SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 2054
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                                   FORM 10KSB

     [/]  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended April 30, 1997

                         Commission File Number: 333-16535

                         AMERICAN BIO MEDICA CORPORATION
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                 (Name of Small Business Issuer in its charter )

          New York                                       22-3378935
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  (State or other Jurisdiction                   (IRS Employer Identification
of Incorporation or Organization)                         Number)

                102 Simons Road  
             Ancramdale, New York                            12503
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       (Address of principal executive Offices)           (Zip Code)

     Issuer's telephone number: (800) 227-1243

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

     Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.01 par value per share

     Check  whether  the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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. 
     [x] Yes [ ] No

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]

     State issuer's revenues for its most fiscal year $610,876.

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days.

     As  of  July  2,  1997,   there  were  7,243,925   common  shares  held  by
non-affiliates  ("Shares")  outstanding  having  an  aggregate  market  value of
$28,975,700.

     Documents incorporated by reference: 
     Proxy Statement for Fiscal 1998 Annual Meeting of Shareholders

                                       2
<PAGE>

                                     PART I



     Item 1. Description of Business

     Summary 
     -------
     From its inception in 1986 until 1991, American Bio Medica Corporation,(the
"Company") was involved in marketing  educational  books and software to schools
and municipal  libraries and  audiovisual  educational  packages to  educational
institutions  and to  corporations  throughout the United  States.  In 1991, the
Company,  because of heightened competition,  increasing costs of doing business
and slow  collections  from  municipalities,  reduced its  concentration in this
market to that of  selling  audiovisual  packages  to  libraries  and  commenced
seeking new  technologies in emerging  medical  markets.  The Company  purchased
certain biomedical technologies from its Executive  Vice-President and purchased
and rescinded the purchase of other  technologies  from another party who became
and then resigned as an officer and director of the Company.  The Company has no
present  intention  of entering  into  transactions  in the future with  related
parties. (See "Certain Transactions.")

     Since its inception,  the Company has an accumulated  deficit of $2,906,922
(see  Financial  Statements  -  Balance  Sheet).  Management  believes  that the
Company's  accumulated  deficit is the result of  discontinued  operations,  the
development  of its  workplace  drug  test  kits  and the  development  of other
biomedical  products.  However,  investors  should be aware that the Company has
never been profitable during its ten year history and that there is no assurance
that the Company's biomedical operations will become profitable.

     The Company is  currently  in the  business of  acquiring,  developing  and
marketing biomedical  technologies and products.  The Company currently owns two
technologies  for screening  drugs of abuse - a workplace  screening  test and a
preliminary  test for use by  laboratories.  The Company has begun to market its
workplace  screening test and has produced and delivered  several thousand units
of this test. The Company's workplace screening test is a one-step test kit that
allows a small urine sample to be tested for the presence or absence of drugs of
abuse. The competitively  priced test is self-contained  with no exposure of the
test administrator to the urine sample. In Management's  opinion,  the Company's
drug test kit is easier to use than any  competitive  product  and  requires  no
mixing of reagents. In  addition,  hundreds of  controlled  tests  conducted  by
independent  laboratories  compared the Company's  "Rapid Drug Screen Test" with
results produced by EMIT II and GCMS, two standard  laboratory  tests, with 100%
correlation of both positive and negative test results. As a result,  Management
believes  that the  Company's  Rapid Drug  Screen  Test is as  accurate as those
laboratory tests.

     The drugs of abuse  which the  Company's  Rapid  Drug  Screen  can test are
cocaine,  marijuana,  opiates,  amphetamine  and PCP.  Prior to July,  1997, the
Company produced a five panel kit which tested for the  above-listed  substances
and a two panel kit which  tested for  cocaine  and  marijuana.  The Company has
recently  completed the development of a test for  methamphetamine,  a synthetic
stimulant and potent form of  amphetamine,  and,  commencing  July 1, 1997,  has
started to produce kits containing a test for methamphetamine.  The two kits are
a two panel test for  marijuana  and  methamphetamine  and a five panel test for
methamphetamine, amphetamine, cocaine, opiates and marijuana.

     The Company has installed equipment suitable for the mass production of the
workplace drug screening test and commenced  pre-production using this machinery
during the last week in October,  1996.  Production commenced  in December, 1996
and increased to 13,000 units per week in June,  1997. The Company's  output was
lowered by its inability to secure reliable  supplies of reagents.  This problem
was  rectified  in  May,  1997  through  increasing  reliability  of  two of its
suppliers  and the  addition of a third  supplier.  Management  predicts  that a
production  rate of 20,000 units per week will be achieved in the second quarter
of 1997.

                                       2
<PAGE>

     The  Company  also owns a patented  low cost method for  producing  Keratin
proteins.  The uses for such  proteins  include  hardening  of finger  nails and
carrying  topical  lotions and  medicines  through the skin.  In  addition,  the
Company is  developing a saliva test for alcohol  consumption.  Existing  saliva
tests for alcohol  consumption  require  exposure  to the saliva  sample and the
addition  of  reagents.  The  Company's  test  is  self-contained,  involves  no
additional reagents and can be priced lower than existing competitive  products.
The Company has no intention of developing or marketing its laboratory test, its
Keratin  technology or its saliva test for alcohol  consumption  until after its
workplace  screening  test has been in full  production of at least 20,000 units
per week for at least  three  months.  The Company  has fully  developed  and is
preparing  to market its  anti-dilutant  product  which  detects the presence of
dilutants to the urine specimen, added detergents, and tests for ph and specific
gravity levels.

     The Company may develop or acquire  additional  biomedical  technologies or
products in the future.  However,  it has not yet located any technologies which
it desires to develop or acquire.

     Background  
     ----------  
     According  to  the  "1996  AMA  (American  Management  Association)  Survey
Workplace  Drug Testing and Drug Abuse  Policies  Summary of Key  Findings,"  an
annual report on drug testing in the workplace, 81% of major United States firms
now test employees and/or job applicants for drug use, an increase of 277% since
1987 and an  increase  of 3% since  1995.  The AMA  attributed  the  increase to
several  factors,  including  Department  of  Transportation  and  Department of
Defense  regulations  which,  in conjunction  with local and state  legislation,
mandate testing in certain job categories,  the Federal Drug-Free  Workplace Act
of 1988, court decisions  recognizing an employer's right to test both employees
and job applicants in the private sector for drugs of abuse, action by insurance
carriers  to  reduce  accident  liability  and control  health  care  costs  and
corporate   requirements  that  vendors  and  contractors   certify  that  their
workplaces are drug-free.

     The AMA found that business category was the most important  determinant in
drug testing.  The  percentages  in each category which tests for drugs of abuse
are manufacturers (89%), transportation (100%), wholesalers and retailers (79%),
general service providers (77%),  business service providers (60%) and financial
service providers (56%).

     The  survey  states  that the usual  and  recommended  procedure  for urine
samples  calls for a  retesting  of positive  samples by the  gas-chromatography
method.  It also  states  that 76% of firms that test  utilize a medical  review
officer  ("MRO")  who  analyzes  test  findings,  judges  them  against the test
subject's  medical  profile and renders a verdict to the employer which does not
see the test  results  but  only  the  MRO's  report.  The use of an MRO  offers
significant  protection  to  employees  who may test  positive due to the use of
prescription  drugs or  non-controlled  substances  which register as controlled
substances.

                                       3
<PAGE>

     The Substance  Abuse and Mental Health Services  Administration,  Office of
Applied  Studies of the United States  Department of Health and Human  Services,
Public Health Service,  in its advance report number 18 released in August, 1996
entitled "Preliminary  Estimates from the 1995 National Household Survey on Drug
Abuse,"  notes that 14.3% of  unemployed  adults,  age 18 years and older,  were
current  illicit drug users in 1995  compared  with 5.5 % of full-time  employed
adults and that the rate of drug use  decreased  from  1994's  6.7%.  71% of all
current  illicit  drug users 18 years old and older (7.4  million  adults)  were
employed,  including  5.5 million  full-time  workers and 1.9 million  part-time
workers.  Because of the high  incidence of  workplace  drug use, the testing of
employees for the most  "popular"  drugs has become  widespread.  Positive tests
often result in discharge of or treatment  for the  employee.  In addition,  the
threat of testing,  particularly random testing,  has the prophylactic effect of
reducing workplace drug use.

     The Company  believes that the drugs of abuse  testing  market is large and
growing and that the largest  market  opportunity  for  on-site  drug  screening
products is the private  sector with an additional  large public sector  demand.
According to  Management,  drug testing  performed in an on-site  facility using
technologies  designed  for  on-site  use  can be just as  accurate  as  testing
performed in a  full-service  lab.  Drug  screening  tests are now  performed in
markets which include:  preemployment testing; random testing of employees; drug
rehabilitation  programs;   hospital  laboratories;   emergency  rooms;  private
security agencies;  public transportation;  law enforcement agencies;  probation
and parole programs and Department of Defense contractors.

     In April,  1997, the Company  applied for a listing on the Nasdaq  SmallCap
Market and has responded to comments from the NASD. There is no assurance that a
listing will result. (See "Risk Factors.")

Workplace Drug Test
-------------------

     Design 
     ------
     The first  product,  trademarked  "The Rapid Drug  Screen,"  developed  and
marketed by the Company, is a workplace test of five drugs of abuse which can be
used in  offices,  factories,  "halfway"  houses,  remote  locations  and in all
situations  where an  immediate  result is required.  The product  consists of a
"NIDA 5 Card," a business-card size card divided into five lengthwise strips, or
sections. The person being tested urinates into a test cup, puts on the lid, and
hands it to a  supervisor  or other  person  administering  the  test.  The test
administrator  inserts the card into a  pre-punched  slit in the lid without the
danger of spilling or of touching the urine inside.  Thus, the  administrator is
not exposed to the urine sample nor does he or she have to mix reagents.  Within
five minutes, the results can be read on the insert through the side of the cup.
A single line in the test area of the Rapid Drug Screen  indicates the sample is
positive for one of the five specific drugs of abuse - PCP, marijuana,  cocaine,
amphetamines  and opiates -  designated  by NIDA  ("National  Institute  on Drug
Abuse") in the  "Drug-Free  Workplace  Act of 1989" as those to be tested for in
most federally regulated drug testing programs. If the results are positive, the
cup is sealed with provided materials and sent to a laboratory for confirmation.
No adverse action is taken by the test  administrator  unless  confirmation of a
positive test is received from an independent  laboratory.  A double line in the
test area of the Rapid Drug  Screen  indicates  the screen is  negative  for the
presence of the "NIDA 5" drugs of abuse.

                                       4
<PAGE>

     One of the problems which often occurs in the use of workplace drug testing
is fraud or evasion  practiced by the person being  tested.  The most  prevalent
method of avoiding  adverse test results is the substitution by the person being
tested of a hidden "clean" urine sample which he or she brings to the test. As a
consequence,  each of the  Company's  drug test  strips  contains a  temperature
sensor  which helps  prevent the  substitution  of another  urine  sample as the
likelihood is that the substituted  sample would not retain proper  temperature.
Also,  the Rapid Drug  Screen  contains a control  line,  designed to assure the
administrator of the test that the test is working properly.  Should the control
line not  appear,  the user is  instructed  to void  the test and  "retest"  the
sample.

     The kit contains the following  instructions:  if only one horizontal  band
changes  color in any NIDA strip,  the sample is positive  for that drug and the
sample  should be sent to a laboratory  for  confirmation.  If both bands in any
NIDA strip  change  color,  the sample has  tested  negative  for that drug.  If
neither band changes color,  the sample is not urine or the test is void and the
employee or other  person  being  tested must submit  another  urine  sample for
retesting.

     In  addition,  the Company has designed two  additional  drug tests,  a two
panel card and an eight panel card. The Company began to ship the two panel test
in November,  1996, and intends to commence  manufacturing the eight panel strip
during the first  quarter of fiscal  1998.  The two panel  strip,  designed  for
juvenile  corrections  centers  and  educational  institutions,  tests  only for
cocaine and marijuana.  The eight panel strip, designed to rival two competitive
products,  Biosite and Drug Screen Systems, adds barbiturates,  benzodiazepines,
tricyclic antidepressants,and  methamphetamines.  These additional tests will be
combined  in single  unit with the NIDA 5 Card so that one  sample  can test for
eight drugs of abuse simultaneously.

     Manufacture
     -----------
     After the  successful  completion  of  clinical  trials in May,  1996,  the
Company  initially  subcontracted  the manufacture of components,  including the
test strips,  of The Rapid Drug Screen to several outside  manufacturers.  These
components were then assembled for the Company by Columbia Advocacy and Resource
Center ("COARC"),  an FDA-approved  contract manufacturer in nearby Mellenville,
New York.  COARC is a federal and state  licensed  not-for-profit  agency  where
non-disabled  employees work side by side with several hundred  developmentally
disabled employees to manufacture a wide variety of products and services.

     The Company found that the use of subcontractors to produce the test strips
was unsatisfactory from a pricing, delivery and quality control standpoint.  The
Company has ordered,  received and  installed  equipment in a dedicated  "white"
room in the COARC facility  which will allow the COARC to  manufacture  the test
strip  component of the product as well as to undertake its assembly  operations
on the  Company's  behalf.  The  white  room  dedicated  to the  workplace  drug
screening  test is  temperature  and  humidity  controlled  and has an  airborne
particulate  filtering system.  The Company owns the equipment which is being be
used by employees of COARC. Other employees of COARC assemble, pack and ship the
units.  COARC has  established  a stringent  Quality  Assurance/Quality  Control
("QA/QC")  Program to insure  data  reliability  and  product  consistency.  The
Company  intends to continue to contract  out the printing  and  manufacture  of
specimen cup components.  The Company  presently  produces its test strips using
the  equipment.  The  equipment,  as  installed,  is capable of  producing up to
600,000 units per month utilizing two shifts five days a week.

                                       5
<PAGE>

     FDA Approval/Patent Application  
     -------------------------------
     Though  FDA  approval  is not  required  for most forms of  workplace  drug
testing,  including  The Rapid Drug  Screen,  it will be  required  for use in a
clinical  setting which Management  anticipates may become a future  marketplace
for the  Company's  drug testing  products.  Testing of one hundred  samples was
completed  in July,  1996 and showed 100%  correlation  to tests  performed in a
recognized  testing  laboratory.  A Federal  Drug  Administration  ("FDA")"510K"
application  was  filed on July 15,  1996 and was  granted  on April  15,  1997.
Utility and application patents were filed on March 11, 1996.

     Marketing
     ---------
     The Company has placed  advertisements in trade journals and mounted direct
mail campaigns;  and Company representatives have attended trade shows. Although
the Company initially  believed that it would sell primarily through  individual
representatives, it has changed its marketing program so that it sells primarily
to distributors which then resell in the various marketplaces.  It has, however,
retained two of its initial  twelve  representatives.  The Company has completed
the development of the instructional and support materials  surrounding the test
kit. The Company has developed an educational curriculum to be packaged with The
Rapid Drug Screen as an option for corporate  clients.  The package includes (i)
educational materials such as an employee guide, brochures,  and posters for the
workplace;  (ii) a  Management  guide;  (iii) an "800"  number  for  supervisors
/managers to call for guidance in various  situations  when an employee is found
positive for drugs of abuse;  (iv) an "800" number for employees for information
on their rights and counseling  opportunities;  (v) test kits, (vi) materials to
help insure the urine samples are not contaminated; (vii) plastic gloves; (viii)
a secure  container  for positive  samples;  (ix) an "800" number for pickup and
delivery of positive samples to an associated  laboratory for confirmation;  and
(x) a quarterly newsletter with updates for Management. The Company has garnered
initial orders from  distributors,  municipal bodies and corporate users as well
as from penal facilities.

