchase of collateralized mortgage obligation                            -            -            (1,000,000)
  Proceeds from collateralized mortgage obligation                          -            -             1,000,000
  Purchase of fixed assets                                                  -         (2,970)           (333,187)
  Purchase of intangible assets                                          (8,933)     (14,246)           (105,205)
  Proceeds from sale of assets                                              -         189,742
                                                                         -------     --------         -----------
          Net cash used by investing activities                          (8,933)      (17,216)          (248,650)
                                                                         -------     --------         -----------

Cash flows from financing activities
  Advance from and amounts due to stockholders                              -            -               594,385
  Repayment of advances                                                     -            -              (159,975)
  Notes payable                                                         (12,000)      (9,045)             89,530
  Issuance of common stock                                                  -            -             2,105,966
  Treasury stock acquisition                                            (10,000)         -               (10,000)
  Recapitalization                                                          -            -             4,031,176
  Notes receivable                                                          -        115,020                 -
                                                                        --------     -------          -----------
          Net cash provided (used) by financing activities              (22,000)     105,975           6,651,082
                                                                        --------     -------          -----------

          Net increase (decrease) in cash                                14,077      (12,321)             15,277

Cash, beginning of year                                                   1,200       13,521                 -
                                                                        -------      -------          -----------

Cash, end of year                                                     $  15,277     $  1,200            $  15,277
                                                                        =======      =======          ===========
</TABLE>

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

                                       F-5
<PAGE>
                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


Organization

Biorelease  Corp.  (the  Company  or  OIA)  and  Biorelease  Technologies,  Inc.
(Subsidiary)  are being presented as a development  stage  enterprise to acquire
and develop technology to facilitate the development,  licensing, manufacturing,
and marketing of biotech and therapeutic product lines.

1.   Summary of Significant Accounting Policies

     Basis of Presentation

     The  financial   statements  of  the  parent,   Biorelease  Corp.  and  its
     subsidiary, Biorelease Technologies, Inc., which is approximately 90% owned
     by  Biorelease   Corp.,   are  presented  on  a  consolidated   basis.  All
     intercompany   balances  and  transactions  have  been  eliminated  in  the
     accompanying consolidated financial statements.

     Use of Estimates

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

     Future Operations

     These  consolidated  financial  statements have been presented on the basis
     that the Company is a going concern,  which contemplates the realization of
     assets  and  the  satisfaction  of  liabilities  in the  normal  course  of
     business. As a development stage enterprise, the Company currently does not
     have sufficient  available funds to support its technology  development and
     related  marketing  efforts over any extended  period of time.  Because the
     Company has limited working capital,  there is substantial  doubt about its
     ability to  continue  as a going  concern  without  additional  capital and
     attainment of profitable  operations.  Management expects to offer for sale
     either the entire Subsidiary, subject to Subsidiary liabilities, or to find
     a buyer for each of the separate  technologies owned by the Subsidiary.  In
     addition,  the Company will seek acquisition or  reorganization  candidates
     which can benefit from the Company's publicly traded status.

                                       F-6

<PAGE>


                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


1.   Summary of Significant Accounting Policies (Continued)

     Revenues

     Revenues from product sales are recorded when shipped.

     Inventory

     Inventory is stated at the lower of cost  (first-in,  first-out) or market.
     Management  estimates  the shelf  life of its  inventory  to remain  potent
     through June 30, 1998.  The shelf life of the product  beyond June 30, 1998
     will be  evaluated at that time,  with the  potential  for an  obsolescence
     write-down on inventory due to loss of biological activity.

     Equipment

     Equipment is stated at cost.  Depreciation  and  amortization  are provided
     using an  accelerated  method over the  estimated  useful  lives of five to
     seven years.  Repairs and maintenance are charged to expense when incurred.
     Any gain or loss  resulting  from the  disposal of equipment is included in
     operations and the cost and related  accumulated  depreciation  are removed
     from the respective account balances.

     Intangible Assets

     Intangible assets consist of costs incurred to obtain and maintain patents.
     These  costs are being  amortized  on the  straight-line  method  over five
     years.

     Income Taxes

     Effective  July  1,  1993,  the  Company  adopted  Statement  of  Financial
     Accounting   Standards  (SFAS)  No.  109,   Accounting  for  Income  Taxes.
     Accordingly,  the Company has changed its method of  accounting  for income
     taxes from the deferred method used in prior years to the method prescribed
     by SFAS No. 109. Under SFAS No. 109,  deferred  income taxes are recognized
     for the tax  consequences  in future years of  differences  between the tax
     bases of assets and liabilities and their  financial  reporting  amounts at
     each year end based on enacted tax laws and statutory tax rates  applicable
     to the periods in which the  differences  are  expected  to affect  taxable
     income.  Valuation  allowances  are  established  when  necessary to reduce
     deferred  tax  assets to the amount  expected  to be  realized.  Income tax
     expense is the tax payable for the period and the change  during the period
     in deferred tax assets and liabilities.

                                       F-7

<PAGE>


                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


1.   Summary of Significant Accounting Policies (Concluded)

     Loss Per Common Share

     Loss per common  share is computed  using the  weighted  average  number of
     common  shares  outstanding  during  each  period.  For  all  fiscal  years
     presented,  common  equivalent  shares are not  included  in the  Company's
     computation of net loss per share as the inclusion of these shares would be
     anti-dilutive.

     For comparative purposes, net loss per share was comprised of the following
     as of June 30:

                                                                    Period From
                                                                   Inception to
                                                                     June 30,
                                                 1997       1996        1997
                                                -----      -----       -----
          Loss per share
            Operations                        $ (0.01)   $ (0.03)    $ (1.27)
            Other expense                         -        (0.02)      (0.44)
                                                ------     ------      ------

          Total loss per share                $ (0.01)     (0.05)      (1.71)
                                                ======     ======      ======


2.   Equipment

     Equipment consisted of the following as of June 30:
                                                           1997         1996
                                                          ------       ------

          Equipment                                     $ 41,270    $  41,270
          Less accumulated depreciation                   22,283       11,230
                                                          ------       ------

                                                        $ 18,987    $  30,040
                                                          ======       ======

                                       F-8

<PAGE>


                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


2.   Equipment (Concluded)

     Depreciation expense for the years ended June 30, 1997 and 1996 was $11,053
     and $11,230, respectively.

3.   Intangible Assets

     Intangible assets consisted of the following as of June 30:

                                                             1997         1996
                                                             ----         ----
          Patents                                         $ 85,038    $  71,105
          Less amortization                                 52,691       32,158
                                                            ------       ------

                                                          $ 32,347    $  38,947
                                                            ======       ======


4.   Notes Payable

     Notes payable consisted of the following as of June 30:
                                                             1997         1996
                                                             ----         ----
     Stockholders
       Unsecured promissory notes, bearing interest at
       9%, payable quarterly,  due date December 31, 1995,
       the notes have not been extended and are due and
       payable. They are included in current liabilities  $ 43,600     $ 43,600

     Unsecured  noninterest-bearing  notes,  with 
       payments of $1,000 due monthly and $417 due quarterly.
       The Company reached settlement on these notes
       (see Note 5). The first note requires any amount
       still  outstanding to be paid December 1997, 
       the second note is currently payable in full         14,975       26,975

     Promissory note, payments of interest only at 9%, 
       balance due May 1995, collateralized by Genesis
       preferred stock. The Company has renegotiated 
       the note and has extended the due date to 
       December 31, 1999                                    14,955       14,955

                                       F-9

<PAGE>


                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


4.   Notes Payable (Concluded)
                                                             1997          1996
                                                             ----          ----
     Other
     Unsecured promissory note, quarterly payments of 
       interest only at 10.25%, balance due July 1998       16,000        16,000
                                                            ------       -------
                                                            89,530       101,530
Less current portion                                        58,575        85,530
                                                            ------       -------

Notes payable, excluding current portion                 $  30,955      $ 16,000
                                                            ======       =======

     Principal amounts due under notes payable are as follows:

               1998                                       $ 58,575
               1999                                         16,000
               2000                                         14,955


5.   Commitments and Contingencies

     The Company has a lease  agreement which expired June 30, 1997 for premises
     in Bedford NH. The lease calls for monthly rent of $295, plus utilities and
     a prorata share of taxes and common area maintenance fees.

