<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K

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

                  For the fiscal year ended December 31, 1996

                         Commission file number 1-13768

                                 ONCORMED, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                DELAWARE                         52-1842781
        ------------------------    ------------------------------------
        (State of Incorporation)    (I.R.S. Employer Identification No.)


                               205 PERRY PARKWAY
                          GAITHERSBURG, MARYLAND  20877
                    ----------------------------------------
                    (Address of principal executive offices)
                                   (Zip code)


                                 (301) 208-1888
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


          Securities registered pursuant to Section 12(b) of the Act:


        Title of Each Class       Name of Exchange on Which Registered
        -------------------       ------------------------------------
               None                              None


          Securities registered pursuant to Section 12(g) of the Act:

                              Title of each class
                              -------------------
                          Common Stock, par value $.01
                       Warrants to Purchase Common Stock


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   YES  X    NO 
                                               -----     -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.   X
                -----

At March 3, 1997, OncorMed, Inc. had 7,814,022 shares of Common Stock, par
value $.01, outstanding.

While it is difficult to determine the number of shares owned by nonaffiliates,
the registrant estimates that the aggregate market value of its Common Stock on
March 3, 1997 (based upon the closing price of these shares on the American
Stock Exchange) held by nonaffiliates was approximately $30,983,000.

                      Documents Incorporated By Reference

Items 10, 11, 12 and 13 of Part III are incorporated by reference from a
portion of the registrant's definitive proxy statement to be furnished to
stockholders in connection with the 1997 Annual Meeting of Stockholders.
<PAGE>   2
                                     PART I

Item 1   Business

         This report contains certain statements of a forward-looking nature
         relating to future events or the future financial results of the
         Company.  Investors are cautioned that such statements are only
         predictions and that actual events or results may differ materially.
         In evaluating such statements, investors should specifically consider
         the various factors identified in this Report which could cause actual
         events or results to differ materially from those indicated by such
         forward-looking statements, including the matters set forth in
         "Business - Risk Factors".

         OncorMed, Inc. (the "Company") was incorporated on July 12, 1993 in
         the State of Delaware.  OncorMed develops and provides gene-based
         cancer diagnostic and information services for physicians, hospitals,
         clinical laboratories and pharmaceutical companies.  The Company's
         services include molecular profiling and staging of tumors, laboratory
         confirmation of predisposition to certain cancers, and hereditary
         cancer risk assessment.  OncorMed collaborates globally with genomic,
         biotechnology and pharmaceutical companies to translate new genetic
         discoveries into clinically-useful testing services.

         CANCER

         The Company's initial efforts have been primarily focused on the
         development of medical services utilizing recent genetic discoveries
         for the early detection and management of cancer.  As a result of
         genetic discoveries made over the last several years, it is now widely
         accepted by the medical community that essentially all cancer is the
         result of inherited or developed genetic mutations.  Genetic mutations
         cause malfunctions in the cell's normal development, resulting in the
         uncontrolled growth of cells that characterizes most cancers.  The
         presence of genetic mutations provides information on increased
         susceptibility, or predisposition, the development of certain cancers,
         the presence of certain cancers and the prognosis associated with
         certain cancers.  It is widely accepted by the medical community that
         approximately 5% to 10% of all cancer cases are hereditary.

         CANCER MANAGEMENT THROUGH GENETICS

         Recent advances in human genome research, including the Human Genome
         Project, have increased the rate at which genes are being discovered.
         The Company believes that services based on these recent genetic
         discoveries will become one of the principal means used by health care
         professionals for the risk assessment and early detection of certain
         cancers and will provide information that will improve the management
         of cancer.  Set forth below is a brief description of how genetic
         testing and information services may be useful throughout the cycle of
         cancer management.

         -  Risk Assessment.  Through the careful assessment of an individual's
            family history, it is possible to determine whether an inherited or
            familial pattern of cancer exists.  Patients identified as being
            susceptible or at risk for hereditary cancer through the risk
            assessment process may elect to take preventive measures, including
            medication, prophylactic surgery, behavioral and environmental
            modification, increased targeted monitoring and genetic
            predisposition testing.





                                       2
<PAGE>   3
Item 1   Business:  (Continued)

         -  Predisposition Testing.  The presence of specific genetic mutations
            has been shown to indicate an increased susceptibility, or
            predisposition, to the development of certain cancers.  Individuals
            identified through hereditary risk assessment as being likely to
            develop certain hereditary cancers can be tested for the presence
            or absence of specific genetic mutations associated with such
            cancers as the genetic mutations are discovered.  Predisposition
            testing can help physicians determine the proper preventive
            measures and monitoring for each individual and can reduce the
            likelihood that unnecessary and costly medical procedures will be
            carried out on individuals who are at risk for hereditary cancer
            based on family history, but who do not have the genetic mutation.

         -  Early Detection.  The ability to identify certain genetic mutations
            that are indicative of the presence of cancer should allow for the
            detection of cancer at an earlier stage than is possible using
            conventional techniques, which can only detect tumor masses or the
            presence of large numbers of cancer cells.  The Company believes
            that early detection of cancer will reduce the need for invasive
            and costly treatments, improve the efficacy of available therapies
            and increase the likelihood of patient survival.

         -  Prognostic Testing.  There are subtypes within specific types of
            cancer, and each subtype may progress differently and have a
            varying response to treatment.  The detection of genetic
            differences between cancer subtypes provides important information
            for establishing the prognosis associated with a particular cancer
            and for treatment selection.  In addition, ascertaining if a cancer
            has spread beyond its tumor margins into the surrounding tissue and
            lymph nodes is also important in accurately determining the
            prognosis of an individual and in treatment selection.  Genetic
            analysis of tumor margins also can help physicians evaluate the
            effectiveness of the selected course of treatment and identify a
            relapse at an early stage, when additional treatment is more likely
            to be effective.  Studies have found that in over 20% of head and
            neck and colon cancer cases in which conventional microscopic
            analysis by a pathologist indicated that the surrounding tissue and
            lymph nodes were normal and cancer free, molecular analysis
            detected the presence of cancer cells.

         ONCORMED'S GENETIC TESTING AND INFORMATION SERVICES

         The Company, through its developed and licensed proprietary
         technologies, has translated recent genetic discoveries into genetic
         testing and information services for the management of cancer.  The
         Company currently offers or has under development genetic testing and
         information services that are designed to: (i) assess an individual's
         risk of developing an inherited form of cancer; (ii) detect genetic
         mutations associated with an individual's predisposition to certain
         cancers; (iii) enable the early detection of certain cancers at the
         molecular level; and (iv) identify genetic mutations associated with
         the spread or recurrence of various cancers.  The Company also makes
         available contract sequencing services and a genomic repository.  The
         following table describes the  Company's services:





                                       3
<PAGE>   4
Item 1   Business:  (Continued)

                  ONCORMED'S TESTING AND INFORMATION SERVICES

<TABLE>
    <S>                                                             <C>                              <C>
    RISK ASSESSMENT

      SERVICE                                                       DISEASE                          DEVELOPMENT STATUS
      -------                                                       -------                          ------------------

      Hereditary Cancer Consulting Service                          All forms of inherited cancer    Introduced

    PREDISPOSITION TESTING

      DISEASE                                                       GENE TARGETS                     DEVELOPMENT STATUS
      -------                                                       ------------                     ------------------

      Hereditary Breast/Ovarian Cancer                              BRCA1, BRCA2                     Introduced
      Heritage Panel (Ashkenazi Jewish Descent)                     BRCA1, BRCA2(1)                  Introduced
      Hereditary Nonpolyposis Colon Cancer                          MLH1, MSH2                       Introduced
      Familial Adenomatous Polyposis                                APC                              Expected Introduction
                                                                                                     (to be determined)

      Familial Melanoma                                             p16                              Introduced
      Medullary Thyroid Cancer                                      RET                              Introduced
      Li-Fraumeni Syndrome                                          p53                              Introduced

    EARLY DETECTION

      DISEASE                                                       GENETIC TARGETS                  DEVELOPMENT STATUS
      -------                                                       ---------------                  ------------------

      Bladder Cancer                                                Various genetic markers          Expected Introduction
                                                                                                     (early/mid 1998)(2)

      Lung and Colon Cancers                                        Various genetic markers          Expected Introduction
                                                                                                     (to be determined)
    PROGNOSTIC TESTING

      SERVICE                                                       DISEASE                          DEVELOPMENT STATUS
      -------                                                       -------                          ------------------

      TumorCheck/Molecular Staging                                  Solid tumor cancers              Introduced
      Replication Error Rate                                        Solid tumor cancers              Introduced
      Molecular Profiling, p53 Mutations, K-ras (3)                 Solid tumor cancers              Introduced
</TABLE>





                                       4
<PAGE>   5
Item 1   Business:  (Continued)


            ONCORMED'S TESTING AND INFORMATION SERVICES (CONTINUED)

<TABLE>
    <S>                                                             <C>                              <C>
    CONTRACT SEQUENCING

            SERVICE                                                 DISEASE                          DEVELOPMENT STATUS
            -------                                                 -------                          ------------------

            Single Pass Sequencing                                  --                               Introduced
            Double Pass Sequencing                                  --                               Introduced
            Primer Walking                                          --                               Introduced

    GENOMIC REPOSITORY

            SERVICE                                                 DISEASE                          DEVELOPMENT STATUS
            -------                                                 -------                          ------------------

            Database and DNA Library                                Various cancers                  Available
</TABLE>


-------

(1)      Heritage Panel includes 2 BRCA1 mutations and 1 BRCA2 mutation.

(2)      The status of certain of the services have been updated. 
         The Company believes that it has a reasonable basis upon which it has
         projected the expected introduction date of this service.  There can
         be no assurance, however, that this service will be introduced by such
         date, if at all.

(3)      K-ras for research purposes only.





                                       5
<PAGE>   6
Item 1   Business:  (Continued)

         Hereditary Cancer Risk Assessment Service

         Through the careful assessment of a patient's family history by a
         properly trained health care professional, it is possible to determine
         whether an inherited or familial pattern of cancer exists.  In May
         1994, in conjunction with the Hereditary Cancer Institute ("HCI"), the
         Company introduced its risk assessment service, the Hereditary Cancer
         Consulting Service ("HCCS"), which is currently provided at 24 sites.
         HCCS is a clinical advisory service used to assess an individual's
         risk of developing inherited cancer and to provide guidance concerning
         appropriate cancer surveillance, testing and genetic counseling based
         on such assessment.

         Initial screening of the patient is done through a personal interview
         conducted by a physician, nurse or genetic counselor trained in cancer
         risk counseling by the Company.  Based on the family history obtained,
         the Company's proprietary software creates a family tree, or
         "pedigree," detailing the occurrence of cancer throughout the
         patient's family.  Accurate evaluation of a complicated pedigree to
         determine a patient's risk of developing inherited cancer requires a
         level of expertise in cancer genetics that exceeds the usual training
         of most health care professionals.  Any pedigree that suggests a
         pattern of familial or inherited cancer is reviewed and interpreted by
         trained physicians, geneticists or consultants.

         Through its relationship with HCI, the Company has worldwide exclusive
         licensing rights to HCI's family cancer database.  Over the past three
         decades, HCI has evaluated over 300,000 individuals and built its
         database using data from individuals identified as being at risk to
         develop familial or hereditary cancer.  The HCI database is used to
         help identify the presence of a pattern of inherited or familial
         cancer, which is then confirmed by a physician, geneticist or
         consultant review.  Based on the results, recommendations for
         appropriate testing and surveillance services are provided.  The
         Company believes that the individuals identified as being at risk for
         developing hereditary cancer will be potential customers for the
         Company's genetic predisposition and other services. See "Business -
         Licensing and Collaborative Relationships - The Hereditary Cancer
         Institute."

         Predisposition Testing Services

         The Company offers predisposition testing services for the detection
         of genetic mutations associated with certain cancers.  These services,
         which the Company believes are safe, reliable and accurate, are
         designed to identify individuals at high risk for developing a
         particular type of cancer.  The Company believes that the information
         provided by its predisposition testing services will lead to the
         earlier detection of cancer and improved treatment outcomes by
         enabling high risk individuals to make proactive medical and lifestyle
         decisions designed to delay or prevent the onset of cancer. The
         following is a brief description of the Company's predisposition
         testing services:

         Hereditary Breast/Ovarian Cancer.  Breast cancer is one of the most
         common diseases in women with an estimated 181,600 new cases of breast
         cancer expected to be diagnosed during 1997.  The lifetime risk for
         women in the United States to develop breast cancer is one in eight.
         Approximately 5% to 10% of all breast cancer is believed to be due to
         inherited genetic mutations, of which mutations approximately 80% are
         attributable to mutations in the BRCA1 and BRCA2 genes.  In





                                       6
<PAGE>   7
Item 1   Business:  (Continued)

         October 1994, BRCA1, the first gene indicating an increased risk for
         the development of hereditary breast and ovarian cancer, was reported
         to have been discovered.  In late 1995, BRCA2 was discovered.  The
         lifetime risk for developing breast cancer from an inherited mutation
         in either BRCA1 or BRCA2 is approximately 85% and the risk for ovarian
         cancer can be as high as 60%.  The five-year survival rate for breast
         cancer is greater than 90% when detected early, and less than 20% when
         detected at an advanced stage.  The Company's BRCA1/BRCA2 testing
         service can help identify women at particularly high risk for
         inherited breast and ovarian cancer, for whom earlier and more
         intensive surveillance is recommended.  Some women undergo
         prophylactic surgery (mastectomy and/or removal of ovaries) based
         primarily on family history.  The Company's service can help rule out
         individuals who, because they do not carry the family mutation, may
         not require the intensive surveillance or prophylactic interventions
         recommended for individuals with inherited mutations.

         Heritage Panel.  Depending on the prevalence of breast and ovarian
         cancer within a family,  inherited mutations in BRCA1 or BRCA2 may
         account for 25%-90% of hereditary breast and/or ovarian cancers in
         families of Ashkenazi (Eastern European) Jewish descent.  At least 2%
         of Ashkenazi Jewish individuals are believed to carry one of three
         specific BRCA1/BRCA2 mutations.  In cases where women with breast
         cancer have such a mutation, for example, such women have up to a 65%
         lifetime risk for a second primary breast cancer and up to a 60%
         lifetime risk for ovarian cancer.  For women without cancer, with a
         specific mutation, an 85% lifetime risk for breast cancer exists with
         up to a 60% lifetime risk for ovarian cancer.  Introduced in November
         1996, this test is designed to detect three specific mutations:
         185delAG, 5382insC (both in the BRCA1 gene) and 6174delT (in the BRCA2
         gene).  Current treatment recommendations for women with one of these
         mutations include earlier and increased surveillance, with more
         frequent breast and pelvic examinations, and more frequent mammograms.
         Prophylactic bilateral oophorectomy, at the time of menopause or when
         childbearing is completed, and prophylactic bilateral mastectomy are
         additional options for these women.

         Hereditary Nonpolyposis Colon Cancer ("HNPCC").  Colon cancer ranks
         second as the cause of cancer deaths in the United States.  During
         1997, it is estimated that there will be approximately 134,600 new
         cases of colon cancer.  A family history of colon cancer increases an
         individual's risk of developing the disease.  It is estimated that up
         to 10% of colon cancer cases are HNPCC.  HNPCC is one of the most
         common cancer predisposition syndromes, affecting as many as one in
         200 individuals.  In 1993, the first HNPCC-related gene (MSH2) was
         reported to have been discovered, with the second HNPCC-related gene
         (MLH1) reported to have been discovered shortly thereafter in 1994.
         Mutations in MSH2 and MLH1 are believed to account for approximately
         80% of HNPCC. Two additional HNPCC genes (PMS1 and PMS2) were reported
         to have been discovered in 1994. The identification of mutations in
         any of these genes allows for the accurate diagnosis of HNPCC. The
         lifetime risk for colon cancer in individuals who inherit a genetic
         mutation associated with HNPCC exceeds 90% compared to approximately
         6% in the general population.  The five-year survival rate is
         substantially higher for colon cancer patients when the cancer is
         localized as  compared to colon cancer that has spread to the lymph
         nodes.  The Company's HNPCC testing service may help identify
         individuals at particularly high risk for colon cancer, for whom
         earlier and more intensive surveillance is recommended.  This service
         also rules out individuals who have been





                                       7
<PAGE>   8
Item 1   Business:  (Continued)

         identified through genetic risk assessment as being at risk to develop
         colon cancer but who do not carry the family genetic mutation and,
         therefore, do not require as intensive surveillance as is recommended
         for individuals with inherited genetic mutations.

         Familial Adenomatous Polyposis ("FAP").  FAP is another inherited form
         of colon cancer, which is estimated to affect one in 8,000 people. FAP
         is characterized by the development of hundreds to thousands of
         polyps, some of which inevitably develop into cancer.  In 1991,
         mutations in the APC gene were reported to be associated with the
         development of FAP.  The Company believes that an APC testing service
         should allow for the accurate identification of individuals at high
         risk for FAP who require early and aggressive surveillance.

         Familial Melanoma.  Melanoma is a malignant form of skin cancer, which
         will affect an estimated 40,300 new patients during 1997.
         Approximately 5% to 10% of melanoma is believed to be due to an
         inherited genetic mutation.  In 1994, mutations in the p16 gene were
         found to be associated with familial melanoma.  Mutations in the p16
         gene are believed to account for about half of all inherited melanoma.
         The lifetime risk for melanoma in an individual who has inherited a
         mutation in p16 has not yet been documented.  The Company's p16 gene
         mutation testing service can identify individuals in need of increased
         surveillance for the onset of melanoma.

         Medullary Thyroid Cancer ("MTC").  During 1997, an estimated 16,100
         new cases of thyroid cancer will be diagnosed.  MTC accounts for
         approximately 10% of all thyroid cancer cases.  Approximately 20% of
         MTC occurs as part of one of two hereditary syndromes: multiple
         endocrine neoplasia-type 2 ("MEN-2") and familial medullary thyroid
         carcinoma ("FMTC").  Mutations in the RET gene associated with MEN-2
         and FMTC were first described in 1993.  Studies indicate that
         virtually everyone who inherits a mutation in the RET gene develops
         MTC.  Approximately 50% of MTC patients have metastasis at the time of
         diagnosis using conventional methods.  Overall survival is dependent
         on how invasive the tumor has become.  The historical 10-year survival
         rate is approximately 50%.  RET testing allows for the identification
         of individuals for whom MTC is believed to be a virtual certainty
         before they develop the disease, which can be prevented by a
         prophylactic total thyroidectomy.  The conventional method of
         identifying MTC involves biochemical screening methods, such as
         pentagastrin stimulation testing, which is uncomfortable, costly and
         can fail to detect MTC at an early stage.  Unlike RET testing, which
         need only be performed one time on an at risk individual, biochemical
         screening must be performed annually from about age five to age 40.
         The Company believes that testing for RET mutations has replaced
         annual biochemical screening methods as the standard of care for the
         identification of MTC.

         Li-Fraumeni Syndrome.   Li-Fraumeni is a relatively rare hereditary
         cancer syndrome characterized by a clustering of different cancer
         types within a family, including brain cancer, breast cancer,
         leukemias, lymphomas and soft tissue sarcomas.  p53 mutations have
         been found to be associated with Li-Fraumeni syndrome.  The Company's
         p53 testing service helps to identify individuals in need of increased
         surveillance for the various cancers that comprise Li-Fraumeni
         syndrome.





                                       8
<PAGE>   9
Item 1   Business:  (Continued)

         Predisposition Testing Guidelines

         To help ensure that the highest ethical and medical standards are
         followed when its genetic predisposition testing services are offered
         to patients, the Company employs institutional review board
         ("IRB")-approved protocols and clinical testing guidelines.  IRBs,
         whose role is to ensure the protection of patients, are typically
         comprised of research and clinical physicians, a medical ethicist, a
         consumer or patient advocate and other health care professionals.
         Physicians ordering the Company's predisposition testing services may
         do so under a protocol approved by their own institution's IRB or
         under OncorMed's clinical testing guidelines which have been approved
         by the Company's IRB.  By defining who can be tested, protocols and
         guidelines help to ensure that the Company is performing its services
         only on individuals and families who are at risk for having inherited
         the particular cancer for which they are being tested.  The protocols
         and guidelines also help to ensure that patients are informed about
         the risks and the benefits associated with the testing service and
         that they receive appropriate genetic counseling.

         Early Detection Services

         In 1997, it is estimated that there will be 54,000 new cases of
         bladder cancer; 178,100 new cases of lung cancer and 134,600 new cases
         of colon cancer.  The five-year survival rate for each of these cancer
         types is substantially higher when the cancer is localized as compared
         to when the cancer has spread to the lymph nodes or other organs.  For
         example, when detected at an early stage, the five-year survival rate
         for bladder cancer is approximately 92%, compared with approximately
         48% when there is regional lymph node involvement and approximately 8%
         when the cancer has spread to other organs.  Age and gender-based
         population screening is recommended for colon cancer (digital rectal
         exam, proctosigmoidoscopy and stool blood test) and lung cancer (chest
         x-ray, analysis of types of cells contained in sputum, and fiber optic
         examination of the bronchial passages assist diagnosis) by the
         American Cancer Society and other medical organizations.

