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, 1996         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)

                  10 Chestnut Drive, Unit D, Bedford, NH 03110
                  --------------------------------------------
              (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code     (603) 471-1255
                                                       --------------
Securities registered pursuant to Section 12(b) of the Act:  None
                                                             -----
Securities registered pursuant to Section 12(g) of the Act:  Common Stock 
                                                             ------------

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 [ ]

The aggregate market value of the voting common stock held by non-affiliates (1)
of the  registrant  based on the  average  of high bid ($.15) and low bid ($.10)
prices of the Company's  Common Stock,  as of October 7, 1996, is  approximately
$1,022,000  based upon an average of $.125 multiplied by the number of shares of
Registrant's Common Stock held by non-affiliates.

The number of shares  outstanding  of the  Registrant's  Common Stock,  $.01 par
value,  as of October 11, 1996 is 9,471,659  (which  excludes  450,000  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 __X__ No


<PAGE>



                                BIORELEASE CORP.
                                   Form 10-KSB
                         Fiscal Year Ended June 30, 1996

                                Table of Contents
PART I                                                                      Page

Item 1.         Business.....................................................  1

Item 2.         Properties................................................... 18

Item 3.         Legal Proceedings............................................ 18

Item 4.         Submission of Matters to a Vote of........................... 18
                Security Holders

                                    Part II

Item 5.         Market for Registrant's Common............................... 19
                Equity and Related Stockholder Matters

Item 6.         Management's Discussion and Analysis of...................... 20
                Financial Condition and Results of Operations

Item 7.         Financial Statements......................................... 26

Item 8.         Changes in and Disagreements with............................ 27
                Accountants on Accounting and
                Financial Disclosures

                                    Part III

Item 9.         Directors, Executive Officers, Promoters
                and Control Persons; Compliance with
                Section 16(a) of the Exchange Act............................ 30

Item 10.        Executive Compensation. ..................................... 33

Item 11.        Security Ownership of Certain Beneficial..................... 36
                Owners and Management

Item 12.        Certain Relationships and Related............................ 37
                Transactions

                                    Part IV

Item 13.        Exhibits and Reports on Form 8-K ............................ 39

Signatures................................................................... 41

Supplemental Information and Exhibits........................................ 42


<PAGE>




                                     PART I

Item 1. Business.

General

The  Company,   Biorelease   Corp.   ("the  Company"  or  "BIO")  including  its
biotechnology subsidiary, Biorelease Technologies, Inc. (the "Subsidiary"), is a
development  stage company which has recently entered into a letter of intent to
acquire another  development  stage private  company,  Theramed  Partners,  Inc.
("Theramed"),  a company  focusing on  acquiring  and  consolidating  late stage
biotechnology companies and synergistic pharmaceutical technologies.  The letter
of intent provides the general terms and conditions of a proposed acquisition of
TheraMed by the  Company,  whereby the  management  of TheraMed  will  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
existing management and directors will hold a controlling interest in BIO. Under
the  terms  of the  letter  of  intent,  following  the  effective  date  of the
acquisition,   BIO  plans  to  spin   off,   to  its   stockholders   of  record
(pre-acquisition),  all of its shares of  Biorelease  Technologies,  Inc.  ("the
Subsidiary").  Completion  of  the  spin  off  will  require  the  filing  of  a
Registration  statement  with  the  Securities  and  Exchange  Commission.  As a
condition of the letter of intent, Dr. Reeves,  formerly the Company's President
and CEO,  resigned  effective  October 4, 1996 as an officer and Director of the
Company.  R. T.  Robertson  Consultants,  Inc.  ("Robertson"),  affiliated  with
members of Dr.  Reeves'  family,  will enter into a  consulting  agreement  with
Theramed  Partners.  The Company will spin off to its present  stockholders  the
stock it holds in the  Subsidiary to create a clean  publicly  traded  corporate
vehicle without significant liabilities which will seek to acquire companies and
undervalued technologies.

     The  Subsidiary   holds   technology  and  patents  related  to  hemoglobin
stabilization   and  sustained   release  drug  delivery   technology  based  on
chondroitin  sulfate,  both of which may have  application in the field of blood
substitute  development.  The Subsidiary began its  biotechnology  activities by
acquiring in 1989 the hemoglobin  stabilization  and processing  technologies of
Oxygenetics,  an early stage California based company. 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,  still a  Director.  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.

                                      - 1 -

<PAGE>

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.  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 sustaining biotechnology company in light of the large costs
necessary to finalize,  obtain regulatory  clearance and market its sole product
and its planned products.

Theramed

In October 1996,  the Company's  Board of Directors  announced it had executed a
letter of intent for the proposed  acquisition  of TheraMed,  a recently  formed
privately  held  company  focusing on  acquiring  and  consolidating  late stage
biotechnology companies and pharmaceutical synergistic technologies.  The letter
of intent provides the general terms and conditions of a proposed acquisition of
TheraMed by the  Company,  whereby the  management  of TheraMed  will  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
existing  management and directors together will hold a controlling  interest in
BIO. Under the letter of intent, after consummation of the Theramed acquisition,
the Company will,  among other things,  change its name to "Pharmatrage  Holding
Inc."  ("Pharmatrage")  and  file a  registration  statement  to spin off to its
stockholders  of record  (pre  acquisition),  all of the  shares  of  Biorelease
Technologies, Inc. ("the Subsidiary") presently held by the Company.

Pharmatrage will be a product and technology acquisition company and development
entity with a primary focus on developing  later stage products  acquired out of
the anticipated  consolidation of the biotechnology and pharmaceutical  industry
over the next several years.  Management intends to use as its primary selection
criteria those  proprietary  technologies and products for which preclinical and
clinical data exist that strongly supports  potential  commercial  viability and
success.

One  area in which  Pharmatrage  expects  to  initially  focus  is on  acquiring
proprietary  drug delivery  technology that could be useful in providing  normal
dosage  forms that would enable it to enter new markets or improve the safety or
efficiency profile of existing drugs.

It is  anticipated  that  Pharmatrage  will seek out  affiliation  with,  and/or
acquisition of, companies  unable to  independently  continue the development of
their products who will benefit from the experience of Pharmatrage's  management
and support.

                                      - 2 -

<PAGE>

Mr. Donald E. Strange, Dr. Paul Leibowitz and Dr. Nigel Fleming are the founders
and  current  principal  stockholders  of  Theramed.  See  Part  III,  Item 9. -
Directors,  Executive Officers,  Promoters and Control Persons;  Compliance with
Section 16(a) of the Exchange Act.

As a condition of the letter of intent,  Dr.  Reeves,  currently  the  Company's
President  and CEO, has resigned as an officer and Director of the Company.  Dr.
Reeves is employed by  Robertson  which will enter into a three year  consulting
agreement  with  Theramed   Partners  prior  to  the  closing  of  the  Theramed
acquisition.  Compensation to Robertson will include  Pharmatrage  stock options
(anticipated to be for approximately  5,083,000 shares).  Robertson will consult
in the areas of capital formation, securities compliance,  stockholder relations
and financial matters.  Limited additional staff and outside consultants will be
added to assist in the development and technology acquisition efforts as needed.

Theramed  will  oversee the  operations  of the Company  prior to closing at the
direction of the current Board of Directors. Theramed has also agreed to advance
operating  funds  to the  Company  to allow it to  continue  operations  pending
stockholder approval of the transaction.

The Theramed  transaction is subject to approval of the Company's  stockholders.
According to the letter of intent, the Company's stockholders also will be asked
to approve the  following  conditions to the  acquisition:  (i) a name change to
"Pharmatrage  Holding Inc."  (ii) a reverse  split of the  Company's  issued and
outstanding  shares  of  Common  Stock  on  a  one-for-three  basis;  (iii)  the
authorization of preferred stock, the designations, rights, preferences of which
may be determined at the  discretion of the Company's  Board of Directors;  (iv)
the  election of a slate of  directors  which will  include  existing  directors
Schubert and Whitney plus Theramed directors Donald E. Strange and Nigel Fleming
and a fifth  authorized  director to be named later; and (v) the spin off of all
Subsidiary   shares  held  by  the  Company  to  the  Company's   (pre  Theramed
acquisition) stockholders.

Management  anticipates that the newly authorized preferred stock may be used by
Pharmatrage to finance potential product and/or company acquisitions.

In  addition,  as a  condition  to the  spin  off,  it is  anticipated  that the
Subsidiary  will grant the  Company an  exclusive  license,  subordinate  to the
existing  rights  licensed  to  Baxter   Healthcare   ("Baxter"),   to  use  the
Subsidiary's  chondroitin  Sulfate  Technology ("CS Technology") in exchange for
royalties  of 4% of net sales by the Company of any  products  based upon the CS
Technology.  The 4% royalty  shall be payable only after the amount of royalties
that would have been paid exceeds the amount of advances  made by the Company to
the Subsidiary  through the date of the spin off. The Subsidiary also will grant
the Company the right,  at any time during the one year period  commencing  upon
the closing of the  Theramed  transaction,  to acquire  all of the  Subsidiary's
rights,  title and interest in and to the CS  Technology  (including  the Baxter
agreement),  in  exchange  for cash  and/or  Pharmatrage  stock  valued  at $1.0
million.

                                      - 3 -

<PAGE>


Under the proposed  acquisition  terms, BIO will issue  approximately 21 million
shares of restricted  common stock along with certain stock options  exercisable
for 3.9 million  shares of stock to the current  stockholders  and management of
Theramed  in  exchange  for their  Theramed  stock.  Immediately  following  the
acquisition,  the Company will have approximately 30.5 million shares issued and
outstanding  in  addition to  approximately  7.5 million  shares  issuable  upon
exercise of options. The transaction is proposed to be a reorganization pursuant
to Section 368 (a) (1) (B) of the Internal Revenue Code and is expected to close
within 90 days,  subject to  approval  by the  stockholders  of the  Company and
Theramed.

The Subsidiary (Biorelease Technologies, Inc.)

Since acquisition by the Company, the Subsidiary has focussed on development and
promotion of its proprietary hemoglobin based cell-culture additive,  Erythrogen
TM  ,  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 were $43,428,  $39,781 and $21,705 during the
years ended June 30, 1994, 1995 and 1996, respectively.  The Subsidiary received
$21,948 in fiscal  1996 and  $213,117  during  the year ended June 30,  1995 for
sponsored  research  relating to chondroitin  sulfate sustained release research
including  $33,117  research grant revenue from the State of New Hampshire.  The
Subsidiary  had $7,000 in revenues  during  fiscal 1996 from the leasing of it's
equipment.  The Subsidiary  received  licensing  revenues of $25,000 plus patent
cost  reimbursement from Baxter Healthcare (see next paragraph) related to their
use of chondroitin  sulfate drug delivery for blood substitutes  during the year
ended June 30, 1996. 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.  Further,  the
Subsidiary is searching out one or more synergistic  technologies which could be
acquired under terms and conditions which would enhance the Subsidiary's ability
to attract new capital.

