<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  FORM 10-KSB
                (MARK ONE)
                [X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                [  ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934
        FOR THE TRANSITION PERIOD FROM                TO
                        COMMISSION FILE NUMBER 00-20871

                                 SELFCARE, INC.
                 (Name of Small Business Issuer in Its Charter)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      04-3164127
       (State or Other Jurisdiction of                        I.R.S. Employer
        Incorporation or Organization)                      Identification No.)
 200 PROSPECT STREET, WALTHAM, MASSACHUSETTS                       02154
   (Address of Principal Executive Offices)                      (Zip Code)
</TABLE>

                                 (617) 647-3900
                (Issuer's Telephone Number, Including Area Code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                                                           Name of Each Exchange
             Title of Each Class                            on which registered
             -------------------                           ---------------------
<S>                                            <C>
             Common Stock, $0.001                         American Stock Exchange
             per share par value
</TABLE>

         SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:

                            ------------------------
                                 Title of Class

     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 requirement for the past 90 days.  Yes   X  No
__.

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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.  [  ]

     Issuer's revenues for its most recent fiscal year ended December 31, 1997
were $52,250,371.

     The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price of the registrant's stock on the
American Stock Exchange on February 2, 1997 was $52,130,475.

     As of February 2, 1998 the Registrant had 9,751,419 shares of common stock,
par value $0.001 per share, outstanding.

     Transitional Small Business Disclosure Format (check one):  Yes __ No X

                      DOCUMENTS INCORPORATED BY REFERENCE:

     The information required by Items 9, 10, 11 and 12 of Part III of this
Annual Report on Form 10-KSB is hereby incorporated by reference from the
Company's definitive Proxy Statement with respect to its 1998 Annual
Stockholders' meeting to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A.
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                                     PART I

     This report on Form 10-KSB contains forward-looking statements that involve
risk and uncertainties including, but not limited to, product demand, market
acceptance, changing economic conditions, risks in product and technology
development, regulatory approvals, the effect of the Company's accounting
policies and other risk factors detailed in the Company's filings with the
Securities and Exchange Commission.

ITEM 1.  DESCRIPTION OF BUSINESS.

BUSINESS DEVELOPMENT.

     Selfcare, Inc. (the "Company" or "Selfcare"), was incorporated in Delaware
on August 25, 1992 and acquired its predecessor company, Superior Sensors, Inc.,
by merger on September 15, 1992. The company's principal executive offices are
located at 200 Prospect Street, Waltham, Massachusetts 02154 and its telephone
number is (781) 647-3900.

BUSINESS OF REGISTRANT.

  Principal Products, Markets and Strategy

     Selfcare is engaged in the development, manufacture and marketing of
self-test diagnostic products for the diabetes, women's health and infectious
disease markets, as well as the marketing of nutritional supplement products,
several of which are targeted primarily at the women's health market. The
Company's existing and planned self-test products are targeted at the two
largest existing markets for self-care diagnostics, diabetes management and
women's health, as well as the emerging market for self tests for infectious
diseases and agents, including HIV. As part of its strategy for addressing the
diabetes management market, the Company has entered into an exclusive worldwide
alliance and distribution agreement with LifeScan, Inc., a subsidiary of Johnson
& Johnson ("LifeScan"), and recently acquired Can-Am Care Corp., a supplier of
diabetes care products. Under the terms of the alliance with LifeScan ("LifeScan
Alliance"), Selfcare manufactures and LifeScan distributes Selfcare's
proprietary electrochemical blood glucose monitoring system for the management
of diabetes. In addition, the Company has commenced commercial production and
marketing of disposable generic test strips that can be used in electrochemical
blood glucose monitoring systems currently sold by another leading manufacturer.

     In the women's health market, Selfcare is currently marketing home
pregnancy and ovulation prediction tests under the Selfcare brand name and under
various private labels. Pregnancy products packaged and distributed by Selfcare
are currently available on a private label basis or under the Selfcare brand in
approximately 90% of U.S. pharmacy chain outlets, including Wal-Mart, Walgreens,
CVS/Pharmacy, Eckerd Drug, Osco Drug, Revco Pharmacy and Target Stores. On
February 19, 1997, the Company acquired from American Home Products Corporation
("AHP") the U.S. rights to several nutritional supplement product lines (the
"Nutritional Supplement Lines"), which had domestic sales of approximately $24.0
million in 1996, for consideration totaling $36.0 million (the "Nutritional
Supplement Lines Acquisition"). Included in these product lines are Stresstabs
(R)(a B-complex vitamin with folic acid), Stresstabs plus iron, Ferro-Sequels
(R)(an iron supplement) and Posture (R)(a calcium supplement), which are
targeted primarily at the women's health market. The Company expects to continue
to expand its women's health product line with products supplied by or
co-developed with third-party manufacturers, as well as products developed by
the Company.

     Through its wholly owned Irish subsidiary, Cambridge Diagnostics Ireland
Limited ("Cambridge Diagnostics"), the Company is currently producing diagnostic
test kits primarily for detecting antibodies to HIV. The Company also produces
other tests for the detection of hepatitis and Lyme disease infections. In
addition, Orgenics, Ltd., a wholly owned Israeli subsidiary ("Orgenics"),
develops, manufactures, and markets self-contained test kits for the
professional market which detect antibodies and/or infectious agents, including
those associated with AIDS and chlamydia.

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  Diabetes Products under Development

     FastTake(TM).  The Company's principal product for the diabetes market is
an electrochemical, biosensor-based blood glucose monitoring system being
distributed by LifeScan. The system, to be known as FastTake(TM), consists of an
instrument, referred to as a meter, and a disposable test strip. The meter
component of the system incorporates all of the significant features of the
leading systems currently on the market, including results displayed in less
than 30 seconds, a large, easy-to-read display to assist visually impaired
users, and a simple user interface. The test strips to be used with the system
have been improved by the implementation of careful process control in the
manufacturing of such strips which the Company believes will result in a more
consistent product than the test strips currently on the market. In September
1996, the Company received regulatory clearance from the U.S. Food and Drug
Administration (the "FDA") for the system. In conjunction with LifeScan, the
Company subsequently undertook certain enhancements to the user interface
features for the system. However, the underlying chemistry and function of the
disposable strips for the enhanced version of the system (hereinafter referred
to as "FastTake(TM)") were not changed from those of the prior version of
FastTake(TM).

     On October 9, 1996, the Company and LifeScan entered into a distribution
agreement (the "Distribution Agreement") with respect to FastTake(TM), pursuant
to which Selfcare will supply FastTake(TM) to LifeScan and LifeScan will be the
exclusive, worldwide distributor of FastTake(TM). In February 1997, the Company
submitted a pre-market clearance notification (a "Section 510(k) Notification")
to the FDA pursuant to Section 510(k) of the Federal Food, Drug and Cosmetics
Act, as amended (the "FDC Act"), seeking permission from the FDA ("FDA
Clearance") to begin commercial distribution of the enhanced version of
FastTake(TM). The Company received FDA clearance on June 20, 1997 and commenced
manufacture of the system in late 1997 following further testing by LifeScan.
Initial shipments to LifeScan commenced in late 1997. The Company's future
results of operations depend to a substantial degree on LifeScan's ability to
market and sell FastTake(TM). No assurance can be given as to the market
acceptance of FastTake(TM). The failure to produce, market and distribute
FastTake(TM) successfully would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Government
Regulation" and "Patents and Proprietary Technology; Trademarks."

     To operate the FastTake(TM), the strip is inserted into the meter, which
automatically activates in a standby mode. The user then places a small blood
sample obtained by a finger prick on the end of the test strip, which senses the
size of the necessary sample and automatically runs the test when the necessary
amount of blood is available, providing results in 15 seconds.

     The Company and LifeScan expect FastTake(TM) to become one of LifeScan's
principal blood glucose monitoring products, supplementing LifeScan's existing
photometric systems. Although LifeScan is currently the leader in the home blood
glucose monitoring market, with an estimated U.S. market share of 46% in 1997,
LifeScan does not currently market an electrochemical blood glucose monitoring
system. The Company believes that the addition of FastTake(TM) to LifeScan's
current product line will allow LifeScan to continue to compete successfully in
the blood glucose monitoring market.

     Generic Test Strips.  Many companies in the blood glucose monitoring
industry market products based on an electrochemical, biosensor technology. A
complete system consists of a meter and a disposable test strip. Selfcare plans
to develop, manufacture, and market disposable, electrochemical, biosensor test
strips which can be used in electrochemical blood glucose monitoring meters
currently sold by the other leading manufacturers in the United States and
Europe. Under the terms of the LifeScan Alliance, the Company cannot develop a
generic test strip for FastTake(TM). However, the Company is developing generic
test strips for use with several other meters, including Abbott, Inc's
("Abbott") ExacTech(TM) and Companion 2(TM), Bayer's Glucometer Elite(TM) and
Boehringer Mannheim's Accu-Chek(R) Advantage(TM). On June 28, 1996, the Company
obtained FDA Clearance for its first generic test strip, which is compatible
with the ExacTech system sold by Abbott, and the Company commenced shipments of
such strips in Europe in the third quarter of 1997.

     The functions of the principal components of all electrochemical blood
glucose meters are similar. The design of test strips, however, varies in both
dimensions and materials, because some features are unique to each meter. The
general strip design is a multi-layer sandwich of materials that receives a
collected blood
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sample and allows the sample to be analyzed in a meter which then provides a
reading which can be used by the patient to take actions to regulate his or her
blood glucose level through medication, exercise and diet.

     Selfcare believes that it has developed manufacturing technology to enable
it to be the first company to produce high quality generic test strips at a cost
which is as low as, or lower than, those made by most manufacturers of branded
test strips. To achieve this goal, Selfcare has established multi-disciplinary
development teams which are able to work on several products in parallel. The
goal of each team is to design a new test strip configuration for each target
branded product which, while delivering equivalent or superior results, uses
less expensive materials and is simpler to construct. At the same time, the
teams hope to maintain the general similarities among the test strips which may
lead to efficiencies in manufacturing.

     The Company intends to sell the generic test strips under the Selfcare
brand name through the low cost distribution channels that Selfcare has already
established for its women's health self-test diagnostic products in the United
States and Europe. See "Marketing and Sales." In the future, the Company may
offer its generic strips to retailers as private label products. The Company
commenced marketing its generic test strip designed to be compatible with
Abbott's ExacTech system in Europe in the third quarter of 1997 and intends to
commence marketing this generic strip under the name "Excel(TM)" in the United
States in the second quarter of 1998.

     The Company currently plans to manufacture future blood glucose-related
products at the Company's facilities in Inverness, Scotland (the "Inverness
Facility") and Galway, Ireland (the "Galway Facility").

     FastTake(TM) is a trademark of Johnson & Johnson Incorporated. Excel(TM) is
a trademark of Selfcare, Inc. Elite is a trademark of Bayer. Accu-Chek and
Advantage are trademarks of Boehringer Mannheim. ExacTech and Companion are
trademarks of Abbott, Inc.

     In August 1996, the Company, through a wholly-owned subsidiary, Selfcare
International GmbH, entered into a supply agreement with A. Menarini Industrie
Farmaceutical Riunite S.r.L. of Florence, Italy ("Menarini"). The agreement
provides that the Company will be a principal supplier to Menarini of blood
glucose strips distributed or to be distributed by Menarini in selected markets
in Europe and certain countries in other parts of the world. The blood glucose
test strips are manufactured at the Inverness Facility. Shipments under this
agreement commenced in early 1998. Under the agreement, Menarini is subject to
certain minimum purchases of products from the Company, and the Company has
agreed not to supply any third party with such products in the selected markets
for the term of the agreement.

  Women's Health Products

     Selfcare is currently marketing pregnancy and ovulation prediction self
tests which the Company purchases from third-party manufacturers, principally
Princeton BioMeditech Corporation ("Princeton"), and then repackages under
private labels, as well as under the Selfcare brand. In order to reduce product
costs and ensure quality, Selfcare commenced manufacture of pregnancy sticks in
the Galway Facility in early 1997. The Company believes that pregnancy and
ovulation prediction tests manufactured by Selfcare will be of the same quality
as the tests that are now currently obtained from contract suppliers. In
September 1996, the Company entered into an agreement with Nova Biomedical
Corporation ("Nova") pursuant to which Nova agreed to repackage and supply
Selfcare with early pregnancy and ovulation test kits. The agreement with Nova
was terminated in December 1997 and the Company has transferred the repackaging
to Consolidated Products and Services, Inc. ("CP&S") of Braintree,
Massachusetts. The Company is also developing a birth control aid for
introduction in markets outside the United States.

     Pregnancy Products.  Selfcare markets a full line of pregnancy self-test
kits from various manufacturers in both stick and cassette versions. The stick
version has an exposed wick which absorbs urine when placed in the urine stream,
while the cassette version requires the user to first collect a urine sample in
a cup and then utilize an enclosed dropper to place the urine sample in the test
well. Both versions employ identical technology enabling the display of visual
results in approximately three minutes.

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     Ovulation Prediction Products.  Selfcare's LH ovulation prediction tests,
marketed as the Early Ovulation Predictor under both the Selfcare brand name and
private labels, provide 24 to 48-hour notice of when ovulation is likely to
occur. By identifying the days when a woman is most fertile, these tests assist
couples in their family planning. The Early Ovulation Predictor has an
easy-to-use and easily read self-test cassette which is used by applying a urine
sample to the sample well with a supplied dropper. Clinically accurate results
are available in approximately three minutes.

     Birth Control Aid.  The Company is co-developing a birth control aid with
Princeton which will allow a woman to accurately identify the six-day period
when she is likely to be able to conceive. Selfcare's birth control aid is
designed to allow a woman to perform the test at any time during her monthly
cycle, and will yield the information on her fertility status almost immediately
utilizing an easy-to-use and read test device similar to the Company's pregnancy
tests and fertility monitors. The Company's birth control aid will be a
urine-based, estrogen and progesterone test which will give 72-hour notice of
ovulation and also indicate the end of a woman's fertile period. The system will
use a meter to read a test strip, and will have the capability to store previous
test results, as well as to prompt the user to commence testing. To date, the
FDA has not permitted such products to be marketed as a contraceptive aid in the
United States. Accordingly, this product will initially be introduced in
European countries where such claims are permitted. Unilever Corporation
("Unilever") has recently introduced a birth control product in the United
Kingdom, Italy and Germany which uses a urine strip and an instrument and
currently has a similar product in clinical trials in the United States.
Selfcare believes that it may benefit from Unilever's effort to bring a birth
control product to the U.S. market. However, there can be no assurance that any
such product will be approved for commercialization in the United States.

  Nutritional Supplement Lines

     The Stresstabs(R), Allbee(R) and Z-Bec(R) product lines included in the
Nutritional Supplement Lines Acquisition currently represent, according to
industry sources, approximately a 16% share of the B-complex vitamin category
sold through U.S. drug, food and mass merchandising retail chains. The following
table summarizes those Nutritional Supplement Lines which the Company believes
will form an important part of its retail marketing strategy:

<TABLE>
<CAPTION>
     NUTRITIONAL SUPPLEMENT PRODUCT                          DESCRIPTION
     ------------------------------                          -----------
<S>                                       <C>
Stresstabs*.............................  B-complex vitamin with folic acid (Daily
                                          supplements of folic acid have been shown to be
                                          important in preventing various neural tube
                                          defects (NTDs) such as spina bifida and
                                          Anencephaly. Daily supplements of folic acid and
                                          vitamin B(6) and B(12) have been shown to be
                                          important in protecting against the build-up of
                                          homocystein in the blood.)
Stresstabs with Iron*...................  B-complex vitamin with folic acid and iron
Stresstabs with Zinc....................  B-complex vitamin with folic acid and zinc
Ferro-Sequels(R) *......................  Iron supplement (iron supplements help prevent
                                          anemia associated with menstruation and other
                                          women's health conditions)
Posture(R)..............................  Calcium supplement (a calcium-rich diet is
                                          believed to be the most effective way of
                                          preventing osteoporosis)
Protegra(R).............................  Antioxidant multivitamin and mineral supplement
Allbee..................................  B-complex vitamin with Vitamin E and Vitamin C
Z-Bec...................................  B-complex vitamin with Vitamin C, Vitamin E and
                                          zinc
</TABLE>

---------------
* Products formulated to address certain women's health requirements.

     In connection with the Nutritional Supplement Lines Acquisition, the
Company and AHP entered into supply agreements, pursuant to which AHP agreed to
supply the Company with the products for the Nutritional Supplement Lines for up
to one year after the closing of the acquisition. The Company purchased

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such products at agreed upon prices from AHP in quantities based on quarterly
forecasts provided by the Company. AHP agreed to manufacture such products
itself, or, in the case of products it did not currently manufacture, obtain
them from third party suppliers. AHP agreed that the Nutritional Supplement
Lines supplied pursuant to such agreements would conform to agreed upon
specifications and that they would be manufactured in compliance with applicable
laws and regulations, including the FDC Act and Good Manufacturing Practices
("GMP"). The Company was required to establish alternative supply arrangements
for these products within one year and completed such arrangements prior to the
end of 1997.

     In addition, the Company assumed responsibility for all marketing and sales
functions for the Nutritional Supplement Lines, as well as certain
administrative functions, including customer service. The Company also became
responsible for other administrative functions, including order receipt, billing
and collection, and the distribution of all products on May 20, 1997. The
Company is marketing the Nutritional Supplement Lines through its existing
retail distribution channels, and will seek to expand sales through trade
allowances, increased advertising and promotion, and cross-merchandising with
other Selfcare products. The Company will also reposition the brands which
address specific women's nutritional needs through redesigned packaging and
increased emphasis on the products' self-care benefits for women. The Company
expects to continue to expand its women's health product line with products
supplied by or co-developed with third party manufacturers, as well as products
developed by the Company.

     As part of its plans for maintaining and expanding sales of these products,
the Company expects to incur substantial marketing and promotional expenses and
allowances in 1998 and thereafter. There can be no assurance that these
expenditures and allowances will allow the Company to increase or maintain the
existing revenue levels from the Nutritional Supplement Lines. The Company's
primary product focus to date has been on diagnostic tests of various kinds and
except for the limited operating experience during 1997, the Company has not
previously marketed nutritional supplements, nor has the Company conducted a
national advertising campaign of the scope or magnitude of that which it plans
for the Nutritional Supplement Lines. Selfcare is also developing additional
nutritional supplement products, but there can be no assurances that these can
be successfully introduced.

     Stresstabs, Ferro-Sequels, Posture, Protegra, Albee and Z-Bec, are
registered trademarks of Selfcare Consumer Products, Inc ("SCPI").

  Infectious Disease Products

     Selfcare is currently marketing a wide array of professional diagnostic
test kits for infectious disease agents, including human immunodeficiency
viruses ("HIV"), hepatitis and Lyme disease. In addition, the Company has
developed self-test products for HIV 1/2 and other diseases and conditions that
mainly effect women. Orgenics, in which the Company owns a 99.8% interest, also
markets professional diagnostic kits for HIV, hepatitis and other infectious
disease agents, including chlamydia, and is developing several professional
diagnostic products in various formats for a variety of other infectious
diseases.

     HIV Tests.  At its Galway Facility, Selfcare produces two visually-read,
rapid test HIV products for the emergency blood screening and clinical
diagnostic markets. The first of these tests, the rapid test device ("RTD"), is
a membrane-based, rapid enzyme immunoassay ("EIA") test employing recombinant
HIV-1 and HIV-2 coated latex attached to a plastic membrane as an antibody
capture mechanism. This product has been on the market since June 1991 and is
registered for sale in India, a number of European countries, as well as many
countries in Africa and the Middle East. The second test is in a patented format
licensed from Cambridge Biotech Corporation ("Cambridge Biotech") under the
trademarked name Capillus(TM). Capillus is an instrument or visually-read latex
agglutination assay employing an acrylic capillary slide to achieve
agglutination. The instrument is a simple, low cost, battery-run photometer. The
World Health Organization regularly purchases HIV tests for shipment to
developing countries, such as India, to be used in major government AIDS control
programs. Currently, approximately 33% of the Indian government's requirements
for HIV rapid tests are purchased from the Company through the World Health
Organization. Approximately the same percentage of such requirements is
purchased from Orgenics. With the completion of the acquisition of Orgenics, the
Company is now the supplier of approximately two-thirds of these requirements.
However,

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there can be no assurance that the Company will be able to maintain this market
share in the future. Capillus is a trademark of Cambridge Biotech.

     At its Galway Facility, the Company also produces an HIV 1/2 microtiter
plate screening assay that is used mainly in blood collection and donation
centers. Three individual EIA products are also produced for hepatitis-D
antigen, total antibody and IgM in human blood serum. Sales are mainly under
private label to Murex Ltd. and Sanofi Pasteur.

     In January 1997, Selfcare entered into an agreement with ChemTrak
Incorporated ("ChemTrak") pursuant to which ChemTrak appointed Selfcare as its
exclusive distributor in Europe, Scandinavia and certain other countries
formerly comprising the U.S.S.R., including Russia (the "European Territory"),
of ChemTrak's home collection and mail-in HIV testing system. At the time of the
agreement ChemTrak was seeking FDA approval to market the product in the United
States. As part of this agreement, Selfcare agreed to pursue regulatory approval
of the system in each country comprising the European Territory. In addition,
Selfcare agreed to establish and operate one or more central testing facilities
and offer counseling services to report results and offer counseling to users of
the system. ChemTrak retained the right to convert the Company's exclusive
distribution rights into non-exclusive rights upon the occurrence of certain
events, including the Company's failure to make certain regulatory filings and
the Company's failure to maintain market share goals. In June of 1997 ChemTrak
informed the Company that it was not commercially reasonable to pursue FDA
approval of the HIV testing system. The Company now considers the agreement with
ChemTrak terminated and does not currently intend to seek alternative products.
In view of the low rate of acceptance of mail-in blood collection HIV tests, the
Company now considers that the market for a true home HIV test will be
significantly smaller than previously estimated. Accordingly, the Company has
suspended its efforts to develop a one-stop true home HIV test and has refocused
its product development resources on home self-tests for women. The new tests,
which include tests for osteoporosis and follicle stimulating hormone
("F.S.H."), are not expected to be available for sale until 1999. There can be
no assurances that such products will be successfully developed or that the
market will accept them.

     Orgenics manufactures professional diagnostic test products based on
several proprietary technological systems including genetic assays,
immunoassays, rapid tests and confirmatory tests using multiple antigens. These
tests, or adaptations of them, are applicable to detecting a wide variety of
infectious diseases and agents, including HIV-1 and HIV-2, hepatitis, and
chlamydia. Orgenics' products are designed to enable small-to-medium-sized
laboratories to analyze low volumes of tests economically. In May 1995, Orgenics
introduced DoubleCheck(TM), a single sample, compact diagnostic device which, in
its first commercialized application, detects HIV in saliva and blood serum
samples in less than ten minutes, making it suitable for use in physicians'
offices and other patient point-of-care sites. Orgenics has developed a
DoubleCheck test which will detect H. pylori (a bacterium associated with
stomach ulcers and stomach cancer), as well as a new, easily performed DNA
probe-based genetic assay test called GeneComb(TM), which Orgenics believes will
substantially reduce the time required to perform testing for genetic material,
including HIV. Orgenics' current products are sold in more than 20 countries,
principally in Europe, Latin America, Africa and Asia. Orgenics has obtained
regulatory approval for sale of its DoubleCheck HIV test in France and Latin
America, has FDA Clearance for ImmunoComb(R) for chlamydia, cytomegalovirus and
toxoplasmosis, and intends to submit a Section 510(k) Notification for H.
pylori. The DoubleCheck and ImmunoComb test formats are immunoassay-based tests
which detect the presence of infectious disease agents. DoubleCheck and GeneComb
are trademarks of Orgenics, Ltd.

MARKETING AND SALES

     The Company markets and distributes its products primarily through
independent retail brokers and distributors. The Company generally has written
agreements with such brokers and distributors, although it also has a limited
number of oral arrangements. In general, these brokers and distributors are not
subject to minimum purchase requirements and may discontinue marketing the
Company's products with little or no notice. Certain of the Company's retail
brokers and distributors also market products which compete with the Company's
products and which may, from time to time, offer greater sales incentives than
the Company's products. The loss of, or a significant reduction in sales volume
through, one or more of the Company's retail
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<PAGE>   8

brokers or distributors could have a material adverse effect on the Company's
business, financial condition or results of operations.

  United States

     In the United States, Selfcare has created an effective, low overhead sales
network. The Company's sales efforts are currently focused on large drug, food
and mass merchandising retail chains, as well as wholesalers who service smaller
accounts. The Company currently contracts with its broker agencies
geographically distributed across the United States. The LifeScan Alliance
contemplates that FastTake(TM) will be distributed worldwide exclusively by
LifeScan, whose marketing resources can more effectively leverage this
technology.

     Women's Health Products.  The Company currently markets several
over-the-counter pregnancy and ovulation prediction self tests. The Company
purchases its pregnancy and ovulation prediction self tests from third-party
manufacturers and repackages them for sale. The Company also started the
manufacturing of a pregnancy stick at its Galway Facility in early 1997. These
tests are marketed under both the Selfcare label and a variety of private labels
through major drug, food store and mass merchandising chains. Selfcare pregnancy
products are currently available in approximately 90% of pharmacy chain outlets
in the United States and are becoming available in new outlets. Early in 1997,
Selfcare commenced marketing CarePlus(R), a combined condom and spermicide
product under the Selfcare label through major drug, food store and mass
merchandising chains in the United States.

     Nutritional Supplements.  In connection with the Nutritional Supplement
Lines Acquisition, the Company assumed responsibility for all marketing and
sales functions for the Nutritional Supplement Lines, as well as certain
administrative functions, including customer service. The Company became
responsible for other administrative functions, including order receipt, billing
and collection, and the distribution of all products on May 20, 1997. The
Company was permitted to use packaging and labels bearing the names of AHP and
its affiliates for the Nutritional Supplement Lines until AHP's current
inventory of such packaging and labels was exhausted. The Company has completed
the redesign of such packaging and labels. The Company is marketing the
Nutritional Supplement Lines through its existing retail distribution channels,
and will seek to expand sales through trade allowances, increased advertising
and promotion, and cross-merchandising with other Selfcare products. The Company
will also reposition the brands which address specific women's nutritional needs
through redesigned packaging and increased emphasis on the products' self-care
benefits for women.

  International

     The Company has manufacturing facilities in Galway, Ireland and Inverness,
Scotland and markets and sells its products in several international markets. In
1997, approximately 17% of the Company's net sales were to customers in Europe
and 22% of the Company's net sales were to customers in regions other than North
America and Europe. If the Company's revenues generated by foreign activities
are not adequate to offset the expense of establishing and maintaining these
foreign activities, the Company's business, financial condition and results of
operations could be materially adversely affected. In addition, there are
certain risks inherent in doing business internationally, such as changes in
applicable laws and regulatory requirements, export and import restrictions,
export controls relating to technology, tariffs and other trade barriers, less
favorable intellectual property laws, difficulties in staffing and managing
foreign operations, longer payment cycles, difficulties in collecting accounts
receivable, political instability, fluctuations in currency exchange rates,
expatriation controls and potential adverse tax consequences, which could
adversely impact the success of the Company's international activities. There
can be no assurance that one or more of such factors will not have a material
adverse effect on the Company's future international activities and,
consequently, on the Company's business, financial condition and results of
operations.

     The executive offices and production facilities of Orgenics are located in
the State of Israel, and Orgenics is directly affected by political, economic
and military conditions in that country. On many occasions since December 1987,
Israel has experienced severe civil unrest, primarily in the areas that have
been under its control since 1967. No assurance can be given that hostilities or
other political, economic and military

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<PAGE>   9

conditions in Israel will not have a material adverse effect on the business and
operations of Orgenics. Any such effect could have a material adverse effect on
the business, operations or financial condition of the Company.

STRATEGIC TRANSACTIONS

     An important part of Selfcare's business strategy is to enter into
strategic alliances and licensing arrangements with third parties, primarily
medical products companies, for the development and distribution of certain
products. The Company also pursues a strategy of selective acquisitions of
companies, assets and technologies which it believes will enhance its ability to
offer and distribute products to the family health, diabetes, nutritional
supplement and infectious disease markets.

  Acquisition of Nutritional Supplement Lines from American Home Products

     On February 19, 1997, the Company acquired from American Home Products
("AHP") the U. S. rights to several nutritional supplement product lines that
had domestic sales of approximately $24 million in 1996. See Nutritional
Supplement Lines above.

  Can-Am Care Corporation

     On February 18, 1998 the Company's wholly owned subsidiary, SCPI, acquired
Can-Am Care Corporation. See Subsequent Events below.

  Princeton BioMeditech Corporation Agreements

     In March 1996, the Company entered into an agreement (the "Manufacturing
Agreement") with Princeton BioMeditech Corporation ("Princeton") pursuant to
which the Company, among other things, agreed to purchase certain minimum
amounts of product relating to the Company's pregnancy self-test products from
Princeton over a three year term and provide $500,000 in capital to Princeton
for the purchase of equipment necessary to implement the agreement. As of
December 31, 1996, the Company had paid Princeton the $500,000 for the
equipment, which the Company owns but which is currently installed at Princeton.

     On August 6, 1997, the Company and Princeton amended the Manufacturing
Agreement to extend the term of certain provisions of the agreement for a period
of four years beginning on July 1, 1997. During the first year of the extended
contract, the Company is obligated to purchase minimum amounts of products from
Princeton at agreed upon prices totaling $2,656,000, which prices are subject in
each case to renegotiation if significant changes occur in the marketplace to
significantly erode the Company's ability to aggressively market such products.
During the remaining three years of the agreement, the Company is obligated to
purchase minimum amounts of products at prices to be mutually agreed upon based
upon market conditions.

     Also on August 6, 1997, the Company and Princeton, together with
wholly-owned subsidiaries of each of the Company (the "Selfcare Sub") and
Princeton (the "Princeton Sub"), and PBM-Selfcare LLC, a limited liability
company owned and managed by the Company and Princeton (the "LLC"), entered into
a Joint Venture Agreement (the "Joint Venture Agreement"). The purpose of the
joint venture is to own, develop and exploit certain intellectual property
rights related to rapid immunochemical diagnostic tests (the "Intellectual
Property"). Under the Joint Venture Agreement, Princeton contributed its rights
in the Intellectual Property to the LLC while Selfcare Sub agreed to contribute
up to $2,000,000, on an as needed basis, to cover expenses incurred by the LLC
in enforcing the rights of the LLC in the Intellectual Property. Selfcare Sub
and Princeton Sub are also obligated to cover 50% of any other operating
expenses of the LLC. The LLC entered into license agreements with both Selfcare
and Princeton granting each a non-exclusive, worldwide, royalty-free license to
the Intellectual Property. To date the Company has not incurred material costs
pursuant to the Joint Venture Agreement and does not anticipate expending
material resources in connection with this activity during the 1998 fiscal year.

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<PAGE>   10

MANUFACTURING

     The Company has no facilities to manufacture the Nutritional Supplement
Lines. The Company currently relies on third-party manufacturers for products
constituting the Nutritional Supplement Lines. The supply agreements with AHP
expired on February 17, 1998. If the Company should encounter delays or other
difficulties in the supply of any of these products from third parties, these
interruptions could have a material adverse effect on the Company's result of
operations and result in significant quarter-to-quarter fluctuations. In
addition, contract manufacturers that the Company uses or may use to supply
products for the Nutritional Supplement Lines must adhere to the FDA's GMP
regulations. Failure to do so could result in the withdrawal of FDA approval of
such manufacturers and consequent interruptions in the supply of products to the
Company.

     The Company has entered into a manufacturing agreement with Nova Biomedical
Corporation ("Nova") to supply Selfcare with electrochemical blood glucose
meters. The meters manufactured by Nova, together with the Company's test
strips, form FastTake(TM). The Company's ability to ship FastTake(TM) on time
and in accordance with LifeScan's requirements is highly dependent upon receipt
of an adequate supply of electrochemical blood glucose meters. There can be no
assurance that the Company's supply of electrochemical blood glucose meters will
not be interrupted, or that if such supply were interrupted, that the Company
would be able to contract with another supplier on a timely or satisfactory
basis. If such supply were interrupted, the Company could incur set-up costs and
delays in manufacturing FastTake(TM)which could have a material adverse effect
on the Company's business, financial condition and results of operations. If any
such delay were to occur, and were to result in the Company being unable to
supply LifeScan with certain required amounts of meters for FastTake(TM) under
the LifeScan Alliance, LifeScan would automatically receive a license to
manufacture, or to have manufactured on its behalf, FastTake(TM), subject to
payment of a royalty to the Company. In such event, the Company could begin
supplying FastTake(TM) to LifeScan again at any time, but would be required to
reimburse LifeScan for certain expenses incurred by LifeScan to produce
FastTake(TM).

