SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934



FOR THE FISCAL YEAR ENDED                                 COMMISSION FILE NUMBER
-------------------------                                 ----------------------
      MAY 31, 1997                                                0-12561

                         MEDITECH PHARMACEUTICALS, INC.
              ----------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



NEVADA                                                                95-3819300
---------------                                              -------------------
(STATE OR OTHER                                                  (I.R.S.EMPLOYER
JURISDICTION OF                                              IDENTIFICATION NO.)
ORGANIZATION)


10105 E. VIA LINDA, #103-382      SCOTTSDALE, AZ                         85258
--------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                              (ZIP CODE)

                                 (602) 614-2874
               --------------------------------------------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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

                                      NONE

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

                          COMMON STOCK $.001 PAR VALUE

<PAGE>


INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FlLiED  BY  SECTION  13 OR 15(D) OF THE  SECURITIES  EXCHANGE  ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER  PERIOD THAT THE  REGISTRANT
WAS  REQUIRED  TO FILE SUCH  REPORTS),  AND (2) HAS BEEN  SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

                          YES  X                 NO
                             ----                  ----

     STATE  THE   AGGREGATE   MARKET   VALUE  OF  THE   VOTING   STOCK  HELD  BY
NON-AFFIL'IATES OF THE REGISTRANT.  THE AGGREGATE MARKET VALUE SHALL BE COMPUTED
BY  REFERENCE  TO THE PRICE AT WHICH THE STOCK WAS SOLD,  OR THE AVERAGE BID AND
ASKED PRICES OF SUCH STOCK,  AS OF A SPECIFIED  DATE WITHIN 60 DAYS PRIOR TO THE
DATE OF FILING.

     $2,314,104.18  (COMPUTED ON THE BASIS OF $.0285 PER SHARE OF COMMON  STOCK)
AS OF AUGUST 28, 1997.

     INDICATE  THE  NUMBER OF  SHARES  OUTSTANDING  OF EACH OF THE  REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

     115,053,432 SHARES OF $.001 PAR VALUE COMMON STOCK AS OF AUGUST 28, 1997.



                      DOCUMENTS INCORPORATED BY REFERENCE

                                     NONE.




                                      (2)



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                               GLOSSARY OF TERMS

     The following  Glossary of Terms is helpful in understanding the technology
discussed in this Form 10-K.  Many terms used in the following  definitions  are
themselves defined in this Glossary.

     Agrobacterium - A Gram positive bacterium of worldwide distribution that is
a major cause of plant  disease  responsible  for the loss of nursery  trees and
many fruit crops.

     Aquired  Immunodeficiency  Syndrome  (AIDS) - A uniformly  Fatal  infection
caused by the Human Immunodeficiency Virus (HIV).

     Antiviral - Has the effect of inhibiting replication of a virus.

     Aspergillus - A group of fungi  containing many types,  some of which cause
disease in plants,  humans,  and animals.  In humans,  Aspergillus most commonly
causes lung  disease due either to direct  growth of the organism or by allergic
mechanisms.  Some individuals,  particularly  those with defects in their immune
system,  May develop disease widely spread through the body involving many major
organs and leading to serious illness or death.  One species,  A. flavus,  often
grows on stored  grain,  corn and other  foodstuffs  causing  spoilage,  and may
produce toxic substances which render these foods poisonous.

     Bacteriostatic  - Has the effect of  inhibiting  or retarding the growth of
bacertia.

     Burkitt's Lymphoma - A disease,  primarily  affecting  Africans,  causing a
malignant tumor in the jaw or, in children, an abdominal mass. The disease has a
strong association (possibly causal) with the Epstein-Barr virus.

     Corynebacterium - One of the bacterium widely  distributed in nature.  Some
types are found in the skin of humans  and  contribute  causally  to acne.  Many
species  inhabit the soil and a number cause disease in humans and animals.  One
type is the cause of  diphtheria in humans and other types are  responsible  for
pseudotuberculosis in sheep, horses, and cattle.

     Cytomegalovirus  - One  of  the  herpesviruses  that  causes  localized  or
widespread diseases in humans.

     Disinfectant  - A chemical  or  physical  agent  which  destroys  potential
infectivity of microorganisms (including viruses) or contaminated material.

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     Double-Blind  Study - A  technique  of  research  testing  designed so that
neither  patients nor treating  physicians know until the end of the study which
patients  receive  the  active  medication  and which  ones  receive a substance
inactive in the treatment of the disease.

     Enveloped Virus - A virus in which the infectious particle is surrounded by
a coating made of protein, fatty substances and carbohydrate.

     Epstein-Barr  Virus  - One  of the  herpesviruses  that  causes  infectious
mononucleosis  and is believed to cause  Nasopharyngeal  carcinoma and Burkitt's
Lymphoma. 

     Gastroenteritis  - Inflammation,  often due to an infectious  agent, of the
intestinal tract.

     Gram Positive  Bacteria - Those bacteria which,  due to a specialized  cell
wall  structure,  will accept  staining with an iodine stain  developed by Gram.
Examples  of  Gram  positive  organisms  include  Staphylococci,   Streptococci,
Corynebacteria, and many others of medical importance.

     Hepatitis  B Virus - A virus that is one of the major  causes of  hepatitis
(inflammation of the liver) in humans.

     Herpes  Zoster - A  disease  (commonly  known as  shingles)  consisting  of
painful skin lesions caused by reactivation of infection due to Varicella-Zoster
virus.

     Herpesviruses  - A family of  DNA-containing  viruses that includes  Herpes
simplex Types 1 and 2 ("Herpes 1 and 2"),  Cytomegalovlcus,  Epstein-Barr virus,
Varicella-Zoster, and others.

     Human  Immunodeficiency  Virus (HIV) - A retrovirus  that causes a range of
syndromes in humans from asymptomatic infection to AIDS.

     Infectious  Mononucleosis - A self-limited infectious disease caused by the
Epstein-Barr virus involving primarily the lymphoid system.

     In Vitro - A test  performed in the  laboratory  often  involving  isolated
tissue, organ, or cell preparations.

     In Vivo - A test performed on a living plant or animal.

     Latent  Herpes   Infection  -  A  usual   consequence   of  infection  with
herpesviruses in which the virus remains in an inactive and noninfectious  state
within masses of nerve tissue located outside the brain and spinal cord.

                                      (4)


<PAGE>


     Lymphoid  System - Network of vessels that function in returning  materials
from body tissues to the blood.

     Mucocacaneous - Relating to certain  lubricating linings in the body and/or
skin Herpes simplex virus Cypicallv causes infection at these sites.

     Mycotoxins  - Toxic  chemical  substances  produced by certain  fungi which
cause disease and/or death in humans and animals.

     Nasopharyogeal Carcinoma - A cancerous tumor of the nasal region.

     Neuralgia - Sharp pain along a nerve.

     Neuritis -  Inflammation  of nerve(s)  often  resulting in pain,  paralysis
and/or sensory disturbances.

     Over-the-Counter  Product - Any drug or remedy  which may be sold without a
prescription.

     Pharmacokinetics  -  Relating  to the  disposition  of drugs in the body as
affected by uptake, distribution, metabolism and elimination.

     Primary  Herpes - The first  occurrence  of  infection  with Herpes 1 or 2.
Symptoms may or may nor be present.  The initial  episode may not be the primary
episode of infection.

     Pseudotuberculosis  - A disease of  animals,  similar in some  respects  to
tuberculosis,   caused  by  a  type  of  Gram  positive  bacterium,  Pasteurella
pseudotuberculosis.

     Recurrent   Herpes  -  Clinical   episode(s)  of  herpes   disease  due  to
reactivation of latent pre-existing  infection.  Recurrences may be triggered by
diet,  sunlight,  emotional  stress,  sexual  activity,  immunosuppression,  and
unknown factors.

     Rotavirus - A virus that is a major cause of diarrhea and  inflammation  of
the intestinal tract in infants and in certain animals.

     Staphylococcus  - A group of bacteria  that is  widespread in nature,  many
types  of  which  cause   serious  or  fatal  disease  in  humans  and  animals.
Staphylococci are a principal cause of wound  infections,  boils, and other skin
infections in humans, and mastitis in dairy cows.

                                      (5)





<PAGE>


     Sterilant  - A physical  or  chemical  agent that  eliminates  all  triable
microbes including viruses.

     Streptococcus  - A group of bacteria  consisting of numerous  types many of
which cause serious or fatal  infections in humans and animals.  One type is the
principal  cause  of  bacterial  sore  threats  and  the  major  cause  of  skin
infections, including impetigo.

     Varicella-Zoster  - One of the  herpesviruses  that causes  chickenpox  and
Herpes Zoster.

     Xanthomonas  - A group of bacteria  containing  many types,  score of which
infect plants and cause a significant loss of commercially  important fruits and
vegetables.  One variety,  Xanthomonas  campestris  pv.  citri,  is the cause of
citrus  canker,  a deadly  disease of orange  trees.  Other  varieties are major
causes of disease in tomatoes, peppers, and other vegetables.




 



                                      (6)





<PAGE>


                                     PART I

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

General
-------

     The Company is a development stage Company organized to research,  develop,
test and  commercially  exploit  anti-infective  drugs.  The  Company's  parent,
Petro-Med Inc., has filed a Chapter XI Bankruptcy Petition,  which was converted
to a Chapter VII on August 26, 1992.  See "Legal  Proceedings".  The Company had
been  experiencing  severe  cash flow  difficulties  prior to the filing of this
petition.  These  difficulties  have been  heightened by the filing.  Management
believes that the Company will need to obtain  additional  financing of at least
$3,000,000  in  order  to  resume  its   development   stage   activities.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations-Liquidity and Capital Resources". The Company is in various stages of
planning  and  developing   products   containing  the  drugs   Viraplex(R)  and
MTCH-24(tm).

     Viraplex(R), which is intended to be administered orally in capsule form as
a  prescription  treatment  for  oro-facial  and genital  Herpes  simplex  virus
infections,  is in an  advanced  phase (the third of three  phases) of  clinical
testing for safety and  effectiveness  in humans although such clinical  testing
has  been  suspended  pending  refinancing  of  the  Company.   See  "Government
Regulation" and "Products  Undergoing  Research,  Testing and  Development." The
Company believes that for the long term MTCH-24(tm) May be used to treat a broad
range of  conditions  in humans,  plants and  animals  caused by viruses  (e.g.,
Herpes simplex and Influenza in humans), fungi (e.g., Aspergillus, a major cause
of spoilage  of stored corn and grain) and  bacteria  (e.g.,  Streptococcus  and
Staphylococcus  infections in humans and animals).  For the short term, upon the
receipt of  refinancing,  if any (see above),  the Company plans to continue the
research and testing  associated with obtaining FDA approval of Viraplex(R) and,
in order to  generate  positive  cash flow,  to  develop  and bring to market as
rapidly   as   possible   two   types  of   products   containing   MTCH-24(tm):
over-the-counter  (non-prescription)  products for the  treatment of  oro-facial
herpes infections (cold sores) and acne (collectively,  the "OTC Products"), and
agricultural  products  for  the  treatment  of  viral,   bacterial  and  fungal
infections  in plants (the  "Agricultural  Products").  The Company plans to use
revenues from the OTC Products and Agricultural Products, if and when generated,
to fund  additional  research,  development  and  testing  necessary  to exploit
MTCH-24(tm) for uses other than the OTC Products and Agricultural  Products. The
Company has licensed rights to the use of MTCH-24(tm) against three viruses, the
AIDS  virus,   Epstein-Barr   virus  and   Cytomegalovirus   to  Viral  Research
Technologies,  Inc. No revenues apart from the initial  licensing fees have been
received   under  this   license.   See  "Certain   Relationships   and  Related
Transactions".

                                      (7)



<PAGE>



History
-------

     In  1982,  Gerald  N.  Kern  commenced  testing  of a  predecessor  drug to
Viraplex(R)  for use against herpes simplex virus.  Test results  indicated that
the predecessor drug had potentially dangerous side effects.  Later in 1982, the
Company (of which Mr. Kern was a principal  shareholder),  retained  Dr.  Joseph
Michaelson,  a biochemist,  to evaluate several drugs related to the predecessor
drug, to determine  their  effectiveness  against herpes simplex virus and their
toxicity, if any. One of these drugs, the active ingredient of Viraplex(r),  was
shown in  laboratory  tests to be effective  against  herpes  simplex  virus and
non-toxic to humans.  The active  ingredient  is a chemically  synthesized  drug
which can be produced in large  quantities at a relatively low cost. This active
ingredient,   in  a  different   dosage  and  delivery  system  (the  method  of
administering  the drug), has been readily available for human use for treatment
of disorders other than herpes simplex virus and has a well  documented  history
of safety.  The  Company  modified  the dosage form and  delivery  system of the
active  ingredient to render it useful in treating  herpes  simplex  virus.  The
Company's  delivery system  consists of a capsule (unlike any previous  delivery
system  for the  active  ingredient)  prepared  in a form  designed  to  enhance
absorption  of  the  active  ingredient  from  the  intestinal  tract  into  the
bloodstream,  and, from there, to the site of the herpes infection.  The Company
is not aware of any previous  uses of the active  ingredient  as a treatment for
herpes simplex or other virus  infections.  Based upon the results of laboratory
testing of the active  ingredient in its new dosage form and delivery system, in
May, 1982, Dr.  Michaelson  applied to the United States Patent Office for a use
patent.  The patent  application was  simultaneously  assigned to the Company. A
patent for five claims was granted in March 1989.  See  "Patents"  and  "Certain
Relationships and Related Transactions".  In addition, in July, 1982 the Company
filed an  investigational  new drug  application  which  the U.S.  Food and Drug
Administration  ("FDA") granted in August 1982. see "Government  Regulation" and
"Products Undergoing Research, Testing and/or Development".

     Based upon research by Gerald N. Kern, and at his direction,  commencing in
late  1983 the  Company  tested  a number  of  other  drugs to  determine  their
effectiveness,  if any, against herpes simplex virus and other organisms. One of
those drugs,  which is the active  ingredient  in  MTCH-24(tm),  was found to be
effective in vitro against herpes simplex virus.  Subsequent testing showed that
the drug was  effective  against a broad range of  enveloped  viruses as well as
selected  bacteria  and  fungi.  The  active  ingredient  of  MTCH-24(tm)  is  a
chemically  synthesized  drug which is  readily  available  in  over-the-counter


                                      (8)

                                


<PAGE>


products of other  companies but in a different  dosage and delivery  system for
treatment  of  disorders  unrelated  to its  proposed  use by the  Company as an
antimicrobial  agent. The active  ingredient can be produced in large quantities
at a relatively  low cost.  The Company  believes that the active  ingredient in
MTCH-24(tm) in the capsule forms currently available from other companies is not
intended for use as an antimicrobial  agent. In addition  absorption of the drug
in its current capsule forms does not yield sustained concentrations  throughout
the body required to render it effective as an  antimicrobial  agent.  To render
the drug  effective  for  treating  a variety  of viral,  bacterial  and  fungal
infections,  the Company, upon refinancing,  if any, plans to develop a delivery
system which would employ a capsule thee would provide controlled release of the
active  ingredient  from the intestinal  tract into the  bloodstream,  and, from
there, to the site of the infection.

     The Company  believes  that the active  ingredient  of  MTCH-24(tm)  in the
topical cream forms readily  available  from other  companies is not intended to
act as an antimicrobial agent. In addition, the active ingredient of MTCH-24(tm)
in those creams is not present in sufficient  concentrations to render it useful
as an antimicrobial agent.  Therefore,  the Company has formulated topical cream
preparations  containing  MTCH-24(tm) in concentrations  sufficient to render it
effective  as an  antimicrobial  agent.  Based upon the  results  of  laboratory
testing of the active ingredient in its new dosage form and delivery system, Mr.
Kern, beginning in October, 1984, applied to the United States Patent Office for
five U.S.  patents.  Mr. Kern has  assigned  those patent  applications  and the
resulting   patents  to  the  Company.   Patents  have  issued  for   antiviral,
antibacterial uses and antifungal uses for humans.  Claims for MTCH-24(tm) as an
antifungal  agent for harvested  products have been rejected.  See "Patents" and
"Certain Relationships and Related  Transactions".  In February and April, 1985,
the Company filed  Investigational New Drug applications,  which the FDA granted
in March and May, 1985, respectively.  See "Government Regulation" and "Products
Undergoing Research, Testing and/or Development".

     The Company was  incorporated in Nevada on March 21, 1983, and on that date
acquired  all of  the  issued  and  outstanding  shares  of  Medical  technology
Corporation  of America,  Inc.  ("MTCA"),  a  predecessor  Delaware  corporation
organized in May, 1982. MTCA was dissolved in 1986. References to the "Company",
unless the context otherwise indicates, relate to both the Company and MTCA. See
"Security  Ownership of Certain  Beneficial  Owners and Management" and "Certain
Relationships and Related Transactions."

     The Company address is 10105 E. Via Linda,  #103-382 Scottsdale,  AZ 85258,
and its telephone number is (602) 614-2874.

                                      (9)





<PAGE>


Government Regulation
---------------------

     The  products  which the Company  seeks to develop are subject to extensive
regulation by the FDA and the U. S.  Environmental  Protection  Agency  ("EPA").
Under FDA guidelines,  a "new drug" - defined as one not generally recognized as
safe and  effective  - may not be  marketed  for  particular  uses in the United
States without prior FDA approval of a New Drug Application ("NDA") showing that
the  drug is safe and  effective  for the  recommended  use as  demonstrated  by
substantial  evidence  consisting  of  adequate  and  well-controlled   clinical
investigations  involving human subjects. With the possible exception of some of
the OTC  Products,  discussed  below,  human  applications  of  Viraplex(R)  and
MTCH-24(tm) are "new drugs" requiring FDA approval.

     In order to conduct  clinical  investigations,  an applicant must obtain an
Investigational  New Drug exemption  ("IND") from the FDA to permit the shipment
and use of the drug for investigational purposes. This requires the filing of an
IND notice with the FDA,  setting forth the results of pre-clinical  (laboratory
and animal) testing and the applicant's  plans for clinical (human) testing.  If
the FDA does not deny the exemption or place a "hold" on clinical testing within
30 days of the  submission  of such  notice,  the IND is in effect and  clinical
testing may begin. Under the FDA's IND regulations, the clinical testing program
required for approval of a new drug involves a three-phase  process. In Phase I,
studies are conducted on human  volunteers to determine the maximum  dosages and
side effects of the substance  being tested.  In Phase II, studies are conducted
on groups of  patients  afflicted  with a specific  disease to gain  preliminary
evidence  of  efficacy  and to  determine  useful  dosages.  Phase III  involves
larger-scale  studies  conducted  on   disease-afflicted   patients  to  provide
statistical evidence of efficacy and safety. Frequent reports are required to be
made in each phase and, if  unwarranted  hazards to subjects are found,  the FDA
May request  modification or  discontinuation  of clinical testing until further
pre-clinical work has been-done.

     The time necessary to complete clinical testing varies  significantly  from
product to product,  depending on the nature of the product,  the claims for the
product, its risk. and side effects , and the clinical testing protocols. In the
case of both Viraplex(R) and  MTCH-24(tm),  IND notices for particular uses have
been filed and the FDA has authorized  Phase III clinical trials for Viraplex(R)
and for bacterial applications of MTCH-24(tm).  See the discussions below of the
status of each of the Company's proposed products.

     Once clinical testing has been completed  pursuant to an IND, the applicant
files an NDA with the FDA. The NDA contains information  concerning the chemical
structure  of the drug,  the goal and  purpose  of the  drug,  and data from all
animal and human tests. The FDA reviews the NDA to determine if the drug is safe


                                      (10)





<PAGE>


and  effective  and  if  the  applicant  can  guarantee  proper  and  consistent
manufacture  of the drug.  Again,  the time  required  for FDA  action on an NDA
varies  considerably,  depending on the characteristics of the drug, whether the
FDA needs more information  than is originally  provided in the NDA, and whether
the FDA finds problems with the evidence  submitted.  It cannot be predicted how
much time will elapse between  submission of an NDA and final FDA action, but it
is not unusual for the process to take one or two years or more.

     The FDA has issued a series of monograph and proposed monograph regulations
concerning  certain  over-the-counter  drug product  categories and  ingredients
which have been shown to be safe and effective for specified  uses.  Products in
such categories  containing  such  ingredients for the specified uses, and which
contain  additional  ingredients  with respect to which no new uses are claimed,
May under certain  conditions  be marketed  without  specific FDA approval.  The
Company  believes the OTC products which would contain  MTCH-24(tm) but will not
identify it as an active ingredient,  may fall within the scope of FDA monograph
or proposed  monograph  regulations for cold sore products and acne products and
upon the receipt of refinancing,  if any, intends to seek the opinion of special
FDA counsel on compliance with such regulations or proposed regulations prior to
marketing the OTC products.