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,
Erythrogen, uses hemoglobin stabilizing technology to produce a proprietary cell
culture additive.   During this past fiscal year the Subsidiary has discontinued
direct  promotion  of Erythrogen to the research and laboratory markets  because

                                      - 4 -

<PAGE>

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.  Unless Baxter  terminates  the agreement on 90 days prior written
notice before any calendar year end, 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  and does not
terminate the license 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 focussed 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. Additional funding will be required to sustain the
development  of the  Subsidiary's  chondroitin  sulfate  sustained  release drug
technology for other potential therapeutic applications of its technologies. The
Subsidiary hopes to attract one or more additional  strategic  partners from the
pharmaceutical industry. As of the date hereof, the only program under which the
Subsidiary has any current collaboration  activity is with Baxter who is engaged
in blood  substitute  development.  As a part of this  arrangement,  Baxter  has
agreed  to make  research  results  from  its  blood  substitutes  studies  with
chondroitin  available to the Subsidiary on a confidential  basis.  In the event
this Baxter work continues to show positive results, management anticipates, but
cannot  assure,  that Baxter will transfuse the modified  hemoglobin  into large
animals and the results  will be  evaluated  to  determine  if the  experimental
modified  hemoglobin is sufficiently  effective as an oxygen carrier.  While the
Subsidiary  has received  $180,000 in sponsored  research  revenues,  $25,000 in
license agreement revenues,  $21,967 in reimbursement of patent costs and $8,739
in research  product  revenues from this licensing  partner,  management  cannot
assure that it will be able to generate regular and consistent revenues from any
such strategic  industrial  alliances and licensing fees in the near future,  or
secure long term assistance in  commercializing  pharmaceutical  and therapeutic
applications of the Subsidiary's patented chondroitin technology.  See "Proposed
Technology Applications."

                                      - 5 -

<PAGE>

Management  believes,  but cannot  assure,  that  affiliation  with the Theramed
management  team and, by  embarking on later stage  consolidation  opportunities
within the  biotechnology  industry,  should  enhance the  Company's  ability to
attract financing and alleviate the long standing liquidity  difficulties.  As a
part of the affiliation with Theramed and subject to stockholder  approval,  the
Subsidiary and its technologies  will be spun out to the Company's  stockholders
subject  to  filing a  registration  statement  with  the  S.E.C.  The  Theramed
management  team  (see Item 1) will  oversee  the day to day  management  of the
Company at the direction of the Company's existing Board of Directors.

PROPOSED TECHNOLOGY APPLICATIONS

Hemoglobin Blood Gas Technology

During  the  development  and  evaluation  of  the  technology  leading  to  the
ErythrogenTM   cell  culture  product,   the  Subsidiary   discovered   possible
therapeutic  applications  of this technology  which have now been  incorporated
into its related patent  application  allowed in Europe.  This  technology  ("BG
Tech") is based on complexes between hemoglobin and certain blood gases,  nitric
oxide and carbon monoxide,  earlier believed to be both toxic and unstable.  The
Subsidiary is in  negotiations  with two companies  active in the field of blood
substitute  research to establish  possible  research  collaboration  and or out
licensing  possibilities.  Preliminary  in vitro data has indicated that certain
formulations based on this blood gas technology may have a stimulative effect on
endothelial and epithelial  cells which comprise human skin.  Further,  recently
published data leads the Subsidiary to believe that these  compounds may also be
significant  vasodilators.  As a part of  evaluating  the potential of licensing
opportunities,  the Subsidiary  hopes to commence in vitro (in cooperation  with
UNH) and animal  model  screening  of  formulations  similar in  composition  to
ErythrogenTM  for  therapeutic  activity.  These  screening  studies  are  to be
undertaken in  cooperation  with one or more of the blood  substitutes  research
companies,  and will study possible use of this proprietary  modified hemoglobin
as a healing  agent for  wounds  and burns as well as a  vasodilator  for use in
sickle cell anemia,  stroke and certain  neurodegenerative  diseases.  While the
Company  has  had  preliminary  discussions  with  two  research  companies,  no
agreements  have been reached and no assurance can be given that agreements will
be reached.  Absent such an agreement or an infusion of significant funding, the
Subsidiary  will  not be able  to  conduct  animal  screening.  Formulation  and
stability  studies  derived  from  cell  culture  development  work  indicate  a
stability adequate for use as a therapeutic product.  Subject to availability of
financial  resources,  it is the  Subsidiary's  present  intent  to  demonstrate
product applications in one or more of these therapeutic areas and seek either a
development  partner or licensee for further  product  application  and clinical
trials allowing it to focus on nearer term product opportunities.

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

                                      - 6 -

<PAGE>

to human  cells,  have been shown  over the past  several  years by  independent
laboratories to exhibit significant medical and biologic benefit. In March 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.


The  Subsidiary  will  focus  its  research   screening  efforts  on  hemoglobin
formulations similar in composition to its product ErythrogenTMI  (ERY-I). ERY-I
is a  partially  purified  preparation  suitable  as  a  cell  culture  additive
containing  stabilized hemoglobin derived from bovine source in combination with
a blood gas.  The  Subsidiary  may choose to  develop a purified  human  derived
modified  hemoglobin in place of ERY-I. This will screen out biological activity
derived from possible  impurities  contained in the ERY-I cell culture  product.
The Subsidiary  may further choose to negotiate a supply  agreement for clinical
grade hemoglobin with one of the companies developing hemoglobin based synthetic
blood   substitutes  to  assure  the   Subsidiary  of  a  product   quality  and
documentation  necessary for later  preclinical work needed for the filing of an
IND on promising  indications.  This approach  would  eliminate the need for the
Subsidiary  investing funds it does not have in production and  certification of
hemoglobin production facilities.

The  Subsidiary  has three years of  stability  data on ERY-I (ERY-I is a bovine
based blood gas-  hemoglobin  formulation  used for cell culture  applications).
This  prospective  product  formulation will be screened in established in vitro
and animal models for the most  commercially  attractive  disease states.  These
targeted  disease  states will be  selected  based on four  parameters:  (1) the
market size, (2) published data indicating likelihood of therapeutic effect, (3)
the cost of the research  model,  and (4) the  likelihood  of attracting a major
partner following a successful study. Currently, the Subsidiary does not possess
the resources necessary to proceed on its own.

Provided  preliminary  screening  results appear  favorable,  the Subsidiary may
attempt to in- license other potential synergistic technologies and/or affiliate
with one or more laboratories  active in the field of nitric oxide therapeutics.
As data is  developed  under  this  program,  the  Subsidiary  expects to pursue
development  agreements  with  corporate  partners  leading to possible  license
revenues and milestone payments. It is the goal of the Subsidiary to develop its
BG Tech  business  opportunity  by forming  joint  ventures  with one or several
hemoglobin  producers and or through an affiliation with a major  pharmaceutical
partner. Screening of other formulations will be undertaken only after achieving
the  support  and  funding  of at least one major  pharmaceutical  company.  The
development  and license  agreement with Baxter  mentioned above is unrelated to
the  Subsidiary's  hemoglobin  BG Tech  technology  although  both  technologies
represent a  significant  value added  contribution  to  hemoglobin  based blood
substitutes.

                                      - 7 -

<PAGE>

Chondroitin Sulfate Sustained Drug Release Technology.

The Subsidiary owns a potential sustained release drug delivery technology based
on chondroitin  sulfate.  This technology has received  development support from
Baxter and resulted in an initial licensing  agreement in April 1996 with Baxter
for Baxter's blood substitute application. Under the current chondroitin sulfate
based research  licensing  agreements,  Baxter is responsible for scaling up the
manufacturing  of chondroitin  reagent to  pharmaceutical  quality  levels,  for
performing all  preclinical  research and human clinical  trials provided Baxter
continues to actively pursue this technology.  Baxter received approval from the
FDA in June 1996 to proceed with Phase III clinical trials on its modified human
hemoglobin,  DClHb (without chondroitin).  No assurance can be given that Baxter
will take its DClHb through clinical trials with the Company's chondroitin.

The Baxter agreements  provide for confidential  disclosure to the Subsidiary of
research and clinical results which could lead to therapeutic applications other
than  hemoglobin.  Baxter's  exclusive  license is limited to  hemoglobin  blood
substitute  applications  leaving  other  therapeutic  applications  open to the
Subsidiary for licensing.

Approximately  12,000,000  units  of  blood  were  administered  to a  total  of
4,000,000  patients in the U.S. last year. With the average cost of $300-500 per
unit, the market for blood  substitutes could approach $4 billion in the U.S. or
approximately $10 billion worldwide. (It should be noted that a blood substitute
is an oxygen delivery product or  resuscitation  fluid and does not provide many
of the  components  found in human  blood).  Several  companies  are  developing
competing products for the prospective hemoglobin-based blood substitute market.
Baxter  (modified  human blood) has just  initiated  Phase III clinical  trials;
Northfield Laboratories (modified human blood) and Somatogen/Lilly (recombinant)
have conducted Phase II clinical trials; each of these companies are expected to
move soon into Phase III trials. Biopure  (bovine-derived) has completed Phase I
trials  that had earlier  been  suspended  for  undefined  problems  and has now
commenced phase II. Enzon  (bovine-derived)  and Hemosol  (human-  derived) have
also initiated clinical trials.

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.

                                      - 8 -

<PAGE>

Chondroitin sulfate is a naturally occurring  biopolymer found in the connective
tissues of mammals and other cartilage-containing  creatures (including humans).
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 over time, the complex
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.

The Subsidiary has identified an economically  viable source for highly purified
chondroitin  in order to advance  the  development  of its  chondroitin  sulfate
sustained   drug  release   technology   and  to  assure   economic   supply  of
pharmaceutical grade chondroitin. It has supplied this product to Baxter as part
of its  earlier  research  arrangement.  Recently,  the  Subsidiary  completed a
technology transfer to Baxter who now uses the Subsidiary's  proprietary process
to make research grade product for their studies.  Baxter,  under agreement with
the Subsidiary, has agreed to share on a confidential basis the results of their
research.  The Subsidiary  retains the rights to use the chondroitin  technology
for all applications other than blood substitutes.

Development  of  chondroitin   sulfate   sustained  release  drug  products  and
applications  will  depend on,  among other  things,  the  feasibility  and cost
effectiveness  of binding a given drug to  chondroitin  sulfate in a manner that
will  permit  the  desired  release  of the  drug.  Its entry  into  proprietary
pharmaceutical applications will also depend on the Subsidiary's ability to fund
the  development  through the  formation of one or more  strategic  alliances or
joint ventures,  from future revenue streams and/or from additional  debt/equity
financing.

Specific  proposed  commercial  applications  of  the  Subsidiary's  chondroitin
sulfate based sustained drug release technology other than those activities with
Baxter are only in the conceptual  stages.  The  Subsidiary  hopes to enter into
other  collaborative  arrangements  with  other  multi-national   pharmaceutical
companies pursuant to which the Subsidiary would provide reagent and know how to
complex a prototypical  drug  (proprietary to the  pharmaceutical  company) with
chondroitin and the  pharmaceutical  company would develop  preclinical  data in
animal  models  leading  to a  licensing  opportunity  for  the  Subsidiary.  No
assurance can be given that the Subsidiary will be able to enter into such other
collaborations  or, if such an arrangement is entered into, that the preclinical
data generated will result in further collaboration or a licensing opportunity.

                                      - 9 -

<PAGE>

ERYTHROGEN TM 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 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").  ErythrogenTM  enhances the growth of
cultured cells, especially those of high-density cultures, reduces the amount of
nutrients that must be added and 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 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 higher activity than any other carrier
studied.  This past year,  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.

                                     - 10 -

<PAGE>



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 this data early next
year.

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  ($115,525  to date).  The  Subsidiary
believes the  significant  opportunity is in the industrial  cell culture market
which will take  additional  time and effort to penetrate.  The U.S.  market for
cell  culture  additives  is rapidly  growing and is  estimated  at $200 million
annually  for which no  clinical  trials are  required  prior to sale.  A single
product conversion to Erythrogen TM at the manufacturing scale could represent a
recurring revenue opportunity of $250,000-$500,000  per year per product. If the
Subsidiary  can  be  successful  in  penetrating  the  cosmetics  markets,   the
opportunity for this product could be larger.  Accordingly,  sales and marketing
strategies  for these  customers are highly  individualized  and targeted.  This
product and business activity is not a major focus for the Subsidiary.