     The Company has divided its marketplace into the following categories.

     Corporate Workplace Drug Testing Programs
     -----------------------------------------
     The Company has developed a network of distributors and  administrators  of
workplace  drug testing  programs to sell its Rapid Drug Screen testing kit. Its
largest  initial  order  for this  marketplace  is from Zee  Services,  Inc.,  a
division  of  McKesson  Corp.  Zee  Services  utilizes a network of 80  regional
distributors  which,  in turn,  employ 1,300 sales  representatives  each with a
well-stocked  company van to sell to 350,000  small and medium sized  industrial
clients a variety of products  ranging from first aid kits to drug testing kits.
An initial order of 50,000 test kits has been produced. CannAmm, Inc., a similar
company operating in Canada, has likewise become a distributor. Customers in the
workplace drug testing category include Pre-employment  Testing Services,  Inc.,
Employee  Screening  Services,  Inc.,  Noble House  International,  Inc. ("Noble
House") and Alcohol  Testing for the Workplace,  Inc., (a firm which tests for a
variety  of drugs  of  abuse).  The  Company  has  entered  into a  distribution
agreement with Accuracy Testing Plus, Houston, Texas, which offers comprehensive
workplace programs, including testing, education and training.

                                       6
<PAGE>

     Corrections and Law Enforcement
     -------------------------------
     This  market  includes  federal,   state  and  county  level   correctional
facilities,  pretrial agencies,  probation and parole departments at the federal
and state levels and juvenile  correction  facilities.  The Company has received
orders from several agencies  including the Broward County,  Florida,  Sheriff's
Department which has indicated potential orders of up to 200,000 units per year.
The United States Probation Department ordered 500 units for use in a comparison
test with other  on-site  products.  The Company has  exhibited  at the American
Corrections  Association  summer trade show in Nashville in August,  1996 and at
the January, 1997 winter show.

     Rehabilitation Centers
     ----------------------
     This market includes the people in treatment for substance abuse in general
hospitals, mental health centers and outpatient programs. The importance of this
market  relates to the  frequency  of testing.  For example,  in many  residence
programs,  patients  are tested each time they leave the  facility and each time
they return. In outpatient  programs,  patients are generally tested on a weekly
basis. The Company has received orders from a chain of 60 rehabilitation centers
and is negotiating  with others.  The Company intends to exhibit at the Employee
Assistance Program convention in Chicago in 1997.

     International Markets
     ---------------------
     The Company has entered into a  non-exclusive  distribution  agreement with
CanAmm, Inc., a Canadian distributor,  an exclusive agreement with Nobel House.,
a U.S. distributor for Chile, and is negotiating for exclusive  distribution for
Pacific  Rim  countries  with a  Canadian-based  distributor.  Nobel  House  has
committed  to a  minimum  of  250,000  "two  panel"  tests for  Chile,  (to test
parochial high school  students)and  is  negotiating  purchase  agreements  with
relevant  government  agencies  of other  South  Americda,  Cental  America  and
Caribbean countries.
 
     Clinical, Physicians and Hospitals
     ----------------------------------
     The Company was approached and is negotiating an agreement with three major
drug  companies to  distribute  the Rapid Drug Screen under a joint label to the
worldwide clinical market, including physicians, hospitals and laboratories. The
Company is actively  pursuing this market now that the FDA has approved its drug
test kit for sale to clinics, laboratories, physicians and hospitals.
 
     Consumer and Over-the-Counter
     -----------------------------
     The Company's  Rapid Drug Screen test is ideal for consumer use as it leads
to immediate  and  accurate  results at a price less than half that of available
consumer kits.  Since receiving its FDA 510(k) approval for clinical sales,  the
Company  has has  been  actively  investigating  the FDA  requirements  for this
market. It has been approached by several store and pharmacy chains. The Company
intends to market  through  distributors  or to sell  directly to larger  retail
chains.

     Additional Markets
     ------------------
     As reported in the "New York Times,"  October 20, 1996,  President  Clinton
has called for drug testing of all teenagers by state motor vehicle  departments
prior to granting  driving  licenses to them.  In addition,  certain  low-income
housing  funded by the Department of Housing and Urban  Development  are testing
residents as a condition for continued occupancy.  Finally, many high school and
college  sports  programs are requiring  random  testing for drugs of abuse as a
condition of student participation.

     Samples
     -------
     The  Company  has  found  that one of its  best  marketing  methods  is the
shipping of samples to potential customers which have expressed interest through
responses to  telemarketing,  trade show  demonstration,  advertising or word of
mouth. Although initially expensive, the Company have found that the best way to
make sales is through demonstration and testing of the product's features.

                                       7
<PAGE>

     Competition  
     -----------  
     Competition to the Company's  workplace drug test comes from tests by Roche
Diagnostic  Systems,  Editek,  Inc.,  Biosite  Diagnostics,  Drug Test Resources
International  and Drug  Screening  Systems,  Inc. In the Roche test, the tester
must invert the cup for ten seconds and the testing chemistry for those tests is
contained  in the cup.  Editek's  Easy  Screen  involves  six  steps,  including
pipeting a drop of urine for each  test,  applying  drops of enzyme  conjugates,
applying drops of wash buffer and wiping and applying drops of substrate  before
the test results can be read.  Biosite's Triage product involves  pipeting drops
of urine and reagents.  The Drug Test Resources test involves  pipeting drops of
urine.  The Drug  Screening  Systems test involves  pipeting  drops of urine and
reagents.  In  addition,  Psychemedics  introduced  a test  which  requires  the
subject's  lock of hair be sent to its laboratory  for  evaluation,  which takes
five to fifteen days.  The test is several times as expensive as the  Company's.
Its only advantage  over the Company's test is that drug residues  remain in the
hair longer  than in urine so that an employer or parent can gain a  perspective
of  drug  use  over a  longer  period  of time  and  the  drug  test  cannot  be
circumvented by a brief period of abstinence.

     Principal Suppliers
     -------------------
     The  Company's   major   suppliers  are  as  follows:   IVEK   Corporation,
Springfield,  VT, produces the equipment which is used in the manufacture of the
test  strips;  Kinematic  Automation,  Twin  Harte,  CA,  produces  the  cutting
equipment for the test strip backing;  Arpak Plastics,  Inc.,  Plattsburgh,  NY,
supplies specimen cups and covers;  Monarch Plastics,  Mount Laurel,  NY, prints
the plastic test card. The Company has located  additional sources of components
from  which  it  could  purchase  if  required.  The  Company  subcontracts  the
manufacture  of the test strips and the assembly,  packaging and  fulfillment to
COARC,  Mellenville,  NY, a  medical  device  manufacturer  registered  with the
Federal Drug  Administration.  This  registration  requires that COARC submit to
periodic "audits" of its facilities to ensure compliance with FDA standards. The
COARC facility contains 70,000 square feet of manufacturing, office and assembly
space, including a white room specifically  designated to the manufacture of the
Company's  products  which has airborne  particulate  removal  equipment  and is
temperature  and  humidity  controlled.  The  Company  has placed  manufacturing
equipment in COARC's  premises for use by COARC  personnel for the production of
the Company's drug test kits.

     The Company places  purchase  orders with COARC for specific  quantities of
the test strips. It also pays COARC a per unit fee to assemble the test kits and
to pick, pack and ship the kits to the Company's designated customers.  Although
the Company  prefers  COARC  because it is located  within  twenty  miles of its
premises,  because of its  quality  of  production,  because  of its  ability to
respond   quickly  to  orders  and  because  of  its  experience  in  biomedical
production,  the Company has located additional  subcontractors  which could, if
needed, perform substantially the same services as COARC at similar prices.

                                       8
<PAGE>

     Patents and Trademarks  
     ----------------------
     The  Company  has applied for  registration  of the  following  trademarks:
"American  Bio  Medica"  and "Rapid  Drug  Screen"  in the United  States and in
foreign  countries  in which the  Company's  products  are being  marketed.  The
Company's trademark counsel, Edmund Jaskiewicz,  Esq., Executive Vice-President,
has opined that there are no similar  marks and, as a  consequence,  the Company
feels confident that such marks will be registered.  Stan Cipkowski,  President,
has assigned to the Company for no consideration,  his application for a utility
and design  patent in the United  States and Canada on the drug screen kit as an
entity. Mr. Jaskiewicz, as patent counsel, has opined that a search has revealed
no competing  patented  products. However,  there can no assurance that a patent
will be granted or that it will withstand challenge. The Company has applied for
patents and trademarks in the European Common Market and Japan.

     Government Regulations
     ----------------------
     It is anticipated  that the Company's  business will benefit by Federal and
state regulations  relating to drug free workplaces,  particularly the Drug Free
Workplace Act of 1988.  Clinical  sales of the drug test kit which awaited final
FDA approval of the tests for two of the NIDA drugs of abuse have  commenced and
sales are anticipated in due course.

Drugs of Abuse Preliminary Screen (ABM Prescreen)
-------------------------------------------------
     The second of the Company's  products is a preliminary drug screen which is
an easy to use,  accurate  and cost  effective  test paper for the drug  testing
market.  This test will, if the results are negative,  eliminate the possibility
that the urine sample  contains any of twenty drugs.  The laboratory  technician
places a few drops of  pretreated  urine on a test  paper and reads the  results
visually within a few minutes. Over 90% of tests submitted to laboratories yield
negative results. Thus, the primary use for this product in laboratories is as a
means of inexpensively and quickly eliminating,  through negative results,  over
90% of the testing required.  A patent  application is in process.  Pre-clinical
trials for the  preliminary  drug screen have been completed at two  independent
laboratories  contracted by the Company.  Pre-clinical  tests include laboratory
evaluation  of product  chemistry  and  observation  of results of addict  urine
samples  tested  with the  product  over a  period  of time.  These  tests  were
conducted  under  the  supervision  of  John  Questal,  principal  of one of the
contract  laboratories and a member of the Company's  Scientific Advisory Board,
and were  reviewed by Dr.  Henry  Wells,  the  Company's  Vice-President-Product
Development.  Based on the  success  of  pre-clinical  evaluations,  independent
clinical  tests were  conducted  by American  Medical  Laboratories,  Chantilly,
Virginia. The Company expects to introduce its ABM Prescreen to the market as an
inexpensive  alternative  to the products  being  offered by the current  market
leaders, Roche Diagnostic Systems and Biosite Diagnostics.

Alcohol/Saliva Test
-------------------
     The Company has developed a technology  that will detect  alcohol levels in
individuals  through  a  quick,  one  step,  on-site,  saliva  test  that can be
calibrated  to  specific  sensitivity  levels.  Though at an  advanced  stage of
development, additional laboratory work and clinical evaluations will need to be
funded and  completed  prior to any patent  applications  or  commercialization.
These  activities are expected to commence  during fiscal 1998. Law  enforcement
and workplace  testing would be the initial markets  approached.  The Company is
only aware of one,  nonspecific  to  sensitivity  levels,  two step  product now
available.

                                       9
<PAGE>

KDMP (Keratin Derivative Modified Protein)
------------------------------------------     

     Keratin  Derived  Modified  Protein  ("KDMP") is a liquid  keratin  protein
complex  containing  water soluble  peptides and is rich in cysteine.  It can be
used as an active  ingredient in varying  concentrations  in the formulations of
quality  skin,  nail,  and hair care  products.  Pre-clinical  trials  have been
completed  and the Company  intends to license or sell the  technology.  Various
patents  relating to this technology have been assigned to the Company by Edmund
Jaskiewicz,  Executive  Vice-President,  as  part of the  consideration  for his
receipt  of common  shares of the  Company  (see  "Certain  Transactions").  The
Company is currently  manufacturing this product in small quantities for several
companies  which have  requested  samples for  evaluation.  The Company does not
intend  to  devote  any  substantial  economic  or  personnel  resources  to the
development  or  marketing  of this  product for at least  twelve  months.  As a
result,  no revenue is expected to be derived from this product  until a license
is negotiated of which there is no assurance.

The Company's Plan of Operations
--------------------------------
     The  Company  intends  to  continue  the  establishment  of  a  network  of
distributors  which service  customers in non-clinical  workplace,  correctional
institution or drug  rehabilitation  areas,  to market and sell its drug testing
kits, to manufacture and ship such kits and, once  manufacturing has reached the
capacity  needed to fulfil orders,  to continue  research and development on its
additional biomedical products.

     As  of  June  20,  1997,  the  Company  had  entered  into   non-exclusive,
non-clinical  market  distribution   agreements  with  a  number  of  companies,
including  national  (such as Zee  Services,  Inc.,  a  subsidiary  of  McKesson
Corporaton), regional (such as Accuracy Testing Plus, Houston, Texas ) and local
distributors  (such as Western  Pathology  Consultants,  Scottsbluff,  Nebraska,
Business  Medical   Services,   Columbus,   Ohio  and  Prima  Healthcare  Group,
Springfield, Missouri). In addition, the Company, on September, 6, 1996, entered
into a  non-exclusive  distribution  agreement  for Canada  with  Ammcan,  Inc.,
Toronto,  Ontario.  On June 10, 1997,  the Company  entered into a  distribution
agreement with Quadrangle Research LLC, an affiliate of The American Association
of Medical Review Officers, to market the Rapid Drug Screen to its membership of
16,000 physicians, health care providers and other drug testing professionals.

     These  agreements  permit the  distributors  to sell the  products of other
manufacturers and permit the Company to sell its test kits to other distributors
within and  outside  the  territory  of each  distributor.  The  agreements  are
cancelable  by either  the  Company or the  distributor  upon  30 days'  written
notice.  Each of the Company's  domestic  distributors  has  submitted  purchase
orders which the Company is in the process of fulfilling.  

     The  Company   intends  to  enter  into   distribution   agreements  on  an
international basis as such distributors are identified. The Company has entered
into an agreement with Noble House,  Miami,  Florida for  representation  of the
Company in foreign countries,  Noble House is negotiating sales on behalf of the
Company in Colombia,  Argentina,  Panama,  Costa Rica and Caribbean countries as
well as in Puerto Rico. Noble House has secured a contract in Chile to sell, for
a two year period,  a yearly minimum of 250,000 kits which test for two drugs of
abuse - cocaine and marijuana.  The Company has entered discussions with several
suitable  distributors  in the  Philippines,  Mexico  and  Israel.  However,  no
agreements  have  been  entered  into and  there is no  assurance  that any such
agreements  will be executed or, if  executed,  that any sales will be generated
thereby.  In May,  1997,  the Company  entered  into a purchase  agreement  with
PhamaGen  S.A., a subsidiary of Zeltia,  S.A., a holding  company  traded on the
Madrid Stock Exchange, for a minimum of 300,000 units per year of the Rapid Drug
Screen.  Assuming  the minimum  annual  purchases  are  achieved,  the  purchase
agreement is exclusive for Spain, Morocco,  Portugal, France, Andorra and Italy.
The agreement was negotiated by Noble House and MYBC, Inc.