     The  EPA  regulates  the  research  and  sale  of  agricultural   products,
sterilants and  disinfectants  which are not directly or indirectly  involved in
the human food chain. The duration of the EPA approval  process,  which involves
registration  of such  products  prior to  marketing,  varies  from  product  to
product,  although the EPA process is usually of shorter  duration  than the FDA
approval process.  As with FDA action, it cannot be predicted how much time will
elapse  between  submission  of an  application  and  final  action  by the EPA.
however,  the  Company  believes  it is not  unusual  for  the  process  to take
approximately one year in its entirety. To date, the Company has neither applied
for nor obtained approval for any of its products from the EPA. 

Product Research, Testing and/or Development
--------------------------------------------

     A  substantial  portion of the  Company's  capital  has been and,  upon the
receipt  of  refinancing,  if  any,  will  be  allocated  to  research,  testing
(including  clinical  trials) and  development  of Viraplex(R)  and  MTCH-24(tm)
products described below. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."

                                      (11)




<PAGE>


OTC Products
------------

     The Company has developed  over-the-counter products containing MTCH-24(tm)
for treating the symptoms of herpes simplex virus  infections of the lips, mouth
or face  (cold  sores) and for the  treatment  of acne  (collectively,  the "OTC
products"). The Company plans to formulate the OTC products in skin tones to act
as cover-ups  while  providing  treatment.  The drugs  identified  as the active
ingredients  in  each  product  will  be  drugs  other  than  MTCH-24(tm)  which
previously  have been  recognized  by the FDA to be safe and  effective  for the
intended uses, as specified in FDA monograph or proposed monograph  regulations,
and no further claims will be made for the products  other than those  specified
in the monograph or proposed monograph  regulations.  Under these conditions the
Company  believes the OTC products may fall within the scope of FDA monograph or
proposed monograph  regulations and will be able to be brought to market without
prior FDA  approval.  The  Company  intends to seek the  opinion of special  FDA
counsel on  compliance  with such  monograph or proposed  monograph  regulations
prior to marketing the OTC products upon the receipt of refinancing, if any. See
"Viraplex(R) and MTCH-24(tm) products for herpes simplex viruses."

Agricultural Products
---------------------

     Plant diseases due to fungi,  bacteria,  and viruses cause an enormous loss
of crops  worldwide.  Within  the  United  States  alone  the  annual  potential
agricultural  market for antifungal  products is estimated at $400 million,  for
bacteriostatic  products at $30 million (with possible growth to $130 million if
effective broad spectrum  agents were  available) and for antiviral  products at
$360 million.  Management believes,  based on limited laboratory tests conducted
principally  by  independent  researchers  at the request of the  Company,  that
proposed   MTCH-24(tm)   products  (the   "agricultural   products"),   although
unpatented,  could have an impact on plant disease due to microorganisms in each
of these categories.

     Aspergillus is one of the major fungi which cause spoilage of stored grain,
corn and other foodstuffs. In addition, the organisms pose a major health hazard
by producing aflatoxins, chemical substances that are highly toxic to humans and
animals.  In  laboratory  tests,  MTCH-24(tm)  has been shown to be effective at
non-toxic  concentrations  in inhibiting  growth of  aspergillus  species and in
preventing growth of this organism on wheat and corn.

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<PAGE>


     Organisms of the bacteria genus  Xanthomonas cause citrus canker, a disease
that causes loss of oranges and other  citrus  fruit and trees,  and diseases of
vegetables.  MTCH-24(tm)  has been shown in vitro to inhibit  this  organism  at
concentrations  non-toxic to humans.  The Company also believes that MTCH-24(tm)
may be effective against Agrobacterium,  a Gram positive organism,  since it has
been  demonstrated to be effective in vitro against all Gram positive  organisms
against which it has been tested in studies conducted at the Company's request.

     Crop loss due to virus  infections has been estimated to be as high as $1.8
billion  annually in the United  States alone.  The Company  believes that there
exists a need for an effective  treatment for such infections and that, upon the
basis of preliminary laboratory tests, potential exists for using MTCH-24(tm) to
treat plant diseases  caused by enveloped  viruses (one of the two broad classes
of viruses).

     The Company has engaged in very  limited  testing and  development  in this
area and is seeking to interest  potential  licensees  and/or joint venturers in
providing  assistance in testing,  obtaining the  necessary  approvals  for, and
marketing one or more of the Agricultural  Products.  Testing is being conducted
by one interested  company in South America  against citrus canker.  Preliminary
field results have been positive. These results have been reviewed by the citrus
council at the  University of Florida in  Gainesville.  The Company has tested a
spray product  containing  MTCH-24(tm)  on stored wheat and corn in  cooperation
with a private Company in Texas. At this point the Company has not decided which
of the Agricultural  Products it will seek to develop  commercially or the order
of such  development.  This will  depend in large  part on the  identity  of the
licensees and/or joint  venturers,  if any, and the wishes and interests of such
parties.  To date the Company has neither applied for nor obtained EPA approval.
of any of the Agricultural Products.

Viraplex(R) and MTCH-24(tm) Products for Herpes Simplex Viruses
---------------------------------------------------------------

     Herpes is the family  name of over 50  related  viruses  that share  common
characteristics.  The viruses that cause  oro-facial  (affecting the lips, mouth
and face and sometimes  called "cold sores") and genital  herpes are two members
of this group and are classified as Herpes simplex virus Type 1 ("Herpes 1") and
Herpes  simplex virus Type 2 ("Herpes 2"),  respectively.  Herpes 1 generally is
acquired  from  contact  with a person with an active cold sore,  while Herpes 2
generally is sexually transmitted.  The primary episode of infection with Herpes
1 or 2 is often quite  severe,  lasting two to three weeks or more,  and causing
swollen lymph nodes,  neuritis and  neuralgia,  as well as painful skin lesions.
The herpes virus remains in the body in a dormant state following initial

                                      (13)




<PAGE>


infection. Many patients experience intermittent recurrence of the infection due
to reactivation  of the latent virus,  although  subsequent  episodes may differ
from the primary  episode in severity and duration.  Infections  due to Herpes 1
and 2 have now been  recognized  as  reaching  epidemic  proportions  within the
United States, estimated to affect more than 50 million Americans.

     The Company has begun the process of conducting  clinical trials  (although
such trials have been  suspended  pending  refinancing,  if any, of the Company)
pursuant to an IND of Viraplex(R) in a capsule designed for oral  administration
to provide  systemic therapy for Herpes 1 and 2. A 35-patient Phase II study was
completed by the Company in January,  1983 and the results were submitted to the
FDA. The Company then received permission from the FDA to initiate a 320-patient
Phase III study, consisting of 160 patients with genital herpes and 160 patients
with orofacial  herpes. To date,  approximately 290 patients,  including all 160
genital herpes patients, have been tested. Upon refinancing, if any, the Company
intends to complete the Phase III study.  Only after Phase III clinical  studies
have been  completed  and  evaluated  for safety and  efficacy  could the FDA be
expected  to grant new drug  approval  to the  product.  Until such  approval is
granted, the Company's  Viraplex(R) product may not be commercially  marketed in
the United States as a treatment for either Herpes 1 or 2.





                                      (14)





<PAGE>


     Laboratory tests of MTCH-24(tm)  conducted for the Company have found it to
be effective in the  laboratory  against Herpes 1 and 2. The Company has applied
for FDA approval to conduct  human trials under an IND of a topical  preparation
of  MTCH-24(tm)  for  treatment  of Herpes 1 and 2. The FDA has  requested  that
certain  pre-clinical studies be completed prior to initiation of human clinical
trials.  All  testing has been  suspended  pending  refinancing,  if any, of the
Company.  The Company cannot predict whether or when a MTCH-24(tm)  product will
receive FDA approval for treatment of Herpes 1 or 2.

     The Company may also seek to develop a MTCH-24(tm)-based hard surface spray
to be tested as a  disinfectant  against Herpes 1 and 2, which viruses are known
to be able to persist for several hours on hard  surfaces such as walls,  toilet
seats and sinks,  and other related  viruses,  as well as selected  bacteria and
fungi. The work will entail formulation of experimental products and testing for
efficacy and safety in accordance with EPA  guidelines.  The Company has not yet
commenced development of this product.

MTCH-24(tm) Products for Other Viruses and Bacterial Infections
---------------------------------------------------------------

     Herpes  1  and  2 are  enveloped  viruses.  How  MTCH-24(tm)  acts  against
enveloped  viruses is not fully  understood,  but,  based on limited  laboratory
tests  conducted  for the  Company,  it is thought to be  potentially  effective
against all enveloped  viruses.  In addition to its potential as a treatment for
Herpes Simplex Virus,  MTCH-24(tm) has produced  positive results in preliminary
in vitro laboratory tests,  against a range of other enveloped viruses,  such as
influenza,  Epstein-Barr virus ("EBV") and  cytomegalovirus  ("CMV"), as well as
rotavirus,  a  non-enveloped  virus.  Influenza can cause problems  ranging from
cold-like  symptoms to death.  Although vaccines against influenza are presently
available,  individuals  at high risk for  influenza  (the  elderly,  infirm and
infants) are also those most likely to suffer adverse vaccine reactions.  EBV is
a  herpesvirus  which  causes  infectious  mononucleosis  and may be a cause  of
Burkitt's  Lymphoma,  a disease  found  mostly in Africa and New Guinea and less
frequently in the United States.  EBV causes  widespread early childhood disease
in developing countries and is also associated with nasopharyngeal  carcinoma, a
malignant tumor of the nose usually  affecting young adults.  CMV is a virus the
effects of which vary substantially  depending upon the age and immune status of
the  infected  person.  Infection  of an infant  can  result in a fatal  disease
involving the nervous  system,  liver and other body sites.  Infection  acquired
later  in  life  may  cause  a  syndrome   clinically   indistinguishable   from
mononucleosis.  Generalized CMV infection, which can be fatal, may also occur in
patients whose immune system has been  compromised.  Rotavirus is believed to be
the  causative  agent in over 50% of all acute  diarrhea in  children  requiring
hospitalization.  It can be highly contagious and sometimes fatal.  Rotavirus is
also a major cause of  gastroenteritis in swine and lambs, with a mortality rate
of 30% to 50%.

                                      (15)




<PAGE>



     The Company plans, upon  refinancing,  if any, to develop a capsule form of
MTCH-24(tm)  for oral  administration  and to seek approval for human testing of
such capsules as a treatment for disorders  related to herpesviruses  other than
Herpes 1 and 2, including EBV, Varicelia-Zoster, the virus which causes shingles
(Herpes Zoster), and chickenpox. MTCH-24(tm) in systemic form may also be tested
for clinicai activity against Hepatitis B virus.

     Pursuant to an  agreement  dated as of the 26th day of January,  1987,  the
Company  licensed  rights to the use of MTCH-24(tm)  against three viruses,  the
aids virus (hiv),  Epstein-Barr virus and cytomegalovirus to VRT, Inc., a Nevada
corporation  ("VRT").  In addition to the license  Meditech  granted  options to
American Medical Venture Capital Group ("AMVCG") to purchase 7,500,000 shares of
Meditech's  common stock at 5.04 per share.  These options have  expired.  AMVCG
provided  the  initial  funding  for VRT,  Inc.  In return for the  license,  in
addition to the share  ownership in VRT,  Meditech  received an advance  minimum
royalty of $150,000, the right to receive $50,000 on the first day of April, May
and June,  1987 and an overriding  royalty of 6% of net sales, as defined in the
agreement,  if any, of the licensed products. As of May 31, 1994,  approximately
$99,199 are still owing under the  agreement.  On April 30, 1987,  VRT, Inc. was
combined  through  statutory  merger  with  Viral  Research  Technologies,  Inc.
("Viral"), a Nevada corporation,  which became the surviving corporation.  Viral
issued  15,000,000 shares of its restricted common stock in exchange for 200,000
shares, the total shares outstanding,  of VRT, Inc. Viral was an inactive public
shell, which at the date of the merger had an accumulated  deficit of $5,000. in
connection with the combination,  there was no step-up in basis to the assets of
Meditech  Pharmaceuticals,  Inc.  and its  subsidiaries.  After the merger,  the
Company  owned 37.2  percent of the  surviving  corporation.  See note 15 to the
consolidated financial statements.

     Preliminary  testing of  MTCH-24(tm)  was conducted at the  Northwick  Park
Hospital,  in association with the Harrow Health  Authority of Harrow,  England,
for effectiveness against human  immunodeficiency virus (hiv) the virus believed
to cause aids (acquired  immunodeficiency  syndrome).  Testing will be completed
upon refinancing, if any.

     There are numerous  categories of bacteria which may cause serious or fatal
infections  in humans  and  animals.  Streptococcus  is the  principal  cause of
bacterial sore throats and a major cause of skin  infections in humans.  Various
types of staphylococci  are the principal cause of wound  infections,  boils and
other skin  infections  in humans and mastitis in dairy cows.  Various  types of
corynebacterium  contribute  causally to acne and  diphtheria  in humans,  while


                                      (16)





<PAGE>


other types cause  pseudotuberculosis in sheep, horses, and cattle.  MTCH-24(tm)
is being tested by the Company under an IND for its  bacteriostatic  properties.
The  Company  has been  notified  by the FDA that  clinical  studies  to further
determine the effectiveness of MTCH-24(tm) against certain types of bacteria may
be initiated.  Clinical  investigations for this application of MTCH-24(tm) must
be completed before an NDA may be filed.

     On June 3, 1993,  the  Company  received a report  from the  Department  of
Health and Human  Services and the National  Cancer  Institute  regarding  their
ongoing testing of the Company's drug.  Trials show activity against three types
of tumors by inhibiting  growth and killing tumor cells.  These are new areas of
activity  and the  Company  will need  additional  financing  to  obtain  patent
protection before releasing more specific information. The Company's drug is one
of ten to fifteen which have shown positive results in the Government's in vitro
testing of these human cancer cells.

     Except for  treatments of Herpes 1 and 2, the Company has not developed any
products for the virus and  bacteriological  conditions  of humans  described in
this  subsection,  but  intends  upon the  receipt of  refinancing,  if any,  to
continue testing MTCH-24(tm) for the proposed applications.

Competition 
----------- 

     The Company anticipates  substantial competition with respect to all of its
proposed   products,   including   the  OTC   Products   in  the   markets   for
over-the-counter preparations for both cold sores and acne, and the Agricultural
Products,  particularly  in  the  market  for  fungicides  and  the  market  for
bactericidal  agents. The Company's OTC Products would compete in the market for
cold sore preparations with Orajel, Tanac,  Zilactin,  Anbesol,  Campho-Phenique
and  Blistex,  among  others,  and in the  market  for  acne  preparations  with
Clearasil,  Oxy-5 and Oxy-10, among others. These and other similar products are
available in drug and other stores  throughout the United States.  The Company's
Agricultural  Products  would  compete with  fungicides  such as Bravo,  Deuter,
Terachlor and Ridomil and applications  partially  controlling  certain bacteria
such as Maneb and  copper-containing  solutions.  Management is not aware of any
currently  available  products  effective in controlling  citrus canker or virus
infections in plants.

     As to Viraplex(R) in capsule form and the proposed  MTCH-24(tm) products as
treatments for herpes infections,  there is presently  available by prescription
an  FDA-approved  product  for  the  treatment  of  herpes  infections  sold  by
Burroughs-Wellcome  Co.  under the name  Zovirax  (Acyclovir).  FDA  approval of
Zovirax is limited to  selected  cases of genital and  mucocutaneous  herpes and
also to specific usage and duration of treatment.  Management is aware that some


                                      (17)




<PAGE>


of the herpes products  proposed to be developed by other companies are vaccines
intended to prevent infection by  herpesviruses.  No such vaccines have yet been
approved by the FDA. On the basis of data accumulated to date, management is not
aware of any proposed vaccines which, if successfully  developed and approved by
the FDA for sale in the  United  States,  would be  effective  in  treating  the
symptoms  of persons who  presently  suffer from  recurrent  herpes  infections.
Treatment of persons presently afflicted with recurrent herpes infections is the
primary focus of the Viraplex(R)  product being developed by the Company.  It is
likely  that  sales of  additional  FDA-approved  competitive  products  for the
treatment  of herpes  infections  would  have a material  adverse  effect on the
Company.

     Many  pharmaceutical  and home  product  companies  and other  researchers,
including  Merck and Co., Inc. and American  Cyanamid Co., have announced  their
intention  to  introduce  or are  believed to be in the process of  developing a
variety of products  that may perform  some or all of the  functions of proposed
Viraplex(R) and MTCH-24(tm)  products.  A substantial  number of  pharmaceutical
companies in the world have been working on various forms of an aids  treatment.
Several drugs,  including AZT, have been approved for sale in the United States.
Many others are being tested under the FDA's "fast track" testing program.  Some
positive results have been reported although no cure has been claimed by anyone.

     Many of the Company's potential  competitors are well-known and established
companies with vastly greater capital resources, larger research and development
staffs and more extensive marketing capabilities than those of the Company.

Manufacturing
-------------

     The Company  currently has no  manufacturing  facilities of its own and has
relied on independent pharmaceutical  manufacturing firms to produce Viraplex(R)
and  MTCH-24(tm)  in  the  limited   quantities   needed  to  conduct  research,
development and testing. It is anticipated that the Company, upon the receipt of
refinancing,  if any, upon the successful  completion of its testing  procedures
and upon the receipt of any necessary regulatory  approvals,  will contract with
others for the manufacture of Viraplex(R) and MTCH-24(tm) products.

Marketing
---------

     The Company has discussed  distribution  and marketing of its OTC products,
agricultural  products,  other MTCH-24(tm) products and the Viraplex(R) product,
when and if necessary  government  approvals  are  obtained,  through  licensing
and/or joint venture  agreements  with a number of  pharmaceutical  and chemical
companies in the United States and abroad.

                                      (18)

<PAGE>




     The Company previously  entered into licensing and distribution  agreements
for Viraplex(R) in some European countries and for MTCH-24(tm) in Canada.  Those
agreements  produced  no revenue  for the  Company.  The  Viraplex(R)  agreement
expired on July 31, 1986. No sales were made under the agreement and the Company
elected to account  for any  royalty  income  under this  agreement  on the cash
basis. No royalties are anticipated. In February, 1986, the Company notified the
licensee for  MTCH-24(tm)  in Canada that the  agreement  was  terminated.  This
termination was disputed by the license, but no liitigation ensued.

     The  Company  also had  entered  into an  agreement  with  Colgate  Venture
Company,  Inc.  to test  MTCH-24(tm)  for the purpose of  developing  commercial
topicali skin  products.  This  agreement  was mutualliy  rescinded on April 27,
1989.

     The  Company  plans to  market  the OTC  products,  when and if  developed,
through chain drug stores,  drug wholesalers,  and independent drug stores.  The
Company,  upon  refinancing,  if any, intends to employ  independent  commission
sales representatives to promote and sell these products. The Company would test
market the products in a limited area, probably southern California,  to measure
trade and consumer  acceptance.  If the  products  meet  certain  criteria,  the
Company may seek additional marketing funding,  through a limited partnership or
a joint venture,  to provide advertising and promotional monies. The Company may
offer a royalty on sales in exchange for this additional funding.

Employees
---------

     As of August 29, 1997, the Company had one part-time  non-medical employee,
who was also an executive  officer.  The Company also had eleven consultants who
devoted up to 10% of their time to the affairs of the Company.  The consultants,
most of whom are not currently  providing services to the Company,  included one
physician who was involived in clinical medical research,  one Ph.D. involved in
pre-clinical  toxicologic research,  and ten who were involived in financial and
business  matters.  Consultants to the Company are  compensated  variously on an
hourly, daily or per-job basis for professional services rendered, many by stock
options or grants, pursuant to written or oral agreements between the individual
consultant  and the  Company.  It is  anticipated  that the  presently  inactive
consultants  will resume  their  activities  on behalf of the  Company  upon the
receipt of refinancing, if any.

Patents
-------

     The process for  obtaining a United States patent begins with the filing of
a patent application in the U. S. Patent and Trademark office. The patent laws

                                      (19)



<PAGE>


provide that new methods for using a known composition of matter may be patented
by the  discoverer of the new method.  The patent  application  is examined by a
patent  examiner who may reject or allow all or some of the claims of the patent
application.  Applicants may submit  arguments in writing to attempt to persuade
the patent  examiner to allow the  rejected  claims or may amend those claims to
attempt to overcome the rejections.  If the applicants'  arguments or amendments
are  unsuccessful,  applicants  may appeal the  rejections  to the United States
Patent and Trademark  office board of patent appeals and  interferences,  to the
United  States  Court of Appeals  for the  federal  circuit,  and finally to the
United States Supreme Court. At any stage in this process, allowed claims may be
issued in a United States patent.