Erythrogen TM Sales and Marketing

The Subsidiary had earlier established independent sales distributors in Canada,
England  and Japan and was in the  process  of  establishing  independent  sales
distributors in certain European countries. Due to its limited resources and the
high cost of promotion,  the  Subsidiary  has  discontinued  the direct sale and
promotion of ErythrogenTM to the research  markets.  While the Subsidiary  still
supplies  some of  these  independent  commissioned  sales  representatives  and
distributors,   volume  from  these  activities  has  become  minimal.  Instead,
management has identified target companies that have an established  presence in
relevant markets for potential strategic marketing  relationships (e.g., medical
research catalogue  suppliers).  In this regard,  one large catalogue  supplier,
Sigma,  carries  ErythrogenTM  under  its own  label  in its  Sigma  Biosciences
catalogue and a bioreactor  manufacturer is in a discussion relating to possible
distribution.

                                     - 11 -

<PAGE>

 Erythrogen TM Manufacturing

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.  Although  it is  currently  not
required that cell culture  additives for the research  market be made under GMP
guidelines,  the  Subsidiary  plans to later  explore the  possible use of a GMP
facility for future  manufacturing  of ErythrogenTM  for  pharmaceutical  use or
secure supply from one or several blood substitute companies.

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.  Erythrogen TM  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.

(b) Proposed Therapeutic and Pharmaceutical Products. Assuming the Subsidiary is
able to  license  its  sustained  release  drug  and/or  therapeutic  hemoglobin
stabilization  technologies  and  such  licensing  arrangement  results  in  the
development  of therapeutic or  pharmaceutical  products,  such products will be
competing   with   products   developed  by  major  drug   companies,   research
organizations  and  universities.  The  proposed  sustained  release drug system
specifically will compete with a number of technologies including, among others,
liposomes (The Liposome  Company,  Nextar,  Inc.),  a drug delivery  system that
encapsulates a drug or other substance in lipids (fat);  PEG-technology  (Enzon,
Inc.), a sustained release drug system that chemically binds a drug or substance
to polymers of  polyethylene  glycol ("PEG");  and  microspheres of "protenoids"
(Emisphere  Inc.), a technology that is attempting to administer orally drugs or
antigens that currently  require injection to name only a few. The Subsidiary is
seeking  strategic   relationships   within  the   pharmaceutical   industry  to
substantially  reduce the  otherwise  high capital  risk of  financing  internal
research  and clinical  testing;  however,  no  assurance  can be given that the
Subsidiary will be able to enter into such a strategic relationship or, that any
products   developed  by  such  a  strategic   relationship  would  be  able  to
successfully compete.

                                     - 12 -

<PAGE>

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,  respectively,  on research and
development  on its  hemoglobin  and  chondroitin  technologies.  Due to  severe
financial  restraints,  the research at University of New Hampshire was the only
work  undertaken  during the past fiscal year (1996).  From October 1989 to June
30, 1996,  the  Subsidiary  spent  $2,558,041 on research and  development  (not
including $690,000 to purchase its technologies).

Pursuant to an agreement  with the University of New Hampshire  ("UNH"),  UNH is
conducting  research on the  application of  chondroitin  sulfate as a sustained
release  drug  agent as well as  application  development  of  ErythrogenTM  for
mammalian  cells.  Pursuant to the UNH  Cooperative  Agreement  which  commenced
December 19, 1994 and runs through December 31, 1996, 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.
Following the depletion of these remaining grant funds,  the Subsidiary  expects
to apply for an extension  which will,  if approved,  require the  Subsidiary to
advance  fifty percent (50%) of any approved  grant amounts  provided  funds are
available.  Management  believes,  but  cannot  assure,  that it will be able to
provide  matching funds to allow extension of the UNH Cooperative  Agreement for
the period through fiscal year ended June 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  that 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.

                                     - 13 -

<PAGE>

Governmental Regulation

Regulation by governmental  authorities in the United States and other countries
is a significant  factor in the production and marketing of the Company's future
pharmaceutical  and/or  therapeutic  applications  and products derived from its
technologies,   and  in  its  current  and  proposed  research  and  development
activities.  In order to test  clinically and to produce and market products for
human therapeutic use, mandatory procedures and safety standards  established by
the FDA and comparable agencies in foreign countries must be followed.

The standard process  required by the FDA before a  pharmaceutical  agent may be
marketed in the United States includes (i) preclinical tests, (ii) submission to
the FDA of an  application  for an  Investigational  New Drug which must  become
effective  before  human  clinical  trials  may  commence,  (iii)  adequate  and
well-controlled  human  clinical  trials to establish the safety and efficacy of
the drug in its intended  application,  (iv) submission to the FDA of a New Drug
Application  ("NDA")  with  respect  to drugs and  Product  License  Application
("PLA") with  respect to biologics  and (v) FDA approval of the NDA or PLA prior
to any  commercial  sale or  shipment  of the drug or  biologic.  In addition to
obtaining  FDA approval  for each  product,  each  domestic  drug  manufacturing
establishment must be registered or licensed by the FDA. Domestic  manufacturing
establishments  are subject to inspections  by the FDA and other Federal,  state
and local agencies and must comply with "Good Manufacturing Practice" ("GMP") as
appropriate for production.  Compliance with GMP requires,  inter alia, that the
manufacturing  establishment must follow certain procedures and be inspected and
approved by the FDA.

Clinical  trials are typically  conducted in three  sequential  phases,  but the
phases may overlap. In Phase I, the initial  introduction of the drug to humans,
the drug is tested for safety (adverse effects),  dosage tolerance,  absorption,
distribution,  metabolism and excretion.  Phase II involves studies in a limited
population  to (i)  determine  the  efficacy of the drug for  specific  targeted
indications,  (ii)  determine  dosage  tolerance  and  optimal  dosage and (iii)
identify  possible adverse effects and safety risks.  When a product is found to
be  effective  and to have an  acceptable  level of safety  profile  in Phase II
evaluations,  Phase III trials  are  undertaken  to  evaluate  further  clinical
efficacy and to test further for safety within an expanded patient population at
geographically  dispersed  clinical study sites.  There can be no assurance that
FDA approval will be obtained to conduct clinical trials,  or Phase I, Phase II,
or Phase III testing will be  completed  successfully  within any specific  time
period, if at all, with respect to any of the Company's future proposed products
subject  to such  testing.  Furthermore,  the  Company  or the  FDA may  suspend
clinical  trials at any time if it is believed that the subjects or patients are
being exposed to an unacceptable health risk. There can be no assurance that the
Company  will not  encounter  problems in clinical  trials  which will cause the
Company to delay or suspend clinical trials.

                                     - 14 -

<PAGE>

The process of completing  clinical testing and obtaining FDA approval for a new
product  is  likely to take a number of years and  require  the  expenditure  of
substantial resources. Even if initial FDA approval is obtained, further studies
may be required to provide additional data on safety or to gain approval for the
use of a product as a treatment  for clinical  indications  other than those for
which  the  product  was  initially  tested.  Also,  the FDA may  require  post-
marketing  testing and surveillance  programs to monitor the drug's efficacy and
side effects.  Results of these post-marketing programs may prevent or limit the
further marketing of the products.

In addition,  the Company is subject to  regulation  under state and Federal law
regarding occupational safety,  laboratory practices,  environmental  protection
and hazardous  substance control and to other present and possible future local,
state, federal and foreign regulation.

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 has received
notice of allowance during this past fiscal year 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.  This is the technology discussed above in the discussion of Blood
Gas Technology.  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 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.

                                     - 15 -

<PAGE>

Employees and Outside Consultants

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 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.  As
required by the Theramed letter of intent, Dr. Reeves resigned as an Officer and
Director of the Company.  R T Robertson  will continue to actively  consult on a
daily basis for the Subsidiary and Theramed  Partners during the pendency of the
letter of intent with the  Company and has agreed to consult for the  Subsidiary
for up to six months following the Company's closing with Theramed.  The Company
engages certain other consultants on a part-time and or as needed basis.  During
this past year,  the Company  engaged four  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,  Dr. Tony Goffe who consults in the area of ErythrogenTM
applications  and  continuing  cell  culture  development.  Dr. Paul  Leibowitz,
formerly a Director of the Company, consults in the area of patents and business
strategy.  Dr.  Leibowitz  is a principal  of Theramed.  Other  Consultants  are
available to the Company on an as needed  basis.  Due to the  Company's  current
financial  position and lack of  significant  revenues,  these  consultants  are
compensated with stock and/or options.


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, 1996,
1995 and 1994,  the  Company  paid $0,  $3,100  and  $63,200,  respectively,  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  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  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.

                                     - 16 -

<PAGE>

Information relating to these four 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, PhD, serves the Company as its part-time Director of Development
and Principal  Investigator on sponsored research projects.  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.
Under his agreement with the Company,  Dr. Chan oversees all technical functions
for the  Company's  sustained  release  research  and  collaborations.  Prior to
joining 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 PhD
from MIT in 1986 and later  served  as a post  doctoral  fellow  at Dana  Farber
Institute (Harvard Medical School).

RANDAL  (TONY)  GOFFE,  PhD,  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 (Redmond,  Washington).  Dr Goffe is the holder of 11 issued patents
and has authored over 35 scientific  papers. Dr Goffe received a BSc degree from
University  of London  in 1974 and  received  his PhD from The City  University,
London, UK in 1978.

PAUL  LEIBOWITZ,  PhD, a  scientific  advisor to the  Company  for the past four
years,   oversees  patent  application,   intellectual   property  and  business
development.   Dr.  Leibowitz  has  more  than  eighteen  years  of  diversified
experience  in the  management  of biological  and  pharmaceutical  research and
development,  regulatory oversight, business development and strategic planning.
While at Schering Plough Dr.  Leibowitz  founded for Schering both the molecular
biology and tumor biology  departments and built its initial  infrastructure  in
biotechnology.  See "Part III, Item 9. Directors,  Executive Officers, Promoters
and Control Persons; Compliance with Section 16(a) of the Exchange Act."



                                     - 17 -

<PAGE>

Item 2.           Properties.

The Company  entered  into a two year 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 pro rata share of taxes and common area  maintenance  fees.
These new principal  offices are located at 10 Chestnut Drive,  Unit D, Bedford,
NH 03110,  telephone  (603)  471-1255.  Its location in a suburban  multi-tenant
office building allows for the  administrative  functions of the Company and the
Subsidiary and technical support and shipping for the ErythrogenTM product line.
This facility does not  incorporate  laboratory  facilities  which are conducted
under contract at University of New Hampshire  located about 40 minutes from the
Company's  offices.   Effective  September  1,  1996  Robertson  took  over  the
responsibility  for payment of this  lease.  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. In December 1993, a lawsuit by an individual claiming a finder's fee
related to the  introduction of the Subsidiary to the Company was settled by the
Company  agreeing to pay  installments of $1,500 monthly through  February 1997,
plus certain cash and common stock of the Company.  All  installments  have been
paid as agreed and the balance at June 30, 1996 was $12,866.

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 recently  amended 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.

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

During this past fiscal year ended June 30, 1996, no matters were submitted to a
vote of security holders through the solicitation of proxies or otherwise.