         The Company is developing testing services to detect bladder cancer at
         the molecular level before there are any physical symptoms of disease
         detectable using conventional methods.  These services are designed to
         provide accurate and cost-effective methods of detecting cancer at an
         early stage.  The ability to detect molecular changes in certain
         bodily fluids and tissues that are indicative of the presence of
         cancer before there are any physical manifestations of the disease
         will allow for the detection of cancer at an earlier stage than is
         currently possible using conventional screening methods.  A current
         clinical trial uses molecular methods to test the recurrence of cancer
         for bladder cancer patients.  Additional studies are expected for lung
         and colon cancer.  The Company believes that the earlier detection of
         cancer can reduce the need for invasive and costly treatments, improve
         the efficacy of available therapies and increase the likelihood of
         survival.





                                       9
<PAGE>   10
Item 1   Business:  (Continued)

         Prognostic Testing Services

         TumorCheck/Molecular Staging.  Conventional techniques of determining
         whether cancer surgery has been successful rely on a pathologist using
         a microscope to make certain evaluations, which are often based on
         subjective criteria.  Recent studies have found that in more than 20%
         of head and neck and colon cancer patients in which conventional
         microscopic analysis by a pathologist indicated that the surrounding
         tissue and lymph nodes were normal and cancer free, molecular analysis
         detected the presence of cancer cells.  Additional studies, including
         grant work, are being conducted by the Company.  In February 1995,
         OncorMed began offering its TumorCheck service to surgeons and
         pathologists to help them detect cancer cells present at the margins
         of resected tumors and lymph nodes.  There has been limited market
         acceptance of this service to date due to, among other factors, price,
         turnaround time and lack of third-party reimbursement.  The Company's
         TumorCheck service can detect one cancer cell in 10,000 normal cells.
         The Company believes that this service assists oncologists and other
         physicians in determining whether or not additional treatment after
         surgery is warranted and will have a beneficial impact on the
         treatment, follow-up and long-term survival prospects of cancer
         patients undergoing surgery.

         Replication Error Rate ("RER").  The presence of DNA replication
         errors in certain tumors, such as gastric and colon cancer, are
         believed to be predictive of patient survival.  The Company provides a
         service to detect the RER in surgically removed tumors.  This service
         is designed to provide physicians with information about prognosis and
         assist in treatment selection.

         Molecular Profiling, p53 and K-ras.  Recent clinical research has
         indicated that mutations in the p53 and K-ras genes can be predictive
         of both patient survival and response to therapy.  Mutations in the
         p53 tumor suppressor gene are found in tumors such as head and neck,
         breast, and colon.  K-ras oncogene mutations can be found in lung,
         colon, and pancreatic tumors.  Using its automated DNA sequencing
         technology, the Company provides physicians with vital information on
         the mutational status of surgically removed tumors.  This "molecular
         profiling" service is designed to provide physicians with additional
         information about prognosis and to assist in treatment selection.

         Contract Sequencing.  The Company currently provides contract
         sequencing services including single and double pass sequencing and
         primer walking.  In addition, the Company designs and provides primers
         for single or double strand walking projects.

         Genomic Repository.  As a result of its exclusive license with HCI,
         the Company is currently exploring opportunities to license the HCI
         database and DNA library to genomics companies and other entities.
         The HCI database and library have been involved in many cancer gene
         discoveries.  The Company believes that the HCI database and library
         may accelerate new cancer gene discovery, expedite therapeutic
         developments and correlate gene mutations with cancer expression,
         prognosis and treatment effectiveness.





                                       10
<PAGE>   11
Item 1   Business:  (Continued)

         TECHNOLOGY

         OncorMed has developed and licensed from third parties proprietary
         technologies that form the basis for its comprehensive portfolio of
         services.  Through an agreement with Oncor, Inc. ("Oncor Agreement"),
         the Company has acquired sublicenses, exclusive in certain fields of
         use, for many proprietary technologies, including a functional gene
         assay and microsatellite instability technology.  In addition, the
         Company currently uses conventional gene sequencing to detect gene
         mutations.  The Company intends to utilize protein truncation methods,
         various amplification technologies, various gel electrophoresis
         screening methods, gene chip technology and automation to detect
         genetic mutations.  The Company believes that its developed and
         licensed proprietary technologies and collaborative arrangements
         provide it with significant competitive advantages over its potential
         competitors.  Set forth below are brief descriptions of the Company's
         core proprietary technologies.

         Functional Gene Assay.  A difficulty confronting the use of various
         genetic mutation detection technologies in the clinical setting is
         determining whether a specific mutation is biologically significant.
         Some mutations do not affect the function of the proteins produced by
         the gene and thus have no known biological or clinical relevance.
         Genetic mutations that affect function can cause disease.  Certain
         technologies, such as denaturing gradient gel electrophoresis ("DGGE")
         and single strand confirmational polymorphism ("SSCP"), are only able
         to analyze mutations over a very limited region of a particular gene.
         Alternatively, gene sequencing can be performed.  However, gene
         sequencing is expensive and time consuming.  In addition, DNA
         analytical techniques such as DGGE, SSCP and gene sequencing are not,
         by themselves, sufficient to determine if the mutation actually will
         affect the protein produced by that gene and whether it has biological
         significance.

         The Company, through the Oncor Agreement, has acquired a worldwide
         sublicense, exclusive in certain fields of use, from the Massachusetts
         General Hospital to use the functional gene assay and is currently
         applying this technology to the detection of certain genetic
         mutations.  The functional gene assay allows for a simple
         determination of whether a genetic mutation is biologically
         significant and is able also to detect mutations faster and more
         cost-effectively than gene sequencing.

         The Company utilizes the functional gene assay technology in its
         genetic predisposition testing service for Li-Fraumeni syndrome and as
         part of its p53 mutation prognostic testing service.  For its other
         genetic predisposition tests, the Company currently utilizes gene
         sequencing and other mutation detection methods.  OncorMed intends to
         continue to develop other functional gene assays for use in its
         existing predisposition testing services and to form the basis for
         additional services.

         Microsatellite Instability Analysis.  While all cancer cells have some
         type of genetic mutation, only certain mutations cause a genetic
         instability to occur.  Genetic instability is recognized by abnormal
         expansions or deletions of normally present short, repetitive
         sequences in the DNA.  These expansions or deletions, or
         microsatellite alterations, are present in tumor DNA but not in normal
         DNA and are often indicative of the presence of cancer.  The Company
         believes the detection of the genetic instability associated with
         these alterations will provide a fast, reliable and sensitive method
         for the early detection of certain cancers.





                                       11
<PAGE>   12
Item 1   Business:  (Continued)

         The Company, through the Oncor Agreement, has sublicensed, exclusive
         in certain fields of use, technology from The Johns Hopkins University
         to detect the microsatellite alterations associated with genetic
         instability.  Using an optimized set of DNA markers and reagents, the
         Company is developing the analytical capabilities to detect the
         genetic instabilities associated with bladder, lung  and colon
         cancers.

         Rare Cell Detection.  Utilizing a proprietary process sublicensed,
         exclusive in certain fields of use,  from The Johns Hopkins University
         through the Oncor Agreement, which combines DNA amplification, gene
         sequencing and specific probe hybridization, the Company is able to
         detect one cancer cell in 10,000 normal cells in the tissue
         surrounding surgically removed tumors or lymph nodes.  The Company
         isolates and sequences the gene from tumor DNA to identify mutations
         and to create a tumor-specific DNA probe.  The Company also isolates
         DNA from the tumor margins and lymph nodes.  The Company then
         amplifies and clones that DNA, transfers it to a membrane and
         hybridizes it with the tumor-specific DNA probe to detect the presence
         of the tumor DNA in the tissue surrounding surgically removed tumors
         and lymph nodes.  This process forms the basis of the Company's
         TumorCheck service.

         DNA Amplification Technology.  The Company currently is examining
         various DNA amplification technologies including Oncor's proprietary
         technology known as Tri-Amp and ZENECA Diagnostics proprietary ARMS
         technology.  These technologies and other future technologies may
         reduce costs and increase efficiencies in the Company's laboratory.

         DNA GeneChip Technology.  In September 1996, the Company entered into
         an agreement with Affymetrix, Inc. ("Affymetrix") to collaborate in
         the development and clinical validation of genetic testing services
         using the Affymetrix GeneChip system for analysis of genes associated
         with cancer.  The GeneChip system is designed to provide rapid genetic
         analysis using miniaturized, high-density arrays of DNA probes, or
         "chips," and proprietary software to analyze and manage genetic
         information.  The Company and Affymetrix have chosen to initiate the
         collaboration by developing a GeneChip assay for p53 which will be
         designed to help cancer physicians evaluate the aggressiveness of
         tumors and the appropriateness of therapies, thereby leading to better
         treatment and management of cancer.  Over 50% of all major human
         cancers contain mutations, or defects, in the p53 gene.

         Hereditary Cancer Risk Assessment Software and Database.  The Company
         utilizes proprietary software to facilitate familial or inherited
         cancer risk assessment.  The Company continually upgrades its software
         to add features and functionality.  Through its exclusive license with
         HCI, OncorMed utilizes HCI's familial cancer database.  HCI has
         evaluated over 300,000 individuals and built its database using data
         from individuals identified as being at high risk to develop familial
         or hereditary cancer.  This database is believed to be one of the
         largest of its type in the United States.





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Item 1   Business:  (Continued)

         LICENSING AND COLLABORATIVE RELATIONSHIPS

         Incyte Pharmaceuticals, Inc.

         Pursuant to a License, Services and Marketing Agreement (the "Incyte
         Agreement"), dated February 25, 1997, the Company and Incyte
         Pharmaceuticals, Inc., a Delaware corporation ("Incyte"), have formed
         a broad-based collaboration in clinical genomics designed to create an
         integrated genomics and sequence-based mutation analysis capability
         for the two companies.  The term of the Incyte Agreement expires on
         February 25, 2000 (the "Initial Term") unless extended by mutual
         agreement or earlier terminated in accordance with its terms.

         The Company has agreed to perform certain specified clinical genomic
         services relating to the creation of a tissue repository and the
         performance of a gene functional studies program (the "Collaborative
         Services").  Incyte has agreed to purchase a specified minimum of
         Collaborative Services during each year of the Initial Term.  In
         addition, under the terms of the Incyte Agreement, the Company has
         obtained a non-exclusive, royalty-bearing license (without the right
         to sublicense) to use Incyte's high-throughput sequencing technology
         for use in the Company's clinical diagnostic services for a period
         ending five (5) years following termination of the Incyte Agreement,
         subject to certain limitations.  In consideration for the grant of the
         license, the Company has issued to Incyte (i) Four Hundred One
         Thousand Thirty Three (401,033) shares of the Company's Common Stock
         (the "Definite Technology Shares"), and (ii) a warrant to purchase up
         to an aggregate of ten percent (10%) of the Company's Common Stock
         issued and outstanding on the date of such warrant's exercise (the
         "Warrant Shares").  The warrant is exercisable until February 25, 2000
         at an exercise price per share equal to the greater of one hundred-ten
         percent (110%) of the fair market value per share of Common Stock on
         the trading day prior to the date of exercise or (i) Eight Dollars
         ($8.00) per share (if the warrant is exercised on or prior to February
         25, 1998), (ii) Nine Dollars ($9.00) per share (if the warrant is
         exercised after February 25, 1998, but on or prior to February 25,
         1999), or (iii) Thirteen Dollars and Fifty Cents ($13.50) per share
         (if the warrant is exercised after February 25, 1999, but on or prior
         to February 25, 2000).  Notwithstanding the foregoing sentence, Incyte
         has the option to fix the exercise price per share during each of
         aforementioned periods; provided, however, that in no event shall the
         exercise price per share during each of the aforementioned periods be
         less than Eight Dollars ($8.00), Nine Dollars ($9.00) or Thirteen
         Dollars and Fifty Cents ($13.50) per share, respectively.

         Furthermore, pursuant to a Securities Purchase Agreement between the
         Company and Incyte, Incyte purchased Three Hundred Seventy Two
         Thousand Five Hundred Fifty Five (372,555) shares of Common Stock from
         the Company for Three Million Dollars ($3,000,000) (the "Cash Purchase
         Shares") or the equivalent of Eight Dollars and Five Cents ($8.05) per
         share.  In addition, under the terms of the Securities Purchase
         Agreement the Company has agreed to issue to Incyte, under certain
         circumstances, up to an aggregate of One Hundred Thirty Thousand Seven
         Hundred Twenty Six (130,726) shares of the Company's Common Stock (the
         "Additional Shares").  Pursuant to the terms of an Investor's Rights
         Agreement between the Company and Incyte, Incyte was granted certain
         registration and other stockholder rights with respect to the Definite
         Technology Shares, Warrant Shares, the Cash Purchase Shares and the
         Additional Shares.





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Item 1   Business:  (Continued)

         Oncor, Inc.

         The Company and Oncor recently agreed to certain changes to the
         Restated Technology License Agreement, dated June 6, 1994.  Pursuant
         to the Oncor Agreement, Oncor is providing the Company with an
         exclusive worldwide license to certain of Oncor's existing human
         genome technologies that are useful for the purposes of development
         and commercialization of certain of the Company's services, including:
         (i) testing, detection and/or analysis of genes; (ii) genetic
         assessment of risk of an individual to develop cancer; and (iii)
         testing and analysis for the purposes of cancer management.  In
         addition, Oncor is providing the Company with a non-exclusive
         worldwide license to certain of Oncor's existing human genome
         technologies, and any future improvements thereto, to be used by the
         Company in the provision of services directly to third parties other
         than services that are provided pursuant to the exclusive license.
         The Company does not have the right to sublicense any Oncor
         technologies licensed to it by Oncor without Oncor's prior written
         consent.  Technologies sublicensed to the Company by Oncor include
         technologies covered by the collaborative licensing and research
         agreements between Oncor and each of The Johns Hopkins University and
         the Massachusetts General Hospital.  The term of the agreement shall
         expire in June 2004 unless earlier terminated in accordance with its
         terms.

         Under the terms of the agreement, the Company is obligated to make
         payments on a quarterly basis to Oncor equal to a range of four
         percent (4%) to two percent (2%) of the Company's annual net sales.
         During the first year of the agreement, the Company is obligated to
         pay Oncor a minimum amount equal to $50,000 per quarter.  During the
         second year of the agreement, the Company is obligated to pay Oncor a
         minimum amount equal to $25,000 per quarter.  Thereafter, there shall
         be no minimum payment required to be made by the Company to Oncor in
         connection with the agreement.

         In addition, subject to certain third-party contractual limitations,
         prior to the license or disposition (whether by assignment, transfer
         or license) to a third party by the Company or Oncor of their
         respective technologies, the non-offering party shall have a thirty
         (30) day right of first offer with respect to such technologies.  If
         the non-offering party accepts the offer, the Company and Oncor shall
         negotiate in good faith the terms and conditions of any such license
         or acquisition agreement.

         Oncor has the primary right and obligation to obtain, maintain and
         enforce proprietary rights in relation to all its own technologies and
         any improvements to such technologies assigned to Oncor by the
         Company.  The Company has the primary right and obligation to obtain,
         maintain and enforce proprietary rights in relation to all its own
         technologies.

         The Hereditary Cancer Institute

         HCI, located at the Creighton University School of Medicine, Omaha,
         Nebraska, and headed by Henry T. Lynch, M.D., is a world-renowned
         research institute specializing in the study of familial and inherited
         cancer.  The Company, HCI and Creighton University are parties to an
         agreement pursuant to which the Company has exclusive worldwide
         commercialization rights to HCI's DNA library and its familial cancer
         database, which are expected to be used for services provided by the
         Company to researchers and genetic-technology companies.  Under the
         agreement, Dr. Lynch and





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Item 1   Business:  (Continued)

         his HCI colleagues provide consultation services and reviews of cancer
         family histories for the Company's risk assessment services.  The
         Company intends to use expert systems, neural networks and data mining
         methodologies in an effort to identify new patterns of hereditary
         cancer in the HCI familial cancer database.

         Under its license agreement with HCI and Creighton University, the
         Company is obligated to pay an annual sponsorship fee of $250,000, in
         quarterly installments, that is offset by a percentage of the amounts
         paid under a related services agreement.  In addition, under the
         license agreement, the Company is required to pay a royalty on net
         sales of products and services which make use of the HCI database,
         other than the Company's risk assessment service, and on license
         income derived from sublicenses to third parties of the Company's
         rights to the HCI database.  As part of its relationship with HCI, the
         Company also will share with HCI any revenues from the
         commercialization of products or services based upon samples contained
         in the HCI DNA library.  The DNA library, which houses DNA samples
         collected from families at high risk of inherited cancer, provides a
         reservoir of biological material which is potentially important for
         new gene discoveries.  The HCI license agreement terminates in
         December 2000, subject to earlier termination upon one years' notice,
         and is automatically renewable for additional two-year periods.

         Affymetrix, Inc.

         In September 1996, the Company entered into an agreement with
         Affymetrix to collaborate in the development and clinical validation
         of genetic testing services using the Affymetrix GeneChip system for
         analysis of genes associated with cancer.  The GeneChip system is
         designed to provide rapid genetic analysis using miniaturized,
         high-density arrays of DNA probes, or "chips," and propriety software
         to analyze and manage genetic information.  The Company and Affymetrix
         have chosen to initiate the collaboration by developing a GeneChip
         assay for p53 which will be designed to help cancer physicians
         evaluate the aggressiveness of tumors and the appropriateness of
         therapies, thereby leading to better treatment and management of
         cancer.

         The Regents of the University of California

         The Company entered into a license agreement, effective August 8,
         1996, with the Regents of the University of California for the use of
         certain genetic markers for breast and ovarian cancer.  Under the
         agreement, the Company is obligated to pay royalties for the use of
         the technology as clinical laboratory services are performed.  Royalty
         payments are payable quarterly, 60 days after the end of each quarter.

         ZENECA Diagnostics

         During August 1996, the Company and ZENECA Limited acting through
         ZENECA Diagnostics,  entered into a five year Collaboration Agreement
         under which ZENECA Diagnostics will supply OncorMed with proprietary
         cancer reagents based on the patented ZENECA ARMS technology for use
         by the Company's advanced cancer genetic testing laboratory in the
         U.S.  The agreement automatically renews for successive twelve month
         periods unless terminated by either party.  Use of ZENECA Diagnostics
         reagents will enable the Company to develop and provide enhanced
         diagnostic testing in the cancer field.





                                       15
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Item 1   Business:  (Continued)

         Other Licensing and Collaborative Arrangements

         The Company currently is supporting clinical correlation studies at MD
         Anderson Cancer Center, Memorial Sloan-Kettering Cancer Center, The
         Cleveland Clinic, Dana-Farber Cancer Institute and The Johns Hopkins
         University.  These studies help to validate the clinical utility of
         specific genetic tests and determine how the results of these tests
         should be interpreted by physicians.  These clinical correlation
         studies are typically conducted under the center's or institution's
         guidelines and protocols, which are designed to, among other things,
         limit the potential for undue influence by, or conflicts of interest
         with, the sponsor of such studies and ensure that ethical and medical
         standards are maintained.  Through the Oncor Agreement, the Company
         has certain rights to inventions relating to specific genes and
         genetic technologies at leading academic and research institutions,
         including The Johns Hopkins University and the Massachusetts General
         Hospital.  The Company also has entered into a license agreement for
         the use of certain genes and genetic mutations associated with HNPCC
         with the Dana-Farber Cancer Institute, the State of Oregon, the
         University of Vermont and Yale University.

         RESEARCH AND DEVELOPMENT

         The Company's principal research and development programs are targeted
         at improving the efficiency and utility of its existing services,
         developing new services and enhancing its informatics capabilities.
         Existing and planned research and development projects include the
         development of novel DNA amplification applications, mutation
         detection array methods, functional gene assay development, gene chip
         technology, automation of specimen analysis and the development of
         gene mutation screening systems.  Additional genetic predisposition
         tests for certain hereditary cancers based on newly discovered
         cancer-related genes are under development.  Development of early
         detection tests for bladder, lung and colon cancers is also ongoing.
         Informatics development projects in progress include result reporting,
         mutation tracking, database interfacing and patient tracking systems.
         The Company has sponsored research programs at leading research and
         academic institutions in the past and intends to sponsor additional
         research programs in the future related to specific genetic diseases
         and genetic mutation detection technologies.

         The Company's research and development activities also include
         optimizing and standardizing procedures, creating quality control and
         quality assurance programs, and ensuring that the results obtained
         through its services are reproducible, accurate and precise.  Each of
         the Company's genetic testing services undergoes an extensive
         development and testing process prior to its introduction into the
         market.  This process includes: (i) the verification and validation of
         the service utilizing previously analyzed and characterized samples;
         (ii) extensive clinical correlation studies in conjunction with major
         academic institutions to determine how the tests underlying the
         Company's services should be interpreted by physicians and genetic
         counselors; (iii) review of the clinical correlation study results by
         the Company's medical directors and scientific advisors; and (iv)
         establishing final written protocols and guidelines.