     The Company has  retained two regional  managers,  one in Fort  Lauderdale,
Florida and one in Nashville, Tennessee. These representatives call on accounts,
such as  corporations  and  correctional  institutions  directly and support the
Company's worldwide distribution network.



                                       10
<PAGE>

     The Company's present  manufacturing  equipment and personnel designated by
COARC is  sufficient  to produce  60,000 drug test kits each week,  assuming two
shifts per day, five days a week.  In the event the Company  desires to increase
production,  which it intends to do when volume  reaches  60,000 units per week,
its estimated  costs for  additional  equipment are $40,000 which it anticipates
will be covered from gross profits or from cash on hand.

     The  Company  has   commenced  an  extensive   direct  mail   campaign  and
participation  in trade shows such as the  Employee  Assistance  Program held in
Chicago, in November,  1996 and the American  Correctional Show in January, 1997
in  Indianapolis,  Indiana.  The  Company has already  produced  and  dispatched
materials for mailings and constructed  trade show booths,  attended trade shows
and committed to attend  several  annual and  semiannual  shows.  It anticipates
funding its costs of transportation, lodging, entertainment and set up and other
miscellaneous expenses from cash on hand.

     The Company has funded and will continue to fund its  marketing,  sales and
manufacturing  activities  from the proceeds of its recent sale of 150 Preferred
Shares,  raising  net  proceeds  of  $1,405,000  and  the  exercise  of  732,645
nonstatutory  options  raising  proceeds  of  $2,197,935.

     The  Company  does not now nor does it intend to enter into any  agreements
with affiliated parties for the purchase of technologies, the sale of product or
the purchase of inventory.

     The Company  and its Rapid Drug  Screen will be featured on Today's  Health
to be aired on CNBC in July, 1997.

     Government Regulation
     ---------------------
     The development,  testing, manufacture and sale of the Company's laboratory
test kits and certain additional  proposed products are subject to regulation by
United  States and foreign  regulatory  agencies.  Pursuant to the Federal Food,
Drug,  and Cosmetic Act, and the  regulations  promulgated  thereunder,  the FDA
regulates  the  preclinical  and  clinical   testing,   manufacture,   labeling,
distribution  and promotion of medical  devices.  If the Company fails to comply
with  applicable  requirements  it may be subject to fines,  injunctions,  civil
penalties,  recall or  seizure  of  products,  total or  partial  suspension  of
production,  failure of the government to grant premarket clearance or premarket
approval  for  devices,  withdrawal  of marketing  clearances  or approvals  and
criminal prosecution.

     Risk Factors
     ------------

     Limited Operating History and Revenues; Significant and Continuing Losses.
     --------------------------------------------------------------------------
     Although  the  Company  was  formed  in  1986,  as far as the  development,
manufacture  and sale of drug  testing  kits  are  concerned,  it has  extremely
limited  operational  history upon which investors may base an evaluation of its
performance  or any  assumption  as to the  likelihood  that the Company will be
profitable.  The Company's  prospects  must be considered in light of the risks,
expenses,  delays,  problems  and  difficulties  frequently  encountered  in the
establishment of a new business,  the development and  commercialization  of new
products based on innovative technology and the competitive environment in which
the Company operates. There can be no assurance that the Company will be able to
generate significant revenues or achieve profitable operations in its biomedical
business.

                                       11
<PAGE>
    Technological  Factors;   Uncertainty  of  Product  Development;   Unproven
Technology.
--------------------------------------------------------------------------------
     Although the Company's  development  efforts relating to the  technological
aspects of the  workplace  drug  testing kit are  substantially  completed,  the
Company is continually seeking to refine and improve it and to develop tests for
additional  drugs of abuse.  In  addition,  the  Company  plans to  perfect  its
laboratory  drug test kit, its saliva  alcohol level test kit and its Keratin
production technology.  The Company's efforts remain subject to all of the risks
inherent  in  new  product  development,   including  unanticipated   technical,
regulatory or other  problems  which could result in material  delays in product
development or commercialization  or significantly  increased costs. The Company
may be required to commit considerable additional efforts, time and resources to
finalize  development  of production  versions of its additional  products.  The
Company's  success will depend upon such products meeting targeted product costs
and  performance,  and may also depend upon their timely  introduction  into the
marketplace.  There  can be no  assurance  that  development  of  the  Company's
proposed  products will be successfully  completed on a timely basis, or at all,
that they will meet projected  price or performance  objectives,  satisfactorily
perform all of the functions for which they are being  designed,  or prove to be
sufficiently reliable in widespread commercial application.  Moreover, there can
be no  assurance  that  unanticipated  problems  will not arise with  respect to
technologies  incorporated  into its test kits or that product  defects will not
become apparent until commercial introduction.  In the event that the Company is
required to remedy defects in any of its products after commercial introduction,
the costs to the  Company  could be  significant,  which  could  have a material
adverse effect on the Company.

     Uncertainty of Continued Market Acceptance.
     ------------------------------------------
     The Company's  workplace  drug test has been well received by potential and
actual  customers,   including   corporations,   distributors  and  correctional
institutions.  However,  although  the Company has  received and is confident of
receiving  additional  large initial orders from customers in those  categories,
its success is contingent  on the receipt of reorders  from these  customers and
orders from new customers.  To date, the Company has generated  limited revenues
from  sales of its  workplace  drug test  kit.  As is  typically  the case of an
emerging company,  demand and market acceptance for newly introduced products is
subject to a high level of uncertainty.  Achieving  continued market  acceptance
for its  workplace  drug tests will require  substantial  marketing  efforts and
expenditure  of  significant  funds  to  inform  potential  distributors  of the
distinctive  characteristics,  benefits and advantages of its kits. There can be
no assurance that its drug test kits will become generally  accepted or that the
Company's efforts will result in successful product commercialization or initial
or continued market acceptance for its drug testing products.

     Competition in Workplace Drug Testing Market; Technological Obsolescence.
     ------------------------------------------------------------------------
     The Company has  competition  in every area of its  existing  and  proposed
products from drug manufacturers and other manufacturers of drug test kits. Some
of its competitors are well known and have far greater financial  resources than
the Company.  Moreover,  such  competitors  offer broader product lines and have
greater name recognition than the Company,  and offer discounts as a competitive
tactic.  To the best of  Management's  knowledge no competitors  have introduced
products which equal the ease of use combined with the accuracy of the Company's
drug  test  kits.  The  markets  for  drugs  and  related  products  are  highly
competitive. There can be no assurance that other technologies or products which
are  functionally  similar  to  those of the  Company  are not  currently  under
development.  In addition,  there can be no assurance that other  companies with
the expertise or resources  that would  encourage  them to attempt to develop or
market  competing  products will not develop new products  directly  competitive
with the Company's  drug testing kits.  Despite the  protections  which would be
available to the Company in the event its design patent is granted,  the Company
expects other  companies to attempt to develop  technologies  or products  which
will compete with the Company's products.

                                       12
<PAGE>

     Inability to Find and Attract Qualified Personnel.
     -------------------------------------------------
     The Company  currently  has  sufficient  Management  expertise and depth to
develop its business.  However,  it will need  additional  skilled and dedicated
marketing  staff as well as technical  and  production  personnel in the future.
There is no  guarantee  that the Company  can retain its  present  staff or that
capable personnel with relevant skills will be available.

     Dependence on Management.
     ------------------------- 
     The Company is dependent on the expertise and experience of Stan Cipkowski,
President,  Jay  Bendis,  Executive   Vice-President,   and  Douglas  Casterlin,
Vice-President,  for  its  operations.  The  loss  of any of the  Company's  key
Management  personnel  will  seriously  inhibit the  Company's  operations.  The
Company  intends  to but  has  not  yet  acquired  "key  man"  insurance  on its
Management. (See "Management.")

     Need for Additional Financing.
     ------------------------------
     The Company  expects that its cash on hand will be  sufficient  to fund the
Company's proposed  operations for at least 36 months. This estimate is based on
certain assumptions and there can be no assurance that unanticipated  unbudgeted
costs will not be incurred.  Future  events,  including  the  problems,  delays,
expenses and difficulties which may be encountered in establishing a substantial
market for the Company's  drug test kits and other  technologies  could make the
net  proceeds  from  exercise of options and warrants  insufficient  to fund the
Company's proposed  operations.  There can be no assurance that the Company will
be able to obtain any necessary  additional financing on terms acceptable to it,
if at all.  In  addition,  financing  may  result  in  further  dilution  to the
Company's then existing  stockholders.  The Company has no established borrowing
arrangements or available lines of credit. (See "Certain Transactions.")

      No Dividends.
     -------------
     The payment of dividends rests within the discretion of the Company's Board
of Directors.  No dividends  have been paid on the Common Shares and the Company
does not anticipate the payment of cash dividends in the foreseeable  future. If
the operations of the Company become profitable, it is anticipated that, for the
foreseeable  future,  any  income  received  therefrom  would be  devoted to the
Company's  future  operations and that cash  dividends  would not be paid to the
Company's shareholders. (See "Business--Dividend Policy.")

     Control by Management.
     ---------------------
     Management of the Company owns 47.1% of the  outstanding  Common Shares and
is in a  position  to  control  the  election  of the  Board of  Directors.  The
certificate  of  incorporation  of the Company  does not provide for  cumulative
voting and, as a result, purchasers of the Company's securities will not be able
to elect any  directors  or exert any control  over the general  policies of the
Company.  (See  "Description  of  Company's  Securities--Description  of  Common
Stock.")

                                       13
<PAGE>

     Anti-Takeover Provisions in Certificate of Incorporation.
     ---------------------------------------------------------
     The Company's amended certificate of incorporation  authorizes the issuance
of 5,000,000 Preferred Shares. The Board of Directors has the authority, without
further action by the Common  Shareholders,  to issue Preferred Shares from time
to  time  in one or  more  classes  or  series,  to fix  the  number  of  shares
constituting any class or series and the stated value thereof, if different from
the par  value,  and to fix the terms of any such  series  or  class,  including
dividend rights,  dividend rates,  conversion or exchange rights, voting rights,
rights  and  terms  of  redemption  (including  sinking  fund  provisions),  the
redemption price and the liquidation  preference of such class or series.  Thus,
the  Board of  Directors,  in order to avoid a  hostile  takeover,  could  issue
Preferred Shares with supervoting rights,  conversion rights into Common Shares,
liquidation  preference or a combination of rights and  preferences  which could
inhibit success of such attempted takeover.

     Proprietary Technology and Patents.
     -----------------------------------
     The  Company's  ability to compete  effectively  will depend in part on its
ability to develop and maintain  proprietary  aspects of its technology,  and to
operate without  infringing the proprietary rights of others or to obtain rights
to  such  proprietary  rights.  The  Company  is  currently  prosecuting  patent
applications in the United States and with certain foreign patent offices. There
can be no assurance that any of the Company's  pending patent  applications will
result in the issuance of any patents,  that the Company's  patent  applications
will have priority over the applications of others,  or that, if issued,  any of
the Company's  patents will offer  protection  against  competitors with similar
technology.  There can be no  assurance  that any patents  issued to the Company
will not be challenged,  invalidated or  circumvented  in the future or that the
rights created thereunder will provide a competitive advantage.

   Dependence of the Company on the Rapid Drug Screen
   --------------------------------------------------
     Sales of Rapid Drug Screen have  accounted for all of the  Company's  sales
biomedical  sales;  and Management  anticipates  that  substantial  revenues and
profitability will substantially depend on the sale of The Rapid Drug Screen for
the  foreseeable  future.  A reduction in demand  would have a material  adverse
effect on the Company's business, financial condition and results of operations.
Competitive  pressures  could  also  erode the  Company's  profit  margins.  The
Company's  continued  growth will depend on its ability to successfully  develop
and commercialize other products and to gain additional  acceptance of The Rapid
Drug  Screen.  There  can be no  assurance  that  the  Company  will  be able to
successfully  develop and commercialize new products or that the Company will be
able to maintain or expand its share of the drug testing  market. 

     Dependence on Distributors
     --------------------------
     The Company relies upon  distributors and its own sales force to distribute
The Rapid Drug  Screen and may rely upon  distributors  to  distribute  products
under  development.  The Company markets The Rapid Drug Screen primarily through
non-excluxive  distribution  agreements  The loss or  termination  of any of its
distributors  could have a material adverse effect on the Company's sales unless
suitable alternatives can be arranged.  If any of the Company's  distribution or
marketing  agreements  are  terminated  and the  Company is unable to enter into
replacement  agreements  or if the Company  elects to  distribute  new  products
directly,  the Company  would have to invest in  additional  sales and marketing
resources, including additional field sales personnel, which would significantly
increase future sales and marketing expenses with no guarantee of success.

                                       14
<PAGE>

     Government Regulation
     ---------------------       
     The testing,  manufacture and sale of the Company's products are subject to
regulation  by  numerous  governmental  authorities,  principally  the  FDA  and
corresponding  state and foreign  regulatory  agencies.  Pursuant to the Federal
Food, Drug, and Cosmetic Act, and the regulations  promulgated  thereunder,  the
FDA regulates  the  preclinical  and clinical  testing,  manufacture,  labeling,
distribution  and promotion of medical  devices.  Although The Rapid Drug Screen
test when applied to workplace  testing is not  considered a medical  device and
does not need FDA approval,  clinical  aplications of this test and new products
may require clearance or approval prior to commencement of marketing.
  
     Limited Manufacturing Experience
     --------------------------------
     To be  successful,  the  Company  must  manufacture  its current and future
products in compliance with regulatory  requirements,  in sufficient  quantities
and  on a  timely  basis,  while  maintaining  product  quality  and  acceptable
manufacturing costs. The Company has limited experience  manufacturing  products
other than The Rapid Drug Screen.  To achieve the level of production  necessary
for  commercialization of the Company's products under development,  the Company
will  need to  scale-up  current  manufacturing  capabilities.  There  can be no
assurance that such work can be completed successfully.

     The  Company's   manufacturing   facilities   and  those  of  its  contract
manufacturers may be subject to periodic  regulatory  inspections by the FDA and
other federal and state regulatory agencies.  There can be no assurance that the
Company or its contractors  will satisfy such regulatory  requirements,  and any
failure to do so would have a material adverse effect on the Company's business,
financial condition and results of operations.

     Product Liability Exposure
     --------------------------
     The testing,  manufacturing  and  marketing of medical  diagnostic  devices
entail an inherent risk of product  liability  claims.  To date, the Company has
not  experienced  any material  product  liability  claims,  but any such claims
arising in the future  could have a  material  adverse  effect on the  Company's
business,  financial  condition  and results of  operations.  Potential  product
liability  claims may exceed the amount of the Company's  insurance  coverage or
may be excluded  from  coverage  under the terms of the policy.  There can be no
assurance  that the  Company's  existing  insurance can be renewed at a cost and
level of coverage  comparable  to that  presently  in effect,  if at all. In the
event  that  the  Company  is  held  liable  for a  claim  for  which  it is not
indemnified or for damages exceeding the limits of its insurance coverage,  such
claim could have a material adverse effect on the Company's business,  financial
condition and result of operations.