                                     - 18 -

<PAGE>

                                    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  Company's  Common  Stock  is  traded  in the
     Over-the-Counter  market and is listed on the OTC Bulletin  Board under the
     symbol  "BREL."  The Common  Stock was listed for  trading on the  National
     Association of Securities  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.  On October 7,
     1996, the average between the high and low reported bid price of the Common
     Stock on the OTC Bulletin  Board was $.125 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, 1996
     and 1995,  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.


         Fiscal                                                        Bid Price
         1996                                 Low                        High

         First Quarter
         Ended September 30, 1995             $.08                     $ .125

         Second Quarter
         Ended December 31, 1995              $.02                     $ .13

         Third Quarter
         Ended March 31, 1996                 $.05                     $ .09

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


         Fiscal
         1995

         First Quarter
         Ended September 30, 1994             $.125                    $ .25

         Second Quarter
         Ended December 31, 1994              $ .01                    $ .25


                                     - 19 -

<PAGE>

         Third Quarter
         Ended March 31, 1995                 $ .05                    $ .09

         Fourth quarter
         Ended June 30, 1995                  $ .03                    $ .20

(b)  Holders -- The number of record holders of the Company's Common Stock as of
     June 30, 1996 was 1,678, 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 9,430,354
     shares which excludes 450,000 shares held in treasury as of June 30, 1996.

(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  all  professional  staff and  administrative
personnel except for Dr. Chan and Dr. Reeves and several  laboratory  personnel.
Since that time,  the Company and the Subsidiary  focussed only on  ErythrogenTM
sales  activities  and  confidential  research  related to  chondroitin  sulfate
--------

     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.

                                     - 20 -

<PAGE>

sustained  release  sponsored in part by Baxter, a multinational  pharmaceutical
company.  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  recently  has  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  releases.  Currently,  management  believes  that the  Subsidiary
continues to maintain  adequate  inventory of  Erythrogen  TM , its cell culture
additive product,  in order to provide for supply of the product to existing and
new customers.

The Subsidiary plans to exploit its hemoglobin blood gas technology "see Part I,
Item 1. Business - Hemoglobin  Blood Gas  Technology."  The  Subsidiary  also is
seeking  to  enter  into  licensing  relationships  for one or more  therapeutic
applications of its technologies.  In this regard, the Subsidiary has negotiated
its first license agreement with Baxter,  Round Lake,  Illinois, a multinational
pharmaceutical  concern.  This  agreement  relates  to a  licensing  arrangement
pursuant to which Baxter will apply the  Subsidiary's  technology to stabilizing
Baxter's Blood Substitute product,  now being tested in both the U.S. and abroad
for human approval.  To date, Baxter Healthcare provided research sponsorship in
the amount of $205,000 and purchased  supplies of chondroitin  sulfate  reagent.
Baxter  is now  conducting  follow  up  research  in its  Round  Lake,  Illinois
facilities using the Subsidiary's  patented  technology.  In April 1996,  Baxter
reached  agreement with the  Subsidiary  for an exclusive  agreement to use this
technology  for blood  substitutes.  Under this  agreement,  Baxter will pay the
Subsidiary  escalating  exclusivity  payments  over the  next  four  years  plus
reimbursement of all related patent expense. The agreement will generate for the
Subsidiary a minimum revenue stream of $850,000 through December 2001,  provided
Baxter  continues to pursue this technology and does not terminate the agreement
on 90 days prior  written  notice  before any calendar  year end. In fiscal year
ending June 30, 1996,  the  Subsidiary  received  $25,000  under this  licensing
agreement  plus  patent  reimbursement.  There  can  be no  assurance  that  the
Subsidiary will ever receive any other significant  licensing revenue under this
agreement or that any other  pharmaceutical  concern will enter into a licensing
agreement  with the  Subsidiary.  Other than possible  licensing  opportunities,
therapeutic products which may be derived from the Subsidiary's technologies are
currently  only being  conceptualized,  are most  likely  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, 1996,  1995, and 1994 were
$21,705,  $39,781 and  $43,428.  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, 

                                     - 21 -

<PAGE>

the  Subsidiary  has focused on industrial  clients  including the first sale of
ErythrogenTM to Sigma  Chemical,  Biosciences  Division.  Sigma placed its first
order in  January,  1995 for a private  labeled  version of  ErythrogenTM  to be
resold in its  Biosciences  catalogue.  The Subsidiary  cannot yet determine the
level, if any, Sigma will reorder of this product.  Management  believes that if
Sigma  continues  to reorder,  it will become a valuable  route to provide  this
product to the now abandoned  research and  laboratory  market.  The  Subsidiary
continues to supply  ErythrogenTM  to a tissue  culture  media  supplier who has
placed  orders for each of the past three years.  Sigma and this media  supplier
represented  approximately  35% and 99% of the  ErythrogenTM  sales  in 1995 and
1996, respectively.  The Subsidiary also is working with Unisyn Technologies,  a
producer of hollow fiber bioreactors, to establish definitive advantage to using
ErythrogenTM in the  manufacture of biological  agents and  pharmaceuticals.  If
initial  studies  are  successful,  this work will  possibly  lead to testing at
Unisyn  beta sites and later  result in the  possibility  of  industrial  sales.
Unisyn  has an  informal  option to  distribute  ErythrogenTM  for  hollow  core
bioreactors.

In 1995,  the  Subsidiary,  obtained its first  significant  sponsored  research
revenues.  $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; $33,117 was part of the State
of New Hampshire grant which  continues  through  December 1996,  unless further
extended.  Chondroitin  sulfate  sales to Baxter  were  $4,522  for 1995.  Total
revenues  were $75,653 for the year ended June 30, 1996 compared to $257,420 and
$43,428 for the previous two years.  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  of  its  chondroitin  sulfate  therapeutic   sustained  release  drug
technology.

The Subsidiary's  success with therapeutic products will depend, in part, on its
ability to comply with the rigorous  procedures required for regulatory approval
of its proposed  therapeutic and pharmaceutical  products by the FDA and similar
foreign regulatory bodies. No assurance can be given that the Subsidiary will be
able to obtain  regulatory  approval  for any of its present or future  proposed
products.  The Subsidiary's success also will depend, in part, on its ability to
protect trade secrets,  operate  without  infringing the patent rights of others
both in the  United  States  and in other  countries,  maintain  and  defend its
current  patents and obtain  additional  patents.  The prosecution or defense of
patent  infringement  litigation,  if required,  could involve the commitment of
substantial management time and financial resources of the Subsidiary.  The loss
or  challenge  of any of the  Subsidiary's  patents may have a material  adverse
effect on the Subsidiary's current and proposed operations.

There can be no assurance that the Subsidiary's  business and licensing  efforts
will  be  successful,  that  any  of  the  Subsidiary's  products  proposed  for
development  will prove to be safe or  effective  in clinical  trials,  that the
Company  will be able to  obtain  FDA  approval  to use any  products,  that any
products can be manufactured at acceptable cost and with appropriate quality, or
that any products, if and when approved, can be successfully marketed.

                                     - 22 -

<PAGE>

Provided the business  combination  with Theramed is accomplished as anticipated
and subject to approval of the Company's stockholders,  a registration statement
will be filed early next  calendar  year with SEC to spin out the  Subsidiary to
the Company's  stockholders as a separate company. In this event, the Subsidiary
will seek development partners and possibly new investors to develop and promote
these possible therapeutic opportunities.

Year Ended June 30, 1996 Compared to the Years Ended June 30, 1995 and 1994

For the year ended June 30, 1996, the Company including the Subsidiary had sales
of $75,653, cost of sales of $3,103, interest expense of $6,530, expenses of its
Cell Culture  Operations of $0, research and development  costs were $0, general
and administrative operational costs of $318,170, litigation costs of $6,951, 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 $180,000 and $0 income taxes  resulting in a net loss of
$411,335  compared  to the years ended June 30,  1995 and 1994  respectively  in
which the Company had sales of $257,420 and $43,428, cost of sales of $4,706 and
$7,488,  interest income of $1,449 and $22,273,  selling  expenses of $5,981 and
$463,385,  research  and  development  costs  of $0 and  $654,019,  general  and
administrative  expenses  of  $318,423  and  $1,041,804,  litigation  expense of
$35,434 and $56,857, decline in investments of $945,000 and $375,000, other non-
reoccurring  costs of $45,763  and  $832,320,  an income tax of  $463,440  and a
credit of  $132,342  and credit of $0 and  $463,440  resulting  from a change in
accounting  principal.  This resulted in a net loss of $1,474,972 and $2,769,390
for the years ended June 30, 1995 and 1994  respectively.  The decreased 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  $245,620 this year verses $302,134 and $2,123,268 for the two
previous years.

During fiscal 1996, losses were increased by $180,000 compared with $945,000 and
$375,000  to reflect  decline in value of the  Company's  investment  in Genesis
stock. In 1996, there was no taxes compared with $463,440 in 1995 to reflect the
write  off of the  Company's  Deferred  Tax  asset  and no  inventory  write-off
compared with $45,763 to reflect destruction of ErythrogenTM inventory which was
not moved to the new facilities in 1995. In 1995  significant  charges to income
totaling  $1,454,203 were partially  offset by income resulting from settlements
and  gain  on sale of  non-essential  equipment  assets  which  resulted  in the
reported loss of $1,474,972 or ($.17 per weighted share) for the year (see Notes
1,  6,  11  and  12 to  the  Consolidated  Financial  Statements  and  "Item  2.
Properties"). Without these charges to income, the Company would have reported a
loss of only $20,769 for the entire  fiscal year ended June 30, 1995.  In fiscal
year 1996, other than the $180,000 decline in value of the Company's  investment
in Genesis stock, there were no significant charges against income.

                                     - 23 -

<PAGE>

Liquidity and Capital Resources

From inception until the closing of the reorganization between the Company (then
known as OIA, Inc.) and the Subsidiary, 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.

In the event the Company is unable to complete  the  business  combination  with
Theramed or seek other approaches to raising capital, the Company will be unable
to implement its strategic plan and will be forced to further curtail operations
until capital or financing can be found. Any such additional financing resulting
from stock sales would result in significant dilution to existing stockholders.

At June 30,  1996,  the  Company  had  negative  working  capital of $218,737 as
compared with the  Company's  negative  working  capital of $201,448 at June 30,
1995 and  working  capital  of  $102,511  at June 30,  1994.  The  change in the
Company's working capital between June 30, 1996, June 30, 1995 and June 30, 1994
is attributable to operating expenses in excess of revenues.

During fiscal year 1996,  the Company  benefitted  from the exclusive  licensing
agreement  relating to its sustained release technology from Baxter. The Company
is continuing to seek other strategic  relationships  with major  pharmaceutical
companies to further  exploit  therapeutic  applications  of its sustained  drug
release technology and its hemoglobin technology, to possibly generate licensing
fees. It is unlikely sponsored research revenue will continue unless the Company
reestablishes in-house laboratory capability and staff. The Company continues to
attempt to increase  ErythrogenTM  revenues in selected markets. The Company can
give no assurance that these activities will be successful.

The drastic  restructuring of its operations during fiscal 1995, 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 two fiscal years,  will not be  sufficient  for an indefinite
period to carry all other  expenses not relating to  ErythrogenTM  ,  especially
considering the Company will not, for an indefinite  time,  receive  significant
sponsored research revenues relating to sustained drug release activities.

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.

                                     - 24 -

<PAGE>

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.  However,  if the business  combination
with Theramed is completed as provided in the recently  signed letter of intent,
the  Company's  stockholders  shall receive a dividend in the form of stock from
the spin out of the Subsidiary.

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.