     Both  Viraplex(R) and  MTCH-24(tm)  have been available for some time under
different names in non-prescription  preparations for human use and the original
product patents have expired.  Applications claiming various uses of these drugs
have been filed.  See  "Certain  Relationships  and Related  Transactions".  The
United  States patent office has granted a patent for five patent claims for the
use of Viraplex(R) for treating herpes simplex conditions,  patent no. 4,810,707
dated March 7, 1989.  The European  patent  authorities  have also  accepted six
claims for the use of  Viraplex(R)  for treating  herpes simplex  infections.  A
Canadian patent has also been granted for Viraplex(R).  Patent  applications for
MTCH-24(tm)  for  the  following  four  uses  were  submitted  by  the  Company:
antiviral;  antibacterial;  antifungal  for humans;  and  antifungal for certain
harvested  products.  Patents have issued for antiviral uses, for  antibacterial
uses, and for antifungal uses for human application of MTCH-24(tm). A patent for
antiviral uses of MTCH-24(tm) has been granted in Canada,  patent no.  1,256,032
granted  6/20/89.  Some foreign  patent  rights have lapsed due to the Company's
inability to pay for foreign maintenance fees and translations.  There can be no
assurance  that any patent  that has been or may be granted or  obtained  by the
Company in the future will be  enforceable  or will  provide  the  Company  with
meaningful  protection  from  competition  or claim all the intended uses of its
products. It is also not possible to predict with any certainty the time it will
take for patents to issue or be finally rejected. See "Certain Relationships and
Related Transactions."

     In addition, there can be no assurance that the Company's products will not
infringe  upon the  rights  of any  patent  holder  or that any suit by a patent
holder  would not be  successful.  The failure to  successfully  defend a patent
infringement action could have materially adverse  consequences for the Company.
In the event any of the Company's  products were found to infringe any patent or
rights of others,  there can be no assurance  that the Company  would be able to
obtain any necessary  licenses on reasonable  terms, if at all. If such licenses
could not be  obtained  the  Company  would be unable  to  market  the  affected
products.   See   "Competition"   and   "Certain   Relationships   and   Related
Transactions".


                                      (20)




<PAGE>
             


Item 2. Properties
------------------

     The  administrative  offices  of the  Company  are  located at 10105 E. Via
Linda, #103-382, Scottsdale, AZ 85258.

     The Company's clinical research,  upon the receipt of refinancing,  if any,
will be conducted on a fee basis by licensed clinical research facilities.

Item 3. Legal Proceedings
-------------------------

     On April 20, 1992,  Petro-Med Inc. filed a voluntary  Chapter ll bankruptcy
petition under the United States  bankruptcy  code, case number  la-92-25591-br.
This case was  converted  to a Chapter VII on August 26,  1992.  This filing was
made in the United States  bankruptcy  court,  central  district of  California.
Management lacks  sufficient  information at this time to determine the ultimate
effect of this filing on the Company's  operations,  although it may result in a
change of control.

     On August 18, 1988, Sergei  Givotovsky  commenced an action entitled Sergei
Givotovsky against Gerald N. Kern, Petro-Med Inc. and Meditech Pharmaceutical's,
Inc. in the United States  district  court,  southern  district of New York. Mr.
Givotovsky  seeks damages for an alleged breach of a settlement  agreement among
the parties and for fraud, among other things. See security ownership of certain
beneficial  owners  and  management.  Mr.  Givotovsky  is  seeking  the value of
1,669,293  shares  of the  Company's  common  stock  but in no event  less  than
$625,000 plus interest,  plus $128,000,  a constructive trust on future sales of
Meditech stock,  $1,000,000 in punitive damages,  plus legal fees,  interest and
expenses.  The  Company,  Petro-Med  and  Gerald N.  Kern have  cross-complained
against Mr.  Givotovsky  and intend to vigorously  defend against the complaint.
The entire matter is inactive and has been off calendar for  approximately  four
years.  Management  lacks  sufficient  information  at this time to evaluate the
amount,  if any,  for  which  the  Company,  Petro-Med  or Gerald N. Kern may be
liable.

     Management is not aware of any other material  litigation  pending  against
the Company or its properties.

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

     None.

                                      (21)




<PAGE>


                                    PART II

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

     The Company's  common stock is traded on the  over-the-counter  market.  On
August 29,  1996,  the  average  closing  bid price for the common  stock of the
Company  was $.02.  The high and low  closing  bid prices  therefore  during the
quarterly fiscal periods indicated were as follows:

Quarter Ended                          Low Bid                   High Bid
-------------                          -------                   --------

February 28, 1993                        .01                      .08
May 31, 1993                             .03                      .07
August 31, 1993                          .03                      .07
November 30, 1993                        .03                      .05

February 28, 1994                        .02                      .03
May 31, 1994                             .02                      .03
August 31, 1994                          .025                     .05
November 30, 1994                        .02                      .02

February 28, 1995                        .02                      .02
May 31, 1995                             .015                     .015
August 31, 1995                          .015                     .022
November 30, 1995                        .01                      .02

February 29, 1996                        .01                      .015
May 31, 1996                             .01                      .14
August 31, 1996                          .02                      .07
November 30, 1996                        .01                      .04

February 28, 1997                        .01                      .03
May 31, 1997                             .01                      .03
August 29, 1997                          .01                      .03
 
Some of the above prices reflect  inter-dealer  prices,  without retail mark-up,
mark-down or commission and may not necessarily  represent actual  transactions.
The  Company's  common stock was reported on Nasdaq  through  April 30, 1986, at
which time it was  deleted  because of failure to meet the  minimum  capital and
surplus and asset requirements of the Nasd by-laws.

     As of August 29, 1997,  there were 3208 holders of record of the  Company's
outstanding shares of common stock.

     The  Company  has not paid any  dividends  to its  shareholders  and has no
present intention of changing this policy.

Item 6. Selected Financial Data
-------------------------------

     The following  consolidated  selected financial data, insofar as it relates
to each of the fiscal  years ended May 31, 1983 through  1996,  has been derived
from annual financial  statements  including the consolidated  balance sheets at
May 31, 1996, and 1997, and the related consolidated  statements of net loss and
deficit accumulated during development stage, of shareholder's  equity (deficit)
and of changes in cash for the  fourteen  fiscal  years  ended May 31,  1997 and
notes thereto  appearing  elsewhere herein.  This information  should be read in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" and the consolidated  financial  statements and notes
thereto.

                                      (22)
<PAGE>
<TABLE>
<CAPTION>
                                                   From
                                               May 4, 1982      Twelve month    Twelve month     Twelve month     Twelve month    
                                              (Inception) to    period ended    period ended     period ended     period ended
                                               May 31, 1983     May 31, 1984    May 31, 1985     May 31, 1986     May 31, 1987
                                               ------------     ------------    ------------     ------------     ------------
<S>                                           <C>              <C>              <C>                <C>            <C>   
Results of Operations:
Net loss and deficit accumulated
 during development stage                     ($ 1,022,600)    ($ 1,338,400)    ($ 1,794,100)      (1,533,800)    ($ 1,880,200)

Net loss and deficit accumulated
 during development stage per
 share of common stock                               (0.02)           (0.02)           (0.03)           (0.02)           (0.02)

Consolidated Balance Sheet Data:
                                               May 31, 1983     May 31, 1984     May 31, 1985     May 31, 1986     May 31, 1987
                                               ------------     ------------     ------------     ------------     ------------

Working Capital (deficit)                     ($   653,100)     $ 1,732,600     ($    95,900)    ($ 1,536,900)    ($ 1,580,000)

Total assets                                   $   270,600      $ 1,052,800      $   456,500      $   270,400      $   110,900

Long-term debt                                        --        $    20,100      $    16,800      $    13,400      $     4,600

Total liabilities                              $   715,800      $    65,700      $   392,200      $ 1,571,700      $ 1,622,100

Shareholders' equity (deficit)                ($   445,200)     $ 1,887,100      $    64,300     ($ 1,301,300)    ($ 1,848,200)

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

                                               Twelve month       Twelve month     Twelve month      Twelve month      Twelve month
                                               period ended       period ended     period ended      period ended      period ended
                                               May 31, 1988       May 31, 1989     May 31, 1990      May 31, 1991      May 31, 1992
                                               ------------       ------------     ------------      ------------      ------------
Results of Operations:
Net loss and deficit accumulated
 during development stage                         (4880,200)      ($  641,400)      ($  522,100)      ($  479,100)      ($  483,100)

Net loss and deficit accumulated
 during development stage per
 share of common stock                                (0.01)            (0.01)            (0.01)            (0.01)            (0.01)

Consolidated Balance Sheet Data:
                                                May 31, 1988      May 31, 1989      May 31, 1990      May 31, 1991      May 31, 1992
                                                ------------      ------------      ------------      ------------      ------------

Working Capital (deficit)                      ($ 2,154,100)     ($ 2,545,000)     ($ 3,053,100)     ($ 3,457,400)     ($ 3,911,400)

Total assets                                    $    59,000       $    86,800       $    35,600       $     5,300       $    26,800

Long-term debt                                  $         0       $         0       $         0       $         0       $         0

Total liabilities                               $ 2,163,900       $ 2,597,100       $ 3,054,900       $ 3,462,100       $ 3,935,300

Shareholders' equity (deficit)                 ($ 2,577,400)     ($ 2,698,800)     ($ 3,210,300)     ($ 3,648,100)     ($ 4,099,800)

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           From
                                      Twelve month       Twelve month     Twelve month   Twelve month    Twelve month  May 4, 1982
                                      period ended       period ended     period ended   period ended    period ended (inception) to
                                      May 31, 1993       May 31, 1994     May 31, 1995   May 31, 1996    May 31, 1997  May 31, 1997
                                      ------------       ------------     ------------   ------------    ------------  ------------ 
Results of Operations:
Net loss and deficit accumulated
 during development stage             ($   449,400)      ($   753,900)   ($   515,600)   ($   501,600)  ($    957,400) ($13,579,000)

Net loss and deficit accumulated
 during development stage per
 share of common stock                       (0.01)             (0.01)          (0.01)          (0.01)          (0.01)        (0.01)

Consolidated Balance Sheet Data:
                                      May 31, 1993       May 31, 1994    May 31, 1994    May 31, 1995    May 31, 1996  May 31, 1997
                                      ------------       ------------    ------------    ------------    ------------  ------------

Working Capital (deficit)             ($ 4,360,100)      ($ 4,897,600)   ($ 4,897,600)   ($ 5,390,100)  ($  5,900,100) ($ 6,429,700)

Total assets                           $     2,900        $     2,700     $     2,700     $     1,700    $      1,100   $       600

Long-term debt                         $         0        $         0     $         0     $         0    $          0   $         0

Total liabilities                      $ 4,360,800        $ 4,898,700     $  ,898,700     $ 5,399,700    $  5,900,700   $  6,430,30

Shareholders' equity (deficit)        ($ 4,549,200)      ($ 5,087,300)   ($ 5,087,300)   ($ 5,589,300)   ($ 6,090,900) ($ 6,621,000)

                                                              (23)
</TABLE>


<PAGE>
                                 



Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations
--------------------------------------------------------------------------------

Development Stage Activities
----------------------------

     The  Company  is in  the  development  stage  and  accordingly  has  had no
significant operating revenues. Its principal development activities from May 4,
1982  (inception)  through May 31, 1997, have been efforts to secure  financing,
create a management and business structure, and develop and test Viraplex(R) and
MTCH-24(tm).  These  efforts  have been  hampered  by the  voluntary  bankruptcy
petition filed by Petro-Med.  See "Legal Proceedings".  The Company has directed
and will  direct its  attention  to, upon the  receipt of  refinancing,  if any,
developing  and  bringing to market as rapidly as possible  the OTC products and
the agricultural  products.  See  "Business-General,"  "Business-Marketing"  and
"Liquidity and Capital Resources."

     From  inception  in  May,  1982,   through  May  31,  1997,   approximately
$11,542,800 had been expended by the Company in carrying out activities relating
to the research, development and testing of and MTCH-24(tm). This total includes
$1,347,800  for  clinical   trials,   $489,300  for  research  and  development,
$4,620,700 for compensation, $1,276,600 for professional fees and $3,808,400 for
general and  administrative  expenses,  including fees to consultants.  For this
period,  approximately $2,883,600 (including accrued but unpaid compensation for
this period)  representing  27.1% of the total  expenditures set forth above was
used to pay  compensation  to officers  of the  Company.  

Liquidity and Capital Resources
-------------------------------

     Initially  the Company  funded its  activities  through a note payable to a
bank, advances from principal shareholders and subordinated debt. In early 1983,
a private offering was undertaken yielding net proceeds of $531,400.  Since that
time the Company has financed its development activities from the $3,413,000 net
proceeds  of its July,  1983  public  offering,  minimum  royalties  from  Viral
Research   Technologies,   Inc.  and  advances  from   Petro-Med  (see  "Certain
Relationships  and Related  Transactions").  At May 31, 1997,  the Company had a
working  capital  deficiency  of  $6,429,700  and  a  shareholders'  deficit  of
$6,621,000.

     The  Company  requires  additional  funds  with  which  to  carry  out  its
operations and is now in discussions with a number of financing sources in order
to raise the needed capital. The Company requires approximately $3,000,000 in

                                      (24)




<PAGE>


financing  to  develop  and  market  proposed   over-the-counter  products  from
MTCH-24(TM)  to complete  and analyze the  Viraplex(R)  clinical  studies and to
begin  worldwide  efforts  to secure a licensee  or joint  venture  partner  for
marketing the drugs if and when  approved.  There can be no assurance  that such
funds will be  available.  Failure to receive  such funds would have  materially
adverse consequences for the Company.

     Because the party does not  presently  have product  liability  insurance,
claims  which  could  ordinarily  be  covered  by such  insurance  could  have a
materially  adverse effect on the liquidity and capital  resources and, perhaps,
the continued viability at the Company. No human testing of any of the Company's
products is presently being conducted. During the time when human testing of the
Company's products was performed,  it was performed by independent third parties
who were  required  to provide  the  Company  with proof of  adequate  liability
insurance. 

Inflation
---------

     The Company has no  experience  with  respect to the effect of inflation on
its business.  However, the pharmaceutical industry is well developed and, based
on management's understanding of industry experience, it believes that inflation
will not have a significant impact on the results of the Company's operations in
the future.

Item 8. Financial Statements and Supplementary Data
---------------------------------------------------

     The financial  statements  required by this item are set forth as indicated
in Item 14(a)(l).

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.
--------------------------------------------------------------------------------

     None.


                                    PART III

Management
----------

Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------

     The  present  directors  and  executive  officers of the Company are listed
below,  together  with brief  accounts of their  experience  and  certain  other
information.

                                      (25)




<PAGE>


                                                                      
                                                                      Year    
                                                                      First 
Name                               Age        Office                  Elected
----                               ---        ------                  -------
 
Gerald N. Kern                     59         Chairman of the Board   1982
                                              of Directors
Stanton G. Axline, M.D.            62         Medical Director        1983

Cynthia S.Kern                     47         President, Chief        1995
                                              Executive Officer,
                                              Acting Chief Financial
                                              Officer

                                              Secretary               1983

Lester F. Goldstein, Ph.D.         53         Director                1983

Harry Hall                         62         Director                1990

     All officers serve at the pleasure of the board.  Directors serve until the
next annual meeting of shareholders  and until their  respective  successors are
elected and qualified.

Business Experience of Directors and Executive Officers
-------------------------------------------------------

     Gerald N. Kern is chairman of the Company. Mr. Kern served as President and
Chief Executive  officer until September,  1995. He is also Chairman,  President
and Chief  Executive  Officer of Viral Research  Technologies,  Inc., a minority
owned  subsidiary of the Company.  Since February,  1983, Mr. Kern has also been
Chairman,  President and Chief  Executive  Officer of  Petro-Med,  the principal
shareholder of the Company. Petro-Med has filed a Chapter XI bankruptcy petition
which  was  converted  to a Chapter  VII on August  26,  1992.  He is  currently
President  and  Chief  Executive  Officer  of  Gumtech  International,  Inc.,  a
manufacturer of nutrient chewing gum products. From September,  1994, to August,
1996, Mr. Kern was President of Aura Interactive,  an international exectronics
firm  based in El  Segundo,  California.  See  "Security  Ownership  of  Certain
Beneficial Owners and Management."

     Mr.  Kern has  been an  officer  and  director  of the  Company  since  its
formation in May, 1982. From 1981 through April, 1982, Mr. Kern was President of
HJK Consulting,  Inc., a marketing  consulting Company  specializing in consumer
products  marketing.  During  1980,  Mr. Kern was  President  of Philip  Merrill
International Ltd., a subsidiary of Parfums Lamborghini, and was responsible for
product development, sales and marketing. From 1978 to 1979, he was assistant to
the President and was Executive Vice President of the United States division of

                                      (26)




<PAGE>


Max  Factor & Co. in charge of sales,  marketing  and  general  management,  in
addition to being head of the worldwide  military and "PX" divisions.  From 1967
to 1977, Mr. Kern was employed by  International  Playtex,  Inc. in a variety of
positions  including  Vice  President  and General  Sales Manager of the branded
apparel division, and General Manager of Playtex, Ltd., Canada. Mr. Kern is also
currently the Chairman of the Board,  President,  Chief Executive  Officer and a
principal  shareholder of Skin Control Systems,  Inc., an inactive Company which
had  marketed  toiletries  and skin  care  products  for men,  and  Chairman,  a
principal  shareholder  and a consultant  to Mas  Industries,  Inc., an inactive
Company which had engaged in the marketing of cosmetic  products in the Hispanic
market. On April 20, 1992, Skin Control Systems,  Inc. filed a voluntary chapter
7 bankruptcy  petition  under the United  States  bankruptcy  code,  case number
la-92-25590-ag.  This  filing was made in the United  States  bankruptcy  court,
central  district of  California.  Skin Control  Systems has been  discharged in
bankruptcy.

Stanton G. Axline, M.D. has been medical director of the Company since December,
1983.  He also served as Executive Vice  President  and as a director from 1983
through 1989.  From November 1986 through  August 15, 1988,  Dr. Axline was also
medical editor of Lifetime Medical Television,  a cable television  broadcasting
Company.  He is currently in a private  medical  practice in internal  medicine.
From  November,  1982 until  December  1983, Dr. Axline was a consultant and the
medical director of the Company. From 1976 to 1982 he was Associate Professor of
Internal Medicine and Chief of the Infectious  Disease Section at the University
of Arizona  College of Medicine.  Concurrently,  he was Associate Chief of Staff
for research and  development  at the Veterans  Administration  Medical  Center,
Tucson,  Arizona.  From 1969 to 1976 he was  Assistant  Professor of Mdicine at
Stanford  University  Medical Center and Chief of the Infectious Disease Section
at the  Veterans  Administration  Medical  Center,  Palo  Alto,  California.  In
addition to his clinical interests and training in infectious  diseases,  he has
designed and conducted numerous  laboratory based and clinical research projects
related  to  the  clinical  pharmacology  of  antimicrobial   agents,   cellular
immunology,  and cell biology.  He obtained his B.S. and M.D.  degrees from Ohio
State  University and Ohio State University  College of Medicine,  respectively,
and received  post-doctoral  clinical and research training at the University of
Colorado Medical Center, Stanford University,  and Rockefeller University.  Over
the past year Dr.  Axline has devoted  less than 5% of his  working  time to the
affairs of the Company.

Lester F. Goldstein,  Ph.D. is currently a business technology consultant.  From
1992 to 1996, he served as a physicist for Aura  Systems,  Inc.,  and has served
there since 1992.  From 1989 to 1992, he served as the Senior Program Manager at
the TRW Applied  Technology  Division,  Space and Technology Group.  Previously,


                                      (27)




<PAGE>


from 1986 to 1989, he served as as Program Manager of high  technology  advanced
programs  in  the   Satellite  and  Space   Electronics   Division  of  Rockwell
International. He served as Director of Electro-Optics for the Satellite Systems
Division  of  Rockwell  International  from  1981 to 1985.  From 1985 to 1986 he
served as Chief  Scientist  in the  division.  He was  responsible  for managing
advanced technology,  planning and development for the division's programs. From
1978 to 1981 he was Program Manager at Hughes Aircraft  overseeing various radar
and  sensor  projects.  Dr.  Goldstein  obtained  a  B.A.  degree  from  Hofstra
University in physics and  mathematics and M.S. and Ph.D degrees in physics from
Polytechnic  University  of New York.  He has been a director of Meditech  since
March, 1983.

Harry Hall has had more than 25 years of  experience  as a Senior  Executive  in
major consumer products  companies.  He is currently an Executive Vice President
of sales for Evan-Picone  and has served in that capacity since April,  1996. He
has served as  consultant  to industry  leaders in the  apparel and  non-durable
goods fields.  He is presently a Director of Petro-Med  Inc. and Viral  Research
Technologies, Inc.