     Item 2. Description of Property

     The Company leases two self-standing  buildings  containing an aggregate of
3,300 square feet of office and  warehouse  space from an  unrelated  party on a
month to month basis at an aggregate rent of $1,100 per month.

                                       15
<PAGE>

     Item 3. Legal Proceedings

     In  February,  1994,  Robert  Friedenberg,  as  owner  of the  two  medical
technology  companies,  MDI and Gendex,  acquired by the Company, in the name of
these corporations, filed suit to have the Share Exchange Agreement rescinded on
the grounds of breach of contract.  In order to avoid the  imposition of damages
against  it,  the  Company  filed a  cross-claim  in  July,  1994,  against  Dr.
Friedenberg,  seeking enforcement of the Share Exchange Agreement.  In November,
1995, after a trial, the court dismissed Dr.  Friedenberg's  lawsuit and allowed
the  Company's  cross-claim  to  proceed  to  trial.  In  September,  1996,  Dr.
Friedenberg  died.  A pretrial  hearing was held in  December,  1996 which set a
trial date of April 28, 1997.

     That trial was  decided by a jury on May 5, 1997.  The  verdict  determined
that Dr.  Friedenberg  breached  various  contracts by failing  to  deliver
technology to the Company. The jury also found in favor of the Company on two of
the  three  fraud  claims  against  Dr.  Friedenberg  and  awarded  the  Company
approximately  $350,000 in damages.  The trial  judge,  who is bound by the jury
verdict  against  Friedenberg,  will  decide  Dr.  Friedenberg's  claim  to  the
Company's  Common  Shares  which the  Company  refused  to  issued  to him.  Dr.
Friedenberg's  previous claims for equitable relief against the Company had been
denied.

     In June,  1995,  the  Company  filed a  lawsuit  against  Mr.  Morris,  Dr.
Friedenberg's  counsel,  for the breach of attorney-client  relationship and his
fiduciary duty and negligence in representing the Company in matters relating to
Dr.  Friedenberg  and in the  preparation of the Share Exchange  Agreement.  The
Company's  lawsuit demands  damages in the amount of $1,000,000.  Mr. Morris has
counterclaimed  for Common  Shares.  The court has set a trial date of September
14, 1998.

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

     The Company held a special  meeting of shareholders on December 23, 1996 at
which its shareholders  approved the adoption of the Company's 1996 Nonstatutory
Option Plan.


                                       16
<PAGE>
    
                                    PART II

     Item 5. Market For Common Equity and Related Stockholder Matters

     The table on the following  page sets forth the range of high and low sales
prices for the Common Shares on the NASD Bulletin Board for each quarter for the
fiscal years 1995, 1996 and 1997. As of June 30, 1997, there were  approximately
2,131 holders of Common Shares.

                                                   High                 Low
                                                   ----                 ---
     Fiscal Year Ending April 30, 1997
     ---------------------------------
                Fourth Quarter                    $4.25                $3.50
                Third Quarter                      4.75                 2.75
                Second Quarter                     7.38                 4.31
                First Quarter                      6.00                 2.00

     Fiscal Year Ended April 30, 1996
     --------------------------------
                Fourth Quarter                     2.00                 0.75
                Third Quarter                      1.00                 0.63
                Second Quarter                     0.62                 0.38
                First Quarter                      0.38                 0.13

     Fiscal Year Ended April 30, 1995
     --------------------------------
                Fourth Quarter                     0.13                 0.06
                Third Quarter                      0.13                 0.06
                Second Quarter                     0.09                 0.06
                First Quarter                      0.19                 0.03


     As of July 2, 1997, there were outstanding  approximately 13,518,510 Common
Shares and 20 Preferred  Shares each of which  Preferred  Shares is  convertible
into the number of Common Shares calculated by dividing $10,000 by the lesser of
$6.07 or 75% of the  average  closing  price of the  Common  Shares for the five
trading days preceeding conversion.  There is one holder of the Preferred Shares
which do not trade.
 
     The Company has not declared any  dividends and does not expect to do so in
the foreseeable future.

                                       3
<PAGE>


     Item 6. Management's Discussion and Analysis or Plan of Operation

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                 for the years ended April 30, 1996 and and 1997

     The matters  discussed  in this  Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations contain forward-looking statements
that involve risks and uncertainties.  The Company's actual results could differ
materially from those discussed here.  Factors that could cause or contribute to
such  differences  include,  but are not  limited  to,  those  discussed  in the
sections  entitled  "Business" and " Risk  Factors," as well as those  discussed
elsewhere in this Annual Report on Form 10-KSB. The Company disclaims any intent
or obligation to update these forward-looking statements.

                                       17
<PAGE>

    Development Stage Activities 
     ----------------------------
     Until 1991,  the Company was  involved in marketing  educational  books and
software to schools and municipal libraries and audiovisual educational packages
throughout the United States.  In 1991, the Company reduced its concentration on
this market because of competition,  increasing costs of doing business and slow
collections from municipalities and sought new technologies in emerging markets.
The Company has continued one small  segment of its original  business,  that of
selling audiovisual packages to libraries.

     The Company was  considered to be a  development  stage company with little
operating  history  subsequent to its  reorganization  and the  commencement  of
development of its newly acquired biomedical  technolgies which are, at present,
its core  business.  These  activities  have  been  funded  through  the sale of
convertible  debentures aggregating $1,425,500 which were subsequently converted
to Common  Shares at $.75 per share,  and  through  the  exercise of 143,000 "A"
warrants  at $1.00 and  32,000  "B"  warrants  at $1.00  per  share  aggregating
$175,000.  The Company also sold 150 convertible preferred shares at $10,000 per
share  for  an  aggregate  consideration  of  $1,500,000  and  net  proceeds  of
$1,405,000. As of April 30, 1997, the Company has sold 697,445 Common Shares for
an aggregate  consideration  of $2,092,186  through the exercise of nonstatutory
stock options. Because the Company has started commercial production of its drug
testing  kits  and has what  Management  maintains  are  adequate  resources  to
adequately fund its operations and has completed research and development of its
present product line, the Company no longer considers itself a development stage
company.

     In order to support  increased levels of sales in the future and to augment
its long-term  competitive  position,  the Company  anticipates  that it will be
required to make significant additional expenditures in manufacturing,  research
and  development,  sales and  marketing  and  administration,  both in  absolute
dollars and as a  percentage  of sales.  In  addition,  the Company  anticipates
higher  administrative  expenses  resulting  from  its  obligations  as a public
reporting company.

     The Company  anticipates  that its results of operations  may fluctuate for
the foreseeable  future due to several factors,  including  whether and when new
products are  successfully  developed  and  introduced  by the  Company,  market
acceptance  of current or new  products,  regulatory  delays,  product  recalls,
manufacturing delays, shipment problems, seasonal customer demand, the timing of
significant orders, changes in reimbursement policies,  competitive pressures on
average  selling  prices,  changes  in  the  mix of  products  sold  and  patent
conflicts.  Operating results would also be adversely  affected by a downturn in
the  market  for the  Company's  current  and  future  products,  if any,  order
cancellations  or order  rescheduling.  Because  the  Company is  continuing  to
increase its operating expenses for personnel and new product  development,  the
Company's  operating  results  would be adversely  affected if its sales did not
correspondingly  increase or if its product development efforts are unsuccessful
or are subject to delays. The Company's limited operating history makes accurate
prediction of future  operating  results  difficult or impossible.  Although the
Company has experienced  growth in recent years, there can be no assurance that,
in the future, the Company will sustain revenue growth or remain profitable on a
quarterly or annual basis or that its growth will be consistent with predictions
made by securities analysts.

     The Company currently  manufactures and ships product shortly after receipt
of orders and  anticipates  that it will do so in the future.  Accordingly,  the
Company has not developed a significant  backlog and does not anticipate it will
develop a material backlog in the future.

                                       18
<PAGE>

     Results of Operations  for the Year Ended April 30, 1997 as Compared to the
Year Ended April 30, 1996.
--------------------------------------------------------------------------------

     Revenues  from the book segment of the business  were $274,678 for the year
ended April 30, 1997 as compared to $158,105  for the year ended April 30, 1996,
representing  a increase of $116,573  or 73.7%.  This  increase in book sales is
directly  attributable  to the  Company's  reorganization  of its  telemarketing
activities and a bulk inventory purchase at significant savings.  Costs of goods
sold for the year ended April 30, 1997,  were $76,628 as compared to $96,444 for
the year ended ended April 30, 1996 representing a cost of goods sold percentage
of 27.9% for the year ended  April 30,  1997 as  compared  to 61.0% for the year
ended April 30,  1996.  This cost  reduction  is the result of the purchase of a
significant book inventory at a greatly reduced cost.

     Revenues  from the initial sales of drug testing kits were $317,864 for the
year ended April 30, 1997. Costs of goods sold for the year ended April 30, 1997
was $183,234 or 57.6%.

     General  and  administrative  costs for the year ended  April 30, 1997 were
$867,903,  an increase of 67.3%  over  expenses of $518,826  for the  year ended
April  30,  1996.  These  increased  costs are the  result of adding  additional
employees for  positions in sales,  marketing,  accounting,  executive and other
office  personnel  of  $365,117,  legal and  professional  expenses of $122,993,
office expense of $220,248,  marketing expense of $120,266,  product development
of $26,569 and rent of $12,710. Research and development expense of $74,978 for
the year ended  April 30,  1997 was  $283,866 less than the  $358,844 expended
during the year ended April 30, 1996.  This decrease in research and development
is the result of gradual  completion of development of the drug testing delivery
system.

     Resolution of Friedenberg Litigation and Trial Date in Morris Litigation

     In  February,  1994,  Robert  Friedenberg,  as  owner  of the  two  medical
technology  companies,  MDI and Gendex,  acquired by the Company, in the name of
these corporations, filed suit to have the Share Exchange Agreement rescinded on
the grounds of breach of contract.  In order to avoid the  imposition of damages
against  it,  the  Company  filed a cross  claim,  in July,  1994,  against  Dr.
Friedenberg,  seeking enforcement of the Share Exchange Agreement.  In November,
1995, after a trial, the court dismissed Dr.  Friedenberg's  lawsuit and allowed
the  Company's  cross-claim  to  proceed  to  trial.  In  September,  1996,  Dr.
Friedenberg  died.  A pretrial  hearing was held in  December,  1996 which set a
trial date of April 28, 1997.

     That trial was  decided by a jury on May 5, 1997.  The  verdict  determined
that Dr.  Friedenberg  breached  various  contracts  when he failed  to  deliver
technology to the Company. The jury also found in favor of the Company on two of
the three fraud  claims  against  Dr.  Friedenberg  and  awarded the  Registrant
approximately  $350,000 in damages.  The trial  judge,  who is bound by the jury
verdict  against  Friedenberg,  will  decide  Dr.  Friedenberg's  claim  to  the
Company's  Common  Shares  which the  Company  refused  to  issued  to him.  Dr.
Friedenberg's  previous claims for equitable relief against the Company had been
denied.

                                       19
<PAGE>

     In June,  1995,  the  Company  filed a  lawsuit  against  Mr.  Morris,  Dr.
Friedenberg's  counsel,  for the breach of attorney-client  relationship and his
fiduciary duty and negligence in representing the Company in matters relating to
Dr.  Friedenberg  and in the  preparation of the Share Exchange  Agreement.  The
Company's  lawsuit demands  damages in the amount of $1,000,000.  Mr. Morris has
counterclaimed  for Common  Shares.  The court has set a trial date of September
14, 1998.

     Since legal counsel had advised  Management that the claims against it were
without  merit,  the  Company  did  not  recognize  the  claims  against  it  as
liabilities.  Thus, no  adjustment  has been made to the Balance Sheet or to the
Statement  of  Operations.  The  Company  intends to  recognize  income when the
judgment against the estate of Robert Friedenberg is collected.

     Results of Operations  for the year ended April 30, 1996 as compared to the
year ended April 30, 1995.
--------------------------------------------------------------------------------
     The only  revenues  for fiscal  1996 were  revenues  from the  audio-visual
segment of the Company's operations. The Company had no revenues as of April 30,
1996 from the Company's drug testing  products.  Revenues from the  audio-visual
segment of the  business  were  $137,891  for the year ended  April 30,  1995 as
compared to $158,105 for the year ended April 30, 1996  representing an increase
of $20,214 or 14.7%.  This  increase is directly  attributable  to the increased
effectiveness  of the  Company's  use of  telemarketing  to reach the  Company's
defined  market of schools and  libraries  as  substantially  all  marketing  is
audio-visual materials is through telemarketing. Costs of good sold for the year
ended  April 30,  1995 were  $45,204 as  compared  to $96,444 for the year ended
April 30, 1996, representing  a cost of goods sold  percentage of 32.8 % for the
year ended April 30, 1995 as compared to 61% for the year ended April 30,  1996.
The  increase  in costs is  attributable  to the  product  mix of the items sold
having a higher  wholesale  cost.  Increases in the wholesale  price of products
caused a  reduction in gross  profits of $31,026 from $92,687 for the year ended
April 30, 1995, as compared to $61,661 for the year ended April 30, 1996.

     General  and  administrative  costs for the year ended  April 30, 1996 were
$518,826, an increase of 300% over expenses of $129,719 for the year ended April
30, 1995.  These  increased  costs are the result of  increased  labor costs for
office personnel and consulting  expenses of $427,225.  Research and development
expenses of $358,844 for the year ended April 30, 1996  increased by $223,432 or
165% over the amount  expended  of $135,412  for the year ended April 30,  1995.
This  increase in  expenses is the result of  increasing  amounts  expended  for
development,  experimentation  and  improvement of test chemicals and laboratory
and field  trial  testing of the  workplace  drug  testing  delivery  system and
research and development relating to the Company's other biomedical products. 15
<PAGE>
     Liquidity  And Capital  Resources As Of The End of Fiscal  Year,  April 30,
1996
----------------------------------------------------------------------------

     The Company  increased its cash balance to $437,532 and working  capital to
$329,085 as of the end of fiscal 1996 as the result of the sale in the aggregate
of $1,407,000  convertible  debentures over a three year period. The Company has
expended  $565,186 to date for the research and  development  of its  biomedical
products.

                                       20
<PAGE>

     Management believes that the present cash balance will pay the initial cost
of entering  the  biomedical  business.  This  includes  completing  the design,
creating  initial  inventories  and  obtaining  initial  orders and sales of the
Company's  biomedical  products.   Management  believes  that  until  profitable
operations  are  achieved,  the Company  must expend  resources  on research and
development,  design and marketing,  and, as a result,  additional  funds may be
required.

     Other  income  consists of the write off of $126,500 in secured  debt which
counsel has advised Management is time barred as to collectibility.

     Income tax: As of April 30, 1997, the Company has a tax loss  carry-forward
of $2,906,992. The Company's ability to utilize its tax credit carry-forwards in
future years will be subject to an annual limitation  pursuant to the "Change in
Ownership  Rules"  under  Section 382 of the Internal  Revenue Code of 1986,  as
amended.  However,  any annual  limitation  is not  expected  to have a material
adverse   effect  on  the   Company's   ability  to   utilize   its  tax  credit
carry-forwards.