         SALES AND MARKETING

         The Company believes that the customers for its services primarily
         consist of physicians, hospitals, cancer centers , clinical
         laboratories and pharmaceutical companies and that the services
         provided





                                       16
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Item 1   Business:  (Continued)

         by the Company will be used for a broad range of patients.  The
         Company also believes that its services will be attractive to managed
         care organizations, including health maintenance organizations,
         preferred provider organizations and cancer disease management
         companies.

         The Company recognizes that the genetic testing and information
         services it provides for the early detection and management of cancer
         represent new medical services for which the market is evolving.
         While most cancer patients in the United States are treated outside of
         academic medical centers, research facilities and cancer centers, it
         is these institutions and their affiliated physicians who drive the
         introduction of new medical technologies and services used for cancer
         patients.  Consumer demand also can influence the rate at which new
         medical tests and services are introduced into the health care system.

         The Company has developed a sales and marketing approach to address
         each type of target customer.  Programs aimed at generating support
         for the Company's services among academic medical centers and research
         institutions include retaining renowned scientists as consultants,
         working with leading oncologists at MD Anderson Cancer Center and the
         Memorial Sloan-Kettering Cancer Center on clinical correlation studies
         to generate peer reviewed publications and offering pricing discounts
         to academic medical centers and research institutions.  Among the
         non-academic medical providers, education is a critical aspect of
         market creation.  The Company has fielded a sales force to promote the
         Company's services to physicians and hospitals across the country.  In
         addition to face-to-face sales calls, approaches employed by the
         Company to educate broader groups of providers include direct mailings
         to targeted groups of physicians, participation in medical trade
         shows, advertising in leading medical journals and sponsorship of
         educational forums for clinicians.

         The Company primarily markets its risk assessment service to cancer
         centers, managed care organizations, hospitals and large physician
         practices.  The Company is marketing its genetic predisposition
         testing services to specialists in the fields relating to the service.
         The Company markets all of its predisposition testing services to
         oncologists, its colon cancer services to gastroenterologists, its
         breast/ovarian cancer testing services to gynecologists, its thyroid
         cancer testing service to endocrinologists and its melanoma testing
         service to dermatologists.  To facilitate the use of its
         predisposition testing services by physicians, the Company provides
         clinical guidelines reviewed by its IRB for use by physicians.  For
         its TumorCheck and other prognostic testing services, the Company
         targets surgeons and pathologists.

         The Company charges a licensing fee for its Hereditary Cancer
         Consulting Service, which generally includes the interpretation of a
         certain number of family trees or pedigrees.  Additional pedigree
         interpretations are paid for on a fee-for-service basis.
         Predisposition testing services range in price from several hundred
         dollars per test to more than two thousand dollars per test, depending
         on whether the person being tested is the proband (the family member
         with the disease) or a relative, how many genes have to be analyzed
         and the technology utilized for mutation detection.  The Company's
         prognostic testing services also vary in price, from approximately one
         hundred dollars to more than two thousand dollars, according to the
         amount of tissue that must be analyzed and the technology employed for
         mutation detection.

         Under the Incyte Agreement, Incyte may market various collaborative
         services developed by Incyte and the Company to third parties.
         Separately, the Company currently markets contract sequencing





                                       17
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Item 1   Business:  (Continued)

         services to the NIH/NCI and other entities.  In addition, the Company
         is exploring licensing opportunities to the HCI database and DNA
         library.  The Company has ongoing business development efforts to sell
         various services including clinical trial work to pharmaceutical
         companies.

         During July 1996, the Company signed a one-year renewable agreement
         with NTP, Inc., a Minneapolis-based corporation specializing in
         genetic, oncologic and neurologic services in South America to
         distribute the Company's cancer genetic testing services in Argentina,
         Brazil, Chile, Paraguay and Uruguay.  Testing will be provided out of
         the Company's laboratory.

         During September 1996, the Company signed a two-year agreement with
         Endocrine Sciences, Inc. to distribute domestically the Company's RET
         gene test for familial medullary thyroid carcinoma.  Endocrine
         Sciences employs a national field sales organization with an exclusive
         focus on selling diagnostic testing services to endocrinologists, the
         primary market for the Company's RET test.

         COMPETITION

         The Company is engaged in the biotechnology and medical services
         industries which are characterized by extensive research and
         development efforts, rapid technological progress and intense
         competition.  There are many public and private companies, including
         well-known pharmaceutical companies, biotechnology companies and
         academic institutions, engaged in developing medical services and the
         technology underlying such services.  Although there are relatively
         few direct competitors of the Company, it is anticipated that the
         number of direct competitors will increase significantly in the
         future.  Many of the Company's current and potential competitors have
         substantially greater financial and technological resources, sales and
         marketing capabilities and experience, and research and development
         experience than the Company.  Accordingly, the Company's competitors
         may succeed in developing services and the underlying technology more
         rapidly than the Company and in developing services that are more
         accurate and useful and less costly than any of the Company's
         services.  The Company's competitors also may be more successful than
         the Company in marketing and selling such services.  In addition,
         other technologies are, or in the future may become, the basis for
         competitive products and services.  Oncor may develop technologies
         under the Oncor Agreement into products which Oncor will sell to third
         parties.  These third parties may then use these products to provide
         services that compete directly with the Company's services, which
         could have a material adverse effect on the Company's business,
         financial condition and results of operations.

         The Company relies on certain technologies that are not patentable or
         proprietary and consequently may be available to the Company's
         competitors.  Competition may increase further as a result of the
         potential advances in the technology underlying the services developed
         by the Company.  The Company also is aware that other companies have
         developed or may be developing genetic testing and information
         technologies, services and products for diagnostic purposes that are
         or may be competitive with the Company's services.  There can be no
         assurance that the Company's competitors will not succeed in
         developing technologies, services and products that are more accurate
         and useful than any being developed by the Company or that would
         render the Company's technology and services obsolete or
         noncompetitive.





                                       18
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Item 1   Business:  (Continued)

         Given the early stage of the market for the Company's services, the
         important competitive factors are availability, accuracy and utility.
         The Company anticipates that other competitive factors, such as price,
         availability of third-party reimbursement and response time, will
         become important as the market matures.

         PATENTS AND PROPRIETARY RIGHTS

         The Company relies on a combination of trade secret and copyright laws
         and confidentiality agreements to protect its proprietary technology,
         rights and know-how.  The Company's success will depend in part on its
         ability or the ability of its licensors or sublicensors to obtain
         patents, defend patents, maintain trade secrets, defend copyrights and
         operate without infringing upon the proprietary rights of others, both
         in the United States and in foreign countries.  The patent position of
         companies relying upon biotechnology is highly uncertain in general
         and involves complex legal and factual issues, and no consistent
         policy has emerged regarding the breadth of claims allowed in
         biotechnology patents.  To date, none of the Company, its licensors or
         its sublicensors has been granted any patents related to the
         technology or genetic discoveries underlying the Company's current
         services.  Although the Company and certain of the Company's licensors
         and sublicensors have patent applications pending relating to such
         technologies and discoveries, there can be no assurance that patents
         will be issued as a result of such patent applications or that, if
         issued, such patents will be sufficiently broad to afford protection
         against competitors with similar technologies or discoveries.  There
         can also be no assurance that patents, if any, issued to the Company,
         or for which the Company has license or sublicense rights, will not be
         challenged, invalidated or circumvented, or that the rights granted
         thereunder will provide competitive advantages to the Company.  The
         commercial success of the Company also will depend upon avoiding the
         infringement of patents issued to third parties, obtaining licenses to
         third parties' technologies and genetic discoveries and maintaining
         licenses upon which certain of the Company's services are, or might
         be, based.  In particular, third parties, including potential
         competitors, have already filed patent applications relating to
         certain genes and genetic mutations, including the BRCA1, BRCA2 and
         p16 genes and related mutations, underlying certain of the Company's
         services, and may in the future file additional patent applications
         relating to genes and genetic mutations.  In the event that any such
         patents are issued to such parties, such patents may preclude the
         Company, its licensors and sublicensors from obtaining patent
         protection for their technologies and discoveries, may hinder or
         prevent the Company from providing related genetic testing services
         and could require the Company to enter into licenses with such parties
         or cease such activities.  There can be no assurance that any required
         licenses would be available on acceptable terms, or at all.
         Litigation, which could result in substantial cost to the Company, may
         be necessary to determine the scope and validity of others'
         proprietary rights or to enforce the Company's patent, copyright,
         trade secret and license and sublicense rights.  The failure by the
         Company to obtain any such licenses, if required, and the Company's
         involvement in such litigation, could have a material adverse effect
         on the Company's business, financial condition and results of
         operations.

         Oncor has the primary right and obligation to obtain, maintain and
         enforce proprietary rights in relation to all its own technologies and
         any improvements to such technologies assigned to Oncor by the
         Company.  The Company has the primary right and obligation to obtain,
         maintain and enforce proprietary rights in relation to all its own
         technologies.





                                       19
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Item 1   Business:  (Continued)

         The Company also relies on certain technologies, trade secrets and
         know-how that are not patentable or proprietary and are available to
         the Company's competitors.  Although the Company has taken steps to
         protect its unpatented technologies, trade secrets and know-how, in
         part through the use of confidentiality agreements with its employees,
         consultants and certain of its contractors, there can be no assurance
         that these agreements will not be breached, that the Company would
         have adequate remedies for any breach or that the Company's trade
         secrets will not otherwise become known or be independently developed
         or discovered by competitors.

         GOVERNMENT REGULATION

         The Clinical Laboratory Improvement Act ("CLIA"), as amended in 1988,
         provides for regulation of clinical laboratories by the United States
         Department of Health and Human Services ("HHS").  These regulations
         mandate that all clinical laboratories be certified to perform testing
         on human specimens and provide specific conditions for certification.
         These regulations also contain guidelines for the qualifications,
         responsibilities, training, working conditions and oversight of
         clinical laboratory employees.  In addition, specific standards are
         imposed for each type of test that is performed in a laboratory.  The
         Company's laboratory is certified under these regulations and the
         Company believes that it is in substantial compliance with these
         guidelines.  CLIA and the regulations promulgated thereunder are
         enforced through continuous quality inspections of test methods,
         equipment, instrumentation, materials and supplies on a bi-annual and
         "spot" basis.  In addition, while the United States Food and Drug
         Administration (the "FDA") does not currently regulate the genetic
         tests underlying the Company's services if they are performed in the
         Company's  CLIA certified clinical laboratory, there can be no
         assurance that the FDA will not seek to regulate such tests in the
         future.  If, in the future, the FDA should determine that the tests
         underlying the Company's services should receive FDA approval prior to
         their provision in the Company's laboratory, there can be no assurance
         that such approval would be received on a timely basis or at all.  Any
         change in CLIA or related regulations, or in the interpretation
         thereof, or in the FDA's position on regulating the tests underlying
         the Company's services, could have a material adverse effect on the
         Company's business, financial condition and results of operations.
         The Company's laboratory is licensed and regulated by the State of
         Maryland, in which it is located.  The Company's laboratory is also
         regulated by certain other states from which the Company may accept
         specimens.  The Company has received approval for a license from the
         State of New York and intends to seek approval from other states as
         required.  No assurance can be given that the Company will be able to
         obtain such approvals on a timely basis or at all.  The loss of, or
         the failure to obtain, any required state license could have a
         material adverse effect on the Company's business, financial condition
         and results of operations.

         The Company is subject to extensive federal, state and local
         regulation, including regulation under the Occupational Safety and
         Health Act, the Environmental Protection Act, the Toxic Substances
         Control Act, the Resource Conservation and Recovery Act and other
         laws, rules and regulations governing health care, clinical laboratory
         activities, waste disposal, handling of toxic, dangerous or
         radioactive materials and other matters.  Although the Company's
         services are currently considered screening services under Medicare
         and are therefore excluded from coverage under Medicare, in the
         future, the Company's services may be subject to laws, rules and
         regulations governing reimbursement and fraud and abuse, and
         prohibiting the filing of false claims.  These laws, rules and
         regulations include "anti-kickback" and "Stark" laws, which contain
         extremely broad proscriptions,





                                       20
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Item 1   Business:  (Continued)

         the violation of which may result in exclusion from Medicare and
         Medicaid and criminal and civil penalties.  In addition, the Company
         is subject to state laws, rules and regulations limiting certain
         financial relationships between health care providers and physicians
         and other referral sources.  Although the Company believes that it is
         in substantial compliance with all applicable laws, rules and
         regulations, there can be no assurance that the Company will remain in
         compliance with applicable laws, rules and regulations or that changes
         in, or new interpretations of, existing laws, rules and regulations
         would not have a material adverse effect on the Company's business,
         financial condition and results of operations.

         The availability of genetic predisposition testing has raised certain
         ethical, legal and social issues regarding the appropriate utilization
         and confidentiality of information provided by such testing.  The
         medical information obtained or determined about an individual from
         the Company's services is of an extremely sensitive nature.  In
         providing its services, the Company is subject to certain statutory,
         regulatory and common law requirements regarding the confidentiality
         of such medical information.  The Company maintains an internal
         regulatory compliance review program to monitor compliance with
         applicable confidentiality requirements, and believes that it is in
         substantial compliance with such requirements.  Failure to comply with
         such confidentiality requirements could result in material liability
         to the Company.

         HUMAN RESOURCES

         The Company had 59 employees at December 31, 1996, including 12
         employees in sales and marketing, 25 in laboratory operations and
         genetic services, 14 employees in administration and 8 employees in
         research and development.  None of the Company's employees is
         represented by a labor union.  The Company has experienced no work
         stoppages and believes that its relations with its employees are good.

         RISK FACTORS
 
         Development Stage Company; History of Operating Losses; Uncertainty of
         Future Profitability

         The Company commenced operations in July 1993, has a limited operating
         history and is a development stage company.  Since its inception, the
         Company has been engaged in research and development activities,
         organizational efforts and sales and marketing activities, including
         the development of its services, the hiring of its scientific and
         marketing staff and its initial sales and marketing efforts.  The
         Company has incurred operating losses since its inception.  As of
         December 31, 1996, the Company's accumulated deficit was approximately
         $18.8 million.  The Company's losses have resulted principally from
         selling, general and administrative expenses, laboratory operations
         and research and development expenses.  The Company has yet to
         generate any significant revenues and the Company cannot anticipate
         when, or if, it will be able to generate significant revenues in the
         future.  The Company expects its operating losses to continue as its
         sales and marketing efforts, research and development programs and
         laboratory operations continue and increase.  The Company's ability to
         achieve profitability depends on its ability to successfully market
         and sell its services.  There can be no assurance when, or if, the
         Company will become profitable. See "Selected Financial Data" and
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operations."





                                       21
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Item 1   Business:  (Continued)

         Relationship with Oncor

         The Company and Oncor recently agreed to certain changes to the
         Restated Technology License Agreement, dated June 6, 1994.  Pursuant
         to the Oncor Agreement, Oncor is providing the Company with an
         exclusive worldwide license to certain of Oncor's existing human
         genome technologies that are useful for the purposes of development
         and commercialization of certain of the Company's services, including:
         (i) testing, detection and/or analysis of genes; (ii) genetic
         assessment of risk of an individual to develop cancer; and (iii)
         testing and analysis for the purposes of cancer management.  In
         addition, Oncor is providing the Company with a non-exclusive
         worldwide license to certain of Oncor's existing human genome
         technologies, and any future improvements thereto, to be used by the
         Company in the provision of services direct to third parties other
         than services that are provided pursuant to the exclusive license.
         The Company does not have the right to sublicense any Oncor
         technologies licensed to it by Oncor without Oncor's prior written
         consent.  Technologies sublicensed to the Company by Oncor include
         technologies covered by the collaborative licensing and research
         agreements between Oncor and each of The Johns Hopkins University and
         the Massachusetts General Hospital.  The term of the agreement shall
         expire in June 2004 unless earlier terminated in accordance with its
         terms.

         The Company is reliant on the technologies licensed directly from
         Oncor and from third parties through Oncor which form the basis for
         some of the Company's services.  The Company's rights under the Oncor
         Agreement are subject to certain rights retained by Oncor, which
         include Oncor's right to use the licensed technologies for internal,
         non-commercial research and development purposes and for development
         and commercialization of Oncor's products.  Oncor intends to develop
         its technologies into diagnostic products for sale to third parties.
         These third parties may then use these products to provide services
         that compete directly with the Company's services, which could have a
         material adverse effect on the Company's business, financial condition
         and results of operations. There can be no assurance that the Oncor
         Agreement will be renewed at the end of its initial term or that it
         will not be terminated earlier pursuant to its terms.  There also can
         be no assurance that conflicts of interest between Oncor and the
         Company will not arise with respect to the Oncor Agreement, any
         services that might be provided by Oncor to the Company in the future
         or other aspects of the Company's relationship with Oncor.

         The Company's rights to technologies licensed to the Company from
         third parties through Oncor are subject to various provisions in the
         license agreements between such third parties and Oncor.  No assurance
         can be given that Oncor will perform its obligations under such
         agreements, that such agreements will not be terminated or that such
         agreements can be renewed upon termination or expiration.  If Oncor
         breaches such agreements or otherwise fails to comply with such
         agreements, or if such agreements are terminated or otherwise expire,
         the development or commercialization of certain of the Company's
         services may be delayed or terminated, or the Company would have to
         expend substantial additional resources on development and
         commercialization, which would have a material adverse effect on the
         Company's business, financial condition and results of operations.
         Giving effect to the equity transaction with Incyte, Oncor owns
         approximately 25.6% of the Company's outstanding common stock.
         Accordingly, Oncor may be able to effectively control or influence
         certain actions such as the election of directors and the
         authorization of certain transactions that require stockholder
         approval and be able to otherwise effectively control the Company's
         policies without concurrence of the Company's other stockholders.  In
         addition, Stephen Turner, Chief





                                       22
<PAGE>   23
Item 1   Business:  (Continued)

         Executive Officer and Chairman of the Board of Directors of Oncor, is
         a director of the Company, and Timothy J. Triche, M.D., Ph.D., a
         director of Oncor, is the Chief Executive Officer and Chairman of the
         Board of Directors of the Company.  See "Business -- Licensing and
         Collaborative Relationships."

         Limited Patient Populations For Certain Services

         Certain of the Company's services currently address subtypes of
         broader types of cancers.  Patients with such subtypes typically
         represent only a small percentage of those patients who are under
         treatment or have a history of the broader types of cancer.
         Accordingly, the market for such services may be limited and such
         services may not generate significant revenues.

         New and Uncertain Business; Uncertainty of Clinical Utility

         The Company's genetic testing and information services represent a new
         approach to cancer management for which there is little precedent and
         for which the market is evolving.  The Company's business is to
         commercialize recent genetic discoveries and mutation detection
         technologies for the early detection and management of cancer.  The
         Company's ability to successfully develop its business is unproven and
         is dependent on its ability to establish its services as the standard
         of care in cancer management and obtain third party reimbursement for
         its services; expand the distribution of its services both
         domestically and internationally; develop strategic alliances and
         collaborations with academic medical centers, research institutions,
         managed care organizations, clinical laboratories, pharmaceutical
         companies, health care providers and corporate partners; identify,
         license and develop emerging genetic discoveries and mutation
         detection technologies; and continue to expand its portfolio of
         services.  The Company's ability to succeed is also dependent upon the
         acceptance by potential customers and patients of the Company's
         services as effective tools for cancer management.  There can be no
         assurance that the market for the Company's services will continue to
         evolve or that the Company's business strategy will be successful.
         The discoveries and technologies which form the basis for the
         Company's services have not been widely adopted by the medical
         community.  Accordingly, the Company is pursuing clinical correlation
         studies at academic medical centers and research institutions that are
         designed to determine the clinical utility, reliability and accuracy
         of the Company's services.  There can be no assurance that these
         studies will confirm the clinical utility, reliability and accuracy of
         the Company's services.  The failure of these studies to do so could
         have a material adverse effect on the Company's business, financial
         condition and results of operations.  See "Business - Sales and
         Marketing."

         Uncertain Availability of Health Care Reimbursement and Market 
         Acceptance of Services

         The successful commercialization of genetic testing and information
         services depends in part on the ability of its customers to obtain
         adequate reimbursement for such services and related treatments from
         governmental agencies, private health care insurers and other third
         party payors.  Government and private third party payors are
         increasingly attempting to contain health care costs by limiting both
         the extent of coverage and the reimbursement rate for new diagnostic
         and therapeutic products and services.  Medicare has determined that
         the Company's services are screening services and therefore are
         excluded from coverage under Medicare.  The Company is seeking
         reimbursement





                                       23
<PAGE>   24
Item 1   Business:  (Continued)

         approval for its services from various third party payors.  There can
         be no assurance that third party reimbursement for the Company's
         services will be available to its customers or that any such
         reimbursement will be adequate.  Disapproval of, or limitations in,
         coverage by third party payors could materially and adversely affect
         market acceptance of the Company's services which would have a
         material adverse effect on the Company's business, financial condition
         and results of operations.