Cynthia S.Kern has been  President,  Chief  Executive  Officer and Acting Chief
Financial  Officer since September,  1995. Mrs. Kern served as Vice President of
administration  from 1982 to 1995. She is the wife of Gerald N. Kern.  From 1979
to 1981 she served as an  Administrative  Assistant  with Edgar Rice  Burroughs,
Inc. from 1978 to 1979, she was an Executive Secretary with Max Factor & Co. Ms.
Kern devotes up to 50% of her working  time to the affairs of the  Company.  Ms.
Kern is also the Vice President, Secretary and Treasurer of Mas Industries, Inc.

Item 11. Executive Compensation
-------------------------------

     The following  table sets forth all cash  compensation  for the fiscal year
ended  May 31,  1997,  for (1) each of its  most  highly  compensated  Executive
Officers  whose  aggregate  cash  compensation  exceeded  $60,000  and  (11) all
Executive Officers of the Company as a group.

Name of
Individual or                           Capacities in
Persons in Group                        Which They Serve          Salaries
----------------                        ----------------          --------

Gerald N. Kern                          Chairman of the           $108,000 (1)
                                        Board/President/
                                        Chief Executive
                                        Officer
All Executive Officers                                            $153,000 (2)
  as a Group (2 persons)

                                      (28)





<PAGE>
<TABLE>
<CAPTION>

----------

(1)  Of the cash  compensation set forth for Mr. Kern,  $108,000 was accrued but
     unpaid.

(2)  0f the cash  compensation set forth for all executive  officers as a group,
     $153,000 was accrued but unpaid.  Directors who are not salaried  employees
     of the Company are  compensated  at the rate of $500 for each board meeting
     attended.

Employment Agreements
---------------------

     Employment  agreement  with  Gerald N. Kern.  The Company  entered  into an
employment  agreement  with Gerald N. Kern on November 17,  1982,  to employ Mr.
Kern as President and Chief  Executive  Officer,  which  agreement,  as amended,
provided for a term which ended December 31, 1991, at  compensation  of $108,000
per annum.  In  addition-to  any bonus Mr. Kern May receive  under the Company's
bonus plans, it is contemplated that if and when the Company becomes profitable,
Mr. Kern will receive a bonus in such amount as the Company's Board of Directors
shall  determine.  See  "Certain  Relationships  and Related  Transactions"  for
information relating to the grant of an option to Mr. Kern to purchase 8,000,000
shares of the Company's common stock and his exercise of the option.

     The  Company  maintains  a bonus  plan which  contemplates  that 10% of the
Company's  net pre-tax  earnings  will be set aside each year for bonuses to key
personnel  including  Gerald N. Kern and Dr. Axline.  Because of the absence of
earnings  since  inception of the Company,  no amounts have been accrued or paid
under such plan.

     The  Company   also   employs   Cynthia  s.  Kern  as  Vice   President  of
Administration  and  Secretary  at a salary  of  $45,000  per  annum and the law
offices of Robert M. Kern as general counsel at a retainer of $36,000 per annum.
see  "Certain  Relationships  and  Related  Transactions."  The  Company  has no
employment contract with Cynthia S.Kern or Robert M. Kern.

Stock Options
-------------

     The following table reflects certain information  relating to non-qualified stock options 
granted to executive officers and directors of the Company through August 1, 1996:

                                         No. of Shares         Exercise
Name of                  Date of          Subject to            Price           Expiration
Individual                Grant             Option            Per Share            Date
----------                -----             ------            ---------            ----

<S>                   <C>                  <C>                   <C>          <C> 
Gerald N. Kern        Mar. 23, 1988        3,000,000(1)          $0.08         Mar. 24, 1993
                      Dec. 18, 1986        8,000,000(2)          $0.01         Dec. 17, 1991
                      Apr. 3, 1987           500,000(3)          $0.04         Apr. 2, 1992

                                      (29)




<PAGE>
                                                                                            
                                         No. of Shares         Exercise                     
Name of                  Date of          Subject to            Price           Expiration 
Individual                Grant             Option            Per Share            Date     
----------                -----             ------            ---------            ---- 
   
Lester F. Goldstein   Aug. 16, 1985        100,000(3)          $0.0233        Aug. 15, 1990 
                      Apr. 3, 1987         250,000(3)          $0.04          Apr. 2, 1992

Stanton G. Axline     Aug. 16, 1985      1,000,000(3)          $0.0233        Aug. 15, 1990 
                      Apr. 3, 1987         250,000(3)          $0.04          Apr. 2, 1992

Cynthia S. Kern       Apr. 3, 1987         250,000(3)          $0.04          Apr. 2, 1992

----------

(1)  This option,  which has expired, was granted to Gerald N. Kern by Petro-Med
     to purchase shares of the Company's common stock owned by Petro-Med.

(2)  This option was exercised March 1, 1989.

(3)  These options were not exercised and have expired.


Item 12. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

     As of August 31, 1997, Petro-Med owned 26,256,794 shares of common stock of
the  Company,   which  constitutes   approximately  22.82%  of  the  issued  and
outstanding  stock of the Company.  Petro-Med  has filed a Chapter XI bankruptcy
petition which was converted to a Chapter VII on August 26, 1992.





                                      (30)



</TABLE>

<PAGE>


     Petro-Med  has been  delinquent  for some years in making  filings with the
Securities and Exchange  Commission  required by the Securities  Exchange Act of
1934. The delinquencies  pre-date by a number of years the acquisition by Gerald
N. Kern of substantial holdings in, and control of, Petro-Med. Mr. Kern has been
attempting since 1983 to rectify Petro-Med's filing deficiencies.  Petro-Med had
engaged in discussions with the staff of the Securities and Exchange  Commission
with respect to compliance.  The staff indicated to Petro-Med's  counsel that it
would likely seek injunctive relief against  Petro-Med,  requiring  Petro-Med to
make  timely  filings in the  future.  See  "Certain  Relationships  and Related
Transactions"  for  information  relating  to  transactions  between  Mr.  Kern,
Petro-Med and the Company during the last five years.

     The following table sets forth, as of August 31, 1996, certain  information
concerning  the  ownership  of shares of the  Company's  common stock by persons
owning  more  than 5% of the  outstanding  shares  of the  common  stock and the
directors of the Company and by directors and officers as a group.

                                    Shares Owned
                                   and/or Subject
Name and Address                    to Presently              Percentage of
of Beneficial Owner              Exercisable Options        Outstanding Shares
-------------------              -------------------        ------------------

Petro-Med Inc.                      26,256,794 (3)                22.82%
10105 E. Via Linda, 103-382
Scottsdale, AZ  85258

Lester F. Goldstein                    750,000                      .65%
10892 Marietta Avenue
Culver City,
California 90230

Harry Hall                             350,000                      .30%
10105 E. Via Linda, 103-382 
Scottsdale, AZ  85258      

Cynthia S. Kern                      1,200,000 (1)                 1.04%
10105 E. Via Linda, 103-382
Scottsdale, AZ  85258      

Gerald N. Kern                       5,300,000                     4.61%
10105 E. Via Linda, 103-382 
Scottsdale, AZ  85258       



                                      (31)



<PAGE>

                                    Shares Owned
                                   and/or Subject
Name and Address                    to Presently              Percentage of
of Beneficial Owner              Exercisable Options        Outstanding Shares
-------------------              -------------------        ------------------

Petro-Med and all directors 
and officers as a group 
(5 persons)                       33,856,794 (2)(3)               29.42%

----------

(1)  Mr.  Gerald N. Kern  disclaims  ownership of these shares of the  Company's
     common stock owned by his wife.

(2)  Includes  shares of the Company's  common stock owned by Petro-Med  because
     Mr. Kern, as owner of approximately 16% of the outstanding common stock and
     as Chairman,  President and Chief  Executive  Officer of Petro-Med,  may be
     deemed to have shared  voting  power with respect to the  Company's  common
     stock owned by that entity.

(3)  Petro-Med is  currently in Chapter VII  bankruptcy.  A  disposition  of the
     shares held by Petro-Med by the  bankruptcy  court could result in a change
     of  control.  See below  for  information  relating  to a claim  which,  if
     successful, could also decrease Petro-Med's ownership of the common stock.

  



                                    (32)




<PAGE>


     The  directors  of  Petro-Med  are  Gerald  N. Kern,  Harry  Hall and Jerry
Tennant.  Gerald N. Kern is the Chairman,  President and Chief Executive Officer
of  Petro-Med. 

     Petro-Med  may be deemed a "parent" or  "promoter" of the Company under the
Securities Act of 1933. Gerald N. Kern May be deemed a "parent" or Petro-Med and
therefore  a "parent"  of the  Company  under the  Securities  Act or 1933.  See
"Directors and Executive Officers of the Registrant" and "Certain  Relationships
and Related Transactions."

     In August,  1985 the Company and Petro-Med  entered into one agreement (the
"Settlement  Agreement  I"), and Gerald N. Kern  entered into another  agreement
(the  "Settlement  Agreement  II"),  with Sergei  Givotovsky,  a shareholder  of
Petro-Med and a former  shareholder  of the Company.  These  agreements  settled
prior disputes between the parties to the agreements.

     Pursuant  to the  Settlement  Agreement  I, Mr.  Givotovsky  has a right to
acquire  1,669,293  shares of the  Company's  Common  Stock held by Petro-Med in
exchange for 841,820 shares of Petro-Med's  common stock held by Mr. Givotovsky.
All of these  shares have been  deposited  into escrow.  Petro-Med  deposited an
additional  3,338,586  shares of the Company's Common Stock into the same escrow
as collateral for certain of its obligations  under the Settlement  Agreement I.
The  monthly   exchanges  were  to  consist  of  approximately   22,449  of  Mr.
Givotovsky's  Petro-Med  shares for 44,516 shares of the Company's Common Stock.
Mr.  Givotovsky has the right to require Petro-Med to sell the Company's shares,
and upon  refinancing  of the  Company  or  Petro-Med,  if any,  Petro-Med  will
guarantee  a price per  share of $.3744  (to be  increased  annually  by 9% from
August,  1985).  Petro-Med has the right, in lieu of selling any Common Stock at
less than the  guaranteed  price,  to retain such shares for its own account and
pay Mr.  Givotovsky  the  guaranteed  price.  In  addition,  Mr.  Givotovsky  is
permitted to pay a certain  amount in lieu of an exchange and Petro-Med will not
have to deliver the Company's  shares  relating to such payment.  Certain events
may allow  revisions in the number of shares to be exchanged on any  installment
date.  Mr.  Givotovsky  has  registration  rights with respect to the  Company's
shares under certain conditions.

     Under the Settlement Agreement II, Mr. Givotovsky agreed to transfer to Mr.
Kern,  on an  installment  basis and upon  satisfaction  of certain  conditions,
841,820 shares of Petro-Med's  common stock which were placed in escrow.  76,347
shares would be released  quarterly  until all shares had been  delivered to Mr.
Kern.  Mr.  Givotovsky  is permitted to pay an amount equal to $.45 per share in
place of having an installment of Petro-Med's shares released from escrow.

                                      (33)





<PAGE>


     Mr.  Givotovsky  has claimed that  Petro-Med is in breach of the settlement
Agreement  1. As a result no  exchanges  or sales of stock have  occurred  under
either  agreement  and all of the shares  remain in escrow.  The  management  of
Petro-Med does not believe it is in breach of the agreement.

     On August 12, 1988,  Mr.  Givotovsky  instituted  legal action against the
Company,  Petro-Med and Gerald N. Kern. the lawsuit alleges, among other things,
a breach of the settlement  agreement 1 and fraud. Mr. Givotovsky is seeking the
value of  1,669,293  shares of the  Company's  common stock but in no event less
than $625,000 plus interest,  $128,000,  a constructive trust on future sales of
Meditech stock and $1,000,000 in punitive damages. See legal proceedings. If the
result of such action is a final  determination  that Mr. Givotovsky is entitled
to  ownership  of the entire  5,007,879  shares of the  Company's  common  stock
presently held in the escrow account,  Mr.  Givotovsky  would then own 4.35% and
Petro-Med would own 18.47% of the outstanding common stock of the Company.

     The following table sets forth, as of August 31, 1994, the shares of common
stock of  Petro-Med  owned of record and  beneficially  by the  directors of the
Company and by all such officers and directors of the Company as a group:

                                                                 Percentage
Name                                     Shares Owned             of Class
----                                     ------------             --------

Gerald N. Kern                           3,613,840 (1)             15.85%

Lester F. Goldstein                          8,000                   .04%

All directors and officers
as a group (4 persons)                   3,621,840                 15.89%

----------

(1)  2,087,270 shares are owned by FSL Cosmetics,  Ltd., of which Gerald N. Kern
     is the sole  shareholder.  Cynthia S. Kern,  as the wife of Gerald N. Kern,
     may be deemed,  because of  California  community  property  laws,  to be a
     beneficial owner of 50% of the shares owned by Mr. Kern.

                                      (34)





<PAGE>


     Except for Gerald N. Kern,  the above table does not include  those persons
who own beneficially more than 5% of Petro-Med's  outstanding common stock which
persons are Sergei Givotovsky  1,683,640 shares: and Lakestone Acceptance Corp.,
1,37O,000  or  approximately  7.4%,  and 6%,  respectively.  The  shares  of Mr.
Givotovsky are subject to the agreements described above.

Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------

     On July 24, 1982, Petro-Med Inc. and the shareholders of Medical Technology
Corporation of America, Inc. ("MTCA"), the Company's  predecessor,  entered into
an agreement (the "Option  Agreement")  whereby Petro-Med  obtained an option to
acquire all the  outstanding  shares of MTCA. The  consideration  for the Option
Agreement  was a loan of  $295,000  to MTCA and the  payment  of  $5,000  to the
shareholders  of MTCA.  Funds for the $295,000  loan were  obtained by the prior
management of Petro-Med,  from a private placement of Petro-Med stock. Gerald N.
Kern had no  relationship  with, and had not engaged in any  transactions  with,
Petro-Med  prior to July 24, 1982.  The $295,000 loan to MTCA was evidenced by a
promissory note dated August 5, 1982 which provided for the payment of principal
on August 5, 2002 and  annual  interest  payments  thereon at the rate of 9% per
annum commencing  August 5, 1983. The Option  Agreement  provided that Petro-Med
could  convert  the  $295,000  note into 5% of the  equity of MTCA.  The  Option
Agreement  also  provided  that in the  event  of the  exercise  of the  option,
Petro-Med would issue to the MTCA shareholders 51% of the outstanding  shares of
the common stock of  Petro-Med  in exchange  for all of the shares of MTCA.  The
principal shareholders of MTCA at the time were Business Development Associates,
Inc. (controlled by Joseph Michaelson,  Ph.D.), FSL Cosmetics,  Ltd. (controlled
by Gerald N. Kern),  Sergei  Givotovsky,  and Lakestone  Acceptance  Corporation
(controlled by Lewis H.  Rosenberg).  Gerald N. Kern and Lewis H. Rosenberg were
officers  and  directors  of  MTCA  at the  time of the  transaction.  MTCA  and
Petro-Med had no board members in common at that time.  The purpose of the above
transactions  was to provide  funding for the continued  operation of MTCA.  The
Company believes that the  consideration to MTCA for the option was as favorable
as could be obtained from other  companies  with which MTCA was  negotiating  at
that time. No independent valuation of the option granted to Petro-Med was





                                      (35)




<PAGE>


established.  MTCA's  significant  asset was its right to Viraplex(R)  which Dr.
Michaelson had previously purported to assign to MTCA as its sole inventor.
                                      








                                      (36)




<PAGE>


     Petro-Med  exercised its option under the Option  Agreement and on February
5,  1983  acquired  all the  issued  and  outstanding  shares  of MTCA  from its
shareholders in exchange for 11,378,225 shares (51%) of Petro-Med.  The $295,000
promissory  note was cancelled and the principal  amount deemed added to paid-in
capital  of MTCA.  See  "Security  Ownership  of Certain  Beneficial  Owners and
Management".

     On March 21, 1983,  Meditech  Pharmaceuticals,  Inc. was incorporated under
the laws of the state of Nevada and on the same date acquired all the issued and
outstanding shares of MTCA and a $48,000 capital  contribution from Petro-Med in
exchange for  48,000,000  shares of its common stock.  This  reorganization  was
entered into at the request of the  underwriter  for the initial public offering
of the Company based upon the belief that it would reduce state  franchise taxes
and related expenses during the development  stage. Board members of the Company
with an interest in the  transaction  were Gerald n. Kern and Lewis H. Rosenberg
who were  principal  shareholders,  officers  and  directors of  Petro-Med.  See
"Security Ownership of Certain Beneficial Owners and Management".

     In March,  1983,  Petro-Med  loaned the Company $100,000 for one year, with
interest  payable  at a rate  equal to one  percent  above the prime rate at the
Wells Fargo Bank in San Francisco,  California. During the second half of fiscal
1984,  this loan was repaid in full and from time to time since then the Company
has  advanced  funds and has had funds  advanced  to it on an  unsecured  demand
basis, at 9% per annum, to and from Petro-Med. The purpose of these advances was
to allow the Company to continue its operations.  A substantial portion of these
funds was obtained by  Petro-Med  through  exempt  private  sales of  restricted
stock, sales pursuant to exemption from registration under the Securities Act of
1933, by virtue of rule 144 promulgated  under that Act, of the Company's common
stock owned by Petro-Med  and loans to  Petro-Med.  $559,990 of amounts owed by
the Company to Petro-Med was converted into 10,000,000 shares of common stock in
June, 1986 at the request of the Company's then proposed underwriter. At May 31,
1997,  the Company was indebted to Petro-Med in the principal sum of $2,753,500.
see "Management's  Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." At the time such loans were made,
Gerald N. Kern was the only common  director of the Company and  Petro-Med.  The
entire  balance in loans is repayable  with interest at 9% per annum as follows:
$36,000 on the second  anniversary  date of the  Company's  refinancing  and the
balance on demand. Petro-Med obtained these funds through borrowings convertible
into  and/or  options  to  purchase  an  aggregate  of  1,533,333  shares of the
Company's common stock presently owned by Petro-Med,  and through exempt private
sales and rule 144 sales of  restricted  shares of common  stock of the  Company
owned by Petro-Med.

                                      (37)




<PAGE>


     The Company  had also  advanced  funds on an  unsecured  demand  basis with
interest at approximately 12.5% per annum, to Skin Control Systems, Inc. and has
Industries, Inc. The purpose of such loans was to induce those Companies to make
their employees available to the Company for marketing,  product development and
financial  planning.  Mas Industries,  Inc. and Skin Control  Systems,  Inc. are
presently  inactive and unable to repay these sums but have  indicated that they
will repay their respective indebtedness if and when they are able. Skin Control
Systems,  Inc. has been  discharged in  bankruptcy.  At May 31, 1986 the Company
wrote off a total of $55,600  representing  all principal  and accrued  interest
owed by Skin Control  Systems,  Inc. and Mas Industries,  Inc. In addition,  the
Company,  on the same  date,  wrote  off a total  investment  of  $8,000  in Mas
Industries,  Inc.  At the time the loans were made,  Gerald N. Kern was the only
common director of the Company,  Mas Industries,  Inc. and Skin Control Systems,
Inc.  Robert M.  Kern,  the son of Gerald N.  Kern and  General  Counsel  of the
Company,  was a director of Skin  Control  Systems,  Inc.  The Company  does not
intend to make loans to such affiliated entities in the future.

     In January, 1984 the Company made a loan to Gerald N. Kern in the amount of
$24,200. Mr. Kern has repaid the total indebtedness, including 10% interest. The
purpose of the loan was to accommodate the Company's  Chief  Executive  Officer.
The loan was approved by Stanton G. Axline and Lester F. Goldstein, as directors
of the  Company.  The Company has no policy  with  respect to granting  loans to
officers and  directors.  Each request is handled on an  individual  basis.  The
Company  believes  that  all of the  loans  to  officers  and  directors  are in
compliance  with applicable  state law. The Company has no present  intention to
make any  additional  loans to officers and  directors.  If, in the future,  the
Company is asked to make loans to officers or  directors,  the Company will take
into consideration its working capital and cash flow conditions at such time.