     The Company currently manufactures its existing infectious disease
diagnostic products for the professional market and a portion of its pregnancy
self-test products at its Galway Facility. It also obtains pregnancy and
ovulation self-test products from contract manufacturers. The Company believes
that there are multiple qualified sources for its existing women's health
products and for the materials and components used in the manufacture of its
other existing products and therefore does not consider it necessary to maintain
protected supply arrangements with any supplier.

     The Company has expended substantial efforts on the manufacturing scale-up
activities necessary to support the introduction of its planned new products.
The Company's Inverness Facility has been configured for highly automated, low
cost production of disposable test strips for use with electrochemical blood
glucose monitoring systems. Sophisticated control instrumentation systems
automatically print, cut and pack strips in vials. The Company is currently
manufacturing blood glucose test strips for distribution by Menarini. The
Company has implemented a program to produce generic electrochemical glucose
test strips for one or more systems at the Galway Facility. There can be no
assurance, however, that the Company will be successful in achieving the
production of new products at its facilities at the volumes or cost levels
required to support commercialization in the United States or abroad. Orgenics
manufactures infectious disease diagnostic tests for the professional markets at
a facility in Israel.

     The Company has entered into an agreement with CP&S pursuant to which CP&S
will perform the final packaging of early pregnancy and ovulation test kits for
Selfcare.

PATENTS AND PROPRIETARY TECHNOLOGY; TRADEMARKS

  Self-Test Products

     The medical products industry, including the diagnostic testing industry,
places considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes, and the Company's success will
depend, in part, on its ability to obtain patent protection for its products and

                                       10
<PAGE>   11

manufacturing processes, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties.

     The Company holds certain patent rights, has certain patent applications
pending, and expects to seek additional patents in the future, but there can be
no assurance as to its success or timeliness in obtaining any such patents or as
to the breadth or degree of protection that any such patents will afford the
Company. The patent position of medical products and diagnostic testing firms is
often highly uncertain and usually involves complex legal and factual questions.
There is a substantial backlog of patents at the U.S. Patent and Trademark
Office. No consistent policy has emerged regarding the breadth of claims covered
in medical products patents. Accordingly, there can be no assurance that patent
applications relating to the Company's products or technology will result in
patents being issued or that, if issued, such patents will afford adequate
protection to the Company's products or, if patents are issued to the Company,
that its competitors will not be able to design around such patents. In
addition, the medical products industry, including the diagnostic testing
industry, has been characterized by extensive litigation regarding patents,
licenses and other intellectual property rights. The Company could incur
substantial costs in defending itself against patent infringement claims or in
asserting such claims against others. If the outcome of any such litigation is
adverse to the Company, the Company's business could be materially adversely
affected. To determine the priority of inventions, the Company may also have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office, which could also result in substantial costs to the Company.
See "Item 3. -- Legal Proceedings."

     In addition, the Company may be required to obtain licenses to patents or
other proprietary rights of third parties to market its products. No assurance
can be given that licenses required under any such patents or proprietary rights
would be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays in product
market introductions while it attempts to design around such patents or other
rights, or be unable to develop, manufacture or sell such products in certain
countries or at all. Under the distribution agreement entered into pursuant to
the LifeScan Alliance, Selfcare has agreed to indemnify LifeScan for any claims
that FastTake(TM) infringes any patents.

     The Company also seeks to protect its proprietary technology, including
technology that may not be patented nor patentable, in part through
confidentiality agreements and, if applicable, inventors' rights agreements with
its collaborators, advisors, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise be disclosed to, or discovered by, competitors. Moreover, the Company
may from time to time conduct research through academic advisors and
collaborators who are prohibited by their academic institutions from entering
into confidentiality or inventors' rights agreements.

  Nutritional Supplements

     In connection with the Nutritional Supplement Lines Acquisition, the
Company acquired certain trademarks which, the Company believes, are valuable
assets and are very important to the marketing of the Nutritional Supplement
Lines. Substantially all of these trademarks have been registered with the U.S.
Patent and Trademark Office. There can be no assurance, however, that such
registrations will afford adequate protection to the Company and not be
challenged as unenforceable or invalid, or not be infringed. In addition, the
Company could incur substantial costs in defending suits brought against it or
in prosecuting suits in which the Company asserted rights under such
registrations. If the outcome of such litigation were adverse to the Company,
the Company's business and results of operations could be materially adversely
affected.

GOVERNMENT REGULATION

  Self-Test Products

     The Company's research, development and clinical programs, as well as its
manufacturing and marketing operations, are subject to extensive regulation by
numerous governmental authorities in the United States and other countries. Most
of the Company's self-test products, including those licensed by the Company
from third parties, require governmental approvals for commercialization that
have not yet been obtained and are

                                       11
<PAGE>   12

not expected to be obtained for several years. Pre-clinical and clinical trials
and manufacturing and marketing of many of the Company's products will be
subject to the rigorous testing and approval process of the FDA and
corresponding foreign regulatory authorities. The regulatory process, which
includes pre-clinical and clinical testing of many of the Company's products to
establish their safety and efficacy, can take many years and require the
expenditure of substantial financial and other resources. Data obtained from
pre-clinical and clinical activities are susceptible to varying interpretations
that could delay, limit or prevent regulatory approval. In addition, delays or
rejection may be encountered based upon changes in, or additions to, regulatory
policies for device marketing authorization during the period of product
development and regulatory review. Delays in obtaining such approvals could
adversely affect the marketing of products developed by the Company and the
Company's ability to generate commercial product revenues.

     In addition, the Company is required to meet regulatory requirements in
countries outside the United States, which can change rapidly with relatively
short notice, resulting in the Company's products being banned in certain
countries with consequent loss of revenues and income. Foreign regulatory
agencies could also introduce test format changes which, if not quickly
addressed by the Company, could result in restrictions on sales of the Company's
products. Such changes are not uncommon due to advances in basic research and
the nature of certain infectious diseases and agents such as HIV, which is a
mutating virus capable of producing new strains and subtypes. In July 1993, the
French Ministry of Health prohibited the sale in France of certain diagnostic
tests for HIV, due to a concern that the tests did not meet required sensitivity
levels. The Ministry of Health has subsequently imposed a separate ban on a
single HIV test manufactured and sold due to the failure of such test to
identify a newly discovered HIV subtype. There can be no assurance that there
will not be similar actions in the future.

  Nutritional Supplements

     The manufacturing, processing, formulation, packaging, labeling and
advertising of nutritional supplements such as the Nutritional Supplement Lines
are subject to regulation by one or more federal agencies, including the FDA,
the Federal Trade Commission ("FTC") and the Consumer Product Safety Commission.
These activities are also regulated by various agencies of the states,
localities and foreign countries in which Nutritional Supplement Lines are now
sold or may be sold in the future. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements, including
vitamins, minerals and herbs, as well as food additives, over-the-counter
("OTC") and prescription drugs and cosmetics. The regulations that are
promulgated by the FDA relating to the manufacturing process are known as GMPs,
and are different for drug and food products. In addition, the FTC has
overlapping jurisdiction with the FDA to regulate the promotion and advertising
of dietary supplements, OTC drugs, cosmetics and foods.

     The Dietary Supplement Health and Education Act of 1994 ("DSHEA"), which
amends the Food, Drug and Cosmetic Act by defining dietary supplements as a new
category of food separate from conventional food, was enacted on October 25,
1994. The FDA has finalized certain regulations to implement DSHEA, including
those relating to nutritional labeling requirements, but has not finalized other
regulations. The finalized regulations require different labeling for the
Nutritional Supplement Lines and, with respect to nutritional supplement
products under development by Selfcare, impose new notification procedures and
scientific substantiation requirements regarding ingredients, product claims and
safety. The Company cannot determine what effect these regulations will have on
its business in the future. Failure to comply with applicable FDA requirements
could result in sanctions being imposed on the Company or the manufacturers of
its products, including warning letters, product recalls and seizures,
injunctions or criminal prosecution. With respect to regulations that have not
been finalized, the Company anticipates that the FDA will promulgate specific
Good Manufacturing Practices to regulate dietary supplements which are modeled
on the current GMPs for food. The Company believes that the manufacture of the
Nutritional Supplement Lines is currently in compliance with the proposed GMPs
for dietary supplements. No assurance can be given that the final GMPs for
dietary supplements will not change in ways that require changes in the
manufacture of the Nutritional Supplement Lines.

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<PAGE>   13

THIRD-PARTY REIMBURSEMENT

     In both the United States and elsewhere, sales of some of the Company's
products will be dependent in part on the availability of reimbursement from
third-party payors, such as government and private insurance plans. Third-party
payors are increasingly challenging the prices charged for medical products and
services. If the Company succeeds in bringing one or more of such products to
market, there can be no assurance that these products will be considered
cost-effective, that reimbursement will be available or, if available, that the
level of reimbursement will be sufficient to allow the Company to sell its
products on a profitable basis.

PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE

     The testing, manufacturing and marketing of medical diagnostic devices,
such as the Company's blood glucose monitoring systems, entail an inherent risk
of product liability claims. In addition, the marketing of the Nutritional
Supplement Lines may cause the Company to be subjected to various product
liability claims, including, among others, that the Nutritional Supplement Lines
have inadequate warnings concerning side effects and interactions with other
substances. 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
against 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 results of operations.

RESEARCH AND DEVELOPMENT

     The Company is focusing its research and development efforts primarily on
the development of its diabetes products, including its electrochemical blood
glucose monitoring system, generic test strips, and non-invasive blood glucose
technologies. In addition, the Company utilizes its in-house research and
development resources to adapt its existing technologies and technologies it
acquires from third parties into self-test formats, including formats addressing
HIV, chlamydia and Strep-A. The Company also seeks to develop new technologies
which it is not able to obtain from others. From time to time, the Company
engages in co-development projects with third parties with respect to new
diagnostic products the Company may want to market in the future. The Company
may provide financial development assistance to such parties and may also
utilize its own research and development resources to design certain portions of
such products. The research and development department of the Company, including
Inverness, Galway, Orgenics, and Selfcare Development GmbH & Co. KG (a German
subsidiary), employs 39 full-time researchers, including 23 Ph.D.s. Total
research and development expenses for the years ended December 31, 1997, 1996
and 1995 were $15.6 million, $6.6 million and $1.5 million, respectively. The
Company expects that it will continue to expend a significant amount on research
and development efforts during the fiscal year ended December 31, 1998.

COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE

  Self-Test Products

     The medical products industry, including the diagnostic testing industry,
is rapidly evolving and developments are expected to continue at a rapid pace.
Competition in this industry is intense and expected to increase as new products
and technologies become available and new competitors enter the market. The
Company's competitors in the United States and abroad are numerous and include,
among others, diagnostic testing and medical products companies, universities
and other research institutions. The Company's success depends upon developing
and maintaining a competitive position in the development of products and
technologies in its area of focus. The Company's competitors may also succeed in
developing technologies and products that are more effective than any that have
been or are being developed by the Company or that render the Company's
technologies or products obsolete or noncompetitive. The Company's competitors
may also succeed in obtaining patent protection or other intellectual property
rights that would prevent the Company from developing its potential products, or
in obtaining regulatory approval for the commercialization of their products
more rapidly or effectively than the Company. Finally, many of the Company's
existing or

                                       13
<PAGE>   14

potential competitors have or may have substantially greater research and
development capabilities, clinical, manufacturing, regulatory and marketing
experience and financial and managerial resources than the Company. In the
women's health market, the Company believes that it has already developed a
significant market penetration with its private label and branded pregnancy and
ovulation tests. The Company believes that it can continue to compete
effectively in the women's health market based on its planned product line
expansions, supported by its research and development capabilities, its advanced
manufacturing expertise, and its established distribution force. The Company is
seeking to develop and market generic test strips that are compatible with other
manufacturers' electrochemical blood glucose monitoring systems. If the Company
succeeds in these efforts, others may attempt to enter this market with similar
products. In addition, the introduction of lower-priced generic test strips
could lead the manufacturers of the systems with which such test strips are
compatible to lower their own test strip prices, thereby reducing or eliminating
the price advantage enjoyed by the generic test strip producers. On June 28,
1996, the Company obtained FDA Clearance for its first generic test strip, to be
sold under the name "Excel(TM)," which is compatible with the ExacTech(TM)
System sold by Abbott. The Company initially intended to commence marketing this
product in the United States in 1997, but has delayed the commencement of such
marketing until mid-1998. Although the Company believes that its Excel generic
test strip will be priced lower than the strips produced by Abbott for the
ExacTech(TM) System and therefore will compete effectively with the Abbott
product, there can be no assurance that Abbott will not institute price cuts and
thereby reduce or eliminate any price advantage which the Company's product may
enjoy.

     The Company is also aware of several of its competitors who are attempting
to develop a noninvasive blood glucose monitoring technology. Noninvasive blood
glucose monitoring involves methods for measuring blood glucose levels without
the need to draw blood and, in certain proposed configurations, without the need
to utilize disposable components, such as test strips. The Company believes that
manufacturers are pursuing a number of different technological approaches to
noninvasive blood glucose monitoring. These include near-infrared spectroscopy,
which involves shining a beam of near-infrared light to penetrate the skin and
determine the amount of glucose in the blood, and reverse iontophoresis, which
utilizes a "patch" system to extract glucose through the skin for measurement by
an external meter. In addition, several manufacturers are pursuing minimally
invasive approaches to blood glucose monitoring, such as using a fine needle to
withdraw a small sample of interstitial fluid which is analyzed by use of
mid-infrared spectroscopy. The development and successful introduction of any
such products could have a material adverse effect on the Company's business,
financial condition and results of operations.

  Nutritional Supplements

     The market for the sale of vitamins and nutritional supplements such as the
Nutritional Supplement Lines is highly competitive. Competition is based
principally upon price, quality of products, customer service and marketing
support. There are numerous companies in the vitamin and nutritional supplement
industry selling products to retailers such as mass merchandisers, drug store
chains, independent drug stores, supermarkets and health food stores. Most of
these companies are privately held and the Company is unable to assess precisely
the size of such competitors. However, a number of the Company's competitors,
particularly manufacturers of nationally advertised brand name products, are
substantially larger than the Company and have greater financial resources.

  Orgenics Infectious Disease Products

     The primary competitors for Orgenics' ImmunoComb line of products are
standard, enzyme-linked immunoabsorbent assay ("ELISA") systems such as those
produced by Organon, Inc., Pasteur Sanofi Diagnostics, Abbott Laboratories,
Boehringher Mannheim and other diagnostic tests produced by Abbott Laboratories,
Ortho Diagnostic Systems, Inc. and Hybritech, Inc. ELISA tests are generally
used by high-volume batch processors such as blood banks and other centralized
laboratories. In addition, there are other rapid testing systems, generally for
HIV, based upon immunoconcentration, which can provide results in five to ten
minutes. In contrast to ImmunoComb, an immunoassay-based test which can be used
to simultaneously test multiple samples for multiple analytes, the
immunoconcentration systems are single sample and mostly

                                       14
<PAGE>   15

single analyte systems. Based on Orgenics' assertions, the Company believes that
other characteristics of the immunoconcentration systems are that: (i) the
single sample presentation results in production costs per test that are two to
three times more expensive than those of ImmunoComb; and (ii) the procedure for
each immunoconcentration test limits the number of tests that can be processed
at one time resulting in less flexibility in the number of samples that can be
processed at one time. The Company expects that Orgenics' DoubleCheck HIV test
will be competitive with single-analyte immunoconcentration tests in speed, but
will offer greater sensitivity at lower cost.

     In the field of DNA probe products, Orgenics competes with, among others,
Molecular Biosystems, Inc., Abbott Laboratories, Roche Molecular Systems, a
division of Hoffman La-Roche, Sanofi Diagnostics, Organon, Inc., Enzo Biochem,
Inc., Gene-Trak Systems, Inc. and Gen-Probe, Incorporated. Several of Orgenics'
competitors use a labeling technology in which precursors of DNA are labeled by
either Biotin or a radioactive marker and incorporated into the DNA probe by an
enzymatic reaction. The use of an enzymatic reaction requires highly-purified
DNA material. It is difficult for most clinical laboratories to achieve high
purification levels without highly-trained personnel. Orgenics' non-enzymatic
Chemi-Probe labeling technology, which does not require highly-purified DNA, is
not subject to these limitations. In addition, the Company believes that
Orgenics' non-enzymatic, genetic assay GeneComb technology provides a simpler,
more rapid assay than do competing detection systems which rely on enzyme
immunoassay methodology.

EMPLOYEES

     As of December 31, 1997, the Company and its subsidiaries had a total of
419 full time employees, of which 37 employees are located in the United States.
In addition, the Company utilizes the services of a number of consultants
specializing in: research and development in the Company's targeted markets,
regulatory compliance, strategic planning, marketing and legal matters.

SUBSEQUENT EVENTS

     On February 18, 1998, the Company's subsidiary SCPI acquired Can-Am Care
Corporation ("Can-Am"), a leading supplier of diabetes care products, for
approximately $27.9 million, consisting of $13.6 million in cash, notes in the
aggregate principal amount of $2 million (subject to potential premiums of up to
an additional $2 million in the aggregate based upon increases in the Company's
common stock during the term of the Notes) and approximately 1.1 million shares
of the Company's Common Stock. Can-Am sells insulin syringes, blood lancets,
glucose tablets and specialty skin creams to pharmacies across the United
States. Can-Am's revenues for the fiscal year ended May 31, 1997 were
approximately $25.9 million. Upon the closing of the acquisition, Mr. Robert
Oringer, President of Can-Am, became a member of the Company's Board of
Directors and continued as President of Can-Am.

     In consideration for the sale of his interest in Can-Am, Mr. Oringer
received from the Company 277,083 shares of the Company's Common Stock and a
Non-Negotiable Note, maturing February 18, 2001, in the principal amount of
$500,000, bearing interest at an annual rate of 6%. In connection with the
acquisition, Can-Am entered into a Supply Agreement with A.M.G. Medical, Inc.
("AMG") whereby Can-Am agreed, with certain exceptions, to purchase 100% of its
requirements for monolet-compatible lancets from AMG for so long as Can-Am is in
the business of selling monolet compatible lancets. In addition, Can-Am entered
into a Management Services Agreement with AMG whereby AMG will provide labor,
office space, office related services and insurance to Can-Am for a term of five
years. Under the Management Services Agreement, Can-Am will pay AMG a fixed fee
to cover the costs of office space, tax, heating, maintenance and insurance
costs associated therewith, office expenses and telephone and computer equipment
and access expenses ("Fixed Fee"); a variable fee to cover the costs of
salaries, overtime pay, bonuses and related compensation of employees providing
services to Can-Am ("Variable Fee"); and the costs of all direct expenses
incurred by AMG, including supply expenses, postage costs, printing costs, and
other miscellaneous charges and expenses ("Direct Expenses"). During the first
year of the term of the Management Services Agreement, the Fixed Fee will be
$112,800. This fixed Fee will increase by 5% annually and is subject to change
after renegotiation based upon changes in the scope of services required by
Can-Am. The Variable Fee is based on the actual salaries paid by AMG to the AMG
employees providing services to Can-Am and the percentage of their time such
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<PAGE>   16

employees devote to providing services to Can-Am. The Direct Expenses are based
on the actual costs AMG incurs. Robert Oringer's wife owns 33% of AMG through a
personal holding company.

     To fund the cash portion of the purchase price, the Company and SCPI
entered into a $42 million credit agreement with a The Chase Manhattan Bank
("Chase"). The new credit agreement consists of a $37 million term loan and a $5
million revolving line of credit. Of the proceeds from this term loan, SCPI used
$32 million to finance the cash portion of the Can-Am purchase price and to
refinance the existing bank debt with Fleet National Bank ("Fleet"). The
remaining $5 million was used to repay a $5 million note payable by SCPI to the
Company. SCPI will use the remaining availability under the new credit facility
to fund working capital.

     The new credit agreement requires compliance with various financial and
non-financial covenants for both the Company and SCPI. The primary financial
covenants pertain to, among other things, interest coverage, debt services
coverage, leverage, and earnings before interest, taxes, depreciation and
amortization (EBITDA).

     The term loan and revolving line of credit allow SCPI to borrow funds at
varying rates, including options to borrow at an alternate base rate, as
defined, plus a spread from .25% to 1.75%, or the LIBOR rate plus a spread from
1.75% to 3.00%. The spreads discussed above depend on SCPI's ratio of senior
funded debt to EBITDA.

     Borrowings are secured by SCPI's stock, and the assets of SCPI, CanAm and
the Company and its subsidiaries. Borrowings under the revolving line of credit
are based on certain percentages of eligible assets, as defined. SCPI is
required to pay an annual fee of .375% for the unused portion of the revolving
line of credit. The revolving line of credit expires on February 18, 2002.

     SCPI is required to make quarterly principal payments ranging from $1.3
million to $1.95 million through December 31, 2003, with payments of
approximately $1.4 million beginning on June 30, 1998. SCPI and the Company must
also make mandatory prepayments on the term loan if they meet certain cash flow
thresholds, sell assets outside of the ordinary course of business, issue or
sell indebtedness or issue stock, as defined in the credit agreement.

ITEM 2.  DESCRIPTION OF PROPERTY.

     The Company's principal corporate administrative offices are housed in
10,000 square feet of leased space in Waltham, Massachusetts. The lease for this
facility is for a three-year term, expiring December 31, 1999, with a Company
option to extend for a two-year period and provides for monthly rent of $8,333.
The Company also leases facilities in Brussels, Belgium for a marketing and
sales office and for warehousing, and in Munich, Germany for offices and
warehouse space. The lease for the Company's facility in Belgium covers 80
square meters of space, provides for monthly rent of $800 and is terminable on
three months notice. The lease for the Company's facility in Germany covers 380
square meters of space, provides for rent of $6,666 per month and is for a term
ending May 31, 2000. The Company believes that its current facilities are
adequate for its existing operations for the foreseeable future.

     The Company's own manufacturing facilities are located in the United
Kingdom, Ireland and Scotland. The Inverness, Scotland facility consists of
50,000 square feet and includes areas for manufacture, warehousing, research and
development, and administrative offices. The Company manufactures diabetes
products (including generic test strips and test strips for FastTake(TM) and
blood glucose test strips for distribution by Menarini) at the Inverness
Facility. The Inverness Facility lease expires in 2015, with an option to
purchase at the open market value of the premises, and was rent-free through
1997. Cambridge Diagnostics is located in Galway, Ireland in a 40,000 square
foot facility leased from the Industrial Development Agency of Ireland and a
private developer under a lease which expires in 2022. The Galway Facility
houses the central manufacturing, warehousing, research and development, and
administrative functions of Cambridge Diagnostics, which is responsible for the
development, production and distribution of some of the Company's infectious
disease diagnostic products. In addition, pregnancy, ovulation prediction, birth
control and other women's health self-test products for the European market are
packaged at the Galway Facility and it is also used for the manufacture of
products for the diabetes and women's health markets.

                                       16
<PAGE>   17

     The FDA regulates companies that manufacture commercial medical devices and
requires that such companies manufacture such devices in a properly designed
environment. The Inverness Facility was designed and constructed, and the Galway
Facility has been upgraded, with the intention of complying with the FDA's GMP
regulations and requirements necessary for approvals and commercial sales within
the United States. The Company is required to register these facilities with the
FDA and to ensure that each meets GMP requirements prior to commercial sales in
the United States. Each registered facility is required to submit to an FDA
inspection no less frequently than every two years. The Company completed ISO
9002 regulation of the Galway Facility in August 1996 and registered the
Inverness Facility with the FDA during 1997.

     Orgenics houses its executive offices, development and manufacturing in a
leased facility of approximately 10,000 square feet in Yavne, Israel. The lease
for this facility expires in 2006 and carries rent of approximately $21,000 per
month. The facility includes a number of specialized features and equipment,
including environmentally controlled areas, customized production equipment, and
computerized systems for purchasing, inventory, and materials tracking. Orgenics
also maintains small sales offices in Courbevoie, France, Sao Paulo, Brazil, and
Bogota, Columbia. The lease for the French facility runs through 2006 and
carries monthly rent of approximately $6,000 which is linked to the French
building cost index. The lease for the Brazilian office is for one year with
monthly rent of approximately $2,000 and an option for another year. The lease
for the Columbian office is for a one year with monthly rent of approximately
$1,300 with a non-limited option. Orgenics' management has informed the Company
that they believe the existing facilities are adequate for Orgenics' present
level of operations for the foreseeable future.

     The company has insurance coverage for the properties and equipment that it
owns or houses.

ITEM 3.  LEGAL PROCEEDINGS

  Medical Selfcare, Inc. v. Selfcare, Inc.

     On November 15, 1997, Medical Selfcare, Inc. ("Medical") served process on
the Company in an action filed in the United States District Court for the
Northern District of California ("District Court") asserting service mark and
trade name infringement, unfair competition, dilution, and related claims
arising from the Company's use of the mark "Selfcare" for medical devices,
pharmaceutical products and nutritional supplements. Medical is seeking damages
for lost profits in an amount to be determined at trial, injunctive relief
barring the Company's use of the name and mark "Selfcare" in connection with its
products and services, destruction of products using the said name or mark,
disgorgement of profits gained from the alleged infringement, treble damages,
restitution, punitive damages and attorneys fees. The Company intends to defend
this litigation vigorously. The Company has answered the complaint and asserted
various defenses and has filed a counterclaim seeking cancellation of Medical's
federal service mark registrations. The Company has advised the District Court
of its intention to phase out the use of the mark in connection with its
nutritional supplement products. A hearing was held on Medical's motion for a
preliminary injunction before the District Court on December 19, 1997. On
January 5, 1998, the District Court entered an order, in the form proposed by
the Company, requiring that, effective six months thereafter, the Company cease
using the mark "Selfcare" on nutritional supplement products or packaging or
distributing nutritional supplement products or packaging bearing the mark, and
that the Company remove from its packaging the statement that the mark is
"registered." The case is now in the discovery stage of litigation. Although the
Company does not believe that the preliminary injunction will have a material
adverse impact on the Company's sales, operations and financial performance, a
final ruling against the Company on the merits of the case could have such an
impact.

  Institut Pasteur et al. v. Cambridge Biotech Corporation

     Through its wholly owned Irish subsidiary, Cambridge Diagnostics Ireland
Ltd. ("Cambridge Diagnostics"), the Company is currently producing diagnostic
test kits primarily for detecting antibodies to HIV, which are associated with
Acquired Immune Deficiency Syndrome ("AIDS"). Selfcare acquired Cambridge
Diagnostics (formerly known as Cambridge Biotech Limited) in November 1994 from
Cambridge Biotech Corporation ("Cambridge Biotech"), which at that time was
operating in Massachusetts under Chapter 11 of the U.S. Bankruptcy Code. Prior
to the acquisition (the "Cambridge Diagnostics Acquisition"), Cambridge

                                       17
<PAGE>   18

Biotech licensed from Pasteur Sanofi Diagnostics (formerly known as Diagnostics
Pasteur), certain HIV 1/2 immunoassay technologies relating to patents and
proprietary rights held by Institute Pasteur (the "Pasteur HIV Technologies"),
and required for production of HIV test kits, including the Selfcare HIV test
kits manufactured by Cambridge Diagnostics. Under the terms of Cambridge
Biotech's license agreements with Pasteur Sanofi Diagnostics, Cambridge Biotech
could not assign or sublicense its rights with respect to the Pasteur HIV
Technologies to Selfcare or to Cambridge Diagnostics. In order to allow Selfcare
and Cambridge Diagnostics to have access to such technologies, Selfcare and
Cambridge Biotech formed Cambridge Affiliate Corporation ("Cambridge
Affiliate"), 51% owned by Cambridge Biotech, and 49% owned by Selfcare, but
managed by Cambridge Diagnostics. The establishment of Cambridge Affiliate and
the terms of the arrangements relating thereto were considered and approved by
both U.S. and Irish bankruptcy courts in connection with the approval of the
sale of Cambridge Diagnostics by such courts. Cambridge Affiliate maintains its
own accounts and records and makes payments of royalties due under the Pasteur
Sanofi Diagnostics licenses to Cambridge Biotech. The licenses of the Pasteur
HIV Technologies to Cambridge Biotech are nonexclusive and cover diagnostic test
kits in finished form embodying the Pasteur HIV Technologies. The territorial
scope of the licenses is worldwide, with the exception of exclusive rights which
Pasteur Sanofi Diagnostics asserted to have granted in the Pasteur HIV
Technologies to Genetic Systems Corporation ("Genetic Systems") in the United
States, Canada, Mexico, Australia, New Zealand and India (the "Excluded
Countries"). However, the licenses provide that, to the extent that Pasteur
Sanofi Diagnostics recovers the right to practice the patents underlying the
Pasteur HIV Technologies in the Excluded Countries, Cambridge Biotech is
entitled to non-exclusive rights in such technology in such countries. In 1990,
Pasteur Sanofi Diagnostics acquired ownership of Genetic Systems, whereupon
Cambridge Biotech commenced selling products incorporating the Pasteur HIV
Technologies in the United States. These activities were challenged in a patent
infringement lawsuit filed in the United States Bankruptcy Court of the District
of Massachusetts (Western District) in March 1995 by Institute Pasteur, the
minority stockholders of Pasteur Sanofi Diagnostics and Genetic Systems. In
September 1995, the bankruptcy court ruled in favor of Cambridge Biotech on this
issue, and Institute Pasteur and Genetic Systems Corporation subsequently filed
an appeal to the United States District Court for the District of Massachusetts.
On July 18, 1997, a hearing was held on the merits of the appeal to the District
court by Institut Pasteur and Genetic Systems Corporation. The District court
affirmed the rulings of the bankruptcy court, holding that Cambridge Biotech may
sell products incorporating the Pasteur HIV Technologies in the United States.
Institut Pasteur and Genetic Systems Corporation have filed an appeal to the
Federal Circuit Court of Appeals and Cambridge Biotech has cross appealed to the
First Circuit Court of Appeals. The First Circuit has stayed Cambridge Biotech's
cross appeals pending a decision by the Federal Circuit on Cambridge Biotech's
motion filed in the Federal Circuit to have Institut Pasteur and Genetic Systems
Corporation's appeals either transferred to the First Circuit or dismissed. If
the bankruptcy court decision were reversed on appeal, the territories to which
Cambridge Affiliate could sell HIV-related products would be limited but this
would not have a material adverse effect on the Company.

  Enviromed plc

     The Company has been involved in a dispute with Enviromed plc with respect
to a joint venture agreement entered into between the Company and Enviromed in
March 1994 and other agreements (collectively, the "Disputed Enviromed
Agreements") entered into between the Company and Enviromed and its wholly-owned
subsidiary Cranfield Biotechnology Ltd. ("Cranfield") and the issuance of shares
of Common Stock to Enviromed in connection therewith. In connection with this
dispute, the Company has informed Enviromed that, due to the failure of
Enviromed and Cranfield to perform their obligations under the Disputed
Enviromed Agreements, it disputes Enviromed's ownership of the Common Stock held
of record by Enviromed. On July 5, 1996, Enviromed filed suit against the
Company and the representatives of the underwriters (the "IPO Representatives")
of Selfcare's initial public offering (the "Initial Public Offering") in United
States District Court for the Southern District of New York alleging breach of a
registration rights agreement relating to the Common Stock held of record by
Enviromed. Enviromed claimed that its rights under a registration rights
agreement were breached in connection with the Initial Public Offering and
requested damages, injunctive relief and a declaratory judgment that Enviromed
is the lawful owner of the

                                       18
<PAGE>   19

shares. The Company has filed counterclaims against Enviromed arising out of the
failure of Enviromed and Cranfield to perform their obligations under the
Disputed Enviromed Agreements and is contesting Enviromed's claims vigorously.
On October 18, 1996, the case was ordered transferred to the United States
District Court for the District of Massachusetts. The Company is not able to
estimate the amount of damages, if any, which might result from Enviromed's
claims against the Company, but believes that any such damages would not be in
an amount which would have a material adverse effect on the Company. The Company
agreed to indemnify the IPO Representatives for any losses they might incur,
including reasonable attorney's fees and expenses, as a result of the Enviromed
lawsuit. On November 15, 1996, Enviromed filed a dismissal without prejudice of
its claims against the IPO Representatives. On March 11, 1997, Enviromed and the
Company filed a stipulation of dismissal without prejudice of all the claims and
counterclaims in the case, and the case has been dismissed without prejudice.