         Dependence on Collaborations and Licenses with Others

         The Company's strategy for the research, development and
         commercialization of certain of its services is to rely in part on
         various collaborative and license arrangements with academic medical
         centers, research institutions and commercial entities.  Accordingly,
         the Company is dependent in part upon such third parties performing
         their obligations.  The Company has entered into certain collaborative
         and license arrangements, including arrangements with HCI, Affymetrix,
         ZENECA Diagnostics, and Incyte, and is continually seeking to enter
         into additional arrangements with other collaborators and licensors.
         There can be no assurance that the Company will be able to enter into
         acceptable collaborative and license arrangements in the future or
         that the parties with which the Company has established or will
         establish arrangements will perform their obligations under such
         arrangements.  There also can be no assurance that its current
         arrangements or any future arrangements will lead to the development
         of additional services with commercial potential, that the Company
         will be able to obtain or license proprietary rights with respect to
         any technology developed in connection with these arrangements and
         that the Company will be able to ensure the confidentiality of any
         proprietary rights and information developed in such arrangements or
         prevent the public disclosure thereof.  In general, the Company's
         collaborative and license arrangements provide that they may be
         terminated under certain circumstances.  There can be no assurance
         that such arrangements will not be terminated or that the Company will
         be able to extend any of its collaborative and license arrangements
         upon their expiration.  The Company currently has certain licenses
         from third parties, either directly or indirectly through the Oncor
         Agreement, and in the future may require additional licenses from
         these or other parties to develop and market commercially viable
         services.  There can be no assurance that such licenses will be
         obtainable on commercially reasonable terms, if at all, or renewable,
         that the patents underlying such licenses, if any, will be valid and
         enforceable or that the nature of the technology underlying such
         licenses will remain proprietary.

         The Company's rights to technologies licensed to the Company from
         third parties through the Oncor Agreement are subject to the license
         agreements between such third parties and Oncor.  No assurance can be
         given that the third parties to these agreements will perform their
         obligations under such agreements on a timely basis or at all.  If
         such third parties breach or terminate their agreements with Oncor or
         otherwise fail to, or are unable to, comply with the provisions of
         their agreements with Oncor for whatever reason, the Company would
         have no direct recourse and would be dependent on Oncor to enforce
         such agreements.  The agreements between Oncor and the third parties
         expire at various times.  There can be no assurance that these
         agreements will be renewed at the end of their initial terms or that
         such agreements will not be terminated or cancelled prior to their
         expiration.  The Company has no rights under these third party
         agreements and is reliant upon Oncor to negotiate renewals of such
         agreements and resolve disputes under such agreements.  If the third
         parties to the agreements that the Company licenses from Oncor through
         the Oncor Agreement





                                       24
<PAGE>   25
Item 1   Business:  (Continued)

         breach such agreements or otherwise fail to comply with such
         agreements, or such agreements are terminated or otherwise expire, the
         development or commercialization of certain of the Company's services
         may be delayed or terminated, or the Company would have to expend
         substantial additional resources on development and commercialization,
         which could have a material adverse effect on the Company's business,
         financial condition and results of operations.  See "Business --
         Licensing and Collaborative Relationships."

         Competition

         The Company is engaged in the biotechnology and medical services
         industries which are characterized by extensive research and
         development efforts, rapid technological progress and intense
         competition.  There are many public and private companies, including
         well-known pharmaceutical companies, biotechnology companies and
         academic institutions, engaged in developing medical services and the
         technology underlying such services.  Although there are relatively
         few direct competitors of the Company, it is anticipated that the
         number of direct competitors will increase significantly in the
         future.  Many of the Company's current and potential competitors have
         substantially greater financial and technological resources, sales and
         marketing capabilities and experience, and research and development
         experience than the Company.  Accordingly, the Company's competitors
         may succeed in developing services and the underlying technology more
         rapidly than the Company and in developing services that are more
         accurate and useful and less costly than any of the Company's
         services.  The Company's competitors also may be more successful than
         the Company in marketing and selling such services.  In addition,
         other technologies are, or in the future may become, the basis for
         competitive products and services. Oncor may develop technologies
         under the Oncor Agreement into products that Oncor will sell to third
         parties.  These third parties may then use these products to provide
         services that compete directly with the Company's services, which
         could have a material adverse effect on the Company's business,
         financial condition and results of operations.

         The Company relies on certain technologies that are not patentable or
         proprietary and consequently may be available to the Company's
         competitors.  Competition may increase further as a result of the
         potential advances in the technology underlying the services developed
         by the Company.  The Company also is aware that other companies have
         developed or may be developing genetic testing and information
         technologies, services and products that are and may be competitive
         with the Company's services.  There can be no assurance that the
         Company's competitors will not succeed in developing technologies,
         services and products that are more accurate and useful than any being
         developed by the Company or that would render the Company's technology
         and services obsolete or noncompetitive.

         The Company requires all employees and consultants (including certain
         scientific advisors) to enter into confidentiality agreements that
         prohibit the disclosure of confidential information to anyone outside
         the Company and require disclosure and assignment to the Company of
         their ideas, developments, discoveries or inventions developed during
         the course of their service to the Company.  However, no assurance can
         be given that competitors of the Company will not gain access to trade
         secrets and other proprietary information developed by the Company and
         disclosed to employees, consultants and/or scientific advisors.





                                       25
<PAGE>   26
Item 1   Business:  (Continued)

         Given the early stage of the market for the Company's services, the
         important competitive factors are availability, accuracy and utility.
         The Company anticipates that other competitive factors, such as price,
         availability of third-party reimbursement and response time, will
         become important as the market matures.

         Patents and Proprietary Rights

         The Company relies on a combination of trade secret and copyright laws
         and confidentiality agreements to protect its proprietary technology,
         rights and know-how.  The Company's success will depend in part on its
         ability or the ability of its licensors or sublicensors to obtain
         patents, defend patents, maintain trade secrets, defend copyrights and
         operate without infringing upon the proprietary rights of others, both
         in the United States and in foreign countries.  The patent position of
         companies relying upon biotechnology is highly uncertain in general
         and involves complex legal and factual issues, and no consistent
         policy has emerged regarding the breadth of claims allowed in
         biotechnology patents.  To date, none of the Company, its licensors or
         its sublicensors has been granted any patents related to the
         technology or genetic discoveries underlying the Company's current
         services.  Although the Company and certain of the Company's licensors
         and sublicensors have patent applications pending relating to such
         technologies and discoveries, there can be no assurance that patents
         will be issued as a result of such patent applications or that, if
         issued, such patents will be sufficiently broad to afford protection
         against competitors with similar technologies or discoveries.  There
         can also be no assurance that patents, if any, issued to the Company,
         or for which the Company has license or sublicense rights, will not be
         challenged, invalidated or circumvented, or that the rights granted
         thereunder will provide competitive advantages to the Company.  The
         commercial success of the Company also will depend upon avoiding the
         infringement of patents issued to third parties, obtaining licenses to
         third parties' technologies and genetic discoveries and maintaining
         licenses upon which certain of the Company's services are, or might
         be, based.  In particular, third parties, including potential
         competitors, have filed patent applications relating to certain genes
         and genetic mutations, including the BRCA1, BRCA2 and p16 genes and
         related mutations, underlying certain of the Company's services, and
         may in the future file additional patent applications relating to
         genes and genetic mutations. In the event that any such patents are
         issued to such parties, such patents may preclude the Company, its
         licensors and sublicensors from obtaining patent protection for their
         technologies and discoveries, may hinder or prevent the Company from
         providing related genetic testing services and could require the
         Company to enter into licenses with such parties or cease such
         activities.  There can be no assurance that any required licenses
         would be available on acceptable terms, or at all.  Litigation, which
         could result in substantial cost to the Company, may be necessary to
         determine the scope and validity of others' proprietary rights or to
         enforce the Company's patent, copyright, trade secret and license and
         sublicense rights.  The failure by the Company to obtain any such
         licenses, if required, and the Company's involvement in such
         litigation, could have a material adverse effect on the Company's
         business, financial condition and results of operations.

         Oncor has the primary right and obligation to obtain, maintain and
         enforce proprietary rights in relation to its own technologies and any
         improvements to such technologies assigned to Oncor by the Company.
         The amount and timing of resources devoted to such activities are
         beyond the Company's control.  There can be no assurance that Oncor
         will perform such obligations on a timely basis or at all, or that it
         will expend sufficient resources on such activities.  The Company has
         the





                                       26
<PAGE>   27
Item 1   Business:  (Continued)

         primary right and obligation to obtain, maintain and enforce
         proprietary rights in relation all its own technologies.

         The Company relies on certain technologies, trade secrets and know-how
         that are not patentable or proprietary and are available to the
         Company's competitors.  Although the Company has taken steps to
         protect its unpatented technologies, trade secrets and know-how, in
         part through the use of confidentiality agreements with its employees,
         consultants and certain of its contractors, there can be no assurance
         that these agreements will not be breached, that the Company would
         have adequate remedies for any breach or that the Company's trade
         secrets will not otherwise become known or be independently developed
         or discovered by competitors.  See "Business -- Patents and
         Proprietary Rights."

         Government Regulation

         CLIA, as amended in 1988, provides for regulation of clinical
         laboratories by HHS. These regulations mandate that all clinical
         laboratories be certified to perform testing on human specimens and
         provide specific conditions for certification.  These regulations also
         contain guidelines for the qualifications, responsibilities, training,
         working conditions and oversight of clinical laboratory employees.  In
         addition, specific standards are imposed for each type of test that is
         performed in a laboratory.  The Company's laboratory is certified
         under these regulations and the Company believes that it is in
         substantial compliance with these guidelines.  CLIA and the
         regulations promulgated thereunder are enforced through continuous
         quality inspections of test methods, equipment, instrumentation,
         materials and supplies on a bi-annual and "spot" basis.  While the FDA
         does not currently regulate the genetic tests underlying the Company's
         services if they are performed in the Company's CLIA certified
         clinical laboratory, there can be no assurance that the FDA will not
         seek to regulate such tests in the future.  If, in the future, the FDA
         should determine that the tests underlying the Company's services
         should receive FDA approval prior to their provision in the Company's
         laboratory, there can be no assurance that such approval would be
         received on a timely basis or at all.  Any change in CLIA or related
         regulations, or in the interpretation thereof, or in the FDA's
         position on regulating the tests underlying the Company's services,
         could have a material adverse effect on the Company's business,
         financial condition and results of operations.  The Company's
         laboratory is licensed and regulated by the State of Maryland, in
         which it is located.  The Company's laboratory is also regulated by
         certain other states from which the Company may accept specimens.  The
         Company has received approval for a license from the State of New York
         and intends to seek approval from other states as required.  No
         assurance can be given that the Company will be able to obtain such
         approvals on a timely basis or at all.  The loss of, or the failure to
         obtain, any required state license could have a material adverse
         effect on the Company's business, financial condition and results of
         operations.

         The Company is subject to extensive federal, state and local
         regulation, including regulation under the Occupational Safety and
         Health Act, the Environmental Protection Act, the Toxic Substances
         Control Act, the Resource Conservation and Recovery Act and other
         laws, rules and regulations governing health care, clinical laboratory
         activities, waste disposal, handling of toxic, dangerous or
         radioactive materials and other matters.  Although the Company's
         services are currently considered screening services under Medicare
         and are therefore excluded from coverage under Medicare, in  the
         future, the Company's services may be subject to laws, rules and
         regulations governing





                                       27
<PAGE>   28
Item 1   Business:  (Continued)

         reimbursement and fraud and abuses and prohibiting the filing of false
         claims.  These laws, rules and regulations include "anti-kickback" and
         "Stark" laws, which contain extremely broad proscriptions, the
         violation of which may result in exclusion from Medicare and Medicaid
         and criminal and civil penalties.  In addition, the Company is subject
         to state laws, rules and regulations limiting certain financial
         relationships between health care service providers and physicians and
         other referral sources. Although the Company believes that it is in
         substantial compliance with all applicable laws, rules and
         regulations, there can be no assurance that the Company will remain in
         compliance with applicable laws, rules and regulations or that changes
         in, or new interpretations of, existing laws, rules and regulations
         would not have a material adverse effect on the Company's business,
         financial condition and results of operations.

         Risk of Discrimination Against Customers; Potential Adverse Impact on
         Insurability; Confidentiality

         The availability of genetic predisposition testing has raised certain
         ethical, legal and social issues regarding the appropriate utilization
         and confidentiality of information provided by such testing.  The
         medical information obtained or determined about an individual from
         the Company's services is of an extremely sensitive nature.  In
         providing its services, the Company is subject to certain statutory,
         regulatory and common law requirements regarding the confidentiality
         of such medical information.  The Company maintains an internal
         regulatory compliance review program to monitor compliance with
         applicable confidentiality requirements, and believes that it is in
         substantial compliance with such requirements.  Failure to comply with
         such confidentiality requirements could result in material liability
         to the Company.  It is possible that discrimination by insurance
         companies could occur through the raising of premiums by insurers to
         prohibitive levels, the cancellation of insurance or the unwillingness
         to provide coverage to patients shown to have a genetic predisposition
         to a particular disease.  The Company could experience a delay in
         market acceptance or a reduction in the size of its potential
         serviceable market if insurance discrimination were to become a
         significant factor, which would have a material adverse effect on the
         Company's business, financial condition and results of operations.
         Similarly, governmental authorities could, for social or other
         purposes, limit the use of or prohibit genetic predisposition testing.
         If efforts by the Company and others to mitigate potential
         discrimination are not successful or if the use of genetic testing is
         limited, the Company could experience a delay or reduction in market
         acceptance of its services, which would have a material adverse effect
         on the Company's business, financial condition and results of
         operations.  See "Business -- Government Regulation."

         Additional Financing Requirements; Access to Capital

         The Company has incurred negative cash flows from operations since its
         inception.  The Company has expended, and will continue to expend,
         substantial funds to continue its sales and marketing efforts,
         research and development programs and laboratory operations.  At
         February 28, 1997, the Company had cash, cash equivalents and
         short-term investments of approximately $8.6 million.  The Company
         plans to fund its operations and capital expenditures from its current
         cash and future revenues as well as from other sources.  The Company's
         cash requirements, however, may vary materially from those now planned
         because of variations in either the amount or timing of anticipated
         revenues or anticipated expenses, relations with strategic partners,
         changes in the focus and direction of the Company's research and
         development programs, the extent of its sales and marketing efforts
         and laboratory operations, the size and timing of any acquisitions,
         competitive and





                                       28
<PAGE>   29
Item 1   Business:  (Continued)

         technological advances and other factors.  To the extent that funds
         generated from the Company's operations, together with its existing
         capital resources, are insufficient to meet the Company's operating
         requirements, it is likely that the Company will seek to obtain
         additional funds through equity or debt financing and collaborative or
         other arrangements with corporate partners and others. The terms and
         prices of any such financings may be significantly more favorable to
         investors than to the Company's existing stockholders.  No assurance
         can be given that any required additional financing will be available
         when needed or on terms acceptable to the Company.  If adequate
         additional funds are not available, the Company may be required to
         delay, scale back or eliminate certain of its research and development
         programs, its sales and marketing efforts or certain other aspects of
         its business or to license to third parties the rights to
         commercialize services or technologies that the Company would
         otherwise undertake itself.  The unavailability of adequate funds in
         the future would have a material adverse effect on the Company's
         business, financial condition and results of operations.  See
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operations -- Liquidity and Capital Resources."

         Limited Sales and Marketing Capacity

         The Company has limited experience in selling and marketing genetic
         testing and information services and will have to further develop its
         sales force and/or rely on collaborators, licensees or others to
         provide for the sales and marketing of its services.  There can be no
         assurance that the Company will be able to establish adequate sales
         and marketing capacity or make arrangements with collaborators,
         licensees or others to perform such activities on acceptable terms or
         at all.  See "Business -- Sales and Marketing."

         Risk of Liability; Adequacy of Insurance Coverage

         The marketing and sale of genetic testing and information services
         could expose the Company to the risk of certain types of litigation,
         including medical malpractice or negligence claims or contract
         disputes.  The Company currently maintains $10.0 million in medical
         malpractice insurance coverage.  There can be no assurance, however,
         that this coverage will be adequate to protect the Company against
         future claims or that insurance will be available to the Company in
         the future on acceptable terms, if at all.  A medical malpractice or
         other claim for which the Company was not adequately insured could
         have a material adverse effect on the Company's business, financial
         condition and results of operations.

         Dependence on Key Management and Qualified Personnel

         The Company is highly dependent upon the efforts of its senior
         management, scientific advisory board and consultants.  The loss of
         the services of one or more members of senior management could have a
         material adverse effect on the Company's business, financial condition
         and results of operations. In addition, the loss of the services of
         certain members of the Company's scientific advisory board and certain
         consultants could materially and adversely affect the Company to the
         extent that the Company is pursuing research and development in areas
         of such scientific advisors' or consultants' expertise.  Although the
         Company is the beneficiary of $1 million key-man life insurance
         policies on each of its Chief Executive Officer, Timothy J. Triche,
         M.D., Ph.D., and its President and Chief Operating Officer, Douglas
         Dolginow, M.D., the Company does not believe





                                       29
<PAGE>   30
Item 1   Business:  (Continued)

         such amounts would be adequate to compensate for the loss of either
         executive.  Due to the specialized scientific nature of the Company's
         business, the Company is also highly dependent upon its ability to
         attract and retain qualified scientific, technical and key management
         personnel.  There is intense competition for qualified personnel in
         the areas of the Company's activities and there can be no assurance
         that the Company will be able to continue to attract and retain the
         qualified personnel necessary for the development of its existing
         business and its expansion into areas and activities requiring
         additional expertise.  The loss of, or failure to recruit, scientific,
         technical, sales and marketing and managerial personnel could have a
         material adverse effect on the Company's business, financial condition
         and results of operations.

         The Company's scientific advisors and consultants may be employed by
         or have consulting agreements with entities other than the Company,
         some of which may compete with the Company. To the extent that members
         of the Company's scientific advisory board or consultants have
         consulting arrangements with or become employed by any competitor of
         the Company, the Company could be materially and adversely affected.
         Any inventions or processes independently discovered by the scientific
         advisors or the consultants will not, unless otherwise agreed, become
         the property of the Company and will remain the property of such
         persons or their full-time employers.  In addition, the institutions
         with which the scientific advisors and consultants are affiliated may
         make available the research services of their scientific and other
         skilled personnel, including the scientific advisors and consultants,
         to competitors of the Company pursuant to sponsored research
         agreements.  Under such sponsored research agreements, such
         institutions may be obligated to assign or license to a competitor of
         the Company patents and other proprietary information that may result
         from research sponsored by an entity other than the Company, including
         research performed by a scientific advisor or consultant for a
         competitor of the Company.  See "Business -- Human Resources."

         Certain Anti-Takeover Provisions

         The Company's Certificate of Incorporation grants the Board of
         Directors the authority to issue up to 2,000,000 shares of preferred
         stock of the Company, par value $0.01 per share (the "Preferred
         Stock"), in the future in one or more series and to fix the rights,
         preferences, privileges and restrictions thereof, including dividend
         rights, dividend rates, conversion rights, voting rights, terms of
         redemption, redemption prices, liquidation preferences and the number
         of shares constituting any series or the designation of such series,
         without further vote or action by the stockholders.  The rights of the
         holders of Common Stock will be subject to, and may be materially and
         adversely affected by, the rights of the holders of any Preferred
         Stock that may be issued in the future. Although the Company has no
         present plans to issue any shares of Preferred Stock, it may do so in
         the future.  The issuance of Preferred Stock could have the effect of
         discouraging a third party from acquiring a majority of the
         outstanding Common Stock of the Company and preventing stockholders
         from realizing a premium on their shares.  In addition, the Company is
         subject to Section 203 of the Delaware General Corporation Law (the
         "DGCL"), which prohibits a Delaware corporation from engaging in any
         business combination with any interested stockholder for a period of
         three years unless certain conditions are met.





                                       30
<PAGE>   31
Item 2   Properties

         The Company's principal administrative, operational and marketing
         facilities consist of approximately 14,500 square feet in
         Gaithersburg, Maryland under a lease agreement expiring in November
         1998.  The Company has leased an additional 1,100 square feet of space
         to house administrative and operations facilities in Omaha, Nebraska
         under a lease agreement which expires in November 1998.  The Company
         believes that its facilities are adequate for its current needs and
         that suitable additional space will be available as needed.

Item 3   Legal Proceedings

         By a complaint filed on June 28, 1996 against the Company, its
         directors and certain officers and employees in the United States
         District Court for the District of Maryland, Greenbelt Division,
         entitled Barbara A. Hird v. OncorMed, Inc., et.  al., Civil Action No.
         AMD96-2016, a former employee of the Company alleged various claims
         arising out of her employment and the termination of her employment
         with the Company.  During December 1996, the matter was resolved.

Item 4   Submission of Matters to a Vote of Security Holders

         None.





                                       31
<PAGE>   32
                                    PART II

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

         The Company's Common Stock is listed on the AMEX under the symbol
         "ONM."  Prior to May 15, 1995, the Company's Common Stock was traded
         on the Nasdaq SmallCap Market ("Nasdaq"). The following table sets
         forth, for the calendar periods indicated, the range of high and low
         sale prices for the Common Stock as reported by the AMEX or Nasdaq.