     Liquidity  And Capital  Resources  As Of The End Of Fiscal Year Ended April
30, 1997.
--------------------------------------------------------------------------------

     The Company's cash balance was $1,762,506 with $1,053,000 in treasury bills
and  certificates  of deposit  invested for nine months and working  capital was
$3,548,508 as at April 30, 1997.  These  balances are the result of the sale and
conversion of  convertible  debentures  in the  principal  amount of $18,500 and
$175,000 through the exercise of 143,000 "A" Warrants and 32,000 "B" Warrants at
$1.00 per share.  The  Company  also sold 150  convertible  preferred  shares at
$10,000 per share for an aggregate  consideration of $1,500,000.  Finally, as of
April 30,  1997,  the  Company  sold  697,445  Common  Shares  for an  aggregate
consideration of $2,092,186  through the exercise of nonstatutory stock options.
Cash generated  from  financing  activities was utilized for investment in short
term marketable securities of $1,053,000,  for additional patent applications of
$7,783 and for the purchase of machinery  and  equipment for $114,793 and a loan
of $100,000 to an unrelated party. 

     The Company's  primary  short-term needs for capital,  which are subject to
change,  are for  expansion  of its  manufacturing  to  adequately  deliver  new
products, increase in inventory levels to fill larger anticipated orders and the
continued  advancement of research and development efforts.

     Management believes that the present cash balance will pay the ongoing cost
of the biomedical business. The Company has established commercial production of
its drug testing kits and no longer considers  itself to be a development  stage
company.

     The Company  currently plans to expend  approximately  $2.0 million for the
expansion  and   development  of  its   manufacturing,   marketing  and  general
administrative  capabilities in connection with the fulfillment of the Company's
marketing program and the anticipated launch of the Company's products currently
under  development.  Additionally,  the Company  utilizes  cash  generated  from
operating activities to meet its capital requirements.

     The  Company  expects its capital  requirements  to increase  over the next
several years as it expands its research and  development  efforts,  new product
development, sales and administration infrastructure, manufacturing capabilities
and facilities.  The Company's future liquidity and capital funding requirements
will depend on numerous  factors,  including  the extent to which the  Company's
products  under   development  are   successfully   developed  and  gain  market
acceptance,  the timing of regulatory actions regarding the Company's  potential
products,   the  costs  and  timing  of  expansion  of  sales,   marketing   and
manufacturing   activities,   facilities   expansion   needs,   procurement  and
enforcement of patents important to the Company's business,  results of clinical
investigations and competition.

                                       21
<PAGE>

     The Company  believes that its available cash and cash from operations will
be  sufficient  to satisfy  its  funding  needs for at least the next 36 months.
Thereafter,  if cash generated from  operations is  insufficient  to satisfy the
Company's working capital and capital expenditure requirements,  the Company may
be required to sell additional  equity or debt  securities or obtain  additional
credit facilities.  There can be no assurance that such financing,  if required,
will be available on satisfactory terms, if at all.

     Item 7. Financial Statements

     a. Balance Sheet as of April 30, 1997

     b. Statement of Operations for the two years ended April 30, 1996 and 1997

     c. Statement of Cash Flows for the two years ended April 30, 1996 and 1997

     d. Statement of Stockholders' Equity for the two years ended April 30, 1996
        and 1997

     e. Notes to Financial Statements

     Item 8. Changes in and Disagreement With Accountants

     Not applicable.

                                        4
<PAGE>

                              PART III

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

Directors and Officers
----------------------

     The following sets forth the names of the Company's directors and officers.
Directors  of the  Company  are elected  annually  by the  shareholders  and the
oficers are appointed  annually by the Board of Directors.  Jasper R. Clay,  Jr.
and John F. Murray were appointed by the Board of Directors to fill vacancies.

Name                        Age            Position                     Since
----                        ---            --------                     -----
Stan Cipkowski       49     President and a Director                     1986
Edmund Jaskiewicz    74     Chairman of the Board of Directors, 
                             Executive Vice-President and Secretary      1992
Jay Bendis           50     Vice-President-Marketing and a Director      1995
Henry J. Wells       65     Vice-President-Product Development           1995
Jasper R. Clay, Jr.  64     A Director                                   1997
John F.  Murray      52     A Director                                   1997
Douglas Casterlin    50     Vice-President and General Manager           1997

     Stan Cipkowski  founded the predecessor of the Company in 1982 and has been
an officer and director of the Company  since its  incorporation  in April 1986.
From  1982 to  1986,  he was  sole  proprietor  of  American  Micro  Media,  the
predecessor,  which was acquired by the Company. In addition, from 1983 to 1987,
Mr.   Cipkowski  was  a  general   partner  of  Florida  Micro  Media,   a  Fort
Lauderdale-based   marketer  of   educational   software  and  was  a  principal
shareholder and Chief Financial Officer of Southeast Communications Group, Inc.,
a  publisher  of direct  response  media.  In 1982,  he became a  consultant  to
Dialogue   Systems,   Inc.,   a  New   York-based   developer  of  training  and
communications  materials,  where he  served  as  Vice-President  of  Sales  and
Marketing.  From  1977 to 1982,  he was  employed  by  Prentice-Hall  Publishing
Company,  reaching the position of National Sales Manager.  Prior to 1977 he was
employed as an accountant for the New Seabury  Corporation  and as Mid-West Area
Manager for the Howard Johnson Company.

                                       22
<PAGE>

     Edmund  Jaskiewicz is a  lawyer-engineer.  He has  practiced  international
patent and  corporate  law as a sole  practitioner  since 1963 and has served as
Chairman of the Board of Directors since 1992. From 1953 to 1963 Mr.  Jaskiewicz
was associated with Toulmin and Toulmin,  Esqs.,  Washington,  D.C. From 1960 to
1962, he resided in Frankfurt,  Germany managing that firm's local office.  From
1952 to 1953 he was with the Patent  Section of the Bureau of  Ordinance  of the
Department of the Navy working on patent  infringement and licensing matters. He
received his J. D. in 1952 from George Washington  University Law School and his
B. S. in Engineering from the University of Connecticut in 1947.

     Jay Bendis has been an independent consultant to biomedical companies since
1990,  specializing in commercializing new concept products in both domestic and
international  markets.  From 1990 to 1992, he served as Vice-President of Sales
and Marketing for Scientific  Imaging  Instruments  where he was a principal and
Vice-President  of Sales and Marketing.  From 1985 to 1990, Mr. Bendis served as
National  Sales  Manager  of the XANAR  Laser  Corp.,  a  division  of Johnson &
Johnson,  where he directed its national sales force and developed its marketing
strategy for integrating high power lasers into the hospital  market.  From 1979
to 1984, he was the Eastern Area Sales and Marketing Manager for the IVAC Corp.,
a division  of Eli  Lilly.  Prior to 1979,  Mr.  Bendis  held  sales  Management
positions with Xerox Corporation and A.M.  International.  Mr. Bendis earned his
B. A. in  Marketing/Management  from Kent State  University  and is  currently a
member of the Edison  BioTechnology  Center  Advisory  Council  for the State of
Ohio.

     Henry Wells,  Ph.D.  has served  since 1990 as a contract  chemist with the
title of  Vice-President-Science  and Technology  for New Horizons  Diagnostics,
Inc. where he adapts  immuno-chemical  technologies  for detection of infectious
diseases.  From 1989 to 1990, he was director of production  for Espro,  Inc., a
producer   of   in-vivo   pesticides.   From  1985  to  1989,   Dr.   Wells  was
Vice-President-Science  and Technology for Keystone Diagnostics,  Inc. From 1984
to 1985, he was Director of Research and  Development  for  Hill-Wells  Research
Corporation,  a developer of  diagnostics  products.  From 1981 to 1984,  he was
Vice-President-Research  and  Development of Hematec  Corporation.  From 1979 to
1981, Dr. Wells was Director of Biochemistry for Helena Laboratories.  From 1973
to 1979, he was Manager of Chemical  Chemistry at Smith Kline  Diagnostics.  Dr.
Wells earned his Ph.D. in Biochemistry from the University of Pittsburgh, his M.
A.  from  University  of  Pennsylvania  and  his B.  S. in  Chemistry  from  the
University of Pittsburgh.

     John F.  Murray has served as Chief  Financial  Officer of Federal  Supply,
Inc.,  Pompano Beach,  Florida since April,  1994. From 1988 to 1994, Mr. Murray
served as Controller for Bio Therapeutics, Inc., Woodbridge, New Jersey. He also
was Controller of Shortline, a group of transportation  companies,  from 1982 to
1988 and,  from 1974 to 1982,  of Kleber  Tire & Rubber  Corp.  Mr.  Murray  was
Director of Accounting for Western Union Telegraph Company from 1972 to 1974 and
Senior  Accountant  for S.D.  Leidesdorf  & Co (now Ernst & Young)  from 1969 to
1972.  Mr. Murray  received his BBA in Accounting  from the Baruch School of the
City University of New York in 1968 and became a Certified Public  Accountant in
the State of New York in 1974.

     Jasper R. Clay, Jr. served as a United States Parole Commissioner from 1984
to 1996 and from 1991 to 1996,  as  Vice-Chairman  of the United  States  Parole
Commission  and  Chairman  of the  National  Appeals  Board.  He served as final
authority  for all  decisions  relating  to parole,  revocation,  imposition  or
modification of parole conditions, or denial of discharge from supervision. From
1976 to 1984, Mr. Clay was State of Maryland Parole  Commissioner  and from 1969
to 1976,  he was an Associate  Member of the State of Maryland  Board of Parole.
Mr. Clay served as an Associate  Member of the State of Maryland Board of Parole
from 1969 to 1976,  District Supervisor of the Baltimore City District Office in
1968,  Staff  Specialist-Training  and Development for the Maryland  Division of
Parole and Probation  from 1966 to 1968,  Parole and  Probation  Agent I and II,
Baltimore District, Office of the Maryland Division of Parole and Probation from
1958 to 1966 and as a Psychiatric  Aide at the Spring Grove State  Hospital from
1957 to 1958. 

                                       23
<PAGE>

     Mr.  Clay  received  an  Honorable  Discharge  from the United  States Army
Infrantry  as  a  First  Lieutenant  in  1956.  He  is  active  in a  number  of
professional  organizations  including  the  American  Correctional  Association
(where he is presently a member of the Awards  Committee),  the  Association  of
Paroling  Authorities  International  (where he serves  as an  officer)  and the
National Council of Crime and Delinquency.

     He is a member  of the  American  Correctional  Association,  the  National
Council of Crime and  Delinquency  and the  Association of Paroling  Authorities
International.  Mr.  Clay  earned  his B. A. in  Psychology  from  Morgan  State
University in 1954 and attended the graduate  school at Loyola  College in areas
such as Guidance, Counseling and Psychology.

     Douglas Casterlin was General Manager of Coarc, Inc., the Company's product
assembling,  packaging  and  shipping  contractor,  from  1979 to 1997.  In that
capacity,  he  developed a contract  manufacturing  business  involving  plastic
injection  molding  and clean room  assembly  and  packaging  of FDA - regulated
medical  products.  He also  negotiated  a  joint  venture  with a major  German
healthcare  product  manufacture  to establish its United States  operations and
established a professional-format videocassette remanufacturing business serving
the television broadcase industry.  Mr. Casterlin was Workshop Director,  Putnam
Industries,  Inc., from 1976 to 1979 and Production Manager,  from 1973 to 1976,
of  Occupatics,  Inc. From 1966 to 1970,  Mr.  Casterlin  served as an Air Force
Intelligence  Officer  and was  honorably  discharged  as  Sergeant.  He studied
Engineering at Lehigh  Universith from 1965 to 1966 and received his B.A. degree
in Psychology in 1973 from the State University of New York at New Paltz.

     Scientific Advisory Board
     --------------------------
     The Company has  established  a scientif  advisory  board of which Henry J.
Wells,  Ph.D.,  Vice-President,  is chairperson.  The members of the board as as
follows:

     Anthony  G.  Costantino,  Ph.D.,  has a  degree  in  Pharmacy  from  Dukane
University and a Ph.D. in Toxicology  from the  University of Maryland.  He is a
Board  Certified  Forensic  Toxicologist  and  currenty  serves as  Director  of
Clinical Toxicology at American Medical Laboratories in Chantilly, Virginia.

     Delmiro A.  Vazquez,  B.S.,  M.T.,(ASCP),  earned his  Bachelor  of Science
degree  from the  University  of Miami and a completed  his  Medical  Technology
Rotation  in  the  American  Society  of  Pathologists  Approved  Progam  at the
University of Miami/Jackson  Memorial  Hospital.  Mr. Vazquez holds postgraduate
certificates  in Nuclear  Medicine  (Broward  General  Hospital) and  Biomedical
Engineering  (University  of  Miami).  He is  currently  Co-RP  of the  Forensic
Toxicology Department at Columbia Cedars Medical Center.

     Kenneth Steiner, M.D.received his M.D. from the University of Tennessee and
is Board  Certified  by the  National  Board of Medical  Examiners.  He is Board
Certified  by the  American  Board of  Emergency  Medicine  and by the  American
Association  of Medical  Review  Officers.  Additionally,  Dr.  Steiner has been
designated as an FAA Medical Examiner.

     The board will meet from time to time to  consider  the  Company's  present
technology and proposed technology development.
   
     Item 10. Executive Compensation

     See Proxy  Statement for the Annual  Meeting of  Shareholders  for the 1998
Fiscal Year.
 
                                       24
<PAGE>
                     
     Item 11. Security Ownership of Certain Beneficial Owners and Management

     The  following  table  sets  forth  as of  July 2,  1997,  the  number  and
percentage  of shares of the common  stock of the  Company,  owned of record and
beneficially,  by each  officer  and  directors  of the Company and by any other
person owning more than 5% of the Company's  outstanding common stock and by all
officers and directors as a group.

                                   Shares of
Name and Address                  Common Stock                Percentage(1)
----------------                  ------------                ------------
Edmund Jaskiewicz                  3,047,955                     22.3%
1730 M Street, NW
Washington, DC 20036

Stan Cipkowski                     2,742,748                     20.0%
102 Simons Road
Ancramdale, NY 12503

Jay Bendis                           645,999                      4.7%
71 Springcrest Drive
Akron, Ohio 44333

Henry J. Wells, Ph.D.                  -0-                        -0-%
9421 Book Row
Columbia, Maryland 21046

Jasper R. Clay, Jr.                    -0-                        -0-%     
4964 Moonfall Way
Columbia, Maryland 21044

John F. Murray                         -0-                        -0-%
1821 Lyons Road
Pompano Beach, Florida 33063

Douglas Casterlin
65 Malloy Road                         -0-                        -0-%
Ghent, New York 12065    
                                     ------                      -----

All Officers and
Officers and Directors 
as a Group (7 persons)             6,436,702                     47.1%
--------------------



Item. 11 Certain Relationships and Related Transactions
         ----------------------------------------------
  
  The Company, a New York corporation, was formed in April 1986 to purchase a
sole  proprietorship,  American  Micro  Media,  owned  by  Stan  Cipkowski,  its
President.  It  successfully  completed  a public  offering in  February,  1987.
Originally involved in the sale of educational  software to schools, it expanded
to the sale of corporate training materials and library books. In 1991 and 1992,
the Company closed most of its existing  business lines because of  competition,
low margins and slow collections,  but retained one book/audio  cassette product
line.