                                     - 25 -

<PAGE>

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, 1996 and 1995 ................................................   F-2


 Consolidated Statements of Operations
  Two years ended June 30, 1996,
  and for the cumulative period
  from inception to June 30, 1996 ........................................   F-4

 Consolidated Statements of Stockholders'
  Equity (Deficit) Two years
  ended June 30, 1996 ....................................................   F-5

 Consolidated  Statements  of Cash Flows Two years ended June 30, 1996
  and for the cumulative period from inception to June 30, 1996 ..........   F-6


 Notes ...................................................................   F-7

All schedules have been omitted  because they are  inapplicable or not required,
or the  information is included  elsewhere in the financial  statements or notes
thereto.

                                     - 26 -
<PAGE>

                          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, 1996 and 1995,
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, 1996 and 1995, 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,  1996  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.


Berry, Dunn, McNeil & Parker
Manchester, New Hampshire
September 13, 1996, except for Note 12, as to which the date is October 8, 1996
   
                                       F-1

<PAGE>


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

                           Consolidated Balance Sheets

                             June 30, 1996 and 1995

                                     ASSETS

                                                              1996        1995
                                                              ----        ----

Current assets
   Cash ..............................................     $  1,200     $ 13,521
   Accounts receivable - trade .......................          563        3,296
                       - other .......................         --         32,435
   Notes receivable - current portion ................         --         85,013
   Inventory .........................................       27,679       30,752
   Prepaid expenses and other current assets .........        1,679        1,266
                                                           --------     --------

           Total current assets ......................       31,121      166,283
                                                           --------     --------

Equipment, net .......................................       30,040       39,900
                                                           --------     --------

Other assets
   Notes receivable, long-term portion ...............         --         30,007
   Investment, at adjusted cost ......................         --        180,000
   Intangible assets, net ............................       38,947       40,523
   Other .............................................          699        1,100
                                                           --------     --------

           Total other assets ........................       39,646      251,630
                                                           --------     --------
      Total assets                                         $100,807     $457,813
                                                            =======      =======

                                      F-2
<PAGE>


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

                                                          1996         1995
                                                          ----         ----

Current liabilities
   Accounts payable ................................ $    90,637    $    95,989
   Accrued expenses ................................      70,642        198,593
   Current portion of notes payable - stockholders .      85,530         70,100
   Other current liabilities .......................       3,049          3,049
                                                     -----------    -----------

   Total current liabilities .......................     249,858        367,731
                                                     -----------    -----------
Notes payable - long-term potion
Stockholders .......................................        --           24,475
Other ..............................................      16,000         16,000
                                                     -----------    -----------
      Total notes payable - long-term portion ......      16,000         40,475
                                                     -----------    -----------
Other liabilities ..................................      87,734           --
                                                     -----------    -----------
      Total liabilities ............................     353,592        408,206
                                                     -----------    -----------
Commitments and contingencies (Note6)

Stockholders' equity (deficit)
  Common stock of $.01 par value; 50,000,000  shares
  authorized, 9,880,354 and 13,512,263 shares issued
  and 9,430,354 and 8,962,263 shares outstanding as
  of June 30, 1996 and 1995, respectively ..........      98,803        135,123
Additional paid-in capital .........................   9,113,927      9,009,614
Stock warrants outstanding .........................        --               50
Development stage accumulated deficit ..............  (9,411,015)    (8,999,680)
Stock subscriptions receivable .....................     (50,000)       (50,000)
                                                     -----------    -----------
                                                        (248,285)        95,107
Less cost (at par) of 450,000 and 4,550,000 shares
  of treasury stock as of June 30, 1996 and 1995,
  respectively .....................................       4,500         45,500
                                                     -----------    -----------
Total stockholders' equity (deficit) ...............    (252,785)        49,607
                                                     -----------    -----------
Total liabilities and stockholders' equity (deficit) $   100,807        457,813
                                                     ===========    ===========


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

                                      F-3

<PAGE>


<TABLE>

<CAPTION>

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

                      Consolidated Statements of Operations

                     Years Ended June 30, 1996 and 1995 and

              the Cumulative Period from Inception to June 30, 1996

                                                                                                          Period From
                                                                                 For the Year            Inception to
                                                                                Ended June 30,              June 30,
                                                                             1996            1995             1996
                                                                             ----            ----          ----------
<S>                                                                         <C>            <C>            <C> 
Revenues
   Sales ................................................................   $    21,705    $    44,303    $   120,047
   Sponsored research ...................................................        46,948        180,000        226,948
   Grant revenues .......................................................          --           33,117         33,117
   Rental income ........................................................         7,000           --            7,000
                                                                            -----------    -----------    -----------
       Total revenues ...................................................        75,653        257,420        387,112
Cost of revenues ........................................................         3,103          4,706         15,297
                                                                            -----------    -----------    -----------
       Gross profit .....................................................        72,550        252,714        371,815
                                                                            -----------    -----------    -----------

Costs and expenses
   Research and development .............................................          --          230,444      2,558,041
   Purchased technology .................................................          --             --          690,000
   General and administrative ...........................................       318,170        318,423      4,035,632
   Cell culture operations ..............................................          --            5,981        601,116
                                                                            -----------    -----------    -----------
                                                                                318,170        554,848      7,884,789
                                                                            -----------    -----------    -----------

       Loss from operations .............................................      (245,620)      (302,134)    (7,512,974)
                                                                            -----------    -----------    -----------

Other income (expense)
   Interest, net ........................................................        (6,530)         1,449         87,351
   Litigation costs .....................................................        (6,951)       (35,434)       (99,242)
   Offering costs .......................................................          --             --         (291,434)
   Option compensation ..................................................          --             --         (219,375)
   Other ................................................................          --          (45,763)       (23,024)
   Accelerated lease commitment cost ....................................          --             --         (315,000)
   Realized loss for decline in value of investment .....................      (180,000)      (945,000)    (1,500,000)
   Gain on sale of equipment ............................................        (1,600)        64,216         62,616
   Income recognized on settlements .....................................        29,366        251,134        280,500
                                                                            -----------    -----------    -----------
       Other expense, net ...............................................      (165,715)      (709,398)    (2,017,608)
                                                                            -----------    -----------    -----------

       Loss before provision for income taxes and
         cumulative effect of change in accounting
         principle ......................................................      (411,335)    (1,011,532)    (9,530,582)

Provision for income taxes ..............................................          --          463,440        343,873
                                                                            -----------    -----------    -----------

       Loss before cumulative effect of change in
         accounting principle ...........................................      (411,335)    (1,474,972)    (9,874,455)

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

Net loss ................................................................   $  (411,335)   $(1,474,972)   $(9,411,015)
                                                                            ===========    ===========    ===========

Weighted average shares .................................................     9,001,271      8,561,965      4,418,316
                                                                            ===========    ===========    ===========

Loss per share ..........................................................   $      (.05)   $      (.17)   $     (2.13)
                                                                            ===========    ===========    ===========
              The accompanying notes are an integral part of these
                       consolidated financial statements.
                                       F-4

<PAGE>

<CAPTION>


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

            Consolidated Statement of Stockholders' Equity (Deficit)

                       Years Ended June 30, 1996 and 1995


                                                         Common Stock                         Common Stock                         
                                              --------------------------------------            Warrants                
                                                            Number                             Outstanding              Additional  
                                              Per             of           Capital     ----------------------------       Paid-in 
                                              Share         Shares         Amount         Units           Amount          Capital
                                                       ------------    -------------   ------------    ------------    ------------ 
<S>                                          <C>       <C>             <C>                <C>          <C> 
Balance, June 30, 1994 ....................            $ 12,604,316    $    126,043          50,000    $       50      $  9,021,481 
   Issuance of common stock for
     Services .............................     .06         319,750           3,198            --              --            15,988 
     Services .............................  .07712         679,161           6,792            --              --            45,585 
     Services .............................    .155           9,036              90            --              --             1,310 
   Cost to register options ...............                                      --            --              --             (350)
   Cancellation of shares issued ..........                (100,000)         (1,000)           --              --           (74,000)
   Release of shares held in treasury .....                    --              --              --              --              (400)
   Net loss ...............................                    --              --              --              --              --   
                                                       ------------    -------------   ------------    ------------    ------------ 
Balance, June 30, 1995 ....................              13,512,263         135,123          50,000            50         9,009,614 
   Cancellation of shares issued ..........              (4,100,000)        (41,000)           --              --              --   
   Expiration of warrants .................                    --              --           (50,000)          (50)               50 
   Issuance of common stock for
     Services .............................  .05625         160,000           1,600            --              --             7,400 
     Settlement of liabilities ............  .15464         308,091           3,080            --              --            44,563 
   Options granted in exchange for services                    --              --              --              --            52,300 
   Net loss ...............................                    --              --              --              --              --   
                                                       ------------    -------------   ------------    ------------    ------------ 

Balance, June 30, 1996 ....................               9,880,354    $     98,803            --      $       --      $  9,113,927 
                                                       ============    ============    ============    ============    =============



                                              Development                                                        Total      
                                                  Stage        Unearned          Stock                        Stockholders'  
                                               Accumulated      Option        Subscription     Treasury          Equity      
                                                 Deficit     Compensation      Receivable        Stock          (Deficit)    
                                              ------------    ------------    ------------    ------------    ------------   
 Balance, June 30, 1994 ...................   $ (7,524,708)   $       --      $   (125,000)   $    (45,900)   $  1,451,966   
   Issuance of common stock for                                                                               
     Services .............................           --              --              --              --            19,186   
     Services .............................           --              --              --              --            52,377   
     Services .............................           --              --              --              --             1,400   
   Cost to register options ...............           --              --              --              --              (350)  
   Cancellation of shares issued ..........           --              --            75,000            --              --     
   Release of shares held in treasury .....           --              --              --               400            --     
   Net loss ...............................     (1,474,972)           --              --              --        (1,474,972)  
                                               ------------    ------------    ------------    ------------    ------------   
Balance, June 30, 1995 ....................     (8,999,680)           --           (50,000)        (45,500)         49,607   
   Cancellation of shares issued ..........           --              --              --            41,000            --     
   Expiration of warrants .................           --              --              --              --              --     
   Issuance of common stock for                                                                                  
     Services .............................           --              --              --              --             9,000   
     Settlement of liabilities ............           --              --              --              --            47,643   
   Options granted in exchange for services           --              --              --              --            52,300   
   Net loss ...............................       (411,335)           --              --              --          (411,335)  
                                               ------------    ------------    ------------    ------------    ------------   
                                                                                  
Balance, June 30, 1996 ....................    $(9,411,015)   $       --       $   (50,000)      $  (4,500)   $   (252,785)  
                                               ============    ============       ============  ============   ============

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


                                       F-5


<PAGE>

<CAPTION>

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

                      Consolidated Statements of Cash Flows

                       Years Ended June 30, 1996 and 1995

              the Cumulative Period From Inception to June 30, 1996

                                                                                           Period From
                                                                      For the Year         Inception to
                                                                     Ended June 30,          June 30,
                                                                  1996          1995           1996
                                                                  ----          ----        ----------
<S>                                                         <C>            <C>            <C> 
Cash flows from operating activities
   Net loss .............................................   $  (411,335)   $(1,474,972)   $(9,411,015)
   Adjustments to reconcile net loss to net cash used by
     operating activities
     Depreciation and amortization ......................        27,051         34,450        209,430
     Cumulative effect of change in accounting principle           --             --         (463,440)
     Recognized loss on investment ......................       180,000        945,000      1,500,000
     (Gain) loss on sale of assets ......................         1,600        (64,216)       (38,704)
     Loss on extinguishment of debt .....................          --             --           42,000
     Common stock issued in exchange for
       Purchased technology .............................          --             --          605,000
       Services rendered ................................        10,213         72,609         89,228
     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
       Cash held as collateral ..........................          --          129,512           --
       Accounts receivable ..............................        35,168        (30,285)          (563)
       Inventory ........................................         3,073         44,275        (27,679)
       Prepaid expenses and other current assets ........          (413)        34,147         (1,679)
       Other receivables ................................          --           17,972           --
       Other assets .....................................           401          3,975           (699)
       Deferred tax assets ..............................          --          463,440        463,440
     Increase (decrease) in
       Accounts payable .................................        (5,353)      (105,124)       161,588
       Accrued expenses .................................       (81,519)      (312,437)        78,470
       Other liabilities ................................        87,734          3,049         90,783
                                                            -----------    -----------    -----------
         Net cash used by operating activities ..........      (101,080)      (238,605)    (6,432,165)
                                                            -----------    -----------    -----------