<TABLE>
<CAPTION>
                                                                                                     High             Low
                                                                                                     ----             ---
                                                                                                          Stock Price
                                                                                                          -----------
         <S>                                                                                         <C>             <C>
         CALENDAR YEAR 1995:
              First Quarter         . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        12 1/4          8
              Second Quarter        . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        12              6 7/8 
              Third Quarter         . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        10 7/8          7 1/8 
              Fourth Quarter        . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        10 1/8          5 1/2 
         CALENDAR YEAR 1996:                                                                                               
              First Quarter         . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         9 1/8          6 1/8 
              Second Quarter        . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         8 1/2          5 7/8 
              Third Quarter         . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         7              2 3/4 
              Fourth Quarter        . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         5              3 1/4 
         CALENDAR YEAR 1997:                                                                                               
              First Quarter (through February 28, 1997) . . . . . . . . . . . . . . . . . . .         7 15/16        4 3/4 
</TABLE>

         As of March 3, 1997, the approximate number of holders of the Common
         Stock was 930.

         Dividend Policy

         The Company has never declared or paid cash dividends on its capital
         stock. The Company currently anticipates that it will retain and
         reinvest all available funds for use in the operation of its business,
         and therefore does not anticipate paying any cash dividends in the
         foreseeable future.





                                       32
<PAGE>   33





Item 6   Selected Financial Data

         Set forth below is selected financial data with respect to the Company
         for the years ended December 31, 1996, 1995  and 1994 and the period
         from inception (July 12, 1993) through December 31, 1993 and as of
         December 31, 1996, 1995, 1994 and 1993 which has been derived from the
         audited financial statements of the Company.   The financial
         statements of the Company as of December 31, 1996, and 1995 and for
         the years ended December 31, 1996, 1995, 1994 and the period from
         inception (July 12, 1993) through December 31, 1996, together with the
         notes thereto and the related report of Arthur Andersen LLP,
         independent public accountants, are included elsewhere in this report.
         The selected financial data set forth below should be read in
         conjunction with "Management's Discussion and Analysis of Financial
         Condition and Results of Operations" set forth below and the audited
         financial statements of the Company included elsewhere in this report.



<TABLE>
<CAPTION>
                                                                                                 For the period
                                                                                                 from Inception
                                  For year ended      For year ended        For year ended       (July 12, 1993)
                                   December 31,        December 31,          December 31,            through
Statement of Operations Data:          1996                1995                  1994           December 31, 1993
                                  --------------      --------------        --------------      -----------------
  <S>                              <C>                    <C>                 <C>                 <C>
  Net Revenues                     $  627,390             $  311,387          $   34,303          $      --
  Net Loss                          7,455,973              6,510,547           3,981,373             838,352
  Net Loss Per Common Share             (1.10)                 (1.32)              (0.90)              (0.20)
<CAPTION>
                                As of December 31,    As of December 31,   As of December 31,   As of December 31,
Balance Sheet Data:                   1996                   1995                 1994                1993
                                ------------------    ------------------   ------------------   ------------------
  <S>                              <C>                   <C>                  <C>                 <C>
  Cash, Cash Equivalents and
     Short-term Investments        $7,498,680             $  718,844          $7,262,010          $3,848,621
  Total Assets                      9,113,975              2,451,874           8,372,183           4,046,366
  Total Debt                          715,751                715,751             715,751             664,069
  Total Stockholders' Equity        6,949,879                393,807           6,840,026           3,332,087
</TABLE>





                                       33
<PAGE>   34
Item 7     Management's Discussion and Analysis of Financial Condition and
           Results of Operations:

         The following discussion and analysis provides information which
         management believes is relevant to an assessment and understanding of
         the Company's results of operations and financial condition.  The
         discussion should be read in conjunction with the audited financial
         statements of the Company and notes thereto.  This report contains
         certain statements of a forward-looking nature relating to future
         events or the future financial performance of the Company.  Investors
         are cautioned that such statements are only predictions and that
         actual events or results may differ materially.  In evaluating such
         statements, investors should carefully consider the various factors
         identified in this Report which could cause actual results to differ
         materially from those indicated by such forward-looking statements,
         including the matters set forth in "Business - Risk Factors."

         OVERVIEW

         The Company commenced operations in July 1993, has a limited operating
         history and is a development stage company.  Since its inception, the
         Company has been engaged in research and development activities,
         organizational efforts and sales and marketing activities, including
         the development of its services, the hiring of its scientific and
         marketing staff and its initial marketing efforts.  The Company has
         incurred operating losses since its inception.  As of December 31,
         1996, the Company's accumulated deficit was approximately $18.8
         million.  The Company's losses have resulted principally from selling,
         general and administrative expenses, laboratory operations and
         research and development expenses.  Revenues are principally derived
         from providing genetic testing and information services and, to a
         lesser extent, software licensing associated with its risk assessment
         service.  Revenues from the Company's services, other than its risk
         assessment service, are recognized as they are provided.  Revenues
         from its risk assessment service are recognized over the license
         period.  The Company has yet to generate any significant revenues and
         the Company cannot anticipate when, or if, it will be able to generate
         significant revenues in the future.  The Company expects its operating
         losses to continue as its sales and marketing efforts, research and
         development programs and laboratory operations continue and increase.
         The Company's ability to achieve profitability depends on its ability
         to successfully market and sell its services.  There can be no
         assurance when, or if, the Company will become profitable.





                                       34
<PAGE>   35
Item 7   Management's Discussion and Analysis of Financial Condition and
         Results of Operations: (Continued)

         RESULTS OF OPERATIONS

         Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

         Total revenues for the year ended December 31, 1996 were approximately
         $627,000, compared with approximately $311,000 for the year ended
         December 31, 1995.  The increase was primarily attributable to a 2
         fold increase in predisposition testing services, and a 1.7 fold
         increase in fees received for a Company-sponsored educational
         conference.  There was also an increase in revenues associated with
         grants and risk assessment services. The Company received $6,000 in
         revenues for certain experiments performed for Oncor for the year
         ended December 31, 1996, compared with $42,000 for the same period in
         1995.  The Company's net accounts receivable at December 31, 1996 was
         approximately $129,000, compared to $86,000 at year ended December 31,
         1995.  At December 31, 1996, approximately $8,000 of accounts
         receivable was related to billings made prior to the actual provision
         of the related services and recognition of related revenue.  As of
         December 31, 1996, all amounts billed pursuant to such arrangements
         have been included in deferred revenue.  Revenues received from Oncor
         were not necessarily indicative of the revenues from Oncor which may
         be recognized in future periods.  The Company is in the development
         stage and cannot anticipate when, or if, it will generate any
         significant revenues.

         Cost of sales-direct was  approximately $283,000 for the year ended
         December 31, 1996, compared to approximately $168,000 for the year
         ended December 31, 1995.  Cost of sales-direct includes costs for
         supplies, direct labor, shipping, royalties (other than those under
         the license with Oncor) for testing services, computer hardware costs
         associated with the Company's risk assessment service and costs
         associated with its educational conference.  The increase in cost of
         sales-direct reflected the corresponding increase in the Company's
         revenues.

         Laboratory operations expenses were approximately $2,760,000 for the
         year ended December 31, 1996, compared with approximately $2,259,000
         for the year ended December 31, 1995.  The increase was primarily
         attributable to the hiring of additional personnel in the laboratory
         for operations and to the initiation of certain of the Company's
         genetic predisposition and prognostic testing services.  Related party
         expenses incurred during these periods consisted of technology license
         fees paid to Oncor and the rental of laboratory equipment from Codon
         Pharmaceuticals, Inc., a 41% owned affiliate of Oncor.  These related
         party expenses are expected to decrease as a percentage of total
         laboratory operations expenses in the future.  As sales of the
         Company's services increase, a greater portion of the expenses
         associated with laboratory operations will be included in cost of
         sales-direct.

         Selling, general and administrative expenses were approximately
         $4,791,000 for the year ended December 31, 1996, compared with
         approximately $4,119,000 for the year ended December 31, 1995.
         General and administrative expenses were approximately $3,563,000 for
         the year ended December 31, 1996, compared with approximately
         $2,884,000 for the year ended December 31, 1995.  The increase in
         general and administrative expenses was due to increased professional
         fees, specifically in legal fees associated with patent, trademark and
         personnel issues, increased depreciation and amortization costs, and
         the addition of personnel and related costs.  Selling





                                       35
<PAGE>   36
Item 7   Management's Discussion and Analysis of Financial Condition and
         Results of Operations: (Continued)

         expenses were approximately $1,228,000 for the year ended December 31,
         1996, compared with approximately $1,235,000 for the year ended
         December 31, 1995.  Selling expenses remained constant between the
         periods.  For the year ended December 31, 1996, related party selling,
         general and administrative expenses decreased to approximately $4,000
         as compared to approximately $247,000 for the  corresponding period in
         1995.  As the Company completed its initial public offering in late
         1994, various functions and services previously performed by Oncor
         were assumed by the Company during late 1994 and early 1995.  It is
         anticipated that related party selling, general and administrative
         expenses will continue to be nominal in the future.  The Company
         anticipates that its selling, general and administrative expenses will
         increase as it continues to market and sell its portfolio of services.

         Research and development expenses were approximately $709,000 for the
         year ended December 31, 1996, compared with approximately $452,000 for
         the year ended December 31, 1995.  The increase in research and
         development expenses was primarily attributable to the hiring of
         additional personnel to work on new research and development projects.

         Interest income was approximately $514,000 for the year ended December
         31, 1996, compared with approximately $228,000 for the year ended
         December 31, 1995.  The increase in interest income was due to the
         increased amounts available for investment from the Company's
         follow-on offering completed in the first quarter of 1996.  Interest
         expense was approximately $54,000 for the year ended December 31,
         1996, compared with $53,000 for the year ended December 31, 1995.

         For the reasons set forth above, net operating losses were
         approximately $7,456,000 for the year ended December 31, 1996,
         compared with approximately $6,511,000 for the year ended December 31,
         1995.

         December 31, 1995 Compared to Year Ended December 31, 1994

         Total revenues for the year ended December 31, 1995 were approximately
         $311,000, compared with $34,000 for the year ended December 31, 1994.
         The increase was primarily attributable to an increase in revenues
         from its risk assessment service, the commercial launch of certain
         predisposition testing services, $42,000 in revenues for certain
         experiments performed for Oncor and fees received for a
         Company-sponsored educational conference.  The Company's net accounts
         receivable balance at December 31, 1995 was approximately $86,000,
         compared to $2,000 at year ended December 31, 1994.   At December 31,
         1995, approximately $27,000 of accounts receivable was related to
         billings made prior to the actual provision of the related services.
         As of December 31, 1995, no revenues had been recognized on such
         billings.  As of December 31, 1995, all amounts billed pursuant to
         such arrangements had been included in deferred revenue.

         Cost of sales-direct was approximately $168,000 for the year ended
         December 31, 1995, compared to $11,000 for the year ended December 31,
         1994.  Cost of sales-direct includes costs for supplies, direct labor,
         shipping, royalties (other than those under the Oncor License) for
         testing services, computer hardware costs associated with the
         Company's risk assessment service and costs associated with its
         educational conference.  The increase in cost of sales-direct
         reflected the corresponding increase in the Company's revenues.





                                       36
<PAGE>   37
Item 7   Management's Discussion and Analysis of Financial Condition and
         Results of Operations: (Continued)

         Laboratory operations expenses were approximately $2,259,000 for the
         year ended December 31, 1995, compared with $1,126,000 for the year
         ended December 31, 1994.  The increase was primarily attributable to
         the hiring of additional personnel to prepare the laboratory for
         operations and to the initiation of certain of the Company's genetic
         predisposition and prognostic testing services.  Related party
         expenses incurred during these periods consisted of technology license
         fees paid to Oncor.

         Selling, general and administrative expenses were approximately
         $4,119,000 for the year ended December 31, 1995, compared with
         $2,471,000 for the year ended December 31, 1994.  General and
         administrative expenses were approximately $2,884,000 for the year
         ended December 31, 1995, compared with $1,965,000 for the year ended
         December 31, 1994.  The increase in general and administrative
         expenses was due to the addition of personnel and related costs, and
         increased professional fees, depreciation expense and occupancy costs.
         Selling expenses were  approximately $1,235,000 for the year ended
         December 31, 1995, compared with $506,000 for the year ended December
         31, 1994.  The increase in selling expenses was primarily attributable
         to the formation of the Company's sales and marketing organization,
         including hiring a direct sales force, producing marketing literature,
         attending industry trade shows and conducting market research.  For
         the year ended December 31, 1995, related party selling, general and
         administrative expenses decreased to $247,000 as compared to $378,000
         for the corresponding period in 1994.  As the Company completed its
         initial public offering in 1994, various functions and services
         previously performed by Oncor were assumed by the Company.

         Research and development expenses were approximately $452,000 for the
         year ended December 31, 1995, compared with $524,000 for the year
         ended December 31, 1994.  The decrease in research and development
         expenses was due to the Company's reduced obligations to fund various
         clinical correlation studies.

         Interest income was approximately $228,000 for the year ended December
         31, 1995, compared with $145,000 for the year ended December 31, 1994.
         The increase in interest income was due to the increased amounts
         available for investment from the Company's initial public offering
         completed in the fourth quarter of 1994.  Interest expense was
         approximately $53,000 for the year ended December 31, 1995, compared
         with $28,000 for the year ended December 31, 1994.  Interest expense
         increased as a result of interest payments due on a convertible note
         (the "Convertible Note") issued to Oncor in June 1994.

         For the reasons set forth above, net operating losses were
         approximately $6,511,000 for the year ended December 31, 1995,
         compared with $3,981,000 for the year ended December 31, 1994.

         LIQUIDITY AND CAPITAL RESOURCES

         Cash expenditures have exceeded revenues since the Company's
         inception.  The Company's operations have been funded through a $1.0
         million capital infusion by Oncor, a $3.0 million private placement of
         equity securities, approximately $716,000 in advances from Oncor,
         approximately $7.4 million of net proceeds from the Company's initial
         public offering, and approximately $13.9 million of net proceeds from
         the Company's follow-on offering completed in February 1996.  Also, in
         February 1997, the Company completed a $3.0 million private placement
         of equity securities.  See "Business - Licensing and Collaborative
         Relationships - Incyte Pharmaceuticals, Inc."  As of





                                       37
<PAGE>   38
Item 7   Management's Discussion and Analysis of Financial Condition and
         Results of Operations: (Continued)

         February 28, 1997, cash, cash equivalents and investments totaled
         approximately $8.6 million.  The Company expects its operating losses
         to continue as its sales and marketing efforts, research and
         development programs and laboratory operations continue and increase.
         The Company also intends to make additional laboratory equipment
         purchases and other capital expenditures in the future, although
         currently it has no specific material commitments to do so.

         Cash used in operating activities was $7.0 million for the year ended
         December 31, 1996 compared with $5.6 million for the year ended
         December 31, 1995.   The increase was attributable to expanded
         laboratory operations to perform certain testing services, additional
         general and administrative costs including personnel, occupancy and
         professional expenses, and increased research and development
         activities.

         The Company and Oncor recently agreed to certain changes to the
         Restated Technology License Agreement, dated June 6, 1994.  Pursuant
         to the Oncor Agreement, Oncor is providing the Company with an
         exclusive worldwide license to certain of Oncor's existing human
         genome technologies that are useful for the purposes of development
         and commercialization of certain of the Company's services, including:
         (i) testing, detection and/or analysis of cancer-predisposing genes:
         (ii) genetic assessment of risk of an individual to develop cancer;
         and (iii) testing and analysis for the purposes of cancer management.
         In addition, Oncor is providing the Company with a non-exclusive
         worldwide license to certain of Oncor's existing human genome
         technologies, and any future improvements thereto, to be used by the
         Company in the provision of services directly to third parties other
         than services that are provided pursuant to the exclusive license.
         The Company does not have the right to sublicense any Oncor
         technologies licensed to it by Oncor without Oncor's prior written
         consent.  Technologies sublicensed to the Company by Oncor include
         technologies covered by the collaborative licensing and research
         agreements between Oncor and each of The Johns Hopkins University and
         the Massachusetts General Hospital.  The term of the agreement shall
         expire in June 2004 unless earlier terminated in accordance with its
         terms.

         Under the terms of the agreement, the Company is obligated to make
         payments on a quarterly basis to Oncor equal to a range of four
         percent (4%) to two percent (2%) of the Company's annual net sales.
         During the first year of the agreement, the Company is obligated to
         pay Oncor a minimum amount equal to $50,000 per quarter.  During the
         second year of the agreement, the Company is obligated to pay Oncor a
         minimum amount equal to $25,000 per quarter.  Thereafter, there shall
         be no minimum payment required to be made by the Company to Oncor in
         connection with the agreement.

         In addition, subject to certain third-party contractual limitations,
         prior to the license or disposition (whether by assignment, transfer
         or license) to a third party by the Company or Oncor of their
         respective technologies, the non-offering party shall have a thirty
         (30) day right of first offer with respect to such technologies.  If
         the non-offering party accepts the offer, the Company and Oncor shall
         negotiate in good faith the terms and conditions of any such license
         or acquisition agreement.

         Oncor has the primary right and obligation to obtain, maintain and
         enforce proprietary rights in relation to all its own technologies and
         any improvements to such technologies assigned to Oncor by the
         Company.  The Company has the primary right and obligation to obtain,
         maintain and enforce proprietary rights in relation to all its own
         technologies.





                                       38
<PAGE>   39
Item 7   Management's Discussion and Analysis of Financial Condition and
         Results of Operations: (Continued)

         In June 1994, the Company and Oncor converted certain amounts payable
         to Oncor under the Oncor Agreement and a management services agreement
         and certain amounts repayable to Oncor which Oncor advanced to the
         Company aggregating $715,751 into the Convertible Note. The
         Convertible Note has a principal amount of $715,751, bears interest at
         an annual rate of 7% and is convertible into Common Stock at the
         option of the holder at a conversion price of $20 per share. Under the
         terms of the Convertible Note, the Company is obligated to pay
         interest on a quarterly basis and to pay the entire principal amount
         at maturity in June 1999. The quarterly interest payments are
         approximately $12,700. During the fourth quarter of 1994, Oncor
         assigned the Convertible Note to its wholly-owned subsidiary, Oncor
         Finance, Inc.

         Under its license agreement with HCI and Creighton University, the
         Company is obligated to pay an annual sponsorship fee of $250,000, in
         quarterly installments, which is reduced by a percentage of the
         amounts paid under a related services agreement.

         Cash used in investing activities was $476,000 for the year ended
         December 31, 1996 compared to $676,000 for the year ended December 31,
         1995.   The decrease was due to a reduction in the amount of
         laboratory and computer equipment purchased during 1996 compared to
         1995.

         Cash provided by financing activities was $14.3 million for the year
         ended December 31, 1996 compared with cash used in financing
         activities of $297,000 for the year ended December 31, 1995.  The
         change was attributable to the follow-on offering completed in
         February 1996.

         Minimum payments due under lease commitments and various research,
         license and consulting agreements, excluding the license with Oncor,
         will be approximately $700,000 during 1997.

         Pursuant to the Incyte Agreement, the Company and Incyte have formed a
         broad-based collaboration in clinical genomics designed to create an
         integrated genomics and sequence-based mutation analysis capability
         for the two companies.

         The Company has agreed to perform certain specified clinical genomic
         services relating to the creation of a tissue repository and the
         performance of a gene functional studies program (the "Collaborative
         Services").  Incyte has agreed to purchase certain Collaborative
         Services during each year of the Initial Term.  In addition, under the
         terms of the Incyte Agreement, the Company has obtained a
         non-exclusive, royalty-bearing license (without the right to
         sublicense) to use Incyte's high-throughput sequencing technology for
         use in the Company's clinical diagnostic services for a period ending
         five (5) years following termination of the Incyte Agreement, subject
         to certain limitations.  In consideration for the grant of the
         license, the Company has issued to Incyte (i) Four Hundred One
         Thousand Thirty Three (401,033) shares of the Company's Common Stock
         (the "Definite Technology Shares"), and (ii) a warrant to purchase up
         to an aggregate of ten percent (10%) of the Company's Common Stock
         issued and outstanding on the date of such warrant's exercise (the
         "Warrant Shares").  The warrant is exercisable until February 25, 2000
         at an exercise price per share equal to the greater of one hundred-ten
         percent (110%) of the fair market value per share of Common Stock on
         the trading day prior to the date of exercise or (i) Eight Dollars
         ($8.00) per share (if the warrant is exercised on or prior to February
         25, 1998), (ii) Nine Dollars ($9.00) per share (if the warrant is
         exercised after February  25, 1998, but on or prior to February 25, 
         1999), or (iii) Thirteen Dollars and Fifty Cents ($13.50) per share 
         (if the warrant is exercised after February 





                                       39
<PAGE>   40
Item 7   Management's Discussion and Analysis of Financial Condition and
         Results of Operations: (Continued)

         25, 1999, but on or prior to February 25, 2000).  Notwithstanding the
         foregoing sentence, Incyte has the option to fix the exercise price 
         per share during each of aforementioned periods; provided, however, 
         that in no event shall the exercise price per share during each of 
         the aforementioned periods be less than Eight Dollars ($8.00), Nine 
         Dollars ($9.00) or Thirteen Dollars and Fifty Cents ($13.50) per 
         share, respectively.