     In August,  1984,  Gerald Kern assigned to the Company all his rights as an
inventor of  Viraplex(R)  (which  include  the rights to make,  use and sell the
inventions embodied in patent applications relating to Viraplex(R), the right to
prosecute such patent applications in the United States Patent Office, including
the right to file continuations, divisions and foreign patent applications based
on the U. S. patent  applications,  all right,  title and interest in and to any
patent that issues from the U. S. or related applications,  the right to prevent
others from making,  using or selling the inventions embodied in the patent, and
the  rights to any  commercially  viable  products  resulting  from  testing  of
Viraplex(R)).  A  patent  application  had  initially  been  filed  showing  Dr.
Michaelson as the sole  inventor.  Thereafter,  litigation  with respect to this
patent  application and other matters  developed  among the Company,  Petro-Med,
Gerald  Kern,  Dr.  Michaelson  and  others.  In  partial   settlement  of  that
litigation, Dr. Michaelson agreed to recognize Mr. Kern as co-inventor of

                                      (38)





<PAGE>


Viraplex(R)  and to surrender to Petro-Med the shares of Petro-Med  common stock
which he had received in exchange  for the  assignment  of his patent  rights in
Viraplex(R).  The  settlement  was  approved  by Drs.  Axline and  Goldstein  as
directors or the  Company.  The shares or Petro-Med  stock so  surrendered  were
issued to fir.  Kern by  Petro-Med.  At the time of such  issuance  there was no
active  public  market for the common stock of Petro-Med  and, in addition,  the
shares issued to Mr. Kern were  "restricted'  securities"  under Rule 144 of the
Act. The Company  believes that the value of the Petro-Med  stock at the time of
such  issuance to Mr. Kern was  nominal,  Mr. Kern  received no cash or tangible
property from the Company in exchange tor the  assignment of his patent  rights.
Costs incurred by Mr. Kern in co-inventing Viraplex(R) were nominal. The purpose
or Mr. Kern's  assignment  was to confirm the Company's  rights to its principal
asset,  Viraplex(R).  The Company  required this additional  comfort when patent
counsel  determined  that Mr.  Kern  could be  deemed  the  sole  inventor  or a
co-inventor  of  Viraplex(R).  The  assignment  was approved by Drs.  Axline and
Goldstein, as directors of the Company.

     On November 7, 1984 Gerald Kern  assigned all of his rights as the inventor
of  MTCH-24(tm)  to the Company in exchange for an option to purchase  8,000,000
shares of the  Company's  Common Stock at $.02333 per share.  On that date,  the
closing bid price of the  Company's  Common Stock was $.344.  The purpose of the
agreement  was to give the  Company a second  drug to broaden  and  enhance  its
probability  of  success.  It was  approved  by Drs.  Axline and  Goldstein,  as
directors  of the  Company.  The  compensation  was based  upon the  independent
opinion of an  investment  banking firm.  The option  provided that it would not
vest until the FDA had granted all approvals  necessary to market MTCH-24(tm) to
the public for any use other than as a treatment  for Herpes  simplex  virus and
would not be  exercisable  until  gross  sales of  MTCH-24(tm)  reached  certain
specified  levels.  Costs  incurred by Mr. Kern in  inventing  MTCH-24(tm)  were
nominal.  On October 28, 1985 Mr. Kern and the Company entered into an agreement
whereby  the option to  purchase  8,000,000  shares was  rescinded  and Mr. Kern
purchased  8,000,000  shares of the Company's Common Stock. On December 18, 1986
the Company  entered into an agreement  with Mr. Kern pursuant to which Mr. Kern
agreed to return the 8,000,000 shares of the Company's  common stock,  $.001 par
value, to the Company,  a note receivable in the amount of $1,440,000  which Mr.
Kern had given in exchange for the  8,000,000  shares was cancelled and Mr. Kern
received an option to purchase  8,000,000  shares of the Company's common stock,
$.001 par value, for $.01 per share.  This option was exercised in March,  1989.
All patent  rights were thereby  vested in the Company.  Mr.  Kern's  employment
agreement  expired  December 31, 1991. The agreement was approved by Drs. Axline
and  Goldstein,  as directors  of the  Company.  See  "Directors  and  Executive
Officers of the Registrant - Executive Compensation".

                                      (39)




<PAGE>


     In  early  1983,  Petro-Med  entered  into  a  joint  venture  with  Aurora
Resources, Inc. in order to complete the joint venture, the Company guaranteed a
loan to Aurora of $100,000, upon which Aurora subsequently  defaulted.  The loan
was approved by Messrs.  Kern and Rosenberg and Dr.  Goldstein,  as directors of
the  Company.  Aurora's  sole  assets  were its rights to an  ethanol  plant and
related technology.  Aurora was indebted to the Company for the defaulted amount
of  $100,000  plus  interest.  The entire debt was written off by the Company in
February 1986 based upon adverse  developments in the ability of Aurora to repay
the note.

     Cynthia S. Kern has been employed as President, Chief Executive Officer and
Acting  Chief  Financial  Officer  since  September,  1995.  She  served as Vice
President of administration from 1982 to 1995 and has served as Secretary of the
Company since 1983 and presently draws a salary of $45,000 per annum. In August,
1993,  she purchased  3,000,000  shares of the Company's  common stock for total
consideration  of  $90,000.  She is the wife of Gerald N. Kern,  chairman of the
board,  President  and  Chief  Executive  Officer  of the  Company.  Ms.  Kern's
employment was approved by Mr. Rosenberg and Dr. Goldstein,  as directors of the
Company. She devotes up to 50% of her time to the affairs of the Company. Robert
M. Kern has been  employed as General  Counsel of the Company  since  September,
1984.  His present  retainer  is $36,000  per annum.  He is the son of Gerald N.
Kern. Board approval was not required  although it was received in March,  1985.
Robert M. Kern devotes up to 10% of his time to the affairs of the Company. Mrs.
Kern's and Mr.  Robert  Kern's  salaries and fees are based upon current  market
rates.

     For a description of employment  agreements between the Company and certain
officers,  see "Directors and Executive  Officers of the Registrant - Employment
Agreements."

     The  Company's   administrative   offices  are  located  at  10105  E.  Via
Linda,#103-382, Scottsdale, AZ 85258.  See "Business - Property".

                                      (40)




<PAGE>


                                     Part IV 



Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-k
-------------------------------------------------------------------------

     (a)  Documents filed with report:
          ---------------------------

          1.   Financial statements and financial statement schedules.

               The financial statements and financial statement schedules listed
               in the  accompanying  index to financial  statements are filed as
               part of this report.

          2.   Exhibits.

               The  exhibits  listed on the  accompanying  index to exhibits are
               filed as part of this report.

     (b)  Reports on Form 8-k
          -------------------

               None.

                                      (41)



<PAGE>


                                   Signatures

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


                                     Meditech Pharmaceuticals, Inc.

                                     by:  /s/ Cynthia S. Kern
                                        ----------------------------------------
                                        Cynthia S. Kern, President and 
                                        Chief Executive Officer, Acting 
                                        Chief Financial and Accounting
                                        Officer 

                                     Dated: September 8, 1997

     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 or the class indicated.


/s/  Gerald N. Kern                            Dated: Sept. 8, 1997
---------------------------------  
Gerald N. Kern, Chariman of           
The Board of Directors

 /s/  Cynthia N. Kern                          Dated: Sept. 8, 1997
---------------------------------
Cynthia S. Kern, President,
Chief Executive Officer and
Acting Chief Financial and
Accounting Officer

/s/  Harry Hall                                Dated: Sept. 8, 1997
---------------------------------
Harry Hall, Director

/s/  Lester F. Goldstein                       Dated: Sept. 8, 1997
---------------------------------
Lester F. Goldstein, Ph.D.
Director

                                      (42)




<PAGE>


                         MEDITECH PHARMACEUTICALS, INC.
                         ------------------------------

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES
                   ------------------------------------------

FINANCIAL STATEMENTS                                                 PAGE
--------------------                                                 ----
                                                                     
OPINION OF INDEPENDENT ACCOUNTANTS                                   F-l

CONSOLIDATED BALANCE SHEET -
 MAY 31, 1996 AND 1997                                               F-3

CONSOLIDATED STATEMENT OF NET LOSS AND DEFICIT
 ACCUMULATED DURING DEVELOPMENT STAGE FOR THE TWELVE
 MONTH PERIODS ENDED MAY 31, 1997, 1996, AND 1995                    F-4

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
 (DEFICIT) FROM MAY 4, 1982 (INCEPTION) TO
 MAY 31, 1997                                                        F-5

CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
 FOR THE TWELVE MONTH PERIODS ENDED MAY 31, 1997, 1996,
 AND 1995                                                            F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           F-9

FINANCIAL STATEMENT SCHEDULES
-----------------------------

AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
 UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER
 THAN RELATED PARTIES
 (SCHEDULE 11)                                                       F-23

PROPERTY, PLANT AND EQUIPMENT
(SCHEDULE V)                                                         F-24

ACCUMULATED DEPRECIATION, DEPLETION AND
 AMORTIZATION OF PROPERTY, PLANT AND
 EQUIPMENT (SCHEDULE Vl)                                             F-25




<PAGE>


                                ROY A. COHEN, CPA
                   8912 OAK TRAIL DRIVE, SANTA ROSA, CA 95409


                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------

THE BOARD OF DIRECTORS
MEDITECH PHARMACEUTICALS, INC.
  (A SUBSIDIARY OF PETRO-MED INC.)

I  HAVE  AUDITED  THE  ACCOMPANYING  CONSOLIDATED  BALANCE  SHEETS  OF  MEDITECH
PHARMACEUTICALS,  INC. AND ITS CONSOLIDATED  SUBSIDIARIES  ("COMPANY") AS OF MAY
31, 1995, AND MAY 31, 1996, AND THE RELATED  CONSOLIDATED  STATEMENT OF NET LOSS
AND DEFICIT  ACCUMULATED  DURING THE  DEVELOPMENT  STAGE,  SHAREHOLDERS'  EQUITY
(DEFICIT),  CHANGES IN FINANCIAL POSITION AND THE FINANCIAL  STATEMENT SCHEDULES
AS INDICATED IN THE ACCOMPANYING INDEX FOR THE YEARS ENDED MAY 31, 1994, MAY 31,
1995  AND MAY  31,  1996.  THESE  FINANCIAL  STATEMENTS  AND  SCHEDULES  ARE THE
RESPONSIBILITY OF THE COMPANY'S  MANAGEMENT.  MY RESPONSIBILITY IS TO EXPRESS AN
OPINION ON THESE FINANCIAL STATEMENTS AND SCHEDULES BASED ON MY AUDIT.

I CONDUCTED MY AUDIT IN ACCORDANCE WITH GENERALLY  ACCEPTED AUDITING  STANDARDS.
THOSE STANDARDS  REQUIRE THAT I PLAN AND PERFORM THE AUDIT TO OBTAIN  REASONABLE
ASSURANCE  ABOUT  WHETHER THE  FINANCIAL  STATEMENTS  AND  SCHEDULES 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.  I  BELIEVE  THAT MY AUDIT  PROVIDES  A  REASONABLE  BASIS  FOR MY
OPINION.

IN MY OPINION,  THE CONSOLIDATED  FINANCIAL STATEMENTS REFERRED TO ABOVE PRESENT
FAIRLY,  IN  ALL  MATERIAL   RESPECTS,   THE  FINANCIAL   POSITION  OF  MEDITECH
PHARMACEUTICALS,  INC. AND ITS  SUBSIDIARIES AS OF MAY 31, 1996, AND THE RESULTS
OF THEIR  OPERATIONS AND THE CHANGES IN THEIR  FINANCIAL  POSITION FOR THE YEARS
THEN ENDED IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. FURTHER,
IN MY OPINION,  THE  FINANCIAL  STATEMENT  SCHEDULES  REFERRED TO ABOVE  PRESENT
FAIRLY, IN ALL MATERIAL  RESPECTS IN RELATION TO THE FINANCIAL  STATEMENTS TAKEN
AS A WHOLE,  THE INFORMATION  STATED THEREIN IN CONFORMITY WITH THE REQUIREMENTS
OF THE SECURITIES AND EXCHANGE COMMISSION.

THE ACCOMPANYING  CONSOLIDATED  FINANCIAL STATEMENTS HAVE BEEN PREPARED ASSUMING
THAT THE COMPANY WILL CONTINUE AS A GOING  CONCERN.  AS DISCUSSED IN NOTE 2, THE
COMPANY HAS SUFFERED RECURRING LOSSES FROM OPERATIONS AND HAS A WORKING CAPITAL

                                    F-1 




<PAGE>


DEFICIT THAT RAISES  SUBSTANTIAL  DOUBT ABOUT ITS ABILITY TO CONTINUE AS A GOING
CONCERN.  MANAGEMENT'S  PLANS ABOUT THESE  MATTERS ARE  DESCRIBED IN NOTE 2. THE
FINANCIAL  STATEMENTS DO NOT INCLUDE ANY ADJUSTMENTS  THAT MIGHT RESULT FROM THE
OUTCOME OF THIS UNCERTAINTY.

AS DISCUSSED IN NOTE 13 TO THE CONSOLIDATED  FINANCIAL STATEMENTS,  THE COMPANY,
ITS CHAIRMAN AND PARENT COMPANY ARE DEFENDANTS IN A LAWSUIT ALLEGING BREACH OF A
SETTLEMENT  AGREEMENT AMONG THE PARTIES AND FOR FRAUD,  AMONG OTHER THINGS,  AND
CLAIMING THE VALUE OF  1,669,293  SHARES OF THE  COMPANY'S  COMMON STOCK HELD IN
ESCROW  BUT IN NO EVENT LESS THAN  $625,000  PLUS  INTEREST,  PLUS  $128,000,  A
CONSTRUCTIVE  TRUST ON FUTURE SALES OF THE COMPANY'S  STOCK,  PUNITIVE  DAMAGES,
LEGAL AND OTHER EXPENSES. THE COMPANY INTENDS TO VIGOROUSLY DEFEND THIS LAWSUIT.
THE  ULTIMATE  OUTCOME  OF  THE  LITIGATION   CANNOT  PRESENTLY  BE  DETERMINED.
ACCORDINGLY, NO PROVISION FOR ANY LIABILITY THAT MAY RESULT HAS BEEN MADE IN THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS.

IN CONNECTION  WITH THE  EXAMINATION,  I HAVE AUDITED THE STATEMENTS OF NET LOSS
AND DEFICIT  ACCUMULATED  DURING THE DEVELOPMENT  STAGE AND CHANGES IN FINANCIAL
POSITION, THE COMBINATION OF THE AMOUNTS FOR THE YEARS ENDED MAY 31, 1997, 1996,
1995,  1994,  1993,  1992, 1991, 1990, 1989, 1988, 1987, 1986, 1985, 1984, 1983,
AND MAY 4, 1982  (INCEPTION),  (ALL  EXAMINED  BY OTHER  AUDITORS,  EXCEPT  1989
THROUGH 1995), TO DISCLOSE THE DEVELOPMENT  STAGE ACTIVITIES OF THE COMPANY FROM
INCEPTION TO DATE AS REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. BASED
ON THIS REVIEW, I BELIEVE THAT THE COLUMN DESCRIBED AS DEVELOPMENT  STAGE PERIOD
FROM MAY 4, 1982,  TO MAY 31, 1997, IN THE  CONSOLIDATED  STATEMENTS OF NET LOSS
AND DEFICIT  ACCUMULATED  DURING THE DEVELOPMENT STAGE AND STATEMENTS OF CHANGES
IN FINANCIAL POSITION OF THE COMPANY ARE APPROPRIATELY PRESENTED.


                                     By: /s/  Roy A. Cohen
                                        ----------------------------------------
                                        ROY A. COHEN 
                                        CERTIFIED PUBLIC ACCOUNTANT



SANTA ROSA, CALIFORNIA 
----------------------
AUGUST 19, 1997

                                      F-2





<PAGE>
<TABLE>
<CAPTION>

                                    MEDITECH PHARMACEUTICALS, INC.
                                  (A Development-Stage Enterprise)
                                     CONSOLIDATED BALANCE SHEET
  
                                                                    May 31,                May 31,
                                                                     1997                   1996
                                                                 -----------             -----------

<S>                                                              <C>                     <C>   
ASSETS

Current assets:
  Cash, including interest-bearing accounts                             --
  Prepaid assets and other current assets                                600                     600
                                                                 -----------             -----------
          Total current assets                                           600                     600
Due from officer                                                        --
Equipment and furniture, net                                            --                       500
                                                                 -----------             -----------
TOTAL      
                                                                         600                   1,100
                                                                 ===========             ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Accounts payable and accrued expenses                              990,600                 902,600
  Accrued professional fees                                          635,300                 635,300
  Accrued laboratory expenses                                         33,900                  33,900
  Accrued compensation                                             1,946,000               1,740,600
  Advances from parent                                             2,753,500               2,517,300
  Advances from affiliate                                                  0                       0
  Current portion of long-term debt                                        0                       0
  Loan payable                                                        71,000                  71,000
                                                                 -----------             -----------
          Total current liabilities                                6,430,300               5,900,700

Long-term debt
                                                                 -----------             -----------
                                                                   6,430,300               5,900,700
                                                                 -----------             -----------
Minority interest                                                    191,300                 191,300

Commitments and contingencies

Shareholders' equity (deficit):
  Preferred stock - $.001 par value, 25,000,000 shares
    authorized, none issued or outstanding
  Common stock - $.001 par value,  400,000,000 shares
    authorized:  May 31, 1996, 103,676,625  shares
    issued and to be issued; May 31, 1997, 119,016,925
    shares issued and to be issued                                   119,000                 103,700
  Additional paid-in capital                                       6,839,000               6,427,000
  Deficit accumulated during development stage                   (13,579,000)            (12,621,600)
                                                                 -----------             -----------
          Total shareholders' equity (deficit)                    (6,621,000)             (6,090,900)
                                                                 -----------             -----------
TOTAL                                                                    600                   1,100
                                                                 ===========             ===========



                   See accompanying notes to consolidated financial statements 




                                           F-3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                           MEDITECH PHARMACEUTICALS, INC.
                                          (A Development-Stage Enterprise)
                                       CONSOLIDATED STATEMENT OF NET LOSS AND 
                                    DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE


                                                                                                           From
                                                      Twelve month     Twelve month    Twelve month     May 4, 1982 
                                                      period ended     period ended    period ended   (inception) to
                                                      May 31, 1995     May 31, 1996    May 31, 1997    May 31, 1997
                                                      ------------     ------------    ------------    ------------


<S>                                                   <C>               <C>            <C>              <C>    
Research and development expenditures                          --              --             --            489,300
                                                       -----------      -----------    -----------      -----------  

Clinical trials                                                --              --             --          1,347,800
                                                       -----------      -----------    -----------      -----------

Expenses for efforts to secure  financing,
  establish  affiliations with clinics
  and physicians and formulate a
  marketing strategy:

    Compensation                                            240,700         239,300        240,300        4,620,700
    Professional fees                                          --               300         91,400        1,276,600
    General and administrative                               24,300           6,300        339,600        3,808,400
                                                        -----------     -----------    -----------      -----------
                                                                                                     
                                                            265,000         245,900        671,300        9,705,700
Organization expenses                                          --              --             --             16,300
Loss on investments                                            --              --             --            120,100
Gain on sale of fixed assets                                   --              --             --               (500)
Lawsuit settlement                                             --              --             --             15,000
Write-off of uncollectible note
  receivable                                                   --              --             --            100,000
Interest expense                                            250,600         255,700        286,100        2,248,700
Interest income                                                --              --             --           (298,500)
Roaylty income                                                                                              (75,000)
Miscellaneous Income                                           --              --             --            (75,100)
Aborted stock offering costs                                   --              --             --            325,400
Gain on early extinguishment of debt                           --              --             --            (10,400)
Minority interest in net loss of subsidiary                    --              --             --           (329,800)
                                                        -----------     -----------    -----------      ----------- 
                                                                                                    

Net loss and deficit accumulated during
  development stage                                         515,600         501,600        957,400       13,579,000
                                                        ===========     ===========    ===========      ===========
Net loss and deficit accumulated during
  development stage
  per share of common stock                             $       .01     $       .01    $       .01      $       .16
                                                        ===========     ===========    ===========      ===========

Weighted average number of shares outstanding           103,296,012     103,676,625    117,060,454       86,564,767
                                                        ===========     ===========    ===========      ===========



                              See accompanying notes to consolidated financial statements 

                                             F-4


</TABLE>
                                               
<PAGE>
<TABLE>
<CAPTION>

                                                        MEDITECH PHARMACEUTICALS, INC.
                                                       (A Development-Stage Enterprise)
                                            CONSOLIDATED STATEMENT FO SHAREHOLDERS'EQUITY (DEFICIT)
                                                   May 4, 1982 (Inception) to May 31, 1997


                                                                                                Deficit
                                                                                              accumulated
                                                                    Additional     Common       during          Note
                                                                     paid-in       stock      development    receivable
                                                  Common stock       capital     subscribed      stage      from officer     Total
                                          ------------------------------------------------------------------------------------------
                                          Shares        Amount
                                          ------        ------
                                        (000's)
<S>                                      <C>           <C>          <C>           <C>         <C>           <C>          <C>      
   Balance at May 31, 1983                48,000        48,000       295,000       234,400    (1,022,600)         --       (445,200)

   Balance at May 31, 1984                66,115        66,100     4,182,000          --      (2,361,000)         --      1,887,100

   Balance at May 31, 1985                66,015        66,000     4,153,400          --      (4,155,100)         --         64,300

   Balance at May 31, 1986                74,015        74,000     5,753,600          --      (5,688,900)   (1,440,000)  (1,301,300)

   Balance at May 31, 1987                76,325        76,300     5,470,700          --      (7,395,200)            0   (1,848,200)

   Balance at May 31, 1988                78,231        78,200     5,909,800             0    (8,275,400)            0   (2,287,400)