FLAMBELLE LIMITED AND EASTCOURT LIMITED

     Trinity Biotech plc ("Trinity") and Eastcourt Limited ("Eastcourt") have
filed Schedule 13Ds with the Securities and Exchange Commission (the
"Commission") stating that Enviromed plc sold the Company's Common Stock held of
record by Enviromed to Flambelle Limited ("Flambelle"), a wholly-owned
subsidiary of Trinity, and Eastcourt, an entity owned 50% each by Enviromed and
Flambelle, on August 28, 1996. On November 1, 1996, Enviromed announced that it
had disposed of its holding of shares of Eastcourt to Flambelle for
consideration of $1.25 million. In December 1996, Eastcourt filed a Schedule
13D/A and Trinity and Flambelle filed a joint Schedule 13D with the Commission.
On February 12, 1997 Flambelle and Eastcourt commenced a lawsuit against the
Company in the United States District Court for the District of Massachusetts,
seeking a declaratory judgment that Flambelle and Eastcourt own the Common Stock
held of record by Enviromed plc and damages for alleged breach of a registration
rights agreement. As of March 6, 1998, the Company entered into a settlement
agreement with Trinity and Flambelle whereby the parties agreed that Flambelle
shall have title to 80% of the shares of Selfcare stock in dispute, amounting to
622,898 shares of the Company's Common Stock, and Selfcare shall have title to
20% of said shares, amounting to 155,724 shares of its Common Stock. Replacement
stock certificates have been issued and the lawsuit has been dismissed with
prejudice.

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

     Not applicable.

                                    PART II

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

     The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "SLF." The following table sets forth, for the periods
indicated, the high and low sale prices of the Common Stock on the AMEX. The
Initial Public Offering of the Common Stock at $8.50 per share was completed on
August 6, 1996.

<TABLE>
<CAPTION>
                                                                  PRICE RANGE
                                                              --------------------
                                                                HIGH        LOW
                                                                ----        ---
<S>                                                           <C>         <C>
Year ended December 31, 1996
     3rd Quarter (commencing August 7, 1996)................  $17.7500    $ 8.5000
     4th Quarter............................................   18.0000     11.5000
Year ended December 31, 1997
     1st Quarter............................................  $13.6250    $ 8.7500
     2nd Quarter............................................   13.6875      8.6250
     3rd Quarter............................................   13.4375     11.0000
     4th Quarter............................................   12.8750      8.2500
</TABLE>

     At February 25, 1998, there were 211 holders of record of the Company's
Common Stock.

                                       19
<PAGE>   20

     The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, on the Common Stock will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion. Holders of Series A
Preferred Shares were generally entitled to receive cumulative quarterly
dividends payable in cash at the rate of 6% per annum.

RECENT SALES OF UNREGISTERED SECURITIES

     During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each transaction
(with the exception of the transactions described in paragraphs 6 and 8 below)
was exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), by reason of Section 4(2) thereof, based on the
private nature of the transactions and the financial sophistication of the
purchasers, all of whom had access to complete information concerning the
Company and acquired the securities for investment and not with a view to the
distribution thereof. The Company believes that the transactions described in
paragraphs 6 and 8 below were exempt from the registration requirements of the
Securities Act by reason of Rule 701 promulgated thereunder, because the
issuance of the options described was pursuant to a written compensatory benefit
plan of the Company, a copy of which was given to each participant in the plan,
and the aggregate offering price did not exceed the limit prescribed by Rule
701.

     1. On January 1, 1995, the Company, in connection with the Company's
issuance of the Cambridge Diagnostics Notes to finance the Cambridge Diagnostics
Acquisition, issued an aggregate of 119,834 shares of Common Stock to USB '93 as
consideration for its services as placement agent for the Cambridge Diagnostic
Notes.

     2. On January 31, 1995, the Company, in connection with the Cambridge
Diagnostics Acquisition, issued an aggregate of 92,950 shares of Common Stock to
Ron Zwanziger in consideration of Mr. Zwanziger's personal guarantee of the
Cambridge Diagnostic Notes.

     3. On February 1, 1995, the Company issued an aggregate of 27,690 shares of
Common Stock for an aggregate purchase price of $70,013 to certain existing
stockholders in connection with the Company's outstanding November 23, 1994
offer to sell additional shares of Common Stock.

     4. On March 1, 1995, the Company issued an aggregate of 13,000 shares of
Common Stock for an aggregate purchase price of $32,870 to James Yafrate.

     5. On March 30, 1995, the Company, in connection with the Company's
financing of the Cambridge Diagnostics Acquisition through the issuance of the
Cambridge Diagnostics Notes, issued the Cambridge Diagnostics Warrants to the
purchasers of the Cambridge Diagnostic's Notes, including Mr. Zwanziger, Dr.
Scott and Mr. Umphrey, for an aggregate purchase price of $30,000. The number of
shares of Common Stock issuable pursuant to the Cambridge Diagnostics Warrants
is calculated based on the net sales of Cambridge Diagnostics for the fiscal
year preceding the repayment of the Cambridge Diagnostics Notes, divided by
$32.87. On December 31, 1996, the Company agreed to issue, for no additional
consideration, 1,133,113 shares of Common Stock upon the earlier to occur of
January 15, 2000 or a change in control of the Company, in exchange for the
termination and cancellation of the Cambridge Diagnostic Warrants which, if
exercisable as of December 31, 1996, would have been exercisable for 1,133,113
shares of Common Stock.

     6. On October 15, 1995, the Company granted options to purchase up to
118,508 shares of Common Stock to certain employees in lieu of salary at an
exercise price of $2.53 per share.

     7. On December 1, 1995, the Company issued an aggregate of 14,365 shares of
Common Stock for an aggregate purchase price of $36,315 to certain employees of
the Company.

                                       20
<PAGE>   21

     8. On December 1, 1995, pursuant to Jim Walsh's exercise of a partially
vested option granted on November 11, 1994 under the 1994 Incentive and
Non-Qualified Stock Option Plan to purchase up to 39,000 shares of Common Stock
and a fully vested option granted on November 11, 1994 to purchase up to 19,500
shares of Common Stock, the Company issued an aggregate of 27,300 shares of
Common Stock for an aggregate purchase price of $69,027 to Mr. Walsh.

     9. On December 29, 1995, the Company issued an aggregate of 2,028 shares of
Common Stock for an aggregate purchase price of $5,128 to Geoff Hall.

     10. On May 7, 1996, the Company issued an aggregate of 135,421 shares of
Common Stock to Medica Investments (Israel) L.P. and Medica Investments (U.S.)
L.P. in connection with the Company's exercise of its right to acquire their
interest in the $1.0 million debenture issued by Orgenics Ltd.

     11. On October 7, 1996, the Company issued 201,622 shares of Common Stock
to Johnson & Johnson Development Corporation ("JJDC") in connection with the
LifeScan Alliance. On January 16, 1998 the Company issued an additional 9,743
shares of Common Stock to JJDC in connection with the LifeScan Alliance.

     12. On October 10, 1996, the Company issued an aggregate of 3,000 shares of
Series A Convertible Preferred Stock ("Series A Preferred Shares") to certain
non-U.S. investors for an aggregate of $3,000,000.

     13. On October 14, 1996, the Company issued 1,000 Series A Preferred Shares
to Societe Generale for $1,000,000.

     14. On October 17, 1996, the Company issued 500 Series A Preferred Shares
to Gifford Fund Ltd for $500,000.

     15. On October 24, 1996, the Company issued 500 Series A Preferred Shares
to Privatinvest Bank AG for $500,000.

     16. On October 28, 1996, the Company issued 500 Series A Preferred Shares
to Selfcare Holdings, Ltd. for $500,000.

     17. All of the Series A Preferred Shares have been converted into shares of
Common Stock pursuant to the terms of such Series A Preferred Shares.

     18. On November 8, 1996, pursuant to Christopher Covington's exercise of
vested options granted on September 3, 1993 and April 30, 1993 under the
Selfcare 1992 Stock Plan, the Company issued an aggregate of 45,500 shares of
Common Stock for an aggregate purchase price of $70,000 to Mr. Covington.

     19. On August 26, 1997, the Company issued an aggregate of 8,000 shares of
Series B Convertible Preferred Stock ("Series B Preferred Shares") having a
total aggregate purchase price of $8 million to Capital Ventures International,
C.C. Investments LDC, Proprietary Convertible Investment Group, Inc. The Series
B Preferred Shares convert into shares of Common Stock of the Company. As of
March 24, 1998, 7,250 Series B Preferred Shares remained unconverted.

     20. On October 27, 1998, the Company issued Senior Subordinated Convertible
Notes due October 28, 2002, in the aggregate principal amount of $10,000,000 and
warrants which are exercisable for up to 106,700 shares of the Company's Common
Stock to Elliot Associates, L.P. and Westgate International, L.P. and an
additional 31,250 shares of Common Stock to Shoreline Pacific Institutional
Finance, a Division of Financial West Group.

     21. In October 1996, the Company purchased 200,000 common shares of
Enviromed plc ("Enviromed") and agreed to purchase EN PLC Limited Partnership's
("EN PLC") holding of 7,961,386 common shares of Enviromed for a promissory note
with a principal amount of approximately $3.8 million. In November 1996, the
Company purchased an additional 100,000 common shares of Enviromed. Effective as
of January 1, 1997, the Company and EN PLC entered into an amendment to the
agreement (the "EN PLC Agreement") with EN PLC pursuant to which the Company
agreed to issue two promissory notes, in principal amounts of approximately $2.8
million and $1.0 million respectively, evidencing the purchase price under the
EN PLC

                                       21
<PAGE>   22

Agreement (the "EN PLC Notes"). In December 1997, the Company exchanged notes
that are convertible into shares of Common Stock (the "Convertible EN PLC
Notes") in a principal amount equal to approximately $1.6 million for payments
due in January and April 1998 under the EN PLC Notes. The Convertible EN PLC
Notes bear interest at the rate of 10% per year, mature on the six-month
anniversary of the date of issuance of the Convertible EN PLC Notes (the
"Convertible EN PLC Notes Maturity Date"), are convertible by the holders
thereof in whole at any time on or prior to the Convertible EN PLC Notes
Maturity Date into that number of shares of Common Stock determined by dividing
the principal balance of such Convertible EN PLC Notes plus any accrued interest
thereon by $7.225 (the "EN PLC Conversion Price") and will automatically
convert, without any action on the part of the holders thereof, on the
Convertible EN PLC Notes Maturity Date, in the event they are not sooner prepaid
or converted, into that number of shares of Common Stock determined by dividing
the principal balance of such Convertible EN PLC Notes plus the accrued interest
thereon by the EN PLC Conversion Price. The shares of Common Stock into which
the Convertible EN PLC Notes are convertible did not receive rights to register
such shares under the Securities Act. Therefore, such shares of Common Stock
will not be freely transferable absent an available exemption from registration.
The EN PLC Conversion Price represents a 15% discount from the closing price of
the Company's Common Stock on the date immediately preceding the effective date
of the exchange of the amounts due under the EN PLC Notes in January and April
1998 for the Convertible EN PLC Notes, reflecting in part the fact that shares
issuable upon conversion of the Convertible EN PLC Notes are not freely
transferable. The holders of EN PLC Notes included the following directors and
officers, which directors and officers exchanged an aggregate amount of
approximately $0.8 million on identical terms with all other holders of EN PLC
Notes: Carol R. Goldberg, John F. Levy, Willard L. Umphrey and Ron Zwanziger.
The other holders of the EN PLC Notes were: Alex Bodkin, Andrew Bodkin, Steve
Chubb, John Glode, Orit Goldstein, Leroy Schecter, and Lois Silverman.

     22. In November 1994, Selfcare acquired Cambridge Diagnostics from
Cambridge Biotech Corporation for an aggregate of $2.1 million and the
assumption of certain liabilities. In addition, the Company furnished Cambridge
Diagnostics with a $900,000 working capital line of credit. Selfcare financed
the acquisition of Cambridge Diagnostics by utilizing a bank line of credit and
subsequently refinanced the amount borrowed through the issuance of an aggregate
of $3.0 million in original principal amount of 10% promissory notes (the "CDIL
Notes"), together with attached warrants with an aggregate purchase price of
$30,000 (the "CDIL Warrants"). The CDIL Notes were due March 31, 1998, and bore
interest at the rate of 10% per year. The number of shares of Common Stock
issuable pursuant to the CDIL Warrants is equal to 69% of the net sales of
Cambridge Diagnostics for the fiscal year preceding the repayment of the CDIL
Notes, divided by $32.87. Based on this formula and Cambridge Diagnostics' net
sales for fiscal year 1995, had the CDIL Notes been repaid on December 31, 1996,
all of the CDIL Warrants would have become exercisable for an aggregate of
1,142,635 shares of Common Stock. On December 31, 1996, the holders of $2.6
million in principal amount of the CDIL Notes entered into agreements (the
"Extension Agreements") to terminate and cancel their CDIL Warrants, in exchange
for which the Company agreed to transfer to such holders, for no additional
consideration, an aggregate of 990,050 shares of Common Stock on the earlier of
January 15, 2000, or the occurrence of a change in control (as defined in the
Extension Agreements) of the Company. In December 1997, the Company accelerated
the issuance of the 990,050 shares to December 17, 1997. In December 1997, the
Company entered into exchange agreements with the holders of approximately $2.95
million of CDIL Notes pursuant to which the Company exchanged notes convertible
into shares of Common Stock (the "Convertible CDIL Notes") for the CDIL Notes.
The Convertible CDIL Notes were issued in a principal amount equal to the
principal amount of the CDIL Notes exchanged by the holders thereof, bear
interest at the rate of 10% per year, mature on the six-month anniversary of the
date of issuance of the Convertible CDIL Notes (the "Convertible CDIL Notes
Maturity Date"), are convertible by the holders of such Convertible CDIL Notes
in whole at any time on or prior to the Maturity Date into that number of shares
of Common Stock determined by dividing the principal balance of such Convertible
CDIL Notes plus any accrued interest thereon by $7.225 (the "CDIL Conversion
Price"), and will automatically convert, without any action on the part of the
holders, on the Convertible CDIL Notes Maturity Date, in the event they are not
sooner prepaid or converted, into that number of shares of Common Stock
determined by dividing the principal balance of such Convertible CDIL Notes plus
the accrued interest thereon by the Conversion Price. The shares of Common

                                       22
<PAGE>   23

Stock into which the Convertible CDIL Notes are convertible did not receive
rights to register such shares under the Securities Act. Therefore, such shares
of Common Stock will not be freely transferable absent an available exemption
from registration. The CDIL Conversion Price represents a 15% discount from the
closing price of the Company's Common Stock on the date immediately preceding
the effective date of the exchange of the CDIL Notes for the Convertible CDIL
Notes, reflecting in part the fact that shares issuable upon conversion of the
Convertible CDIL Notes are not freely transferable. The direct and indirect
holders of CDIL Notes included the following directors and officers, which
directors and officers exchanged an aggregate principal amount of approximately
$0.8 million of CDIL Notes on identical terms with all other holders of CDIL
Notes: John F. Levy, Willard L. Umphrey and Ron Zwanziger. The other holders of
the CDIL Notes were; Douglas Alcaide, Murat Anamur & Deniz Ozel, Alex Bodkin,
Charles T. Comiso, Ann M. Dignam, Edward Eagan, Kenton & Hannalore Eldridge,
Alan S. Fitz MPPP, Ralph Freidin, T. Lawrence Gasse, John B. Glode, Orit
Goldstein, Tonlyn Investments Ltd., Susan Hartz, George Howell, James L. Katz,
Roy E. Kent, Ming Lash, Martin P. Lele, Steven D. Levy, Kathleen Mason, Richard
Mastromatteo, Sue Beth Mazer, Lawrie Okurowski, Mark Parent, Domenic Pugliares,
David Scott, Barbara Sherman, Donald S. and Barbara Sherman JT WROS, Lois
Silverman, Dorairaju Thavaseelan, M.J. Tolkoff, U.S. Boston Corp. Profit Sharing
Retirement Plan FBO Leon Okurowski, and Arieh & Miriam Zwanziger. In addition,
U.S. Boston Capital Corporation, a broker-dealer, the President of which is
Willard L. Umphrey, a director and principal stockholder of the Company,
received a fee of three percent (3%) of the principal amount of the CDIL Notes
exchanged as compensation for services rendered by U.S. Boston Capital
Corporation in connection with the exchange.

     23. On February 19, 1998, the Company issued a total of 1,108,331 shares of
its Common Stock as part of the consideration for the acquisition of Can-Am Care
Corporation. Pursuant to the acquisition, Robert Oringer received 277,083
shares, Cover Family Trust received 277,083 shares, Allan M. Goldenburg received
277,084 shares and Benjamin Topor received 277,083 shares.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     Net Revenues.  Net revenues in 1997 increased $33.2 million or 174% to
$52.3 million from $19.1 million in 1996. Net product sales increased $36.8
million or 262% to $50.9 million from $14.1 million in 1996. The primary reason
for the increase in revenues was the addition of the Nutritional Supplement
Lines acquired in February 1997. Net sales of Nutritional Supplement Lines were
$18.1 million in 1997. The Company's net sales for women's health products for
1997 were $14.4 million, an increase of $6.9 million or 92% from net sales of
$7.5 million in 1996. The increase in the net sales of women's health products
is attributed to new private label accounts. Net sales of diagnostic products
for 1997 were $18.3 million, an increase of $11.7 million or 178% from net sales
of $6.6 million in 1996. The increase in diagnostic product sales is primarily
due to the Company's acquisition of Orgenics in October 1996. In December 1997,
the Company had its first sales of its electrochemical blood glucose monitoring
system to LifeScan. The net sales to LifeScan accounted for only $144,000 in
1997, but the Company expects sales to LifeScan and in the diabetes segment of
the business in general to be a significant portion of 1998 and future revenues.
Grant and other revenue was $1.4 million, in 1997, a decrease of $3.6 million or
73% from grant and other revenue of $5.0 million in 1996. In 1996, the Company
recognized $4.0 million of revenue related to a $7.0 million success fee
received from LifeScan in October 1996. The Company did not recognize revenue
related to the aforementioned success fee in 1997. Approximately $1.1 million of
the revenues for 1997 was attributable to the amortization of deferred revenue
associated with certain development and capital grants relating to the Inverness
Facility. There was approximately $722,000 of revenue recognized in connection
with the grants related to the Inverness Facility for 1996.

     Gross Profit.  Gross profit for 1997 increased $17.9 million or 220% to
$26.0 million from $8.1 million in 1996. Gross profit as a percentage of net
revenues increased to 50% for 1997 from 43% in 1996. Gross profit on product
sales was 47% in 1997 and 16% in 1996. The increase in gross profit was
primarily attributable to the addition of revenue from the Nutritional
Supplement Lines. Gross profit on the Nutritional Supplement Lines was $11.6
million or 64% of the net sales of the Nutritional Supplement Lines. Gross
profit on women's health

                                       23
<PAGE>   24

products was $4.4 million or 31% of the net sales of women's health products in
1997 compared to $600,000 or 8% of the net sales of women's health products in
1996. The increase was primarily due to provisions for product returns recorded
in 1996 due to consolidation in the industry and cost reductions realized in
1997 from the manufacture of pregnancy test sticks at the Company's facility in
Galway, Ireland. Gross profit on diagnostic products was $9.9 million or 54% of
the net sales diagnostic products in 1997 compared to $2.5 or 38% of the net
sales of diagnostic products in 1996. The increase in gross profit on diagnostic
product sales is primarily due to the Company's acquisition of Orgenics in
October 1996.

     Research and Development Expense.  Research and development expense for
1997 increased $9.0 million or 135% to $15.6 million from $6.6 million in 1996.
The increase was primarily due to expenses incurred in connection with the
development of the Company's electrochemical blood glucose monitoring system and
increased spending on research related to noninvasive blood glucose
technologies. These development activities accounted for $11.5 million of the
1997 research and development expense. In addition, the Company continues to
allocate research and development resources to the areas of women's health
products, nutritional supplements and infectious diseases, principally those
related to the detection of HIV. The Company expects to continue to spend
significant amounts on research and development throughout 1998.

     Charge for In Process Research and Development.  A portion of the purchase
price of the Company's acquisition of Orgenics was allocated to in process
research and development projects that did not achieve technological feasibility
and did not have future alternative uses. The total charge for in process
research and development was $7.7 million of which $3.3 million was expensed in
1997 and $4.4 million was expensed in 1996.

     Selling, General and Administrative Expense.  Selling, general and
administrative expense increased $15.1 million or 144% to $25.6 million from
$10.5 million in the 1996. The increase was primarily attributable to the
acquisition of Orgenics and marketing efforts and the hiring of additional staff
to support the sales of the Nutritional Supplement Lines. Selling, general and
administrative expense, as a percentage of net revenues, decreased during 1997
as compared to 1996. Selling, general and administrative expense were 49% of net
revenues for 1997 compared to 55% for 1996.

     Non-Cash Compensation Expense.  The non-cash compensation expense of
$168,000 for 1997 relates to compensation pertaining to the grant of certain
stock options to employees. Substantially all of the non-cash compensation
expense for 1996 related to certain stock options granted to certain employees
of the Company. For 1996 the non-cash compensation expense related to a stock
option granted to the Company's Chief Executive Officer in August 1995 was $3.2
million. Additional non-cash compensation expense of $680,000 for 1996 related
to stock options granted to certain other employees that were contingent on
certain goals that were met. In accordance with SFAS No. 123, Accounting for
Stock Based Compensation, the Company recorded non-cash compensation expense of
$76,000 for stock options granted to outside consultants. The remaining $199,000
of non-cash compensation expense for 1996 relates to the amortization of
deferred compensation pertaining to the grant of certain stock options to
employees.

     Interest and Other Income (Expense).  In 1997, the Company recognized
$498,000 of non-cash interest expense for the amortization of the original issue
discount on convertible notes and warrants. In 1996, the Company recognized
$10.6 million of non-cash interest expense relating to certain warrants issued
in connection with the acquisition of Cambridge Diagnostics. The charge relates
to the increase in the fair market value of the underlying Common Stock at
December 31, 1996 as compared to the estimated fair market value at December 31,
1995. Excluding the aforementioned non-cash charges, interest expense was $5.0
million for 1997 as compared to $662,000 for 1996. The increase in interest
expense is due to new financing activities in 1997 that are described under the
caption of "Liquidity and Capital Resources". The interest expense on financing
received in 1997 was $1.8 million on the loans from Fleet National Bank,
$400,000 on the AHP Note, $900,000 on the Subordinated Revenue Royalty Notes,
$800,000 on the Senior Subordinated Convertible Notes, and $300,000 on a loan
from LifeScan. Interest income increased by $425,000 to $968,000 for 1997 from
$543,000 in 1996, primarily due to larger cash balances.

                                       24
<PAGE>   25

     The Company incurred an unrealized loss of $717,000 in 1997 on the
translation of intercompany receivables. Fluctuations in foreign currency did
not significantly impact revenue performance measured in U.S. dollars for 1997.
Substantially all sales are paid in the functional currency of the selling
entity.

     Dividends and Minority Interest.  The Company's subsidiary in Inverness,
Scotland accrued $114,000 for 1997, representing a 6% dividend payable on its
outstanding cumulative redeemable preference shares, as compared to $110,000 for
1996. The Company recognized a $327,000 loss in 1997 related to its 28.9% equity
in the net loss of Enviromed compared to a $200,000 loss recognized in 1996.
Minority interest in certain of the Company's subsidiaries was $181,000 in 1997
and $133,000 in 1996.

     Extraordinary Loss.  In 1997, the Company incurred a non-cash charge of
$579,000 for the extinguishment of debt related to the Cambridge Diagnostics
Notes and ENPLC Notes which were exchanged for convertible notes.

     Income Taxes.  In 1997, the Company recorded provisions of $196,000 for
income taxes of which $175,000 is estimated Pennsylvania state income tax.

     Net Loss.  Net loss for 1997 was approximately $24.7 million or ($3.36) per
common share as compared to $28.6 million or ($6.00) per common share in 1996.
The net loss in 1997 includes non-cash charges for (i) interest expense of
$498,000, (ii) an extraordinary loss on the extinguishment of debt of $579,000,
(iii) in process research and development of $3.3 million and (iv) equity in the
net loss of Enviromed of $327,000. The net loss in 1996 includes non-cash
charges for (i) interest expense of $10.6 million, (ii) compensation expense of
$4.2 million, (iii) in process research and development of $4.4 million and (iv)
equity in the net loss of Enviromed of $200,000. Excluding the non-cash charges
results in a net loss of $20.0 million or ($2.50) per common share in 1997 as
compared to $9.2 million or ($1.92) per common share for 1996. These losses
reflect increased spending on research and development as well as expansion of
the Company's sales and marketing efforts and the hiring of additional staff to
support the Company's operations.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

     Net Revenues.  Net revenues increased $11.8 million or 163% to $19.1
million from $7.2 million in 1995. Net product sales increased $7.3 million or
109% to $14.1 million from $6.7 million in 1995. Two significant factors
contributed to the increase. The first was the acquisition of 57.1% of Orgenics
on October 24, 1996, which accounted for $2.0 million of the sales in 1996. The
second was the increased demand in the United States for the Company's pregnancy
and ovulation prediction products. Net product sales for the Company's U.S.
operations for 1996 were $6.6 million, an increase of $4.5 million or 218% from
net product sales of $2.1 million in 1995. The Company also recognized $4.0
million of revenue related to a $7.0 million success fee received from LifeScan
in October 1996. Approximately $722,000 of the revenues for 1996 was
attributable to the amortization of deferred revenue associated with certain
development and capital grants relating to the Inverness Facility. There was
approximately $216,000 of revenue recognized in connection with these grants for
1995.

     Gross Profit.  Gross profit for 1996 increased $6.4 million or 384% to $8.1
million from $1.7 million in 1995. Gross profit as a percentage of net revenues
increased to 43% for 1996 from 23% in 1995. The increase in gross profit was
primarily attributable to the revenue related to the success fee from LifeScan
and the amortization of deferred revenue of certain development and capital
grants relating to the Inverness Facility. Gross profit on product sales was 16%
for both years.

     Research and Development Expense.  Research and development expense for
1996 increased $5.1 million or 333% to $6.6 million from $1.5 million in 1995.
The increase was primarily due to expenses incurred in connection with the
development of the Company's New System and generic electrochemical blood
glucose test strips. These development activities accounted for $4.0 million of
the increase in 1996. In addition, the Company continues to allocate research
and development resources to the areas of women's health products and infectious
diseases, principally those related to the detection of HIV.

                                       25
<PAGE>   26

     Charge for In Process Research and Development.  A portion of the purchase
price of the Company's 57.1% interest in Orgenics was allocated to in process
research and development projects that did not achieve technological feasibility
and did not have future alternative uses.

     Selling, General and Administrative Expense.  Selling, general and
administrative expense increased $4.9 million or 86% to $10.5 million from $5.6
million in the 1995. The increase was primarily attributable to expansion of the
Company's marketing efforts in the United States and Europe and the hiring of
additional staff to support the Company's operations. Selling, general and
administrative expense, as a percentage of net revenues, decreased during 1996
as compared to 1995. Selling, general and administrative expense were 55% of net
revenues for 1996 compared to 78% for 1995.

     Non-Cash Compensation Expense.  Substantially all of the non-cash
compensation expense for 1996 related to certain stock options granted to
certain employees of the Company. For 1996 the non-cash compensation expense
related to a stock option granted to the Company's Chief Executive Officer in
August 1995 was $3.2 million. Non-cash compensation expense of $680,000 for 1996
related to stock options granted to certain employees that were contingent on
certain goals which have now been met. In accordance with SFAS No. 123,
Accounting for Stock Based Compensation, the Company recorded non-cash
compensation expense of $76,000 for stock options granted to outside
consultants. The remaining $199,000 of non-cash compensation expense for 1996
relates to the amortization of deferred compensation pertaining to the grant of
certain stock options to employees.

     Interest and Other Income (Expense).  In 1996, the Company recognized $10.6
million of non-cash interest expense relating to certain warrants issued in
connection with the acquisition of Cambridge Diagnostics. The charge relates to
the increase in the fair market value of the underlying Common Stock at December
31, 1996 as compared to the estimated fair market value at December 31, 1995.
Excluding the non-cash interest expense relating to the warrants, interest
expense was $662,000 for 1996 as compared to $283,000 for 1995. Interest income
increased by $505,000 for 1996 as compared to last year, primarily due to larger
cash balances.

     Fluctuations in foreign currency did not significantly impact revenue
performance measured in U.S. dollars for 1996. Substantially all sales are paid
in the functional currency of the selling entity.

     Dividends and Minority Interest.  The Company's subsidiary in Inverness,
Scotland accrued $110,000 for 1996, representing a 6% dividend payable on its
outstanding cumulative redeemable preference shares, as compared to $56,000 for
1995. The Company also recognized a $200,000 loss related to its 28.9% equity in
the net loss of Enviromed and an allocation of $133,000 minority interest in
Orgenics.

     Net Loss.  Net loss for 1996 was approximately $28.6 million or ($6.00) per
common share as compared to $10.1 million or ($2.61) per common share in 1995.
Excluding the previously described non-cash interest expense of $10.6 million,
non-cash compensation expense of $4.2 million, non-cash charge for in process
research and development of $4.4 million and equity in the net loss of Enviromed
of $200,000 in 1996 and non-cash interest expense of $4.2 million in 1995
results in a net loss of $9.2 million or ($1.92) per common and common
equivalent share in 1996 as compared to $5.8 million or ($1.52) per common and
common equivalent share for 1995. These losses reflect increased spending on
research and development as well as expansion of the Company's sales and
marketing efforts and the hiring of additional staff to support the Company's
operations.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has financed its operations primarily through the funds it has
received in connection with the Initial Public Offering, a secondary public
offering, funds received in connection with the LifeScan Alliance, private
placements of debt and equity securities, a bank line of credit and other
borrowings, cash from product sales and grants from government development
agencies.

     In November 1995, in connection with the closing of an investment agreement
between Johnson & Johnson Development Corporation ("JJDC") and the Company,
Selfcare received an advance of $7.0 million from JJDC. The Company received an
additional $6.7 million advance in May 1996 in connection with the
                                       26
<PAGE>   27

Company's filing of a Section 510(k) Notification with respect to the prior
version of FastTake(TM) and the acceptance for the filing by the FDA on May 21,
1996 of such notification. In September 1996, the Company received FDA Clearance
for the prior version of the FastTake(TM). In conjunction with LifeScan, the
Company subsequently undertook certain enhancements to the user interface
features for the prior version of the FastTake(TM). The underlying chemistry and
function of the disposable strips of FastTake(TM), however, were not changed
from those of the prior version of FastTake(TM). On October 22, 1996 the Company
announced that it had entered into the Distribution Agreement with LifeScan
pursuant to which LifeScan will distribute the FastTake(TM). The Company filed a
Section 510(k) Notification in February 1997 with the FDA with respect to
FastTake(TM). FastTake(TM) received FDA clearance to market on June 20, 1997. As
contemplated by the November 10, 1995 agreements between Selfcare and LifeScan,
LifeScan paid Selfcare in October 1996 a $7.0 million success fee and JJDC
converted its previous cash advances to Selfcare of approximately $13.7 million
into 201,622 shares of Common Stock upon the consummation of the distribution
agreement with the Company. In addition, JJDC will also receive, for no
additional consideration, additional shares of Common Stock equal to 5% of all
Common Stock issued by the Company pursuant to options and warrants that were
outstanding as of November 10, 1995. To date, JJDC has received an additional
9,743 shares of Common Stock. The Company estimates that JJDC will ultimately
receive approximately an additional 245,583 shares of Common Stock.