     Rent  expense,  including a prorata  share of other  costs,  was $1,548 and
     $4,914 for the years  ended June 30,  1997 and 1996,  respectively.  Future
     office  rental will be included in the related party  consulting  agreement
     (see Note 10).

     During  1994,  a  noteholder  had  brought  suit  against  the  Company for
     repayment of $40,000 of principal and costs of collection.  Under the terms
     of the note,  at the Company's  option,  the note could be satisfied by the
     noteholder receiving Company stock of equivalent value. The noteholder is a
     stockholder of the Company. A court approved  settlement was reached during
     1995 in the  amount of  $43,475.  The  Company  has agreed to pay a monthly
     amount of $1,000 through December 1996 where upon the remaining  balance is
     due.  Interest on late  payments is accrued at the rate of 10%. The Company
     continues  to have  the  right to  repay  any  remaining  note  balance  by
     tendering its stock.

                                      F-10

<PAGE>


                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


5.   Commitments and Contingencies (Concluded)

     The Company was not insured for product  liability  from May 1994 to August
     1994. The product  liability  insurance policy was renewed and effective in
     August 1994. This policy was canceled January 1995.

6.   Income Taxes

     The Company has not filed  federal or state tax returns for the years ended
     December  31,  1993,  1994,  1995,  and 1996.  There will be no federal tax
     liability for the years then ended.  In addition,  there are  approximately
     $5,000 of state business tax liabilities recorded as of June 30, 1997.

     For income tax filing purposes, the Company recognizes revenue and expenses
     on a cash basis and its fiscal year end is December  31. As of December 31,
     1992,  it  had   approximately   $3,100,000  of  tax  net  operating   loss
     carryforwards  which expire in years 2006 to 2008 for federal  purposes and
     1996 to 1998 for state purposes.  It also has approximately  $40,000 of net
     capitalized  expenses which is scheduled to be fully  amortized by June 30,
     1998.

     The net current and  long-term  deferred  taxes  consisted of the following
     components as of June 30:
<TABLE>
<CAPTION>

                                                            1997 Tax Effect
                                                            ---------------
                                                      Asset                          Liability
                                                      -----                          ---------
       Item                         Total      Current     Long-Term            Current    Long-Term
       ----                         -----      -------     ---------            -------    ---------
<S>                            <C>           <C>          <C>                 <C>         <C>
Accrual to cash adjustment     $   95,783    $  98,978    $    -              $ (3,195)   $    -
Capitalized expenses (tax
basis only)                        15,648       15,648         -                   -           -
Net operating loss deduction    1,189,853          -       1,189,853               -           -
                               -----------    ---------   -----------           -------      -------
                                1,301,284      114,626     1,189,853            (3,195)        -
Valuation allowance            (1,301,284)    (111,431)   (1,189,853)              -           -
                               -----------    ---------   -----------           -------      -------

                               $    -        $ - 3,195    $    -              $ (3,195)   $    -
                               ===========    =========   ===========           =======      =======
</TABLE>

                                      F-11

<PAGE>


                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


6.   Income Taxes (Concluded)
<TABLE>
<CAPTION>

                                                             1996 Tax Effect
                                                             ---------------
                                                      Asset                          Liability
                                                      -----                          ---------
       Item                         Total      Current     Long-Term            Current    Long-Term
       ----                         -----      -------     ---------            -------    ---------
<S>                            <C>           <C>          <C>                 <C>         <C>
Accrual to cash adjustment     $  62,000     $ 62,865   $      -              $  (865)    $    -
Capitalized expenses (tax
basis only)                      132,413      116,765       15,648                 -           -
Net operating loss deduction   1,189,853          -      1,189,853                 -           -
                              -----------    ---------  ----------             -------      -------
                               1,384,266      179,630    1,205,501               (865)         -
Valuation allowance           (1,384,266)    (178,765)  (1,205,501)                -           -
                              -----------    ---------  -----------            -------      -------

                               $    -        $    865   $     -               $   865     $    -
                              ===========    =========  ===========            =======      =======
</TABLE>

                                                                   Valuation
                                                                   Allowance
                                                                   ---------

               Balance, June 30, 1996                            $ 1,384,266
                 Net decrease                                        (82,982)
                                                                   ---------

               Balance, June 30, 1997                            $ 1,301,284
                                                                   =========


     A valuation allowance equivalent to 100% of the deferred tax asset has been
     established since it is more probable than not that the Company will not be
     able to recognize a tax benefit for the asset.

7.   Equity

     Effective  June 30, 1992,  the Company  acquired  substantially  all of the
     outstanding  common and preferred stock of FLS Acquisition  Corp. (FLSA) in
     exchange for common stock of OIA. This  reorganization was accounted for as
     a  reverse  acquisition  of  OIA by  FLSA  under  the  purchase  method  of
     accounting as the shareholders of FLSA controlled the  consolidated  entity
     immediately  following the  reorganization.  Subsequent to the transaction,
     the Company changed its name to Biorelease  Corp. and FLSA changed its name
     to Biorelease Technologies, Inc.

                                      F-12

<PAGE>

                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


7.   Equity (Continued)

     The terms of the  reorganization  agreement  between  the  Company  and the
     Subsidiary  called for the issuance of 2,845,436 shares of OIA, Inc. common
     stock in exchange for 5,014,780  shares of FLSA common stock,  representing
     all of  FLSA  common  stock  issued  and  outstanding  at the  date  of the
     reorganization.  Currently,  all  but  433,105  shares  of FLSA  have  been
     acquired.  The remaining  shares of FLSA are expected to be acquired within
     fiscal  1997 and will  result  in the  issuance  of  245,748  shares of the
     Company's  common stock.  The  reorganization  agreement also calls for the
     issuance of up to 1,022,130 additional shares of the Company's common stock
     subject to the  achievement of certain  operating  results in future years.
     The Company does not expect to meet the  requirements  which will result in
     the  issuance  of  these  shares.  The  issuance  of these  shares  will be
     accounted for as additional  consideration  for the acquisition of FLSA and
     if issued to be  accounted  for as the purchase of  undeveloped  technology
     and,  therefore,   the  value  of  such  shares  expensed.   No  accounting
     recognition  has  been  given to the  minority  ownership  interest  in the
     subsidiary because the subsidiary is a deficit corporation and the minority
     shareholders have no obligation to fund their share of such deficit.

     Effective  September  1,  1992,  the Board of  Directors  adopted  the 1992
     Directors'  Stock Option Plan  (Directors'  Plan) and the 1992 Stock Option
     Plan (Option Plan).  Under the Directors' Plan, a maximum of 100,000 shares
     are  reserved  for option  grants.  The option  price per share will be its
     market price at the date of grant,  provided however,  that at no time will
     the option price be less than $6.00 per share.  Options  granted under this
     Plan vest  immediately and expire 10 years from the date of grant. The Plan
     was  modified by a proxy vote  during  1994.  The maximum  number of shares
     issuable  pursuant to this Plan has been increased to 250,000  shares,  and
     the requirement that the minimum exercise price be $6.00 per share has been
     removed.

     Under the Option  Plan,  a maximum  500,000  shares are reserved for option
     grants.  The option price per share will be its market value at the date of
     grant, provided however, that at no time will the option price be less than
     $6.00  per  share.  Vesting  and  expiration  dates  will vary  based  upon
     individual  agreements  with the option holder.  The Plan was modified by a
     proxy vote during 1994. The maximum number of shares  issuable  pursuant to
     this Plan has been increased to 10% of the issued and outstanding shares of
     the Company,  not to exceed 1,000,000 shares,  and the requirement that the
     minimum exercise price be $6.00 per share has been removed. Under the Plan,
     an incentive  stock option plan  benefiting  its President  provides for an
     option to purchase up to 200,000  shares of common stock at $1.40  exercise
     price if certain operational criteria are met.