   Balance at May 31, 1989                88,988        89,000     6,129,000             0    (8,916,800)            0   (2,698,800)

   Balance at May 31, 1990                89,088        89,100     6,139,500             0    (9,438,900)            0   (3,210,300)
Change in equity of subsidiary
  due to issuance of common stock           --            --            (700)         --            --            --           (700)
Common stock granted for services
  during Fiscal 1991                       3,000         3,000        39,000          --            --            --         42,000
Net Loss, year ended May 31, 1991           --            --            --            --        (479,100)         --       (479,100)
                                     -----------   -----------   -----------   -----------   -----------   -----------   -----------
   Balance at May 31, 1991                92,088        92,100     6,177,800             0    (9,918,000)            0   (3,648,100)
Change in equity of subsidiary
  due to issuance of common stock           --            --            --            --            --            --              0
Common stock granted for services
  during Fiscal 1992                        --            --            --            --            --            --              0
Sale of stock, February 1992               2,000         2,000        29,400          --            --            --         31,400
Net Loss, year ended May 31, 1992           --            --            --            --        (483,100)         --       (483,100)
                                     -----------   -----------   -----------   -----------   -----------   -----------   -----------
   Balance at May 31, 1992                94,088        94,100     6,207,200             0   (10,401,100)            0   (4,099,800)
Net Loss, year ended May 31, 1993           --            --            --            --        (449,400)         --       (449,400)
                                     -----------   -----------   -----------   -----------   -----------   -----------   -----------
   Balance at May 31, 1993                94,088        94,100     6,207,200             0   (10,850,500)            0   (4,549,200)
Common stock granted for services
  during Fiscal 1994                       7,105         7,100       195,000          --            --            --        202,100
Sale of Stock, April 1994                  1,400         1,400        12,300          --            --            --         13,700
Net Loss, year ended May 31, 1994           --            --            --            --        (753,900)         --       (753,900)
                                     -----------   -----------   -----------   -----------   -----------   -----------   -----------
   Balance at May 31, 1994               102,593       102,600     6,414,500             0   (11,604,400)            0   (5,087,300)
Sale of Stock, Fiscal 1995                 1,088         1,100        12,500          --            --            --         13,600
Net Loss, year ended May 31, 1995           --            --            --            --        (515,600)         --       (515,600)
                                     -----------   -----------   -----------   -----------   -----------   -----------   -----------
   Balance at May 31, 1995               103,681       103,700     6,427,000             0   (12,120,000)            0   (5,589,300)

Net Loss, year ended May 31, 1996                                                               (501,600)                  (501,600)
                                     -----------   -----------   -----------   -----------   -----------   -----------   -----------
   Balance at May 31, 1996               103,681       103,700     6,427,000             0   (12,621,600)            0   (6,090,900)

Common stock granted for services
  during Fiscal 1997                      15,335        15,300       412,000        (5,000)                                 422,300
Common stock subscriptions                                                           5,000                                    5,000
Net Loss, year ended May 31, 1997           --            --            --            --        (957,400)          --      (957,400)
                                     -----------   -----------   -----------   -----------   -----------   -----------   -----------
   Balance at May, 31 1997               119,016       119,000     6,839,000             0   (13,579,000)            0   (6,621,000)
                                     ===========   ===========   ===========   ===========   ===========   ===========   ===========



                                    See accompanying notes to consolidated financial statements.

                                                            F-5
</TABLE>

<PAGE>


<TABLE>
                                                   MEDITECH PHARMACEUTICALS, INC.
                                                  (A Development-Stage Enterprise)
                                      CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION

                                                                                          
                                                                                                                    From
                                                       Twelve month       Twelve month       Twelve month        May 4, 1982 
                                                       period ended       period ended       period ended      (inception) to 
                                                       May 31, 1995       May 31, 1996       May 31, 1997       May 31, 1997
                                                       ------------       ------------       ------------       ------------

<S>                                                      <C>                <C>                <C>              <C>   
Cash used for:

  Net loss                                                (515,600)          (501,600)          (957,400)       (13,579,000)
  Less items not affecting
    working capital -
     Loss on investments                                      --                 --                 --              120,100
     Depreciation and amortization                             500                600                500            174,100
     Common stock options issued
       below market price                                     --                 --                 --              726,200
     Stock grants                                             --                 --                 --              213,500
     Loss on disposal of fixed assets                         --                 --                 --               37,600
     Minority interest in loss of subsidiary                  --                 --                 --             (329,800)
     Subsidiary stock issued to minority                      --                 --                 --              284,600
     Subsidiary common stock options issued to
       minority issued below market price                     --                 --                 --              202,700
     Allocation to parent of additional
       paid-in capital from issuance of
       minority stock options and grants                      --                 --                 --             (274,000)
     Write-off Deferred stock offering costs                  --                 --                 --              154,300
                                                       -----------        -----------        -----------        -----------
  Cash used for development
    stage activities                                      (515,100)          (501,000)          (956,900)       (12,269,700)
  Long-term debt becoming current                             --                 --                 --               (1,500)
  Repayment of long-term debt                                 --                 --                 --              (25,800)
  Purchase of equipment, furniture
    and leasehold improvements                                --                 --                 --             (215,100)
  Investments                                                 --                 --                 --             (120,100)
  Reclassification of long-term
    advances from (repayments to)
    parent to short-term advances                             --                 --                 --              (54,500)
  Deferred offering costs                                     --                 --                 --             (154,300)

  Advances from (to) officer                                     0
                                                       -----------        -----------        -----------        -----------
                                                          (515,100)          (501,000)          (956,900)       (12,841,000)
                                                       -----------        -----------        -----------        -----------



                                See accompanying notes to consolidated financial statements.


                                                          F-6
</TABLE>

<PAGE>



<TABLE>
<CAPTION>

                                                   MEDITECH PHARMACEUTICALS, INC.
                                                  (A Development-Stage Enterprise)
                                      CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION

                                                                                                                 From
                                                      Twelve month       Twelve month      Twelve month       May 4, 1982 
                                                      period ended       period ended      period ended    (inception) to 
                                                      May 31, 1995       May 31, 1996      May 31, 1997      May 31, 1997
                                                      ------------       ------------      ------------      ------------


<S>                                                   <C>                <C>               <C>               <C>   
Cash provided by:
  Financing activities --
    Proceeds from long-term debt                             --                 --                --              27,300
    Advances from (repayments to)
      parent and affiliates                               197,400            215,900           236,200         2,650,500
    Issuance of (retirement of)
      common stock                                          1,100               --              15,300           119,000
    Additional paid-in capital                             12,500               --             412,000         5,632,900
    Increase in paid-in capital due to
      increase in equity of subsidiary
      due to issuance of common                              --                 --                --             274,100
    Proceeds from sale of warrants                           --                 --                --                 100
    Proceeds from sale of fixed assets                       --                 --                --               3,400
    Proceeds from minority investment in subs                --                 --                --             300,000
    Issuance of common stock for
      repayment of debt to parent                            --                 --                --            (559,900)
                                                      -----------        -----------       -----------       -----------
                                                          211,000            215,900           663,500         8,447,400

Add (subtract) changes in
  components of working capital
  other than cash -
Current portion of long-term debt                            --                 --                --                   0
Note payable                                                 --                 --                --                   0
Advances from parent                                         --                 --                --             717,400
Accounts payable                                           99,300             78,600            88,000           990,600
Accrued professional fees                                    --                  400              --             635,300
Accrued laboratory expenses                                  --                 --                --              33,900
Accrued compensation                                      204,300            206,100           205,400         1,946,000
Stock subscription proceeds refundable                       --                 --                --                   0
Advances (to) from affiliates                                --                 --                --                   0
Prepaid and other current assets                              300               --                --                (600)
Proceeds from loan payable                                   --                 --                --              71,000
                                                      -----------        -----------       -----------       -----------
                                                          514,900            501,000           956,900        12,841,000
                                                      -----------        -----------       -----------       -----------

Net increase (decrease) in cash                              (200)                 0                 0                 0
Cash at the beginning of the period                           200                  0                 0              --
                                                      -----------        -----------       -----------       -----------

Cash at the end of the period                                   0                  0                 0                 0
                                                      ===========        ===========       ===========       ===========



                             See accompanying notes to consolidated financial statements.



                                                        F-7
</TABLE>


  
<PAGE>











                       THIS PAGE INTENTIONALLY LEFT BLANK







                                      F-8

<PAGE>



                         MEDITECH PHARMACEUTICALS, INC.

                        (A DEVELOPMENT-STAGE ENTERPRISE)

              TWELVE MONTH PERIODS ENDED MAY 31, 1989, 1990, 1991,
                       1992, 1993, 1994, 1995, 1996, 1997

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------

     MEDITECH PHARMACEUTICALS,  INC. (THE COMPANY) WAS INCORPORATED IN NEVADA ON
MARCH 21, 1983 AND IS A 25.94% OWNED SUBSIDIARY OF PETRO-MED INC. (PETRO-MED), A
NEVADA  CORPORATION.  THE  COMPANY'S  INITIAL  OUTSTANDING  COMMON  SHARES  WERE
EXCHANGED FOR $48,000 AND THE COMMON STOCK OF MEDICAL TECHNOLOGY  CORPORATION OF
AMERICA,  INC. (MTCA),  A WHOLLY OWNED SUBSIDIARY OF PETRO-MED.  THE ACQUISITION
WAS  ACCOUNTED  FOR AT BOOK  VALUE  AS A  REORGANIZATION.  MTCA  WAS A  DELAWARE
CORPORATION,  FORMED MAY 4, 1982, TO DEVELOP ITS OWNERSHIP RIGHTS TO A TREATMENT
FOR HERPES SIMPLEX 1 AND 2. MTCA WAS DISSOLVED IN JANUARY , 1986.

     THE COMPANY AND ITS SUBSIDIARIES  COMPRISE A DEVELOPMENT-STAGE  ENTERPRISE.
ACTIVITIES OF THE COMPANY (AND ITS  PREDECESSOR  MTCA) HAVE INCLUDED  EFFORTS TO
OBTAIN A UNITED STATES FOOD AND DRUG ADMINISTRATION (FDA) LICENSE FOR THE HERPES
TREATMENT, SECURE FINANCING, ESTABLISH AFFILIATIONS WITH CLINICS AND PHYSICIANS,
FORMULATE  MARKETING  STRATEGIES  FOR  DEVELOPMENT  OF THE HERPES  TREATMENT AND
DEVELOP A SECOND DRUG FOR TREATMENT OF VIRUSES, BACTERIA AND FUNGI.

     PRINCIPLES OF CONSOLIDATION

     THE CONSOLIDATED  FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF THE COMPANY,
ITS PREDECESSOR, MTCA, AND ITS 33.5% OWNED AND CONTROLLED SUBSIDIARY,  RESULTING
IN  MINORITY  INTEREST  ON  THE  CONSOLIDATED  BALANCE  SHEET  AND  CONSOLIDATED
STATEMENT OF DEFICIT  ACCUMULATED  DURING  DEVELOPMENT  STAGE.  ALL  SIGNIFICANT
INTERCOMPANY TRANSACTIONS AND BALANCES HAVE BEEN ELIMINATED IN CONSOLIDATION.

     RELATED-PARTY TRANSACTIONS

     THE ACCOMPANYING  CONSOLIDATED  FINANCIAL  STATEMENTS  INCLUDE  SUBSTANTIAL
TRANSACTIONS WITH RELATED PARTIES.  SIGNIFICANT  RELATED PARTY  TRANSACTIONS ARE
IDENTIFIED IN THE NOTES THAT FOLLOW.

     EQUIPMENT AND FURNITURE AND DEPRECIATION

     EQUIPMENT AND FURNITURE ARE CARRIED AT COST.


                                      F-9



<PAGE>


     EQUIPMENT AND FURNITURE ARE DEPRECIATED USING THE STRAIGHT-LINE METHOD OVER
THEIR ESTIMATED USEFUL LIVES OF FIVE TO TEN YEARS.

     DEFERRED OFFERING COSTS

     DEFERRED  OFFERING  COSTS  AROSE IN  FISCAL  1986 FROM  LEGAL,  ACCOUNTING,
PRINTING  AND OTHER COSTS  RELATED TO OFFERINGS  OF  SECURITIES.  SUCH COSTS ARE
OFFSET AGAINST THE PROCEEDS OF SUCH OFFERINGS UPON THEIR SUCCESSFUL  COMPLETION.
SINCE  THE  OFFERING  WAS  NOT  SUCCESSFUL,  SUCH  COSTS  WERE  CHARGED  AGAINST
OPERATIONS IN 1987.

     STOCK ISSUANCES

     FROM TIME TO TIME THE COMPANY ISSUES ITS COMMON STOCK AS CONSIDERATION  FOR
ITS TRANSACTIONS. COMMON STOCK ISSUED IN QUANTITIES OF 100,000 SHARES OR LESS IS
VALUED AT 70% OF THE FAIR MARKET  VALUE AT THE  TRANSACTION  DATE.  COMMON STOCK
ISSUED IN  QUANTITIES  GREATER THAN 100,000  SHARES IS VALUED AT 50% OF THE FAIR
MARKET  VALUE  AT THE  TRANSACTION  DATE.  THE  VALUE  OF THE  COMMON  STOCK  IS
DISCOUNTED BECAUSE SUCH COMMON STOCK IS HIGHLY RESTRICTIVE.

     DEFICIT ACCUMULATED DURING DEVELOPMENT-STAGE PER SHARE OF COMMON STOCK

     THE DEFICIT PER SHARE IS COMPUTED BASED UPON THE WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING DURING THE RESPECTIVE  PERIODS.  NO CONVERSION OF WARRANTS OR
STOCK OPTIONS OR OTHER TRANSACTIONS WHICH ARE ANTIDILUTIVE ARE INCLUDED.

     PROFESSIONAL FEES

     PROFESSIONAL  FEES INCLUDE LEGAL FEES,  ACCOUNTING  FEES AND LEGAL PRINTING
FEES.  THOSE FEES WHICH ARE NOT SUBJECT TO DISPUTE WILL BE PAID,  IN WHOLE OR IN
PART, UPON REFINANCING OF THE COMPANY, IF ANY.

NOTE 2. NEED FOR ADDITIONAL FINANCING
-------------------------------------

     THE CONSOLIDATED  FINANCIAL STATEMENTS HAVE BEEN PREPARED ASSUMING THAT THE
COMPANY  WILL  CONTINUE  AS  A  GOING  CONCERN.  THE  COMPANY  HAS  INCURRED  AN
ACCUMULATED NET LOSS THROUGH MAY 31, 1997, OF $13,579,000  AND, AS OF THAT DATE,
THE COMPANY'S CURRENT LIABILITIES EXCEEDED ITS CURRENT ASSETS BY $6,429,700. THE
COMPANY IS EXPERIENCING SEVERE CASH FLOW DIFFICULTIES AND ANTICIPATES ADDITIONAL
CASH  EXPENDITURES  WILL BE REQUIRED TO CONTINUE ITS  RESEARCH  AND  DEVELOPMENT
ACTIVITIES.  ACCORDINGLY,  THE  CONTINUED  EXISTENCE OF THE COMPANY IS DEPENDENT
UPON ITS ABILITY TO OBTAIN SIGNIFICANT  ADDITIONAL WORKING CAPITAL.  THE COMPANY
IS CURRENTLY SEEKING TO OBTAIN THIS ADDITIONAL WORKING CAPITAL THROUGH EQUITY



                                      F-10



<PAGE>


FINANCING AND JOINT  VENTURES.  THERE IS NO ASSURANCE THAT SUCH FINANCING CAN BE
RAISED.  THE  CONSOLIDATED  FINANCIAL  STATEMENTS DO NOT INCLUDE ANY ADJUSTMENTS
THAT MIGHT RESULT FROM THE OUTCOME OF THIS UNCERTAINTY.

NOTE 3. DUE FROM OFFICER
------------------------

     IN JANUARY 1984, THE COMPANY MADE A LOAN TO ITS CHIEF EXECUTIVE  OFFICER IN
THE  AMOUNT OF  $24,200  AT AN ANNUAL  INTEREST  RATE OF 10%.  THE LOAN HAS BEEN
REPAID IN FULL.

NOTE 4. ADVANCES TO (FROM) PARENT AND AFFILIATED COMPANIES
----------------------------------------------------------

     ADVANCES TO (FROM) PARENT AND AFFILIATED COMPANIES WERE AS FOLLOWS:

                                                    MAY 31, 
                               ------------------------------------------------
                                   1995              1996             1997
                                   ----              ----             ----

      PETRO-MED (NOTE 16)      $(2,301,400)      $(2,517,300)      $(2,753,500) 
                               ===========       ===========       =========== 



     THE ADVANCES  BETWEEN THE COMPANY AND PETRO-MED BEAR INTEREST IN 1995 AT 9%
PER ANNUM.  INTEREST  EXPENSE  FOR THE YEARS  ENDED MAY 31,  1996 AND 1997,  WAS
$215,900 AND $236,200,  RESPECTIVELY.  AT MAY 31, 1997, THE COMPANY WAS INDEBTED
TO PETRO-MED INC. IN THE AMOUNT OF $2,753,500.  THESE AMOUNTS ARE REPAYABLE WITH
INTEREST AT 9% PER ANNUM AS FOLLOWS:  $36,000 ON THE SECOND  ANNIVERSARY  OF THE
COMPLETION OF A REFINANCING OF THE COMPANY AND THE BALANCE ON DEMAND.

     CERTAIN  ADVANCES TO AFFILIATES  WERE DUE UPON DEMAND AND IN 1986,  $48,100
WERE  DETERMINED  TO BE  UNCOLLECTIBLE  AND WRITTEN  OFF.  CERTAIN  OFFICERS AND
DIRECTORS OF THE COMPANY ARE ALSO  OFFICERS  AND/OR  DIRECTORS OF THE PARENT AND
THE AFFILIATED COMPANIES.

     IN FISCAL 1988 THE COMPANY WAS ADVANCED $8,000 FROM AN AFFILIATED  COMPANY.
THIS ADVANCE, WHICH BEARS NO INTEREST AND IS UNSECURED, IS DUE ON DEMAND.

NOTE 5. EQUIPMENT AND FURNITURE
-------------------------------

     EQUIPMENT AND FURNITURE ARE COMPOSED OF THE FOLLOWING:

                                                   MAY 31,
                                    -----------------------------------
                                      1995          1996         1997
                                      ----          ----         ----
OFFICE EQUIPMENT AND
FURNITURE                           $135,600      $135,600     $135,600

LESS: ACCUMULATED DEPRECIATION       134,500       135,100     $135,600
                                    --------      --------     --------
                                    $  1,100      $    500     $      0
                                    ========      ========     ========



                                      F-11



<PAGE>


NOTE 6. INVESTMENTS
-------------------

     DURING 1982 THE COMPANY  INVESTED $64,000 FOR A 10% INTEREST IN A PRIVATELY
HELD  DEVELOPMENT-STAGE  COMPANY WHICH  PLANNED TO  MANUFACTURE  AND  DISTRIBUTE
MEDICAL  EQUIPMENT.  THE INVESTEE WAS 30% BENEFICIALLY OWNED BY A FORMER OFFICER
OF THE COMPANY.  THE  INVESTEE  HAS  EXPENDED  ALL FUNDS AND HAS NO  SIGNIFICANT
ASSETS.  ACCORDINGLY,  MANAGEMENT HAS STATED THE VALUE OF THE INVESTMENT AT ZERO
IN THE ACCOMPANYING CONSOLIDATED BALANCE SHEET.

     IN  ADDITION,  THE  COMPANY  OWNS  39,940  SHARES  (LESS  THAN  1%)  OF MAS
INDUSTRIES,  INC. WHICH IT ACQUIRED AT A COST OF $8,000 (SEE NOTE 4). AT MAY 31,
1986,  MAS  INDUSTRIES  HAD  EXPENDED  ALL FUNDS AND HAD NO  SIGNIFICANT  LIQUID
ASSETS.  ACCORDINGLY,  MANAGEMENT HAS STATED THE VALUE OF THE INVESTMENT AT ZERO
IN THE ACCOMPANYING CONSOLIDATED BALANCE SHEET.

NOTE 7. LOANS PAYABLE
---------------------

     THE LOAN  PAYABLE  OF  $71,000  AT MAY 31,  1997,  REPRESENTS  A BANK  LOAN
COLLATERALIZED  BY A  CERTIFICATE  OF  DEPOSIT OF A  CO-VENTURER.  THE LOAN BORE
INTEREST AT THE PRIME RATE PLUS TWO  PERCENT  AND WAS  PAYABLE ON  DECEMBER  20,
1985. WHEN THE LOAN WAS NOT REPAID ON DECEMBER 20, 1985, THE BANK LIQUIDATED THE
CO-VENTURER'S CERTIFICATE OF DEPOSIT IN REPAYMENT OF THE LOAN. ACCORDINGLY,  THE
COMPANY OWES THE $71,000 PLUS INTEREST TO THE CO-VENTURER.