     In November 1994, Selfcare acquired Cambridge Diagnostics from Cambridge
Biotech Corporation for an aggregate of $2.1 million and the assumption of
certain liabilities. In addition, the Company furnished Cambridge Diagnostics
with a $900,000 working capital line of credit. Selfcare financed the
acquisition of Cambridge Diagnostics by utilizing a bank line of credit and
subsequently refinanced the amount borrowed through the issuance of an aggregate
of $3.0 million in original principal amount of 10% promissory notes (the "CDIL
Notes"), together with attached warrants with an aggregate purchase price of
$30,000 (the "CDIL Warrants"). The CDIL Notes were due March 31, 1998, and bore
interest at the rate of 10% per year. The number of shares of Common Stock
issuable pursuant to the CDIL Warrants is equal to 69% of the net sales of
Cambridge Diagnostics for the fiscal year preceding the repayment of the CDIL
Notes, divided by $32.87. Based on this formula and Cambridge Diagnostics' net
sales for fiscal year 1995, had the CDIL Notes been repaid on December 31, 1996,
all of the CDIL Warrants would have become exercisable for an aggregate of
1,142,635 shares of Common Stock. On December 31, 1996, the holders of $2.6
million in principal amount of the CDIL Notes entered into agreements (the
"Extension Agreements") to terminate and cancel their CDIL Warrants, in exchange
for which the Company agreed to transfer to such holders, for no additional
consideration, an aggregate of 990,050 shares of Common Stock on the earlier of
January 15, 2000, or the occurrence of a change in control (as defined in the
Extension Agreements) of the Company. In December 1997, the Company accelerated
the issuance of the 1,142,635 shares to December 17, 1997. In December 1997, the
Company entered into exchange agreements with the holders of approximately $2.95
million of CDIL Notes pursuant to which the Company exchanged notes convertible
into shares of Common Stock (the "Convertible CDIL Notes") for the CDIL Notes.
The Convertible CDIL Notes were issued in a principal amount equal to the
principal amount of the CDIL Notes exchanged by the holders thereof, bear
interest at the rate of 10% per year, mature on the six-month anniversary of the
date of issuance of the Convertible CDIL Notes (the "Convertible CDIL Notes
Maturity Date"), are convertible by the holders of such Convertible CDIL Notes
in whole at any time on or prior to the Maturity Date into that number of shares
of Common Stock determined by dividing the principal balance of such Convertible
CDIL Notes plus any accrued interest thereon by $7.225 (the "CDIL Conversion
Price"), and will automatically convert, without any action on the part of the
holders, on the Convertible CDIL Notes Maturity Date, in the event they are not
sooner prepaid or converted, into that number of shares of Common Stock
determined by dividing the principal balance of such Convertible CDIL Notes plus
the accrued interest thereon by the Conversion Price. The shares of Common Stock
into which the Convertible CDIL Notes are convertible did not receive rights to
register such shares under the Securities Act. Therefore, such shares of Common
Stock will not be freely transferable absent an available exemption from
registration. The CDIL Conversion Price represents a 15% discount from the
closing price of the Company's Common Stock on the date immediately preceding
the effective date of the exchange of the CDIL Notes for the Convertible CDIL
Notes, reflecting in part the fact that shares issuable upon conversion of the
Convertible CDIL Notes are not freely transferable. The direct and indirect
holders of

                                       27
<PAGE>   28

CDIL Notes included the following directors and officers, which directors and
officers exchanged an aggregate principal amount of approximately $0.8 million
of CDIL Notes on identical terms with all other holders of CDIL Notes: John F.
Levy, Willard L. Umphrey and Ron Zwanziger. The other holders of the CDIL Notes
were; Douglas Alcaide, Murat Anamur & Deniz Ozel, Alex Bodkin, Charles T.
Comiso, Ann M. Dignam, Edward Eagan, Kenton & Hannalore Eldridge, Alan S. Fitz
MPPP, Ralph Freidin, T. Lawrence Gasse, John B. Glode, Orit Goldstein, Tonlyn
Investments Ltd., Susan Hartz, George Howell, James L. Katz, Roy E. Kent, Ming
Lash, Martin P. Lele, Steven D. Levy, Kathleen Mason, Richard Mastromatteo, Sue
Beth Mazer, Lawrie Okurowski, Mark Parent, Domenic Pugliares, David Scott,
Barbara Sherman, Donald S. and Barbara Sherman JT WROS, Lois Silverman,
Dorairaju Thavaseelan, M.J. Tolkoff, U.S. Boston Corp. Profit Sharing Retirement
Plan FBO Leon Okurowski, and Arieh & Miriam Zwanziger. In addition, U.S. Boston
Capital Corporation, a broker-dealer, the President of which is Willard L.
Umphrey, a director and principal stockholder of the Company, received a fee of
three percent (3%) of the principal amount of the CDIL Notes exchanged as
compensation for services rendered by U.S. Boston Capital Corporation in
connection with the exchange.

     The Company received $1.6 million in June 1995 from an investment by
Inverness & Nairn Local Enterprise Corporation ("INLEC"), a development agency
funded by the government of the United Kingdom, in 1,000,000 shares of 6%
Cumulative Redeemable Preference Shares (the "Preference Shares") of Inverness
to finance a portion of the start-up costs relating to the facility in
Inverness, Scotland. The Preference Shares held by INLEC (including cumulative
dividend) are reflected in the accompanying consolidated balance sheets as
mandatorily redeemable preferred stock of a subsidiary. The Company must redeem
all 1,000,000 Preference Shares by May 31, 2000. If the Company cannot legally
redeem the Preference Shares on that date, it must redeem the shares as soon as
legally permissible at a price of approximately $1.91 per share plus any accrued
and unpaid dividends. Upon liquidation of Inverness, the Preference Shareholders
are entitled to receive approximately $1.59 per share, plus any accrued and
unpaid dividends; thereafter, the ordinary stockholders shall equally share with
the Preference Shareholders in the remaining assets to be distributed. The
Preference Shareholders do not hold any voting rights.

     In March 1996, the Company entered into an agreement (the "Manufacturing
Agreement") with Princeton BioMeditech Corporation ("Princeton") pursuant to
which the Company, among other things, agreed to purchase certain minimum
amounts of product relating to the Company's pregnancy self-test products from
Princeton over a three year term and provide $500,000 in capital to Princeton
for the purchase of equipment necessary to implement the agreement. As of
December 31, 1996, the Company had paid Princeton the $500,000 for the
equipment, which the Company owns but which is currently installed at Princeton.
On August 6, 1997, the Company and Princeton amended the Manufacturing Agreement
to extend the term of certain provisions of the agreement for a period of four
years beginning on July 1, 1997. During the first year of the extended contract,
the Company is obligated to purchase minimum amounts of products from Princeton
at agreed upon prices totaling $2,656,000, which prices are subject in each case
to renegotiation if significant changes occur in the marketplace to
significantly erode the Company's ability to aggressively market such products.
During the remaining three years of the agreement, the Company is obligated to
purchase minimum amounts of products at prices to be mutually agreed upon based
upon market conditions.

     Also on August 6, 1997, the Company and Princeton, together with
wholly-owned subsidiaries of each of the Company (the "Selfcare Sub") and
Princeton (the "Princeton Sub"), and PBM-Selfcare LLC, a limited liability
company owned and managed by the Company and Princeton (the "LLC"), entered into
a Joint Venture Agreement (the "Joint Venture Agreement"). The purpose of the
joint venture is to own, develop and exploit certain intellectual property
rights related to rapid immunochemical diagnostic tests (the "Intellectual
Property"). Under the Joint Venture Agreement, Princeton contributed its rights
in the Intellectual Property to the LLC while Selfcare Sub agreed to contribute
up to $2,000,000, on an as needed basis, to cover expenses incurred by the LLC
in enforcing the rights of the LLC in the Intellectual Property. Selfcare Sub
and Princeton Sub are also obligated to cover 50% of any other operating
expenses of the LLC. The LLC entered into license agreements with both Selfcare
and Princeton granting each a non-exclusive, worldwide, royalty-free license to
the Intellectual Property. To date the Company has not incurred material

                                       28
<PAGE>   29

costs pursuant to the Joint Venture Agreement and does not anticipate expending
material resources in connection with this activity during the 1998 fiscal year.

     In October 1996, Selfcare acquired a 57.1% direct and indirect equity
interest in Orgenics, as a result of the conversion of the Orgenics Debenture
and purchase of outstanding shares of Orgenics and Orgenics International. The
Company paid approximately $7.0 million in cash. On March 6, 1997 the Company
exercised its call rights to purchase substantially all of the remaining shares
in Orgenics and Orgenics International pursuant to option agreements with
substantially all of the holders of Orgenics and Orgenics International shares.
In total, the Company paid $18.4 million in cash and Common Stock, including
approximately $100,000 of direct acquisition costs, for 99.8% of Orgenics and
Orgenics International shares. In addition, the Company has granted options to
purchase up to 85,800 shares of Common Stock having a fair market value of
approximately $1.1 million.

     In October 1996, the Company purchased 200,000 common shares of Enviromed
plc ("Enviromed") and agreed to purchase EN PLC Limited Partnership's ("EN PLC")
holding of 7,961,386 common shares of Enviromed for a promissory note with a
principal amount of approximately $3.8 million. In November 1996, the Company
purchased an additional 100,000 common shares of Enviromed. Effective as of
January 1, 1997, the Company and EN PLC entered into an amendment to the
agreement (the "EN PLC Agreement") with EN PLC pursuant to which the Company
agreed to issue two promissory notes, in principal amounts of approximately $2.8
million and $1.0 million respectively, evidencing the purchase price under the
EN PLC Agreement (the "EN PLC Notes"). In December 1997, the Company exchanged
notes that are convertible into shares of Common Stock (the "Convertible EN PLC
Notes") in a principal amount equal to approximately $1.6 million for payments
due in January and April 1998 under the EN PLC Notes. The Convertible EN PLC
Notes bear interest at the rate of 10% per year, mature on the six-month
anniversary of the date of issuance of the Convertible EN PLC Notes (the
"Convertible EN PLC Notes Maturity Date"), are convertible by the holders
thereof in whole at any time on or prior to the Convertible EN PLC Notes
Maturity Date into that number of shares of Common Stock determined by dividing
the principal balance of such Convertible EN PLC Notes plus any accrued interest
thereon by $7.225 (the "EN PLC Conversion Price") and will automatically
convert, without any action on the part of the holders thereof, on the
Convertible EN PLC Notes Maturity Date, in the event they are not sooner prepaid
or converted, into that number of shares of Common Stock determined by dividing
the principal balance of such Convertible EN PLC Notes plus the accrued interest
thereon by the EN PLC Conversion Price. The shares of Common Stock into which
the Convertible EN PLC Notes are convertible did not receive rights to register
such shares under the Securities Act. Therefore, such shares of Common Stock
will not be freely transferable absent an available exemption from registration.
The EN PLC Conversion Price represents a 15% discount from the closing price of
the Company's Common Stock on the date immediately preceding the effective date
of the exchange of the amounts due under the EN PLC Notes in January and April
1998 for the Convertible EN PLC Notes, reflecting in part the fact that shares
issuable upon conversion of the Convertible EN PLC Notes are not freely
transferable. The holders of EN PLC Notes included the following directors and
officers, which directors and officers exchanged an aggregate amount of
approximately $0.8 million on identical terms with all other holders of EN PLC
Notes: Carol R. Goldberg, John F. Levy, Willard L. Umphrey and Ron Zwanziger.

     On January 17, 1997, at a meeting of the shareholders of Enviromed called
at the request of Selfcare, the shareholders of Enviromed voted to remove the
existing Board of Directors of Enviromed and to elect as directors four
individuals nominated by Selfcare. The Company has provided loans of $742,000 of
which $320,000 is secured by a debenture ranking second behind Enviromed's bank.
The additional $422,000 is unsecured. The Company does not currently contemplate
making further loans to Enviromed at this time. Subject to Enviromed's
shareholders consent a further $240,000 may be loaned on a secured basis.
Selfcare has informed the board of Enviromed that it is no longer considering
further equity investments.

     On February 19, 1997, the Company completed the Nutritional Supplement
Lines Acquisition, pursuant to which a newly-formed subsidiary of the Company,
Selfcare Consumer Products, Inc. ("SCPI") acquired the Nutritional Supplement
Lines from AHP. As consideration for the Nutritional Supplement Lines, SCPI paid
to AHP $30.0 million in cash and the Company issued to AHP a $6.0 million
promissory note (the "AHP Note"). The Company funded the cash portion of the
purchase price with a credit facility consisting of
                                       29
<PAGE>   30

a $25.0 million term loan ("the AHP Term Loan") and a $5.0 million bridge loan
(the "AHP Bridge Loan"). The AHP Note was due on February 19, 1998, the first
anniversary of the Nutritional Supplement Lines Acquisition, and bears interest
payable quarterly at the rate of 7.0% per annum. The Company and AHP have agreed
to extend the note. The Company paid $2.0 million on February 27, 1998 and will
pay $2.0 million on April 1, 1998 and another $2.0 million on June 30, 1998.

     The AHP Bridge Loan was repaid June 4, 1997. The Company paid $3.0 million
of principal on the AHP Term Loan in 1997 and paid the remainder of the AHP Term
Loan on February 19, 1998 from funds received from Chase (See "Subsequent
Events").

     At December 31, 1997, the Company had cash and cash equivalents of $15.7
million, an $800,000 decrease from December 31, 1996. Cash used for operations
in 1997 was $15.9 million due largely to net losses of $24.7 million in 1997.
However, the net loss for 1997 included $9.9 million of non-cash items. Other
uses of cash in operating activities included increases in both accounts
receivable and inventory in the aggregate of $5.1 million reflecting the
Company's increase in sales. Prepaid and other current assets increased $228,000
due primarily to an increase in value added taxes (VAT) receivable. Cash was
provided for operations in part by an increase in accounts payable, accrued
expenses, and other current liabilities of $4.4 million.

     During 1997, the Company used $5.4 million to purchase property and
equipment. Approximately $2.9 million of the purchased property and equipment
was for the Inverness Facility.

     In March 1997, the Company sold 1.8 million shares of Common Stock in a
secondary public offering (the "March 1997 Offering"). The total net proceeds
from the March 1997 Offering were approximately $16.1 million after deducting
the underwriters' commission and approximately $900,000 of expenses.

     Financing activities provided approximately $63.1 million before
commissions and expenses in 1997. The most significant financing activities
were: the March 1997 Offering with proceeds of $18.0 million before commissions
and expenses, the issuance of Subordinated Revenue Royalty Notes in June and
July, 1997 having an aggregate issue price of $7,500,000, the sale on August 26,
1997, of Series B Convertible Preferred shares in the total amount of
$8,000,000, the issuance on October 27, 1998 of the Senior Subordinated
Convertible Notes due October 28, 2002, in the aggregate principal amount of
$10,000,000 and warrants to receive up to 137,950 shares of the Company's
Common, and the conversion of certain amounts due under the EN PLC and
substantially all amounts due under the CDIL Notes, each as discussed above.

     As of December 31, 1997, the Company had approximately $16.9 million and
$46.7 million of domestic and foreign net operating loss carryforwards,
respectively, and approximately $65,000 of research and development tax credit
carryforwards, which expire at various dates through 2012. These losses and tax
credits are available to reduce federal taxable income and federal income taxes,
respectively, in future years, if any. These losses and tax credits are subject
to review and possible adjustment by the Internal Revenue Service and may be
limited in the event of certain cumulative changes in ownership interests of
significant shareholders over a three-year period in excess of 50%. The Company
has recorded a 100% valuation allowance against these deferred tax assets, as
the realization of such assets is uncertain.

     The Company currently plans to continue its research and development of new
technologies and pursue the acquisition of new products and technologies,
whether through licensing arrangements, business acquisitions, or otherwise. The
Company anticipates that it will be required to raise substantial additional
funds for such projects or strategies. There can be no assurance that any such
additional capital will be available on terms acceptable to the Company, or at
all.

     The Company currently anticipates that its existing capital resources,
including funds expected to be generated from operations and other financing
activities, will be adequate to satisfy its capital requirements for at least
the next 12 months. No assurance can be given that additional financing,
including currently planned financing, will be available, or, if available, that
it will be available on acceptable terms. If additional funds are raised by
issuing equity securities, further dilution to then existing stockholders will
result. If adequate funds are not available, the Company may be required to
significantly curtail one or more of its research and development programs, or
obtain funds through arrangements with collaborative partners or others that may

                                       30
<PAGE>   31

require the Company to relinquish rights to certain of its technologies or
products which the Company would otherwise pursue on its own.

  Subsequent Events

     On February 18, 1998, the Company's subsidiary SCPI acquired Can-Am Care
Corporation ("Can-Am"), a leading supplier of diabetes care products, for
approximately $27.9 million, consisting of $13.6 million in cash, notes in the
aggregate principal amount of $2 million (subject to potential premiums of up to
an additional $2 million in the aggregate based upon increases in the Company's
common stock during the term of the Notes) and approximately 1.1 million shares
of the Company's Common Stock. Can-Am sells insulin syringes, blood lancets,
glucose tablets and specialty skin creams to pharmacies across the United
States. Can-Am's revenues for the fiscal year ended May 31, 1997 were
approximately $25.9 million. Upon the closing of the acquisition, Mr. Robert
Oringer, President of Can-Am, became a member of the Company's Board of
Directors and continued as President of Can-Am.

     In consideration for the sale of his interest in Can-Am, Mr. Oringer
received from the Company 277,083 shares of the Company's Common Stock and a
Non-Negotiable Note, maturing February 18, 2001, in the principal amount of
$500,000, bearing interest at an annual rate of 6%. In connection with the
acquisition, Can-Am entered into a Supply Agreement with A.M.G. Medical, Inc.
("AMG") whereby Can-Am agreed, with certain exceptions, to purchase 100% of its
requirements for monolet-compatible lancets from AMG for so long as Can-Am is in
the business of selling monolet compatible lancets. In addition, Can-Am entered
into a Management Services Agreement with AMG whereby AMG will provide labor,
office space, office related services and insurance to Can-Am for a term of five
years. Under the Management Services Agreement, Can-Am will pay AMG a fixed fee
to cover the costs of office space, tax, heating, maintenance and insurance
costs associated therewith, office expenses and telephone and computer equipment
and access expenses ("Fixed Fee"); a variable fee to cover the costs of
salaries, overtime pay, bonuses and related compensation of employees providing
services to Can-Am ("Variable Fee"); and the costs of all direct expenses
incurred by AMG, including supply expenses, postage costs, printing costs, and
other miscellaneous charges and expenses ("Direct Expenses"). During the first
year of the term of the Management Services Agreement, the Fixed Fee will be
$112,800. This fixed Fee will increase by 5% annually and is subject to change
after renegotiation based upon changes in the scope of services required by
Can-Am. The Variable Fee is based on the actual salaries paid by AMG to the AMG
employees providing services to Can-Am and the percentage of their time such
employees devote to providing services to Can-Am. The Direct Expenses are based
on the actual costs AMG incurs. Robert Oringer's wife owns 33% of AMG through a
personal holding company.

     To fund the cash portion of the purchase price, the Company and SCPI
entered into a $42 million credit agreement with a The Chase Manhattan Bank
("Chase"). The new credit agreement consists of a $37 million term loan and a $5
million revolving line of credit. Of the proceeds from this term loan, SCPI used
$32 million to finance the cash portion of the Can-Am purchase price and to
refinance the existing bank debt with Fleet National Bank ("Fleet"). The
remaining $5 million was used to repay a $5 million note payable by SCPI to the
Company. SCPI will use the remaining availability under the new credit facility
to fund working capital.

     The new credit agreement requires compliance with various financial and
non-financial covenants for both the Company and SCPI. The primary financial
covenants pertain to, among other things, interest coverage, debt services
coverage, leverage, and earnings before interest, taxes, depreciation and
amortization (EBITDA).

     The term loan and revolving line of credit allow SCPI to borrow funds at
varying rates, including options to borrow at an alternate base rate, as
defined, plus a spread from .25% to 1.75%, or the LIBOR rate plus a spread from
1.75% to 3.00%. The spreads discussed above depend on SCPI's ratio of senior
funded debt to EBITDA.

     Borrowings are secured by SCPI's stock, and the assets of SCPI, CanAm and
the Company and its subsidiaries. Borrowings under the revolving line of credit
are based on certain percentages of eligible assets, as defined. SCPI is
required to pay an annual fee of .375% for the unused portion of the revolving
line of credit. The revolving line of credit expires on February 18, 2002.
                                       31
<PAGE>   32

     SCPI is required to make quarterly principal payments ranging from $1.3
million to $1.95 million through December 31, 2003, with payments of
approximately $1.4 million beginning on June 30, 1998. SCPI and the Company must
also make mandatory prepayments on the term loan if they meet certain cash flow
thresholds, sell assets outside of the ordinary course of business, issue or
sell indebtedness or issue stock, as defined in the credit agreement.

ITEM 7.  FINANCIAL STATEMENTS.

     See Financial Statements and Schedules attached hereto.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     Not applicable.

                                    PART III

     The information required by Items 9, 10, 11 and 12 of Part III of this
Report on Form 10-KSB is hereby incorporated by reference from the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A.

ITEM 13.  EXHIBITS LIST AND REPORTS ON FORM 8-K.

     a) The following documents are filed as part of this Annual Report on Form
10-KSB: 1. Financial Statements -- See Index on page F-1.

     2. The following is a complete list of Exhibits filed as part of this
Annual Report on Form 10-KSB:

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
     3.1      Amended and Restated Certificate of Incorporation
              (incorporated by reference to Exhibit 3.1 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
     3.2      Certificate of Designation for the Selfcare, Inc. Series A
              Convertible Preferred Stock (incorporated by reference to
              Exhibit 3.2 to the Company's registration statement on Form
              SB-2, No. 333-19911)
     3.3      Amended and Restated By-laws (incorporated by reference to
              Exhibit 3.2 to the Company's registration statement on Form
              SB-2, No. 333-4830-NY)
     4.1      Specimen certificate for shares of Common Stock, par value
              $.001 per share, of the Company (incorporated by reference
              to Exhibit 4.1 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
     4.2      Specimen certificate for shares of Series A Convertible
              Preferred Stock, par value $.001 par share, of the Company
              (incorporated by reference to Exhibit 4.2 to the Company's
              registration statement on Form SB-2, No. 333-19911)
     9.1      Voting Agreement, dated May 13, 1996, by and among the
              stockholders of Selfcare, Inc. who are signatories thereto.
              (incorporated by reference to Exhibit 9.1 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
   +10.1      Agreement, dated March 22, 1996, between Selfcare, Inc. and
              Princeton BioMeditech Corporation (incorporated by reference
              to Exhibit 10.1 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
    10.2      Master Agreement, dated as of November 10, 1995, by and
              among Johnson & Johnson Development Corporation, LifeScan,
              Inc. and Selfcare, Inc. (incorporated by reference to
              Exhibit 10.2 to the Company's registration statement on Form
              SB-2, No. 333-4830-NY)
    10.3      Form of Sales Distribution Agreement for Testing System for
              Blood Glucose between LifeScan, Inc. and Selfcare, Inc.
              (incorporated by reference to Exhibit 10.3 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.4      Investment Agreement, dated as of November 10, 1995, by and
              between Johnson & Johnson and Selfcare, Inc. (incorporated
              by reference to Exhibit 10.4 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
</TABLE>

                                       32
<PAGE>   33

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
    10.5      Master Agreement, dated as of November 30, 1994, among
              Selfcare, Inc., Cambridge Biotech Limited (Cambridge
              Diagnostics Ireland Limited) and Cambridge Biotech
              Corporation (incorporated by reference to Exhibit 10.5 to
              the Company's registration statement on Form SB-2, No.
              333-4830-NY)
    10.6      Sale and Subscription Agreement, dated as of November 30,
              1994, between Cambridge Biotech Limited (Cambridge
              Diagnostics Ireland Limited), Cambridge Biotech Corporation
              and Selfcare, Inc. (incorporated by reference to Exhibit
              10.6 to the Company's registration statement on Form SB-2,
              No. 333-4830-NY)
    10.7      Indemnification Agreement dated as of November 30, 1994, by
              and between, Cambridge Biotech Corporation and Cambridge
              Biotech Limited (Cambridge Diagnostics Ireland Limited)
              (incorporated by reference to Exhibit 10.7 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.8      License Agreement [CAPILLUS], dated November 30, 1994,
              between Cambridge Biotech Corporation and Cambridge Biotech
              Limited (Cambridge Diagnostics Ireland Limited)
              (incorporated by reference to Exhibit 10.8 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.9      License Agreement [HIV 1/2 EIA], dated November 30, 1994,
              between Cambridge Biotech Corporation and and Cambridge
              Biotech Limited (Cambridge Diagnostics Ireland Limited)
              (incorporated by reference to Exhibit 10.9 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.10     License Agreement [HIV 1/2 RTD], dated November 30, 1994,
              between Cambridge Biotech Corporation and Cambridge Biotech
              Limited (Cambridge Diagnostics Ireland Limited)
              (incorporated by reference to Exhibit 10.10 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.11     License Agreement [LYME], dated November 30, 1994, between
              Cambridge Biotech Corporation and Cambridge Biotech Limited
              (Cambridge Diagnostics Ireland Limited) (incorporated by
              reference to Exhibit 10.11 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.12     License Agreement [RAPID TEST], dated November 30, 1994,
              between Cambridge Biotech Corporation and Cambridge Biotech
              Limited (Cambridge Diagnostics Ireland Limited)
              (incorporated by reference to Exhibit 10.12 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.13     License Agreement [HEP D], dated November 30, 1994, between
              Cambridge Biotech Limited (Cambridge Diagnostics Ireland
              Limited) and Cambridge Biotech Corporation (incorporated by
              reference to Exhibit 10.13 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.14     Shareholders' Agreement, dated November 30, 1994, by and
              among Selfcare, Inc., Cambridge Biotech Corporation and
              Cambridge Biotech Affiliated Corporation) (Cambridge
              Affiliate Corporation) (incorporated by reference to Exhibit
              10.14 to the Company's registration statement on Form SB-2,
              No. 333-4830-NY)
    10.15     Management Agreement, dated November 30, 1994, between
              Cambridge Biotech Affiliated Corporation (Cambridge
              Affiliate Corporation) and Cambridge Biotech Limited
              (Cambridge Diagnostics Ireland Limited) (incorporated by
              reference to Exhibit 10.15 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.16     Manufacturing Agreement, dated November 30, 1994, between
              Cambridge Biotech Affiliated Corporation (Cambridge
              Affiliate Corporation) and Cambridge Biotech Limited
              (Cambridge Diagnostics Ireland Limited) (incorporated by
              reference to Exhibit 10.16 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.17     Sales Agent Agreement, dated November 30, 1994, between
              Cambridge Biotech Affiliated Corporation (Cambridge
              Affiliate Corporation) and Cambridge Biotech Limited
              (Cambridge Diagnostics Ireland Limited) (incorporated by
              reference to Exhibit 10.17 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.18     Stock Purchase Agreement, dated as of March 8, 1994, among
              Selfcare, Inc., Ron Zwanziger and Enviromed plc
              (incorporated by reference to Exhibit 10.18 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.19     Registration Rights Agreement, dated April 5, 1994, between
              Selfcare, Inc., USB '93 Technology Associates Limited
              Partnership and Enviromed plc (incorporated by reference to
              Exhibit 10.19 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
</TABLE>

                                       33
<PAGE>   34

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
    10.20     Shareholders' Agreement, dated as of March 15, 1994, among
              Selfcare, Inc., USB '93 Technology Associates Limited
              Partnership, Enviromed plc and the Ron Zwanziger Family
              Trust (incorporated by reference to Exhibit 10.20 to the
              Company's registration statement on Form SB-2, No.
              333-4830-NY)
    10.21     Technology Purchase and Sale Agreement, dated as of December
              29, 1993, between Selfcare, Inc. and USB '93 Technology
              Associates Limited Partnership (incorporated by reference to
              Exhibit 10.21 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
    10.22     Technology License and Development Agreement, dated as of
              December 29, 1993, between Selfcare, Inc. and USB '93
              Technology Associates Limited Partnership (incorporated by
              reference to Exhibit 10.22 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.23     Guarantee and Debenture, dated August 30, 1995, between
              Cambridge Biotech Limited (Cambridge Diagnostics Ireland
              Limited) and USB '93 Technology, Inc. (incorporated by
              reference to Exhibit 10.23 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.24     Guarantee of Selfcare, Inc., dated June 11, 1995, in favor
              of Highlands and Islands Enterprises (incorporated by
              reference to Exhibit 10.24 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.25     Guarantee of Selfcare, Inc., dated June 11, 1995, in favor
              of Inverness and Nairn Enterprise Company (incorporated by
              reference to Exhibit 10.25 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.26     Investment and Loan Agreement, dated December 24, 1995, by
              and between Orgenics Ltd. and Selfcare, Inc. (incorporated
              by reference to Exhibit 10.26 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.27     Form of Option Agreement by and between Selfcare, Inc. and
              stockholders of Orgenics, Ltd. and Orgenics International
              Holdings, B.V., together with letter amendment thereto dated
              July 11, 1996. (incorporated by reference to Exhibit 10.27
              to the Company's registration statement on Form SB-2, No.
              333-4830-NY)
    10.28     Grant Agreement, dated February 21, 1992, among The
              Industrial Development Authority of Ireland, Cambridge
              Biotech Limited (Cambridge Diagnostics Ireland Limited) and
              Cambridge Biotech Corporation (incorporated by reference to
              Exhibit 10.28 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
    10.29     Grant Agreement, dated October 2, 1992, among The Industrial
              Development Authority of Ireland, Cambridge Biotech Limited
              (Cambridge Diagnostics Ireland Limited) and Cambridge
              Biotech Corporation (incorporated by reference to Exhibit
              10.29 to the Company's registration statement on Form SB-2,
              No. 333-4830-NY)
    10.30     Grant Agreement, dated December 5, 1995, among The
              Industrial Development Authority of Ireland, Cambridge
              Biotech Limited (Cambridge Diagnostics Ireland Limited) and
              Cambridge Biotech Corporation (incorporated by reference to
              Exhibit 10.30 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
    10.31     Employment Agreement, dated October 15, 1991, between
              Superior Sensors, Inc. (Selfcare, Inc.) and Kenneth D. Legg,
              Ph.D. (incorporated by reference to Exhibit 10.31 to the
              Company's registration statement on Form SB-2, No.
              333-4830-NY)
    10.32     Employment Agreement, dated June 15, 1992, between Superior
              Sensors, Inc. (Selfcare, Inc.) and Richard Pinkowitz, Ph.D.
              (incorporated by reference to Exhibit 10.32 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.33     Employment Agreement, dated November 13, 1994, between
              Selfcare International GmbH and Otto Wahl (incorporated by
              reference to Exhibit 10.33 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.34     Selfcare, Inc. 1992 Stock Plan (incorporated by reference to
              Exhibit 10.34 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
    10.35     Selfcare, Inc. 1994 Incentive and Non-qualified Stock Option
              Plan (incorporated by reference to Exhibit 10.35 to the
              Company's registration statement on Form SB-2, No.
              333-4830-NY)
    10.36     Amended and Restated Selfcare, Inc. 1996 Stock Option and
              Grant Plan (incorporated by reference to Exhibit 4.1 to the
              Company's registration statement on Form S-8, No. 333-15583)
    10.37     Selfcare, Inc. Employee Stock Purchase Plan (incorporated by
              reference to Exhibit 10.37 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
</TABLE>