Cash flows from investing activities
   Purchase of collateralized mortgage obligation .......          --             --       (1,000,000)
   Proceeds from collateralized mortgage obligation .....          --            1,210      1,000,000
   Purchase of fixed assets .............................        (2,970)          (514)      (333,187)
   Purchase of intangible assets ........................       (14,246)       (20,505)       (96,272)
   (Purchase) redemption of government-backed securities           --           77,163           --
   Proceeds from sale of assets .........................          --          189,742        189,742
                                                            -----------    -----------    -----------
         Net cash provided (used) by investing activities       (17,216)       247,096       (239,717)
                                                            -----------    -----------    -----------

Cash flows from financing activities
   Advance from and amounts due to stockholders .........          --             --          594,385
   Repayment of advances ................................          --             --         (159,975)
   Notes payable ........................................        (9,045)        16,075        101,530
   Issuance of common stock .............................          --             --        2,105,966
   Recapitalization .....................................          --             --        4,031,176
   Notes receivable .....................................       115,020       (115,020)          --
                                                            -----------    -----------    -----------
         Net cash provided (used) by financing activities       105,975        (98,945)     6,673,082
                                                            -----------    -----------    -----------

         Net increase (decrease) in cash ................       (12,321)       (90,454)         1,200

Cash, beginning of year .................................        13,521        103,975           --
                                                            -----------    -----------    -----------

Cash, end of year .......................................   $     1,200    $    13,521    $     1,200
                                                            ===========    ===========    ===========
</TABLE>

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


                                       F-6

<PAGE>

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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995



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 is currently seeking out a
     possible strategic acquisition and plans later to raise additional capital.
     Management  believes that this additional capital will allow the Company to
     achieve its growth objectives and fund ongoing operations.  See Note 12 for
     specific plans relating to its planned acquisition.

                                       F-7

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995


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  December 31, 1997. The shelf life of the product  beyond  December
     31,  1997  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  organizational  costs and 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-8

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995


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,
                                         1996      1995     1996
                                         ----      ----   -------
Income (loss) per share
     Operations ...................   $  (0.03)$  (0.04)$  (1.72)
     Other income (expense) .......      (0.02)   (0.08)   (0.44)
     Income tax benefit (expense) .       0.00    (0.05)   (0.07)
     Change in accounting principle       0.00     0.00     0.10
                                         -----    -----    -----

Total loss per share ..............   $  (0.05)$  (0.17)$  (2.13)
                                         =====    =====    =====

2.     Equipment

       Equipment consisted of the following as of June 30:

                                  1996      1995
                                  ----      ----
Equipment ...................   $41,270   $39,900
Less accumulated depreciation    11,230      --
                                -------   -------

                                $30,040   $39,900
                                =======   =======

       Depreciation  expense  for the  years  ended  June 30,  1996 and 1995 was
       $11,230 and $21,729,  respectively.  There is no accumulated depreciation
       at June 30, 1995, as the subsidiary  transferred its remaining  equipment
       to the parent company at net book carrying amount.

                                       F-9

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995

3.     Notes Receivable

       Notes receivable consisted of the following as of June 30, 1995:


Note receivable on sale of equipment, collateralized by equip-
     ment, noninterest bearing, balance paid October 1995 ...........   $ 25,000

Note receivable  on sale of equipment,  collateralized  by equipment,
     noninterest  bearing,  due in quarterly  installments of $15,003
     through October 1996. This note was paid off in
     April 1996 .....................................................     90,020
                                                                        --------

                                                                         115,020
Less current portion ................................................     85,013

                                                                        $ 30,007
                                                                        ========

4.     Intangible Assets

       Intangible assets consisted of the following as of June 30:

                       1996      1995
                       ----      ----
Patents ..........   $71,105   $56,860
Organization costs    13,369    13,369
                     -------   -------
                      84,474    70,229
Less amortization     45,527    29,706
                     -------   -------

                     $38,947   $40,523
                     =======   =======
                                                            

                                      F-10

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995

5.     Notes Payable

       Notes payable consisted of the following as of June 30:

                                                               1996       1995
                                                               ----       ----
           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 6).  The  first  note
requires any amount still  outstanding  to be paid  December
1996, the second note is currently payable in full..........   26,975     38,975

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, 1996...........................   14,955     12,000

Other

Unsecured  promissory note,  quarterly  payments of interest
only at 10.25%, balance due July 1998.......................   16,000     16,000
                                                               ------     ------

                                                              101,530    110,575
Less current portion .......................................   85,530     70,100
                                                               ------     ------

Notes payable, excluding current portion ................... $ 16,000   $ 40,475
                                                             ========   ========

Principal amounts due under notes payable are as follows:


                    1997                                 $     85,530
                                     
                    1998                                         --
                               
                    1999                                       16,000

                                      F-11
<PAGE>

6.   Commitments and Contingencies

     On May 15,  1993,  the  Company  entered  into a  five-year  lease  for its
     laboratory and office space.  In conjunction  with this lease,  the Company
     agreed to reimburse the landlord,  as additional rent, the costs of certain
     improvements to the leased premises. The repayment of these costs aggregate
     $124,550,  and were payable in equal monthly  installments  of $2,076 for a
     term of 60 months inclusive of interest at 9% per annum.

     The lease was terminated  during 1995. The Company reached  settlement with
     the landlord in September 1995 for all outstanding liabilities.

     The Company  entered into a new two-year  lease  agreement on June 21, 1995
     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.
     Future minimum rents are as follows:

                1996                                        $3,540
                1997                                         3,540

     Rent expense,  including a prorata share of other costs, was $4,914 for the
     year  ended  June 30,  1996.  There was no rent  expense in 1995 due to the
     settlement above.

     In May 1993, the Company entered into a three-year  equipment lease.  Under
     the terms of the agreement,  the Company may lease a maximum of $430,000 of
     equipment.  As of June 30,  1994,  the  Company  had  leased  approximately
     $406,000  of  equipment,  with  monthly  lease  payments  of  approximately
     $12,000.  During the year ended June 30, 1994, the Company defaulted on the
     lease payments.  In accordance with the terms of the lease  agreement,  all
     lease payments were accelerated and became due immediately.  As a result of
     the  acceleration,  the  Company  accrued  approximately  $315,000 of lease
     expense for the year ended June 30, 1994.  The lease  liability was reduced
     in August 1994 by a cash  payment of  $129,512,  which was in a  collateral
     savings  account.  In September 1995, the Company agreed to settle with the
     bank.  The agreement  required the company to pay $20,000 in cash and issue
     50,000  shares of stock to the bank.  In  exchange,  the bank  released the
     Company from all liability  and has released  title on the equipment to the
     Company.


                                      F-12

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995


6.   Commitments and Contingencies (Concluded)

     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.

     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.

7.   Income Taxes

     The Company has not filed  federal or state tax returns for the years ended
     December 31, 1993,  1994, and 1995.  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, 1996.

     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  $2,300,000 of
     capitalized expenses which it is amortizing over 5 years.

                                      F-13

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995


7.     Income Taxes (Continued)

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

<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)       $--
                               ===========    ===========    ===========    ===========        ====


<CAPTION>

                                                             1995 Tax Effect
                               -----------------------------------------------------------------------
                                                         Asset                       Liability
                                                 -----------------------    --------------------------
               Item                Total         Current       Long-Term       Current       Long-Term
                               -----------    -----------    -----------    -----------      ---------
<S>                           <C>            <C>            <C>             <C>              <C> 
Accrual to cash adjustment ...$    82,727    $    97,015    $      --        $   (14,288)       $--
Capitalized expenses (tax
   basis only) ...............    312,196        179,783        132,413             --           --
Net operating loss deduction .  1,189,853           --        1,189,853             --           --
                              -----------    -----------    -----------    -----------      ---------
                                1,584,776        276,798      1,322,266        (14,288)          --
Valuation allowance .......... (1,584,776)      (262,510)    (1,322,266)            --           --
                              -----------    -----------    -----------    -----------      ---------
                              $      --      $    14,288    $      --      $   (14,288)         $--
                              ===========    ===========    ===========    ===========      =========

</TABLE>

                                     Valuation
                                     Allowance
                                     ---------
Balance June 30, 1995               $ 1,584,776
     Net decrease ...............      (200,510)

Balance June 30, 1996 ...........   $ 1,384,266
                                    ===========

                                      F-14

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995


7.     Income Taxes (Concluded)

       The provision  for income taxes charged to operations  for the year ended
       June 30, 1995 consisted solely of the change in the valuation  allowance.
       There was no provision for the year ended June 30, 1996.

8.     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.

       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.

       As of June 30,  1995,  the Company had  outstanding  warrants to purchase
       50,000  shares  of  the  Company's  common  stock.  These  warrants  were
       exercisable  at  $1.375  per  share  and  expired  in July  1995  without
       exercise.  The Company also has warrants  outstanding to purchase  48,120
       shares of its  common  stock  with an  exercise  price of $6.00 per share
       which expire in April 1998.

                                      F-15

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995


8.   Equity (Continued)

     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.

     A summary of the Company's  stock option plans as of June 30, 1996 and 1995
     and changes during the year are presented below:

<TABLE>
                                                                                   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, 1994        77,500   $     5.43         402,500    $   2.06     1,394,353      $   1.33
    Granted .........       30,000         0.07            --           --        529,500          0.10
    Expired .........         --            --         (202,500)        --       (196,233)          --
                       -----------   ----------    -------------
Options outstanding,
       June 30, 1995       107,500         3.94         200,000        4.14     1,727,620          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

                       ===========   ==========    =============              =============

Currently exercisable      137,500                       200,000                2,561,820
                       ===========                    ==========              =============

</TABLE>

                                      F-16

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

                   Notes to Consolidated Financial Statements


                             June 30, 1996 and 1995


8.   Equity (Concluded)

     The range of exercise  prices is $.06 to $7.50 and $.07 to $7.50 as of June
     30, 1996 and 1995, respectively.

     The  weighted  average fair value of the options  granted  during the years
     ended June 30, 1996 and 1995 is presented below: 
                                                        1996            1995 
                                                        ----            ----

                Director plan                           $.08            $.05
                Option plan                          Non Granted     Non Granted
                Options granted to service providers     .07             .05

     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 $30,000 for the years ended June
     30, 1996 and 1995. This increase would have no impact on the loss per share
     for those years.

     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:
                                                    1996               1995
                                                    ----               ----

           Weighted risk-free interest rate         6.22%             6.10%
           Weighted expected life                 5.07 years        2.50 years
           Weighted expected volatility             135%              135%
           Weighted expected dividend yield          -                 -

9.   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.