NOTE 8. LONG-TERM DEBT
----------------------

     THERE IS CURRENTLY NO LONG-TERM DEBT.



                                      F-12



<PAGE>


NOTE 9. SHAREHOLDERS' EQUITY (DEFICIT)
-------------------------------------

COMMON STOCK

     ON JUNE 30, 1983, THE COMPANY SOLD 4,715,000  SHARES OF ITS COMMON STOCK AT
S.125 PER SHARE IN A PRIVATE  OFFERING.  TOTAL GROSS PROCEEDS  RECEIVED FROM THE
PRIVATE  OFFERING,  NET OF  $250,000  OF  CANCELLED  STOCK  SUBSCRIPTIONS,  WERE
$589,400.

     IN JULY AND AUGUST 1983, THE COMPANY SOLD 12,000,000 AND 1,200,000  SHARES,
RESPECTIVELY,  OF ITS COMMON STOCK AT $.30 PER SHARE IN A PUBLIC OFFERING. TOTAL
GROSS PROCEEDS RECEIVED FROM THE OFFERING WERE $3,960,000.

     IN DECEMBER  1983,  THE COMPANY  SOLD 50,000  SHARES OF COMMON  STOCK TO AN
OFFICER  AT $.15 PER SHARE  FOR  $7,500  AND  RECORDED  $6,500 IN  COMPENSATION,
REPRESENTING  THE DIFFERENCE  BETWEEN THE PRICE PAID AND THE  DISCOUNTED  MARKET
VALUE OF THE STOCK AT THE DATE OF ISSUANCE.

     IN FEBRUARY  1984,  THE COMPANY  ISSUED  50,000 SHARES OF COMMON STOCK TO A
DIRECTOR  AT NO  COST  FOR  PAST  SERVICES.  THE  COMPANY  RECORDED  $14,000  IN
COMPENSATION,  REPRESENTING THE DISCOUNTED MARKET VALUE OF THE STOCK AT THE DATE
OF ISSUE.

     ON JUNE 1, 1984,  THE COMPANY  ISSUED 100,000 SHARES OF COMMON STOCK TO ITS
FORMER CHIEF FINANCIAL OFFICER FOR SERVICES RENDERED DURING THE SIX MONTH PERIOD
ENDED MAY 31,  1984.  SUBSEQUENTLY,  THIS GRANT OF SHARES WAS  RESCINDED  AND AN
OPTION TO PURCHASE COMMON STOCK, WHICH IS INCLUDED BELOW, WAS ISSUED.

     ON DECEMBER 15, 1985,  THE COMPANY  INCREASED THE COMMON SHARES  AUTHORIZED
FROM 100,000,000 SHARES TO 150,000,000 SHARES.

     IN JUNE- 1986 THE COMPANY  CONVERTED  ADVANCES OF $S59,900  FROM  PETRO-MED
INTO 10,000,000 SHARE. OF COMMON STOCK OF THE COMPANY.

     IN JUNE,  1986,  THE COMPANY  INCREASED THE COMMON SHARES  AUTHORIZED  FROM
150,000,000 TO 400, 000,Q00 SHARES.

     ON APRIL 7, 1987, THE COMPANY  AUTHORIZED THE ISSUANCE OF 210,000 SHARES OF
COMMON STOCK TO TWO CONSULTANTS FOR SERVICES  RENDERED.  200,000 OF THESE SHARES
HAD BEEN  ISSUED AS OF AUGUST 31,  1987.  THE  BALANCE OF 10,000  SHARES WLL} BE
ISSUED UPON RECEIPT BY THE COMPANY OF COMPLETED  INVESTMENT LETTERS. THE COMPANY
RECORDED  $54,000 IN COMPENSATION,  REPRESENTING THE DISCOUNTED  MARKET VALUE OF
THE STOCK AT THE DATE OF ISSUE.



                                      F-13




<PAGE>


     ON APRIL 16, 1987 THE COMPANY  AUTHORIZED THE ISSUANCE OF 100,000 SHARES OF
COMMON  STOCK TO THREE  CONSULTANTS  FOR  SERVICES  RENDERED.  THESE SHARES WERE
ISSUED SUBSEQUENT TO MAY 31, 1987. THE COMPANY RECORDED $2H,000 IN COMPENSATION,
REPRESENTING THE DISCOUNTED MARKET VALUE OF THE STOCK AT THE DATE OF ISSUE.

     ON JUNE 11, 1987 THE COMPANY  AUTHORIZED  THE ISSUANCE OF 100,000 SHARES OF
COMMON  STOCK TO A  CONSULTANT  FOR  SERVICES  RENDERED.  THESE SHARES ARE TO BE
ISSUED  SUBSEQUENT TO MAY 31, 1988. THE COMPANY RECORDED S12,200 IN COMPENSATION
REPRESENTING THE DISCOUNTED MARKET VALUE OF THE STOCK ON JUNE 11, 1987.

     ON OCTOBER 2, 1987,  THE COMPANY  AUTHORIZED THE ISSUANCE OF 665,000 SHARES
OF COMMON STOCK TO TWO CONSULTANTS FOR SERVICES RENDERED. THESE SHARES HAVE BEEN
ISSUED.  40,000  SHARES  WERE ISSUED  SUBSEQUENT  TO MAY 31,  1988.  THE COMPANY
RECORDED  $51,100 IN COMPENSATION,  REPRESENTING THE DISCOUNTED  MARKET VALUE OF
THE STOCK ON OCTOBER 2, 1987.

     ON MARCH 2, 1988 THE COMPANY  AUTHORIZED  THE ISSUANCE OF 150,000 SHARES OF
COMMON  STOCK TO A  CONSULTANT  FOR  SERVICES  RENDERED.  THESE SHARES HAVE BEEN
ISSUED.   THE  COMPANY  RECORDED  $13,900  IN  COMPENSATION,   REPRESENTING  THE
DISCOUNTED MARKET VALUE OF THE STOCK MARCH 2, 1988. '

     ON MARCH 17, 1988 THE COMPANY  AUTHORIZED  THE ISSUANCE OF 25,000 SHARES OF
COMMON  STOCK TO A  CONSULTANT  FOR  SERVICES  RENDERED.  THESE SHARES HAVE BEEN
ISSUED. THE COMPANY RECORDED $3,200 IN COMPENSATION  REPRESENTING THE DISCOUNTED
MARKET VALUE OF THE STOCK ON MARCH 17, 1988.

     ON MARCH 22, 1988 THE COMPANY  AUTHORIZED THE ISSUANCE OF 100,000 SHARES OF
COMMON  STOCK TO A  CONSULTANT  FOR  SERVICES  RENDERED.  THESE SHARES HAVE BEEN
ISSUED  SUBSEQUENT.  THE COMPANY RECORDED $13,000 IN COMPENSATION,  REPRESENTING
THE DISCOUNTED MARKET VALUE OF THE STOCK ON MARCH 22, 1988.

     ON MAY 25, 1988 THE COMPANY  AUTHORIZED  THE ISSUANCE OF SOO,OOO  SHARES OF
COMMON  STOCK TO A  CONSULTANT  FOR  SERVICES  RENDERED.  THESE SHARES HAVE BEEN
ISSUED. THE COMPANY RECORDED $33,800 IN COMPENSATION REPRESENTING THE DISCOUNTED
MARKET VALUE OF THE STOCK ON MAY 25, 1988.

     ON FEBRUARY 2, 1989 THE COMPANY AUTHORIZED THE ISSUANCE OF 70,000 SHARES OF
COMMON STOCK FOR $5,000. THESE SHARES HAVE NOT BEEN ISSUED.



                                      F-14




<PAGE>


     ON MARCH 1, 1989 THE COMPANY AUTHORIZED THE ISSUANCE OF 2,506,832 SHARES OF
COMMON STOCK FOR $125,341.48. THESE SHARES HAVE BEEN ISSUED.

     ON MARCH 27, 1989 THE COMPANY  AUTHORIZED  THE PRIVATE  PLACEMENT  OF UP TO
6,000,000  SHARES OF COMMON STOCK FOR $.10 PER SHARE.  350,000  SHARES WERE SOLD
AND ISSUED.

     ON JANUARY 2, 1991, THE COMPANY AUTHORIZED THE ISSUANCE OF 2,750,000 SHARES
OF COMMON STOCK AS COMPENSATION FOR SERVICES. THESE SHARES HAVE BEEN ISSUED.

     ON JULY 12, 1993, THE COMPANY  AUTHORIZED THE ISSUANCE OF 6,085,300  SHARES
OF COMMON STOCK FOR A TOTAL OF APPROXIMATELY  $130,200 (INCLUDING FORGIVENESS OF
DEBTS OWED BY THE COMPANY) AND 3,300,000  SHARES AS  COMPENSATION  FOR SERVICES.
THESE SHARES HAVE BEEN ISSUED.

     ONE JUNE 1, 1994, THE COMPANY  AUTHORIZED THE ISSUANCE OF 11,640,300 SHARES
OF COMMON STOCK FOR A TOTAL OF APPROXIMATELY  $74,254 (INCLUDING  FORGIVENESS OF
DEBTS OWED BY THE COMPANY) AND 2,200,000  SHARES AS  COMPENSATION  FOR SERVICES.
ALTHOUGH AUTHORIZED ON JUNE 1, 1994, THE SHARES WERE ACTUALLY ISSUED ON JULY 11,
1996.



                                     F-15




<PAGE>

<TABLE>
<CAPTION>


STOCK WARRANTS


     IN JULY 1983,  THE  COMPANY  SOLD,  FOR $100,  WARRANTS  TO  PURCHASE UP TO
1,200,000  SHARES OF ITS COMMON STOCK WHICH COULD BE EXERCISED AT $.36 PER SHARE
BEFORE UULY 11, 1988.  NONE OF THE WARRANTS WERE EXERCISED AND THE WARRANTS HAVE
EXPIRED.

STOCK OPTIONS

     THE COMPANY HAS GRANTED THE FOLLOWING OPTIONS TO PURCHASE ITS COMMON STOCK:

                                                                   EXERCISE
DATE OF                  NUMBER           EXERCISE                 PRICE PER                 OPTION
GRANT                    OF SHARES        PERIOD                   SHARE                     GRANTED FOR
-----------------------------------------------------------------------------------------------------------------
<S>                      <C>             <C>                        <C>                     <C>    

FEBRUARY 27, 1984           40,000       EXPIRED APRIL 28          AVERAGE OF BID           SERVICES OF CHIEF
                                         1985, NOT EXERCISED       AND ASK PRICES ON        FINANCIAL OFFICER
                                                                   FEBRUARY 26, 1985


FEBRUARY 27, 1984           50,000       EXPIRED APRIL 28,         AVERAGE OF BID           SERVICES OF CHIEF
                                         1986, NOT EXERCISED       AND ASK PRICES ON        FINANCIAL OFFICER
                                                                   FEBRUARY 26, 1986


JUNE 1, 1984               100,000       EXPIRED MAY 31, 1989,          $.30                SERVICES OF CHIEF
                                         NOT EXERCISED                                      FINANCIAL OFFICER

NOVEMBER 7, 1984         8,000,000       NOVEMBER 7, 1984               $.0233              LICENSING AGREEMENT
                      (SUBSEQUENTLY      TO NOVEMBER 6,                                     WITH CHIEF EXECUTIVE
                      RESCINDED, SEE     1989 SUBJECT TO                                    OFFICER
                      NOTE 15)           FDA APPROVAL OF A
                                         DRUG AND ACHIEVE-
                                         MENT OF CERTAIN
                                         MINIMUM SALES LEVELS

APRIL 1, 1985              150,000       EXPIRED FEBRUARY 17,           $.001               FINANCIAL CONSULTING
                                         1987, NOT EXERCISED                                AND PUBLIC RELATIONS
                                                                                            SERVICES

APRIL 1, 1985               30,000       EXPIRED MARCH 4,               $.25                FINANCIAL CONSULTING
                                         1987, NOT EXERCISED                                SERVICES

APRIL 1, 1985              150,000       EXPIRED MARCH 17,              $.25                FlNANCIAL CONSULTING
                                         1987, NOT EXERCISED                                SERVICES





                                                      F-16


<PAGE>




                                                                   EXERCISE
DATE OF                  NUMBER           EXERCISE                 PRICE PER                 OPTION
GRANT                    OF SHARES        PERIOD                   SHARE                     GRANTED FOR
-----------------------------------------------------------------------------------------------------------------

AUGUST 16, 1985          1,850,000        EXERCISED AS TO           $.0233                   SERVICES OF VARIOUS
                                          10,000 SHARES.                                     OFFICERS, EMPLOYEES
                                          BALANCE EXPIRED                                    AND CONSULTANTS
                                          AUGUST 15, 1990.

AUGUST 23, 1985              6,000        EXERCISED                 $.0233                   FINANCIAL CONSULTING
                                                                                             SERVICES

OCTOBER 1, 1985            100,000        EXPIRED SEPTEMBER 30,     $.001                    FINANCIAL CONSULTING
                                          1986, NOT EXERCISED                                SERVICES

OCTOBER 1, 1985              6,000        EXPIRED SEPTEMBER 30,     $.01                     PUBLIC RELATIONS
                                          1986, NOT EXERCISED                                SERVICES

OCTOBER 8, 1985             25,000        EXPIRED OCTOBER 7,        $.01                     FINANCIAL CONSULTING
                                          1986, NOT EXERCISED                                SERVICES

OCTOBER 8, 1985             75,000        EXPIRED OCTOBER 7,        $.01                     FINANCIAL CONSULTING
                                          1986, NOT EXERCISED                                SERVICES

NOVEMBER 5, 1986           100,000        EXPIRED                   $.01                     FINANCIAL SERVICES
                                          OCTOBER 31, 1987,
                                          NOT EXERCISED

DECEMBER 18, 1986        8,000,000        EXERCISED                 $.01                     COMPENSATION FOR
                                                                                             PATENT RIGHTS

JANUARY 26, 1987         7,500,000        EXPIRED                   $.08125                  COMPENSATION FOR
                                          DECEMBER 1, 1992                                   JOINT VENTURE
                                          NOT EXERCISED

APRIL 3, 1987            2,050,000        EXERCISED AS TO           $.04                     COMPENSATION OF
                                          100,000 SHARES                                     VARIOUS OFFICERS,
                                          BALANCE EXPIRED                                    EMPLOYEES AND
                                          APRIL 2, 1992                                      CONSULTANTS

APRIL 3, 1987              100,000        EXPIRED                   $.08                     COMPENSATION FOR
                                          APRIL 2, 1992                                      FINANCIAL
                                          NOT EXERCISED                                      CONSULTING

APRIL 16, 1987             350,000        EXPIRED APR. 15, 1992     $.01                     COMPENSATION OF
                                          NOT EXERCISED                                      VARIOUS OFFICERS,
                                                                                             EMPLOYEES AND
                                                                                             CONSULTANTS


                                                       F-17




<PAGE>

                                                                   EXERCISE
DATE OF                  NUMBER           EXERCISE                 PRICE PER                 OPTION
GRANT                    OF SHARES        PERIOD                   SHARE                     GRANTED FOR
-----------------------------------------------------------------------------------------------------------------

JUNE 11, 1987              50,000         EXPIRED                  $.08                      COMPENSATION FOR
                                          APRIL 2, 1992                                      PRODUCT LICENSE
                                          NOT EXERCISED                                      CONSULTING

AUGUST 13, 1987           100,000         EXPIRED                  $.15                      COMPENSATION FOR
                                          JULY 31, 1992                                      PRODUCT LICENSE
                                          NOT EXERCISED                                      CONSULTING

AUGUST 26, 1987           100,000         EXERCISED                $.04                      COMPENSATION FOR
                                                                                             PRODUCT LICENSE
                                                                                             CONSULTING

MARCH 2, 1988             300,000         EXPIRED                  $.10                      COMPENSATION FOR
                                          NOT EXERCISED                                      FINANCIAL CONSUITING

JULY 11, 1988             200,000         EXPIRED                  $.05                      COMPENSATION FOR
                                          NOT EXERCISED                                      FINANCIAL CONSULTING


SEPTEMBER 15, 1988        150,000         EXPIRED                  $.01                      COMPENSATION FOR
                                          NOT EXERCISED                                      FINANCIAL CONSULTING

SEPTEMBER 15, 1988        100,000         EXPIRED                  $.07                      COMPENSATION FOR
                                          NOT EXERCISED                                      FINANCIAL CONSULTING

OCTOBER 24, 1989          100,000         EXPIRED, NOT EXERCISED   $.06                      COMPENSATION FOR
                                                                                             LEGAL SERVICES

THE  NUMBER OF SHARES  EXERCISABLE  UNDER  OPTIONS AT MAY 31,  1996,  WERE 0. NO COMPENSATION WAS RECORDED FOR COMMON 
STOCK OPTIONS ISSUED BELOW MARKET PRICE FOR FISCAL YEARS 1995 AND 1996.

 

                                                             F-18



</TABLE>


<PAGE>


     IN MARCH 1983,  PETRO-MED  GRANTED TO THE COMPANY'S CHIEF EXECUTIVE OFFICER
AN OPTION TO PURCHASE FROM PETRO-MED  3,000,000  SHARES OF THE COMPANY'S  COMMON
STOCK  FOR A PERIOD  OF FIVE  YEARS AT A PRICE OF $.25 PER  SHARE.  THIS  OPTION
EXPIRED IN MARCH 1988 AND A NEW OPTION WAS  GRANTED  FOR FIVE YEARS AT THE PRICE
OF $.08 PER SHARE. THIS OPTION HAS EXPIRED.

NOTE 10. INCOME TAXES
---------------------

     AS OF MAY 31, 1997,  THE COMPANY HAD NET OPERATING  LOSS  CARRYFORWARDS  OF
APPROXIMATELY  $2,317,600 FOR FEDERAL TAX PURPOSES AND $12,621,600 FOR FINANCIAL
REPORTING  PURPOSES  WHICH EXPIRE DURING THE PERIOD FROM 1999 THROUGH 2006.  THE
DIFFERENCE   BETWEEN  THE  TAX  AND  FINANCIAL   REPORTING  NET  OPERATING  LOSS
CARRYFORWARDS  RESULTS  PRINCIPALLY FROM START-UP COSTS WHICH HAVE BEEN EXPENSED
FOR FINANCIAL REPORTING PURPOSES AND DEFERRED FOR INCOME TAX PURPOSES.

NOTE 11. LICENSING AGREEMENTS
-----------------------------

     THE COMPANY HAD GRANTED AN EXCLUSIVE  THREE-YEAR  LICENSING AGREEMENT WHICH
EXPIRED ON JULY 31, 1986 TO  DISTRIBUTE  AND SELL THE  COMPANY'S  TREATMENT  FOR
HERPES SIMPLEX VIRUS IN BELGIUM,  ITALY,  LUXEMBOURG,  THE NETHERLANDS,  AND THE
UNITED  KINGDOM.  THE LICENSEE  WAS  RESPONSIBLE  FOR  OBTAINING  THE  NECESSARY
APPROVAL OF THE HEALTH  ORGANIZATIONS  OF EACH  COUNTRY BUT FAILED TO DO SO. THE
COMPANY  WAS TO RECEIVE A 10% ROYALTY  BASED UPON NET SALES,  SUBJECT TO CERTAIN
MINIMUM ROYALTIES. NO SALES WERE MADE UNDER THE AGREEMENT.

     THE COMPANY HAD ALSO GRANTED AN EXCLUSIVE LICENSE ENDING OCTOBER 9, 1994 TO
DISTRIBUTE  AND SELL THE COMPANY'S  DRUG FOR TREATMENT OF VIRUSES,  BACTERIA AND
FUNGI IN CANADA,  PROVIDED THAT THE LICENSEE  ASSIST WITH THE CLINICAL  RESEARCH
AND OBTAIN THE NECESSARY  APPROVAL OF THE HEALTH  ORGANIZATIONS  OF CANADA.  THE
COMPANY WAS TO RECEIVE A 6% ROYALTY BASED UPON NET SALES.  IN FEBRUARY 1986, THE
COMPANY   NOTIFIED  THE  LICENSEE  THAT  THE  AGREEMENT  WAS  TERMINATED.   THIS
TERMINATION IS CURRENTLY IN DISPUTE WITH THE LICENSEE.