                                       34
<PAGE>   35

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
    10.38     Standard form Commercial Lease, dated July 15, 1992, between
              Superior Sensors, Inc. (Selfcare, Inc.) and Nova Realty
              Associates (incorporated by reference to Exhibit 10.38 to
              the Company's registration statement on Form SB-2, No.
              333-4830-NY)
    10.39     Lease, dated February 21, 1992, between The Industrial
              Development Authority of Ireland and Cambridge Biotech
              Limited (Cambridge Diagnostics Ireland Limited)
              (incorporated by reference to Exhibit 10.39 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.40     Form of lease between Highlands and Islands Enterprises and
              Hebocraft Limited (Inverness Medical Limited) (incorporated
              by reference to Exhibit 10.40 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.41     Joint Venture Agreement, dated March 8, 1994, between
              Enviromed Plc. and Selfcare, Inc. (incorporated by reference
              to Exhibit 10.41 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
    10.42     Lease for Selfcare, Inc.'s facility in Brussels, Belgium
              (incorporated by reference to Exhibit 10.42 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    10.43     Lease for Selfcare International GmbH's facility in Munich,
              Germany (incorporated by reference to Exhibit 10.43 to the
              Company's registration statement on Form SB-2, No.
              333-4830-NY)
    10.44     Form of Cambridge Diagnostics Note, together with schedule
              of noteholders (incorporated by reference to Exhibit 10.44
              to the Company's registration statement on Form SB-2, No.
              333-4830-NY)
    10.45     Manufacturing Agreement, dated June 3, 1996, between Nova
              Biomedical Corporation and Selfcare, Inc. (incorporated by
              reference to Exhibit 10.45 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
    10.46     Form of Cambridge Diagnostics Warrants, together with
              schedule of warrantholders (incorporated by reference to
              Exhibit 10.47 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
    10.47     Agreement between Inverness Medical Limited (formerly,
              Hebocraft Limited) and Highlands and Islands Enterprise,
              dated May 31, 1995 (incorporated by reference to Exhibit
              10.47 to the Company's registration statement on Form SB-2,
              No. 333-4830-NY)
    10.48     Agreement between Inverness Medical Limited (formerly,
              Hebocraft Limited) and Inverness & Nairn Local Enterprise
              Company, dated May 31, 1995 (incorporated by reference to
              Exhibit 10.48 to the Company's registration statement on
              Form SB-2, No. 333-4830-NY)
    10.49     Form of Letter Agreement by and between Selfcare, Inc. and
              certain holders of Cambridge Diagnostics Notes dated July
              19, 1996 (incorporated by reference to Exhibit 10.49 to the
              Company's registration statement on Form SB-2, No.
              333-4830-NY)
    10.50     Supply Agreement dated August 27, 1996, by and between
              Selfcare, Inc., Selfcare International GmbH and A. Menarini
              Industrie Parmaceutiche Riunite S.r.L. (incorporated by
              reference to Exhibit 10.50 to the Company's quarterly report
              on Form 10-QSB for the period ended September 30, 1996)
    10.51     Manufacturing Agreement for Pregnancy and Ovulation
              Stick/Cassette Test Kits, dated September 7, 1996, by and
              between Nova BioMedical Corp. and Selfcare, Inc.
              (incorporated by reference to Exhibit 10.51 to the Company's
              quarterly report on Form 10-QSB for the period ended
              September 30, 1996)
    10.52     Development and Distribution Agreement dated as of December
              31, 1996 between ChemTrak Incorporated and Selfcare, Inc.
              (incorporated by reference to Exhibit 10.52 to the Company's
              registration statement on Form SB-2, No.333-19911)
    10.53     Asset Purchase Agreement dated as of January 14, 1997 by and
              between American Home Products Corporation, American
              Cyanamid Company, A.H. Robbins Company, Incorporated and
              Selfcare, Inc. and Selfcare Acquisition Corp. with certain
              exhibits (incorporated by reference to Exhibit 10.53 to the
              Company's registration statement on Form SB-2, No.
              333-19911)
    10.54     Agreement between EN PLC Limited Partnership and Selfcare,
              Inc. dated October 17, 1996, together with an amendment
              thereto dated as of January 1, 1997 (incorporated by
              reference to Exhibit 10.54 to the Company's registration
              statement on Form SB-2, No. 333-19911)
    10.55     Form of Letter Agreement by and between Selfcare, Inc. and
              certain holders of Cambridge Diagnostics Notes dated
              November 23, 1996 (incorporated by reference to Exhibit
              10.55 to the Company's registration statement on Form SB-2,
              No. 333-19911)
</TABLE>

                                       35
<PAGE>   36

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
    10.56     Form of Letter Agreement by and between Selfcare, Inc. and
              certain holders of Cambridge Diagnostics Notes dated
              December 31, 1996 (incorporated by reference to Exhibit
              10.56 to the Company's registration statement on Form SB-2,
              No. 333-19911)
    10.57     Sales Distribution Agreement for Testing System for Blood
              Glucose between LifeScan, Inc. and Selfcare, Inc. dated
              October 9, 1996 (incorporated by reference to Exhibit 10.57
              to the Company's registration statement on Form SB-2, No.
              333-19911)
    10.58     Form of Offshore Convertible Securities Subscription
              Agreement by and between Safecare, Inc. and certain
              investors dated October, 1996, together with a form of
              letter amendment thereto dated as of February 22, 1997
              (incorporated by reference to Exhibit 10.58 to the Company's
              registration statement on Form SB-2, No. 333-19911)
    10.59     [Reserved]
    10.60     Securities Purchase Agreement, dated as of October 27, 1997,
              by and between Selfcare, Inc., Elliott Associates, L.P. and
              Westgate International, L.P. (incorporated by reference to
              Exhibit 99.5 to Selfcare, Inc.'s 10-QSB for the quarter
              ending September 30, 1997)
    10.61     Registration Rights Agreement, dated as October 27, 1997, by
              and between Selfcare, Inc., Elliott Associates, L.P. and
              Westgate International, L.P. (incorporated by reference to
              Exhibit 99.5 to Selfcare, Inc.'s 10-QSB for the quarter
              ending September 30, 1997)
    10.62     Form of Senior Subordinated Convertible Note due October 28,
              2002 (incorporated by reference to Exhibit 99.7 to Selfcare,
              Inc.'s 10-QSB for the quarter ending September 30, 1997)
    10.63     Form of Common Stock Purchase Warrant Certificate, dated as
              of October 27, 1997 (incorporated by reference to Exhibit
              99.8 to Selfcare, Inc.'s 10-QSB for the quarter ended
              September 30, 1997)
    10.64     Registration Rights Agreement, dated March 8, 1994, between
              Selfcare, Inc., USB '93 Technology Associates Limited
              Partnership and Enviromed plc (incorporated by reference to
              Exhibit 10.19 to Selfcare Inc.'s registration statement on
              Form SB-2, file no. 333-4830-NY)
    10.65     Registration Rights Agreement dated August 26, 1997, by and
              among the Company and Capital Ventures International, CC
              Investments LDC, and Proprietary Convertible Investments
              Group, Inc. (incorporated by reference to Exhibit 99.1 to
              Selfcare Inc.'s registration statement on Form S-3, file no.
              333-37961)
    10.66     Certificate of Designations, Preferences and Rights of
              Series B Convertible Preferred Stock of Selfcare, Inc.
              (incorporated by reference to Exhibit 99.1 to Selfcare
              Inc.'s registration statement on Form S-3, file no.
              333-37961)
    10.67     Securities Purchase Agreement, dated August 26, 1997 by and
              among the Company and Capital Ventures International, CC
              Investments LDC, and Proprietary Convertible Investments
              Group, Inc. (incorporated by reference to Exhibit 99.1 to
              Selfcare Inc.'s registration statement on Form S-3, file no.
              333-37961)
    10.68     Form of Warrant to Purchase Shares of Common Stock of the
              Company issued to Capital Ventures International, CC
              Investments LDC and Proprietary Convertible Investments
              Group, Inc. (incorporated by reference to Exhibit 99.1 to
              Selfcare Inc.'s registration statement on Form S-3, file no.
              333-37961)
   +10.69     Form of Amendment to Agreement between Selfcare, Inc. and
              Princeton BioMeditech Corporation dated August 6, 1997
              (incorporated by reference to the Company's report on Form
              10-QSB for the period ending September, 30, 1997)
    10.70     Form of Stock Purchase Agreement dated February 18,1998 by
              and among Can-Am Care Corporation, Selfcare, Inc., Selfcare
              Consumer Products, Inc. and the stockholders of Can-Am Care
              Corporation (incorporated by reference to Exhibit 2.1 to the
              Company's report on Form 8-K dated February 18, 1998)
    10.71     Form of Exchange Agreement relating to the Conversion of
              Cambridge Diagnostics Note to Convertible Promissory Note
    10.72     Form of Exchange Agreement relating to the Conversion of EN
              PLC Note to Convertible Promissory Note
    10.73     Form of Note issued by Company in connection with the
              conversion of Cambridge Diagnostics and EN PLC Notes to
              Convertible Promissory Notes, dated December 12, 1997
    10.74     Form of Supply Agreement dated as of February 18, 1998 made
              by and between A.M.G. Medical Inc., and Can-Am Care
              Corporation
</TABLE>

                                       36
<PAGE>   37

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
    10.75     Form of Management Services Agreement dated February 18,
              1998 made by and between A.M.G. Medical Inc., and Can-Am
              Care Corporation
    10.76     Form of Employment Agreement dated February 18, 1998 made by
              and between Selfcare Consumer Products, Inc., Selfcare,
              Inc., and Herbert Cover.
    10.77     From of Employment Agreement dated February 18, 1998 made by
              and between Selfcare Consumer Products, Inc., Selfcare,
              Inc., and Robert Oringer.
    10.78     Form of 6% Non-Negotiable Promissory Note, principal amount
              $500,000, dated February 18, 1998 between Selfcare, Inc. and
              Robert Oringer
    10.79     Form of 6% Non-Negotiable Promissory Note, principal amount
              $500,000, dated February 18, 1998 between Selfcare, Inc. and
              Cover Family Trust
    10.80     Form of Credit Agreement dated as of February 18, 1998,
              among Selfcare Consumer Products, Inc., as the Borrower,
              Selfcare, Inc., as the Guarantor, Certain Financial
              Institutions, as the Lenders, and The Chase Manhattan Bank,
              as the Agent for the Lenders
    10.81     Stock Purchase Agreement, dated February 18, 1998, by and
              among Selfcare, Inc., Selfcare Consumer Products, Inc.,
              Can-Am Care Corporation, and the Stockholders party thereto
              (incorporated by reference to Exhibit 2.1 to the Company's
              Form 8-K dated February 18, 1998)
    11.1      Statement re: computation of per share earnings
              (incorporated by reference to Exhibit 11.1 to the Company's
              registration statement on Form SB-2, No. 333-19911
    21.1      Schedule of Subsidiaries of Registrant (incorporated by
              reference to Exhibit 21.1 to the Company's registration
              statement on Form SB-2, No. 333-19911)
    23.1      Consent of Arthur Andersen LLP
    23.2      Consent of Kost Levary and Forer
    27.1      Financial Data Schedule
    27.2      Financial Data Schedule Restated 1996
    27.3      Financial Data Schedule Restated 1995
    99.1      [Reserved]
    99.2      Judgment and Opinion of U.S. Bankruptcy Court (D. Mass. W.
              Division), In re: Cambridge Biotech Corporation, Chapter 11
              Case No. 94-43054-JFQ, entered September 1, 1995.
              (incorporated by reference to Exhibit 99.2 to the Company's
              registration statement on Form SB-2, No. 333-4830-NY)
    99.3      Order of Approval of Scheme of Arrangement by The High Court
              of Ireland (incorporated by reference to Exhibit 99.3 to the
              Company's registration statement on Form SB-2, No.
              333-4830-NY)
    99.4      Order of U.S. Bankruptcy Court (D. Mass. W. Division), In
              re: Cambridge Biotech Corporation, Chapter 11 Case No.
              94-43054-JFQ, entered November 18, 1994 (incorporated by
              reference to Exhibit 99.4 to the Company's registration
              statement on Form SB-2, No. 333-4830-NY)
</TABLE>

---------------
+ Confidential treatment requested

     (b) During the last quarter of the period covered by this Annual Report on
Form 10-KSB the Company filed no reports on Form 8-K.

                                       37
<PAGE>   38

                                   SIGNATURES

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

                                            SELFCARE, INC.

                                            By:      /s/ RON ZWANZIGER
                                             ----------------------------------
                                                        RON ZWANZIGER
                                                Chairman, President and Chief
                                                       Executive Officer

Date: March 31, 1998

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

<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<C>                                                   <S>                               <C>

                 /s/ RON ZWANZIGER                    President, Chief Executive        March 31, 1998
---------------------------------------------------   Officer and Director (Principal
                   RON ZWANZIGER                      Executive Officer)

                 /s/ ANTHONY HALL                     Chief Financial Officer           March 31, 1998
---------------------------------------------------   (Principal Financial Officer and
                  ANTHONY H. HALL                     Principal Accounting Officer)

              /s/ JONATHAN J. FLEMING                 Director                          March 31, 1998
---------------------------------------------------
                JONATHAN J. FLEMING

               /s/ CAROL R. GOLDBERG                  Director                          March 31, 1998
---------------------------------------------------
                 CAROL R. GOLDBERG

                 /s/ JOHN F. LEVY                     Director                          March 31, 1998
---------------------------------------------------
                   JOHN F. LEVY

                /s/ ROBERT ORINGER                    Director                          March 31, 1998
---------------------------------------------------
                  ROBERT ORINGER

               /s/ EDWARD B. ROBERTS                  Director                          March 31, 1998
---------------------------------------------------
                 EDWARD B. ROBERTS

                /s/ PETER TOWNSEND                    Director                          March 31, 1998
---------------------------------------------------
                  PETER TOWNSEND

              /s/ WILLARD LEE UMPHREY                 Director                          March 31, 1998
---------------------------------------------------
                WILLARD LEE UMPHREY
</TABLE>

                                       38
<PAGE>   39

                        SELFCARE, INC. AND SUBSIDIARIES

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
SELFCARE, INC AND SUBSIDIARIES:
     Reports of Independent Public Accountants..............   F-2
     Consolidated Balance Sheets as of December 31, 1996 and
      1997..................................................   F-4
     Consolidated Statements of Operations for the Years
      Ended December 31, 1995, 1996 and 1997................   F-5
     Consolidated Statements of Stockholders' Equity
      (Deficit) for the Years Ended December 31, 1995, 1996
      and 1997..............................................   F-6
     Consolidated Statements of Cash Flows for the Years
      Ended December 31, 1995, 1996 and 1997................   F-7
     Notes to Consolidated Financial Statements.............   F-8
</TABLE>
<PAGE>   40

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Selfcare, Inc.:

     We have audited the accompanying consolidated balance sheets of Selfcare,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1997,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
1996 consolidated financial statements of Orgenics, Ltd., a majority-owned
subsidiary of the Company, which statements reflect total assets and total
revenues of 20% and 11% in 1996, respectively, of the consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included for those
entities, is based solely on the report of the other auditors.

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

     In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Selfcare, Inc. and subsidiaries as
of December 31, 1996 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

                                                             ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 26, 1998

                                       F-2
<PAGE>   41

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Orgenics Ltd.:

     We have audited the consolidated balance sheet of Orgenics Ltd. (the
Company) as of December 31, 1996, and the related consolidated statement of
operations, changes in stockholders' equity, and cash flows for the year ended
December 31, 1996 (not included herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of CPEI Orgenics LTDA (not included herein), a consolidated
subsidiary as of December 31, 1996 and for the year ended December 31, 1996,
which statements reflect total assets constituting 4% of total consolidated
assets and total revenues for the year ended December 31, 1996, constituting 20%
of total consolidated revenues. These statements were audited by other auditors
whose reports have been furnished to us, and our opinion, as it relates to the
amounts included for CPEI Orgenics LTDA, is based solely on the reports of the
other auditor.

     We conducted our audit in accordance with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors'
Regulations (Mode of Performance), 1973 which do not differ significantly from
generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statements included herein. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.

     In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly in all
material respects the consolidated financial position of the Company as of
December 31, 1996 and the consolidated results of their operations and cash
flows for the year ended December 31, 1996, in conformity with generally
accepted accounting principles in Israel.

     The Company did not account for stock options issued to employees according
to the requirement of generally accepted auditing standards in the United
States. For a description of the differences between generally accepted
accounting principles in Israel and United States generally accepted accounting
principles as applicable in these financial statements see notes 2n, 2o, and 2p
(not included herein) (see Note 2(a) included herein).

                                                  KOST LEVARY AND FORER
                                          Certified Public Accountants (Israel)
                                                A Member of Ernst & Young
                                                      International

Tel-Aviv, Israel
February 13, 1997

                                       F-3
<PAGE>   42

                        SELFCARE, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                              ----------------------------
                                                                  1996           1997
                                                              ------------   -------------
<S>                                                           <C>            <C>
                                          ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $ 16,458,654   $ 15,669,898
  Accounts receivable, net of allowance for doubtful
    accounts of approximately $316,000 in 1996 and
    $1,158,000 in 1997......................................     5,478,814      7,232,755
  Inventories...............................................     2,266,234      5,344,531
  Note receivable...........................................            --      4,979,232
  Prepaid and other current assets..........................     1,034,260      1,452,855
                                                              ------------   ------------
        Total current assets................................    25,237,962     34,679,271
                                                              ------------   ------------
PROPERTY AND EQUIPMENT, AT COST:
  Machinery and laboratory equipment........................     7,275,161     11,908,740
  Leasehold improvements....................................     1,109,658      1,337,809
  Furniture and fixtures....................................       408,639        649,591
  Computer equipment........................................       657,780      1,367,492
                                                              ------------   ------------
                                                                 9,451,238     15,263,632
Less -- Accumulated depreciation and amortization...........     1,592,353      4,755,600
                                                              ------------   ------------
                                                                 7,858,885     10,508,032
                                                              ------------   ------------
INTANGIBLE AND OTHER ASSETS:
  Investments in affiliated companies.......................     3,732,609      3,405,609
  Loan to affiliated company................................            --        742,105
  Goodwill and other intangible assets, net.................     3,741,171     43,393,263
  Other assets..............................................       518,825      3,035,414
                                                              ------------   ------------
        Total intangible and other assets...................     7,992,605     50,576,391
                                                              ------------   ------------
                                                              $ 41,089,452   $ 95,763,694
                                                              ============   ============
                           LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current portion of notes payable..........................  $  2,936,851   $ 20,426,511
  Accounts payable..........................................     4,991,543      6,079,242
  Accrued expenses and other current liabilities............     5,826,952      8,251,021
  Current portion of deferred revenue.......................     1,619,152      2,204,159
                                                              ------------   ------------
        Total current liabilities...........................    15,374,498     36,960,933
                                                              ------------   ------------
LONG-TERM LIABILITIES:
  Deferred revenue, net of current portion..................     4,786,347      2,674,971
  Notes payable, net of current portion.....................     5,895,701     39,476,074
                                                              ------------   ------------
        Total long-term liabilities.........................    10,682,048     42,151,045
                                                              ------------   ------------
COMMITMENTS AND CONTINGENCIES (Note 11)

MINORITY INTEREST IN SUBSIDIARY.............................     1,199,684         70,496
                                                              ------------   ------------
MANDATORILY REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY......     1,753,928      1,868,027
                                                              ------------   ------------
SERIES B CONVERTIBLE PREFERRED STOCK, $.001 PAR VALUE:
  Issued and outstanding -- 8,000 shares in 1997............            --      9,272,508
                                                              ------------   ------------
STOCKHOLDERS' EQUITY:
  Series A Preferred Stock, $.001 par value --
    Issued and outstanding -- 5,200 and 400 shares in 1996
     and 1997...............................................             5             --
  Common Stock, $.001 par value --
    Authorized -- 45,000,000 shares
    Issued -- 5,975,263 and 9,681,389 shares in 1996 and
     1997, respectively.....................................         5,975          9,681
  Additional paid-in capital................................    55,233,847     75,753,699
  Less -- Treasury Stock, at cost, 15,600 and 32,197 shares
    in 1996 and 1997, respectively..........................       (15,200)      (211,460)
  Accumulated deficit.......................................   (43,318,898)   (70,183,506)
  Cumulative translation adjustment.........................       173,565         72,271
                                                              ------------   ------------
        Total stockholders' equity..........................    12,079,294      5,440,685
                                                              ------------   ------------
                                                              $ 41,089,452   $ 95,763,694
                                                              ============   ============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-4
<PAGE>   43

                        SELFCARE, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                    --------------------------------------------
                                                        1995            1996            1997
                                                    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>
Net product sales.................................  $  6,722,625    $ 14,066,630    $ 50,891,221
Grants and other revenue..........................       516,087       4,996,158       1,359,150
                                                    ------------    ------------    ------------
     Net revenue..................................     7,238,712      19,062,788      52,250,371
Cost of sales.....................................     5,564,438      10,958,024      26,277,645
                                                    ------------    ------------    ------------
     Gross profit.................................     1,674,274       8,104,764      25,972,726
                                                    ------------    ------------    ------------
Operating Expenses:
  Research and development........................     1,532,496       6,643,186      15,632,789
  Charge for in-process research and
     development..................................            --       4,396,700       3,303,300
  Selling, general and administrative.............     5,649,781      10,517,790      25,636,823
  Noncash compensation charge.....................        52,000       4,195,437         167,938
                                                    ------------    ------------    ------------
     Total operating expenses.....................     7,234,277      25,753,113      44,740,850
                                                    ------------    ------------    ------------
     Operating loss...............................    (5,560,003)    (17,648,349)    (18,768,124)
Interest expense, including noncash interest
  relating to issuance of warrants (Note 13(c))
  and amortization of original issue discount
  (Note 9)........................................    (4,519,375)    (11,561,276)     (5,486,835)
Interest and other income, net....................        38,055         809,341         579,973
Equity in net loss of affiliate...................            --        (200,000)       (327,000)
                                                    ------------    ------------    ------------
     Loss before minority interest and dividends
       and accretion on mandatorily redeemable
       preferred stock of a subsidiary............   (10,041,323)    (28,600,284)    (24,001,986)
Minority interest in subsidiary's loss............            --         132,990         181,017
Dividends and accretion on mandatorily redeemable
  preferred stock of a subsidiary.................       (55,580)       (110,348)       (114,099)
                                                    ------------    ------------    ------------
     Loss before extraordinary loss and income
       taxes......................................   (10,096,903)    (28,577,642)    (23,935,068)
Extraordinary loss on early extinguishment of
  notes payable (Note 2(n)).......................            --              --        (579,354)
                                                    ------------    ------------    ------------
     Loss before income taxes.....................   (10,096,903)    (28,577,642)    (24,514,422)
Provision for income taxes........................            --              --         195,872
                                                    ------------    ------------    ------------
     Net loss.....................................  $(10,096,903)   $(28,577,642)   $(24,710,294)
                                                    ============    ============    ============
Basic and diluted net loss per common and
  potential common share..........................  $      (2.61)   $      (6.00)   $      (3.36)
                                                    ============    ============    ============
Basic and diluted weighted average number of
  common and potential common shares
  outstanding.....................................     3,866,841       4,767,493       7,990,666
                                                    ============    ============    ============
</TABLE>

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

                                       F-5
<PAGE>   44

                        SELFCARE, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                        PREFERRED STOCK         COMMON STOCK
                                      -------------------   ---------------------
                                       NUMBER     $.001      NUMBER
                                         OF        PAR         OF         $.001       ADDITIONAL        DEFERRED
                                       SHARES     VALUE      SHARES     PAR VALUE   PAID-IN CAPITAL   COMPENSATION
                                      --------   --------   ---------   ---------   ---------------   ------------
<S>                                   <C>        <C>        <C>         <C>         <C>               <C>
Balance, December 31, 1994.........         --   $     --   3,760,757    $3,760       $ 4,658,147      $      --
 Subsidiary's issuance of Preferred
   Stock...........................         --         --          --        --                --             --
 Issuance of Common Stock in
   connection with notes payable...         --         --     212,784       213           179,835             --
 Issuance of Common Stock..........         --         --      57,083        58           144,260             --
 Issuance of Common Stock warrants
   in connection with notes
   payable.........................         --         --          --        --            30,000             --
 Noncash interest expense related
   to Common Stock warrants issued
   in connection with notes
   payable.........................         --         --          --        --         4,235,768             --
 Exercise of Common Stock
   options.........................         --         --      27,300        27            69,045             --
 Deferred compensation related to
   grants of Common Stock
   options.........................         --         --          --        --           250,965       (250,965)
 Amortization of deferred
   compensation related to grants
   of Common Stock options.........         --         --          --        --                --         52,000
 Purchase of treasury stock........         --         --          --        --                --             --
 Purchase of Common Stock
   options.........................         --         --          --        --           (14,800)            --
 Change in cumulative translation
   adjustment......................         --         --          --        --                --             --
 Net loss..........................         --         --          --        --                --             --
                                      --------   --------   ---------    ------       -----------      ---------
Balance, December 31, 1995.........         --         --   4,057,924     4,058         9,553,220       (198,965)
 Issuance of Common Stock, net of
   issuance costs of approximately
   $2,343,000......................         --         --   1,505,508     1,505        10,439,344             --
 Issuance of Common Stock related
   to convertible advances.........         --         --     135,421       135           499,865             --
 Issuance of Series A Convertible
   Preferred Stock, net of issuance
   costs of approximately
   $338,000........................      5,500          5          --        --         5,161,850             --
 Dividends accrued on Series A
   Convertible Preferred Stock.....         --         --          --        --                --             --
 Conversion of Series A Convertible
   Preferred Stock to Common
   Stock...........................       (300)        --      22,892        23            14,162             --
 Conversion of note payable into
   Common Stock....................         --         --     201,622       202        13,693,346             --
 Exercise of stock options.........         --         --      51,896        52            80,017             --
 Noncash interest expense related
   to Common Stock warrants issued
   in connection with promissory
   notes payable...................         --         --          --        --        10,632,842             --
 Noncash compensation expense
   related to Common Stock options
   issued to Company's president...         --         --          --        --         3,240,000             --
 Noncash compensation expense
   related to grants of Common
   Stock options...................         --         --          --        --           756,472             --
 Noncash interest expense related
   to Common Stock warrants issued
   in connection with promissory
   notes payable...................         --         --          --        --           106,729             --
 Options granted in connection with
   the Orgenics Acquisition........         --         --          --        --         1,056,000             --
 Amortization of deferred
   compensation related to grant of
   Common Stock options............         --         --          --        --                --        198,965
 Change in cumulative translation
   adjustment......................         --         --          --        --                --             --
 Net loss..........................         --         --          --        --                --             --
                                      --------   --------   ---------    ------       -----------      ---------
Balance, December 31, 1996.........      5,200          5   5,975,263     5,975        55,233,847             --
 Issuance of Common Stock, net of
   issuance costs of approximately
   $2,078,000......................         --         --   1,813,201     1,813        16,051,352             --
 Conversion of Series A Convertible
   Preferred Stock to Common
   Stock...........................     (4,800)        (5)    508,019       508           126,039             --
 Issuance of Common Stock in
   connection with the purchase of
   Orgenics, Ltd...................         --         --      90,344        90         1,068,230             --
 Issuance of Common Stock related
   to warrants issued in connection
   with Cambridge Diagnostics
   Notes...........................         --         --   1,142,635     1,143            (1,143)            --
 Exercise of Common Stock options
   and warrants....................         --         --     151,927       152           280,954             --
 Purchase of treasury stock........         --         --          --        --                --             --
 Original issuance discount on
   convertible notes and accretion
   on Series B Preferred Stock
   pertaining to guaranteed
   discount upon conversion and
   valuation of warrants...........         --         --          --        --         2,966,967             --
 Deferred compensation related to
   grants of Common Stock
   options.........................         --         --          --        --            27,453        (27,453)
 Amortization of deferred
   compensation related to grants
   of Common Stock options.........         --         --          --        --                --         27,453
 Reversal of accrued dividends on
   Series A Convertible Preferred
   Stock...........................         --         --          --        --                --             --
 Changes in cumulative transition
   adjustment......................         --         --          --        --                --             --
 Net loss..........................         --         --          --        --                --             --
                                      --------   --------   ---------    ------       -----------      ---------
Balance, December 31, 1997.........        400   $     --   9,681,389    $9,681       $75,753,699      $      --
                                      ========   ========   =========    ======       ===========      =========

<CAPTION>

                                        TREASURY STOCK                                        TOTAL
                                     ---------------------                  CUMULATIVE    STOCKHOLDERS'
                                     NUMBER OF               ACCUMULATED    TRANSLATION      EQUITY
                                      SHARES       COST        DEFICIT      ADJUSTMENT      (DEFICIT)
                                     ---------   ---------   ------------   -----------   -------------
<S>                                  <C>         <C>         <C>            <C>           <C>
Balance, December 31, 1994.........        --    $      --   $(4,579,131)    $     --     $     82,776
 Subsidiary's issuance of Preferred
   Stock...........................        --           --            --           --               --
 Issuance of Common Stock in
   connection with notes payable...        --           --            --           --          180,048
 Issuance of Common Stock..........        --           --            --           --          144,318
 Issuance of Common Stock warrants
   in connection with notes
   payable.........................        --           --            --           --           30,000
 Noncash interest expense related
   to Common Stock warrants issued
   in connection with notes
   payable.........................        --           --            --           --        4,235,768
 Exercise of Common Stock
   options.........................        --           --            --           --           69,072
 Deferred compensation related to
   grants of Common Stock
   options.........................        --           --            --           --               --
 Amortization of deferred
   compensation related to grants
   of Common Stock options.........        --           --            --           --           52,000
 Purchase of treasury stock........   (15,600)     (15,200)           --           --          (15,200)
 Purchase of Common Stock
   options.........................        --           --            --           --          (14,800)
 Change in cumulative translation
   adjustment......................        --           --            --      102,524          102,524
 Net loss..........................        --           --   (10,096,903)          --      (10,096,903)
                                      -------    ---------   ------------    --------     ------------
Balance, December 31, 1995.........   (15,600)     (15,200)  (14,676,034)     102,524       (5,230,397)
 Issuance of Common Stock, net of
   issuance costs of approximately
   $2,343,000......................        --           --            --           --       10,440,849
 Issuance of Common Stock related
   to convertible advances.........        --           --            --           --          500,000
 Issuance of Series A Convertible
   Preferred Stock, net of issuance
   costs of approximately
   $338,000........................        --           --            --           --        5,161,855
 Dividends accrued on Series A
   Convertible Preferred Stock.....        --           --       (51,037)          --          (51,037)
 Conversion of Series A Convertible
   Preferred Stock to Common
   Stock...........................        --           --       (14,185)          --               --
 Conversion of note payable into
   Common Stock....................        --           --            --           --       13,693,548
 Exercise of stock options.........        --           --            --           --           80,069
 Noncash interest expense related
   to Common Stock warrants issued
   in connection with promissory
   notes payable...................        --           --            --           --       10,632,842
 Noncash compensation expense
   related to Common Stock options
   issued to Company's president...        --           --            --           --        3,240,000
 Noncash compensation expense
   related to grants of Common
   Stock options...................        --           --            --           --          756,472
 Noncash interest expense related
   to Common Stock warrants issued
   in connection with promissory
   notes payable...................        --           --            --           --          106,729
 Options granted in connection with
   the Orgenics Acquisition........        --           --            --           --        1,056,000
 Amortization of deferred
   compensation related to grant of
   Common Stock options............        --           --            --           --          198,965
 Change in cumulative translation
   adjustment......................        --           --            --       71,041           71,041
 Net loss..........................        --           --   (28,577,642)          --      (28,577,642)
                                      -------    ---------   ------------    --------     ------------
Balance, December 31, 1996.........   (15,600)     (15,200)  (43,318,898)     173,565       12,079,294
 Issuance of Common Stock, net of
   issuance costs of approximately
   $2,078,000......................        --           --            --           --       16,053,165
 Conversion of Series A Convertible
   Preferred Stock to Common
   Stock...........................        --           --      (126,542)          --               --
 Issuance of Common Stock in
   connection with the purchase of
   Orgenics, Ltd...................        --           --            --           --        1,068,320
 Issuance of Common Stock related
   to warrants issued in connection
   with Cambridge Diagnostics
   Notes...........................        --           --            --           --               --
 Exercise of Common Stock options
   and warrants....................        --           --            --           --          281,106
 Purchase of treasury stock........   (16,597)    (196,260)           --           --         (196,260)
 Original issuance discount on
   convertible notes and accretion
   on Series B Preferred Stock
   pertaining to guaranteed
   discount upon conversion and
   valuation of warrants...........        --           --    (2,049,545)          --          917,422
 Deferred compensation related to
   grants of Common Stock
   options.........................        --           --            --           --               --
 Amortization of deferred
   compensation related to grants
   of Common Stock options.........        --           --            --           --           27,453
 Reversal of accrued dividends on
   Series A Convertible Preferred
   Stock...........................        --           --        21,773           --           21,773
 Changes in cumulative transition
   adjustment......................        --           --            --     (101,294)        (101,294)
 Net loss..........................        --           --   (24,710,294)          --      (24,710,294)
                                      -------    ---------   ------------    --------     ------------
Balance, December 31, 1997.........   (32,197)   $(211,460)  $(70,183,506)   $ 72,271     $  5,440,685
                                      =======    =========   ============    ========     ============
</TABLE>

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

                                       F-6
<PAGE>   45

                        SELFCARE, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                            ------------------------------------------
                                                                1995           1996           1997
                                                            ------------   ------------   ------------
<S>                                                         <C>            <C>            <C>
Cash Flows from Operating Activities:
  Net loss................................................  $(10,096,903)  $(28,577,642)  $(24,710,294)
  Adjustments to reconcile net loss to net cash used in
    operating activities --
    Accretion on Preferred Stock of a subsidiary..........        55,580        110,348        114,099
    Amortization of original issue discounts on
       convertible notes and Series B Preferred Stock.....            --             --        497,702
    Noncash interest expense related to issuance of
       warrants...........................................     4,235,768     10,739,571             --
    Noncash compensation expense related to issuance of
       Common Stock options...............................        52,000        955,437         27,453
    Noncash compensation expense related to Common Stock
       options issued to the Company's Chief Executive
       Officer............................................            --      3,240,000             --
    Extraordinary loss on extinguishment of debt..........            --             --        579,354
    Write-off of in-process research and development
       expense............................................            --      4,396,700      3,303,300
    Amortization of deferred revenue......................      (506,374)    (1,034,974)    (1,406,078)
    Depreciation and amortization.........................       576,463      1,044,136      6,597,051
    Equity in net loss of affiliate.......................            --        200,000        327,000
    Minority interest in subsidiary's loss................            --       (132,990)      (181,017)
    Changes in assets and liabilities, net of assets and
       liabilities acquired in connection with the
       Acquisition of Orgenics in 1996 and 1997 and The
       Nutritional Supplement Lines in 1997 --
         Accounts receivable..............................      (476,750)    (1,937,323)    (2,010,303)
         Inventories......................................      (163,860)        80,341     (3,129,256)
         Prepaid and other current assets.................      (229,573)      (215,400)      (228,394)
         Accounts payable.................................       801,224      2,194,066      1,347,664
         Accrued expenses and other current liabilities...       948,364      2,382,366      3,014,748
                                                            ------------   ------------   ------------
           Net cash used in operating activities..........    (4,804,061)    (6,555,364)   (15,856,971)
                                                            ------------   ------------   ------------
Cash Flows from Investing Activities:
  Purchases of property and equipment.....................    (1,189,824)    (4,749,476)    (5,400,952)
  Increase in other assets................................            --       (448,050)    (2,622,715)
  Cash loaned to affiliated company.......................            --             --       (742,105)
  Cash paid for purchase of Nutritional Supplement
    Lines.................................................            --             --    (31,067,580)
  Cash paid for investment in affiliated companies........            --       (129,057)            --
  Cash paid for investment in Orgenics, Ltd. net of cash
    acquired..............................................      (500,000)    (5,515,659)    (8,417,325)
                                                            ------------   ------------   ------------
           Net cash used in investing activities..........    (1,689,824)   (10,842,242)   (48,250,677)
                                                            ------------   ------------   ------------
Cash Flows from Financing Activities:
  Decrease in restricted cash.............................        69,346             --             --
  Cash paid for deferred financing cost...................            --             --     (1,677,749)
  Net proceeds from the issuance of Common Stock..........       213,390     10,520,918     16,551,014
  Net proceeds from issuance of Preferred Stock and
    warrants..............................................            --      5,161,855      7,533,008
  Repayments on line of credit............................    (2,167,685)            --             --
  Proceeds from borrowings under notes payable............    10,000,000      6,878,692     51,406,273
  Increase in deferred revenue............................     2,432,000      3,815,336             --
  Repayments of notes payable.............................            --        (17,076)   (10,556,994)
  Proceeds from issuance of Common Stock warrants in
    connection with notes payable.........................        30,000             --             --
  Purchase of treasury stock..............................       (15,200)            --       (196,260)
  Purchase of Common Stock options........................       (14,800)            --             --
  Proceeds from sale of Preferred Stock of a subsidiary...     1,588,000             --             --
                                                            ------------   ------------   ------------
         Net cash provided by financing activities........    12,135,051     26,359,725     63,059,292
                                                            ------------   ------------   ------------
Foreign Exchange Effect on Cash and Cash Equivalents......        (8,524)       101,785        259,600
                                                            ------------   ------------   ------------
Net Increase (Decrease) in Cash and Cash Equivalents......     5,632,642      9,063,904       (788,756)
Cash and Cash Equivalents, Beginning of Year..............     1,762,108      7,394,750     16,458,654
                                                            ------------   ------------   ------------
Cash and Cash Equivalents, End of Year....................  $  7,394,750   $ 16,458,654   $ 15,669,898
                                                            ============   ============   ============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-7
<PAGE>   46

                        SELFCARE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION

     Selfcare, Inc. and its subsidiaries (the Company) is engaged in the
development, manufacturing and marketing of self-test diagnostic products for
the diabetes, women's health and infectious disease markets. The Company's
existing and planned products are targeted at the two largest existing markets
for self-care diagnostics, diabetes management and women's health, as well as
the emerging market for self tests for infectious diseases and agents, including
human immunodeficiency virus (HIV).