                                      F-13

<PAGE>

                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


7.   Equity (Continued)

     A summary  of the  Company's  stock  option  plans as of June 30,  1997 and
     1996 and  changes  during  the year are presented below:
<TABLE>
<CAPTION>

                                                                                       Options Granted to
                                Director Plan                Option Plan                Service Providers
                                -------------                -----------                -----------------
                                        Weighted                     Weighted                    Weighted
                               Number   Average             Number   Average            Number   Average
                                 of     Exercise              of     Exercise             of     Exercise
                              Options    Price             Options    Price            Options    Price
                              -------   --------           -------   --------          -------   --------
<S>                           <C>        <C>               <C>        <C>              <C>        <C>
Options outstanding,
June 30, 1995                 107,500    $ 3.94            200,000    $ 4.14           727,620    $ 1.10
Granted                        30,000      0.17               -          -           1,191,700      0.10
                              -------                     --------                   ---------    
Options outstanding,
June 30, 1996                 137,500      3.11            200,000      4.14         2,919,320      0.69
Granted                        30,000      0.17               -          -             375,000      0.09
Expired                       (10,000)      -             (200,000)      -             (50,000)      -
                              -------                     --------                   ---------    
Options outstanding,
June 30, 1997                 157,500      2.75               -          -           3,244,320      0.69
                              =======                     ========                   =========    

Currently exercisable         157,500      2.75               -          -           3,244,320      0.69
                              =======                     ========                   =========    
</TABLE>

     The range of exercise prices is $.06 to $7.50 as of June 30, 1997 and 1996.

     The weighted  average fair value of  the  options  granted during the years
     ended June 30, 1997 and 1996 is presented below:

                                                         1997           1996
                                                         ----           ----

      Director plan                                      $.10           $.08
      Option plan                                    Non Granted    Non Granted
      Options granted to service providers               $.11           $.07

     The  Company  applies  APB  Opinion  25  and  related   interpretations  in
     accounting for certain options granted.  Accordingly,  no compensation cost
     has been  recognized  for  those  options.  Had  compensation  cost for the
     Company  plans been  determined  based on the fair value at the grant dates
     consistent  with the method of FASB  Statement  123, the Company's net loss
     would have been increased by  approximately  $-0- and $30,000 for the years
     ended June 30, 1997 and 1996,  respectively.  This  increase  would have no
     impact on the loss per share for those years. Additionally, the Company did
     not record an expense  for  options  issued in the year ended June 30, 1997
     because the value of the options and consideration  received were deemed to
     be immaterial.

                                      F-14

<PAGE>

                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


7.   Equity (Concluded)

     The fair value of each option is  estimated  on the date of grant using the
     Black-Scholes  option-pricing  model using the  following  weighted-average
     assumptions:
                                                         1997         1996
                                                         ----         ----

        Weighted risk-free interest rate                 6.55%        6.22%
        Weighted expected life                        8.21 years   5.07 years
        Weighted expected volatility                      135%         135%

8.   Investment

     The Company acquired 150,000 shares of 6% cumulative, convertible preferred
     stock of Genesis Farms,  Inc.  (Genesis) on March 31, 1994 in consideration
     for issuing  1,500,000  shares of the Company's common stock. The preferred
     stock can be converted  into common stock at a ratio of 10 shares of common
     stock for each share of the  preferred.  On March 31, 1994,  the  Company's
     stock had a fair market value of $1. In accordance with generally  accepted
     accounting  principles  (the cost method of  accounting  for  nonmarketable
     investments), the Company recorded the investment in Genesis at $1,500,000.

     Management  believes  the  value of  Genesis  stock  has  been  permanently
     impaired and has reduced the cost of the Genesis preferred stock to $-0- as
     of June 30, 1997 and 1996.

     If the  Genesis  stock  becomes  publicly  traded,  as intended by Genesis'
     management,  the  value of the stock by the  Company  would be based on its
     market  price,  as  required  by SFAS  No.  115,  and may  differ  from its
     historical cost value.

                                      F-15

<PAGE>

                BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
                        (A Development Stage Enterprise)

                   Notes to Consolidated Financial Statements

                             June 30, 1997 and 1996


9.   Cash Flow Information
                                                      For the Year   Period From
                                                     Ended June 30, Inception to
                                                    ---------------    June 30,
                                                    1997       1996      1997
                                                    ----       ---- ------------

     Cash paid for interest                       $   -      $ 2,275   $ 7,227

     Noncash investing and financing
         activities were as follows:
           Liabilities repaid through issuance
              of common stock                       5,784     46,428   582,773
           Issuance of common stock for
              subscription receivable                 -         -       50,000
           Nonmarketable security acquired
              through the issuance of common
              stock                                   -         -    1,500,000

10.  Related Party Transactions

     On October 4, 1996,  R. Bruce  Reeves  resigned as a member of the Board of
     Directors, President, and Chief Executive Officer of the Company. Effective
     April 1, 1996,  the Company  engaged a  consulting  firm,  controlled  by a
     Reeves family member,  to perform the executive  duties of the Company.  In
     fiscal year end June 30, 1997, the Company paid $35,000 in contractual fees
     for these services as compared to fiscal year ended June 30, 1996,  wherein
     the Company paid  $123,300  for these  services  comprised  of  contractual
     payments  of $33,300  paid to the  consulting  firm  preceded by $90,000 of
     executive compensation.

     As of June 30,  1997 and 1996,  the Company  was  indebted  $87,734 to this
     related  party.  Effective  October 18, 1996,  this  indebtedness  bears no
     interest and has been deferred for a period of three years.

     In  addition,  the Company had $16,827 of accrued  expenses  payable to the
     related  party as of June 30, 1997.  No such  accruals  were recorded as of
     June 30, 1996.

11.  Disclosure About Fair Value of Financial Instruments

     The  Company's  financial  instruments  consist of cash,  short-term  trade
     receivables  and payables,  and long-term  debt.  The carrying value of all
     instruments approximate their fair value.

                                      F-16

<PAGE>

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosures.

      Except as set forth below,  there have been no changes in or disagreements
with accountants with respect to accounting and/or financial  disclosure.  Note,
however, that in on September 26, 1994, the Company terminated Coopers & Lybrand
("Coopers") as its certified public accountant and retained Smith,  Batchelder &
Rugg. In February,  1995 Smith  Batchelder & Rugg affiliated  with Berry,  Dunn,
McNeil and Parker who have  expressed  their opinion on the Company's  Financial
Statements for the past three fiscal years.

      In connection  with the audits of the financial  statements of the Company
for the  fiscal  years  ended  June 30,  1992 and 1993  and  during  the  period
commencing  July  1,  1993  through  the  date  of this  report,  there  were no
disagreements with Coopers on any matter of accounting  principles or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements, if not resolved to the satisfaction of Coopers, would have caused
them to make  reference  to the  subject  matter  of the  disagreement  in their
report.

      Except for an explanatory  paragraph  concerning the Company's  ability to
continue as a going concern,  none of the Company's  accountants  reports on the
Company's  financial  statements  contained an adverse  opinion or disclaimer of
opinion,  nor was it  qualified  as to  uncertainty,  audit scope or  accounting
principles.  However,  there were  certain  reportable  events in the  Company's
Annual report for the year ended June 30, 1993 as follows:

      (i) The Company's Annual report on Form 10-KSB for the year ended June 30,
1993 ("1993 Form  10-KSB") was filed with the  Commission on September 28, 1993.
Coopers'  report on the  financial  statements  contained  therein  contained an
explanatory  paragraph relating to uncertainty  concerning the Company's ability
to continue as a going  concern  which  situation  was  further  discussed  in a
footnote to the financial statements.  During the period of preparation of these
financial  statements,  the  Company  was  engaged  in a "best  efforts"  public
offering to raise additional capital.

      Two unsigned  draft  reports and  associated  footnotes  were  prepared by
Coopers,  one without a going  concern  explanatory  paragraph to be used if the
offering was completed  before  Coopers'  report was released,  the other with a
going concern  explanatory  paragraph if the offering was not completed.  By the
release date of Coopers'  report,  the offering had been  terminated and Coopers
released their signed report with the going concern  explanatory  paragraph.  As
noted above, the Company's 1993 Form 10-KSB contained the explanatory  paragraph
and related footnote disclosure.