  

                                      F-19




<PAGE>


NOTE 12. COMMITMENTS
--------------------

     AT MAY 31, 1985,  THE COMPANY WAS A GUARANTOR OF A $100,000  LINE OF CREDIT
ISSUED TO A FORMER  CO-VENTURER OF PETRO-MED AND A $50,000 LINE OF CREDIT ISSUED
TO ITS CHIEF EXECUTIVE OFFICER.  THE COMPANY HAD PLEDGED A PORTION OF A $167,100
CERTIFICATE  OF DEPOSIT AS  SECURITY  FOR THE  GUARANTEE  OF THE ABOVE  LINES OF
CREDIT.  THE $50,000 LINE WAS REPAID BY THE CHIEF EXECUTIVE  OFFICER IN 1986 AND
THE RELATED  PORTION OF THE  CERTIFICATE OF DEPOSIT WAS RELEASED TO THE COMPANY.
ON AUGUST 30, 1985,  THE COMPANY'S  GUARANTEE OF THE $100,000 LINE OF CREDIT WAS
EXERCISED BY THE LENDER.  ACCORDINGLY,  THE COMPANY'S  CERTIFICATE OF DEPOSIT IN
GUARANTEE  OF THE LINE OF CREDIT WAS  LIQUIDATED  AND  PROCEEDS IN THE AMOUNT OF
$100,000  WERE  USED TO  SATISFY  THE  OBLIGATION.  THE  FORMER  CO-VENTURER  OF
PETRO-MED AGREED TO REPAY THIS AMOUNT TO THE COMPANY.  THE NOTE BORE INTEREST AT
2% OVER THE PRIME RATE PER ANNUM AND WAS DUE UPON DEMAND.  IN FEBRUARY 1986, THE
COMPANY  CONCLUDED  THAT THE ABILITY OF THE FORMER  CO-VENTURER  OF PETRO-MED TO
REPAY THE $100,000 TO THE COMPANY HAD BEEN SIGNIFICANTLY IMPAIRED.  ACCORDINGLY,
THE NOTE RECEIVABLE WAS WRITTEN OFF AS OF MAY 31, 1986.

     UNDER A BONUS PLAN, 10% OF THE COMPANY'S  ANNUAL NET PRE-TAX EARNINGS IS TO
BE ALLOCATED FOR BONUSES TO KEY PERSONNEL.  ALLOCATIONS  TO KEY PERSONNEL  UNDER
THE  PLAN  ARE  BASED  ON  COMPENSATION  LEVELS  AND  ON  DISCRETIONARY  FACTORS
DETERMINED BY THE BOARD OF DIRECTORS.

NOTE l3. CONTINGENCIES
----------------------

     ON AUGUST 18, 1988 A LAWSUIT WAS FILED  AGAINST THE  COMPANY,  ITS CHAIRMAN
AND ITS  PARENT IN THE U. S.  DISTRICT  COURT,  SOUTHERN  DISTRICT  OF NEW YORK,
ALLEGING BREACH OF A SETTLEMENT AGREEMENT AMONG THE PARTIES AND FOR FRAUD, AMONG
OTHER  THINGS.  PLAINTIFF  SEEKS THE VALUE OF 1,669,293  SHARES OF THE COMPANY'S
COMMON STOCK HELD IN ESCROW BUT IN NO EVENT LESS THAN  $625,000  PLUS  INTEREST,
PLUS  $128,000,  A  CONSTRUCTIVE  TRUST ON FUTURE SALES OF THE COMPANY'S  STOCK,
$1,000,000 IN PUNITIVE  DAMAGES,  PLUS LEGAL FEES,  INTEREST AND  EXPENSES.  THE
COMPANY  INTENDS TO  CROSS-COMPLAIN  AND VIGOROUSLY  DEFEND THE LAWSUIT.  IN THE
OPINION OF  MANAGEMENT,  ANY LIABILITY  RESULTING  FROM THIS ACTION WOULD BE THE
RESPONSIBILITY  OF THE PARENT.  THE ULTIMATE  OUTCOME OF THE  LITIGATION  CANNOT
PRESENTLY BE  DETERMINED.  ACCORDINGLY,  NO PROVISION FOR ANY LIABILITY THAT MAY
RESULT HAS BEEN MADE IN THE ACCOMPANYING FINANCIAL STATEMENTS.

     NO ACTION HAS BEEN TAKEN BY ANY PARTY IN THAT MATTER FOR OVER FIVE YEARS.

  

                                      F-20



<PAGE>


     CERTAIN   DEVELOPMENTAL  AND  OTHER  ACTIVITIES   PERFORMED   DIRECTLY  AND
INDIRECTLY BY THE COMPANY ARE SUBJECT TO THE RULES AND  REGULATIONS OF THE U. S.
FOOD AND DRUG ADMINISTRATION.

     THE COMPANY COULD BE SUBJECTED TO CLAIMS FOR PERSONAL INJURIES AND PROPERTY
DAMAGE  RESULTING  FROM THE USE OF ITS PRODUCTS.  THE COMPANY DOES NOT PRESENTLY
HAVE PRODUCT LIABILITY INSURANCE.

NOTE 14. COMMON STOCK OPTION GRANTED TO OFFICER
-----------------------------------------------

     IN OCTOBER  1985,  THE STOCK  OPTION FOR  8,000,000  SHARES  GRANTED BY THE
COMPANY TO ITS CHIEF EXECUTIVE OFFICER WAS RESCINDED.  CONCURRENTLY, THE COMPANY
SOLD  8,000,000  SHARES OF ITS COMMON  STOCK TO ITS CHIEF  EXECUTIVE  OFFICER IN
EXCHANGE FOR THE  SETTLEMENT  OF AN $8,000 SALARY  OBLIGATION  AND A NOTE IN THE
AMOUNT  OF  $1,440,000  FROM  THE  OFFICER.  THE  COMPANY  WAS TO PAY A BONUS OF
$1,253,400  TO THE OFFICER  UNDER  CERTAIN  CIRCUMSTANCES.  IN DECEMBER 1986 THE
COMPANY'S CHIEF EXECUTIVE  OFFICER RETURNED THE SHARES TO THE COMPANY,  THE NOTE
WAS CANCELLED AND THE OFFICER RECEIVED A THREE YEAR OPTION TO PURCHASE 8,000,000
SHARES  OF THE  COMPANY'S  COMMON  STOCK FOR $.01 PER  SHARE.  THIS  OPTION  WAS
EXERCISED IN MARCH 1989.

NOTE 15. PARTIALLY-OWNED SUBSIDIARY
-----------------------------------

     VRT, INC. (VRT), A NEVADA  DEVELOPMENT  STAGE COMPANY,  WAS INCORPORATED ON
JANUARY 22, 1987 AND SINCE THAT TIME HAS BEEN PRINCIPALLY  ENGAGED IN EFFORTS TO
SECURE  FINANCING AND FORMULATE A RESEARCH,  DEVELOPMENT AND MARKETING  STRATEGY
FOR ITS PRODUCTS.  PRINCIPAL  OPERATIONS WILL START IF AND WHEN FDA LICENSING OR
OTHER PRODUCT APPROVALS ARE RECEIVED.

     EFFECTIVE JANUARY 26, 1987, VRT ENTERED INTO A LICENSING AGREEMENT WITH THE
COMPANY.  THE  LICENSING  AGREEMENT  GRANTS VRT  EXCLUSIVE  WORLDWIDE  RIGHTS TO
DEVELOP, SELL AND DISTRIBUTE THE COMPANY'S TREATMENT FOR CERTAIN VIRAL DISEASES.
IN RETURN,  THE COMPANY  RECEIVED 50 PERCENT OF THE OUTSTANDING  COMMON STOCK OF
VRT.

     THE TERM OF THE LICENSE AGREEMENT IS FOR TEN YEARS,  COMMENCING ON DECEMBER
1, 1986 AND EXPIRING ON NOVEMBER 30, 1996,  WITH AN EXTENSION  FOR AN ADDITIONAL
SEVEN YEARS IF CERTAIN MINIMUM ROYALTIES ARE PAID TO THE COMPANY. THE LICENSE IS
CANCELLABLE AT ANY TIME BY THE COMPANY IF IT SIGNS A LICENSING  AGREEMENT WITH A
MAJOR PHARMACEUTICAL  COMPANY FOR ALL OR A CERTAIN PART OF THE RIGHTS GRANTED TO
VRT. IN THIS EVENT, VRT WILL BE ENTITLED TO 20`PERCENT OF ALL NET LICENSING FEES
RECEIVED BY THE COMPANY FROM SUCH  PHARMACEUTICAL  COMPANY FOR SALES OF PRODUCTS
OTHERWISE SUBJECT TO THE AGREEMENT. THE AGREEMENT ALSO CALLS FOR A ROYALTY OF 6

  

                                      F-21




<PAGE>




PERCENT  OF NET SALES BY VRT OR ITS  SUBLICENSEES  FOR ANY VIRAL  TREATMENTS  OR
PRODUCTS   COVERED   UNDER  THIS  LICENSE   AGREEMENT.   VRT  MUST  PAY  CERTAIN
NON-REFUNDABLE  MINIMUM  ROYALTY  FEES  COMMENCING  IN 1987 (YEAR 1) AS FOLLOWS:
$300,000 IN  CONSIDERATION OF THIS AGREEMENT AND FOR ROYALTIES DUE IN YEAR 1 AND
$10,000 PER YEAR IN YEARS 2 THROUGH 10. VRT STILL OWES $99,200 TO THE COMPANY OF
THE AMOUNTS PRESENTLY DUE UNDER THIS AGREEMENT.

     VRT HAS  ENTERED  INTO AN  EMPLOYMENT  AGREEMENT  WITH ITS CHIEF  EXECUTIVE
OFFICER,  WHO IS ALSO THE CHAIRMAN OF THE BOARD OF THE COMPANY.  THIS  AGREEMENT
PROVIDES  FOR YEARLY  COMPENSATION  TO BE PAID MONTHLY AS THE GREATER OF $12 PER
YEAR OR 2 PERCENT  OF VRT'S  GROSS  INCOME.  THE TERM OF THE  AGREEMENT  IS FROM
JANUARY 22, 1987  (INCEPTION)  TO DECEMBER 31,  1987,  WITH  AUTOMATIC  ONE-YEAR
EXTENSIONS  UNLESS  WRITTEN  NON-RENEWAL  NOTICE IS  PROVIDED  BY EITHER  PARTY.
TERMINATION  OF THE  AGREEMENT  MAY OCCUR AT ANY TIME GIVEN  WRITTEN  CONSENT BY
EITHER VRT OR THE CHIEF  EXECUTIVE  OFFICER.  IN THE EVENT OF  TERMINATION,  THE
CHIEF EXECUTIVE  OFFICER IS ENTITLED TO 24 MONTHS OF SALARY, AS DESCRIBED ABOVE,
PLUS BONUSES.

     UNDER A BONUS PLAN, 10 PERCENT OF VRT'S ANNUAL' NET PRE-TAX  EARNINGS IS TO
BE  ALLOCATED  FOR  BONUSES  TO KEY  PERSONNEL,  INCLUDING  THE CHIEF  EXECUTIVE
OFFICER.  ALLOCATIONS TO KEY PERSONNEL  UNDER THE PLAN ARE BASED ON COMPENSATION
LEVELS AND DISCRETIONARY FACTORS DETERMINED BY THE BOARD OF DIRECTORS OF VRT.

     ON APRIL 30, 1987,  VRT, INC. WAS COMBINED  THROUGH  STATUTORY  MERGER WITH
VIRAL RESEARCH TECHNOLOGIES,  INC. ("VIRAL"), A NEVADA CORPORATION, WHICH BECAME
THE SURVIVING  CORPORATION.  VIRAL ISSUED  15,000,000  SHARES OF ITS  RESTRICTED
COMMON STOCK IN EXCHANGE FOR 200,000 SHARES,  THE TOTAL SHARES  OUTSTANDING,  OF
VRT, INC.  VIRAL WAS AN INACTIVE  PUBLIC SHELL,  WHICH AT THE DATE OF THE MERGER
HAD AN ACCUMULATED DEFICIT OF $5,000. IN CONNECTION WITH THE COMBINATION,  THERE
WAS NO STEP-UP  IN BASIS TO THE ASSETS OF  MEDITECH  PHARMACEUTICALS,  INC.  AND
SUBSIDIARIES IN CONNECTION WITH THIS MERGER. AFTER THE MERGER, THE COMPANY OWNED
36.7 PERCENT OF THE SURVIVING CORPORATION.

     AS VIRAL IS EFFECTIVELY CONTROLLED BY THE COMPANY, ITS FINANCIAL STATEMENTS
HAVE BEEN  CONSOLIDATED  AS OF AND FOR THE  FISCAL  YEARS  ENDED  MAY 31,  1989,
THROUGH 1997,  RESULTING IN THE RECOGNITION OF MINORITY INTEREST AND ADDITIONAL'
LOSSES TO THE COMPANY.

                                      F-22





<PAGE>

<TABLE>
<CAPTION>

                                                 SCHEDULE II

                          Amounts receivable from related parties and underwriters,
                              promoters and employees other than related parties

                                                                     Reductions        Balance at end of Period 
                                       Balance at               -----------------------------------------------
                                       Beginning                 Amounts      Amounts                  Not
Name of Debtor          Period         of Period    Additions   Collected   Written Off   Current    Current

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

Mas Industries, Inc.   6/1/96 to          $250          -           -            -         $250         -
                       5/31/97                                                                

                       6/1/95 to          $250          -           -            -         $250         -
                       5/31/96

                       6/1/94 to          $250          -           -            -         $250         -
                       5/31/95

                       6/1/93 to          $250          -           -            -         $250         -
                       5/31/94

                       6/1/92 to          $250          -           -            -         $250         -
                       5/31/93

                       6/1/91 to          $250          -           -            -         $250         -
                       5/31/92

                       6/1/90 to          $250          -           -            -         $250         -
                       5/31/91




Skin Control           6/1/96 to          $900          -           -            -         $900         - 
Systems, Inc.          5/31/97 
         
                       6/1/95 to          $900          -           -            -         $900         -
                       5/31/96
 
                       6/1/94 to          $900          -           -            -         $900         -
                       5/31/95

                       6/1/93 to          $900          -           -            -         $900         -
                       5/31/94

                       6/1/92 to          $900          -           -            -         $900         -
                       5/31/91
 
                       6/1/91 to          $900          -           -            -         $900         -
                       5/31/92

                       6/1/90 to          $900          -           -            -         $900         -
                       5/31/90


JCR Marketing, Inc.    6/1/96 to          $100          -           -            -         $100         -
                       5/31/97                                                      
                   
                       6/1/95 to          $100          -           -            -         $100         -
                       5/31/96

                       6/1/94 to          $100          -           -            -         $100         -
                       5/31/95

                       6/1/93 to          $100          -           -            -         $100         -
                       5/31/94

                       6/1/92 to          $100          -           -            -         $100         -
                       5/31/91

                       6/1/91 to          $100          -           -            -         $100         -
                       5/31/92

                       6/1/90 to          $100          -           -            -         $100         -
                       5/31/91


                                                        F-23



</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                     SCHEDULE V

                                             PROPERTY, PLANT & EQUIPMENT



                                      BALANCE AT                                          OTHER           
                                      BEGINNING OF                       RETIREMENT       CHANGES          BALANCE AT
CLASSIFICATION                        PERIOD            ADDITIONS        AT COST          ADD (DEDUCT)     END OF PERIOD
--------------                        ------------      ---------        ----------       ------------     -------------

<S>                                    <C>              <C>              <C>              <C>              <C>
YEAR ENDED MAY 31, 1997 
FURNITURE, FIXTURES &                  
EQUIPMENT                              $135,600         $      0         $      0         $      0         $135,600
CLINIC EQUIPMENT                       $      0         $      0         $      0         $      0         $      0    
LEASEHOLD IMPROVEMENTS                 $      0         $      0         $      0         $      0         $      0 
                                       --------         --------         --------         --------         -------- 
                                       $135,600         $      0         $      0         $      0         $135,600
                                       
                       
YEAR ENDED MAY 31, 1996
FURNITURE, FIXTURES &
EQUIPMENT                              $135,600         $      0         $      0         $      0         $135,600
CLINIC EQUIPMENT                       $      0         $      0         $      0         $      0         $      0
LEASEHOLD IMPROVEMENTS                 $      0         $      0         $      0         $      0         $      0
                                       --------         --------         --------         --------         --------

                                       $135,600         $      0         $      0         $      0         $135,600

YEAR ENDED MAY 31, 1995:
FURNITURE, FIXTURES &                  $135,600         $      0         $      0         $      0         $135,600
EQUIPMENT
CLINIC EQUIPMENT                       $      0         $      0         $      0         $      0         $      0
LEASEHOLD IMPROVEMENTS                 $      0         $      0         $      0         $      0         $      0
                                       --------         --------         --------         --------         --------

                                       $135,600         $      0         $      0         $      0         $135,600

YEAR ENDED MAY 31, 1994
FURNITURE, FIXTURES &
EQUIPMENT                              $135,600         $      0         $      0         $      0         $135,600
CLINIC EQUIPMENT                       $      0         $      0         $      0         $      0         $      0
LEASEHOLD IMPROVEMENTS                 $      0         $      0         $      0         $      0         $      0
                                       --------         --------         --------         --------         --------

                                       $135,600         $      0         $      0         $      0         $135,600

YEAR ENDED MAY 31, 1993:
FURNITURE, FIXTURES &                  $135,600         $      0         $      0         $      0         $135,600
EQUIPMENT
CLINIC EQUIPMENT                       $      0         $      0         $      0         $      0         $      0
LEASEHOLD IMPROVEMENTS                 $      0         $      0         $      0         $      0         $      0
                                       --------         --------         --------         --------         --------

                                       $135,000         $      0         $      0         $      0         $135,000

YEAR ENDED MAY 31,1992
FURNITURE, FIXTURES &                  $132,700         $      0         $      0         $      0         $132,700
EQUIPMENT
CLINIC EQUIPMENT                       $      0         $      0         $      0         $      0         $      0
LEASEHOLD IMPROVEMENTS                 $      0         $      0         $      0         $      0         $      0
                                       --------         --------         --------         --------         --------

                                       $132,700         $      0         $      0         $      0         $132,700



                                                          F-24

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                        SCHEDULE Vl

                   ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT & EQUIPMENT


                                             BALANCE AT       ADDITIONS                       OTHER          
                                             BEGINNING OF     CHARGED TO                      CHANGES        BALANCE AT
DESCRIPTION                                  PERIOD           COSTS/EXPENSES  RETIREMENT      ADD (DEDUCT)   END OF PERIOD
-----------                                  ------------     --------------  ----------      ------------   -------------
<S>                                         <C>               <C>            <C>              <C>            <C>    

YEAR ENDED MAY 31, 1997  
FURNITURE, FIXTURES &                         $135,100        $    500        $      0        $      0        $135,600
EQUIPMENT
CLINIC EQUIPMENT                              $      0        $      0        $      0        $      0        $      0
LEASEHOLD IMPROVEMENTS                        $      0        $      0        $      0        $      0        $      0
                                              --------        --------        --------        --------        --------
                                              $135,100        $    500        $      0        $      0        $135,600

YEAR ENDED MAY 31 1996:
FURNITURE, FIXTURES &                         $134,500        $    600        $      0        $      0        $135,100
EQUIPMENT
CLINIC EQUIPMENT                              $      0        $      0        $      0        $      0        $      0
LEASEHOLD IMPROVEMENTS                        $      0        $      0        $      0        $      0        $      0
                                              --------        --------        --------        --------        --------
                                              $134,500        $    600        $      0        $      0        $135,100
YEAR ENDED MAY 31, 1995
FURNITURE, FIXTURES &                         $134,000        $    500        $      0        $      0        $134,000
EQUIPMENT
CLINIC EQUIPMENT                              $      0        $      0        $      0        $      0        $      0
LEASEHOLD IMPROVEMENTS                        $      0        $      0        $      0        $      0             $0'
                                              --------        --------        --------        --------             -- 
                                              $134,000        $    500        $      0        $      0        $134,000

YEAR ENDED MAY 31 1994
FURNITURE, FIXTURES & EQUIPMENT               $133,400        $    600        $      0        $      0        $133,400
CLINIC EQUIPMENT                              $      0        $      0        $      0        $      0        $      0
LEASEHOLD IMPROVEMENTS                        $      0        $      0        $      0        $      0        $      0
                                              --------        --------        --------        --------        --------
                                              $133,400        $    600        $      0        $      0        $133,400

YEAR ENDED MAY 31, 1993
FURNITURE, FIXTURES &                         $132,700        $    700        $      0        $      0        $132,700
EQUIPMENT
CLINIC EQUIPMENT                              $      0        $      0        $      0        $      0        $      0
LEASEHOLD IMPROVEMENTS                        $      0        $      0        $      0        $      0        $      0
                                              --------        --------        --------        --------        --------
                                              $132,700        $    700        $      0        $      0        $132,700

YEAR ENDED MAY 31 1992
FURNITURE, FIXTURES &                         $132,100        $    600        $      0        $      0        $132,100
EQUIPMENT
CLINIC EQUIPMENT                              $      0        $      0        $      0        $      0        $      0
LEASEHOLD IMPROVEMENTS                        $      0        $      0        $      0        $      0        $      0
                                              --------        --------        --------        --------        --------
                                              $132,100        $    600        $      0        $      0        $132,l00



                                                               F-25

</TABLE>