     During 1996 and 1997, the Company acquired a 99.8% direct and indirect
equity interest in Orgenics Ltd. and subsidiaries (Orgenics) for total
consideration of $18,368,000, which primarily consisted of $16,417,000 in cash,
options to purchase 85,800 shares of the Company's Common Stock and 73,747
shares of the Company's Common Stock, net of treasury stock repurchases (see
Note 3).

     On February 19, 1997, the Company acquired the U.S. rights to several
nutritional supplement product lines (the Nutritional Supplement Lines
Acquisition) from American Home Products Corporation (AHP) for $30,000,000 in
cash and the issuance of a $6,000,000, 7% promissory note (see Note 4).

     On February 18, 1998, the Company entered into an agreement to acquire all
of the outstanding stock of Can-Am Care Corporation (Can-Am), a distributor of
certain diabetes-related home health care products. The total cost of the
Acquisition was $27,900,000, which consisted of $13,600,000 in cash, a
$2,000,000 note payable and approximately 1,100,000 shares of the Company's
Common Stock (see Note 19(a)).

     Since inception, the Company has devoted substantially all of its efforts
toward the research and development of products, the establishment of
distribution networks in the United States and Europe, raising capital and
identifying strategic Acquisitions and partnerships. The acquisitions noted
above have significantly increased the Company's operations. Management
anticipates that substantially all future revenues will be derived from products
under development or those developed or acquired in the future. Principal risks
to the Company include the ability of the Company to obtain adequate financing
to fund future operations, the management and integration of acquired companies,
dependence on key individuals, competition from substitute products and larger
companies, obtaining regulatory approval, and the successful development and
marketing of commercial products.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  (a) Principles of Consolidation

     The accompanying consolidated financial statements include the results of
the Company and its wholly owned subsidiaries: Cambridge Diagnostics, Ltd.
(Cambridge Diagnostics) (an Irish corporation), Selfhelp Israel, Ltd. (an
Israeli corporation), Selfcare International GmbH (a German corporation) and
subsidiaries, Selfcare Europe Ltd. (SCE) (a UK corporation), Inverness Medical
Limited (Inverness) (a Scottish corporation), Selfcare Consumer Products, Inc.
(SCP), Orgenics, Ltd. (Orgenics) (an Israeli Corporation) and subsidiaries,
Selfcare Technologies, Inc. and its 70%-owned subsidiary, Jmar Ames, Inc. Also
included in the accompanying consolidated financial statements is the Company's
49% minority interest in Cambridge Affiliate Corporation (Cambridge Affiliate)
(see Note 12(c)) and its 29.8% interest in Enviromed, plc (Enviromed) (see Note
15), both of which are accounted for under the equity method. All material
intercompany balances and transactions have been eliminated in consolidation.

     The accounts of Selfcare International GmbH include its wholly owned
subsidiaries, Selfcare Development Verwaltungsellschaft mbH, Selfcare GmbH (a
German corporation), Selfcare Development GmbH & Co, KG and Buba Selfcare
Benelux sprl (a Belgian corporation).

     SCE was a joint venture between the Company and Enviromed in which the
Company originally held a 50% interest. Due to default by Enviromed on certain
covenants of the joint venture agreement during 1995, the Company has assumed
100% ownership and effective operating control of SCE (see Note 15).

                                       F-8
<PAGE>   47
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accordingly, the Company considers this entity to be a wholly owned subsidiary
and has included its results of operations in the accompanying consolidated
financial statements for the years ended December 31, 1996 and 1997.

     The accounts of Orgenics also includes its wholly owned subsidiaries PBS
S.A. (PBS) (a French corporation), Organics Reagentes Para Laboratories
(formerly CPEI Orgenics LTDA) (a Brazilian corporation), Do Brazil Ltda (Do
Brazil) (a Brazilian corporation) and Orgencis Biosensors Ltd. (an Israeli
corporation). The Orgenics financial statements were prepared in accordance with
Israeli generally accepted accounting principles (GAAP) which, for the purposes
of the Company's consolidated financial statements, do not materially differ
from U.S. GAAP.

     The minority interest reflected in the accompanying 1997 consolidated
balance sheet relates primarily to Jmar Ames, Inc. The minority interest
reflected in the accompanying 1997 consolidated statement of operations relates
to both Jmar Ames, Inc. and Orgenics.

  (b) Revenue Recognition

     Product revenue is recognized when products are shipped to customers, at
which time title is transferred. The Company is recognizing deferred revenue
relating to the 1993 sale of technology over a defined life (see Note 12(a)).
The Company is recognizing deferred revenue relating to the LifeScan alliance as
unfulfilled obligations are met (see Note 10). The Company has also recorded
deferred revenue in the accompanying consolidated balance sheets relating to
amounts received in advance on certain contracts and grants (see Note 11(b)).
The Company records the related revenue on funded amounts relating to facilities
and equipment over their estimated useful lives and related costs based on when
such costs are incurred.

  (c) Cash and Cash Equivalents

     The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The Company has classified its cash equivalents as held-to-maturity
and recorded them at amortized cost, which approximates market value. The
Company considers all highly liquid cash investments with original maturities of
three months or less at the date of acquisition to be cash equivalents. Cash and
cash equivalents consisted of the following at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                            --------------------------
                                                               1996           1997
                                                            -----------    -----------
<S>                                                         <C>            <C>
Cash and money market funds...............................  $ 2,622,824    $15,669,898
Overnight time deposits...................................   13,835,830             --
                                                            -----------    -----------
                                                            $16,458,654    $15,669,898
                                                            ===========    ===========
</TABLE>

  (d) Inventories

     Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                            --------------------------
                                                               1996           1997
                                                            -----------    -----------
<S>                                                         <C>            <C>
Raw materials.............................................  $ 1,363,168    $ 3,006,076
Work-in-process...........................................      272,466        405,404
Finished goods............................................      630,600      1,933,051
                                                            -----------    -----------
                                                            $ 2,266,234    $ 5,344,531
                                                            ===========    ===========
</TABLE>

                                       F-9
<PAGE>   48
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (e) Depreciation and Amortization

     Depreciation and amortization are computed using the straight-line method
based on the estimated useful lives of the related assets as follows:

<TABLE>
<CAPTION>
                                                               ESTIMATED
                 ASSET CLASSIFICATION                         USEFUL LIFE
                 --------------------                   -----------------------
<S>                                                     <C>
Machinery and laboratory equipment....................        3 - 5 years
Leasehold improvements................................  Lesser of Life of Lease
                                                           or Life of Asset
Furniture and fixtures................................        3 - 7 years
Computer equipment....................................        3 - 5 years
</TABLE>

  (f) Postretirement Benefits

     The Company does not have any obligations for postretirement or
postemployment benefits, as defined by SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, as it does not currently offer such
benefits. Orgenics does provide certain severance benefits (see Note 11(f)).

  (g) Net Loss per Common Share

     In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings Per Share, which established new standards for calculating and
presenting earnings per share. Basic net loss per common share was computed by
dividing net loss less Preferred Stock dividends by the weighted average number
of common shares outstanding during the year. Diluted loss per share is the same
as basic loss per share, as the effects of the Company's potential Common Stock
(5,417,334, 6,701,441 and 5,335,267 shares in 1995, 1996 and 1997, respectively)
are antidilutive. In accordance with Staff Accounting Bulletin (SAB) No. 98, the
Company has determined that there were no nominal issuances of Common Stock or
potential Common Stock in the period prior to the Company's initial public
offering.

     In the year ended December 31, 1997, the Company recorded accretion of
$2,050,000 representing the 6% premium and 5% conversion discount on the Series
B Preferred Stock. The Company has also recorded $105,000 of dividends on the
Series A Preferred Stock. The following table reconciles the net loss per common
and common equivalent shares.

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                           --------------------------------------------
                                               1995            1996            1997
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Net loss.................................  $(10,096,903)   $(28,577,642)   $(24,710,294)
Dividends on Series A Preferred Stock....            --         (51,037)       (104,769)
Accretion on Series B Preferred Stock....            --              --      (2,049,545)
                                           ------------    ------------    ------------
          Loss attributable to common
            shareholders.................  $(10,096,903)   $(28,628,679)   $(26,864,608)
                                           ============    ============    ============
Basic and diluted net loss per common and
  potential common share.................  $      (2.61)   $      (6.00)   $      (3.36)
                                           ============    ============    ============
Weighted average number of common and
  potential common shares outstanding....     3,866,841       4,767,493       7,990,666
                                           ============    ============    ============
</TABLE>

                                      F-10
<PAGE>   49
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (h) Foreign Currency Translation

     The accounts of the Company's subsidiaries are translated in accordance
with SFAS No. 52, Foreign Currency Translation. Accordingly, assets and
liabilities of the Company's foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date. Income and expense
accounts are translated using an average rate of exchange during the period.
Cumulative translation gains or losses are reflected as a separate component of
consolidated stockholders' equity (deficit). Foreign currency exchange
transaction gain of $324,000 and loss of $717,000 for the years ended December
31, 1996 and 1997, respectively, are reflected as a component of interest and
other income, net, in the accompanying consolidated statements of operations.
There were no significant exchange transaction gains and losses during 1995.

  (i) Use of Estimates in the Preparation of Financial Statements

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

  (j) Concentration of Credit Risk

     SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts, other
foreign hedging arrangements or concentration of significant accounts receivable
balances. The Company maintains the majority of its cash balances and its
overnight time deposits with financial institutions. See Note 16 for financial
information by geographic area.

  (k) Derivative Financial Instruments and Fair Value of Financial Instruments

     The Company does not have any derivative or other financial instruments as
defined by SFAS No. 119, Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments.

     SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash equivalents,
accounts receivable and debt. The estimated fair value of these financial
instruments approximates their carrying value at December 31, 1996 and 1997. The
estimated fair values have been determined through information obtained from
market sources and management estimates.

  (l) Recapitalization

     On June 13, 1996, the Company's Board of Directors authorized 5,000,000
shares of Preferred Stock and declared a 13-for-1 stock split of the Company's
Common Stock, effected as a dividend for all Common Stockholders of record as of
June 20, 1996. All share and per share amounts of Common Stock for all periods
presented have been retroactively adjusted to reflect the stock split.

  (m) Prior Year Account Balances

     Certain prior year account balances have been reclassified to be consistent
with the current year's presentation.

                                      F-11
<PAGE>   50
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (n) Extraordinary Loss on Early Extinguishment of Debt

     On December 12, 1997, the Company effectively extinguished two series of
notes, whereby the Company recorded extraordinary losses. The Company
extinguished certain amounts due under notes pertaining to its investment in
Enviromed (see Note 15) and substantially all of the notes issued in connection
with its acquisition of Cambridge Diagnostics (see Note 7) and recorded
extraordinary losses of approximately $206,000 and $373,000, respectively.

  (o) Goodwill, Trademarks and Other Intangible Assets

     Goodwill, trademarks and other intangible assets consist of the following
as of December 31, 1996 and 1997:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                     -------------------------
                                                        1996          1997
                                                     ----------    -----------
<S>                                                  <C>           <C>
Goodwill...........................................  $3,355,465    $23,813,768
Trademarks.........................................          --     21,600,000
Patents............................................     730,000      1,117,000
                                                     ----------    -----------
Less -- Accumulated amortization...................     344,294      3,137,505
                                                     ----------    -----------
                                                     $3,741,171    $43,393,263
                                                     ==========    ===========
</TABLE>

     The Company is amortizing goodwill and trademarks related to the
acquisition of the Nutritional Supplement Lines using the straight-line method
over 25 years (see Note 4). The Company is amortizing Orgenics-related goodwill
over 5 years (see Note 3). The Company recorded amortization expense of
approximately $105,000 and $2,643,000 in 1996 and 1997, respectively, related to
goodwill and trademarks.

     Patents held by Orgenics are being amortized over their useful lives, which
have been determined to be 5 to 10 years.

     The Company follows the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, in
1997. SFAS No. 121 requires that long-lived assets be reviewed for impairment by
comparing the fair value of the assets with their carrying amount. Any write-
downs are to be treated as permanent reductions in the carrying amount of the
assets. The Company believes that the carrying value of these assets are
realizable as of December 31, 1997.

                                      F-12
<PAGE>   51
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (p) Noncash Investing and Financing Activities

     The following table summarizes the supplemental disclosures of the
Company's noncash financing and investing transactions for the periods indicated
below:

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                          --------------------------------------
                                                            1995         1996           1997
                                                          --------    -----------    -----------
<S>                                                       <C>         <C>            <C>
Supplemental Disclosure of Cash Flow Information:
  Cash paid for --
    Interest............................................  $254,134    $   396,118    $ 3,590,446
                                                          ========    ===========    ===========
    Income taxes........................................  $  6,162    $    47,705    $    21,600
                                                          ========    ===========    ===========
Supplemental Disclosure of Noncash Investing and
  Financing Activities:
  On October 24, 1996, the Company acquired 57.1% of the
    assets and liabilities of Orgenics, Ltd.; in 1997,
    the Company acquired substantially all of the
    remaining shares --.................................  $     --    $ 1,660,326    $ 1,113,201
  In-process research and development...................        --      4,396,700      3,303,300
  Goodwill..............................................        --      3,020,176      4,873,824
  Conversion of debenture into shares of Orgenics.......        --     (1,000,000)            --
  Options granted in connection with the acquisition....        --     (1,056,000)            --
  Issuance of Common Stock..............................        --             --       (873,000)
  Less cash acquired....................................        --     (1,505,543)            --
                                                          --------    -----------    -----------
Cash Paid for Acquisition, Net of Cash Acquired.........  $     --    $ 5,515,659    $ 8,417,325
                                                          ========    ===========    ===========
On February 19, 1997, the Company acquired the
  Nutritional Supplement Lines from American Home
  Products (AHP):
  Goodwill..............................................  $     --    $        --    $15,467,580
  Trademarks............................................        --             --     21,600,000
  Note payable to AHP...................................        --             --     (6,000,000)
                                                          ========    ===========    ===========
Cash Paid for Purchase of Nutritional Supplement
  Lines.................................................  $     --    $        --    $31,067,580
                                                          ========    ===========    ===========
Cash Paid for Investment in Affiliated Companies:
  Cost of investment....................................  $     --    $ 3,932,609    $        --
  Stock acquired through issuance of promissory notes
    payable.............................................        --      3,803,552             --
                                                          --------    -----------    -----------
                                                          $     --    $   129,057    $        --
                                                          ========    ===========    ===========
Conversion of Convertible Advance into Common Stock.....  $     --    $13,693,548    $        --
                                                          ========    ===========    ===========
Conversion of Convertible Payable into Common Stock.....  $     --    $   500,000    $        --
                                                          ========    ===========    ===========
Forgiveness of Accounts Receivable as Consideration for
  a Noncompete Agreement in Connection With Orgenics
  Purchase of the Minority Interest in its Brazilian
  Subsidiary............................................  $     --             --    $ 1,375,000
                                                          ========    ===========    ===========
Early Extinguishment of Certain Notes Payable...........  $     --    $        --    $ 4,580,940
                                                          ========    ===========    ===========
Original Issue Discount on Notes Payable Pertaining to
  Guaranteed Discount Upon Conversion...................  $     --    $        --    $ 1,994,265
                                                          ========    ===========    ===========
Accretion and Dividends on Preferred Stock..............  $     --    $    51,037    $ 2,154,314
                                                          ========    ===========    ===========
</TABLE>

(3) ACQUISITION OF ORGENICS

     On December 23, 1995, the Company and Orgenics entered into an Investment
and Loan Agreement whereby the Company purchased a $1,000,000, 18-month,
unsecured, interest-bearing debenture that was

                                      F-13
<PAGE>   52
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

convertible into redeemable preferred shares of Orgenics (the Debenture). In
October 1996, the Company exercised its right to convert the Debenture, at which
time the principal amount, together with accrued interest, converted into 20% of
the then issued and outstanding share capital of Orgenics. In October 1996, the
Company acquired a 57.1% direct and indirect equity interest in Orgenics as a
result of the conversion of the Debenture and cash payments of approximately
$7,000,000. In addition, the Company granted options to purchase 85,800 shares
of Common Stock having a fair market value of $1,056,000 (Note 13(b)) and
incurred direct acquisition costs of $100,000. Throughout 1997, the Company
acquired additional shares of Orgenics for approximately $8,417,000 in cash and
73,747 shares of Common Stock (with a fair value of $872,000, net of treasury
stock repurchases), resulting in a 99.8% ownership interest in Orgenics.

     The aggregate purchase price of the Company's 99.8% direct and indirect
interest in Orgenics of approximately $18,367,000 was allocated based on the
relative fair values of the assets acquired as follows:

<TABLE>
<S>                                                       <C>
Fair value of net assets................................  $ 2,533,000
In-process research and development.....................    7,700,000
Goodwill................................................    8,134,000
                                                          -----------
                                                          $18,367,000
                                                          ===========
</TABLE>

     The portion of the purchase price allocated to goodwill and other
intangible assets relates primarily to acquired technology, trade names and
goodwill and are being amortized on a straight-line basis over their estimated
useful lives of five years. The portion of the purchase price allocated to
in-process research and development projects that had not reached technological
feasibility and did not have a future alternative use was charged to expense.
The amount allocated to in-process research and development projects represents
the estimated fair value related to these projects determined by an independent
appraisal. Proven valuation procedures and techniques were used in determining
the fair market value of each intangible asset. To bring these projects to
technological feasibility, high-risk development and testing issues will need to
be resolved which will require substantial additional effort and testing.

     In December 1997, Orgenics purchased the 45% minority interest in Do
Brazil. As consideration, Orgenics forgave certain amount due from the minority
shareholders. The parties also entered into a one-year noncompete agreement,
valued at $1,375,000. The assets and results of operations of Do Brazil are not
material to the Company's operations.

     For pro forma financial information reflecting the Orgenics Acquisition and
Nutritional Supplement Lines Acquisition, see Note 4.

(4) ACQUISITION AND FINANCING OF NUTRITIONAL SUPPLEMENT LINES

     On February 19, 1997, the Company acquired the Nutritional Supplement Lines
from AHP. As consideration for the Nutritional Supplement Lines, the Company
paid to AHP a total of $36,000,000 in cash. Including direct acquisition-related
costs, the total purchase price was approximately $37,100,000. The entire
purchase price was allocated to intangible assets, approximately $15,500,000 to
trademarks and $21,600,000 to goodwill. The Company funded the $30,000,000 cash
portion of the purchase price with bank debt, the AHP Term Loan and the AHP
Bridge Loan (collectively, the Acquisition Facility) with original principal
amounts of $25,000,000 and $5,000,000, respectively. The remaining $6,000,000 is
in the form of a note payable from the Company to AHP. The Company paid this
amount subsequent to year-end.

     The AHP Term Loan had an initial principal balance of $25,000,000 and a
five-year term, with quarterly amortization of principal ranging from $3,000,000
to $5,000,000, and a $6,250,000 balloon payment at maturity.

                                      F-14
<PAGE>   53
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The AHP Term Loan, at the Company's election, bore interest at an annual
floating rate equal to either LIBOR plus 2% or the bank's prime rate. The AHP
Bridge Loan was due June 3, 1997, and at the Company's election, bore interest
at an annual floating rate equal to either LIBOR plus 3.5% or the bank's prime
rate plus 1.5%. In June 1997, the Company paid the $5,000,000 Bridge Loan.

     In connection with the Acquisition Facility, the Company obtained from the
bank a $5,000,000 revolving credit line (the Credit Line). The Credit Line, at
the Company's election, bore interest at an annual floating rate equal to either
LIBOR plus 1.75% or the bank's prime rate and matures in three years. The
Acquisition Facility and the Credit Line were secured by a first priority lien
on substantially all of the Company's U.S. assets.

     Subsequent to year-end, the Company refinanced its obligations under these
agreements with another bank (see Note 19(b)).

     The following table presents selected unaudited financial information of
the Company, the Nutritional Supplement Lines and Orgenics (see Note 3),
assuming the companies combined on January 1, 1996. The pro forma results are
not necessarily indicative of either actual results that would have occurred had
the acquisition been consummated on January 1, 1996 or of future results.

<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                          ----------------------------
                                              1996            1997
                                          ------------    ------------
                                                   UNAUDITED
<S>                                       <C>             <C>
Pro forma net revenue...................  $ 53,784,788    $ 54,833,394
                                          ============    ============
Pro forma loss before extraordinary loss
  and taxes.............................  $(20,424,504)   $(23,023,052)
                                          ============    ============
Pro forma net loss(1)...................  $(20,424,504)   $(23,798,278)
                                          ============    ============
Pro forma basic and diluted net loss per
  common and potential common share.....  $      (3.08)   $      (2.98)
                                          ============    ============
Pro forma basic and diluted weighted
  average common and potential common
  shares outstanding(2).................     6,639,675       7,990,666
                                          ============    ============
</TABLE>

     (1) excludes non-recurring charges for in-process research and development
         of $4,396,700 and $3,300,300 in 1996 and 1997, respectively (see Note
         3).

     (2) assumes completion of initial and secondary public offerings and the
         use of proceeds to consumate both the Orgenics (see Note 3) and
         Nutritional Supplement Lines Acquisitions.

(5) INVESTMENT IN INVERNESS MEDICAL LIMITED

     On May 31, 1995, the Company invested approximately $1,588,000 to fund
initial operations and to acquire a 50% interest in Inverness. Inverness
(formerly named Hebocraft Limited) was founded on November 1, 1994 and had no
significant activities, assets or liabilities at the time of the Company's
investment. Inverness & Nairn Local Enterprise Company (INLEC) holds the
remaining 50% interest in Inverness and also paid in $1,588,000 for its
interest. The Company holds 1,000,000 ordinary shares of stock, while INLEC
holds 1,000,000 shares of 6% Cumulative Redeemable Preference Shares (the
Preference Shares). This investment is consolidated by the Company due to its
ownership of 100% of Inverness' ordinary shares. The Preference Shares held by
INLEC (including cumulative dividend) are reflected in the accompanying
consolidated balance sheets as mandatorily redeemable Preferred Stock of a
subsidiary.

     The Preference Shareholders are entitled to receive, out of funds legally
available, a cumulative annual dividend of approximately $0.095 per share,
payable annually on April 30, beginning in 1996. At the option of

                                      F-15
<PAGE>   54
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company and subject to certain limitations on each redemption, the
Preference Shares may be redeemed for approximately $1.67 per share, plus any
accrued and unpaid dividends. The Company must redeem all 1,000,000 Preference
Shares by May 31, 2000. If the Company cannot legally redeem the Preference
Shares on that date, it must redeem the shares as soon as legally permissible at
a price of approximately $1.91 per share plus any accrued and unpaid dividends.
Upon liquidation of Inverness, the Preference Shareholders are entitled to
receive approximately $1.59 per share, plus any accrued and unpaid dividends;
thereafter, the ordinary stockholders shall equally share with the Preference
Shareholders in the remaining assets to be distributed. The Preference
Shareholders do not hold any voting rights.

     Under a related agreement, Highlands and Islands Enterprise (HIE), a party
related to INLEC, constructed a 50,000-square-foot production facility for
Inverness to use for manufacturing its products. Inverness has entered into a
20-year facility lease, with an option to purchase the facility for fair market
value. The rent due under this lease will be approximately $550,000 per year,
subject to increases each five years, dependent upon then-current market rates,
as defined. Inverness is not obligated to pay rent for the first two years of
the lease. The Company is guarantor to HIE for these payments if Inverness
defaults on its payments.

     Through December 31, 1996, INLEC provided Inverness with L2,100,00 British
Pounds Sterling (approximately $3,596,000 at December 31, 1996) for the purpose
of outfitting the facility with required equipment, providing training for the
Inverness work force and certain other defined costs. These funds shall be
permanently invested in Inverness, so long as no events of default by Inverness
occur within five years of the funding. Events of default are defined as the
insolvency of Inverness, defined changes in ownership of Inverness and certain
other similar related criteria. Should a default occur within five years of the
funding by INLEC to Inverness, the Company will be liable to INLEC for a
declining portion, as defined, of the amounts paid by INLEC.

     Inverness recognizes as revenue the funded amounts relating to the facility
and equipment over the estimated useful life of the facility and equipment and
amounts related to training and other costs based on when such costs are
incurred. Inverness recognized grant revenue of approximately $216,000, $722,000
and $1,128,000 during the years ended December 31, 1995, 1996 and 1997,
respectively, which are included in grants and other revenues in the
accompanying consolidated statements of operations. Unearned amounts of
approximately $1,312,000 at December 31, 1997 are included in deferred revenue
in the accompanying consolidated balance sheets.

                                      F-16
<PAGE>   55
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) NOTES PAYABLE

     The Company has the following debt outstanding as of December 31, 1996 and
1997:

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                  -------------------------
                                                     1996          1997
                                                  ----------    -----------
     <S>                                          <C>           <C>
     Bank debt -- Orgenics......................  $1,337,000    $ 2,577,000
     Long-term debt -- Orgenics.................     692,000      1,933,000
     Note payable to AHP (Notes 4 and 19(b))....          --      6,000,000
     Promissory note payable to EN PLC (Note
       15)......................................   3,803,552      3,378,278
     Cambridge Diagnostic notes (Note 7)........   3,000,000      2,827,500
     Long-term debt to a bank (Notes 4 and
       19(b))...................................          --     22,000,000
     Note payable to customer (Note 10).........          --      4,951,079
     Subordinated revenue royalty notes (Note
       8).......................................          --      7,500,000
     Senior subordinated convertible notes (Note
       9).......................................          --      8,649,181
     Other miscellaneous notes payable..........          --         86,547
                                                  ----------    -----------
                                                   8,832,552     59,902,585
     Less -- Current portion....................   2,936,851     20,426,511
                                                  ----------    -----------
                                                  $5,895,701    $39,476,074
                                                  ==========    ===========
</TABLE>

     Each of the debt instruments listed above is discussed in the notes to the
consolidated financial statements as referenced, except as follows:

  (a) Short-Term Bank Debt -- Orgenics

     Orgenics has approximately $2,577,000 of notes payable to a bank
outstanding at December 31, 1997. The outstanding balance is collateralized by
certain Orgenics assets. The notes bear interest at rates ranging from 5% to
16.5% and are payable monthly through 2002.

  (b) Long-Term Notes Payable -- Orgenics

     Orgenics holds long-term notes payable with several banks. The notes bear
interest at LIBOR various interest rates (5-9% as of December 31, 1997).
Orgenics has granted liens on all of its assets, insurance rights, share
capital, goodwill and shares of a subsidiary as collateral on the debt.

                                      F-17
<PAGE>   56
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (c) Maturities of Notes Payable

     Certain of the Company's debt instruments provide for either a mandatory or
optional conversion to Common Stock (see Notes 7, 9 and 15). Future maturities
of the Company's debt instruments, including convertible debt, are as follows:

<TABLE>
<CAPTION>

     YEAR                                                        AMOUNT
     ----                                                      -----------
     <S>                                                       <C>
     1998....................................................  $20,426,511
     1999....................................................    6,420,500
     2000....................................................    5,378,500
     2001....................................................    6,433,000
     2002....................................................       36,000
     Thereafter..............................................    8,207,000
                                                               -----------
                                                                46,901,511
     Plus -- Notes payable convertible into Common Stock (see
       Notes 7, 9 and 15)....................................   13,001,074
                                                               -----------
                                                               $59,902,585
                                                               ===========
     </TABLE>

(7) CAMBRIDGE DIAGNOSTIC NOTES AND WARRANTS

     In connection with the 1994 Cambridge Diagnostics Acquisition, the Company
issued notes payable (the Cambridge Diagnostics Notes) and Common Stock warrants
(the Cambridge Diagnostics Warrants) to individual investors for gross proceeds
of $3,030,000. Of this amount, $3,000,000 relates to the Cambridge Diagnostics
Notes, which bear interest at 10% and are due on March 31, 1998. As of December
31, 1996, $825,000 of such notes were due to certain directors and officers of
the Company.

     The remaining $30,000 represents amounts paid to the Company in exchange
for warrants to purchase shares of Common Stock. The number of Cambridge
Diagnostics Warrants is calculated as 69% of the net sales of Cambridge
Diagnostics for the fiscal year preceding the repayment of the Cambridge
Diagnostics Notes divided by $32.87. The Company would have issued 1,142,635
shares of the Company's Common Stock based on net sales of Cambridge Diagnostics
for 1995, if the notes were repaid prior to December 31, 1996. In December 1996,
the Company entered into agreements with substantially all the principal
noteholders of the Cambridge Diagnostics Notes, whereby the Company canceled the
Cambridge Diagnostics Warrants and effectively fixed the ultimate number of
shares of the Company's Common Stock to be issued at 1,142,635, of which 314,222
will be exercisable by certain directors and officers of the Company. During
December 1997, all of such shares of Common Stock were issued for no additional
consideration. The Company recorded noncash interest charges of approximately
$10,633,000 for the year ended December 31, 1996, which represents the
difference between the fair market value of the underlying Common Stock and the
exercise price of the Cambridge Diagnostics Warrants.