      Sometime later, the Company's  annual report to shareholders  (the "Annual
Report") was printed and, on or about January 4, 1994, was sent to shareholders.
Through an administrative oversight, a disk containing a report (unsigned) which
did not include a going concern explanatory  paragraph and financial  statements
which did not contain related  footnote  disclosure was released to the printer.
This  oversight was  discovered  during the  preparation  of the 1994  Financial
Statements by the Company in reviewing it past Annual Report with its then newly
retained Auditors, Smith Bachelder & Rugg.

      The Company immediately notified Coopers who, in turn, advised the Company
that, in their opinion,  the Company should inform the Commission and anyone who
may be relying on the Annual Report of this situation.  The Company informed the
former  accountant  that,  due to the length of time since the  distribution  of
Annual  Reports to  shareholders,  the filing with the Commission of the correct
information in the Company's  1993 Form 10-KSB and  subsequent  filings with the
Commission, the Company was of the opinion that no one could reasonably still be
relying on the Annual Report.  Accordingly,  the Company informed the Commission
and   shareholders   of  this  situation  in  connection  with  the  filing  and
distribution  to  shareholders of this Annual Report on Form 10-KSB for the year
ended June 30, 1994.

      (ii) In connection with  consultations  with Coopers  concerning its March
1994 purchase of preferred  stock of Genesis  Capital  Corporation  (now Genesis
Farms, Inc.) (see "Item 12. Certain Relationships and Related Transactions - The
Company"), due to the materiality of the purchase,  Coopers informed the Company
that the value  assigned to the Company's  holding of that stock as presented in
the Form 10-QSB for the quarter  ended March 31, 1994 would need to be evaluated
in  connection  with an audit of the  Company's  financial  statements  and that
additional  documentation  might be necessary  concerning  the value assigned to
that investment if the Company's existing documentation proved to be inadequate.

      Neither of the above two issues were considered in the Company's  decision
to terminate  Coopers.  The decision to change  accountants  was approved by the
Board of Directors of the Company.

                                       11

<PAGE>

      On July 28,  1992,  the Company had engaged  Coopers to be its  certifying
accountant  in place of Bradshaw,  Smith & Co.  ("former  accountant"),  who was
dismissed effective July 28, 1992.

      During the two fiscal  years  ended June 30, 1991  (periods  for which the
former  accountant  audited the Company's  financial  statements) and during the
period from July 1, 1991  through the date hereof,  there were no  disagreements
with the former accountant on any matter of accounting  principles or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements,  if not resolved to the  satisfaction  of the former  accountant,
would have caused it to make reference to the subject matter of the disagreement
in connection with its reports.

      The former accountant's  report on the Company's financial  statements for
either of the two fiscal  years  ended June 30, 1991 did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified as to uncertainty,  audit
scope or accounting principles.

      The  decision  to engage  Coopers as set forth  above and to  dismiss  the
former  accountant  was  made by the  new  Board  of  Directors  of the  Company
subsequent to the June 1992  reorganization  of the Company and the  Subsidiary.
Coopers was the Subsidiary's independent auditors.

PART III

Item 9.  Directors,   Executive  Officers,   Promoters  and  Control  Persons;
         Compliance with Section 16(a) of the Exchange Act.

      The  following  table  sets  forth  certain  information   concerning  the
directors and executive officers of the Company:

                           Positions with                         Positions with
  Name              Age    the Company                            the Subsidiary
  ----              ---    --------------                         --------------
  Richard Schubert  61     Chairman, Board of Directors
                           Director, Principal Financial Officer
  Richard Whitney   60     Director                               Director
  P. Calvin Maybury 74     (1)                                    (1)
  R. Bruce Reeves   57     (2)                                    (2)
  Leon Gauci        54                                            (3)

      (1)  Dr.  Maybury,  a  founder  of the  Company,  resigned  as a  
           Director effective  September 30, 1997 
      (2)  Dr. Reeves served as President,  CEO and Director until his 
           resignation on October 4, 1996. 
      (3)  Dr. Leon Gauci was appointed President of the Company's subsidiary,
           Biorelease  Technologies,  Inc.,  on January  13, 1997 and served
           in that capacity until June 30, 1997.

      Directors are elected by the  stockholders  to serve until the next annual
meeting of  stockholders  or until their  successors  have been elected and have
duly  qualified.  Officers are appointed to serve until the meeting of the Board
of Directors  following the next annual meeting of stockholders  and until their
successors have been elected and have qualified. Richard Whitney was appointed a
Director of the Company  following the  Reorganization  in  accordance  with the
provisions of an investment  agreement  between the  Subsidiary  and The Venture
Fund  of  Washington   (see  "Item  12.   Certain   Relationships   and  Related
Transactions-The Subsidiary").

      A summary of the business  experience of each current officer and director
of the Company and the Subsidiary is as follows:

      RICHARD  SCHUBERT  has been  Chairman  of the  Board of  Directors  of the
Company since July 1992. Mr. Schubert is currently a business  consultant.  From
December  1990 through  September  1995,  Mr.  Schubert was the President of The
Points of Light  Foundation,  a  foundation  created to  encourage  Americans to
become  directly  involved  in  consequential  community  service  in respect of
critical  social  issues.  From June  1989 to  December  1990 he was a  business

                                       12

<PAGE>

consultant. He served as President of the American Red Cross (1983-1989) and was
a former Vice Chairman and President of Bethlehem Steel until 1982. Mr. Schubert
has extensive experience in law, business and government, and has been appointed
during his career with  Bethlehem  steel,  which began in 1961,  to serve in the
public sector as Assistant to the Under  Secretary of Labor (1970)  Solicitor of
the Department of Labor (1971) and Under Secretary of Labor (1973). Mr. Schubert
is a member of the Council of Foreign Relations and he serves as a director of a
number of philanthropic and business  organizations.  Mr. Schubert graduated Cum
Laude from Eastern Nazarene College in Quincy,  Massachusetts with a Bachelor of
Arts  degree,  and from Yale Law  School  with a  Bachelor  of Law  degree.  Mr.
Schubert,  along  with  Dr.  Reeves,  serves  as an  officer  of NCPI,  Inc.,  a
non-profit subsidiary of Eastern Nazarene College.

      PAUL CALVIN MAYBURY,  Ph.D.,  was President and Chief Executive  Officer
of the  Company  from  July 1992 to May 1993.  He has been a  Director  of the
Subsidiary  since June 1991 and of the Company  since July 1992.  Dr.  Maybury
has over  thirty-six  years of  experience  in the area of Physical  Chemistry
research,  the last  twenty-four of which include  research and development in
the pharmaceutical  industry.  Dr. Maybury was a professor of chemistry at the
University of South Florida  ("USF") from 1961 to 1992 and was Chairman of the
Department  of  Chemistry  at USF from  1963 to  1974.  Dr.  Maybury  was Vice
President  and Director of Research and  Development  (1980-1988),  a Director
(1976-1988) and a consultant  (1975-1979) to the Belmac Corporation,  a public
pharmaceutical  company.  Dr.  Maybury  holds  professional  membership in the
American  Chemical  Society  and is a  Fellow  of the  American  Institute  of
Chemists.  Dr.  Maybury  received a Ph.D. in chemistry  from The Johns Hopkins
University in 1952.  Effective  September 30, 1997 Dr.  Maybury  resigned as a
Director of the Company.

      RICHARD  WHITNEY has been a Director of the Company since July 1992. He is
currently a Principal in a Snelling & Snelling  franchise  located in Washington
D.C.  Formerly Mr.  Whitney  served as a general  partner of The Venture Fund of
Washington  (the "Fund") from 1989 until August of 1994.  The Fund has investors
which include pension funds,  insurance companies,  banks, and corporations.  It
has, as a  corporate  general  partner,  ICF  International,  a  consulting  and
engineering firm based in Washington,  DC. Mr. Whitney has managed venture funds
since 1972,  beginning  with direct  responsibility  for the  management  of the
Direct  Investment  Fund at  Overseas  Private  Investment  Corporation.  In the
mid-1970's,  he served as Executive Vice President of Narragansett  Capital.  In
1977,  with others,  Mr.  Whitney  purchased a controlling  interest in Columbia
Ventures,  Inc., an SBIC located in  Washington,  DC. Mr.  Whitney has served as
President  and a Director  of that  company  since 1978.  Mr.  Whitney is a past
director of the Alumni Association and Sports Foundation of Brown University.