         Furthermore, pursuant to a Securities Purchase Agreement between the
         Company and Incyte, Incyte purchased Three Hundred Seventy Two
         Thousand Five Hundred Fifty Five (372,555) shares of Common Stock from
         the Company for Three Million Dollars ($3,000,000) (the "Cash Purchase
         Shares") or the equivalent of Eight Dollars and Five Cents ($8.05) per
         share.  In addition, under the terms of the Securities Purchase
         Agreement the Company has agreed to issue to Incyte, under certain
         circumstances, up to an aggregate of One Hundred Thirty Thousand Seven
         Hundred Twenty Six (130,726) shares of the Company's Common Stock (the
         "Additional Shares").  Pursuant to the terms of an Investor's Rights
         Agreement between the Company and Incyte, Incyte was granted certain
         registration and other stockholder rights with respect to the Definite
         Technology Shares, Warrant Shares, the Cash Purchase Shares and the
         Additional Shares.

         The Company has incurred negative cash flows from operations since its
         inception. The Company has expended, and will continue to expend,
         substantial funds to continue its sales and marketing efforts,
         research and development programs and laboratory operations. At
         February 28, 1997, the Company had cash, cash equivalents and
         investments of approximately $8.6 million.  The Company plans to fund
         its operations and capital expenditures from its current cash and
         future revenues as well as from other sources.  The Company's cash
         requirements, however, may vary materially from those now planned
         because of variations in either the amount or timing of anticipated
         revenues or anticipated expenses, relations with strategic partners,
         changes in the focus and direction of the Company's research and
         development programs, the extent of its sales and marketing efforts
         and laboratory operations, the size and timing of any acquisitions,
         competitive and technological advances and other factors. To the
         extent that funds generated from the Company's operations, together
         with its existing capital resources, are insufficient to meet the
         Company's operating requirements, it is likely that the Company will
         seek to obtain additional funds through equity or debt financing and
         collaborative or other arrangements with corporate partners and
         others. The terms and prices of any such financings may be
         significantly more favorable to investors than to the Company's
         existing stockholders.  No assurance can be given that any required
         additional financing will be available when needed or on terms
         acceptable to the Company.  If adequate additional funds are not
         available, the Company may be required to delay, scale back or
         eliminate certain of its research and development programs, its sales
         and marketing efforts or certain other aspects of its business or to
         license to third parties the rights to commercialize services or
         technologies that the Company would otherwise undertake itself. The
         unavailability of adequate funds in the future would have a material
         adverse effect on the Company's business, financial condition and
         results of operations.

         NEW ACCOUNTING PRONOUNCEMENTS

         Statement 128 requires dual presentation of basic and diluted earnings
         per share on the face of the income statement for all periods
         presented.  Basic earnings per share excludes dilution and is computed
         by dividing income available to common stockholders by the
         weighted-average number





                                       40
<PAGE>   41
Item 7   Management's Discussion and Analysis of Financial Condition and
         Results of Operations: (Continued)

         of common shares outstanding for the period.  Diluted earnings per
         share reflects the potential dilution that could occur if securities
         or other contracts to issue common stock were exercised or converted
         into common stock or resulted in the issuance of common stock that
         then shared in the earnings of the entity.  Diluted earnings per share
         is computed similarly to fully diluted earnings per share pursuant to
         Accounting Principles Bulletin No. 15.  Statement 128 is effective for
         fiscal years ending after December 15, 1997, and when adopted, it will
         require restatement of prior years' earnings per share.

         Since the effect of outstanding options is antidilutive, they have
         been excluded from the Company's computation of net loss per share.
         Accordingly, management does not believe that Statement 128 will have
         an impact upon historical net loss per share as reported.

Item 8   Financial Statements and Supplementary Data

         The information required by the item is incorporated herein by
         reference to the financial statements listed in Item 14 below.

Item 9   Changes In and Disagreements with Accountants on Accounting and
         Financial Disclosure

         None.





                                       41
<PAGE>   42
                                    PART III


Item 10    Directors and Executive Officers of the Registrant

           The Company incorporates herein by reference the information
           concerning directors and executive officers in its Notice of Annual
           Stockholders' Meeting and Proxy Statement to be filed within 120
           days after the end of the Company's fiscal year (the "1997 Proxy
           Statement").

Item 11    Executive Compensation

           The Company incorporates herein by reference the information
           concerning executive compensation contained in the 1997 Proxy
           Statement.

Item 12    Security Ownership of Certain Beneficial Owners and Management

           The Company incorporates herein by reference the information
           concerning security ownership of certain beneficial owners and
           management contained in the 1997 Proxy Statement.

Item 13    Certain Relationship and Related Transactions

           The Company incorporates herein by reference the information
           concerning certain relationships and related transactions contained
           in the 1997 Proxy Statement.





                                       42
<PAGE>   43
                                    PART IV


<TABLE>
<CAPTION>
Item 14      Exhibits, Financial Statement Schedules and Reports on Form 8-K            
                                                                                     Page Number
                                                                                     -----------
<S>                                                                                     <C>
    (a)      Index to Financial Statements

             Index                                                                      F-1

             Report of Independent Public Accountants                                   F-2

             Balance Sheets as of December 31, 1996 and 1995                            F-3

             Statements of Operations for the years ended December 31, 1996,            F-4 
             1995 and 1994; and for the period from Inception (July 12, 1993) 
             through December 31, 1996

             Statements of Stockholders' Equity for the period from Inception           F-5 
             (July 12, 1993) through December 31, 1993 and for the years
             ended December 31, 1994, 1995 and 1996

             Statements of Cash Flows for the years ended December 31, 1996,            F-6 
             1995 and 1994; and for the period from Inception (July 12, 1993) 
             through December 31, 1996

             Notes to Financial Statements                                              F-7

    (b)      Financial Statement Schedules

             Report of Independent Public Accountants                                   S-1

             Schedule II - Valuation and Qualifying Accounts                            S-2
</TABLE>

    (c)      Reports on Form 8-K

             No reports on Form 8-K were filed by the Company during the period
             from October 1, 1996 through December 31, 1996.  In a report filed
             on Form 8-K dated March 6, 1997, the Company announced a
             collaboration with Incyte Pharmaceuticals, Inc.

    (d)      Exhibits

             3.1      Certificate of Incorporation of the Company.

             3.2*     Bylaws of the Company, as amended.

             4.1**    Specimen certificate for shares of the Company's Common
                      Stock.





                                       43
<PAGE>   44
Item 14      Exhibits, Financial Statement Schedules and Reports on Form 8-K:
             (Continued)

             4.2      See Exhibit  3.1(a) and 3.2 for provisions of the
                      Certificate of Incorporation and Bylaws of the Company
                      defining rights of holders of Common Stock of the
                      Company.

             4.3**    Form of Underwriter's Warrant Certificate.

             10.1**   Sublease, dated June 1994, between the Company and Oncor.

             10.2**   Lease, dated December 1, 1993, between Scoular
                      Properties, Inc., and the Company, as amended.

             10.3**   Asset Purchase Agreement and Plan of Reorganization,
                      dated September 1, 1993, among the Company, Genetic
                      Systems Management, Inc., Henry T.  Lynch, Ralph
                      Rosenberg, Steven Evans, and Jerome Block.

             10.4**   Form of Subscription Agreement, with a schedule of
                      substantially identical documents.

             10.5**   Form of Registration Rights Agreement, with a schedule of
                      substantially identical documents.

             10.6**   License Agreement, dated September 1, 1993, among
                      Creighton University, The Hereditary Cancer Institute and
                      the Company.

             10.7**   Services Agreement, dated September 1, 1993, between the
                      Company and The Hereditary Cancer Institute.

             10.8**   Stock Purchase Agreement, dated September 15, 1993,
                      between the Company and Morgan Guarantee Trust Company of
                      New York and Socrates G. Pappajohn, as Trustees.

             10.9**   Technology License Agreement, dated as of July 12, 1993,
                      between Oncor and the Company.

             10.10**  Restated Technology License Agreement, dated as of June
                      6, 1994, between Oncor and the Company.

             10.11**  Consulting Agreement, dated March 1, 1994, with David
                      Sidransky.

             10.12*   Restated 1993 Stock Option Plan.

             10.13**  Note, dated June 6, 1994, issued by the Company to Oncor.

             10.14**  Clinical Study Agreement, dated May 31, 1994,  between
                      the Company and The University of Texas, MD Anderson
                      Cancer Center.





                                       44
<PAGE>   45
Item 14      Exhibits, Financial Statement Schedules and Reports on Form 8-K:
             (Continued)

             10.15**  Research and License Agreement, dated February 1, 1994,
                      between Oncor and The General Hospital Corporation.

             10.16**  License Agreement, dated March 9, 1994, between The Johns
                      Hopkins University and the Company.

             10.17**  License Agreement, dated October 27, 1993, between Oncor
                      and The Johns Hopkins University.

             10.18**  License Agreement, dated November 1, 1993, among Oncor,
                      Institut Suisse De Recherches Experimentales Sur Le
                      Cancer and The General Hospital Corporation.

             10.19**  Collaborative Research Agreement, dated October 20, 1992,
                      between Oncor and The Johns Hopkins University.

             10.20**  Agreement between Roche Molecular Systems, Inc.  and the
                      Company.

             10.21**  Licensing Agreement and related correspondence between
                      Genetic Systems Management and Hoag Cancer Center.

             10.22**  Licensing Agreement and related correspondence between
                      Genetic Systems Management and Harris Methodist
                      Northwest.

             10.23**  Clinical Study Agreement, dated August 1, 1994, between
                      the Company and Sloan-Kettering Institute of Cancer
                      Research.

             10.24**  License Agreement, dated June 1, 1994, among the Company,
                      the Dana-Farber Cancer Institute, Inc., The State of
                      Oregon, the University of Vermont and Yale University.

             10.25*   Stock Option Agreement, dated February 6, 1995, between
                      the Company and Leslie Alexandre.

             10.26*   Services Agreement, dated February 16, 1995, between the
                      Company and Preferred Oncology Networks of America, Inc.

             10.27*   Lease, dated December 2, 1994, between Saul Holdings
                      Limited Partnership and Oncor.

             10.28*   Assignment of Lease, dated March 15, 1995, between Oncor,
                      the Company and Saul Holdings Limited Partnership.





                                       45
<PAGE>   46
Item 14      Exhibits, Financial Statement Schedules and Reports on Form 8-K:
             (Continued)

             10.29***   Sponsored Research and License Agreement among the
                        Company, the Hereditary Cancer Institute and Creighton
                        University.

             10.30***   Services Agreement among the Company, the Hereditary
                        Cancer Institute and Creighton University.

             10.31***   Services Agreement between the Company and Oncor.

             10.32****  Correspondence, dated September 26, 1995, from the
                        Company to Memorial Sloan-Kettering Cancer Center.

             10.33****  Correspondence, dated September 7, 1995, from the
                        Registrant to UT MD Anderson Cancer Center.

             11.1       Statement re: Computation of Per Share Earnings.

             23         Consent of Arthur Andersen LLP.




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

   *Incorporated by reference to the Exhibits filed with the Company's Form
10-K for the year ended December 31, 1994.

  **Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1, File No.33-80758.

 ***Incorporated by reference to the Exhibits filed with the Company's Form
10-Q for the period ended June 30, 1995.

****Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1, File No.33-98826.





                                       46
<PAGE>   47
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    ONCORMED, INC.                           
                                                                             
                                                                             
                                    By:     /s / DR. TIMOTHY J.  TRICHE      
                                    --------------------------------------
                                    Dr. Timothy J. Triche,                
                                      Chairman and Chief Executive Officer

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



<TABLE>
<S>    <C>                <C>
Date:  March 27, 1997            /s/ DR. TIMOTHY J.  TRICHE                                      
                          -----------------------------------------------------------
                          Dr. Timothy J. Triche, Chairman and Chief Executive Officer
                          (Principal Executive Officer)                              
                                                                                     
                                                                                     
Date:  March 27, 1997            /s/ DR. DOUGLAS DOLGINOW                           
                          -----------------------------------------------------------
                          Dr. Douglas Dolginow, President and Chief Operating Officer
                                                                                     
                                                                                     
Date:  March 27, 1997            /s/ L. ROBERT JOHNSTON, JR.                        
                          -----------------------------------------------------------
                          L. Robert Johnston, Jr., Vice President and Chief Financial
                           Officer (Principal Financial and Accounting Officer)


Date:  March 27, 1997            /s/ JOHN PAPPAJOHN
                          -----------------------------------------------------------
                          John Pappajohn, Director


Date:  March 27, 1997            /s/ JOHN W.  COLLOTON                                            
                          -----------------------------------------------------------
                          John W.  Colloton, Director


Date:  March 27, 1997            /s/ STEPHEN TURNER                                                 
                          -----------------------------------------------------------
                          Stephen Turner, Director


Date:  March 27, 1997            /s/ DR. WAYNE PATTERSON                                     
                          -----------------------------------------------------------
                          Dr. Wayne Patterson, Director
</TABLE>





                                       47
<PAGE>   48
                                     INDEX


<TABLE>
<CAPTION>
                                                                                                               Page Number
                                                                                                               -----------
<S>                                                                                                                  <C>
Report of Independent Public Accountants                                                                             F-2



Balance Sheets as of December 31, 1996 and 1995                                                                      F-3



Statements of Operations for the years ended December 31, 1996, 1995 and 1994;                                       F-4
and for the period from Inception (July 12, 1993) through December 31, 1996


Statements of Stockholders' Equity for the period from Inception (July 12, 1993)                                     F-5
through December 31, 1993, and for the years ended December 31, 1994, 1995 and 1996


Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994;                                       F-6
and for the period from Inception (July 12, 1993) through December 31, 1996


Notes to Financial Statements                                                                                        F-7
</TABLE>





                                      F-1
<PAGE>   49
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To OncorMed, Inc.:

We have audited the accompanying balance sheets of OncorMed, Inc.  (a Delaware
corporation in the development stage) as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for the
years ended December 31, 1996, 1995 and 1994 and for the period from inception
(July 12, 1993) to December 31, 1996. These financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OncorMed, Inc.  as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years ended December 31, 1996, 1995 and 1994 and for the period from inception
to December 31, 1996, in conformity with generally accepted accounting
principles.





                                               ARTHUR ANDERSEN LLP


Washington, D.C.
February 26, 1997





                                      F-2
<PAGE>   50
                                 ONCORMED, INC.
                         (A Development Stage Company)
                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                           As of                 As of
                                                                       December 31,           December 31,
                                                                           1996                  1995
                                                                       -------------          ------------     
<S>                                                                    <C>                    <C>
ASSETS
Current assets:
     Cash and cash equivalents                                         $   6,031,809          $    718,844
     Short term investments                                                1,466,871                   ---
     Accounts receivable, net of allowance for doubtful accounts
       of $32,000 and $7,000 at 12/31/96 and 12/31/95,
       respectively                                                          129,366                86,154
     Other current assets                                                    306,078               126,124
                                                                       -------------          ------------     

         Total current assets                                              7,934,124               931,122
                                                                       -------------          ------------

Non-current assets:
     Property and equipment, net                                           1,179,851             1,220,937
     Deferred offering costs                                                    ---                299,815
                                                                       -------------          ------------
         Total non-current assets                                          1,179,851             1,520,752
                                                                       -------------          ------------
       TOTAL ASSETS                                                    $   9,113,975          $  2,451,874
                                                                       =============          ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                  $     680,575          $    123,443
     Accrued expenses and other liabilities                                  593,037               889,052
     Payable to Oncor, Inc.                                                  124,730               137,909
     Deferred revenue                                                         46,420               181,402
                                                                       -------------          ------------
         Total current liabilities                                         1,444,762             1,331,806
                                                                       -------------          ------------
Non-current liabilities:
     Note payable to Oncor Finance, Inc.                                     715,751               715,751
     Deferred revenue                                                          3,583                10,510
                                                                       -------------          ------------
         Total non-current liabilities                                       719,334               726,261
                                                                       -------------          ------------
       TOTAL LIABILITIES                                                   2,164,096             2,058,067
                                                                       -------------          ------------
Commitments And Contingencies (Notes 1 and 6)

Stockholders' Equity:
  Preferred stock, $.01 par value, 2,000,000 shares
    authorized, none outstanding                                                 ---                   ---
  Common stock, $.01 par value, 40,000,000 shares
   authorized, 6,991,108, and 4,950,050 shares issued
   and outstanding as of 12/31/96 and 12/31/95, respectively                  69,911                49,501
  Additional paid-in capital                                              25,741,842            11,782,817
  Deferred compensation                                                      (75,629)             (108,239)
  Deficit accumulated during the development stage                       (18,786,245)          (11,330,272)
                                                                       -------------          ------------

     TOTAL STOCKHOLDERS' EQUITY                                            6,949,879               393,807
                                                                       -------------          ------------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $   9,113,975          $  2,451,874
                                                                       =============          ============
</TABLE>

      The accompanying notes are an integral part of these balance sheets.





                                      F-3
<PAGE>   51
                                 ONCORMED, INC.
                         (A Development Stage Company)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                           Period from              
                                                                                            Inception              
                                                                                         (July 12, 1993)            
                                                   For the Year Ended December 31,           Through     
                                             ------------------------------------------    December 31,
                                                 1996           1995           1994           1996
                                             -----------    -----------    ------------   ------------               
<S>                                          <C>            <C>            <C>            <C>
REVENUES                                     $   627,390    $   311,387    $     34,303   $    973,080
                                                            
OPERATING EXPENSES:                                         
  Cost of sales - direct                         283,082        167,568          11,154        461,804
  Laboratory operations                        2,759,656      2,259,136       1,126,240      6,362,032
  Selling, general and administrative          4,791,029      4,119,221       2,471,220     11,729,972
  Research and development                       709,340        451,596         523,860      1,960,008
                                             -----------    -----------    ------------   ------------         
                                                            
    Total expenses                             8,543,107      6,997,521       4,132,474     20,513,816
                                             -----------    -----------    ------------   ------------
                                                            
OPERATING LOSS                                (7,915,717)    (6,686,134)     (4,098,171)   (19,540,736)
Interest income                                  514,205        228,470         145,177        890,214
Interest expense                                 (54,461)       (52,883)        (28,379)      (135,723)
                                             -----------    -----------    ------------   ------------
                                                            
NET LOSS                                     $(7,455,973)   $(6,510,547)   $ (3,981,373)  $(18,786,245)
                                             ===========    ===========    ============   ============
                                                            
                                                            
                                                            
                                                            
NET LOSS PER SHARE                           $     (1.10)   $     (1.32)   $      (0.90)  $      (3.59)
                                             ===========    ===========    ============   ============
                                                            
                                                            
SHARES USED IN COMPUTING                                    
NET LOSS PER SHARE                             6,805,083      4,947,991       4,404,622      5,232,052
                                             ===========    ===========    ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.