                                      F-17

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995

9.   Investment (Concluded)

     Management  believes  the  value of  Genesis  stock  has  been  permanently
     impaired  and has reduced the cost of the Genesis  preferred  stock to $-0-
     and $180,000 as of June 30, 1996 and 1995, respectively.

     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.

10.  Cash Flow Information

       Cash paid for interest was as follows:

<TABLE>

<CAPTION>

                                                                                         Period From
                                                                    For the Year        Inception to
                                                                   Ended June 30,          June 30,
                                                                   1996        1995          1996
                                                                   ----        ----       ---------

<S>                                                           <C>          <C>           <C>  
Interest ..................................................   $    2,275   $    4,952    $    7,227

Noncash investing and financing activities were as follows:
         Liabilities repaid through issuance
             of common stock ..............................       46,428         --         576,989
         Issuance of common stock for
             subscription receivable ......................         --        (75,000)       50,000
         Nonmarketable security acquired
             through the issuance of common
             stock ........................................         --           --       1,500,000


</TABLE>

                                      F-18

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995

11.    Corporate Restructuring

       During  the year  ended  June 30,  1995,  the  Company  restructured  the
       operations  of its  Subsidiary  by  taking  the  following  actions:  All
       employees,   except  the  President  were  terminated  and  all  in-house
       laboratory activities were ended. The Company relocated its offices to an
       office complex without laboratory  facilities and outsourced its research
       activities to  laboratories  at the  University of New Hampshire with the
       assistance of a State of New  Hampshire  grant.  The Company  settled its
       real estate and equipment  lease  defaults with its lessors.  The Company
       resolved  all open title  issues  relating to its leased  equipment.  The
       Company has sold all nonessential equipment for cash and notes receivable
       (see Note 3). The Company destroyed  inventory deemed  unnecessary with a
       cost basis of $45,763  during  relocation of its office  facilities.  The
       Company has made  arrangements  with an independent  party to manufacture
       inventory in the event new production is required.

12.    Subsequent Events

       On October 3, 1996,  the Company  executed a letter of intent to acquire,
       in exchange for stock, a recently formed privately-held  company focusing
       on acquiring and  consolidating  late stage  biotechnology  companies and
       synergistic technologies. The acquisition will be accounted for under the
       purchase method of accounting. In addition, the Company plans to spin off
       its subsidiary,  BioRelease  Technologies,  Inc., to holders of its stock
       (excluding the current stockholders of the acquired company). The planned
       acquisition  is expected to result in  approximately  $150,000 of working
       capital  at the  time  of  acquisition.  The  Company  expects  to  raise
       additional funds through a private placement.

                                      F-19

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995

12.    Subsequent Events (Continued)

       The following  unaudited  information,  as of and for the year ended June
       30, 1996, is being presented for informational purposes only:

<TABLE>

<CAPTION>


                                                                      (Unaudited)
                                               ----------------------------------------------------
                                                             BioRelease
                                               BioRelease  Technologies,  Elimination
                                                 Corp.          Inc.        Entries          Total
                                              -----------   ----------    -----------    -----------
<S>                                           <C>           <C>           <C>            <C> 
                                                ASSETS
Current assets
         Cash .............................   $     1,200   $      --     $      --      $     1,200
         Accounts receivable ..............           563          --            --              563
         Accounts receivable - affiliate ..     3,671,958          --      (3,671,958)          --
         Inventories ......................          --          27,679          --           27,679
         Prepaid expenses and other current
           assets .........................         1,679          --            --            1,679
                                              -----------   -----------   -----------    -----------
              Total current assets ........     3,675,400        27,679    (3,671,958)        31,121
                                              -----------   -----------   -----------    -----------

Equipment and leasehold
         improvements, net ................        30,040          --            --           30,040
                                              -----------   -----------   -----------    -----------

Other assets
         Investment, net ..................         4,582          --          (4,582)          --
         Intangible assets, net ...........          --          38,947          --           38,947
         Other noncurrent assets ..........           399           300          --              699
                                              -----------   -----------   -----------    -----------
              Total other assets ..........         4,981        39,247        (4,582)        39,646
                                              -----------   -----------   -----------    -----------

              Total assets ................   $ 3,710,421   $    66,926   $(3,676,540)   $   100,807
                                              ===========   ===========   ===========    ===========

</TABLE>

                                      F-20

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995

12.      Subsequent Events (Continued)
<TABLE>

<CAPTION>

                                                                            (Unaudited)
                                                    ---------------------------------------------------------
                                                                     BioRelease
                                                      BioRelease   Technologies,   Elimination
                                                         Corp.          Inc.         Entries        Total
                                                    -----------    -----------    -----------    ------------
<S>                                                 <C>            <C>            <C>            <C>  

                                        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
        Accounts payable ........................   $    25,184    $    65,453    $      --      $    90,637
        Accounts payable - affiliate ............          --        3,671,958     (3,671,958)          --
        Accrued expenses ........................        44,283         26,359           --           70,642
        Current portion of notes payable -
          stockholders ..........................        14,955         70,575           --           85,530
        Other current liabilities ...............          --            3,049           --            3,049
                                                    -----------    -----------    -----------    -----------
             Total current liabilities ..........        84,422      3,837,394     (3,671,958)       249,858

Note payable - long-term portion - other ........          --           16,000           --           16,000

Other liabilities ...............................        87,734           --             --           87,734
                                                    -----------    -----------    -----------    -----------

             Total liabilities ..................       172,156      3,853,394     (3,671,958)       353,592
                                                    -----------    -----------    -----------    -----------

Stockholders' equity (deficit)
        Common stock ............................        98,803          5,047         (5,047)        98,803
        Additional paid-in capital ..............     6,983,789      2,129,673            465      9,113,927
        Development stage accumulated deficit ...    (3,489,827)    (5,921,188)          --       (9,411,015)
        Stock subscriptions receivable ..........       (50,000)          --             --          (50,000)
                                                    -----------    -----------    -----------    -----------
                                                      3,542,765     (3,786,468)        (4,582)      (248,285)
        Less treasury stock .....................         4,500           --             --            4,500
                                                    -----------    -----------    -----------    -----------
             Total stockholders' equity (deficit)     3,538,265     (3,786,468)        (4,582)      (252,785)
                                                    -----------    -----------    -----------    -----------

             Total liabilities and stockholders'
               equity (deficit) .................   $ 3,710,421    $    66,926    $(3,676,540)   $   100,807
                                                    ===========    ===========    ===========    ===========
</TABLE>

                                      F-21

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995


12.     Subsequent Events (Concluded)

<TABLE>

<CAPTION>

                                                                            (Unaudited)
                                                    ---------------------------------------------------------
                                                                     BioRelease
                                                      BioRelease   Technologies,   Elimination
                                                         Corp.          Inc.         Entries        Total
                                                    -----------    -----------    -----------    ------------
<S>                                                 <C>            <C>             <C>           <C>  

Revenues .................................            $  28,705      $  46,948         $--         $  75,653

Cost of goods sold .......................                3,103         --              --             3,103
                                                      ---------    ---------           ----        ---------

             Gross profit ................               25,602       46,948            --            72,550

General and administrative expenses ......              297,033       21,137            --           318,170
                                                      ---------    ---------           ----        ---------

             Loss from operations ........             (271,431)      25,811            --          (245,620)
                                                      ---------    ---------           ----        ---------

Other income (expense)
        Interest, net ....................               (1,015)      (5,515)           --            (6,530)
        Litigation costs .................               (6,951)        --              --            (6,951)
        Loss on sale of assets ...........               (1,600)        --              --            (1,600)
        Other income (settlements) .......               29,366         --              --            29,366
        Realized loss for decline in value
          of investment ..................             (180,000)        --              --          (180,000)
                                                      ---------    ---------           ----        ---------
             Other income (expense), net .             (160,200)      (5,515)           --          (165,715)
                                                      ---------    ---------           ----        ---------

             Loss before provision for
               income taxes ..............             (431,631)      20,296            --          (411,335)

Provision for income taxes ...............                 --           --              --               --
                                                      ---------    ---------           ----        ---------

Net loss .................................            $(431,631)   $  20,296           $--         $(411,335)
                                                      =========    =========           ====        =========

</TABLE>

                                      F-22

<PAGE>


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

                   Notes to Consolidated Financial Statements

                             June 30, 1996 and 1995

13.  Related Party Transaction

     Effective  April 1, 1996,  the  President of the Company is  providing  his
     services to the Company  through an entity  which is  controlled  by family
     members of the President.  For the year ended June 30, 1996 the Company has
     paid $33,300 to the related entity for the President's services. As of June
     30, 1996,  approximately $87,000 which is reflected in other liabilities is
     due  to  the  related  entity  for  expenses  incurred  pertaining  to  the
     President's  employment prior to March 31, 1996. The liability arose to the
     related party because it has assumed certain accrued and unpaid expenses of
     the Company which pertained to the President's  employment.  It is expected
     that the amount will be paid in years subsequent to June 30, 1997.

14.  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-23
<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 February,  1995 Smith Batchelder & Rugg affiliated with Berry,
Dunn,  McNeil and  Parker who now  express  opinion on the  Company's  Financial
Statements.

                                     - 27 -

<PAGE>

On September 26, 1994, the Company terminated  Coopers & Lybrand  ("Coopers") as
its  certifying  accountant  and  retained  Smith,  Batchelder  &  Rugg  as  its
certifying accountant.

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,  neither of  Coopers  reports  on the  Company's  financial
statements for the fiscal years ended June 30, 1992 or 1993 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 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.



                                     - 28 -

<PAGE>

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  planned  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.

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  reorganization  of  the  Company  and  the  Subsidiary.   Coopers  was  the
Subsidiary's independent auditors.

                                     - 29 -

<PAGE>

                                    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:

      Name                        Age    Positions with       Positions with
                                         the Company          the Subsidiary

Richard Schubert                  60     Chairman of the
                                         Board of Directors

P. Calvin Maybury, Ph.D.          73     Director             Director

Richard Whitney                   59     Director             Chairman of the 
                                                              Board of  Director
                                                
Directors are elected by the stockholders to serve until the next annual meeting
of stockholders and until their successors have been elected and have 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").  For the past fiscal year Dr. Reeves served as President,  CEO and
Director until his resignation on October 4, 1996.

A summary of the business  experience  of each current and proposed  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 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.

                                     - 30 -

<PAGE>

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-five years of experience in the area of Physical Chemistry research,  the
last   twenty-three   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.

RICHARD  WHITNEY has been a Director of the Company since July 1992 and Chairman
of the Board of Directors of the Subsidiary since August 1996. 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., a 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.

R. BRUCE REEVES, Ph.D., was President and Chief Executive Officer of the Company
from May 1993 to October 4, 1996 and was Secretary and a Director of the Company
from July 1992 to October 4, 1996. He was Chief Executive Officer, Secretary and
a Director of the Subsidiary  until June 1995.  Since April 1996, Dr. Reeves has
been  employed by R T Robertson  Consultants,  a Reeves'  family  owned  entity.
Through Robertson, Dr. Reeves continues to actively consult for the Company on a
daily basis (see "Part I, Item 1. Business (Employees and Outside Consultants").
In August  1995,  Dr.  Reeves  agreed to serve as an  Officer of NCPI,  Inc.,  a
nonprofit  affiliate  of  Eastern  Nazarene  College  of which Dr.  Reeves is an
alumnus.  Dr.  Reeves has over  twenty  five  years of  experience  in  start-up
ventures,  and has  spent  over ten  years in  high-tech  business  and  product
development,  including five years  (1964-1969) with General Electric Company on
several business development operations.  Since 1989, Dr. Reeves has devoted his
full time to the business of the  Company's  predecessors;  Fluid Life  Systems,
Inc. ("FLS") and the Subsidiary. Prior to that time, he served for ten years as

                                     - 31 -

<PAGE>

Chairman  and CEO of  Monadnock  Partners,  Inc.,  a family  owned  real  estate
management  and  development  company  involved  in  hotels,  commercial  office
buildings  and  multi-tenant  industrial  projects.  Dr.  Reeves,  along  with a
corporate  affiliate,  was a  principal  in a  number  of real  estate  ventures
including  four hotel  projects in the  Northeast.  Dr. Reeves  oversaw three of
these hotel partnerships through bankruptcy proceedings in the New Hampshire and
Connecticut   Districts.   As  a  result  of  related  litigation  and  personal
guarantees,  Dr.  Reeves  filed for  personal  bankruptcy  in the New  Hampshire
District in May 1989 and was  subsequently  discharged  except for one claim for
approximately  $2.1 million.  Dr. Reeves  received a Ph.D. in chemistry from The
Johns Hopkins University in 1964.