Compliance  With Section 16(a) of The Securities  Exchange Act of 1934

      To the Company's knowledge,  based solely on a review of such materials as
are required by the Securities and Exchange Commission,  no officer, director or
beneficial  holder  of  more  than  ten  percent  of the  Company's  issued  and
outstanding shares of Common Stock failed to timely file with the Securities and
Exchange  Commission  any form or report  required  to be so filed  pursuant  to
Section  16(a) of the  Securities  Exchange  Act of 1934  during the fiscal year
ended June 30, 1997.

Item 10. Executive Compensation.

      The following table shows all the cash  compensation paid or to be paid by
the Company or any of its  subsidiaries,  as well as certain other  compensation
paid or  accrued,  during the fiscal  years  indicated,  to the Chief  Executive
Officer for such period in all capacities in which he served. No other Executive
Officer  received total annual salary and bonus in excess of $100,000 during the
fiscal  years ended June 30,  1995 and 1994.  Through  June 30,  1997 Dr.  Gauci
received cash compensation  totaling $15,000 and accrued compensation of $15,000
as President of the Subsidiary.  Dr. Gauci is no longer drawing compensation and
serves as a Consultant on an as needed basis.

                                       13

<PAGE>

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE
 
                                                                                         Long-Term Compensation
                                        Annual Compensation                      Awards             Payouts
   (a)                             (b)       (c)       (d)      (e)        (f)         (g)      (h)       (i)

                                                               Other                                      All
                                                               Annual   Restricted                       Other
                                                      Bonus    Compen-    Stock                         Compen-
Name and Principal                                   Payouts   sation     Award                 LTIP    sation
Position                           Year     Salary     ($)      ($)        ($)         SAR's     ($)      ($)
------------------                 ----     ------   ------    ------   ----------     -----    ----    -------

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

R. Bruce Reeves                    1997 (1)  10,000   -0-                  -0-         -0-      -0-       -0-
Chief Executive                    1996      90,000   -0-      (2)         -0-       416,700    -0-       -0-
Officer                            1995     120,000  50,000    (2)         -0-       496,500    -0-       -0-
                                   1994     120,000   -0-      (1)         -0-       200,000(3) -0-       -0-
                                   1993     117,000  20,000    (1)         -0-         -0-      -0-       -0-
                                   1992      86,000  10,000    -0-         -0-         -0-      -0-       -0-
</TABLE>

      (1) On April 1,  1996 the  direct  employment  of R.  Bruce  Reeves,  then
President/CEO of the Company  terminated.  All of Reeves' contractual rights and
unissued  options  were  assigned to R T Robertson  Consultants,  Inc., a Reeves
family affiliate.  In fiscal year ended June 30, 1997 R T Robertson Consultants,
Inc. charged the Company $35,000 for executive  oversight of the Company and its
Subsidiary. Between April 1 and June 30, 1996 R. T. Robertson billed the Company
$33,300,  including  expense  reimbursements,  for  executive  oversight  of the
Corporations.  Under the terms of the R T Robertson Consultants,  Inc. Agreement
with the Company,  Dr. Reeves,  an employee of R T Robertson  Consultants,  Inc.
served as President/CEO of the Company.

      (2) Value of benefits and other perquisites are less than 10% of the total
          annual salary and bonus.

      (3) Effective October 4, 1996 these 200,000 options have been forfeited by
          Dr. Reeves.

            The following table sets forth information with respect to the Chief
Executive Officer concerning the grants of options and Stock Appreciation Rights
("SAR") during the past fiscal year:


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                Individual Grants

     (a)               (b)            (c)             (d)               (e)
                                  Options/SARs
                     Options/      Granted to
                       SARs       Employees in  Exercise or Base    Expiration
Name                 Granted       Fiscal Year    Price ($/Sh)         Date
--------------       --------     ------------  ----------------    ----------

RT Robertson
Consultants, Inc,      -0-            100%

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

      The  following  table sets  forth  information  with  respect to the Chief
Executive Officer concerning exercise of options during the last fiscal year and
unexercised options and SARs held as of the end of the fiscal year:


       Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR

     (a)               (b)            (c)            (d)                (e)
                                                                     Value of
                                                   Number of        Unexercised
                                                  Unexercised      In-the-Money
                                                  Options/SARs     Options/SARs
                     Shares                       at FY-End(#)     at FY-End(#)
                   Acquired on       Value        Exercisable/     Exercisable/
Name               Exercise(#)     Realized($)   Unexercisable    Unexercisable
----               -----------     -----------   -------------    -------------
Chief                  -0-            -0-             -0-1             -0-
Executive Officer

1    Excludes 200,000 options forfeited as of October 4, 1996.

                                       14

<PAGE>

            The following table sets forth information with respect to the Chief
Executive  Officer  concerning awards under long term incentive plans during the
last fiscal year:

     Estimated Future Payouts under Non-Stock Price-Based Plans

     (a)               (b)         (c)               (d)         (e)      (f)

                            Performance
               Number of      or Other
              Shares,Units  Period Until
                or Other    Maturation or          Threshold    Target   Maximum
Name            Rights(#)      Payout    ($ or #)   ($ or #)   ($ or #)
------        ------------  ------------ --------  ---------   --------

     -0-           -
Chief Executive 
Officer


            Directors  are not  compensated  for  acting  in their  capacity  as
Directors  except for  options  granted  pursuant to the 1992  Directors  Option
Plan..  Directors are  reimbursed  for their  accountable  expenses  incurred in
attending  meetings and conducting  their duties.  In April 1995, the Directors,
Messrs.  Schubert,  Maybury and Whitney were awarded 129,000 options exercisable
into  129,000  shares of common  stock at $.08 per  share.  In  September  1995,
Directors  Messrs.  Schubert,  Maybury and Whitney  were  awarded an  additional
50,000 options exercisable into 50,000 shares of common stock at $.17 per share.
These  options  were for  consulting  services  unrelated  to their  position as
directors.  The  options  originally  were to expire on  December  31,  1997 and
December 31,  1999,  respectively.  On February 11, 1997 the exercise  period of
these and all  other  issued  options,  which are  presently  outstanding,  were
extended by three additional years.

      Though  March 31,  1996 R. Bruce  Reeves,  President  and Chief  Executive
Officer of the Company, had an employment  agreement with the Company.  Pursuant
to the agreement, Dr. Reeves receives an annual salary of $120,000.  Pursuant to
the Agreement,  Dr. Reeves also received  options to purchase  200,000 shares of
the Company (see the "Option/SAR Grants in Last Fiscal Year" table above). These
200,000 option shares were voluntarily  forfeited by Dr. Reeves as of October 4,
1996.  Effective April 1, 1996, due to difficult cash flow problems and in order
to better  assure  payments of benefits  and  compensation  to Dr.  Reeves,  the
Company entered into a consulting agreement with R T Robertson Consultants, Inc.
to provide the services of Dr. Reeves  through the end of the fiscal year ending
June 30, 1997. Dr. Reeves served as President and CEO until October 4, 1996 when
he resigned.  Robertson consulted for the Company through the end of fiscal year
June 30, 1997.

      In May 1994, due to the Company's financial condition, in consideration of
a  partial  salary  deferral  and Dr.  Reeves'  continued  involvement  with the
Company,  Dr. Reeves was granted an additional 496,500 options  exercisable at a
price of $.15 per  share  (the  average  per share  market  price on the date of
issue).  Effective  April 1, 1996 this option was  terminated.  A new option was
issued to R T Robertson  Consultants  which  expires on December 31, 2002 if not
exercised. (see item 11).

Item 11. Security Ownership of Certain Beneficial Owners and Management.

      (a)  Security  Ownership of Certain  Beneficial  Owners -- The persons set
forth on the charts below are known to the Company to be the  beneficial  owners
of more than 5% of the Company's  outstanding voting Common Stock as of the date
hereof.