                                      F-4
<PAGE>   52

                                ONCORMED, INC.
                        (A Development Stage Company)
                      STATEMENTS OF STOCKHOLDERS' EQUITY

                                                                 
<TABLE>
<CAPTION>
                                                            Series A    
                                                           Convertible                                               
                                                         Preferred Stock                Common Stock                 Stock       
                                                       ---------------------      ------------------------        Subscription   
                                                       Shares         Amount      Shares            Amount         Receivable   
                                                       ------         ------      ------            ------        ------------
<S>                                                <C>            <C>             <C>               <C>            <C>           
INCEPTION, July 12, 1993                                -----         $-----          -----          $-----           $-----     
  Sale of Common Stock at $0.50                                                                                                  
    per share, July & September,                                                                                                 
    1993                                                -----          -----      2,250,000          22,500         (125,000)     
  Issuance of Common Stock in                                                                                                    
    exchange for software and technology,                                                                                        
    recorded at fair value of $0.50 per share,                                                                                   
    September 1993                                      -----          -----        110,000           1,100            -----     
  Exercise of stock options for                                                                                                  
    cash at $0.50 per share,                                                                                                     
    November 1993                                       -----          -----         50,000             500            -----     
  Cash received in payment of                                                                                                    
    stock subscriptions,                                                                                                         
    November and December 1993                          -----          -----          -----           -----          100,000     
  Sale of Series A Convertible                                                                                                   
    Preferred Stock to investors                                                                                                 
    for cash at $3.00 per share,                                                                                                 
    December 1993 (net of stock                                                                                                  
    issuance costs of $9,561)                       1,000,000      2,990,439          -----           -----             ----     
  Net loss                                              -----          -----          -----           -----            -----     
                                                   ----------     ----------      ---------         -------         --------
                                                                                                                     
BALANCE, December 31, 1993                          1,000,000     $2,990,439      2,410,000         $24,100         $(25,000)    
  Cash received in payment of stock                                                                                              
    subscription, February 1994                         -----          -----          -----           -----           25,000     
  Sale of Common Stock from initial                                                                                              
    public offering on October 5, 1994,                                                                                          
    at $6.00 per share, net of expenses                 -----          -----      1,335,000          13,350           ------     
  Issuance of Common Stock                                                                                                       
    Warrants in connection with initial                                                                                 
    public offering on October 5, 1994                                                                                  
    exercisable at $6.00 per share                      -----          -----          -----           -----            ----- 
  Conversion of Series A Convertible                                                                                         
    Preferred Stock to Common Stock                                                                                          
    due to initial public offering                 (1,000,000)    (2,990,439)     1,000,000          10,000            ----- 
  Sale of Common Stock from initial                                                                                          
    public offering -- Over-allotment,                                                                                       
    on November 4, 1994 at $6.00                                                                                             
    per share, net of expenses                          -----          -----        200,250           2,003            ----- 
  Compensation element of stock                                                                                              
    option grants                                       -----          -----          -----           -----            ----- 
  Amortization of deferred                                                                                                   
    compensation                                        -----          -----          -----           -----            ----- 
  Net loss                                              -----          -----          -----           -----            ----- 
                                                   ----------     ----------      ---------         -------         --------

BALANCE, December 31, 1994                              -----     $    -----      4,945,250         $49,453         $  ----- 
   Exercise of stock options for cash                                                                                        
     at $0.50 per share                                 -----          -----          4,800              48            ----- 
   Amortization of deferred compensation                -----          -----          -----           -----            ----- 
   Net Loss                                             -----          -----          -----           -----            ----- 
                                                   ----------     ----------      ---------         -------         --------
                                                                                                                
BALANCE, December 31, 1995                              -----     $    -----      4,950,050         $49,501         $  ----- 
     Sale of Common Stock from public                                                                                        
        offering on February 2, 1996, net                                                                                       
        of expenses                                     -----          -----      2,000,000          20,000            ----- 
     Exercise of stock options for cash                                                                                      
        at a range of $0.50-$6.00 per share             -----          -----         41,058             410            ----- 
     Compensation element of non-employee                                                                                    
        stock option grants                             -----          -----          -----           -----            ----- 
     Amortization of non-employee stock                                                                                      
        option grants                                   -----          -----          -----           -----            ----- 
     Amortization of deferred compensation              -----          -----          -----           -----            ----- 
     Net Loss                                           -----          -----          -----           -----            ----- 
                                                   ----------     ----------      ---------         -------         --------
                                                                                                                
BALANCE, December 31, 1996                              -----     $    -----      6,991,108         $69,911         $  -----
                                                   ==========     ==========      =========         =======         ========
<CAPTION>
                                                                                                 
                                                                                                 Deficit
                                                                                                Accumulated
                                                       Common      Additional                   During the
                                                       Stock        Paid-in      Deferred      Development
                                                      Warrants      Capital    Compensation       Stage           Total      
                                                      --------     ----------  ------------    -----------        -----
<S>                                                 <C>         <C>            <C>         <C>              <C>
INCEPTION, July 12, 1993                                -----        $-----       $-----         $-----           $-----
  Sale of Common Stock at $0.50                   
    per share, July & September,                  
    1993                                                -----     1,102,500        -----          -----        1,000,000
  Issuance of Common Stock in                     
    exchange for software and technology,         
    recorded at fair value of $0.50 per share,    
    September 1993                                      -----        53,900        -----          -----           55,000
  Exercise of stock options for                   
    cash at $0.50 per share,                      
    November 1993                                       -----        24,500        -----          -----           25,000
  Cash received in payment of                     
    stock subscriptions,                          
    November and December 1993                          -----         -----        -----          -----          100,000
  Sale of Series A Convertible                    
    Preferred Stock to investors                  
    for cash at $3.00 per share,                  
    December 1993 (net of stock                   
    issuance costs of $9,561)                           -----         -----        -----          -----        2,990,439
  Net loss                                              -----         -----        -----       (838,352)        (838,352)
                                                    ---------    ----------    ---------      ---------       ----------
                                                  
BALANCE, December 31, 1993                              -----    $1,180,900    $   -----      $(838,352)      $3,332,087
  Cash received in payment of stock               
    subscription, February 1994                         -----         -----        -----          -----           25,000
  Sale of Common Stock from initial               
    public offering on October 5, 1994,           
    at $6.00 per share, net of expenses                 -----     6,317,903        -----          -----        6,331,253
  Issuance of Common Stock                        
    Warrants in connection with initial           
    public offering on October 5, 1994            
    exercisable at $6.00 per share                    133,500           100        -----          -----              100
  Conversion of Series A Convertible              
    Preferred Stock to Common Stock               
    due to initial public offering                     -----      2,980,439        -----          -----            -----
  Sale of Common Stock from initial               
    public offering -- Over-allotment,            
    on November 4, 1994 at $6.00                  
    per share, net of expenses                         -----      1,049,309        -----          -----        1,051,312
  Compensation element of stock                   
    option grants                                      -----        256,500     (256,500)         -----            -----
  Amortization of deferred                        
    compensation                                       -----         (4,686)      86,333          -----           81,647
  Net loss                                             -----          -----        -----     (3,981,373)      (3,981,373)
                                                    --------    -----------   ----------   ------------     ------------
                                                  
BALANCE, December 31, 1994                           133,500    $11,780,465    $(170,167)   $(4,819,725)      $6,840,026
   Exercise of stock options for cash             
     at $0.50 per share                                -----          2,352        -----          -----            2,400
   Amortization of deferred compensation               -----          -----       61,928          -----           61,928
   Net Loss                                            -----          -----        -----     (6,510,547)      (6,510,547)
                                                    --------    -----------   ----------   ------------     -------------
                                                   
BALANCE, December 31, 1995                           133,500    $11,782,817    $(108,239)  $(11,330,272)        $393,807
     Sale of Common Stock from public             
        offering on February 2, 1996, net            
        of expenses                                    -----     13,892,825        -----          -----       13,912,825
     Exercise of stock options for cash           
        at a range of $0.50-$6.00 per share            -----         38,369        -----          -----           38,779
     Compensation element of non-employee         
        stock option grants                            -----         27,831      (27,831)         -----            -----
     Amortization of non-employee stock           
        option grants                                  -----          -----        6,404          -----            6,404
     Amortization of deferred compensation             -----          -----       54,037          -----           54,037 
     Net Loss                                          -----          -----        -----     (7,455,973)      (7,455,973)
                                                    --------    -----------   ----------   ------------     ------------
                                                  
BALANCE, December 31, 1996                           133,500    $25,741,842     $(75,629)  $(18,786,245)    $  6,949,879
                                                    ========    ===========   ==========   ============     ============
</TABLE>




       The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>   53
                                 ONCORMED, INC.
                         (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                                            
                                                                                                               Period from  
                                                                                                                Inception   
                                                                       For the Year Ended December 31,       (July 12, 1993)
                                                                -------------------------------------------      Through    
                                                                    1996            1995            1994     December 31, 1996
                                                                -----------     ------------    -----------  -----------------
<S>                                                             <C>             <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                      $(7,455,973)    $(6,510,547)    $(3,981,373)   $(18,786,245)
  Adjustments to reconcile net loss to net cash used in         
     operating activities--                                     
    Depreciation and amortization                                   517,435         365,080         151,701       1,043,447
    Amortization of deferred compensation                       
       and non-employee stock option grants                          60,441          61,928          81,647         204,016
    Changes in operating assets and liabilities:                
       Accounts receivable                                          (43,212)        (83,979)         (2,175)       (129,366)
       Other assets                                                (179,954)         71,853        (196,955)       (306,078)
       Accounts payable                                             557,132          52,336          60,751         680,575
       Accrued expenses and other liabilities                      (296,015)        322,449         526,749         593,037
       Deferred revenue                                            (141,909)        158,193          33,719          50,003
       Payable to Oncor, Inc.                                       (13,179)         (7,068)        144,977         124,730
                                                                -----------     ------------    -----------    ------------
       Net cash used in operating activities                     (6,995,234)     (5,569,755)     (3,180,959)    (16,525,881)
                                                                -----------     ------------    -----------    -------------
                                                                
CASH FLOWS FROM INVESTING ACTIVITIES:                           
  Purchases of property and equipment                              (476,350)       (675,996)       (864,999)     (2,168,299)
                                                                -----------     ------------    -----------    -------------
       Net cash used in investing activities                       (476,350)       (675,996)       (864,999)     (2,168,299)
                                                                -----------     ------------    -----------    ------------
                                                                
CASH FLOWS FROM FINANCING ACTIVITIES:                           
  Net proceeds from sale of common stock                         13,912,825             --        7,407,665      22,420,490
  Net proceeds from sale of preferred stock                             --              --              --        2,990,439
  Net proceeds from exercise of stock options                        38,780           2,400             --           66,180
  Net proceeds from Note payable to Oncor Finance, Inc.                 --              --           51,682         715,751
  Deferred offering costs                                           299,815        (299,815)            --               --
                                                                -----------     ------------    -----------    ------------
       Net cash provided by (used in) financing activities       14,251,420        (297,415)      7,459,347      26,192,860
                                                                -----------     ------------    -----------    ------------
                                                                
NET (DECREASE) INCREASE IN CASH AND                             
       CASH EQUIVALENTS                                           6,779,836      (6,543,166)      3,413,389       7,498,680
CASH AND CASH EQUIVALENTS, beginning of period                      718,844       7,262,010       3,848,621             --
                                                                -----------     ------------     ----------    ------------
                                                                
CASH AND CASH EQUIVALENTS, end of period                        $ 7,498,680     $   718,844     $ 7,262,010    $  7,498,680
                                                                ===========     ============    ===========    ============
                                                                
SUPPLEMENTAL DISCLOSURE OF NONCASH                              
         INVESTING AND FINANCING ACTIVITIES:                    
  Issuance of common stock in exchange for software             
               and technology                                   $       --      $       --      $     --       $     55,000
                                                                ===========     ============    ===========    ============
  Issuance of common stock in exchange for stock                
               subscription receivable                          $       --      $       --      $     --       $     25,000
                                                                ===========     ============    ===========    ============
                                                                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW                            
  INFORMATION:                                                  
  Cash paid during the period for interest                      $    54,461     $    52,883     $    28,379    $    135,723
                                                                ===========     ============    ===========    ============
</TABLE>


        The accompanying notes are an integral part of these statements.





                                      F-6
<PAGE>   54
                                 ONCORMED, INC.
                         (A Development Stage Company)
                         NOTES TO FINANCIAL STATEMENTS
                    As of December 31, 1996, 1995 and 1994,
  and for the period from Inception (July 12, 1993) through December 31, 1996

1.  BUSINESS DESCRIPTION:

    OncorMed, Inc.  (the "Company"), was incorporated on July 12, 1993, in the
    State of Delaware as a subsidiary of Oncor, Inc.  ("Oncor").  As of
    December 31, 1996, Oncor's ownership of the Company's outstanding common
    stock was approximately 29 percent.  Giving effect to the equity
    transaction with Incyte Pharmaceuticals, Inc. in February 1997, Oncor's
    ownership of the Company's outstanding common stock was reduced to
    approximately 25.6%.  The Company was formed to develop and provide
    gene-based cancer diagnostic testing and information services for
    physicians, hospitals, clinical laboratories and pharmaceutical companies.
    The Company is in the development stage and has a limited operating
    history, has incurred operating losses since its inception and expects
    losses to continue and increase.  Since its inception, the Company has been
    engaged in research and development programs and organizational efforts,
    including the development of its initial services, recruiting its
    scientific and management personnel, establishing marketing capabilities,
    engaging its Scientific Advisory Board and raising capital.  The Company's
    services are currently offered principally in the United States.  There can
    be no assurance that the Company will be successful in the development or
    commercialization of its services or that any required additional financing
    will be available when needed or on terms acceptable to the Company.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    Use of Estimates

    The preparation of these financial statements required the use of certain
    estimates by management in determining the entity's assets, liabilities,
    revenue and expenses.  Actual results may vary from these estimates.

    Cash Equivalents and Short Term Investments

    All highly liquid investments with a maturity of three months or less at
    the date of purchase are considered to be cash equivalents; investments
    with maturities between three and twelve months are considered to be short
    term investments.  The Company invests its excess funds in commercial paper
    with high quality banks, money market instruments in U.S. treasury and
    investment grade securities, and overnight reverse repurchase agreements
    collateralized by U.S. treasury and investment grade securities.  Short
    term investments are stated at cost, which approximates market.

    Impairment of Long-Lived Assets

    The Company complies with SFAS No. 121, Accounting for the Impairment of
    Long-Lived Assets and for Long-Lived Assets to Be Disposed of.  The Company
    reviews its long-lived assets, principally property, plant and equipment,
    for impairment whenever events or changes in circumstances indicate that
    the carrying amount of the assets may not be fully recoverable.  To
    determine recoverability of its





                                      F-7
<PAGE>   55
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (Continued)

    long-lived assets, the Company evaluates the probability that future
    undiscounted net cash flows will be less than the carrying amount of the
    assets.  Impairment is measured at fair value.

    Other Current Assets

    Included in other current assets as of December 31, 1996 is approximately
    $188,000 for prepaid insurance.

    Property and Equipment

    Property and equipment are recorded at cost.  Depreciation and amortization
    expense is calculated using the straight-line method over estimated useful
    lives of three to five years.  Leasehold improvements are amortized over
    the shorter of the lease terms or useful lives.

    Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                              As of December 31,
                                                                              ------------------
                                                                       1996                      1995         
                                                                    ----------                ----------
         <S>                                                        <C>                       <C>
         Laboratory equipment                                       $  756,495                $  627,838
         Computer equipment                                            409,560                   319,938
         Computer software                                             335,160                   165,340
         Furniture/office equipment                                    428,716                   366,033
         Leasehold improvements                                        293,368                   267,800
                                                                    ----------                ----------
                                                                     2,223,299                 1,746,949
         Less-accumulated depreciation and amortization             (1,043,448)                 (526,012)
                                                                    ----------                ---------- 
           Property and equipment, net                              $1,179,851                $1,220,937
                                                                    ==========                ==========
</TABLE>

    Accrued Expenses and Other Liabilities

    Accrued expenses and other liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                              As of December 31,
                                                                              ------------------
                                                                       1996                       1995      
                                                                     ---------                  --------
         <S>                                                         <C>                        <C>     
         Payroll and related expenses                                $ 318,408                  $342,154
         Insurance                                                     130,406                      ----
         Professional/legal fees                                        58,868                   223,624
         Marketing/operations costs                                     48,385                    46,190
         Deferred offering costs                                          ----                   250,000
         Other                                                          36,969                    27,084
                                                                     ---------                  --------
                 Total accrued expenses and other liabilities        $ 593,036                  $889,052
                                                                     =========                  ========
</TABLE>





                                      F-8
<PAGE>   56
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

    Income Taxes

    The Company accounts for income taxes in accordance with Statement of
    Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
    No.109").  The Company has incurred losses for both financial and income
    tax reporting purposes since inception.  Accordingly, no provision or
    benefit for income taxes has been recorded in the accompanying financial
    statements.

    The components of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                      As of December 31,
                                                                      ------------------
                                                                   1996                      1995       
                                                                 -------------            --------------
         <S>                                                <C>                      <C>
         Net operating loss and credit carryforwards             $ 7,330,000              $ 4,250,000
         Total other                                                 181,000                  250,000
                                                                 -----------              -----------
           Total deferred tax assets                               7,511,000                4,500,000
              Less - total deferred tax liabilities                 (112,000)                 (42,000)
                                                                 -----------              -----------
           Net deferred tax asset                                  7,339,000                4,458,000
              Less - valuation reserve                            (7,339,000)              (4,458,000)
                                                                 -----------              -----------
           Deferred tax asset, net of valuation reserve          $   -----                $   -----  
                                                                 ===========              ===========
</TABLE>

    SFAS No. 109 requires that the benefit of deferred tax assets be recorded
    to the extent that management assesses the realization of such deferred tax
    assets to be "more likely than not."  As of December 31, 1996 and 1995, a
    valuation reserve was recorded against the Company's entire deferred tax
    asset due to the uncertainty of realization.

    At December 31, 1996, the Company had net operating loss ("NOL")
    carry-forwards of approximately $18.8 million available to offset future
    taxable income.  The Company also has research and development tax credits
    of approximately $75,000 available to reduce future Federal income tax.  A
    portion of the NOL carry-forwards and research and development tax credit
    carry-forwards are subject to a limitation due to the change in ownership
    which occurred on the date of the Company's initial public offering.  Due
    to the ownership change which occurred, the amount of the net operating
    loss carry-forward and research and development tax credit carry-forward
    which can be utilized on an annual basis will be subject to limitations;
    however, the Company believes the entire net operating loss carry-forward
    will be available to be utilized during the carry-forward period.  The tax
    NOL and research and development tax credits may be used through 2011, but
    begin to expire in 2008.  Despite the NOL and research and development
    credit carry-forwards, the Company may have an income tax liability in
    future years due to the application of the alternative minimum tax rules.
    The utilization of these tax NOL and research and development credit
    carry-forwards is subject to statutory limitation regarding subsequent
    changes in ownership.





                                      F-9
<PAGE>   57
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

    Revenue Recognition

    Revenues are derived from providing genetic testing and information
    services and, in certain circumstances, software licensing associated with
    its risk assessment service.  Revenues are also derived from
    Company-sponsored educational conferences.  Revenues from the Company's
    services are recognized as those services are provided.  Revenues from its
    risk assessment service are recognized over the license period.

    Research and Development Costs

    Research and development costs are charged to expense as incurred.

    Net Loss Per Share

    Net loss per share is based on the weighted-average number of shares
    outstanding during the periods presented.  Pursuant to Securities and
    Exchange Commission Staff Accounting Bulletin No.  83, all shares
    (including common shares issuable upon conversion of convertible preferred
    stock) and options to purchase shares were treated as if they were
    outstanding for all periods prior to the initial public offering.  In the
    periods after the initial public offering, the effects of options,
    warrants, and the outstanding convertible note have not been considered,
    since the effect would be antidilutive.

    Reclassification

    Certain 1994 and 1995 balances have been reclassified to conform with 1996
    financial statement presentation.

3.  RELATED-PARTY TRANSACTIONS:

    License Agreement

    Previously, under the license agreement with Oncor (the "Oncor Agreement"),
    the Company was obligated to pay royalties on a semi-annual basis to Oncor
    for Oncor technologies existing as of the date of the Oncor Agreement,
    equal to the greater of (i) six percent of the Company's net sales revenues
    resulting from services based on Oncor's technologies, subject to certain
    adjustments, or (ii) $100,000.  Fees payable to Oncor under the Oncor
    Agreement of approximately $200,000, $200,000, $200,000 and $692,000 are
    included in laboratory operations expense for the years ended December 31,
    1996, 1995 and 1994, and the period from inception (July 12, 1993) to
    December 31, 1996, respectively.  The Company and Oncor recently agreed to
    certain changes to the Oncor Agreement, dated June 6, 1994.  Pursuant to
    the agreement, Oncor is providing the Company with an exclusive worldwide
    license to certain of Oncor's existing human genome technologies that are
    useful for the purposes of development





                                      F-10
<PAGE>   58
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


3.  RELATED-PARTY TRANSACTIONS: (Continued)

    and commercialization of certain of the Company's services, including: (i)
    testing, detection and/or analysis of cancer-predisposing genes; (ii)
    genetic assessment of risk of an individual to develop cancer; and (iii)
    testing and analysis for the purposes of cancer management.  In addition,
    Oncor is providing the Company with a non-exclusive worldwide license to
    certain of Oncor's existing human genome technologies, and any future
    improvements thereto, to be used by the Company in the provision of
    services direct to third parties other than those to whom services are
    provided pursuant to the exclusive license.  The Company does not have the
    right to sublicense any Oncor technologies licensed to it by Oncor without
    Oncor's prior written consent.  Technologies sublicensed to the Company by
    Oncor include technologies covered by the collaborative licensing and
    research agreements between Oncor and each of The Johns Hopkins University
    and the Massachusetts General Hospital.  The term of the agreement shall
    expire in June 2004 unless earlier terminated in accordance with its terms.

    Under the terms of the agreement, the Company is obligated to make payments
    on a quarterly basis to Oncor equal to a range of four percent (4%) to two
    percent (2%) of the Company's annual net sales.  During the first year of
    the agreement, the Company is obligated to pay Oncor a minimum amount equal
    to $50,000 per quarter.  During the second year of the agreement, the
    Company is obligated to pay Oncor a minimum amount equal to $25,000 per
    quarter.  Thereafter, there shall be no minimum payment required to be made
    by the Company to Oncor in connection with the agreement.

    In addition, subject to certain third-party contractual limitations, prior
    to the license or disposition (whether by assignment, transfer or license)
    to a third party by the Company or Oncor of their respective technologies,
    the non-offering party shall have a thirty (30) day right of first offer
    with respect to such technologies.  If the non-offering party accepts the
    offer, the Company and Oncor shall negotiate in good faith the terms and
    conditions of any such license or acquisition agreement.

    Oncor has the primary right and obligation to obtain, maintain and enforce
    proprietary rights in relation to all its own technologies and any
    improvements to such technologies assigned to Oncor by the Company.  The
    Company has the primary right and obligation to obtain, maintain and
    enforce proprietary rights in relation to all its own technologies.