                                       25
<PAGE>

     In September  1992,  the Company  acquired  all the issued and  outstanding
common stock of three companies ("Target  Companies") two of which were owned by
Robert M. Friedenberg and the third by Edmund Jaskiewicz, Chairman of the Board,
in exchange for an aggregate of  15,099,700  Common  Shares  pursuant to a share
exchange  agreement  (the  "Share  Exchange  Agreement").  Dr.  Friedenberg  had
requested  that  some  shares be  issued  to two  individuals,  one of which was
Jackson  L.  Morris,  former  counsel to the  Company.  The assets of the Target
Companies  were various  purported  biomedical  technologies.  Dr.  Friedenberg,
former major stockholder of two of the Target  Companies,  failed to deliver the
claimed  technologies to the Company and/or  misrepresented them and resigned as
an officer and director of the Company.  The Common Shares which Dr. Friedenberg
and the two  nonaffiliated  parties would have received  (aggregating  9,069,828
shares) were never issued. In February, 1994, Robert Friedenberg, as an owner of
the two Target  Companies,  through these  corporations,  filed suit to have the
Share  Exchange  Agreement  rescinded on the grounds of breach of  contract.  In
order to avoid the  imposition  of  damages  against  it,  the  Company  filed a
counterclaim in July, 1994, seeking enforcement of that agreement.  In November,
1995,  after a trial, the court dismissed Dr.  Friedenberg's  claims for damages
and allowed the Company's  counterclaim  to proceed.  

     That trial was  decided by a jury on May 5, 1997.  The  verdict  determined
that Dr.  Friedenberg  breached  various  contracts  when he failed  to  deliver
technology to the Company. The jury also found in favor of the Company on two of
the  three  fraud  claims  against  Dr.  Friedenberg  and  awarded  the  Company
approximately  $350,000 in damages.  The trial  judge,  who is bound by the jury
verdict  against  Friedenberg,  will  decide  Dr.  Friedenberg's  claim  to  the
Company's  Common  Shares  which the  Company  refused  to  issued  to him.  Dr.
Friedenberg's  previous claims for equitable relief against the Company had been
denied.

     The  assets  of the  third  company,  previously  owned by Mr.  Jaskiewicz,
included  the KDMP  technology  which  had been  assigned  to the  Company.  Mr.
Jaskiewicz  agreed,  in February,  1996, to the cancellation of 3,000,000 of his
Common Shares because the major  business of the Company became the  development
and marketing of its drug test kit which was developed in-house, rather than the
KDMP for the  assignment  of which Mr.  Jaskiewicz  received  much of his equity
interest in the Company.  In addition,  the Company has a claim pending  against
its former  counsel,  Jackson L.  Morris,  Esq. on the grounds  that Mr.  Morris
breached his duty to the Company and its interests by providing  legal advice to
Dr.  Friedenberg.  Mr. Morris has brought a counterclaim for Common Shares.  The
court has set a trial date of September 14, 1998.

     On  November  3,  1995,  Stan  Cipkowski,   President,  Edmund  Jaskiewicz,
Executive Vice-President and Jay Bendis,  Vice-President entered into three-year
employment  contracts  with the  Company.  Mr.  Cipkowski  received  a salary of
$36,000 per annum until April 30, 1996; and $60,000 per annum  thereafter  until
such time as the  Company's  gross  revenues  reach  $500,000 at which point the
annual base salary will  increase  to  $72,000.  Messrs.  Jaskiewicz  and Bendis
received a salary of $24,000  per annum until  April 30,  1996;  and $48,000 per
annum  thereafter until such time as the Company's gross revenues reach $500,000
at which point the annual base salary  will  increase to $60,000.  In  addition,
Messrs.  Cipkowski,  Jaskiewicz and Bendis will each receive a bonus equal to 2%
of the gross  revenues of the Company after the  attainment of gross revenues of
$1,000,000 per fiscal year until such annual revenues reach $3,000,000;  1.5% of
gross revenues between $3,000,000 and $5,000,000; and 1% on additional revenues.
Mr. Bendis was issued 500,000 Common Shares in consideration of past services of
which  100,000  shares  vested  immediately,  100,000  shares  after the Company
achieves  aggregate  revenues of $1,000,000;  100,000 after the Company achieves
aggregate  revenues of  $2,000,000;  100,000  shares after the Company  achieves
aggregate revenues of $3,000,000;  and 100,000 shares after the Company achieves
aggregate revenues of $4,000,000.  Any shares which have not vested by April 30,
1998, will be cancelled.

                                       26
<PAGE>

     In June, 1996, the Company adopted its 1996 Nonstatutory  Stock Option Plan
(the "1996 Plan"). Options to purchase 2,000,000 Shares are included in the 1996
Plan of which  1,500,000  were issued  prior to April 30, 1997 as follows:  Stan
Cipkowski,  550,000 options;  Edmund  Jaskiewicz,  250,000 options;  Jay Bendis,
320,000  options;  Henry Wells,  150,000  options;  Joel Pensley,  Esq.  180,000
options,  and  non-management  employees,  an aggregate of 282,000  options.  An
agregate of 697,445 options have been exercised.

     In  September,  1996,  the  Company  sold  150  8%  Cumulative  Convertible
Preferred  Shares,  Series  A  (the  "Preferred  Shares")  for an  aggregate  of
$1,500,000.  The  Preferred  Shares are  convertible  into Common  Shares at the
lesser of $6.07 or 75% of the "Market  Price" on the date(s) on which  Preferred
Shares are converted to Common Shares, all accrued but unpaid dividends, payable
in cash. The holder of the Preferred Shares may convert a maximum of one-half of
the Preferred Shares on or after 60 days of the purchase of the Preferred Shares
and all the Preferred Shares on or after 90 days from the date of purchase.  The
Company  registered with the Commission the Common Shares underlying  Conversion
of the Preferred  Shares.  130 Preferred  Shares have been converted into Common
Shares.

     The  Company  does not now nor does it intend to enter into any  agreements
with affiliated parties for the purchase of technologies, the sale of product or
the purchase of inventory. (See "Business.")


                                       27
<PAGE>



                                THOMAS P. MONAHAN

                           CERTIFIED PUBLIC ACCOUNTANT
                              208 LEXINGTON AVENUE
                           PATERSON, NEW JERSEY 07502

                                                  (201) 790-8775



To The Board of Directors and Shareholders
of American Bio Medica Corporation

       I have  audited the  accompanying  balance  sheet of American  Bio Medica
Corporation as of April 30, 1997 and the related statements of operations,  cash
flows and  shareholders'  equity for the years  ended  April 30,  1996 and 1997.
These financial  statements are the responsibility of the Company's  Management.
My responsibility  is to express an opinion on these financial  statements based
on my audit.

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

       In my opinion, the financial statements referred to above present fairly,
in all  material  respects,  the  financial  position  of  American  Bio  Medica
Corporation as of April 30, 1997 and the results of its operations, shareholders
equity and cash flows for the years ended April 30, 1996 and 1997 in  conformity
with generally accepted accounting principles.




                                                     Thomas P. Monahan, CPA

       May 28, 1997

       Paterson, New Jersey
                                  
                                       F-1

<PAGE>

                             AMERICAN BIO MEDICA CORPORATION
                                      BALANCE SHEET
                                                 April 30,          April 30,
                                                   1996                1997
                                                   ----                ----
                                         Assets
 Current assets
   Cash                                           $437,532         $1,762,506
   Marketable securities,
        available for sale                                          1,053,000
   Accounts receivable                              34,500            337,759
   Loan receivable                                                    102,250
   Inventory                                        22,301            668,723
   Prepaid expenses                                                     4,425
                                                 ---------           --------
   Current assets                                  494,333          3,928,663

 Capital assets-net                                 20,575            110,834

 Other assets
   License rights                                  110,070             38,470
   Patent-costs                                     21,000             28,783
                                                   -------             ------
   Total other assets                              131,070             67,253
                                                   -------             ------
 Total assets                                     $645,978         $4,106,750
                                                 =========         ==========

                          Liabilities and Stockholders' Equity
 Current liabilities
   Accounts payable and accrued expenses           $33,248           $380,155
   Notes payable
   Convertible debenture payable                   132,000
                                                   -------            -------
 Total current liabilities                         165,248            380,155

 Long term liabilities
   Convertible debenture payable
   Note payable                                    126,500
   Total long term liabilities                     126,500

 Capital stock
   Capital  stock-authorized 
30,000,000 common shares, 
par value $.01 each, at
 April 30, 1996 and January 31, 1997,
the shares outstanding  were 12,089,561
 and 13,379,507 respectively.                      120,895            133,795
 Preferred stock-authorized 5,000,000
 preferred shares, par value $.01 each,
 at April  30, 1997, the number of shares 
 outstanding was 90                                                         1
 
   Additional paid in capital                    2,635,006          6,499,791
   Deficit accumulated during
development stage                               (2,401,671)        (2,906,992)
                                                -----------        -----------
 Total stockholders' equity                        354,230          3,726,595
                                                   -------          ---------
 Total liabilities and stockholders' equity       $645,978         $4,106,750
                                                  ========         ==========

                     See accompanying notes to financial statements.


                                      F-2
<PAGE>

                       AMERICAN BIO MEDICA CORPORATION
                           STATEMENT OF OPERATIONS
                                               For the year   For the year
                                                  ended           ended
                                                April 30,       April 30,
                                                   1996            1997
                                                  ------         --------
 Income                                          158,105         $610,876
 
 Less cost of goods sold                          96,444          259,862
                                                 -------          -------
 Gross profit                                     61,661          351,014

 Operations:
   General and administrative                    518,826          867,903
   Depreciation and amortization                  77,600           96,134
   Research and development                      358,844           74,978
                                                 --------          ------
   Total expense                                 955,270        1,039,015

 Income before other income and expenses        (893,609)        (688,001)

 Other income and expenses
   Retirement of  debt (Note 9)                                   126,500
   Interest income                                   356           56,180
   Interest expense                             (103,205)
                                                ---------
   Total other income and  expenses             (102,849)         182,680
                                                ---------         -------

 Net Profit (Loss) from operations             $(996,458)       $(505,321)
                                               ==========       ========== 

 Net income (loss)  per share                     $(.08)           $(.04)
                                                  =====            =====
 Number of shares outstanding                  12,528,266      12,728,180
                                               ==========      ==========







               See accompanying notes to financial statements.

                                      F-3

<PAGE>

                        AMERICAN BIO MEDICA CORPORATION
                             STATEMENT OF CASH FLOWS

                                                   For the year   For the year
                                                       ended          ended
                                                      April 30,      April 30,
                                                        1996           1997
                                                     --------        --------
 CASH FLOWS FROM OPERATING ACTIVITIES               
 
   Net profit (loss)                                $(996,458)        $1,996
   Amortization and depreciation                       77,600         96,134
   Consulting fees                                    306,250
   Compensation agreement                             125,000
   Retirement of debt (Note 9)                                      (126,500)
                                                     ----------     ---------
                                                     (487,608)      (535,687)

 Adjustments to reconcile net income to net cash
   Loan receivable                                                  (102,250)
   Accounts receivable                                 38,079       (303,259)
   Inventory                                            5,250       (646,422)
   Prepaid expenses                                    15,089         (4,425)
  Accounts payable                                    (30,828)       346,907
                                                      --------        -------
 TOTAL CASH FLOWS FROM OPERATIONS                    (460,018)    (1,245,136)
 CASH FLOWS FROM FINANCING ACTIVITIES
   Convertible debenture                              693,000       (132,000)
   Notes payable                                      (89,258)
   Sale of  stock                                     150,000      3,877,686
   Issuance of stock for services                      61,006
                                                       ------      ---------
 TOTAL CASH FLOWS FROM FINANCING ACTIVITIES           814,717      3,745,686
 CASH FLOWS FROM INVESTING ACTIVITIES
  Investment short term                                           (1,053,000)
   Patent costs                                                       (7,783)
   Capital assets                                                   (114,793)
                                                                   ---------
 TOTAL CASH FLOWS FROM INVESTING ACTIVITIES                       (1,175,576)

 NET INCREASE (DECREASE) IN CASH                      354,699      1,324,974
 CASH BALANCE BEGINNING OF PERIOD                      82,833        437,532
                                                       ------        -------
 CASH BALANCE END OF PERIOD                          $437,532     $1,762,506
                                                     ========     ==========

                 See accompanying notes to financial statements.

                                      F-4
<PAGE>
                        AMERICAN BIO MEDICA CORPORATION
                       STATEMENT OF SHAREHOLDERS' EQUITY

              Common        Common   Additional paid  Retained
   Date        Stock         Stock      in capital    Earnings         Total

04-30-1994    11,238,174     112,382     726,294     (1,099,885)      (261,209)
10-18-1995(1) (3,000,000)    (30,000)     30,000
04-30-1995                                             (305,328)      (305,328)
                                                      ---------      ---------
04-30-1995     8,238,174      82,382      756,294    (1,405,213)      (566,537)

11-03-1995       500,000       5,000      120,000                      125,000
04-30-1996(2)  1,700,002      17,000    1,258,000                    1,275,000
04-30-1996(3)     25,000         250       24,750                       25,000
04-30-1996(4)    250,000       2,500      122,500                      125,000
04-30-1996(5)    489,181       4,892       56,083                       60,975
04-30-1996(6)    125,000       1,250       61,250                       62,500
04-30-1996(7)    100,000       1,000       64,000                       65,000
04-30-1996(8)    550,000       5,500      173,250                      178,750
04-30-1996      Net loss                 (996,458)     (996,458)
                --------                ---------     ---------       --------
04-30-1996    11,977,357    $119,774   $2,636,127   $(2,401,671)      $354,230

96-04-1996        11,333         113        8,387                        8,500
06-04-1996        25,000         250       24,750                       25,000
07-31-1996(2)    176,000       1,760      130,240                      132,000
07-31-1996(2)     13,333         133        9,867                       10,000
07-31-1996(6)    100,000       1,000       49,000                       50,000
07-31-1996(9)     32,000         320       31,680                       32,000
07-31-1996(10)   100,000       1,000       99,000                      100,000
09-09-1996(9)     18,000         180       17,820                       18,000
09-23-1996(11)                $1        1,409,999                    1,410,000
01-31-1996(12)   697,445       6,975    2,085,211                    2,092,186
04-30-1997(13)   229,039       2,290       (2,290)                       -0-
04-30-1997      Net loss                               (578,673)      (578,673)
                 --------  ---------    ---------      ---------     ---------
04-30-1997    13,379,507    $133,795   $6,499,791    $(2,980,344)   $3,653,243
              ==========    ========   ==========    ============   ==========

(1) Return of common shares by Edmund Jaskiewicz
(2) Common shares issued for conversion of debt
(3) Common shares issued pursuant to sale of 25,000 Units
(4) Common shares issued for Warrant conversion at $.50
(5) Common  shares  issued in  consideration  for services under Regulation D at
       $.125 per share 
(6) Common shares issued pursuant to Rule 504 at $.50 per share
(7) Common shares issued under Rule 504 at $.65 per share
(8) Common shares issued pursuant Regulation D at $.325 per share
(9) Common shares issued upon exercise of "B" Warrants
(10) Common shares issued upon exercise of "A" Warrants
(11) Shares of  preferred  stock for $1,500,000 less $90,000 in offering
       expense
(12) Common shares issued upon exercise of warrants
(13) Coversion of convertible preferred shares into common

              See accompanying notes to financial statements.