      Genesis Farms, Inc (Formerly Genesis Capital,  Inc)., 507 North Belt East,
Suite 240,  Houston,  TX 77060 has been  issued 1.5  Million  shares of Rule 144
stock  representing  11.9% of  issued  shares.  The  Company  has  initiated  an
agreement  with a party  claiming  to have an  interest  in 1.4 million of these
shares to recover 1.25 million of these shares of the  Company's  stock  earlier
exchanged  with Genesis in exchange for  advancing  certain  legal costs to this
party and  providing  certain  registered  shares of the Company's  stock.  This
agreement  does not  involve  the  Company  in any  litigation  related  to this
transaction.

      Sandra J.  Reeves,  754  Strawhill,  Manchester,  NH 03104 owns  802,034
number  of  shares  individually  and/or   beneficially.   Mrs.  Reeves  is  a
stockholder  in RT Robertson  Consultants,  Inc. and controls  ninety  percent
(90%)of the shares of R T Robertson  Consultants,  Inc.'s common  stock.  Mrs.
Reeves  is the  spouse  to the  former  president  of the  Company,  R.  Bruce
Reeves.  In addition R T Robertson  Consultants,  Inc. has  1,409,700  options
convertible  into a like number of common stock.  In the aggregate,  inclusive
of common stock outstanding and exercisable  options Mrs. Reeves owns directly
or  beneficially.1,905,697  shares and/or options representing 19.9% of issued
shares (19.8% of issued shares plus  exercisable  options) for named  security
owers.

                                       15

<PAGE>

      (b) Security Ownership of Management -- Information  concerning the number
and  percentage  of shares of voting Common Stock of the Company owned of record
and beneficially by management, is set forth on the charts below.

Name and                       Number of Shares                   Percent of
Address of                       Beneficially                    Common Stock
Beneficial Owner                     Owned*                      Outstanding**
----------------               ----------------                  -------------

P. Calvin Maybury                409,508 (1)(2)(3)(5)(8)             4.1%
4102 Cypress Bayou Dr.
Tampa, FL 33624

Richard Schubert                 432,639 (1)(2)(5)                   4.2%
7811 Old Dominion Dr.
McLean, VA 22102

Richard Whitney                  318,771 (1)(2)(5)                   3.1%
1612 K St. N.W. #308
Washington, DC 20006

All Officers and
Directors as a Group
  (3 Persons)                  1,160,918 (1)(2)(3)(4)(5)(6)(7)(8)   11.4%
------------------

      * Except as indicated in the footnotes below,  each person has sole voting
and dispositive power over the Shares indicated.

      **  Based  upon  9,371,659  shares  issued  and  outstanding  and  712,000
exercisable options for the above named persons, as of the date hereof.

      Notes:

      (1)   Excludes possible subsequent  issuances of additional  Shares  based
            upon performance criteria (see  "Item  12.   Certain   Relationships
            and Related Transactions-The Reorganization").

      (2)   Includes 179,000 shares each for Messrs.Schubert,Maybury and Whitney
            issuable  upon the exercise of a like number of options  pursuant to
            consulting agreements with these individuals.

      (3)   Includes 140,508 Shares held individually by Dr. Maybury's wife. Dr.
            Maybury   disclaims   beneficial   ownership  of   the  Shares  held
            individually by his wife

      (4)   All  Shares are owned by The Venture Fund of  Washington,  a limited
            partnership.  Mr. Whitney is a limited partner owning  approximately
            19% of the limited partnership.

      (5)   Includes 40,500;  42,500;  and 42,500  options currently exercisable
            under the Company's Directors' Stock Option Plan to Messrs. Maybury,
            Schubert and Whitney, respectively.

      6)    Excludes 1,950,697 shares  and/or  options  held  by  R T  Robertson
            Consultants,  Inc.,  Dr.  Reeves  family trust and Dr.  Reeves wife.
            Dr. Reeves disclaims  beneficial  ownership  and  personal  interest
            in shares held by these related parties.

      7)    Excludes 550,000 option  shares  held  by  Dr.  Paul  Leibowitz  for
            consulting services over the past five years.

      (8)   Excludes 151,388 shares sold April 08, 1997 to a certain  beneficial
            owner of the Company (See item 11(a)).

                                       16

<PAGE>

Item 12. Certain Relationships and Related Transactions.

The Reorganization

      By Agreements  dated June 3, 1992  (collectively,  the  "Agreement"),  the
Company agreed to acquire up to 100% of the then issued and  outstanding  shares
of Common and Preferred  Stock of the  Subsidiary in exchange for  approximately
3,030,149 Shares of Common Stock (the "Reorganization"), plus certain contingent
Shares.  The Agreement  has been filed with the  Commission as an Exhibit to the
Registration  Statement (of which this Prospectus is a part) and is incorporated
herein  by  this  reference.  In  August  1992,  the  Subsidiary,  a  California
corporation, reincorporated in Delaware.

      The  purpose  of  the  Reorganization  was to  provide  the  Company  with
substantive   operations  and  to  provide  the  Subsidiary  funds  to  commence
substantive operations.

      Effective  June 30,  1992,  pursuant  to the terms of the  Agreement,  the
Subsidiary  stockholders  owning an aggregate of 4,342,037  shares of Subsidiary
Common  and/or  Preferred  Stock,  exchanged  these  Shares for an  aggregate of
2,463,711  Shares of Company Common Stock. The "Exchange Ratio" was one Share of
Subsidiary  Common or Preferred Stock for .56741 Company Shares of Common Stock.
An additional 240,085 Subsidiary Shares were subsequently  exchanged for 136,225
Company Shares (now  representing  29.1% of the Company's issued and outstanding
Shares when aggregated with the other Shares issued in the Reorganization).  The
remaining  Subsidiary  Common and  Preferred  shares  (including  Common  shares
issuable upon the exercise of certain  options and warrants)  were not exchanged
because  such  additional  exchange  would  have  deprived  the  Company  of the
exemption from  registration  relied upon to effect the initial  exchanges (Rule
506 of Regulation D under the Act).

      Although  the  Exchange  Ratio is the same for all the  Subsidiary  Stock,
there are two  categories  of  Subsidiary  stockholders,  each  category  having
different  registration  rights.  The first category  holders have  registration
rights  with  regard to 10% of their  Shares and,  pro rata,  are  entitled to a
percentage of an aggregate of up to an additional 1,022,130 Shares of restricted
Common  Stock  (the  "Contingent  Shares"),   the  actual  aggregate  number  of
Contingent  Shares to be determined  based upon formulas related to annual gross
revenues or profits.  The rights to the Contingent  Shares are not transferable.
No Contingent  Shares have been issued to date and further,  management does not
expect any of these  contingent  shares to ever issue due to the  difficulty  in
achieving the conditions precedent thereto by June 30, 1996.

      None of the shares  with  registration  rights were  registered  (see "The
Selling Security holders'  Offering" below) and all of the shares have been held
in excess of three years  making them  eligible  for resale,  subject to certain
limitations, under Rule 144.

The Company

      On January 17, 1992, the Company distributed a substantial majority of its
shares of Vegas Chips,  Inc. to the  stockholders  of record of the Company on a
pro rata basis as a dividend at the rate of .6 (6/10) share of Vegas Chips, Inc.
Common Stock for each one Share of Company Common Stock owned.

      On April 20,  1992,  the Company  sold  591,600  Shares of its  restricted
Common Stock at $2.50 per Share for gross  proceeds of $1,479,000  (net proceeds
of  $1,304,000)  in a private  offering.  These Shares were to be registered for
sale to the  public;  however,  none of the  shares  were  registered  (see "The
Selling Security holders'  Offering" below) and all of the shares have been held
in excess of three years  making them  eligible  for resale,  subject to certain
limitations,  under Rule 144. Union Equity Partners ("UEP") holds 2,400 options,
each option  entitling  the holder to purchase one Share at a price of $6.00 per
Share  through  January 20,  1999.  UEP was a broker  involved in the April 1992
private offering.  The Company has agreed to notify the holders of these options
anytime  it  intends  to file a  registration  statement  under the Act and,  if
requested by such  holders,  to register the Shares  issuable  upon  exercise of
these options in such registration statement.

      In May and July 1994,  the Company issued options to purchase an aggregate
of 1,202,250  shares to current and former  officers and  consultants in lieu of
cash,  including  496,500  options to R. Bruce  Reeves (see "Item 10.  Executive
Compensation") and 200,000 options to Grayson (see next paragraph).