     On December 31, 1996, the Company entered into an agreement with
substantially all the principal holders of the Cambridge Diagnostic Notes,
pursuant to which such holders agreed to defer repayment of the principal amount
of their notes until January 15, 1998 and effectively fix the ultimate number of
shares of Common Stock to be issued. As consideration for the foregoing, the
Company agreed to issue five-year warrants to purchase an aggregate of 54,090
shares of Common Stock that are fully exercisable at an exercise price of $12.88
(fair market value as of grant dated) to such holders, of which 14,999 will be
exercisable by certain directors and officers of the Company.

     On December 12, 1997, substantially all of the Cambridge Diagnostic
Noteholders agreed to exchange all amounts due under the existing Cambridge
Diagnostic Notes for new promissory notes (the New Cambridge Diagnostics Notes).
Under the terms of the New Cambridge Diagnostic Notes, the noteholders can
convert

                                      F-18
<PAGE>   57
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the New Cambridge Diagnostic Notes, plus accrued interest at an annual rate of
10%, into Common Stock at a conversion price of $7.23. The conversion price
represents a 15% discount to the market price on the date the New Cambridge
Diagnostic Notes were issued. The New Cambridge Diagnostic Noteholders may
exercise their conversion right at any time through the maturity date (June 12,
1998), at which time the New Cambridge Diagnostic Notes automatically convert
into Common Stock; holders of the New Cambridge Diagnostic Notes cannot receive
cash payments in lieu of conversion. The Company has accounted for this
transaction as an early extinguishment of debt and the issuance of two new
instruments, the New Cambridge Diagnostic Notes and a forward contract to
purchase Common Stock. Accordingly, the Company has recorded the value of the
forward contract as a component of stockholder's equity, the New Cambridge
Diagnostic Notes at their fair value and an extraordinary loss of $373,000 on
the retirement of the original Cambridge Diagnostic Notes.

     In connection with Selfcare's financing of the acquisition of Cambridge
Diagnostics, Cambridge Diagnostics entered into a Guarantee and Debenture, dated
August 30, 1995, with USB '93 Technology, Inc. (USB '93, Inc.), a corporation
whose president and chief executive officer is a director of the Company.
Pursuant to the Guarantee and Debenture, USB '93, Inc. became the guarantor of
an aggregate of $3,000,000 in notes issued by Selfcare to certain investors. In
return for this guarantee, Cambridge Diagnostics granted USB '93, Inc. a
security interest in its machinery, equipment, securities, goodwill and uncalled
capital, patents, trademarks, patent applications, brand names, copyrights, any
and all rights acquired by Cambridge Diagnostics as a licensee or sub-licensee,
and all present and future benefit, right, title and interest in any and all
moneys, payments and proceeds of insurance presently maintained or obtained in
the future.

     The Company issued 119,834 shares of Common Stock to U.S. Boston Capital
Corporation (U.S. Boston Capital), the president of which is a director of the
Company, for its services as placement agent on the Cambridge Diagnostics Notes.
Additionally, the Company issued 92,950 shares of Common Stock to the Company's
president for his personal guarantee of these notes. The total fair value of the
shares issued to both the president and USB '93 ($101,000 and $79,000,
respectively) have been recorded as deferred financing costs in 1996, which are
included in other assets in the accompanying consolidated financial statements,
and are being amortized over the original life of the Cambridge Diagnostics
Notes.

(8) SUBORDINATED REVENUE ROYALTY NOTES

     In June 1997, the Company sold Subordinated Revenue Royalty Notes (the
Royalty Notes) having an aggregate issue price of $7,500,000. Each Royalty Note
entitles the holder thereof (each, a Royalty Noteholder) to payments relating to
net revenue of the Company during each fiscal quarter the Royalty Note is
outstanding, which payments are pro rated with respect to the number of days the
Royalty Note is outstanding during such fiscal quarter (each, a Royalty
Payment). The Company is obligated to make Royalty Payments until the total
amount of Royalty Payments equals four times the total issue price of the
Royalty Note (the Total Repayment Amount). In addition, the Company may elect to
prepay the Royalty Notes, as described below.

     The quarterly Royalty Payment for each $25,000 of issue price will equal
the greater of (i) 0.005% of net revenues of the Company during such fiscal
quarter or (ii) $1,300. Until the Total Repayment Amount has been paid, the
Company will pay Royalty Payments as to each Royalty Note as follows: (i) the
first payment will be made on or before the forty-fifth day after the closing of
the fourth full fiscal quarter during which such Royalty Note is outstanding and
will cover Royalty Payments for such fiscal quarter and the prior fiscal
quarters during which such Royalty Note was outstanding; provided, however, that
the aggregate Royalty Payments made at such time shall not be less than $6,000;
and (ii) the Royalty Payment for each subsequent fiscal quarter will be made on
or before the forty-fifth day after the closing of such fiscal quarter. Based on
the estimated repayment schedule, the Company imputed an interest rate of 23.3%
and recorded interest expense of $904,000 in 1997.

                                      F-19
<PAGE>   58
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     If the Company elects to prepay the amount due under the Royalty Notes or
if an event of default (as defined below) is not cured with 30 days after notice
to the Company, the Company will pay an amount equal to the greater of (i) 1.5
times the issue price of Royalty Notes minus all Royalty Payments made by the
Company prior to the date of payment (but excluding any amount paid as Late
Payment Interest, as defined below) or (ii) an amount equal to the issue price
of the Royalty Notes plus an annualized internal rate of return the issue price
equal to 30% calculated from the issue date of the Royalty Notes to the date of
payment, minus all Royalty Payments made by the Company prior to the date of
payment (but excluding any amount paid as Late Payment Interest).

     The Royalty Notes will bear interest only in the event of a late Royalty
Payment, an event of default or a prepayment. If a Royal Payment is not made
within 45 days of the end of the relevant fiscal quarter, the overdue amount
will accrue interest (Late Payment Interest) at the rate of 18% per annum,
compounded daily, accruing from the date such Royalty Payment is due to the date
the Royalty Payment, including accrued interest thereon, is made. Any such
accrued interest will be payable on demand.

     U.S. Boston Capital acted as a placement agent for the offering of Royalty
Notes. As compensation for its services as placement agent, U.S. Boston Capital
received a cash commission of $600,000, which the Company has recorded as
deferred financing costs and will amortize over the estimated 14-year life of
the Royalty Notes. U.S. Boston Capital was also reimbursed for the fees and
disbursements of its counsel and received a nonaccountable expense allowance of
$5,000. A director of the Company is also an officer and director of U.S. Boston
Capital.

(9) SENIOR SUBORDINATED CONVERTIBLE NOTES

     On October 28, 1997, the Company sold in a private placement Senior
Subordinated Convertible Notes (the Convertible Notes) having an aggregate face
value of $10,000,000 and warrants (the Convertible Note Warrants) to purchase up
to 106,700 shares of Common Stock to two institutional investors for gross
proceeds of $10,000,000.

     The principal of the Convertible Notes is payable on October 28, 2002. The
unpaid principal of each Convertible Note accrues interest at the rate of 16%
per year payable in cash until the later of (i) the date of filing of a
registration statement (the Notes Registration Date) covering the shares of
Common Stock underlying the Convertible Notes and the Convertible Note Warrants
(the Registrable Securities), and (ii) a date between 180 and 270 days after
October 28, 1997, selected by the Company (the Variable Conversion Date).
Thereafter, interest on the unpaid principal accrues at the rate of 8% per year
payable in cash or, at the Company's option subject to certain conditions,
shares of Common Stock calculated at a price per share equal to 95% of the
Recent Market Price. The Recent Market Price as of any date is the lowest market
price at which shares of Common Stock traded at any time during the five trading
days immediately preceding such date. During the occurrence of an event of
default (as defined), the outstanding principal amount and accrued but unpaid
interest will accrue interest at a rate of the lower of the Citibank Prime Rate
per year plus 8% or the highest rate permitted by law.

     The holder of each Convertible Note may convert all or a portion of such
Convertible Note into shares of Common Stock prior to October 28, 2002. Prior to
the Variable Conversion Date, each Convertible Note converts into shares of
Common Stock at 120% of the Recent Market Price as of October 27, 1997.
Following the Variable Conversion Date, each Convertible Note converts at a
conversion price per share equal to the Applicable Percentage (as defined below)
multiplied by the lesser of (i) 125% of the Recent Market Price as of October
27, 1997, as of the Variable Conversion Date or (if later) as of the Notes
Registration Date, whichever is least (the Ceiling Price), and (ii) the Recent
Market Price as of the date on which the conversion notice is sent. The
Applicable Percentage is a percentage ranging from 100% to 92.5% depending upon
the date that the Company chooses as the Variable Conversion Date.
Notwithstanding the above, the holder of a Convertible Note may on any date
elect to fix permanently with respect to all or a portion of the
                                      F-20
<PAGE>   59
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Convertible Note the conversion price per share in effect on such date, in which
event the Convertible Note (or portion thereof) that the holder thereof would
otherwise have converted for a price equal to the fair market value of the
shares of Common Stock that would have been issued plus accrued interest on the
Convertible Note (or portion thereof) so redeemed.

     After October 27, 1999, the Company may elect to redeem the Convertible
Notes, in whole or in part, at 105% of their face value plus accrued but unpaid
interest, provided that the Recent Market Price has been equal to or greater
than the Ceiling Price for 75 consecutive trading days immediately preceding the
date of the redemption notice and for the 15 trading days commencing on that
date.

     The number of shares of Common Stock issuable upon conversion of the
Convertible Notes and the exercise of the Convertible Note Warrants, and the
conversion price and exercise price, respectively, thereof, are subject to
antidilutive provisions and may be adjusted, among others, upon (i) the issuance
of stock dividends, or the occurrence of stock splits, reclassifications,
recapitalizations and similar events; (iii) any consolidation, merger,
reorganization or similar fundamental restructuring; and (iii) the issuance of
shares of Common Stock or convertible securities for consideration below a
specified discount below the market price of the Common Stock.

     Shoreline Pacific Institutional Finance, the Institutional Division of
Financial West Group (Shoreline), acted as placement agent for the offering of
the Convertible Notes and the Convertible Note Warrants. As compensation for its
services as placement agent, Shoreline received a cash commission of $500,000,
representing 5% of the gross proceeds of the offering. In addition, the Company
issued four warrants to purchase up to an aggregate of 31,250 shares of Common
Stock with substantially the same terms as the Convertible Note Warrants to
certain designees of Shoreline (the Shoreline Warrants). The Company recorded
both the commission and the value of the Shoreline Warrants ($600,000) as
deferred financing costs. Such costs are included as a component of other assets
and are being amortized over the life of the Convertible Notes.

     Upon issuance of the Convertible Notes and Convertible Note Warrants, the
Company allocated $662,657 of the proceeds to the Convertible Note Warrants and
is amortizing the related original issuance discount over 270 days, the point at
which the terms of the conversion are most beneficial to the Convertible
Noteholders. Also, pursuant to the conversion terms whereby the Convertible
Noteholders have been guaranteed a discount after the 180th day, the Company has
recorded an additional original discount of $1,185,864, which represents the
maximum guaranteed return available to the Convertible Noteholders on the
issuance date. This portion of the original issuance discount is also being
amortized over 270 days in a manner consistent with the sliding scale discount.
Total amortization of the aggregate original issuance discount in 1997 was
$497,703.

(10) LIFESCAN ALLIANCE

     On November 10, 1995, the Company entered into an agreement with Johnson
and Johnson Development Corporation (JJDC) and LifeScan, Inc. (LifeScan), an
affiliate of JJDC (the Master Agreement) which included an equity investment
agreement, a glucose distribution agreement and a summary of terms to be
included in other distribution agreements.

     The equity investment provided for $13,700,000 of advances from JJDC, which
converted into 201,622 shares of Company Common Stock in 1996. Upon conversion
of the advances, LifeScan also paid the Company a success fee of $7,000,000. The
number of shares issued represents 5% of (i) the Common Stock outstanding as of
November 10, 1995, and (ii) any shares of Common Stock issued prior to such
conversion pursuant to the exercise of rights to acquire Common Stock
outstanding as of November 10, 1995. In addition, under the terms of the
LifeScan Alliance, the Company must issue to JJDC, for no additional
consideration, shares of Common Stock equal to 5% of any additional Common Stock
issued pursuant to the exercise of

                                      F-21
<PAGE>   60
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

rights to acquire Common Stock outstanding as of November 10, 1995 (the total of
all shares so issued, the Conversion Shares). The precise number of Conversion
Shares depends on the number of shares of Common Stock that the Company is
required to issue in connection with the financing of the Inverness Facility as
well as the vesting and exercise of options and warrants that were outstanding
on November 10, 1995. To date, JJDC has received an additional 9,743 shares of
Common Stock. The Company estimates that JJDC will ultimately receive an
additional 245,583 shares of Common Stock. The Company has deferred revenue
recognition on $3,000,000 of the success fee based on management's estimate of
its future commitments under the Distribution Agreement. The Company is
recognizing this amount as revenue as such obligations are met, which management
estimates will be over four years.

     The Master Agreement also covers two other Company products. Upon Food and
Drug Administration (FDA) acceptance of the Company's filing for each of these
products, LifeScan may, at its sole discretion, pay the Company $3,000,000 and
require the Company to enter into a distribution agreement for each product,
under the terms set forth below. If LifeScan elects to make the $3,000,000
payment and the product receives FDA clearance, then LifeScan shall make an
additional payment of $2,000,000. If LifeScan makes the $3,000,000 payment and
the Company does not receive FDA clearance within one year of the payment, the
$3,000,000 must be repaid in eight quarterly installments without interest
(provided payments are made in a timely manner), and the related distribution
agreement will terminate.

     In order to fund start-up manufacturing and operating costs, LifeScan
loaned the Company $5,000,000 in August 1997. The Company then loaned the
$5,000,000 to its primary supplier. Both the loans payable and receivable bear
interest at 12% and will be repaid through product credits for the first 130,000
meters shipped. The Company expects both the note payable to customer and note
receivable to be repaid during 1998.

(11) COMMITMENTS AND CONTINGENCIES

  (a) Operating Leases

     The Company has operating lease commitments for certain of its facilities
and equipment that expire through 2026. The following schedule outlines future
minimum annual rental payments under these leases at December 31, 1997:

<TABLE>
<CAPTION>
                      DECEMBER 31,                          AMOUNT
                      ------------                        -----------
<S>                                                       <C>
1998....................................................  $ 1,264,000
1999....................................................    1,245,000
2000....................................................    1,050,000
2001....................................................    1,015,000
2002....................................................    1,000,000
Thereafter..............................................   12,970,000
                                                          -----------
                                                          $18,544,000
                                                          ===========
</TABLE>

     Rent expense relating to these operating leases was approximately $315,000,
$401,000 and $778,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.

  (b) Industrial Development Authority of Ireland Grants

     Prior to the Company's acquisition of Cambridge Diagnostics, Cambridge
Diagnostics received certain capital expenditure and revenue grants from the
Industrial Development Authority of Ireland (the IDA). Cambridge Diagnostics
recognizes revenue on the capital expenditure grants over the estimated useful
lives of the related assets and on revenue grants as the related costs are
incurred.

                                      F-22
<PAGE>   61
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     As a condition to retaining the grants, the IDA requires Cambridge
Diagnostics to maintain a certain number of employees in Ireland. The IDA also
prohibits the Company from disposing of assets or terminating business
activities that were funded by the grants within 10 years of such grants. As of
December 31, 1996 and 1997, Cambridge Diagnostics was not in compliance with the
employment provisions of the grants. As a result, the IDA could require
Cambridge Diagnostics to repay capital expenditure and revenue grants totaling
414,770 Irish Pounds (approximately $630,000 at December 31, 1997). The IDA has
not historically pursued its right to recoup these grants from Cambridge
Diagnostics and, as of December 31, 1996 and 1997, Cambridge Diagnostics
management believes that the IDA is unlikely to do so, provided that Cambridge
Diagnostics does not terminate its operations in Ireland. Accordingly, as
management believes that repayment is not probable, Cambridge Diagnostics has
not provided for a potential liability for the repayment of these grants.

     If the IDA did pursue its rights to recoup these grants, it could have a
material adverse effect on the Company and Cambridge Diagnostics.

  (c) Legal Proceedings

     From time to time, the Company may be exposed to litigation arising out of
its products and operations. The Company is not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on the Company's financial condition or results of operations, except as
discussed below.

     Pasteur Sanofi Diagnostics licensed the Pasteur HIV Technology to Cambridge
Biotech and its affiliates, including Cambridge Affiliate, relating to patents
and proprietary rights underlying the Company's HIV-related products (see Note
12(c)). The licenses of the Pasteur HIV Technologies to Cambridge Biotech are
nonexclusive and cover diagnostic test kits in finished form embodying the
Pasteur HIV Technologies. The territorial scope of the licenses is worldwide,
with the exception of exclusive rights which Pasteur Sanofi Diagnostics asserted
to have granted in the Pasteur HIV Technologies to Genetic Systems Corporation
(Genetic Systems) in the United States, Canada, Mexico, Australia, New Zealand
and India (the Excluded Countries). However, the licenses provided that, to the
extent that Pasteur Sanofi Diagnostics recovers the right to practice the
patents underlying the Pasteur HIV Technologies in the Excluded Countries,
Cambridge Biotech is entitled to nonexclusive rights in such technology in such
countries. In 1990, Pasteur Sanofi Diagnostics acquired ownership of Genetic
Systems, whereupon Cambridge Biotech commenced selling products incorporating
the Pasteur HIV Technologies in the United States. These activities were
challenged in a patent infringement lawsuit filed in bankruptcy court in March
1995 by Institut Pasteur, the minority stockholder of Pasteur Sanofi
Diagnostics, and Genetic Systems. In September 1995, the bankruptcy court ruled
in favor of Cambridge Biotech on this issue, and Institut Pasteur and Genetic
Systems subsequently filed an appeal in district court. In July 1997, the
district court affirmed the rulings of the bankruptcy court. Institut Pasteur
and Genetic Systems Corporation have filed an appeal to the Federal Circuit
Court of Appeals. If the bankruptcy court and district court decisions were
reversed on appeal, the territories to which Cambridge Affiliate could sell
HIV-related products would be limited, however, the Company does not believe
this would have a material adverse effect on its operations.

     Pasteur Sanofi Diagnostics has notified Orgenics that as a result of
Orgenics' use of certain peptides, Orgenics may be liable for infringement of
certain patents held by Institut Pasteur and under which Pasteur Sanofi
Diagnostics holds an exclusive license.

     The Company has been involved in a dispute with Enviromed (see Note 15)
with respect to a joint venture agreement entered into between the Company and
Enviromed in March 1994 and other agreements (collectively, the Disputed
Enviromed Agreements) entered into between the Company and Enviromed and its
wholly owned subsidiary, Cranfield Biotechnology Ltd., and the issuance of
shares of Common Stock to Enviromed in connection therewith. In connection with
this dispute, the Company has informed Enviromed
                                      F-23
<PAGE>   62
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

that, due to the failure of Enviromed and Cranfield to perform their obligations
under the Disputed Enviromed Agreements, it disputes Enviromed's ownership of
the Common Stock held of record (and subsequently sold) by Enviromed. On July 5,
1996, Enviromed filed suit against the Company and the representatives of the
underwriters of the Company's initial public offering (the IPO Representatives)
alleging breach of a registration rights agreement relating to the Common Stock
held of record by Enviromed. Enviromed claimed that its rights under a
registration rights agreement were breached in connection with the IPO and
requested damages, injunctive relief and a declaratory judgment that Enviromed
is the lawful owner of the shares. The Company has filed counterclaims against
Enviromed arising out of the failure of Enviromed and Cranfield to perform their
obligations under the Disputed Enviromed Agreement and is contesting Enviromed's
claims vigorously. On November 15, 1996, Enviromed filed a dismissal without
prejudice of its claims against the IPO Representatives. March 11, 1997,
Enviromed and the Company filed a stipulation of dismissal without prejudice of
all the claims and counterclaims in the case.

     The Company intends to contest vigorously all claims filed by Enviromed and
certain other parties to whom Enviromed sold the common stock. On March 23,
1998, the Company entered into a settlement agreement with certain parties to
whom Enviromed sold the Company's Common Stock whereby the parties agreed that
such parties shall have title to 80% of Common Stock in dispute, or 622,898
shares, and the Company shall have title to the remaining 20% of said shares, or
155,724 shares. The parties agreed to dismiss the lawsuit with prejudice and to
release each other from any liability arising out of the lawsuit.

     On November 15, 1997, Medical Selfcare, Inc. (Medical) served process on
the Company asserting service mark and trade name infringement, unfair
competition, dilution and related claims arising from the Company's use of the
mark "Selfcare" for medical devices, pharmaceutical products and nutritional
supplements. Medical is seeking damages for lost profits in an amount to be
determined at trial, injunctive relief barring the Company's use of the name and
mark "Selfcare" in connection with its products and services, destruction of
products using the said name or mark, disgorgement of profits gained from the
alleged infringement, treble damages, restitution, punitive damages and
attorneys' fees. The Company intends to defend this litigation vigorously. The
Company has answered the complaint and asserted various defenses and a
counterclaim seeking cancellation of Medical's federal service mark
registrations. The Company has advised the District Court of its intention to
phase out the use of the mark in connection with its nutritional supplements. A
hearing was held on Medical's motion for a preliminary injunction before the
District Court on December 19, 1997. On January 5, 1998, the District Court
entered an order, in the form proposed by the Company, requiring that, effective
six months thereafter, the Company cease using the mark "Selfcare" on
nutritional supplement products or packaging or distributing nutritional
supplement products or packaging bearing the mark, and that the Company remove
from its packaging the statement that the mark is "registered." The case is now
in the discovery stage of litigation. Although the Company does not believe that
the preliminary injunction will have a material adverse impact on the Company's
sales, operations and financial performance, a final ruling against the Company
on the merits of the case could have such an impact.

  (d) Agreement with Princeton BioMeditech Corporation

     On March 15, 1996, the Company entered into an agreement with Princeton
BioMeditech Corporation (Princeton) that provides for the development of certain
specific infectious disease tests by Princeton for marketing by Selfcare on a
nonexclusive basis. The agreement also grants the Company an option to market
under its own brand name other infectious disease tests and certain other types
of tests developed by Princeton on terms to be agreed. Pursuant to the
agreement, the Company is also obligated to purchase $6,900,000 of certain test
kits from Princeton through 1998 and will provide $500,000 to finance the
purchase of equipment, which will remain the property of the Company, to be used
in producing test kits for the Company.

     On August 6, 1997, the Company and Princeton amended their manufacturing
agreement by extending the term of the original agreement to July 1, 2001,
adjusting the pricing and establishing new minimum

                                      F-24
<PAGE>   63
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchase quantities in the aggregate amount of $2,656,000 over the course of the
first year. The Company is obligated over the remaining three years to purchase
minimum amounts of products to be mutually agreed upon by the parties. Also on
August 6, 1997, the Company and Princeton, along with wholly owned subsidiaries
of each and a limited liability company, PBM-Selfcare LLC (the LLC) in which
each party owns a 50% interest, entered into a joint venture and a series of
related technology transfer and licensing agreements, to develop a comprehensive
strategy to commercially exploit products, and related intellectual property, in
the area of pregnancy detection and ovulation prediction (collectively the Joint
Venture Agreement). Under the Joint Venture Agreement, the parties each
contributed intellectual property and, in addition, the Company agreed to spend
up to $2,000,000 on an as-needed basis to cover expenses incurred by the LLC in
enforcing the rights of the LLC in the intellectual property. The parties are
also obligated to cover 50% of any other operating expenses of the LLC. To date,
the Company has not incurred material costs pursuant to the Joint Venture
Agreement and does not anticipate expending material resources in connection
with this activity during 1998.

  (e) Orgenics Royalty Commitment

     Orgenics finances its research and development expenditures in Israel under
programs sponsored by the Chief Scientist of the Ministry of Trade of Israel for
the support of research and development projects. In the event that development
of the products in which the Chief Scientist participates is successful,
Orgenics will be obligated to pay royalties at the rate of 2% to 5% of the sales
of products developed with funds provided by the Chief Scientist, up to an
amount equal to 100% of the Chief Scientist's research and development grants to
such projects. The maximum contingent royalty as of December 31, 1997 was
approximately $1,900,000. Orgenics does not have any liability to the State of
Israel for amounts received in support of unsuccessful programs or unsaleable
products.

  (f) Orgenics Severance Obligations

     Orgenics' liability for severance pay, pursuant to Israeli law, is provided
by managers insurance policies and by severance pay funds. Severance expenses
were $300,000, $139,000 and $248,000 for the years ended December 31, 1995, 1996
and 1997, respectively. The related liability is not material at either December
31, 1996 or 1997.

     France has a state-run mandatory pension plan to which contributions are
made monthly by both the employee and employer based on the gross monthly
salary. Orgenics' liability is fully covered by these contributions.

     In addition, pursuant to industry employment agreements, a lump sum
severance is payable upon retirement to employees still in the service of PBS at
the date of retirement. Orgenics has fully provided for the obligations as of
December 31, 1996 and 1997.

(12) RESEARCH, MANAGEMENT AND MANUFACTURING AGREEMENTS

  (a) U.S. Boston Technology Associates Limited Partnership

     On December 30, 1993, the Company entered into a purchase and sale
agreement with USB '93 for the sale of the Company's core immuno-assay
technology (the Technology) for $1,360,000. USB '93 is a limited partnership,
the general partner of which is USB '93 Inc., a corporation whose president and
chief executive officer is a director of the Company. The Company may repurchase
the Technology for $6,000,000.

     The Company and the USB '93 also entered into a license and development
agreement on December 30, 1993 whereby the Company leased back the rights to the
Technology from USB '93 in consideration for three warrants to purchase up to an
aggregate of 438,750 shares of the Company's Common Stock at an exercise price
of $1.54 per share and the payment of 1.5% of gross sales and 22.5% of royalty
income, up to an

                                      F-25
<PAGE>   64
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

aggregate total payment of $6,000,000. The license agreement remains in effect
until such time that the Company reacquires the Technology or pays $6,000,000 in
royalties. This agreement is immediately void if the Company decides to
repurchase the rights to the Technology according to terms of the Technology
purchase and sale agreement noted above. Pursuant to this agreement, the Company
has charged approximately $104,000, $235,000 and $702,000 to cost of sales in
the accompanying consolidated statements of operations for the years ended
December 31, 1995 1996 and 1997, respectively.

     The income from the sale of technology has been included in deferred
revenue in the accompanying consolidated balance sheets and will be recognized
on the earlier of (1) a straight-line basis over a period of six years, the
Technology's estimated useful life, or (2) will be eliminated upon the
repurchase of the Technology if the Company opts to repurchase the Technology,
as discussed above. The Company has recognized approximately $227,000 as grants
and other revenue in the accompanying consolidated statements of operations for
each of the three years ended December 31, 1997. Accordingly, the remaining
$453,334 is included in deferred revenue in the accompanying consolidated
balance sheet as of December 31, 1997.

  (b) University College of Wales/Aberystwyth

     On February 10, 1992, the Company entered into a research and development
contract with University College of Wales/Aberystwyth, a corporation organized
and existing under the laws of England and Wales, whereby the Company obtained
the right to develop and market certain technology in consideration for a
royalty stream of 1.5% of gross revenues generated from the technology. The
agreement will remain in effect for the duration of the life of any patent
issued with respect to the technology, or any improvements thereof, unless
terminated pursuant to provisions of the agreement. As of December 31, 1996 and
1997, the Company had not generated any revenues related to this technology and,
therefore, did not incur any royalty expense for the year then ended.

  (c) Cambridge Biotech Corporation

     On November 30, 1994, Selfcare acquired Cambridge Diagnostics from
Cambridge Biotech, which at that time was operating in Massachusetts under
Chapter 11 of the U.S. Bankruptcy Code. Cambridge Diagnostics, located in
Galway, Ireland, produces three categories of tests for infectious diseases as
well as packages products for the Company's European customers, including
pregnancy tests, birth control and other women's health products. At the time of
the acquisition, Cambridge Diagnostics (then known as Cambridge Biotech Limited)
was operating under the protection of a court-appointed examiner in a procedure
analogous to a Chapter 11 reorganization under U.S. bankruptcy law. Pursuant to
the acquisition agreements, the terms of which were approved by the United
States Bankruptcy Court and the Irish High Court, Selfcare acquired all of
Cambridge Diagnostics' issued and outstanding capital stock and, pursuant to
certain license agreements, acquired certain technologies necessary for the
production of Cambridge Diagnostics' HIV 1/2 RDT, Capillus, Rapid Test and Lyme
disease test kits for an aggregate of $2,100,000 and the assumption of certain
liabilities. Under the terms of Cambridge Biotech's license agreements with
Pasteur Sanofi Diagnostics, Cambridge Biotech could not assign or sublicense its
rights with respect to certain of these technologies directly to the Company. In
order to allow the Company to have access to such technologies, Selfcare and
Cambridge Biotech formed an affiliate, Cambridge Affiliate, 51%-owned by
Cambridge Biotech and 49%-owned by Selfcare. A series of contracts were entered
into between Cambridge Affiliate and Cambridge Diagnostics, pursuant to which
Cambridge Diagnostics manages Cambridge Affiliate and manufactures and sells
products on behalf of Cambridge Affiliate. Cambridge Affiliate is managed and
funded separately from Selfcare and Cambridge Diagnostics.

     The Company acquired the 49% interest in Cambridge Affiliate for $1.00. The
Company is accounting for this investment under the equity method. Pursuant to
the series of contracts between Cambridge Affiliate and Cambridge Diagnostics
described above and in Note 7, Cambridge Diagnostics and Cambridge Affiliate owe

                                      F-26
<PAGE>   65
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cambridge Biotech royalties ranging from 4% to 6% of certain net sales, as
defined. In return for the goods and services provided by Cambridge Diagnostics
pursuant to the series of contracts between Cambridge Affiliate and Cambridge
Diagnostics described above, Cambridge Affiliate has agreed to pay to Cambridge
Diagnostics an aggregate amount equal to its net revenues from sales of the
products, less (i) operating expenses attributable to such products (including
the royalties that Cambridge Affiliate pays to Cambridge Biotech), and (ii) an
amount equal to 10% of such royalty payments payable by Cambridge Affiliate. The
additional 10% of royalties deducted is designed to create a retention within
Cambridge Affiliate to cover its operating costs. The royalties paid by
Cambridge Affiliate to Cambridge Biotech are equal to the royalties owed by
Cambridge Biotech to Pasteur Sanofi Diagnostics. Portions of the aggregate
amounts payable by Cambridge Affiliate to Cambridge Diagnostics are allocated
75%, 5% and 20% to the manufacturing agreement, the management agreement and the
sales agreement, respectively. Royalty payments made by Cambridge Diagnostics to
Cambridge Biotech during the years ended December 31, 1995, 1996 and 1997 were
approximately $45,000, $56,000 and $86,000, respectively, and Cambridge
Diagnostics received approximately $1,914,000, $1,942,000 and $2,513,000 during
the years ended December 31, 1995, 1996 and 1997, respectively, from Cambridge
Affiliate under the manufacturing agreement. In addition, Cambridge Diagnostics
received approximately $128,000, $129,000 and $168,000 from Cambridge Affiliate
during the years ended December 31, 1995, 1996 and 1997, respectively, under the
management agreement and approximately $510,000, $518,000 and $670,000 from
Cambridge Affiliate during the years ended December 31, 1995, 1996 and 1997,
respectively, under the sales agreement.

     Cambridge Biotech has since sold its rights under these arrangements to an
unrelated party. Certain of the arrangements described above have been contested
by certain of the patent holders. To date, the validity of these arrangements
has been sustained. If the patent holders ultimately succeed in invalidating
these arrangements, Cambridge Diagnostics may lose its ability to use the
licenses described above, which may have an adverse effect on the Company.

(13) STOCKHOLDERS' EQUITY

  (a) Stock Option Plans

     In 1992, the Company adopted the 1992 Stock Plan (the 1992 Plan), which
provided for granting to directors, officers, employees and consultants of the
Company, at the discretion of the Board of Directors, incentive stock options,
nonqualified stock options and stock awards for the purchase of up to 10,725,000
shares of Common Stock under terms similar to those in the 1996 Plan, as
described below. In June 1996, the Company amended the 1992 Plan to provide that
no additional stock options would be granted under the 1992 Plan. As of December
31, 1997, no options to purchase shares of Common Stock remain outstanding.