Proposed New Management

DONALD E.  STRANGE  will  join the  Company  upon the  closing  of the  Theramed
acquisition as its Chairman. He has been Chairman and Chief Executive Officer of
Theramed since its inception in August 1996.  Since October 1, 1996, he has been
Chairman and Chief Executive Officer of First New England Dental Centers,  Inc.,
a provider of dental practice management  services to multi-specialty  practices
in New England.  From 1993 to 1995, Mr. Strange was Chairman and Chief Executive
Officer of Transcare  Corporation,  a patient transport company. Mr. Strange has
over 25 years in the health care field including executive  management positions
with Epic Health Care Group (1991-1993),  US Homecare  Corporation  (1990-1991),
Sigecom Ltd  (1989-1991),  Avon's  Health Care Group  (1987-1989)  and  Hospital
Corporation  of America  (1974-1987).  Mr.  Strange  received a BA from Michigan
State University in 1966 and a MBA from Michigan State University in 1968.

PAUL  LEIBOWITZ,  a  scientific  advisor to the Company for the past four years,
will  oversee  all  pharmaceutical  development  and  serve as  Chief  Operating
Officer.  Dr. Leibowitz has been the Chief Operating  Officer and Executive Vice
President for Scientific Affairs of Theramed since its inception.  Dr. Leibowitz
has more than eighteen  years of  diversified  experience  in the  management of
biological and pharmaceutical  research and development,  regulatory  oversight,
business development and strategic planning.  From 1994 to 1995, he was a Senior
Vice President at Innovir Laboratories, Inc., a biotechnology company. From 1990
to 1994, Dr. Leibowitz was Senior Vice President of Research and Development and
Chief  Scientific  Officer  of TSI  Corporation,  a  biotechnology  company  and
contract  research  organization.  From 1989 to 1990,  he was Vice  President of
Corporate   Planning  and   Development  for   Immunomedics,   Inc.,  a  company
specializing  in  radioimmunotherapy  and  radioimmunodiagnostics.  From 1977 to
1987, Dr. Leibowitz was employed by  Schering-Plough  Corporation,  a biophysics
pharmaceutical  company.  While at Schering Plough,  Dr.  Leibowitz  founded for
Schering both the molecular biology and tumor biology  departments and built its
initial  infrastructure in biotechnology.  Dr. Leibowitz  received a BA from New
York University in 1963, a MA in Radiation  Biology from the State University of
New York at Buffalo  in 1970 and a PhD in  Radiation  Biophysics  from the State
University of New York at Buffalo in 1972.

                                     - 32 -

<PAGE>

DR.  NIGEL  FLEMING  will join the  Company as a Director  and he will assist in
acquisition  and  business  development  activities.  Dr.  Fleming  has  been an
Executive Vice  President and Director of Theramed since its inception.  He also
is  President of Plant Cell  Technologies,  Inc., a  biomaterials  company,  and
Director of Business  Development for Gamera  Bioscience,  Inc., a point of care
diagnostics company. From 1995 until recently, Dr. Fleming served as Director of
Business   Development   for   Athena   Neurosciences,   a   neurosciences-based
pharmaceutical  company that was recently  acquired by Elan  Pharmaceutical.  In
1986 he founded Genica Pharmaceuticals,  a neurological diagnostics company, and
served as its  Chairman and Vice  President  until 1995.  Genica was  ultimately
acquired by Athena Neurosciences.  Dr. Fleming is experienced in identifying and
establishing relevant diagnostic and pharmaceutical  product  opportunities.  He
received a BA from the University of North Carolina at Chapel Hill in 1978 and a
PhD in Clinical Biochemistry from the University of Cambridge, England in 1983.

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, 1996

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.

<TABLE>

<CAPTION>

                                                   SUMMARY COMPENSATION TABLE
                                                                              Long-Term Compensation
                                         Annual Compensation                                 Awards      Payouts
         (a)         (b)           (c)       (d)        (e)             (f)       (g)          (h)        (i)
------------------ -------       -------   -------   ---------     ----------- --------     --------    ------
                                                                   Restrict-                          
                                                        Other      ed Stock                 LTIP       All Other
Name and Principal                           Bonus      Annual       Award                              Compensa-
Options                                     Payouts    Compen-                                            tion
Position           Year          Salary       ($)    sation ($)       ($)         SARs         ($)        ($)
-----------------  ----          ------     -------  ----------   -----------   -------     ---------   -------
<S>                <C>          <C>         <C>       <C>         <C>          <C>          <C>         <C>
R. Bruce Reeves,   1996(1)       90,000       -0-        (2)          -0-
 Chief Executive   1995         120,000      50,000      (2)          -0-       416,700        -0-        -0-
 Officer .......   1994         120,000       -0-        (1)          -0-       496,500        -0-        -0-
                   1993         117,000      20,000      (1)          -0-       200,000(3)     -0-        -0-
                   1992          86,000      10,000      -0-          -0-         -0-          -0-        -0-
  
</TABLE>

                                     - 33 -

<PAGE>

     (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. Between April 1 and June
          30, 1996,  Robertson  billed the Company  $33,300,  including  expense
          reimbursements, for executive oversight of the corporations.

     (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:

<TABLE>

<CAPTION>

                      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
----                             -------      -----------          ------------              ----
<S>                              <C>          <C>                  <C>                     <C>   
RT Robertson Consultants, Inc,    416,700         100%                 $.06                12/31/99

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

</TABLE>



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:

<TABLE>

<CAPTION>


                 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
----                    -----------                -----------                  -------------                 -------------
<S>                     <C>                        <C>                          <C>                           <C> 
R. Bruce Reeves,           -0-                        -0-                        0/913,200(1)                     -0-
Chief Executive 
Officer

<FN>

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

</FN>

</TABLE>

                                     - 34 -

<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

<TABLE>

<CAPTION>
                                                                              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 #)
----                      ------------                       -------------    ---------       --------     --------
<S>                       <C>                                <C>              <C>             <C>          <C>   
R. Bruce Reeves,              -0-                                 -
Chief Executive
Officer

</TABLE>

Directors  are not  compensated  for  acting  in their  capacity  as  Directors.
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 her share.  These options
were for  consulting  services  unrelated to their  position as  directors.  The
options expire on December 31, 1997 and December 31, 1999, respectively.

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  received 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  Robertson  to provide the
services of Dr. Reeves  through the end of the fiscal year ending June 30, 1996.
Dr. Reeves served as President and CEO of the Company until October 4, 1996 when
he resigned.  Robertson  continues  to actively  consult for the Company and the
Subsidiary  and has  agreed to do so for a period of six  months  following  the
closing of the intended acquisition of Theramed Partners.

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).  These
options,  all of which were vested as of June 30, 1996,  are  currently  held by
Robertson and expire on December 31, 1999 if not exercised. (see "Part III, Item
11. Security Ownership of Certain Beneficial Owners and Management").

                                     - 35 -

<PAGE>

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 15.1% 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.

(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                            559,932(1)(2)(4)           5.5%
4102 Cypress Bayou Dr.
Tampa, FL 33624

Richard Schubert                             422,639(1)(4)              4.2%
7811 Old Dominion Dr.
McLean, VA 22102

Richard Whitney                              308,771(1)(4)              3.3%
1612 K  St. N.W. #308
Washington, DC 20006

R. Bruce Reeves                            1,999,311(5)                18.9%
10 Chestnut Drive
Unit D
Bedford, NH 03110

All Current Officers and
Directors as a Group
  (4 Persons)                              1,291,342(1)(2)(3)(4)       12.7%


                                     - 36 -

<PAGE>

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

     **   Based  upon  9,471,659  shares  issued  and  outstanding  and  682,000
          exercisable  options  for the  above  named  persons,  as of the  date
          hereof.

     (1)  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.

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

     (3)  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.

     (4)  Includes  30,500;  32,500;  and 32,500 options  currently  exercisable
          under the Company's  Directors' Stock Option Plan to Messrs.  Maybury,
          Schubert and Whitney, respectively.

     (5)  These 1,999,311  shares,  which include 1,113,201 shares issuable upon
          exercise options, are held by Robertson,  Dr. Reeves' family trust and
          Dr. Reeves' wife. Dr. Reeves' disclaims beneficial ownership in shares
          held by these related parties.

The table excludes  shares  issuable upon exercise of 550,000 option held by Dr.
Paul Leibowitz,  480,000 of which have vested, for consulting  services over the
past four years.

Item 12.       Certain Relationships and Related Transactions.

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 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 runs for one year and is continuing on a month to month basis under an

                                     - 37 -

<PAGE>

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 and $0 at June 30, 1995 and June 30, 1996,
respectively. 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 9 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 $ 87,734.  Robertson and Mr.
Schubert have agreed to defer payment of these amounts due for a period of up to
three  years  from the  closing of the  Theramed  business  combination  without
interest.  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 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 $29,366
in 1996 and $251,134 in 1995 of the Company's and the Subsidiary's liabilities.

                                     - 38 -

<PAGE>

                                     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

  3.a   Certificate of Incorporation of Company(1)
  3.b   Amendment to Certificate of Incorporation of Company(1)
  3.c   By-Laws of Company(1)

 10.c   Stock Reorganization Agreement between the Company and the Subsidiary(2)
 10.d   1992 Stock Option Plan(3)
 10.e   1992 Directors' Stock Option Plan(3)
 10.f   Patent-Chondroitin Drug Complexes(4)
 10.g   Patent-Stabilization of Proteins and Peptides by Chemical Binding with
          Chondroitin(4)
 10.i   Consulting Agreement with Wall Street Consultants(4)
 10.j   Options with USA, Wall Street Consultants and Union Equity Partners(4)
 10.l   TSI Agreement(4)
 10.m   Cell Trends Agreement(4)
 10.n   Dr. Reeves' Employment Agreement(5)
 10.o   Chestnut Drive lease

 14.a   Canadian patent for "Method for Protein Stabilization"(4)
 14.b   European patent for "Continuous Processes for Modifying Biologically
          Active Materials and the Products Therefrom"(4)

 16.a   Accountants' Letter(6)(7)

 22.c   Subsidiaries (see "Item 1. Business")

(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.

                                     - 39 -

<PAGE>

(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.

                                     - 40 -

<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 11, 1996                   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
                                 Officer
 s/Paul Calvin Maybury          Director                       October 11, 1996
 ---------------------         
Paul Calvin Maybury


 ---------------------          Director                       October 11, 1996
Richard F. Schubert


 s/Richard Whitney              Director                       October 11, 1996
 -----------------           
Richard Whitney

                                     - 41 -

<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.

                                     - 42 -