      In July 1994,  the Company  engaged  Gerald  Grayson and F. J.  Daugherty,
d/b/a Grayson & Associates ("Grayson") of Denver, Colorado to assist the Company
in corporate development  activities,  on an exclusive basis,  including finding

                                       17

<PAGE>

one or more corporate  partners or others to provide funding or otherwise assist
in the further  development,  commercialization or distribution of the Company's
products and technologies.  Grayson,  founded in 1986,  specializes in assisting
merging growth and development stage companies in the healthcare  industry.  For
its first year of services,  Grayson  received options to purchase up to 200,000
shares of Company  Common  Stock at an  exercise  price of $.20 per  share.  The
agreement initially ran for one year and is continuing on a month to month basis
under  an  informal  extension  without  compensation.   The  agreement  can  be
terminated on one month's prior notice. In addition,  if, during the term of the
agreement,  Grayson secures  financing or provides  introductions  which lead to
other  business  transactions,  Grayson will be entitled to a finders fee: 8% of
the first $1,000,000 of financing secured,  descending 1% per $1,000,000 for the
next   $2,000,000  and  5%  of  each  $1,000,000   thereafter;   other  business
transactions - 5% of the first  $2,000,000 in transaction  value,  descending 1%
per  $2,000,000  for  the  next  $6,000,000  and  1% of  amounts  in  excess  of
$8,000,000.

      On March 31, 1994, the Company  acquired  150,000 shares of 6% cumulative,
convertible  preferred  stock of  Genesis  Farms,  Inc.  (then  Genesis  Capital
Corporation)  ("Genesis") in consideration  for issuing  1,500,000 shares of the
Company's Common Stock. On March 31, 1994, the Company's stock had a fair market
value of one dollar. In accordance with generally accepted accounting principles
(the cost  method of  accounting  for  nonmarketable  investments),  the Company
recorded the investment in Genesis at $1,500,000.  Management believes the value
of Genesis stock has been permanently  impaired and has reduced the basis of the
Genesis preferred stock to $180,000 at June 30, 1995. Due to further impairment,
the asset was written  down to $0 at June 30, 1996,  the value of which  remains
unchanged  at  June  30,  1997.  The  amount  of the  permanent  impairment  was
determined  by  reviewing  recent  trading  price of  Genesis  common  stock and
relating  such via the  conversion  rights  of the  Preferred  stock  since  the
underlying  common  stock will be  salable  under Rule 144 within six months (as
required by SFAS No. 115) This value differs  significantly  from its historical
cost value. See Note 11 to the Consolidated  Financial Statements.  On September
16, 1996, the Company entered into agreement to advance $10,000 in legal fees to
a party claiming to have an interest in the shares  exchanged by the Company for
the Genesis shares. Under this agreement, if the Company is successful,  it will
recover up to 1.25 million of its own shares,  such to be canceled and to reduce
shares outstanding in like amount.  100,000 shares have been recovered as of the
date of this 10KSB report.

      In May 1994, the Company borrowed $12,000 from a Director/Stockholder  for
one year at 9% interest  secured by 3,600 shares of Genesis  preferred stock. At
June 30, 1996 the Company  owed R T Robertson  Consultants,  Inc.  $87,853).  In
conjunction  with the now  terminated  TheraMed  transaction,  Robertson and Mr.
Schubert have agreed to defer payment of these amounts,  without interest, for a
period of up to three years ending 12/31/97.  This deferral remains in force and
anytime the Company reaches $2 million in working  capital,  these amounts shall
become due.  Mr.  Schubert  has  released  any  interest he holds in the Genesis
shares.

      In December  1996,  the  Company  was  advanced  $27,500  from  TheraMed
partners, Inc. which is still outstanding.

The Subsidiary

      Effective  June 1991, the  Subsidiary  acquired FLS' assets  including the
Subsidiary  Technologies in exchange for  approximately  $595,000 in payments of
cash to and/or on behalf of FLS and through  the  assumption  of  specific  FLS'
liabilities.  In addition,  the  Subsidiary  issued  57,437 shares of its Common
Stock directly to certain FLS creditors.

      The  hemoglobin  stabilization  technology  was  acquired by FLS,  without
warranty, from the Trustee in Bankruptcy of Pacific Brotherhood Investment Corp.
("PBIC").  George Lofink, president and CEO of FLS, was an officer, director and
principal  stockholder of PBIC. The PBIC technology was acquired in exchange for
$50,000  and the  assumption  of the costs  (approximately  $115,000  of funding
PBIC's litigation against certain parties previously  affiliated with PBIC ("the
Erythro  Litigation").  The Erythro  litigation  was  settled in December  1991.
Pursuant to the settlement and subsequent  negotiations,  the plaintiffs therein
relinquished any and all claims to the technology in return for $47,000,  all of
which has been paid.

      The drug release  technology  rights were  initially  licensed by FLS from
Valcor Scientific Ltd.  ("Valcor") in exchange for future royalty  payments.  In
April  1992,  Norman  Eisner,  Valcor's  successor,  agreed to cancel all future
royalty  payments and to assign to the Company the Valcor patents and technology
for 327,500 shares of the  Subsidiary's  Common Stock.  In addition,  Mr. Eisner
accepted 82,073  additional  shares of the Subsidiary's  Common Stock in lieu of
$265,000 of the $350,000  minimum  royalty  payment called for under the license

                                       18

<PAGE>

agreement.  The remaining  $85,000 was paid in July 1992, at which time title to
the drug release  technology rights was assigned to the Company. A percentage of
the above  discussed  shares and funds were  given to a former  Valcor  research
consultant.

      In connection  with the  transfer of the  Subsidiary  Technologies  to the
Subsidiary and in settlement of the  termination of FLS'  employment  agreements
with its then president,  George Lofink,  and its then Secretary,  Linda Carter,
the  Company  has  paid  approximately  $91,582  to  Mr.  Lofink  and  has  paid
approximately $2,500 to Ms. Carter. In addition, the Company has delivered notes
to Mr. Lofink and Ms.  Carter.  The combined  balance due on these notes at June
30, 1995 was $38,975.  (see "Item 3. Legal  Proceedings" for further  discussion
regarding  these notes).  The Subsidiary  also paid $131,386 and 1,200 Shares in
legal fees incurred by Mr. Lofink in his defense of the Erythro litigation.

      Prior to the  Reorganization,  the Subsidiary owed approximately  $173,314
(consisting of $116,852 in loans, and $31,355 owed for services rendered, to its
predecessor,  FLS, which were assumed by the Subsidiary, and $25,107 in loans to
the  Subsidiary)  to  present  and  former  officers  and/or  directors  of  the
Subsidiary   (including  certain  officers  and/or  directors  of  the  Company)
including  Richard  Schubert,  who was owed an  aggregate  of $76,413.  With the
exception  of  $1,260,  all of  these  liabilities  were  canceled  prior to the
reorganization  in exchange for the issuance of an aggregate of 62,565 shares of
the  Subsidiary's  Common  Stock.  All of these  62,565  Subsidiary  shares were
exchanged for 35,500 Shares of the Company's Common Stock in the  Reorganization
and were to be registered in the Selling Security holders' Offering. None of the
shares were registered (see "The Selling Security holders'  Offering" below) and
all of the shares have been held in excess of two years making them eligible for
resale, subject to certain limitations, under Rule 144.

      In December 1991, the Subsidiary  issued 751,000 shares of Preferred Stock
for gross proceeds of $375,500 in a private offering to accredited investors.

      In March 1992,  the  Subsidiary  issued 171,430 shares of its Common Stock
for gross  proceeds of $250,000 to The Venture Fund of Washington  (the "Fund").
Pursuant to the terms of the investment agreement between the Subsidiary and the
Fund,  the  Subsidiary  agreed to nominate  two Fund  designees  to the Board of
Directors  of the  Subsidiary  and  any of its  successors.  In  addition,  each
Subsidiary  Director  agreed to vote in favor of the appointment of the two Fund
designees.  In accordance  with the investment  agreement,  Richard  Whitney and
Walter Flamenbaum, M.D., the two Fund designees, were appointed Directors of the
Company  following  the  reorganization  which  appointments  were  confirmed by
stockholders at the Company's  October 29, 1992 annual meeting.  Dr.  Flamenbaum
resigned from the Board in June 1993.