     In 1994, the Company adopted the 1994 Incentive and Nonqualified Stock
Option Plan (the 1994 Plan), which provided for the granting of up to 3,380,000
shares of Common Stock under terms similar to those in the 1996 Plan, as
described below. In June 1996, the Company amended the 1994 Plan to provide that
no additional stock options would be granted under the 1994 Plan. As of December
31, 1997, no options to purchase shares of Common Stock remain outstanding.

     In 1996, the Company adopted the 1996 Stock Option and Grant Plan (the 1996
Plan). The 1996 Plan may be administered by the Board of Directors or by an
Option Committee, as defined (in either case, the Administrator), to grant
incentive stock options, nonqualified stock options, restricted stock,
unrestricted stock, stock appreciation rights (SAR), performance share awards
and dividend equivalent rights. The Company has reserved a total of 1,500,000
shares of Common Stock for future grant under the 1996 Plan. As of December 31,
1997, options to purchase up to 531,408 shares of Common Stock remain
outstanding. The key terms of the amended 1996 Plan include the granting of
incentive stock options or nonqualified stock options with a term of up to 10
years and the granting of stock appreciation rights, restricted stock,
unrestricted stock, performance share awards and dividend equivalent rights. The
Plan also provides for option

                                      F-27
<PAGE>   66
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

grants to nonemployee directors and automatic acceleration of all options and
stock appreciation rights upon a change in control.

  (b) Other Stock Options

     On August 15, 1995, the Company entered into a stock option agreement (the
Agreement) with the president of the Company. Under the Agreement, the president
received an option to acquire 520,000 shares of the Company's Common Stock. The
option vests and becomes exercisable, within a two-year period, if a liquidity
event, such as an initial public offering or the sale of the Company, occurs;
otherwise, the option expires. The exercise price per share is determined by the
liquidity price per share. The exercise price per share will decrease $1 for
every $1 that the liquidity price per share exceeds $5.38 per share.
Accordingly, upon completion of the Company's initial public offering in 1996,
the Company recorded a compensation charge of approximately $3,240,000
representing the difference between the exercise price per share and the fair
market value per share at the date of vesting.

     On October 17, 1995, the Company entered into stock option agreements with
certain officers and key employees granting them options to acquire up to
253,500 shares of Common Stock at an exercise price of $1.54 per share. These
shares are exercisable after 10 years of continuous employment or earlier if
certain milestones, such as meeting certain financial targets and the
effectiveness of an IPO, are achieved. At the date of grant, the fair market
value per share of the Company's Common Stock exceeded the exercise price of the
options; therefore, the Company recorded deferred compensation of $250,965
related to this difference at the date of grant. Such goals were met in 1996
and, accordingly, the Company fully amortized the deferred compensation in 1996.
During the years ended December 31, 1995 and 1996, the Company recorded
compensation expense of approximately $52,000 and $199,000, respectively,
related to these option grants in the accompanying consolidated statements of
operations.

     During the year ended December 31, 1996, the Company recorded compensation
expense of approximately $680,000 related to stock options granted to employees
that were contingent on certain goals that have now been met. No compensation
expense was recorded during 1997 relating to these plans. In accordance with
SFAS No. 123, Accounting for Stock-Based Compensation, the Company also recorded
compensation expense of $76,000 for options granted to nonemployees in 1996. No
compensation expenses relating to nonemployees was recorded during 1997.

     On December 29, 1995, the Company entered into stock option agreements with
certain shareholders and officers of Orgenics granting them options to acquire
up to 85,800 shares of Common Stock at an exercise price of $3.69 per share.
These options vest over a four-year period but were not to be considered granted
until the Company's ownership of Orgenics exceeded 51%, which occurred during
October 1996. The difference between the exercise price and the fair market
value price per share of $1,056,000 is included as a component of the Orgenics
purchase price.

                                      F-28
<PAGE>   67
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following is a summary of all stock option activity during the three
years ended December 31, 1997:

<TABLE>
<CAPTION>
                                                                                WEIGHTED
                                                 NUMBER OF                      AVERAGE
                                                  SHARES      OPTION PRICE    OPTION PRICE
                                                 ---------    ------------    ------------
<S>                                              <C>          <C>             <C>
Options outstanding, December 31, 1994.........  1,127,607    $.001- 2.53        $ 1.69
  Granted......................................  2,591,056     .001- 3.69          2.61
  Exercised....................................    (27,300)          2.53          2.53
  Terminated...................................   (308,919)    .001- 2.53          1.26
                                                 ---------    -----------        ------
Options outstanding, December 31, 1995.........  3,382,444     1.15- 3.69          2.41
  Granted......................................    842,292     3.69-15.38         12.58
  Exercised....................................    (51,675)          1.54          1.54
                                                 ---------    -----------        ------
Options outstanding, December 31, 1996.........  4,173,061     1.15-15.38          4.47
  Granted......................................    130,200     9.25-12.38         10.33
  Exercised....................................   (148,898)    1.15- 2.53          1.84
  Terminated...................................     (9,425)    1.54- 2.53          2.41
                                                 ---------    -----------        ------
Options outstanding, December 31, 1997.........  4,144,938    $1.15-15.38        $ 4.75
                                                 =========    ===========        ======
Options exercisable, December 31, 1997.........  2,800,661    $1.15-15.38        $ 2.49
                                                 =========    ===========        ======
</TABLE>

<TABLE>
<CAPTION>
                           OUTSTANDING                  EXERCISABLE
                 --------------------------------   --------------------
                             WEIGHTED
                              AVERAGE    WEIGHTED               WEIGHTED
                             REMAINING   AVERAGE                AVERAGE
                 NUMBER OF   CONTRACT    EXERCISE   NUMBER OF   EXERCISE
EXERCISE PRICE    SHARES       LIFE       PRICE      SHARES      PRICE
--------------   ---------   ---------   --------   ---------   --------
<S>              <C>         <C>         <C>        <C>         <C>
 $ 1.15- 1.54      665,877      5.56      $ 1.41      651,577    $ 1.41
   2.27- 2.53    2,032,069      7.23        2.46    1,770,634      2.45
   3.46- 4.62      478,400      7.35        3.83      320,450      3.67
   7.33-10.13      298,892      9.07        8.91       50,500      8.78
  11.88-15.38      669,700      9.16       13.79        7,500     14.42
                 ---------      ----      ------    ---------    ------
                 4,144,938      7.09      $ 4.75    2,800,661    $ 2.49
                 =========      ====      ======    =========    ======
</TABLE>

     The weighted average fair value under the Black-Scholes option pricing
model of options granted during the years ended December 31, 1995, 1996 and 1997
under these plans is $1.55, $8.76 and $5.33, respectively.

     On December 10, 1996, the Company granted 600,000 options at an exercise
price of $13.875 to the president and certain officers and key employees of the
Company. The options vest in seven years unless certain performance goals, as
defined, are met. In the event that such performance goals are met, the vesting
of these options will accelerate.

                                      F-29
<PAGE>   68
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock options
or warrants to be included in the statement of income or disclosed in the notes
to the financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No.
123. The Company has computed the pro forma disclosures required under SFAS No.
123 for stock options and warrants granted after January 1, 1995 using the
Black-Scholes option pricing model prescribed by SFAS No. 123. The assumptions
used were as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                      ---------------------------------
                                                       1995         1996         1997
                                                      -------      -------      -------
<S>                                                   <C>          <C>          <C>
Risk-free interest rate.............................   6.3%         6.2%         6.0%
Expected dividend yield.............................    --           --           --
Expected lives......................................  5 years      5 years      5 years
Expected volatility.................................    60%          74%          51%
</TABLE>

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                    --------------------------------------------
                                                        1995            1996            1997
                                                    ------------    ------------    ------------
<S>                                  <C>            <C>             <C>             <C>
Net loss...........................  As reported    $(10,096,903)   $(28,577,642)   $(24,710,294)
                                     Pro forma..     (11,517,942)    (29,878,119)    (26,269,519)
                                     As
Net loss per share.................  reported...    $      (2.61)   $      (6.00)   $      (3.36)
                                     Pro forma..           (2.98)          (6.27)          (3.56)
</TABLE>

     Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

  (c) Warrants

     The following is a summary of all warranty activity during the three years
ended December 31, 1997:

<TABLE>
<CAPTION>
                                                             NUMBER OF
                                                              SHARES        EXERCISE PRICE
                                                             ---------      --------------
  <S>                                                        <C>            <C>
  Warrants outstanding, December 31, 1994..................    892,255       $ 1.54- 2.53
    Granted................................................  1,142,635           --
                                                             ---------       ------------
  Warrants outstanding, December 31, 1995..................  2,034,890         1.54- 2.53
    Granted................................................     54,090          12.88
                                                             ---------       ------------
  Warrants outstanding, December 31, 1996..................  2,088,980         1.54-12.88
    Granted................................................    267,979        11.94-13.96
    Exercised..............................................  1,145,664          2.93
                                                             ---------       ------------
  Warrants outstanding, December 31, 1997..................  1,211,295       $ 1.54-13.96
                                                             =========       ============
  Warrants exercisable, December 31, 1997..................  1,211,295       $ 1.54-13.96
                                                             =========       ============
</TABLE>

     Prior to 1996, and as described elsewhere, the Company granted
approximately 900,000 warrants related to various financing transactions.

     As discussed in Note 7, on December 31, 1996, the Company entered into
agreement with substantially all of the principal noteholders of the Cambridge
Diagnostics Notes and fixed the number of shares of Common Stock to be issued at
1,142,635, of which 314,222 will be issued to certain directors and officers of
the Company. All such shares of Common Stock will be issued for no additional
consideration on the earlier of January 15, 2000 or the date on which a change
in control of the Company (as defined) occurs. In addition,

                                      F-30
<PAGE>   69
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company agreed to issue five-year warrants to purchase an aggregate of
54,090 shares of Common Stock, which are fully exercisable at an exercise price
of $12.88 to such holders, of which 14,999 will be exercisable by certain
directors and officers of the Company. In accordance with SFAS No. 123, the
Company has recorded interest expense of approximately $394,000 related to the
grant of these warrants.

     As discussed in Note 15, warrants to purchase 15,401 shares of Common Stock
at an exercise price of $12.88 were issued in consideration of the amendment to
the EN PLC Notes.

     As discussed in Note 13(f), warrants to purchase 114,628 shares were issued
in connection with Series B Preferred Stock issuance.

     As discussed in Note 9, warrants to purchase 137,950 were issued in
connection with the Convertible Notes.

  (d) Employee Stock Purchase Plan

     Upon the consummation of the IPO, the Company adopted the Selfcare, Inc.
Employee Stock Purchase Plan (the Stock Purchase Plan). The Company has reserved
250,000 shares of Common Stock for issuance under the Stock Purchase Plan. Under
the Stock Purchase Plan, eligible employees will be able to purchase shares of
the Company's Common Stock at 85% of fair market value, as defined, subject to
certain limitations. The Company has issued 23,709 shares under the Stock
Purchase Plan as of December 31, 1997.

  (e) Series A Preferred Stock

     The Board of Directors of the Company is authorized, without further action
of the stockholders of the Company, to issue up to 5,000,000 shares of Preferred
Stock in classes or series and to fix the designations, powers, preferences and
the relative, participating, optional or other special rights of the shares of
each series and any qualifications, limitations and restrictions thereon as set
forth in the Certificate of Incorporation. Any such Preferred Stock issued by
the Company may rank prior to the Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock.

     In October 1996, the Board of Directors adopted a resolution authorizing
10,000 shares of Series A Convertible Preferred Stock, $.001 par value (the
Series A Preferred Stock). In October 1996, the Company sold 5,500 shares of
Series A Preferred Stock at a price of $1,000 per share to various non-U.S.
investors. The net proceeds of such sales of approximately $5,200,000 were used
to fund a portion of the Orgenics purchase price. The holders of Series A
Preferred Stock generally are entitled to receive cumulative quarterly dividends
at the rate of 6% per year and their shares of Series A Preferred Stock will
become convertible into shares of the Company's Common Stock in five equal
installments over a 120-day period beginning in December 1996. Shares of Series
A Preferred Stock are generally convertible at a discount of 14.5% from the
average closing bid price per share of the Company's Common Stock for the five
trading days prior to their conversion, subject to certain restrictions. Any
shares of Series A Preferred Stock not previously converted will automatically
convert into shares of the Company's Common Stock on October 15, 1998 at the
closing bid price at the time. In 1996 and 1997, all but 400 shares of the
Series A Preferred Stock were converted into an aggregate of 530,911 shares of
Common Stock. The 400 remaining shares of Series A Preferred Stock will convert
into 49,058 shares of Common Stock assuming an average closing market price of
$8.73 per share at the time of conversion resulting in a conversion price of
$8.75 per share. The Company has accreted dividends of $155,806 as of December
31, 1997 relating to the outstanding shares of Series A Preferred Stock.

  (f) Series B Preferred Stock

     On August 26, 1997, the Company sold to investors in a private placement an
aggregate of 8,000 shares of Series B Redeemable Convertible Preferred Stock
(the Series B Preferred Stock) and warrants (the
                                      F-31
<PAGE>   70
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Warrants) to purchase an aggregate of 114,628 shares of Common Stock (the
Warrant Shares) for gross proceeds of $8,000,000. The Series B Preferred Stock
accrues a premium of 6% per annum (the Premium) and is convertible into
Conversion Shares of Common Stock. The actual number of Conversion Shares
issuable upon conversion of the Series B Preferred Stock is equal to the
aggregate stated value per share (the Face Value) (i.e., $1,000 per share), plus
any accrued but unpaid Premium through the date of such conversion, divided by
(x) if the conversion occurs on or before December 31, 1997, a conversion price
of $13.9581 per share (the Fixed Conversion Price), (y) in the case of
conversions after December 31, 1997; and before May 24, 1998, a conversion price
equal to the lower of the Fixed Conversion Price and the average of the five
lowest closing bid prices of the Common Stock during the 30 trading days
preceding such conversion (the Variable Conversion Price), and (z) in the case
of conversions after May 24, 1998, a conversion price equal to the lower of the
Fixed Conversion Price and 95% of the Variable Conversion Price then in effect.

     The Series B Preferred Stockholders may elect to convert Series B Preferred
Shares at any time on or after the earlier of (i) the filing of a registration
statement (the Registration Statement) registering the Conversion Shares and
(ii) November 24, 1997. After August 26, 1998, the Company may require the
conversion of all, but not less than all, of the Series B Preferred Shares,
provided that the closing bid prices of the Common Stock are equal to or greater
than 200% of the Fixed Conversion Price for 20 consecutive trading days
preceding any such conversion. Any unconverted Series B Preferred Stock will
automatically convert into shares of Common Stock on August 26, 2000.

     The Series B Shares may also be redeemed under certain circumstances for
cash. A holder of Series B Preferred Stock may require the Company to redeem any
or all of such holder's Series B Preferred Stock, as defined.

     The Company may also redeem (consisting of at least 50% of the then
outstanding Series B Shares) outstanding Series B Preferred Stock at its option,
provided that the closing bid prices for any five consecutive trading days is
less than $9.00. The Redemption Amount in such case is equal to 115% of the Face
Value of the Series B Preferred Stock plus any accrued but unpaid Premium.

     One-half of the Warrants vested immediately while the remaining Warrants
vest on August 25, 1998, provided, however, that to the extent any of the Series
B Preferred Stock is converted prior to such date, the number of Warrants
vesting will be reduced ratably. The Warrants are exercisable at any time after
August 25, 1997.

     Both the exercise price and the number of Warrant Shares issuable under the
Warrant are subject to antidilution provisions, as defined.

     Upon issuance of the Series B Preferred Stock and the Warrants, the Company
allocated $310,045 of the proceeds to the Warrants. Also, pursuant to the
conversion terms whereby the Series B Preferred Stockholders have been
guaranteed a discount after May 24, 1998, the Company has recorded aggregate
accretion of $2,049,545, which represents the maximum guaranteed return
available to Series B Preferred stockholders. This accretion was charged
directly to accumulated deficit. Due to the redemption provision described
above, the Company classified the Series B Preferred Stock outside of
stockholders' equity in the accompanying consolidated balance sheets.

(14) INCOME TAXES

     The Company provides for income taxes in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes. Accordingly, a deferred tax asset or
liability is determined based on the difference between the financial statement
and tax bases of assets and liabilities, as measured by the enacted tax rates
expected to be in effect when these differences reverse.

                                      F-32
<PAGE>   71
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The tax provision of $195,872 in the accompanying consolidated statement of
operations for the year ended December 31, 1997 relates entirely to current
state taxes payable.

     The Company provides deferred income taxes for temporary differences
between assets and liabilities recognized for financial reporting and income tax
purposes. The income tax effects of these temporary differences at December 31,
1995, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                            -------------------------------------------
                                               1995            1996            1997
                                            -----------    ------------    ------------
<S>                                         <C>            <C>             <C>
Deferred tax assets --
  Nondeductible reserves..................  $    70,000    $    522,000    $    140,000
  Deferred revenue........................      338,000       1,288,000       1,209,000
  Net domestic and foreign operating loss
     and tax credit carryforwards.........    7,800,000      12,382,000      20,089,000
                                            -----------    ------------    ------------
                                              8,208,000      14,192,000      21,438,000
                                            -----------    ------------    ------------
Deferred tax liabilities --
  Depreciation............................  $    (2,000)        (19,000)        (23,000)
  Other temporary differences.............       (3,000)         (2,000)         (2,000)
                                            -----------    ------------    ------------
                                                 (5,000)        (21,000)        (25,000)
                                            -----------    ------------    ------------
Valuation allowance.......................   (8,203,000)    (14,171,000)    (21,413,000)
                                            -----------    ------------    ------------
  Net deferred tax asset..................  $        --    $         --    $         --
                                            ===========    ============    ============
</TABLE>

     The Company has available domestic and foreign net operating loss
carryforwards of approximately $16,922,000 and $46,717,000, respectively, as of
December 31, 1997 and federal research and development credit carryforwards of
approximately $65,000 as of December 31, 1997 to reduce future income taxes, if
any. These carryforwards expire on various dates through 2012 and are subject to
review and possible adjustment by the appropriate taxing authorities.

     The Internal Revenue Code contains provisions that limit the amount of
federal net operating loss and credit carryforwards that the Company may utilize
in any one year in the event of certain cumulative changes in ownership over a
three-year period in excess of 50%, as defined. The Company has recorded a 100%
valuation allowance against the deferred tax asset, as the realization of the
asset is uncertain at this time.

(15) TRANSACTIONS WITH ENVIROMED AND EN PLC LIMITED PARTNERSHIP

     In March 1994, the Company entered into a joint venture agreement with
Enviromed for the purpose of distributing diabetes and women's health products
in European Union countries. The joint venture activities were to be conducted
through a newly formed entity, Selfcare Europe Ltd. (SCE), in which the Company
and Enviromed each held 50% equity interests, but for which the Company had sole
management responsibility. The capital requirements of SCE were to be funded 75%
by Enviromed and 25% by Selfcare, in accordance with the agreed SCE budgets. In
connection with the formation of SCE, SCE entered into certain distributorship
agreements with Selfcare and affiliates of Enviromed, and Enviromed purchased
593,528 shares of Common Stock in consideration for certain manufacturing rights
granted by an affiliate of Enviromed. In June 1995, Selfcare notified Enviromed
that Enviromed was in breach of its obligation to make agreed payments to fund
SCE's capital needs. In July 1995, Selfcare notified Enviromed that as a result
of Enviromed's failure to cure this breach, Enviromed's shares in SCE were
deemed to be transferred to Selfcare pursuant to the terms of SCE's charter and
the joint venture agreement. For its part, Enviromed informed Selfcare that it
denied Selfcare's claims of breach and claimed that Selfcare was in breach of
the joint venture agreement in several respects. SCE is currently classified as
a wholly owned subsidiary in the Company's

                                      F-33
<PAGE>   72
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial statements (see Note 2). In April 1995, the Company's president
resigned as a director of Enviromed and his counterpart at Enviromed resigned as
a director of the Company. The Company does not consider SCE to be material to
its business or operations.

     In October 1995, EN PLC Limited Partnership (EN PLC) was formed by the
Company's president and a group of investors for the purpose of purchasing
ordinary shares of Enviromed. As of May 1, 1996, EN PLC had acquired 27.0% of
Enviromed's outstanding voting stock. The Company's president shares control of
EN PLC's general partner with another individual who is not affiliated with the
Company. The Company's president and two Company directors are among EN PLC's
limited partners. In October 1996, the Company purchased 200,000 common shares
of Enviromed and entered into an agreement with EN PLC (the EN PLC Agreement)
pursuant to which the Company purchased 7,961,386 shares of Enviromed held by EN
PLC for approximately $3,800,000. As a result of the purchase, along with a
subsequent purchase of an additional 100,000 shares of Enviromed, the Company's
ownership interest in Enviromed is 28.9%. The Company's purchase price for these
shares was based on their quoted market price at the date of the Company's
acquisition of such shares from EN PLC. On January 1, 1997, the Company and EN
PLC entered into an amendment to the EN PLC Agreement pursuant to which the
Company agreed to issue two promissory notes, in principal amounts of
approximately $2,800,000 and $1,000,000, respectively. The notes are payable in
various installments in 1997 and 1998, plus interest at the prime rate plus
1.5%. In consideration of the amendment, the Company agreed to issue to EN PLC a
warrant to purchase 15,401 shares of Common Stock at an exercise price of
$12.875 per share. The warrant is exercisable at any time prior to January 1,
2002. In accordance with SFAS No. 123, the Company recorded deferred financing
costs of approximately $107,000 in connection with the grant of these warrants.

     On December 12, 1997, certain EN PLC shareholders agreed to exchange their
existing promissory notes for new promissory notes, whereby certain January and
April 1998 principal payments of approximately $1,600,000 will be convertible
into Common Stock if the new notes are not sooner repaid, the terms of the
subsequent principal payments remain unchanged. Under the terms of the new
promissory notes, the noteholders can convert the new promissory notes, plus
accrued interest at an annual rate of 10%, into Common Stock at a conversion
price of $7.225. The conversion price represents a 15% discount to the market
price on the date the new promissory notes were issued. The noteholders may
exercise their conversion right at any time through the maturity date (June 10,
1998), at which time the new promissory notes automatically convert into Common
Stock if not repaid prior to such date; holders of the new promissory notes
cannot receive cash payments in lieu of conversion. The Company has accounted
for this transaction as an early extinguishment of debt and the issuance of two
new instruments, the new promissory notes and a forward contract to purchase
Common Stock. Accordingly, the Company has recorded the value of the forward
contract as a component of stockholder's equity, the new promissory notes at
their fair value and an extraordinary loss of $206,000 on the retirement of the
original promissory notes.

     Following the Company's acquisition of its ownership interest in Enviromed,
the Company has accounted for its investment under the equity method. In the
years ended December 31, 1996 and 1997, the Company has recorded a loss of
$200,000 and $327,000, respectively, representing the Company's pro rata share
of Enviromed's results of operations during the Company's period of ownership.

                                      F-34
<PAGE>   73
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(16) FINANCIAL INFORMATION BY GEOGRAPHIC AREA

     Revenues by geographic destination and as a percentage of total revenues
for the years ended December 31, 1995, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                               ----------------------------------------
                 DESTINATION                      1995          1996           1997
                 -----------                   ----------    -----------    -----------
<S>                                            <C>           <C>            <C>
North America................................  $2,993,249    $11,484,380    $31,870,395
Europe.......................................   1,875,855      4,761,713      8,813,867
South America................................          --        545,000      6,087,000
Africa.......................................      86,400        947,390      2,323,077
Asia.........................................     800,000        585,055      2,428,951
Middle East..................................   1,075,200        356,435        466,201
Other........................................     408,008        382,815        260,880
                                               ----------    -----------    -----------
                                               $7,238,712    $19,062,788    $52,250,371
                                               ==========    ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                 --------------------------------------
                                                    1995          1996          1997
                                                 ----------    ----------    ----------
<S>                                              <C>           <C>           <C>
North America..................................      41%           60%           61%
Europe.........................................      26            25            17
South America..................................      --            --            12
Africa.........................................       1             5             4
Asia...........................................      11             3             5
Middle East....................................      15             2             1
Other..........................................       6             5            --
                                                    ---           ---           ---
                                                    100%          100%          100%
                                                    ===           ===           ===
</TABLE>

     Revenues, net income, and identifiable assets for the Company's United
States, Irish, Scottish, Israeli and other European operations are as follows:

<TABLE>
<CAPTION>
     YEAR ENDED           UNITED                                                    OTHER      INTERCOMPANY
    DECEMBER 31,          STATES        IRELAND       SCOTLAND       ISRAEL       EUROPEAN     ELIMINATIONS   CONSOLIDATED
    ------------       ------------   -----------   ------------   -----------   -----------   ------------   ------------
<S>                    <C>            <C>           <C>            <C>           <C>           <C>            <C>
1995 --
  Revenues...........  $  2,302,154   $ 4,187,104   $         --   $        --   $   749,454   $         --   $  7,238,712
                       ============   ===========   ============   ===========   ===========   ============   ============
  Net loss...........    (7,339,808)     (710,400)      (519,661)           --    (1,527,034)            --    (10,096,903)
                       ============   ===========   ============   ===========   ===========   ============   ============
  Identifiable
    assets...........    11,421,961     2,946,355      5,316,234            --     1,941,297     (7,933,499)    13,692,348
                       ============   ===========   ============   ===========   ===========   ============   ============
1996 --
  Revenues...........  $ 10,834,816   $ 4,601,838   $    722,163   $ 2,036,000   $   867,971   $         --   $ 19,062,788
                       ============   ===========   ============   ===========   ===========   ============   ============
  Net loss...........   (16,471,342)     (747,888)    (4,745,715)     (310,000)   (2,249,659)    (4,053,038)   (28,577,642)
                       ============   ===========   ============   ===========   ===========   ============   ============
  Identifiable
    assets...........    41,578,973     3,570,683      9,335,606     8,129,000     2,929,440    (24,454,250)    41,089,452
                       ============   ===========   ============   ===========   ===========   ============   ============
1997 --
  Revenues...........  $ 31,461,946   $ 5,251,109   $  1,317,670   $14,529,000   $ 1,212,754   $ (1,522,108)  $ 52,250,371
                       ============   ===========   ============   ===========   ===========   ============   ============
  Net income
    (loss)...........    (3,309,312)   (2,805,893)   (12,732,821)      812,000    (1,572,003)    (5,102,265)   (24,710,294)
                       ============   ===========   ============   ===========   ===========   ============   ============
  Identifiable
    assets...........   127,016,917     3,414,733     13,300,035    10,239,000     4,103,371    (62,310,362)    95,763,694
                       ============   ===========   ============   ===========   ===========   ============   ============
</TABLE>

                                      F-35
<PAGE>   74
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accrued expenses and other current liabilities consisted of the following
at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1996          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
Compensation and compensation-related.......................  $1,181,337    $1,471,289
Professional fees...........................................     499,174       615,112
Product return reserve......................................   1,183,630       257,042
Advertising and marketing...................................      84,000     1,161,144
Interest payable............................................     150,580     1,448,481
Other.......................................................   2,728,231     3,297,953
                                                              ----------    ----------
                                                              $5,826,952    $8,251,021
                                                              ==========    ==========
</TABLE>

(18) VALUATION AND QUALIFYING ACCOUNTS

     The following table sets forth activity in the Company's accounts
receivable reserve account:

<TABLE>
<CAPTION>
                                    BALANCE AT                        OTHER       UNCOLLECTIBLE   BALANCE AT
                                   BEGINNING OF   PROVISION FOR   ADDITIONS TO      ACCOUNTS        END OF
                                      PERIOD        BAD DEBT      ALLOWANCES(1)    WRITTEN OFF      PERIOD
                                   ------------   -------------   -------------   -------------   ----------
<S>                                <C>            <C>             <C>             <C>             <C>
Year Ended December 31,
  1995...........................     94,190          37,372             --          (38,184)        93,378
  1996...........................     93,378         191,662         51,000          (19,821)       316,219
  1997...........................    316,219         889,043             --          (46,804)     1,158,458
</TABLE>

---------------
(1) Additions arising through the acquisition of Orgenics in 1996.

(19) OTHER EVENTS

  (a) Can-Am Acquisition

     On February 18 and 19, 1998, the Company purchased all of the outstanding
stock of Can-Am Care Corporation (Can-Am), a distributor of certain
diabetes-related home health care products and entered into a new bank lending
agreement (Note 19(b)). The aggregate purchase price of $27,900,000 consisted of
the following: $13,600,000 in cash, 1,108,333 shares of the Company's stock with
a fair value of $10,600,000, a $2,000,000 subordinated note payable by the
Company and estimated closing costs of approximately $1,700,000. The Company
estimates that the aggregate purchase price will be allocated to the acquired
assets and liabilities as follows:

<TABLE>
<S>                                                       <C>
Accounts receivable.....................................  $ 2,812,000
Inventory...............................................    3,766,000
Other current assets....................................      313,000
Fixed assets............................................       32,000
Goodwill................................................   26,900,000
Liabilities assumed.....................................   (5,923,000)
                                                          -----------
                                                          $27,900,000
                                                          ===========
</TABLE>

     Of the Company's shares delivered at closing, 284,168 are to be held in
escrow until no later than 30 days following the delivery of Can-Am audited
financial statements for the year ending December 31, 1998. Pursuant to the
terms of the escrow agreement, the Company may file a claim with the escrow
agent until this

                                      F-36
<PAGE>   75
                        SELFCARE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

time. The purchase price is subject to adjustment if, pursuant to a closing
balance sheet audit of Can-Am, the net assets of Can-Am at closing are less than
$1,000,000.

     In connection with the purchase of Can-Am, Can-Am's shareholders granted a
first right of refusal to the Company to purchase the assets or stock of an
entity under common control, A.M.G. Medical, Inc. (AMG). AMG historically
performed certain administrative, management and manufacturing functions for
Can-Am and concurrent with the purchase of Can-Am, Can-Am and AMG entered into
formal management services and supply agreements. Under the terms of the
management services agreement, AMG will continue to provide such administrative
and management services to Can-Am on an arms-length basis. The management
services agreement provides a mechanism to adjust charges for services based on
the needs of Can-Am and an arbitration provision in the event the parties can
not agree on such charges. Under the terms of the supply agreement, Can-Am must
purchase 100% of its lancet product requirements from AMG, unless AMG is unable
to meet Can-Am's requirements. Further, Can-Am's president entered into an
employment agreement with the Company to continue managing Can-Am for three
years at an annual salary of $150,000.

     Both the stock and promissory note issued by the Company are subject to
adjustment in certain circumstances. The number of shares issued may be reduced
based on the occurrence of certain events, as defined. The principal amount of
the promissory note is subject to adjustment based on the performance of the
Company's Common Stock. The computation of the ultimate principal due on the
maturity date, February 19, 2001, will yield an amount not less than $2,000,000
nor greater than $4,000,000.

(b)  Refinancing

     To fund the cash portion of the purchase price and refinance existing bank
debt (see Note 4), the Company entered into a $42,000,000 credit agreement with
a new bank. The new credit agreement consists of a $37,000,000 term loan and a
$5,000,000 revolving line of credit. Of the proceeds from this term loan, the
Company used $32,000,000 to finance the cash portion of the Can-Am purchase
price (Note 19(a)) and refinance the existing bank debt (see Note 4). The
remaining $5,000,000 was used to repay certain intercompany indebtedness.

     The new credit agreement requires compliance with various financial and
nonfinancial covenants for the Company. The primary financial covenants pertain
to, among other things, interest coverage, debt services coverage, leverage, and
earnings before interest, taxes, depreciation and amortization (EBITDA).

     The term loan and revolving line of credit allow the Company to borrow
funds at varying rates, including options to borrow at an alternate base rate,
as defined, plus a spread from .25% to 1.75%, or the LIBOR rate plus a spread
from 1.75% to 3.00%. The spreads discussed above depend on the Company's ratio
of senior funded debt to EBITDA.

     Borrowings are secured by the Company's stock, and the assets of the
Company and Can-Am. Borrowings under the revolving line of credit are based on
certain percentages of eligible assets, as defined. The Company is required to
pay an annual fee of .375% for the unused portion of the revolving line of
credit. The revolving line of credit expires on February 18, 2002.

     The Company is required to make quarterly principal payments ranging from
$1,300,000 to $1,950,000 through December 31, 2003, with payments of $1,433,333
beginning on June 30, 1998. The Company must also make mandatory prepayments on
the term loan if they meet certain cash flow thresholds, sell assets not in the
ordinary course of business, issue or sell indebtedness or issue stock, as
defined.

                                      F-37