                                      F-5
<PAGE>
                         AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997
     
     Note 1 - Organization of the Company and Issuance of Common Shares

     a. Creation of the Company

     American Bio Medica  Corporation  (the "Company") was formed under the laws
of the State of New York on April 10, 1986 under the name, American Micro Media,
Inc. The authorized  capital was 200 common shares without par value. On May 20,
1986,  the Company  amended its  certificate  of  incorporation  to increase the
number of authorized  common  shares to 20,000,000  shares of $.01 par value per
share.   On  September  12,  1986,  the  Company   amended  its  certificate  of
incorporation to remove  preemptive  rights.  On September 28, 1992, the Company
amended its  certificate of  incorporation  to increase the aggregate  number of
authorized  common  shares  to  30,000,000  shares  of $.01 par  value per share
("Common Shares") and to change its name to American Bio Medica Corporation.  In
October, 1996, the Company amended its certificate of incorporation  authorizing
the issuance of 5,000,000 Preferred Shares, ("Preferred Shares"), $.01 par value
each.

     b. Description of the Company

     From   inception   until  1991,  the  Company  was  involved  in  marketing
educational   books  and  software  to  schools  and  municipal   libraries  and
audio-visual  educational packages to corporations throughout the United States.
In 1991,  the  Company  reduced  its  concentration  on this  market  because of
competition,  increasing  costs of doing  business  and  slow  collections  from
municipalities  and sought new  technologies in emerging  medical  markets.  The
Company has, however, continued to sell audiovisual packages to libraries.

     The Company is  currently  in the  business of  acquiring,  developing  and
marketing biomedical  technologies and products.  The Company currently owns two
technologies  for screening  drugs of abuse,  a workplace  screening  test and a
preliminary test for use by laboratories.

     The Company was  considered to be a  development  stage company with little
operating  history  subsequent to its  reorganization  and the  commencement  of
development  of its  newly  acquired  bio-medical  technologies  which  are,  at
present,  its core business.  These activities have been funded through the sale
of  convertible   debentures  aggregating  $1,425,500  which  were  subsequently
converted  to Common  Shares at $.75 per  share,  and the  receipt  of  $175,000
through the exercise of 143,000 "A" warrants at $1.00 and 32,000 "B" warrants at
$1.00 per share.  The  Company  also sold 150  convertible  Preferred  Shares at
$10,000 per share for aggregate  consideration of $1,500,000 and net proceeds of
$1,405,000.  As of April 31, 1997, the Company sold 697,445 Common Shares for an
aggregate consideration of $2,092,186 through the exercise of nonstatutory stock
options. The Company has started commercial  production of its drug testing kits
and has what managment  maintains are adequate  resources to adequately fund its
operations.

     c. Issuance of Common Shares

     On  November  3, 1995,  the Company  entered  into a three year  employment
agreement with Jay Bendis, Vice-President-Marketing. Pursuant to this agreement,
the Company is obligated to issue 500,000 Common Shares.  400,000 of such shares
are subject to vesting provisions.

     As of April 30,1996, the Company had borrowed an aggregate of $2,121,000 on
a  convertible   debenture  basis,  the  principal  amount  of  each  debentures
convertible at the option of the holder into Common Shares at $.75 per share. As
of April 30, 1996, the principal  amount of all the  convertible  debentures had
been converted into an aggregate of 1,700,002 Common Shares.

     As of April 30, 1996, the Company sold, through a private placement, 25,000
Units  consisting of 25,000 Common  Shares,  500,000 "A" Warrants and 50,000 "B"
Warrants for an aggregate consideration of $25,000.

                                      F-6
<PAGE>

                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

     As of April 30, 1996,  Unit  holders  exercised  250,000 "A" Warrants  into
250,000  Common  Shares  at an  exercise  price of  $.50,  for an  aggregate  of
$125,000.

     As of  April  30,  1996,  the  Company  issued  489,181  Common  Shares  in
consideration  for past services to five individuals in the amount of $60,975 or
an average consideration of $.125 per share.

     As of April 30,  1996,  the Company  issued to OTC  Communications  100,000
Common  Shares under Rule 504 ("Rule  504") to the  Securities  Act of 1933,  as
amended,  (the  "Securities  Act") as  consideration  for  financial  consulting
services rendered per contract at a value of $.65 per share.

     As of April 30, 1996,  the Company  issued to Riverside  Consulting  Group,
Inc.  25,000  Common  Shares  under  Rule  504 in  consideration  for  financial
consulting services of $12,500 at $.50 per share.

     As of April 30,  1996,  the Company  issued  100,000  Common  Shares to two
persons at $.50 per share in consideration for financial consulting services.

     As  of  April  30,  1996,   the  Company   approved  the  issuance  to  OTC
Communications  500,000 Common Shares under  Regulation D as  consideration  for
financial consulting services rendered per contract and 50,000 Common Shares for
expenses at a value of $178,750 or $.325 per share.

     On June 4, 1996,  the Company  sold $8,500 of  convertible  debentures  and
converted them into 11,333 Common Shares.

     On June 4, 1996, the Company sold 25,000 Common Shares at $1.00 through the
exercise of 25,000 "A" Warrants for an aggregate consideration of $25,000.

     As of  July  31,  1996,  the  Company  had  converted  the  balance  of the
outstanding convertible debentures in the amount of $132,000 into 176,000 Common
Shares at $.75 per share.

     As of July 31, 1996, the Company sold $10,000 of convertible debentures and
converted them in to 13,333 shares of common stock.

     As of July 31, 1996, the Company sold an additional  convertible  debenture
in the amount of $10,000 which was  converted  into 13,333 Common Shares at $.75
per share.

     As of July 31,  1996,  the  Company  sold  100,000  Common  Shares at $1.00
through the exercise of 100,000 "A" Warrants for an aggregate  consideration  of
$100,000.

     As of July 31,  1996,  the Company sold 32,000  Common  Shares at $1.00 per
share through the exercise of 32,000 "B" Warrants for an aggregate consideration
of $32,000.

     As of July 31, 1996, the Company issued 50,000 Common Shares  pursuant to a
private  placement  under Rule 504 of the  Securities Act of 1933, as amended at
$.50 per share for an aggregate consideration of $25,000.

                                      F-7
<PAGE>

                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

     As of September  30, 1996,  the Company sold 18,000  Common Shares at $1.00
per  share  through  the  exercise  of  18,000  "B"  Warrants  for an  aggregate
consideration of $18,000.

     As of April 31, 1997,  697,445  nonstatutory  options were exercised for an
aggregate consideration of $2,092,186.

     As of April 30, 1997, 60  convertible  Preferred  Shares had been converted
into 229,039 Common Shares.

Note 2 - Summary of Significant Accounting Policies

a. Basis of Financial Statement Presentation

     The financial statements presented consist of the balance sheet dated April
30, 1997 and the related  statements of operations,  retained  earnings and cash
flows for the years ended April 30, 1996 and 1997.

 b. Earnings per Share

     Earnings  per share have been  computed  on the basis of  weighted  average
number of Common Shares  outstanding.  The total number of shares outstanding at
April 31, 1996 and April 30, 1997 was 12,528,266 and 12,728,180 respectively.

 c. Revenue Recognition

     Revenue is recognized when merchandise is shipped or services are rendered.

 d. Organization Expense

     The cost of organizing  the Company was charged to operations on a straight
line basis over a five year period.

                                      F-8
<PAGE>
                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

 e. Cash and Cash Equivalents

     Cash and cash  equivalents  consist of all cash  balances and highly liquid
investments  with a maturity of three months or less.  Excess cash  balances are
primarily  invested in U.S.  treasury bills with lesser amounts invested in high
quality commercial paper and time deposits.

f. Research and Development Expenses

Research and development costs are charged to operations when incurred.

g. Patents and License Agreements

     Certain  costs  incurred  to  acquire  exclusive   licenses  of  patentable
technology are  capitalized and amortized over a five year period or the term of
the license, whichever is shorter. The portion of these amounts determined to be
attributable  to  patents  is  amortized  over  their  remaining  lives  and the
remainder is amortized over the estimated period of benefit but not more than 40
years. h. Concentration of Credit Risk

     The Company  sells its products  primarily to United  States  distributors.
Credit is extended based on an evaluation of the customer's financial condition,
and generally  collateral  is not required.  Credit losses have been minimal and
within Management's expectations.

     The  Company  invests  its excess  cash in debt  instruments  of  financial
institutions  and  corporations  with  strong  credit  ratings.  The Company has
established  guidelines relative to diversification and maturities that maintain
safety and liquidity. These guidelines are periodically reviewed and modified to
take  advantage  of trends in yields and  interest  rates.  The  Company has not
experienced any realized losses on its marketable securities.

Note 3 - Marketable Securities, Available for Sale

     The Company adopted Financial Accounting Standards Board ("FASB") Statement
No. 115,  "Accounting  for Certain  Investments in Debt and Equity  Securities",
which  requires  that  investments  in  equity   securities  that  have  readily
determinable  fair values and  investments  in debt  securities be classified in
three categories: held-to-maturity, trading and available-for-sale. Based on the
nature of the assets held by the Company and Management's  investment  strategy,
the Company's investments have been classified as available-for-sale. Management
determines  the  appropriate  classification  of debt  securities at the time of
purchase and reevaluates such designation as of each balance sheet date.

     Securities classified as  available-for-sale  are carried at estimated fair
value, as determined by quoted market prices,  with unrealized gains and losses,
net of tax, reported in a separate  component of stockholders'  equity. At April
30, 1997,  the Company had no  investments  that were  classified  as trading or
held-to-maturity as defined by the Statement.

                                      F-9
<PAGE>
                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

Note 4 - Balance Sheet Information

a. Inventory

     Inventory  has been  recorded  at the  lower of cost or  market  under  the
first-in-first-out method. Inventory components were as follows:

                                            April 30, 1996        April 31, 1997
 
Books held for resale                            $22,301           $  43,527
Workplace drug screening tests:
  Raw materials                                                      292,456
  Work in process                                                    183,500
  Finished Goods                                                     149,239
Total workplace drug screening tests:               -0-              625,195 
                                                  -------            -------
Total inventory                                   $22,301           $668,722

b. Property, equipment and leasehold improvements consist of the following:

                                              April 30, 1996     April 30, 1997

Office equipment                                   $32,575        $  45,702
Manufacturing and warehouse equipment                                87,666
                                                   -------          -------
Total                                               32,575          133,368

Less accumulated depreciation                      (12,000)         (22,534)
                                                  --------          -------
Total                                              $20,575         $110,834

c. Cash, Cash Equivalents and Marketable Securities, Available for Sale

     The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at April 30, 1997:

                                                                 Estimated
                                        Gross     Gross            Fair
                                      Unrealized Unrealized       Market
                               Cost     Gains     Losses           Value
                               ----     -----     ------           ------
Cash                       $  99,039    $-0-       $-0-       $    99,039
Certificates of deposit
  90 days and less         1,663,467     -0-        -0-         1,663,467

Total cash and cash
   equivalents           $ 1,762,506    $-0-       $-0-        $1,762,506
                          ==========     ===        ===         =========
Marketable Securities
  Due in one year or
  less-Certificates of
  Deposit                $1,053,000     $-0-       $-0-        $1,053,000
                          =========      ===        ===         =========

                                      F-10
<PAGE>
                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

     The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at April 30, 1996:

                                                                   Estimated
                                         Gross      Gross            Fair
                                      Unrealized Unrealized         Market
                               Cost     Gains      Losses            Value
                               ----     -----      ------           -------
Cash                       $ 437,532   $-0-         $-0-         $   437,532
                             -------    ---          ---           ---------

Total cash and cash
   equivalents             $ 437,532   $-0-         $-0-         $   437,532
                            ========    ===          ===           =========


Note 5 - Related Party Transaction

a. Nonstatutory Option Plan

     In June, 1996, the Company adopted its 1996 Nonstatutory  Stock Option Plan
(the "1996 Plan").  Options to purchase  2,000,000 Common Shares are included in
the 1996 Plan of which  1,500,000 were issued on June 28, 1996 as follows:  Stan
Cipkowski,   President,   550,000   options;   Edmund   Jaskiewicz,    Executive
Vice-President,  250,000 options; Jay Bendis,  Vice-President-Marketing  300,000
options; Henry Wells,  Vice-President-Product Development, 150,000 options; Joel
Pensley,  Esq. 160,000 options,  Michael Roy Fugler, Esq. 40,000 options and two
non-management employees, 25,000 options each.

     On April 30, 1997, the Company issued 20,000 options to Jay Bendis,  15,000
options to Joel Pensley,  Esq., 5,000 options to Steven  Gutstein,  Esq., and an
aggregate of 232,000 options to 15 non-management employees.

b. Emplyment Agreement with Jay Bendis 

     On  November  3, 1995,  the Company  entered  into a three year  employment
agreement  with Jay  Bendis,  Vice-President-Marketing  and  Sales.  Under  this
agreement,  Mr. Bendis received an annual salary of $24,000 per year until April
30, 1996 and presently  receives $48,000 per year. When the Company generates an
aggregate of $500,000 gross revenues from the sale of biomedical  products,  Mr.
Bendis' salary will be increased to $60,000 per year. In addition to his salary,
Mr. Bendis will receive a bonus equal to 2% of the gross revenues of the Company
of $1,000,000 per fiscal year until such annual revenues reach $3,000,000,  1.5%
of gross revenues between $3,000,000 and $5,000,000 per year and 1% thereafter.

     In consideration of past services valued at $125,000 or $.25 per share, Mr.
Bendis also received the right to receive  500,000 common  shares.  Certificates
representing  400,000  Common Shares are being held by the Company and shall not
vest until the happening of the following events:

     100,000  shares upon the Company's  achieving  $1,000,00 in gross  revenues
from sales of biomedical products;

     100,000  shares upon the Company's  achieving  $2,000,00 in gross  revenues
from sales of biomedical products;

                                      F-11
<PAGE>

                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

     100,000  shares upon the Company's  achieving  $3,000,00 in gross  revenues
from sales of biomedical products;

     100,000  shares upon the Company's  achieving  $4,000,00 in gross  revenues
from sales of biomedical products.