      In April 1992, the Subsidiary  issued 6,858 shares of its Common Stock for
gross proceeds of $10,000 to an unaffiliated accredited investor.

      The  shares  issued  to the Fund  and to the  unaffiliated  investor  were
exchanged  for Shares of Common Stock of the Company in the  Reorganization  and
were to be registered in the Selling Security holders'  Offering.  None of these
shares were registered (see "The Selling Security holders'  Offering" below) and
all of the shares have been held in excess of two years making them eligible for
resale, subject to certain limitations, under Rule 144.

      In June  1992,  the  Subsidiary  issued to Paul  Calvin  Maybury,  Richard
Schubert, R. Bruce Reeves, Glen Urquhart, Richard Whitney and Walter Flamenbaum,
as a group,  Common Stock purchase  warrants to purchase up to 153,313 shares of
the Subsidiary's Common Stock at an exercise price of $1.40 per share (the price
equivalent  to the  Company's  Common  Stock  offering  price in its April  1992
private offering). These warrants have expired.

      In  August  1992,   the   Subsidiary   changed  its  name  to  "BIORELEASE
Technologies,  Inc."  and its state of  incorporation  by  merging  into a newly
formed Delaware corporation.

      In June 1996,  the  Company  issued  509,396  shares of its  Common  Stock
(inclusive of 41,305 shares that were issued effective July, 1996) in settlement
of , $5,783 in 1997,  $29,366 in 1996 and $286,283 in 1995 of the  Company's and
the Subsidiary's liabilities.

The Selling Securityholders' Offering

      The  Company had filed a  registration  statement  to  register  1,093,973
Shares on behalf of certain Selling Security holders for sale to the public.  Of
the  1,093,973  shares  462,373  shares  were being  registered  pursuant to the
Company's  commitments  under  the  Reorganization  Agreement  and with  certain
creditors (see "The Reorganization"  above),  591,600 of these Shares were being

                                       19

<PAGE>

registered  pursuant to the  Company's  commitment  under the terms of a private
offering conducted in April 1992 by the Company prior to the consummation of the
Reorganization  (see "The Company"  above) and 40,000 of these Shares were being
registered pursuant to the settlement of the Raab litigation (see "Item 3. Legal
Proceedings").  In addition, the Company was registering 250,000 shares issuable
upon exercise of 250,000  options.  In June 1994, the Company  determined not to
proceed with the Selling  Security  holders'  offering because all of the shares
being  registered on behalf of Selling  Security holders therein became eligible
for resale  under Rule 144 and all of the  options  (exercisable  into the other
shares registered therein) had expired.

The Exchange Offering

      As  noted  above,  in  "The  Reorganization,"   4,582,122  shares  of  the
Subsidiary  were  exchanged  for  2,599,936  Shares of the Company.  In order to
acquire the remaining 767,071 shares of the Subsidiary's Common Stock (including
shares issuable upon exercise of certain options and warrants),  the Company had
filed a  registration  statement to register  435,244 Shares for issuance to the
remaining  Subsidiary  Stockholders in exchange for their Subsidiary shares. The
Company believes this exchange of shares will be postponed  indefinitely because
the Company  believes it cannot  meet State and Federal  securities  regulations
related to this exchange.

Terminated Public Offering

      In July 1993, the Company  registered 160,000 Units for sale to the public
at a price of $15.00 per Unit on a "40,000  Unit-or-none  best  efforts"  basis.
Each Unit  consisted  of five  shares of Common  Stock and three  Class B Common
Stock to Purchase  Warrants.  During the offering  period,  prior to sale of the
minimum  offering,  there was a decline in the bid price of the Company's Common
Stock. As a result,  the Company and the Underwriter  terminated the offering in
September 1993.

PART IV

Item 13. Exhibits and Reports on Form 8-K.

Reports on Form 8-K

      The  Company has filed the  following  Reports on Form 8-K during the year
ended June 30, 1995 with the  principal  office of the  Securities  and Exchange
Commission  in  Washington,  D.C.:  8-K filed with the  Securities  and Exchange
Commission  on September  29, 1994;  Amendment  No. 1 thereto (Form 8-K/A) filed
with the Securities and Exchange Commission on November 3, 1994.

Exhibits

      NONE

Exhibits incorporated by reference
      3a      Certificate of Incorporation of Company(1)
      3b      Amendment to Certificate of Incorporation of Company(1)
      3c      By-Laws of Company(1)
      10c     Stock Reorganization  Agreement between the Company
              and the Subsidiary(2)
      10d     1992 Stock Option Plan(3)
      10e     1992 Directors' Stock Option Plan(3)
      10f     Patent-Chondroitin Drug Complexes(4)
      10g     Patent-Stabilization of Proteins and Peptides by
              Chemical Binding with Chondroitin(4)
      10i     Consulting Agreement with Wall Street Consultants(4)
      10j     Options with USA, Wall Street Consultants and
              Union Equity Partners(4)
      10l     TSI Agreement(4)
      10m     Cell Trends Agreement(4)
      10n     Dr. Reeves' Employment Agreement(5)
      10o     Chestnut Drive lease
      14a     Canadian patent for "Method for Protein Stabilization"(4)
      14b     European  patent for "Continuous Processes for
              Modifying  Biologically Active Materials and the
              Products Therefrom"(4)
      16a     Accountants' Letter(6)(7)
      22c     Subsidiaries (see "Item 1. Business")
------------------

                                       20

<PAGE>

(1)  Previously  filed with the  Commission  as an  Exhibit to the  Registration
     Statement  on  Form  S-1,  as  amended,  file  No.  33-43976  and,  by this
     reference, incorporated herein.
(2)  Previously  filed as an  exhibit to the  Company's  Form 8-K filed with the
     Commission  June 8,  1992,  file  No.  0-15260,  and,  by  this  reference,
     incorporated herein.
(3)  Previously  filed as an  Exhibit  to the  Company's  Form 10-K for the year
     ended June 30, 1992 filed with the  Commission on September 28, 1992,  file
     No. 0-15260, and, by this reference, incorporated herein.
(4)  Previously  filed with the  Commission  as an  Exhibit to the  Registration
     Statement  on  Form  S-1,  as  amended,  file  No.  33-59902  and,  by this
     reference, incorporated herein.
(5)  Previously  filed with the  Commission as an Exhibit to the Company's  Form
     10-KSB  for the year  ended June 30,  1993  filed  with the  Commission  on
     September 28, 1994, file no. 33-43976, and, by this reference, incorporated
     herein.
(6)  Previously  filed as an  exhibit to the  Company's  Form 8-K filed with the
     Commission  July  30,  1992,  file No.  0-15260,  and,  by this  reference,
     incorporated herein.
(7)  Previously  filed as an exhibit to the Company's  Form 8-K/A filed with the
     Commission  November 3, 1994,  file No.  0-15260,  and, by this  reference,
     incorporated herein.

      Statements  contained  in  this  Form  10-KSB  as to the  contents  of any
agreement  or other  document  referred  to are not  complete,  and  where  such
agreement  or other  document  is an exhibit to the Report or is included in the
forms  indicated  above,  each such  statement  is deemed  to be  qualified  and
amplified in all respects by such provisions.

                                       21

<PAGE>

                                   SIGNATURES

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

                                BIORELEASE CORP.


Dated: October 31, 1997 By  /s/Richard F. Schubert
                            ---------------------------
                            Richard F. Schubert, Chairman

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

SIGNATURES                   TITLE                                DATE


/s/Richard F. Schubert       Chairman,                        October 31, 1997
Richard F. Schubert          Director and
                             Principal Financial Officer


/s/Richard Whitney           Director                         October 31, 1997
Richard Whitney

                                       22

<PAGE>



                      SUPPLEMENTAL INFORMATION AND EXHIBITS

Supplemental  Information  to be  Furnished  With  Reports  Filed  Pursuant to
Section 15(d) of the Act by Registrants  Which Have Not Registered  Securities
Pursuant to Section 12 of the Act.

                                 Not Applicable.





[10ksb.697]

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