    Services Agreements with Oncor, Inc. and Affiliate

    In July, 1993, the Company and Oncor entered into a management services
    agreement whereby Oncor furnished the Company administrative and
    bookkeeping services and office space ("Management Services Agreement").
    The Management Services Agreement was terminated on June 1, 1994.

    During the second quarter of 1995, the Company finalized a services
    agreement with Oncor and Codon Pharmaceuticals, Inc.  ("Codon", a 41.6
    percent owned affiliate of Oncor), whereby the Company agreed to pay for
    laboratory supplies and equipment provided by Oncor and Codon ("Services
    Agreement").  The Services Agreement also provides that the Company will
    perform certain experiments for Oncor and Codon at specified rates.





                                      F-11
<PAGE>   59
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


3.  RELATED-PARTY TRANSACTIONS: (Continued)

    Related party revenues and expenses are as follows:

<TABLE>
<CAPTION>
                                                                                                 Period from         
                                                                                                  Inception         
                                                                                               (July 12, 1993)        
                                                     For the Year Ended December 31,               Through            
                                               ------------------------------------------        December 31, 
                                                 1996              1995            1994             1996        
                                               --------          --------        --------      ---------------
       <S>                                     <C>               <C>             <C>              <C>
       Sales to related party                  $  5,700          $ 42,180        $    ---         $ 47,880
       Operating Expenses to related party:
         Laboratory operations                  272,610           200,000         200,000          764,610
         Selling, general and administrative      4,394           247,000         378,000          977,896
         Research and development                71,784               ---             ---          170,282
</TABLE>

    All of the related party revenues for the year ended December 31, 1996 were
    for testing services performed for Oncor.  Of the related party expenses
    for the year ended December 31, 1996, $72,000 in laboratory operations was
    for equipment rental from Codon.  All other related party expenses were for
    services received from Oncor.  As of December 31, 1996, the total amount
    owed to Oncor and Codon by the Company under the above agreements and for
    other services excluding the Oncor License was approximately $19,000 and
    $6,000, respectively.

    Promissory Note with Oncor, Inc. and Affiliate

    In June 1994, the Company converted $715,751 owed to Oncor for license fees
    previously incurred and for prior services rendered into a Convertible
    Subordinated Promissory Note (the "Convertible Note"), which principal is
    due in June 1999.  The Convertible Note bears interest at seven percent and
    is convertible into common stock at the holder's option at a conversion
    price of $20 per share of common stock.  During the fourth quarter of 1994,
    Oncor assigned the Convertible Note to its wholly-owned subsidiary Oncor
    Finance, Inc.  Interest expense recorded by the Company relating to the
    Convertible Note was $50,938 for the year ended December 31, 1996.  The
    fair value of the Convertible Note is not materially different from the
    carrying value.

4.  DEFERRED REVENUES:

    Deferred revenues totaling approximately $50,000 and $181,000 as of
    December 31, 1996 and 1995, respectively consisted of prepaid fees related
    to various risk assessment service agreements as well as laboratory
    testing.





                                      F-12
<PAGE>   60
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


5.  STOCKHOLDERS' EQUITY:

    Preferred Stock

    The Company is authorized to issue up to 2,000,000 shares of preferred
    stock.  In December 1993, the Company completed a private placement of
    1,000,000 shares of Series A Convertible Preferred Stock for $3,000,000.
    Concurrent with the initial public offering, each share of Series A
    Convertible Preferred Stock was converted into common stock on a one for
    one basis.

    Common Stock

    On October 25, 1995, the Board approved and on November 27, 1995, the
    stockholders approved an increase in authorized common stock from
    10,000,000 shares to 40,000,000 shares.

    On February 2, 1996, the Company completed the sale of 2,000,000 shares of
    common stock in a public offering ("Offering") resulting in gross proceeds
    to the Company of approximately $15.5 million.  Net proceeds to the Company
    for the Offering, after transaction costs, were approximately $13.9
    million.  As a result of the Offering, Oncor's ownership of the Company's
    outstanding common stock was reduced from approximately 40 percent to
    approximately 29 percent.

    On February 25, 1997, the Company completed the sale of 372,555 shares of
    common stock resulting in gross proceeds to the Company of approximately
    $3.0 million.  Also, in consideration for licensed technology, the Company
    issued 401,033 shares of common stock and a warrant for an additional 10%
    of common stock.  See Footnote 9-Subsequent Event.

    Warrants

    Concurrent  with  the  initial public offering, the Company issued warrants
    to the underwriter to purchase an aggregate of 133,500 shares of common
    stock at $6.90 per share.  The warrants are exercisable from September 27,
    1996 to September 26, 1999.  See Footnote 9-Subsequent Event for additional
    warrants.

    Stock Purchase Plan

    On April 19, 1996, the Board approved and on June 12, 1996, the
    stockholders approved the adoption of the Company's Employee Stock Purchase
    Plan to provide all eligible employees, who have completed ninety days of
    service, an opportunity to purchase shares of its common stock through
    payroll deductions.  Each purchase period has a duration of six (6) months.
    Purchase periods run from the first business day in August to the last
    business day in January and from the first business day in February to the
    last business day in July.  The purchase price is the lower of 85% of the
    fair market value of the stock on the first or last day of the purchase
    period.  The aggregate number of shares purchased by an employee may not
    exceed 750 shares per purchase period (subject to periodic





                                      F-13
<PAGE>   61
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


5.  STOCKHOLDERS' EQUITY: (Continued)

    adjustments and limitations imposed by the Internal Revenue Code).  A total
    of 200,000 shares are available for purchase under the plan.  There were no
    shares issued under the plan during fiscal 1996.  On January 31, 1997,
    approximately 8,000 shares of common stock were issued under the plan.

    Stock Option Plan

    The Board of Directors of the Company approved a restated stock option
    plan, under which 1,500,000 shares of the Company's common stock were
    originally reserved for issuance.  On October 25, 1995, the Board approved
    and on November 27, 1995, the stockholders approved the increase of shares
    authorized for issuance from 1,500,000 shares to 2,250,000 shares.  The
    Company's options generally vest over three to five years and terminate in
    ten years after the date of grant.  The Company adopted the disclosure
    requirements of SFAS No. 123, Accounting for Stock-Based Compensation,
    effective for the Company's December 31, 1996 financial statements.  The
    Company applies APB Opinion No. 25 and related Interpretations in
    accounting for its plan.  Accordingly, compensation cost has been
    recognized for its stock plans based on the intrinsic value of the stock
    option at date of grant (i.e. the difference between the exercise price and
    the fair market value of the Company's common stock).  Had compensation
    expense been recorded for the Company's stock-based compensation plan based
    on the fair market value of the Company's Common Stock at the grant dates
    for stock option awards under the plan consistent with the method of SFAS
    No. 123, the Company's net loss and earnings per share would have been
    increased to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
                                                                       1995                        1996      
                                                                   ------------               ------------
         <S>                                                       <C>                        <C>
         Net loss, as reported                                     $(6,510,547)               $(7,455,973)
         Net loss, pro forma                                       $(6,548,304)               $(7,604,319)
         Earnings per share, as reported                           $     (1.32)               $     (1.10)
         Earnings per share, pro forma                             $     (1.32)               $     (1.12)
</TABLE>


    The fair value of each option is estimated on the date of grant using the
    Black-Scholes option-pricing model with the following assumptions used for
    grants in 1995 and 1996: no dividend yield, expected volatility of 30%,
    risk-free interest rate of 6.04% and 6.12%, respectively, turnover of 3.6%
    and 30.7%, respectively, and expected life of five years.  Because the SFAS
    No. 123 method of accounting has not been applied to options granted prior
    to January 1, 1995, per the rules, the resulting pro forma compensation
    cost may not be representative of that to be expected in future years.





                                      F-14
<PAGE>   62
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


5.  STOCKHOLDERS' EQUITY: (Continued)

    A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
                                                                               Number of               Wtd Average
                                                                                 Shares               Exercise Price
                                                                               ---------              --------------
         <S>                                                                   <C>                         <C>
         Options outstanding at December 31, 1993                                405,000                   $ .50
                 Granted                                                         909,500                   $2.87
                 Exercised                                                          ----                     ---     
                 Canceled                                                        (14,500)                  $1.83
                                                                               ---------                   ---------
         Options outstanding at December 31, 1994                              1,300,000                   $2.14
                 Granted                                                         158,500                   $8.11
                 Exercised                                                        (4,800)                  $ .50
                 Canceled                                                        (14,200)                  $5.72
                                                                               ---------                   ---------
         Options outstanding at December 31, 1995                              1,439,500                   $2.77
                 Granted                                                         283,000                   $5.29
                 Exercised                                                       (41,058)                  $ .94
                 Canceled                                                       (139,200)                  $6.75
                                                                               ---------                   ---------
         Options outstanding at December 31, 1996                              1,542,242                   $2.92
                                                                               =========                   =========
</TABLE>


    The number of options exercisable as of December 31, 1996, 1995 and 1994
    was 1,001,193, 641,306, and 263,493, respectively, with weighted average
    exercise prices of $2.36, $2.07 and $1.41, respectively.

    The options exercisable at December 31, 1996 have exercise prices between
    $0.50 and $10.125 with a weighted average exercise price of $2.46 and a
    weighted average remaining contractual life of 8 years.  The remaining
    outstanding options at December 31, 1996 have exercise prices between $0.50
    and $10.125 with a weighted average exercise price of $3.91 and a weighted
    average remaining contractual life of 8.8 years.

    Included in the grants described above for the year ended December 31,
    1996, are options to purchase 18,000 shares granted to non-employees.
    Pursuant to SFAS No. 123, the Company accounts for these options using a
    fair value method, with the fair value of these options determined at the
    date of issuance.  For these options, the Company recorded $6,400 in
    expenses and $21,400 in deferred compensation for the year ending December
    31, 1996.

    Compensation expense for employees is recognized for the difference between
    the exercise price of the options granted and the fair market value of the
    Company's common stock.  Total deferred compensation of $256,500 was
    recorded in 1994.  This amount was adjusted by $4,686 due to the
    cancellation of options.  Compensation expense of $54,037, $61,928 and
    $81,647 has been recognized for the years ended December 31, 1996, 1995 and
    1994, respectively.





                                      F-15
<PAGE>   63
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


6.  COMMITMENTS:

    Lease Commitments and Rental Expense

    The Company leases office space under operating lease agreements which
    expire at various dates through 1998.  The Company expects to renew its
    leases in 1998.  Minimum future annual lease payments under these lease
    agreements as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>
                      For the Year Ending 
                          December 31,                                  Amount
                      -------------------                             ----------
                              <S>                                      <C>
                              1997                                     $ 182,000
                              1998                                       188,000
                                                                       ---------
                                          Total                        $ 370,000
                                                                       =========
</TABLE>

    Total rent expense approximated $177,000, $180,000, $102,000, and $463,000
    for the years ended December 31, 1996, 1995 and 1994 and the period from
    inception (July 12, 1993) to December 31, 1996, respectively.

    Licensing and Research Agreements

    In addition to the Oncor License discussed in Note 3 and the Incyte
    Agreement discussed in Note 9, the Company has entered into several
    licensing, consulting and clinical study agreements.  The terms of
    significant agreements are as follows:

    MD Anderson Cancer Center--The Company is funding clinical correlation
    studies at The University of Texas, MD Anderson Cancer Center.  The
    agreement was executed on May 31, 1994 and was extended in September 1995.
    The Company is obligated to provide funding in the aggregate of
    approximately $262,000 for such studies.  As of December 31, 1996, $262,000
    had been expended.

    Hereditary Cancer Institute--In September, 1993, the Company entered into a
    licensing and marketing agreement with The Hereditary Cancer Institute
    ("HCI") and the Creighton University School of Medicine, which included
    access to HCI's familial cancer database, software and physician consulting
    services.  In July 1995, the Company extended for five years the license
    agreement, expanded the scope of the license agreement to include
    commercialization rights to HCI's DNA library, and entered into a services
    agreement for the provision by HCI of genetic history reports.  Under the
    extended license agreement, the Company continues to pay an annual
    sponsorship fee of $250,000, in quarterly installments which is offset by a
    percentage of the amounts paid under the services agreement.   In addition,
    under the extended license agreement, the Company is required to pay a
    royalty on net sales of products and services which make use of the HCI
    database, other than genetic history reports, and on license income derived
    from sublicenses to third parties of the Company's rights to the HCI
    database.





                                      F-16
<PAGE>   64
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


6.  COMMITMENTS: (Continued)

    Roche Molecular Systems--The Company entered into a license agreement for
    the use of certain polymerase chain reaction technology in the performance
    of human in vitro clinical laboratory services with Roche Molecular
    Systems, Inc.  Under the agreement, the Company is obligated to pay
    royalties for the use of the technology as clinical laboratory services are
    performed.  Royalty payments are payable semi-annually, 60 days after the
    end of each six month period.

    Dana-Farber Cancer Institute--The Company entered into a license agreement
    for the use of certain genes and genetic mutations associated with
    Hereditary Nonpolyposis Colon Cancer with the Dana-Farber Cancer Institute,
    Inc., the State of Oregon, the University of Vermont, and Yale University
    in June 1994.  Royalty payments on sales of services using technology or
    patents covered by the agreement are payable quarterly with an  alternative
    minimum payment of $7,500 due on January 1 of each year.

    Sloan-Kettering Institute for Cancer Research--The Company entered into an
    agreement, effective August 1, 1994, with the Sloan-Kettering Institute for
    Cancer Research and its affiliate, Memorial Hospital for Cancer and Allied
    Disease pursuant to which the Company is obligated to fund clinical
    correlative studies.  The amount of funding which the Company is obligated
    to provide is $183,500 in the aggregate which is payable quarterly.  In
    September 1995, the parties agreed to extend the study at no additional
    cost to the Company.  As of December 31, 1996, $183,500 had been expended.

    The Regents of the University of California--The Company entered into a
    license agreement, effective August 8, 1996, with the Regents of the
    University of California for the use of certain genetic markers for breast
    and ovarian cancer.  Under the agreement, the Company is obligated to pay
    royalties for the use of the technology as clinical laboratory services are
    performed.  Royalty payments are payable quarterly, 60 days after the end
    of each quarter.

    Minimum payments due under these and other agreements, excluding the Oncor
    License, as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>
                   For the Year Ending December 31,                   Amount   
                   --------------------------------                 ----------
                              <S>                                   <C>
                              1997                                  $  515,934
                              1998                                     266,456
                              1999                                     257,500
                              2000                                     132,500
                              2001                                       7,500
                                                                    ----------
                                                                    $1,179,890
                                                                    ==========
</TABLE>





                                      F-17
<PAGE>   65
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)



7.  AGREEMENTS:

    In February, 1995, the Company and Preferred Oncology Networks of America,
    Inc. ("PONA") entered into a service agreement.  The agreement provides for
    the Company to render services to PONA, as requested, at agreed upon prices
    quoted in the contract.  Upon signing of the agreement, PONA made an
    advance payment of $100,000.  In December, 1996, the Company and PONA
    mutually agreed to resolve the outstanding nonrefundable $100,000 advance
    payment.  As of December 31, 1996, PONA has not and does not intend to use
    the Company's services.  In accordance with the amendment to the agreement,
    the Company recognized $62,500 of the advance payment as revenue and
    rebated $37,500 to PONA.

8.  RETIREMENT PLAN:

    The Company sponsors a 401(k) defined contribution plan ("401(k) Plan") in
    which all regular employees who have attained age 21 may participate.
    Because the 401(k) Plan does not currently provide for Company
    contributions, no related expense has been recorded since inception.

    The Financial Accounting Standards Board issued Statement of Financial
    Accounting Standards Nos.  106 and 112, Employers Accounting for
    Post-Retirement Benefits Other than Pensions and Employers Accounting for
    Post-Employment Benefits.  These standards do not have a significant effect
    on the Company's reported financial position or future results of
    operations because the Company does not offer post-retirement and
    post-employment benefits.

9.  SUBSEQUENT EVENT:

    Pursuant to a License, Services and Marketing Agreement (the "Incyte
    Agreement"), dated February 25, 1997, the Company and Incyte
    Pharmaceuticals, Inc., a Delaware corporation ("Incyte"), have formed a
    broad-based collaboration in clinical genomics designed to create an
    integrated genomics and sequence-based mutation analysis capability for the
    two companies.  The term of the Incyte Agreement expires on February 25,
    2000 (the "Initial Term") unless extended by mutual agreement or earlier
    terminated in accordance with its terms.

    The Company has agreed to perform certain specified clinical genomic
    services relating to the creation of a tissue repository and the
    performance of a gene functional studies program (the "Collaborative
    Services").  Incyte has agreed to purchase a specified minimum of
    Collaborative Services during each year of the Initial Term.  In addition,
    under the terms of the Incyte Agreement, the Company has obtained a
    non-exclusive, royalty-bearing license (without the right to sublicense) to
    use Incyte's high-throughput sequencing technology for use in the Company's
    clinical diagnostic services for a period ending five (5) years following
    termination of the Incyte Agreement, subject to certain limitations.  In
    consideration for the grant of the license, the Company has issued to
    Incyte (i) 401,033 shares of the Company's Common Stock (the "Definite
    Technology Shares"), and (ii) a warrant to purchase up to an aggregate of
    10% of the Company's Common Stock issued and outstanding on the date of
    such





                                      F-18
<PAGE>   66
                                 ONCORMED, INC.
                         (A Development Stage Company)
                   NOTES TO FINANCIAL STATEMENTS--(Continued)


9.  SUBSEQUENT EVENT: (Continued)

    warrant's exercise (the "Warrant Shares").  The warrant is exercisable
    until February 25, 2000 at an exercise price per share equal to the greater
    of 110% of the fair market value per share of Common Stock on the trading
    day prior to the date of exercise or (i) $8.00 per share (if the warrant is
    exercised on or prior to February 25, 1998), (ii) $9.00 per share (if the
    warrant is exercised after February 25, 1998, but on or prior to February
    25, 1999), or (iii) $13.50 per share (if the warrant is exercised after
    February 25, 1999, but on or prior to February 25, 2000).  Notwithstanding
    the foregoing sentence, Incyte has the option to fix the exercise price per
    share during each of aforementioned periods; provided, however, that in no
    event shall the exercise price per share during each of the aforementioned
    periods be less than $8.00, $9.00 or $13.50 per share, respectively.

    Furthermore, pursuant to a Securities Purchase Agreement between the
    Company and Incyte, Incyte purchased 372,555 shares of Common Stock from
    the Company for $3,000,000 (the "Cash Purchase Shares") or the equivalent
    of $8.05 per share.  In addition, under the terms of the Securities
    Purchase Agreement the Company has agreed to issue to Incyte, under certain
    circumstances, up to an aggregate of 130,726 shares of the Company's Common
    Stock (the "Additional Shares").  Pursuant to the terms of an Investor's
    Rights Agreement between the Company and Incyte, Incyte was granted certain
    registration and other stockholder rights with respect to the Definite
    Technology Shares, Warrant Shares, the Cash Purchase Shares and the
    Additional Shares.

    The Company is in the process of valuing the consideration issued in this
    transaction and allocating  that value to the various assets acquired.  The
    Company, based on its preliminary analysis, believes that substantially all
    of the purchase price in excess of cash received will be allocated to
    research & development projects in process and expensed in the first
    quarter of 1997.





                                      F-19
<PAGE>   67
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To OncorMed, Inc.:

We have audited, in accordance with generally accepted auditing standards, the
financial statements of  OncorMed, Inc. (a Delaware corporation in the
development stage), included in this Form 10-K and have  issued our report
thereon dated February 26, 1997.  Our audits were made for the purpose of
forming an  opinion on the basic financial statements taken as a whole.  The
schedule listed in the index to the financial  statements is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements.  This  schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements  and, in our
opinion, fairly states, in all material respects, the financial data required
to be set forth therein,  in relation to the basic financial statements taken
as a whole.





                                                    ARTHUR ANDERSEN LLP


Washington, D.C.
February 26, 1997





                                      S-1
<PAGE>   68
                                 OncorMed, Inc.
                Schedule II - VALUATION AND QUALIFYING ACCOUNTS




<TABLE>
<CAPTION>
                                                         Balance at      Charged                    Balance
                                                          beginning      to costs                   at end
Description                                               of period    and expenses   Write-off    of period   
-----------                                               ----------   ------------   ---------   -----------
<S>                                                         <C>          <C>           <C>         <C>     
December 31, 1993
-----------------

Allowance for doubtful accounts                             $    ---     $     ---     $   ---     $     ---
                                                                                                   
December 31, 1994                                                                                  
-----------------                                                                                  

Allowance for doubtful accounts                                  ---           ---         ---           ---
                                                                                                   
December 31, 1995                                                                                  
-----------------                                                                                  

Allowance for doubtful accounts                                  ---          7,000        ---          7,000
                                                                                                   
December 31, 1996                                                                                  
-----------------                                                                                  

Allowance for doubtful accounts                                 7,000        28,000       3,000        32,000
</TABLE>





                                      S-2