     Certificates  representing  shares which have not vested on or before April
30, 1998 (or the end of the next succeeding fiscal year in the event the Company
changes its fiscal year) will be returned to the Company's  stock transfer agent
for  cancellation.  No bonuses  will be paid or shares  vest  subsequent  to any
election by Mr.  Bendis to terminate  agreement or his  discharge for cause from
employment  by the  Company.  Mr.  Bendis  also is  entitled  to receive  health
insurance,  participating  in stock  option or similar  plans or other  benefits
offered  generally to Management  employees and  reimbursement  of out-of-pocket
expenses.

         c. Employment Agreement with Edmund Jaskiewicz

     On  November  3, 1995,  the Company  entered  into a three year  employment
agreement  with  Edmund  Jaskiewicz,   Executive   Vice-President.   Under  this
agreement,  Mr.  Jaskiewicz  received an annual salary of $24,000 per year until
April  30,  1996 and  presently  receives  $48,000  per year.  When the  Company
generates an aggregate of $500,000  gross  revenues  from the sale of biomedical
products,  Mr.  Jaskiewicz'  salary will be  increased  to $60,000 per year.  In
addition,  to his salary, Mr. Jaskiewicz will receive a bonus equal to 2% of the
gross  revenues of the Company of  $1,000,000  per fiscal year until such annual
revenues  reach  $3,000,000,  1.5% of  gross  revenues  between  $3,000,000  and
$5,000,000  per year and 1%  thereafter.  No bonuses will be paid or shares vest
subsequent to any election by Edmund  Jaskiewicz to terminate  this agreement or
his discharge for cause from employment by the Company.  Mr.  Jaskiewicz also is
entitled to receive health  insurance,  participating in stock option or similar
plans  or  other  benefits  offered   generally  to  Management   employees  and
reimbursement of out-of-pocket expenses.

         d. Employment Agreement with Stan Cipkowski

     On  November  3, 1995,  the Company  entered  into a three year  employment
agreement with Stan Cipkowski,  President.  Under this agreement,  Mr. Cipkowski
received an annual salary of $36,000 per year until April 30, 1996 and presently
receives  $60,000 per year. When the Company  generates an aggregate of $500,000
gross revenues from the sale of biomedical products, Mr. Cipkowski's salary will
be increased to $72,000 per year. In addition, to his salary, Mr. Cipkowski will
receive a bonus equal to 2% of the gross  revenues of the Company of  $1,000,000
per fiscal  year until such  annual  revenues  reach  $3,000,000,  1.5% of gross
revenues  between  $3,000,000  and  $5,000,000  per year and 1%  thereafter.  No
bonuses will be paid or shares vest subsequent to any election by Mr.  Cipkowski
to  terminate  agreement  or his  discharge  for cause  from  employment  by the
Company.   Mr.   Jaskiewicz  also  is  entitled  to  receive  health  insurance,
participating  in stock  option  or  similar  plans or  other  benefits  offered
generally to Management employees and reimbursement of out-of-pocket expenses.

                                      F-12
<PAGE>
                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

Note 6 - 12% Convertible Subordinated Debentures

     As of April 30,1996, the Company had borrowed an aggregate of $2,121,000 on
a  convertible   debenture  basis,  the  principal  amount  of  each  debentures
convertible at the option of the holder into Common Shares at $.75 per share. As
of April 30, 1996, the principal  amount of all the  convertible  debentures had
been converted into an aggregate of 1,700,002 Common Shares.

     As of April 30, 1996,  the Company has reserved  sufficient  authorized but
unissued  Common Shares for  conversion  of the  Debentures  which shares,  upon
issuance  and  delivery,  would  be duly  and  validly  issued,  fully  paid and
nonassessable.

     As of  July  31,  1996,  the  Company  had  converted  the  balance  of the
convertible  debentures in the amount of $132,000 into 176,000  Common Shares at
$.75 per share.

     As of July 31, 1996, the Company sold an additional  convertible  debenture
in the amount of $10,000 which was converted  into 13,333 Common Shares $.75 per
share.


 Note 7 - Preferred Shares

     The Company,  in October,  1996,  amended its certificate of  incorporation
authorizing the issuance of 5,000,000  Preferred Shares $.01 par value each. The
board of directors of the Company has the authority,  without  further action by
the holders of the outstanding  Common Shares,  to issue  Preferred  Shares from
time to time in one or more  classes  or  series,  to fix the  number  of shares
constituting any class or series and the stated value thereof, if different from
the par  value,  and to fix the terms of any such  series  or  class,  including
dividend rights,  dividend rates,  conversion or exchange rights, voting rights,
rights  and  terms  of  redemption  (including  sinking  fund  provisions),  the
redemption price and the liquidation preference of such class or series.

     The Company sold 150 8% Convertible Series "A" Preferred Shares for $10,000
per  share  for  an  aggregate  consideration  of  $1,500,000  less  $90,000  in
commissions  and  $5,000  in  offering  expenses  for  a  net  consideration  of
$1,405,000.  Each Preferred Share is convertible  into Common Shares pursuant to
the  following  formula:  $10,000  divided  by the lesser of $6.07 or 75% of the
average of the daily  closing bid prices for the five  consecutive  trading days
ending  on the  trading  day  prior to the day on  which  Preferred  Shares  are
converted  to Common  Shares.  All accrued but unpaid  dividends  are payable in
cash.  The Company has  registered  the Common Shares  underlying  the Preferred
Shares with the Securities and Exchange Commission.

     As of April 30, 1997, 60  convertible  Preferred  Shares had been converted
into 229,039 Common Shares.

     As of April 30, 1997,  the Company had reserved a maximum of 500,000 Common
Shares for the conversion of Preferred Shares.

     The Company has issued 24,712 Common Share purchase warrants.  The Warrants
are exercisable at $3.00 per share until January 21, 1998.
    
                                  F-13
<PAGE>

                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

Note 8 - Income Taxes

     The Company  provides for the tax effects of  transactions  reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences  between the basis of assets and
liabilities for financial and income tax reporting.  The deferred tax assets and
liabilities,  if any,  represent  the future tax  return  consequences  of those
differences,  which will  either be taxable  or  deductible  when the assets and
liabilities  are recovered or settled.  As of April 30, 1996 and April 30, 1997,
the Company  had no material  current tax  liability,  deferred  tax assets,  or
liabilities to impact on the Company's  financial  position because the deferred
tax asset  related to the  Company's  net  operating  loss carry forward and was
fully offset by a valuation allowance.

     At April 30, 1997,  the Company has net operating  loss carry  forwards for
income tax  purposes of  $2,906,992.  This carry  forward is available to offset
future  taxable  income,  if any,  and expires in the year 2010.  The  Company's
utilization  of this carry  forward  against  future  taxable  income may become
subject to an annual  limitation in the event that there is a cumulative  change
in ownership of the Company of more than 50%.

     The  components  of the net deferred tax asset as of April 30, 1997 were as
follows:

     Deferred tax asset:
          Net operating loss carry forward               $  988,377
          Valuation allowance                            $ (988,377)
                                                            -------
          Net deferred tax asset                         $     -0-    

     The Company recognized no income tax benefit from the loss generated in the
year ended April 30, 1997.  SFAS No. 109 requires that a valuation  allowance be
provided if it is more  likely  than not that some  portion or all of a deferred
tax asset will not be realized.  The Company's ability to realize benefit of its
deferred  tax asset will  depend on the  generation  of future  taxable  income.
Because the Company has yet to  recognize  significant  revenue from the sale of
its products,  the Company  believes that a full valuation  allowance  should be
provided.

Note 9 - Commitments and Contingencies

     a. 12% Convertible Subordinated Debentures

     The Company is  obligated  to convert  the  outstanding  Debentures  at the
option  of the  holders  into  Common  Shares at a ratio one share for each $.75
principal amount of each Debenture so converted.  At April 30, 1996, the Company
had reserved  176,000  Common Shares for  conversion of the aggregate  principal
amount of $132,000 of the  Debentures  which had not been  converted as of April
30, 1996.

     As of  July  31,  1996,  the  Company  had  converted  the  balance  of the
convertible  debentures in the amount of $132,000 into 176,000  Common Shares at
$.75 per share.

     As of July 31, 1996, the Company sold an additional  convertible  debenture
in the amount of $10,000 and was converted into 13,333 Common Shares at $.75 per
share.

                                      F-14
<PAGE>
                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

b. Lawsuits

     In  February,  1994,  Robert  Friedenberg,  as  owner  of the  two  medical
technology  companies,  MDI and Gendex,  acquired by the Company, in the name of
these  corporations,  filed suit to have a Share Exchange Agreement rescinded on
the grounds of breach of contract.  In order to avoid the  imposition of damages
against  it,  the  Company  filed a cross  claim,  in July,  1994,  against  Dr.
Friedenberg,  seeking enforcement of the Share Exchange Agreement.  In November,
1995, after a trial, the court dismissed Dr.  Friedenberg's  lawsuit and allowed
the  Company's  cross-claim  to  proceed  to  trial.  In  September,  1996,  Dr.
Friedenberg  died.  A pretrial  hearing was held in  December,  1996 which set a
trial date of April 28, 1997.

     That trial was  decided by a jury on May 5, 1997.  The  verdict  determined
that Dr.  Friedenberg  breached  various  contracts  when he failed  to  deliver
technology to the Company. The jury also found in favor of the Company on two of
the  three  fraud  claims  against  Dr.  Friedenberg  and  awarded  the  Company
approximately  $350,000 in damages.  The trial  judge,  who is bound by the jury
verdict  against  Friedenberg,  will  decide  Dr.  Friedenberg's  claim  to  the
Company's  Common  Shares  which the  Company  refused  to  issued  to him.  Dr.
Friedenberg's  previous claims for equitable relief against the Company had been
denied.

     In June,  1995,  the  Company  filed a  lawsuit  against  Mr.  Morris,  Dr.
Friedenberg's  counsel,  for the breach of attorney-client  relationship and his
fiduciary duty and negligence in representing the Company in matters relating to
Dr.  Friedenberg  and in the  preparation of the Share Exchange  Agreement.  The
Company's  lawsuit demands  damages in the amount of $1,000,000.  Mr. Morris has
counterclaimed  for Common  Shares.  The court has set a trial date of September
14, 1998.

d. Public Relations Agreement

     In  February,  1996,  the  Company  entered  into  an  agreement  with  OTC
Communications   ("OTC")  for  financial  public  relations  and  communications
services to the Company and to serve when requested as the Company's liaison and
spokesman to the financial and investment community. In March, 1996, the Company
granted,  under  Regulation D to the Securities Act of 1933, to OTC the right to
receive  100,000  Common  Shares  at a  value  of  $.65  per  share  for a total
consideration  of $65,000 in lieu of an initial  payment,  monthly  retainers or
expense reimbursement,  including communications and mailing for a period of one
year.  550,000 Common Shares were granted for years 2 and 3 for a  consideration
of $.325 per share  representing  one-half the market price of the Common Shares
at March 14, 1996, the date of the contract. This valuation reflects the receipt
of  unregistered  Common Shares and the market risk of the holding  period until
they may be sold publicly.  Of the 550,000 shares,  50,000 shares were allocated
to expense  reimbursement  and  500,000  shares  allocated  to public  relations
consulting.  Certificates  representing the 100,000 Common Shares were issued in
July,  1996.  The Company  has also issued to OTC 500,000 "A" Options  which are
exercisable  at $1.00 through March 14, 1999 and 500,000 "B" Options,  which are
exercisable  at $2.00 through  March 14, 1999.  Until a  registration  statement
relating to the Common Shares underlying the options is effective,  certificates
representing  the shares into which the options are exercised will bear a legend
restricting  transfer  in the  absence  of an  effective  registration  with the
Commission or an exemption therefrom.

e. Nonstatutory Option Plan

     The Company has adopted the Fiscal 1996 Nonstatutory Stock Option Plan (the
"Plan").  2,000,000  Common  Shares were  reserved  under the Plan.  The Plan is
administered by the Board of Directors.

                                      F-15
<PAGE>

                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

     Stock  options  under  the  Plan may be  granted  to  employees,  officers,
directors,  consultants  of the  Company  or any other  parties  who have made a
significant  contribution  to the  business  and  success  of the  Company.  The
exercise  price  under  the  Plan may be  more,  equal to or less  than the then
current market price of the Common Shares as deemed to be appropriate.

     The Company  issued  1,500,000  options on June 28,  1996 as follows:  Stan
Cipkowski,   President,   550,000   options;   Edmund   Jaskiewicz,    Executive
Vice-President,  250,000 options; Jay Bendis,  Vice-President-Marketing  300,000
options; Henry Wells,  Vice-President-Product Development, 150,000 options; Joel
Pensley,  Esq. 160,000 options,  Michael Roy Fugler, Esq. 40,000 options and two
non-Management employees, 25,000 options each.

     On April 30, 1997, the Company issued 20,000 options to Jay Bendis,  15,000
options to Joel  Pensley,  Esq.,  5,000  options to Steven  Gutstein,  Esq.  and
232,000 options to 15 non-Management employees. .

     As of April 30, 1997, 697,445 nonstatutory stock options had been exercised
for an aggregate consideration of $2,092,186.

f. Leased Office Space

     The Company  leases 4,000 square feet of office and warehouse  space in two
locations from unrelated  parties on a month to month basis at an aggregate rent
of $1,000 per month.

Note 10 - Secured Loan

     On March 9, 1990,  the Company  entered into an security  agreement  with a
finance company to borrow money secured by the Company's  receivables  evidenced
by invoices.  At the time, the Company was engaged in selling  educational books
to municipal school districts and public libraries throughout the United States.
The finance  company  agreed to lend an amount  equal to 60% of the net value of
all the Company's accounts receivable.  Accounts receivable funding ceased as of
July 31, 1990.

     The Company  instituted a lawsuit  against the finance  company on November
26, 1990 for damages  due to its failure  lend to the 60% credit  limit based on
its calculations and for forgiveness of the loan based on the finance  company's
charging,  based on its own billings,  at an interest rate in excess of the rate
of 25% per annum as  prescribed  in the sections  dealing with usury in New York
Penal State Law.  Although  company  counsel  had opined that the Company  would
prevail in the action and that all indebtedness incurred in the principal amount
$126,500  plus  interest  and fees  would be voided  by  reason  of the  finance
company's  violation  of the usury  provisions  of the Penal Law,  by  agreement
between the Company and the finance company,  the lawsuit was withdrawn  without
prejudice as the Company,  at that time,  lacked the  resources  for  protracted
litigation.  In April,  1996,  the  obligation,  if any, to the finance  company
became barred by New York State's six-year  statute of limitations.  The Company
wrote off the obligation during the second quarter of fiscal 1997.

Note 11 - Business and Credit Concentrations

     The amount  reported in the financial  statements for cash  represents fair
market  value.  Because  the  difference  between  cost and the lower of cost or
market is immaterial,  no adjustment has been  recognized  and  investments  are
recorded at cost.

                                      F-16
<PAGE>

                        AMERICAN BIO MEDICA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED APRIL 30, 1997

Note 12 - Development Stage Company

     The Company was  considered to be a  development  stage company with little
operating  history  subsequent to its  reorganization  and the  commencement  of
development  of its  newly  acquired  bio-medical  technologies  which  are,  at
present,  its core business.  The Company started  commercial  production of its
drug  test kits and has what  managment  maintains  are  adequate  resources  to
adequately fund its continuing  operations.  The Company is no longer considered
to be a development stage Company.

Note 13 - Subsequent Events

     Subsequent  to April 30,  1997,  70 8% Series  "A"  Preferred  Shares  were
converted into 301,120 Common Shares.






                                       F-17

<PAGE>